G.R. No.

134685 November 19, 1999

MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents.

DAVIDE, JR., C.J.:

May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children be rescinded for being
in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the pivotal issue to be resolved in this petition for
review on certiorari under Rule 45 of the Revised Rules of Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and P241,668, respectively,
payable to "cash." Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason
"account closed." Demands to make good the checks proved futile. As a consequence, a criminal case for violation of
Batas Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with Branch 23 of
the Regional Trial Court (RTC) of Cebu City. In its decision 1 dated 29 December 1992, the court a quo convicted LIM as
charged. The case is pending before this Court for review and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal Case No. Q-892216 2 filed by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal, however, this
Court, in a decision 3 promulgated on 7 April 1997, acquitted LIM but held her civilly liable in the amount of P169,000, as
actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and purportedly executed by LIM
on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds
of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m.
and covered by TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m.
and covered by TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by
TCT No. 87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and
covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of the RTC of Cebu City
to rescind the questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued for
the lots covered by the questioned Deed. The complaint was docketed as Civil Case No. CEB-14181. Petitioner claimed
therein that sometime in July 1991, LIM, through a Deed of Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that LIM conspired and confederated with her children in
antedating the questioned Deed of Donation, to petitioner's and other creditors' prejudice; and that LIM, at the time of the
fraudulent conveyance, left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal Cases Nos. 22127-28
were erroneous, which was the reason why she appealed said decision to the Court of Appeals. As regards the questioned
Deed of Donation, she maintained that it was not antedated but was made in good faith at a time when she had sufficient
property. Finally, she alleged that the Deed of Donation was registered only on 2 July 1991 because she was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered the rescission of the questioned deed of donation; (2)
declared null and void the transfer certificates of title issued in the names of private respondents Linde, Ingrid and Neil
Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate the previous titles in the name of
Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral damages;
P10,000 as attorney's fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the decision of the trial court
and dismissed petitioner's accion pauliana. It held that two of the requisites for filing an accion pauliana were absent,
namely, (1) there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or at
least the intent to commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a notary public,
appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of Court, the
questioned Deed, being a public document, is evidence of the fact which gave rise to its execution and of the date thereof.
No antedating of the Deed of Donation was made, there being no convincing evidence on record to indicate that the
notary public and the parties did antedate it. Since LIM's indebtedness to petitioner was incurred in August 1990, or a year
after the execution of the Deed of Donation, the first requirement for accion pauliana was not met.
Anent petitioner's contention that assuming that the Deed of Donation was not antedated it was nevertheless in fraud of

creditors because Victoria Suarez became LIM's creditor on 8 October 1987, the Court of Appeals found the same
untenable, for the rule is basic that the fraud must prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF [THE] CREDITORS
OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of creditors is
contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case of Oria v. McMicking, 8which
enumerated the various circumstances indicating the existence of fraud in a transaction. She reiterates her arguments
below, and adds that another fact found by the trial court and admitted by the parties but untouched by the Court of
Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q-89-2216 declaring Victoria Suarez as
LIM's judgment creditor before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, 9 Rule 132 of the Rules of
Court, in holding that "being a public document, the said deed of donation is evidence of the fact which gave rise to its
execution and of the date of the latter." Said provision should be read with Section 30 10 of the same Rule which provides
that notarial documents are prima facie evidence of their execution, not "of the facts which gave rise to their execution
and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code, which provides: "The
donation is always presumed to be in fraud of creditors when at the time of the execution thereof the donor did not
reserve sufficient property to pay his debts prior to the donation." In this case, LIM made no reservation of sufficient
property to pay her creditors prior to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion pauliana, petitioner
cannot take shelter under a different law; (b) petitioner cannot invoke the credit of Victoria Suarez, who is not a party to
this case, to support her accion pauliana; (c) the Court of Appeals correctly applied or interpreted Section 23 of Rule 132
of the Rules of Court; (d) petitioner failed to present convincing evidence that the Deed of Donation was antedated and
executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down the awards of damages, attorney's fees
and expenses of litigation because there is no factual basis therefor in the body of the trial court's decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of petitioner and,
therefore, rescissible. A corollary issue is whether the awards of damages, attorney's fees and expenses of litigation are
proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of
the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a
number of instances. 11 In the case at bar, one of the recognized exceptions warranting a review by this Court of the
factual findings of the Court of Appeals exists, to wit, the factual findings and conclusions of the lower court and Court of
Appeals are conflicting, especially on the issue of whether the Deed of Donation in question was in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are "those contracts
undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them."
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the following
requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the alienation, 12although
demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person; (3)
the creditor has no other legal remedy to satisfy his claim; 13 (4) the act being impugned is fraudulent; 14 (5) the third
person who received the property conveyed, if it is by onerous title, has been an accomplice in the fraud. 15
The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent alienation, and
this must be proved as one of the bases of the judicial pronouncement setting aside the contract. 16 Without any prior
existing debt, there can neither be injury nor fraud. While it is necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the
judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was
constituted. 17
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the deed of donation
was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it appear that
it was made prior to petitioner's credit. Notably, that deed is a public document, it having been acknowledged before a
notary public. 18 As such, it is evidence of the fact which gave rise to its execution and of its date, pursuant to Section 23,
Rule 132 of the Rules of Court.
Petitioner's contention that the public documents referred to in said Section 23 are only those entries in public records
made in the performance of a duty by a public officer does not hold water. Section 23 reads:
Sec. 23. Public documents as evidence. Documents consisting of entries in public records made in the
performance of a duty by a public officer are prima facie evidence of the facts therein stated. All other
public documents are evidence, even against a third person, of the fact which gave rise to their execution
and of the date of the latter. (Emphasis supplied).

The phrase "all other public documents" in the second sentence of Section 23 means those public documents other than
the entries in public records made in the performance of a duty by a public officer. And these include notarial documents,
like the subject deed of donation. Section 19, Rule 132 of the Rules of Court provides:
Sec. 19. Classes of docum/ents. For the purpose of their presentation in evidence, documents are either
public or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and testaments. . . .
It bears repeating that notarial documents, except last wills and testaments, are public documents and are evidence of
the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to overcome the
presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10 August 1989.
Petitioner's claim against LIM was constituted only in August 1990, or a year after the questioned alienation. Thus, the
first two requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of donation, still
her action for rescission would not fare well because the third requisite was not met. Under Article 1381 of the Civil Code,
contracts entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect the
claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the
same. The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the prejudiced creditor to
collect claims due him before rescission is resorted to." 19It is, therefore, "essential that the party asking for rescission
prove that he has exhausted all other legal means to obtain satisfaction of his claim. 20 Petitioner neither alleged nor
proved that she did so. On this score, her action for the rescission of the questioned deed is not maintainable even if the
fraud charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not present either.
Art. 1387, first paragraph, of the Civil Code provides: "All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of creditors when the donor did not reserve sufficient
property to pay all debts contracted before the donation. Likewise, Article 759 of the same Code, second paragraph,
states that the donation is always presumed to be in fraud of creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties which
creditors might have recourse for the collection of their credits existing before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of donation was executed. She cannot,
therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the evidence disclose that as of 10
August 1989, when the deed of donation was executed, LIM had the following properties:
(1) A parcel of land containing an area of 220 square meters, together with the house
constructed thereon, situated in Sto. Nio Village, Mandaue City, Cebu, registered in the
name of Rosa Lim and covered by TCT No. 19706; 22
(2) A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu; 23
(3) A parcel of land containing an area of 2.152 hectares, with coconut trees thereon,
situated at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No.
13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated
at Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571. 25
During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by her in the amount of
about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did you acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was the price in the Deed of Sale
of the house and lot at Sto. Nio Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the property in no. 2, LIM
testified that she sold it in 1990. 27 As to the properties in nos. 3 and 4, the total market value stated in the tax

declarations dated 23 November 1993 was P56,871.60. Aside from these tax declarations, petitioner did not
present evidence that would indicate the actual market value of said properties. It was not, therefore, sufficiently
established that the properties left behind by LIM were not sufficient to cover her debts existing before the
donation was made. Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of the Civil
Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other manner recognized by
the law of evidence. Thus in the consideration of whether certain transfers are fraudulent, the Court has laid down specific
rules by which the character of the transaction may be determined. The following have been denominated by the Court as
badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present
other of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property. 28
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied as the men
who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the liberty to deal with it
under whatever form it may present itself. 29
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other
circumstance from which fraud can be inferred. Accordingly, since the four requirements for the rescission of a gratuitous
contract are not present in this case, petitioner's action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31 July 1990
Decision 30 of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was therein held guilty of estafa
and was ordered to pay complainant Victoria Suarez the sum of P169,000 for the obligation LIM incurred on 8 October
1987. This decision was affirmed by the Court of Appeals. Upon appeal, however, this Court acquitted LIM of estafa but
held her civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned alienation, is
not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall only be to the extent
necessary to cover the damages caused. Under this Article, only the creditor who brought the action for rescission can
benefit from the rescission; those who are strangers to the action cannot benefit from its effects. 31 And the revocation is
only to the extent of the plaintiff creditor's unsatisfied credit; as to the excess, the alienation is maintained. 32 Thus,
petitioner cannot invoke the credit of Suarez to justify rescission of the subject deed of donation.
Now on the propriety of the trial court's awards of moral damages, attorney's fees and expenses
the petitioner. We have pored over the records and found no factual or legal basis therefor. The
awards in the dispositive portion of its decision without stating, however, any justification for
decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis in fact, law

of litigation in favor of
trial court made these
the same in the ratio
or equity.

WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in CA-G.R. CV. No.
50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 126890

March 9, 2010

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST
(APT), AS TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES Respondents.
RESOLUTION
PERALTA, J.:
For consideration is the Motion for Reconsideration of petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO)
seeking to reverse and set aside the Resolution of the Court dated April 2, 2009 which granted both Second Motions for
Reconsideration filed by respondents Privatization and Management Office (PMO), formerly Asset Privatization Trust (APT),
and Philippine National Bank (PNB), and reinstated the Decision of the Court of Appeals dated February 29, 1996 which, in
turn, reversed and set aside the Decision of the Regional Trial Court, Branch 45, Bais, Negros Oriental. The dispositive
portion of the CA Decision reads:
WHEREFORE, the appealed decision is hereby set aside and judgment is herein rendered declaring that the subject Deed
of Assignment has not condoned all of UPSUMCOs obligations to APT as assignee of PNB.
To determine how much APT is entitled to recover on its counterclaim, it is required to render an accounting before the
Regional Trial Court on the total payments made by UPSUMCO on its obligations including the following amounts:
(1) The sum seized from it by APT whether in cash or in kind (from UPSUMCOs bank deposits as well as sugar and
molasses proceeds):
(2) The total obligations covered by the following documents:
(a) Credit agreement dated November 05, 1974 (Exh. "1," Record p. 528); and
(b)
(c) The Restructuring Agreements dated (i) June 24, 1982, (ii) December 10, 1982, and (3) May 9, 1984
and
(3) The P450,000,000.00 proceeds of the foreclosure
Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCOs total obligation in the
amount of (P2,137,076,433.15), the latter is hereby ordered to pay the same. However, if after such deduction there
should be any excess payment, the same should be turned over to UPSUMCO.
The Regional Trial Court is hereby directed to receive APTs accounting and thereafter, to render the proper disposal of this
case in accordance with the foregoing findings and disposition.
Costs against appellees.
SO ORDERED.
Petitioner prefaces its arguments that it is the aggrieved party, not the government as represented by respondent APT
(now the PMO), as its deposits with respondent PNB were taken without its prior knowledge and that it was reluctant to
give assent to the desire of the government to forego redemption of its assets by reason of uncontested foreclosure.
Facts showed that in 1974, petitioner, engaged in the business of milling sugar, obtained "takeoff loans" from
respondent PNB to finance the construction of a sugar milling plant which were covered by a Credit Agreement dated
November 5, 1974. The said loans were thrice restructured through Restructuring Agreements dated June 24, 1982,
December 10, 1982, and May 9, 1984. The takeoff loans were secured by a real estate mortgage over two parcels of land
where the milling plant stood and chattel mortgages over certain machineries and equipment. Also included in the
condition for the takeoff loans, petitioner agreed to "open and/or maintain a deposit account with [respondent PNB] and
the bank is authorized at its option to apply to the payment of any unpaid obligations of the client any/and all monies,
securities which may be in its hands on deposit."
From 1984 to 1987, petitioner contracted another set of loans from respondent PNB, denominated as"operational
loans," for the purpose of financing its operations, which also contained setoff clauses relative to the application of
payments from petitioners bank accounts. They were likewise secured by pledge contracts whereby petitioner assigned
to respondent PNB all its sugar produce for the latter to sell and apply the proceeds to satisfy the indebtedness arising
from the operational loans.
Later, respondent APT and petitioner agreed to an "uncontested" or "friendly foreclosure" of the mortgaged assets, in
exchange for petitioners waiver of its right of redemption. On July 28, 1987, respondent PNB (as mortgagee) and
respondent APT (as assignee and transferee of PNBs rights, titles and interests) filed a Petition for Extrajudicial
Foreclosure Sale with the Ex-Officio Regional Sheriff of Dumaguete City, seeking to foreclose on the real estate and chattel
mortgages which were executed to secure the takeoff loans. The foreclosure sale was conducted on August 27, 1987
whereby respondent APT purchased the auctioned properties forP450,000,000.00.
Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner executed a Deed of Assignment assigned to
respondent APT its right to redeem the foreclosed properties, in exchange for or in consideration of respondent APT
"condoning any deficiency amount it may be entitled to recover from the Petitioner under the Credit Agreement dated
November 5, 1974, and the Restructuring Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984,

respectively, executed between [UPSUMCO] and PNB" On the same day, the Board of Directors of petitioner approved
the Board Resolution authorizing Joaquin Montenegro, its President, to enter into said Deed of Assignment.1avvphi1
Despite the Deed of Assignment, petitioner filed a complaint on March 10, 1989 for sum of money and damages against
respondents PNB and APT before the Regional Trial Court (RTC) of Bais City alleging therein that respondents had illegally
appropriated funds belonging to petitioner, through the following means: (1) withdrawals made from the bank accounts
opened by petitioner beginning August 27, 1987 until February 12, 1990; (2) the application of the proceeds from the sale
of the sugar of petitioner beginning August 27, 1987 until December 4, 1987; (3) the payment from the funds of petitioner
with respondent PNB for the operating expenses of the sugar mill after September 3, 1987, allegedly upon the instruction
of respondent APT and with the consent of respondent PNB.
The RTC rendered judgment in favor of the petitioner. On appeal, the CA reversed and set aside the RTC Decision and
ruled that only the "takeoff" loans and not the operational loans were condoned by the Deed of Assignment. In a Decision
dated November 28, 2006 and Resolution dated July 11, 2007, the Court (Third Division) reversed and set aside the CA
Decision. The case was thereafter referred to the Court en banc which reversed the ruling of the Third Division.
In its Motion for Reconsideration, petitioner raises the following grounds:
1. The order of the Honorable Court En Banc reinstating the decision of the Honorable Court of Appeals would be
inconsistent with the facts of the case and the findings of this Honorable Court.
2. There is no valid ground to conclude that APT has still the right to the deposit of UPSUMCO after the August 27,
1987 friendly foreclosure, and the withdrawal of P80,200,806.41 as payment could be applied either as repayment
on the Take-off Loans or for the Operational Loans.
3. The findings that the condonation took effect only after the execution of the Deed of Assignment hence upholds
the validity of APTs taking of the deposit of P80,200,806.41 in UPSUMCOs PNB account as payment of the
deficiency is without basis.
4. The admission of the case by Honorable Court En Banc after the denial of the Second Division of the Second
Motion for Reconsideration and the referral of the case to the Honorable Court En Banc appear not to be in
accordance with the Rules of Procedure.
5. The basis for admission of the case to the Honorable Court En Banc are belated issues which have no other
purpose but to give apparent reasons for the elevation of the case.
6. There is no legal basis for the withdrawals of UPSUMCOs deposit on the ground of conventional compensation.
7. Since the amount of P17,773,185.24 could not be the subject of conventional compensation, it should be
returned to petitioner immediately by respondents.
After a careful review of the arguments in the petitioners motion for reconsideration, the Court finds the same to be mere
rehash of the main points already set forth in the Courts En Banc Resolution of April 2, 2009 and, hence, denies the same
for lack of merit. The pertinent portions of the decision read as follows:
The rulings of the lower courts, as well as the petition itself, are not clear as to the amount extended by way of takeoff
loans by PNB to UPSUMCO. However, the Court of Appeals did enumerate the following transactions consisting of the
operational loans, to wit:
(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;
(2) Deed of Assignment By Way of Payment dated November 16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p.
545);
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans (Exh. 13 to 16; Record, pp 548 to 551);
(5) Credit Agreements dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]; Record, pp. 541-544) and April 29,
1987 (Exh. "11" [APT]; Record, pp. 314-317).
(6) Promissory Notes dated February 20, 1987 (Exh. "17"; Record, p. 573); March 2, 1987 (Exh. "18"; Record, p.
574); March 3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987; (Exh. "20"; Record, p. 576); March 30, 1987(Exh.
"21"; Record, p. 577); April 7, 1987 (Exh. "22"; Record, p. 578); May 22, 1987 (Exh. "23"; Record, p. 579); and July
30, 1987 (Exh. "24"; record p. 580).
On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights" titles and interests over
UPSUMCO, among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken
"in compliance with Presidential Proclamation No. 50." The Government subsequently transferred these "rights" titles and
interests" over UPSUMCO to respondent Asset and Privatization Trust (APT), [now PMO].
xxxx
This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of
Assignment in its operative part provides, thus:
That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") pursuant to a resolution passed by its board of Directors
on September 3, 1087, and confirmed by the Corporations stockholders in a stockholders Meeting held on the same
(date), for and in consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount it may be entitled

to recover from the Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s]
dated June 24, and December 10, 1982, and May 9, 1984, respectively, executed between the Corporation and the
Philippine National Bank ("PNB"), which financial claims have been assigned to APT, through the National Government, by
PNB, hereby irrevocably sells, assigns and transfer to APT its right to redeem the foreclosed real properties covered by
Transfer Certificates of Titles Nos. T-16700 and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S.
Montenegro, thereunto duly authorized, this 3rd day of September, 1997.
xxxx
This notwithstanding, the RTC Decision was based on the premise that all of UPSUMCOs loans were condoned in the Deed
of Assignment. In contrast, the Court of Appeals acknowledged that only the take-off loans were condoned, and thus ruled
that APT was entitled to have the funds from UPSUMCOSs accounts transferred to its own account "to the extent of
UPSUMCOs remaining obligation, less the amount condoned in the Deed of Assignment and the 450,000,000.00 proceeds
of the foreclosure."
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale.
UPSUMCO argues that after that date, respondents no longer had the right to collect monies from the PNB
bank accounts which UPSUMCO had opened and maintained as collateral for its operational take-off loans.
UPSUMCO is wrong. After 27 August 1987, there were at least two causes for the application of payments
from UPSUMCOs PNB accounts. The first was for the repayment of the operational loans, which were never
condoned. The second was for the repayment of the take-off loans which APT could obtain until 3 September
1987, the day the condonation took effect.
The error of the Courts earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the noncondonation of the operational loans was immaterial to the application of payments made in favor of APT from
UPSUMCOSs PNB accounts that occurred after 27 August 1987. For as long as there remained outstanding obligations due
to APT (as PNBs successor-in-interest), APT would be entitled to apply payments from the bank accounts of PNB. That
right had been granted in favor of PNB, whether on account of the take-off loans or the operational loans.
Petitioner filed with the RTC the complaint which alleged that "among the conditions of the friendly foreclosure are: (A)
That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding." It was
incumbent on petitioner, not respondents, to prove that particular allegation in its complaint. Was petitioner able to
establish that among the conditions of the "friendly foreclosure was that "all its accounts are condoned"? It did not, as it
is now agreed by all that only the take-off loans were condoned.
This point is material, since the 2007 Resolution negated the findings that only the take-off loans were condoned by
faulting respondents for failing to establish that there remained outstanding operational loans on which APT could apply
payments from UPSUMCOs bank accounts. By the very language of the Deed of Assignment, it was evident that
UPSUMCOs allegation in its complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT
had filed an answer, there would have been no basis in fact for the trial court to conclude that all of UPSUMCOs loans
were condoned (as the RTC in this case did), or issue reliefs as if all the loans were condoned (as the 2007 Resolution did).
As noted earlier, APT had the right to apply payments from UPSUMCOs bank accounts, by virtue of the terms of the
operational loan agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had
earlier transacted, it simply beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the
right to obtain payment of the operational loans by simply applying payments from UPSUMCOs bank accounts, without
need of filing an action for collection with the courts. The bank accounts were established precisely to afford PNB (and
later APT) extrajudicial and legal means to obtain repayment of UPSUMCOs outstanding loans without hassle.
B.
There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT.
The Deed of Assignment was executed on 3 September 1987 as was the UPSUMCO Board Resolution authorizing its
President to sign the Deed of Assignment. However, despite the absence of any terms to that effect in the Deed of
Assignment, it is UPSUMCOs position that the condonation actually had retroacted to 27 August 1987. The previous
rulings of the Court unfortunately upheld that position.
It is easy to see why UPSUMCO would pose such an argument. It appears that between 27 August 1987 and 3 September
1987. APT applied payments from UPSOMCOs bank accounts in the amount of around 80 Million Pesos. UPSUMCO
obviously desires the return of the said amount. But again, under the terms of the loan arguments, APT as successor-ininterest of PNB, had the right to seize any amounts deposited in UPSUMCOS bank accounts as long as UPSUMCO
remained indebted under the loan agreements. Since UPSUMCO was released from its take-off loans only on 3 September
1987, as indicated in the Deed of Assignment, then APTs application of payments is perfectly legal.
The earlier rulings of the Court were predicated on a finding that there was a "friendly foreclosure" agreement between
APT and UPSUMCO, whereby APT agreed to condone all of UPSUMCOs outstanding obligations in exchange for
UPSUMCOs waiver of its right to redeem the foreclosed property. However, no such agreement to the effect was ever
committed to writing or presented in evidence. The written agreement actually set forth was not as contended by
UPSUMCO. For one, not all of the outstanding loans were condoned by APT since the take-off loans were left extant. For
another, the agreement itself did not indicate any date of effectivity other than the date of the execution of the
agreement, namely 3 September 1987.
It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the

condonation. The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining
deficiency amount after the 27 August foreclosure sale, but also the remaining deficiency amount as of 3 September
1987, when the Deed of Assignment was executed and after APT had exercised its right as creditor to apply payments
from petitioners PNB accounts. The Deed of Assignment was not cast in intractably precise terms, and both
interpretations can certainly be accommodated.
It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally,
when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon
and there can be no evidence of such terms other than the contents of the written agreement. Assuming that the Deed of
Assignment failed to accurately reflect an intent of the parties to retroact the effect of condonation to the date of the
foreclosure sale, none of the parties, particularly UPSUMCO, availed of its right to seek the reformation of the instrument
to the end that such true intention may be expressed. As there is nothing in the text of Deed of Assignment that clearly
gives retroactive effect to the condonation, the parol evidence rule generally bars any other evidence of such terms other
than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.
It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the
written agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and
the agreement of the parties thereto."
Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had
retroacted to the date of the foreclosure sale. What petitioner contented in its amended complaint was that the Deed of
Assignment "released and discharged plaintiff from any and all obligations due the defendant PNB and defendant APT,"
that "after the foreclosure by PNB/APT plaintiff is entitled to all the funds it deposited or being held by PNB in all its
branches," and that "among the conditions of the friendly foreclosure are that all the accounts of the plaintiff are
condoned." It remains unclear whether petitioner had indeed alleged in its Amended Complaint that the Deed of
Assignment executed on 3 September1987 had retroacted effect as of the foreclosure sale, or on 27 August 1987. If
petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the
condonation had such retroactive effect, it should have employed more precise language to the effect in their original and
amended complaints.
xxxx
The right of respondent PNB to set-off payments from UPSUMCO arose from conventional compensation rather than legal
compensation, even if all the requisites for legal compensation were present between those two parties. The
determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express
agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal
requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist.
However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the
presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its
rights under conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor APT
and UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the
right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
V.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments from
UPSUMCOs bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans.
Considering that as of 30 June 1987, the total indebtedness of UPSUMCO as to the take-off loans amounted to
P2,137,076,433.15, and because the foreclosed properties were sold during the execution sale for only 450 Million Pesos,
it is safe to conclude that the total amount of P80,200,806.41 debited from UPSUMCOs bank accounts from 27 August to
3 September 1987 was very well less than the then outstanding indebtedness for the take-off loans. It was only on 3
September 1987 that the take-off loans were condoned by APT, which lost only on that date too the right to apply
payments from UPSUMCOS bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB
to answer for the outstanding indebtedness under the operational loan agreements. It appears that the amount of
P17,773,185.24 was debited from UPSUMCOs bank accounts after 3 September. At the same time, it remains unclear
what were the amounts of outstanding indebtedness under the operational loans at the various points after 3 September
1987 when the bank accounts of UPSUMCO were debited.
The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT
was entitled to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim over
1.6 Billion Pesos is over and beyond what it can possibly be entitled to, since it is clear that the take-off loans were
actually condoned as of 3 September 1987. At the same time, APT was still entitled to repayment of UPSUMCOs
operational loans. It is not clear to what extent, if at all, the amounts debited from UPSUMCOs bank accounts after 3
September 1987 covered UPSUMCOs outstanding indebtedness under the operational loans. Said amounts could be
insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case the petitioner should be
entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous records
what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCOs bank
accounts were debited, the remand ordered by the Court of Appeal is ultimately the wisest and fairest recourse.1

Petitioner insists that the Court should not have taken cognizance of the respondents second motions for reconsideration
with the prayer that the case be referred to the Court en banc as the same appear not to be in accordance with the rules.
Generally, under Section 3 of the Courts Circular No. 2-89, effective March 1, 1989, the referral to the Court en banc of
cases assigned to a Division is to be denied on the ground that the Court en banc is not an Appellate Court to which
decisions or resolutions of a Division may be appealed. Moreover, a second motion for reconsideration of a judgment or
final resolution shall not be entertained for being a prohibited pleading under Section 2, Rule 52, in relation to Section 4,
Rule 56 of the Rules of Court, except for extraordinarily persuasive reasons and only after an express leave shall have first
been obtained.2 Accordingly, the Court, in the exercise of its sound discretion, determines the issues which are of
transcendental importance, as in the present case, which necessitates it to accept the referral of a Division case before it
and the grant of a second motion for reconsideration.
In sum, the Resolution of the Court En Banc reinstating the Decision of the CA categorically ruled that only its takeoff
loans, not the operational loans, were condoned by the Deed of Assignment dated September 3, 1987. The Deed of
Assignment expressly stipulated the particular loan agreements which were covered therein. As such, respondent APT was
entitled to have the funds from petitioners savings accounts with respondent PNB transferred to its own account, to the
extent of petitioners remaining obligations under the operational loans, less the amount condoned in the Deed of
Assignment and the P450,000,000.00 proceeds of the foreclosure. As the En Banc Resolution explained, respondent APT
had a right to go after the bank deposits of petitioner, in its capacity as the creditor of the latter. Likewise, respondent PNB
had the right to apply the proceeds of the sale of petitioners sugar and molasses, in satisfaction of petitioners
obligations. Respondent PNB never waived these rights and the same were transferred to respondent APT (now PMO) by
virtue of the Deed of Transfer executed between them. Moreover, there was no conventional subrogation since such
requires the consent of the original parties and of the third persons and there was no evidence that the consent of
petitioner (as debtor) was secured when respondent PNB assigned its rights to respondent APT, and that the assignment
by respondent PNB to respondent APT arose by mandate of law and not by the volition of the parties. Accordingly, the
remand of the case to the RTC for computation of the parties remaining outstanding balances was proper.
The doctrine of stare decisis et no quieta movere3 or principle of adherence to precedents does not apply to the present
case so as to bar the Court en banc from taking cognizance over the case which rectified the disposition of the case and
reversed and set aside the Decision rendered by a Division thereof.
WHEREFORE, the Motion for Reconsideration filed by petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO)
is DENIED WITH FINALITY for lack of merit.
SO ORDERED.

G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
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:
30 June 1989
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).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 15 5 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
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 VicePresident Julie C. Pe notified in writing 9 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 above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS

only, broken down as follows:

SELLING PRICE
EARNEST MONEY
PARTIAL PAYMENT

P10,800,000.00
P100,000.00
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

80,000.00
P10,295,000.00
x x x.13

On the same day, 14 July 1989, Valdes-Choy, 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 ValdesChoy'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 loss 15 of
the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager's
check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stoppayment 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:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
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 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;
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:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendantappellant;
(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 ValdesChoy. 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.
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.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was due to ValdesChoy's fault.
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:
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;
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;
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 ValdesChoy; 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 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 ownershipof and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
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 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.
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 turn-over 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 Valdes-Choy 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 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 Sale covering the furnishings:
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 pre-requisite 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 Valdes-Choy 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 ValdesChoy 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.
SO ORDERED.

G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself
and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels)
executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia
Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:
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. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the
down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels
and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property
with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").
On 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.
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.
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 therefor a price certain in money or its
equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a
contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741
[1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where
the ownership or title is retained by the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but
simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.
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 fulfillment of the condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous

delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the property may have been previously delivered to him.
The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.
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 ownerseller'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.
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 above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate
of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with
their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in
default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in
default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill
his obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale
where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof to the person who presents the oldest title, provided there is good
faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of
the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first
buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers
in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984).
In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit
the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in
registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843,
02
September
1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only
on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason
she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on
the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime
in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title
to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the
time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous
sale of the same property to a third party or that another person claims said property in a pervious sale,
the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro
vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985,
prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts
below.
Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion,
her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed
between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.

G.R. No. 129760 December 29, 1998

RICARDO CHENG, petitioner,
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE, respondents.

MARTINEZ, J.:
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 intervenors-appellants
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 intervenors-appellants 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 defendant-appellant 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.
On September 6, 1989, respondent Genato entered into an agreement with respondent-spouses Ernesto R. Da Jose and
Socorro B. Da Jose (Da Jose spouses) over the above-mentioned 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:
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.
xxx xxx 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 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;
xxx xxx 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 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.
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:
10/24/89
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 (SGD.) Ramon B. Genato
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
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.
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, judgment is hereby rendered:
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;
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;
3. Directing defendant to return to the intervenors the three (3) postdated checks immediately upon
finality of this judgment;
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. T76-196 (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.
xxx xxx 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.
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.
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.
In a Contract to Sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. 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 non-existent, 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."
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 non-payment 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 plaintiff-appellee 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 nonfulfillment 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 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. 46Such 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.
SO ORDERED.

G.R. No. 137909

December 11, 2003

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,

vs.
Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to
rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only when the breach of the
contract is substantial and fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the October 31, 1997
Decision2 and the February 23, 1999 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 51067. The assailed
Decision disposed as follows:
"WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby AFFIRMED."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
"Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.
"On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over a portion of the
aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document
entitled Kasulatan sa Pagbibilihan which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng
Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga nito gaya
ng sumusunod:
xxx

xxx

xxx

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay
nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS
PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod:
xxx

xxx

xxx

Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG PISO
(P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng
BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay
magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran
tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng Abril, 1979,
sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed)
BERNARDINO NAGUIAT
Bumibili

(signed)
EULALIO MISTICA
Nagbibili'

"Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He made another
partial payment of P1,000.00 on 7 February 1980. He failed to make any payments thereafter. Eulalio Mistica died
sometime in October 1986.
"On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and refusal of
[respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind
the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and

surrender possession of the same to [petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a
month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate where
she incurred expenses for attorneys fees and litigation expenses in the sum ofP20,000.00.
"In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on the ground that
it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid.
[Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986, during the wake of the late Eulalio
Mistica, he offered to pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns
pursuant to the said document; that he is presently the owner in fee simple of the subject lot having acquired the same by
virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already
become indefeasible and incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount ofP30,000.00; attorneys fees in the amount of P10,000.00 and other
litigation expenses.
"On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July 1992. The motion
for reconsideration was likewise denied per its Order of 17 March 1993.
"After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in the amount
of P10,000.00 and costs of the suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price in the amount
of P17,000.00, with interest thereon at the rate of 12% per annum computed from April 5, 1989 until full
payment is made, subject to the application of the consigned amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square meters from the
land covered by OCT No. 4917 (M), the corresponding price therefor based on the prevailing market price
thereof."5 (Citations omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that the conclusion
of the ten-year period was not a resolutory term, because the Contract had stipulated that payment -- with interest of 12
percent -- could still be made if respondents failed to pay within the period. According to the appellate court, petitioner did
not disprove the allegation of respondents that they had tendered payment of the balance of the purchase price during
her husbands funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the land title to their names.
The proper recourse, the CA held, was to order them to pay the balance of the purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer feasible, because it had
been included in the title issued to them. The appellate court ruled that the only remedy available was to order them to
pay petitioner the fair market value of the usurped portion.
Hence, this Petition.6
Issues
In her Memorandum,7 petitioner raises the following issues:
"1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the New Civil Code, as it
ruled that there is no breach of obligation inspite of the lapse of the stipulated period and the failure of the private
respondents to pay.
"2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract is no longer
feasible considering that a certificate of title had been issued in favor of the private respondents.
"3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion in question is
covered by a certificate of title in the names of private respondents reconveyance is no longer feasible and
proper."8
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because respondents
committed a substantial breach when they did not pay the balance of the purchase price within the ten-year period. She
further avers that the proviso on the payment of interest did not extend the period to pay. To interpret it in that way would

make the obligation purely potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a
Contract of Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to
the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.9
In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. 10 Under Article 1191 of
the Civil Code, the right to rescind an obligation is predicated on the violation of the reciprocity between parties, brought
about by a breach of faith by one of them.11 Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation.12
In the present case, the failure of respondents to pay the balance of the purchase price within ten years from the
execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be
made even after ten years from the execution of the Contract, provided the vendee paid 12 percent interest. The
stipulations of the contract constitute the law between the parties; thus, courts have no alternative but to enforce them as
agreed upon and written.13
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never made any demand
for the balance of the purchase price. Petitioner even refused the payment tendered by respondents during her husbands
funeral, thus showing that she was not exactly blameless for the lapse of the ten-year period. Had she accepted the
tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she has to show competent proof to
support her contention. Instead, she argues that the period cannot be extended beyond ten years, because to do so would
convert the buyers obligation to a purely potestative obligation that would annul the contract under Article 1182 of the
Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled.14 Indeed, to allow the
fulfillment of conditions to depend exclusively on the debtors will would be to sanction illusory obligations. 15 The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase price is
dependent upon whether respondents want to pay it or not. Second, the fact that they already made partial payment
thereof only shows that the parties intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding.1wphi1 Well-settled is the rule that findings of fact by the
CA are generally binding upon this Court and will not be disturbed on appeal, especially when they are the same as those
of the trial court.16 Petitioner has not given us sufficient reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of title had already
been issued in their names. Petitioner nonetheless argues that the Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine whether petitioner is entitled to
rescission. It is a fundamental principle in land registration that such title serves merely as an evidence of an indefeasible
and incontrovertible title to the property in favor of the person whose name appears therein.17
While a review of the decree of registration is no longer possible after the expiration of the one-year period from entry, an
equitable remedy is still available to those wrongfully deprived of their property. 18 A certificate of title cannot be subject
to collateral attack and can only be altered, modified or canceled in direct proceedings in accordance with law.19 Hence,
the CA correctly held that the propriety of the issuance of title in the name of respondents was an issue that was not
determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because the CA erred in
ruling that the reconveyance of the extra 58-square meter lot, which had been included in the certificate of title issued to
them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership over immovable
property, because it does not create or vest title, but merely confirms one already created or vested. 20Registration does
not give holders any better title than what they actually have.21 Land erroneously included in the certificate of title of
another must be reconveyed in favor of its true and actual owner.22
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be subject to collateral
attack, alteration, modification, or cancellation except in a direct proceeding.23 The cancellation or removal of the extra
portion from the title of respondents is not permissible in an action for rescission of the contract of sale between them and
petitioners late husband, because such action is tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was already filed by the State in
favor of petitioner and the heirs of her husband.24 Hence, there is no need in this case to pass upon the right of
respondents to the registration of the subject land under their names. For the same reason, there is no necessity to order

them to pay petitioner the fair market value of the extra 58-square meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the MODIFICATION that the payment for the extra
58-square meter lot included in respondents title is DELETED.
SO ORDERED.

G.R. No. 97347 July 6, 1999

JAIME
G.
ONG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES,respondents.

YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the
award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the
"Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 8585.1wphi1.nt
On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles,
on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri,
San Antonio, Quezon. The terms and conditions of the contract read:"
1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00),
Philippine currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally
agreed by the parties, shall be broken down as follows:
1. P103,499.91 shall be paid, and as already paid by the BUYER to
theSELLERS on March 22, 1983, as stipulated under the Certification of
undertaking dated March 22, 1983 and covered by a check of even date.
2. That the sum of P496,500.09 shall be paid directly by the BUYER to the
Bank of Philippine Islands to answer for the loan of the SELLERS which as of
March 15, 1983 amounted to P537,310.10, and for the interest that may
accrued (sic) from March 15, 1983, up to the time said obligation of
theSELLERS with the said bank has been settled, provided however that
the amount in excess of P496,500.09, shall be chargeable from the time
deposit of the SELLERS with the aforesaid bank.
B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS
shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of
THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and payable
on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by
these presents promise to sell to said BUYER the two (2) parcels of agricultural land
including the rice mill and the piggery which are the most notable improvements thereon,
situated at Barangay Puri, San Antonio Quezon, . . .
2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to
deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels
of land, free and clear from all liens and encumbrances.
3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and
transfer possession of the said parcels of land including all the improvements that may be found thereon,
to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and
management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.
4. That all payments due and payable under this contract shall be effected in the residence of
theSELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been
subsequently designated by both parties in writing.
xxx xxx xxx 1
On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building,
ricemill, residential house and other improvements thereon.
Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by depositing it
with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine
Islands (BPI), 3 in accordance with their stipulation that petitioner pay the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent
spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983, 4Check No. 157709 dated
September 15, 1983, 5 Check No. 157710 dated December 15, 1983 6 and Check No. 157711 dated March 15,
1984. 7 When presented for payment, however, the checks were dishonored due to insufficient funds. Petitioner promised
to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with
the Bank of the Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to dole
out no more than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three
transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge
and conformity of petitioner. 8 Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. 9 He,
however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice

mill for residential purposes.

On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the
properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the Regional Trial Court of Lucena
City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was
still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a
complete fence made of hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a
writ of preliminary injunction. 10 The trial court granted the application and enjoined petitioner from introducing
improvements on the properties except for repairs. 11
On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles
and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set
aside;
b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of
Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M.
Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of
P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the
sum of P20,000.00 as attorney's fees and litigation expenses.
The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of
receivership is rendered moot and academic.
SO ORDERED. 12
From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but
deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the
failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private
respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.
At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature and were already
passed upon by the Court of Appeals and the trial court. Time and again, we have stated that it is not the function of the
Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties
to an appeal, particularly where, such as in the case at bench, the findings of both the trial court and the appellate court
on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the
two courts below and to superimpose its own. 13
The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract entered into by the
parties may be validly rescinded under Article 1191 of the New Civil Code; and (2) whether the parties had novated their
original contract as to the time and manner of payment.
Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent spouses
a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383 instead, to the
effect that where specific performance is available as a remedy, rescission may not be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should
be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. 14 It implies a
contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. 15
On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of the other. 16 They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal
obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article
1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when
proper, they are not entirely identical.
While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the
article was based, was "resolution. 17" Resolution is a principal action which is based on breach of a party, while
rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New
Civil Code, which expressly enumerates the following rescissible contracts:
1. Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one fourth of the value of the things which are the object
thereof;

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;
3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the
claims due them;
4. Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
5. All other contracts specially declared by law to be subject to rescission.
Obviously, the contract entered into by the parties in the case at bar does not fall under any of those
mentioned by Article 1381. Consequently, Article 1383 is inapplicable.
May the contract entered into between the parties, however, be rescinded based on Article 1191?
A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a
contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase
price. 18 In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force. 19
Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00.
This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the
purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price.
The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without
force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is
the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a breach
but merely an event which prevents the vendor's obligation to convey title from acquiring binding
force. 21 Hence, the agreement of the parties in the case at bench may be set aside, but not because of a
breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to
do so brought about a situation which prevented the obligation of respondent spouses to convey title from
acquiring an obligatory force.
Petitioner insists, however, that the contract was novated as to the manner and time of payment.
We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may be
extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible with each other."
Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility between the old and the new
obligation.22 Petitioner cites the following instances as proof that the contract was novated: the retrieval
of the transformers from petitioner's custody and their sale by the respondents to MERALCO on the
condition that the proceeds thereof be accounted for by the respondents and deducted from the price of
the contract; the take-over by the respondents of the custody and operation of the rice mill; and the
continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers (Exhs.
"8" to "47") on the condition that these installments be credited to petitioner's account and deducted from
the balance of the purchase price.
Contrary to petitioner's claim, records show that the parties never even intended to novate their previous
agreement. It is true that petitioner paid respondents small sums of money amounting to P48,680.00, in
contravention of the manner of payment stipulated in their contract. These installments were, however,
objected to by respondent spouses, and petitioner replied that these represented the interest of the
principal amount which he owed them. 23 Records further show that petitioner agreed to the sale of
MERALCO transformers by private respondents to pay for the balance of their subsisting loan with the
Bank of Philippine Islands. Petitioner's letter of authorization reads:
xxx xxx xxx
Under this authority, it is mutually understood that whatever payment received from MERALCO as
payment to the transfromers will be considered as partial payment of the undersigned's obligation to Mr.
and Mrs. Miguel K. Robles.
The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands.
It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to Mr.
and Mrs. Miguel K. Robles by the undersigned. [Emphasis supplied] 24
It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00
would be directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of
respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to

foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any action
on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3)
transformers. However, although the parties agreed to credit the proceeds from the sale of the
transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent
spouses. This can only mean that there was never an intention on the part of either of the parties to
novate petitioner's manner of payment.
Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent
spouses proposed to operate the rice mill on the condition that they will account for its earnings. We find
that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12, 1984
to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with respondent
spouses whom he was evidently trying to appease by authorizing them to continue temporarily with the
operation of the rice mill. Clearly, while petitioner might have wanted to novate the original agreement as
to his manner of payment, the records are bereft of evidence that respondent spouses willingly agreed to
modify their previous arrangement.
In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there
must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new
contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of
the new contract. 25 The aforesaid requisites are not found in the case at bench. The subsequent acts of
the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the
emergence of the new one. We repeat to the point of triteness, novation is never presumed, there must be
an express intention to novate.
As regards the improvements introduced by petitioner to the premises and for which he claims
reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court that
petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well
that he has not paid the consideration of the contract in full and over the vigorous objections of
respondent spouses. Moreover, petitioner introduced major improvements on the premises even while the
case against him was pending before the trial court.
The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral,
temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.
WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the MODIFICATION
that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in addition to the
amounts already awarded. Costs against petitioner.1wphi1.nt
SO ORDERED.

G.R. No. 146839

March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGALWESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
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. 2365L, 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. 105 5 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 Sell 6 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 ofP5,000,000.00 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, 1990,13all 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 in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorneys fees in the amount
ofP100,000.00; 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 ofP5,000,000.00 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.
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 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 Default 35 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
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.
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.
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 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.
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 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 partylandowners 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
road-right-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 road-right-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
non-fulfillment 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.
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 non-lawyer.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.
No pronouncement as to costs.
SO ORDERED.

G.R. No. L-10749

April 25, 1958

BRIGIDO R. VALENCIA, petitioner,

vs.
REHABILITATION FINANCE CORPORATION and COURT OF APPEALS, respondents.
Eligio G. Lagman for petitioner.
Jesus A. Avancena for respondent.
CONCEPCION, J.:
Petitioner Brigido R. Valencia seeks a review, by certiorari, of a decision of the Court of Appeals, reversing that of the
Court of First Instance of Manila, and sentencing him to pay respondent Rehabilitation Finance Corporation sum of P6,200,
by way of actual damages, with legal interest thereon, from the date of the institution of this case, apart from the sum of
P1,000 as attorneys fees, and absolving respondent from the counterclaim of said petitioner, with costs against the latter.
It appears that, prior to May 15, 1952, respondent issued and advertised to the general public an "invitation to bid" for the
construction of a reinforced concrete building at Claveria Street, City of Davao. For the guidance of, and compliance by,
the parties concerned, said invitation to bid was supplemented with "General Specifications," "Instructions to Bidders" and
"Index of General Conditions." In response to the invitation, petitioner submitted a bid, dated May 15, 1952, pertinent
parts of which read:
In accordance with your advertisement inviting proposals for the Construction of the Office Building owned by
REHABILITATION FINANCE CORPORATION, to be erected at Claveria Street, Davao City, and subject to all conditions
and requirements thereof, and of your Plans and Specifications, with all their agenda, which so far as they relate
to this proposal, are made a part thereof, we (or I) propose to furnish, deliver, and place and complete any and all
necessary work as called for by the said Plans and Specifications, we (or I) will furnish all necessary plant, tools,
appliances, and labor, and complete the work at our (or My) own expenses, at the following prices in Philippine
currency:
ITEM I:
Stipulated sum proposal for the complete construction of the Office Building as per Plans and Specifications,
including the following:
1. All electrical installations
2. All plumbing installations
Three Hundred Eighty Nine Thousand Nine Hundred Eighty Pesos
LUMP SUM ..................................................... P389,980.00
ITEM II:
Stipulated sum proposal for the complete construction of the Office Building Only as per Plans and Specifications.
Three Hundred Fifty Eight Thousand Four Hundred Eighty Pesos
LUMP SUM ...................................................... P358,480.00
ITEM III:
ELECTRICAL INSTALLATIONS only.
Eighteen Thousand Nine Hundred pesos
LUMP SUM ...................................................... P18 900.00
ITEM IV:
PLUMBING INSTALLATIONS only.
Twelve Thousand Six Hundred Pesos.
LUMP SUM ....................................................... P12,000.00.
xxx

xxx

xxx

We (or I) inclose herewith Bidders Bond, in the sum of Thirty Nine Thousand Pesos (P39,000.00) which is to be
returned if this proposal is rejected or retained if accepted as security until the execution and delivery of a
satisfactory bond in the sum of twenty per centum (20%) of the total contract price for the full and faithful
performance of the contract.
On or about June 9, 1952, respondent's Board of Governors passed a resolution awarding the contract for the construction
of the building to Sanchez & Antigua Engineering Co. for P292,000, that for the electrical installations to Lorenzo
Sarmiento, for P18,340, and that for the plumbing installations to petitioner Valencia, for P12,800 By a letter dated June
16, 1952, which was received by petitioner on June 22, 1952, the manager of the Davao branch of respondent advised
petitioner of said award, and of the fact that the corresponding contract documents were being prepared in Manila and
that he (petitioner) would be notified upon receipt thereof. This notice was given to petitioner through a letter of said
Davao Manager, dated July 28, 1952, in which petitioner was, also, requested to call at the office of the writer for the

purpose of affixing his (petitioner's) signature on the aforesaid contract and to post the performance bond for 20% of the
contract price of P12,800. Petitioner replied on August 28, 1952, expressing his "thanks and appreciation" for the award,
and stating that it would be to the advantage of respondent to award the contract for the plumbing installations to the
contractor of the main building, because the presence of petitioner's men in the building might give said contractor an
excuse to seek extension of time; because synchronization of the work, to prevent possible delay, would not be promoted
by awarding the different parts of the building to different con-tractors; and because plumbing installations particularly
should go hand in hand with the progress of the work of construction of the building, so that its contractor may have no
valid ground to ask extension of time. In view of petitioner's failure to sign the aforementioned contract for the plumbing
installations, respondent eventually awarded the same for P19,000 to the contractor for the construction of the building.
Soon thereafter, or on December 19, 1962, respondent brought this action in the Court of First Instance of Manila against
petitioner herein, to recover the sum of P6,200 representing the difference between the amount of the contract awarded
to him and the price at which the plumbing installations were awarded to Sanchez and Antigua Engineering Co. plus
P1,000, as attorney's fees, and the costs.
In his answer, petitioner alleged that, upon being notified of the award in his favor, he "prepared all the necessary
equipments, materials and plumbers to do and perform the plumbing installations" in respondent's building, but, without
his knowledge and consent, respondent "entered into a contract with Sanchez and Antigua Engineering Co. for the same
plumbing installations which was previously awarded" to petitioner, for which reason he set up a counterclaim of P5,000,
for compensatory damages, plus P10,000, for moral damages, and P1,000 for attorney's fees.
In due course, the Court of First Instance of Manila rendered judgment, absolving petitioner from the complaint, with costs
against the respondent, and sentencing the latter to pay petitioner the sum of P1,000, as "liquidated attorney's fees." On
appeal, this decision was re-versed by the Court of Appeals, which rendered judgment for respondent, as above stated.
Hence, this petition for review by petitioner herein, who maintains in his brief, that:
1. La Corte de Apelacioines erro al declarar que exists un contrato valido y obligatorio entre Rehabilitation Finance
Corporation y Brigido R. Valencia respecto a la instalacion de canerias (plumbing) en el edificio de aquella en la
ciudad de Davao.
2. Erro tambien la Corte de Apelaciones al no considerar como contra oferta la resolucion de la junta de
governadores de la Re-habilitation Finance Corporation al adjudicar a Valencia solamente los trabajos de
instalacion de canerias (P12,600.00), en lugar de aceptar o rechazar toda la oferta de P389,980.00.
3. Erro asimismo al declarar que la fianza del postor Brigido R. Valencia debe considerarse eficaz no obstante que
en la misma se hace constar claramente que caducaba el 15 de junio de 1952.
4. Erro asimismo la Corte de Apelaciones al no declarar que la aceptacion parcial de la Rehabilitation Finance
Corporation se ha heche despues de caducada la oferta de Valencia, y por tanto no es valida.
5. Erro finalinente la Corte de Apelaciones al revocar la decisiondel juzgado de primers instancia de Manila y
condenar a Brigido R. Valencia al pago de P6,200.00 como daos y perjuicios, mas P1,000.00 como honoraries de
abogado, y las costas.
The arguments adduced by petitioner, in support of these assignments of error, may be summed up as follows:
1. His offer was for the construction of respondent's building in Davao, with its electrical and plumbing installations,
whereas respondent awarded to him the con-tract for the plumbing installations only. This award substantially modified,
therefore, the terms of his offer, so that a meeting of minds did not take place, inasmuch as such modification was not
accepted by petitioner herein.
2. Petitioner's offer was good until June 15, 1952 only, because it was accompanied by a bond that expired on such date.
The award in his favor came to his knowledge on June 22, 1952, when he received the letter of respondent's
representative, dated June 16, 1952, giving notice of the award. Having been effected after the expiration of petitioner's
offer, said notice of its acceptance did not perfect a contract between the parties herein.
3. Said acceptance by respondent was made subject to a condition, namely, the giving of a performance bond for twenty
per centum (20%) of the amount of petitioner's offer. Inasmuch as this condition was not fulfilled, no contract could, or
did, exist between the parties.
With respect to the first argument, it is worthy of notice that the proposal submitted by petitioner consisted of several
items, among which are: (a) one for P389,980, for the "complete construction of the office building" in question,
"including (1) all electrical installations; and (2) all plumbing installations"; (b) another for P358,480, for the "complete
construction of the office building only", excluding, therefore, the electrical and plumbing installations; (e) a third one for
P18,900, for the "electrical installations only", excluding, therefore, the building and its plumbing installations; and (d) a
fourth item for P12,600, for the "plumbing installations only", excluding, therefore, the building and its electrical
installations.
Each one of these items was complete in itself , and, as such, it was distinct, separate and independent from the other
items. The award in favor of petitioner herein, implied, therefore, neither a modification of his offer nor a partial
acceptance thereof. It was an unqualified acceptance of the fourth item of his bid, which item constituted acomplete
offer or proposal on the part of petitioner herein. The effect of said acceptance was to perfect a contract, upon notice of
the award to petitioner herein.
Incidentally, said items in petitioner's bid were due, evidently, to the terms of respondent's "instruction to bidders,"
paragraph 5 of which reads:

Where bids are not qualified by specific limitations, the Rehabilitation Finance Corporation reserves the right of
awarding all or any of the items according to its best interest.
Indeed, petitioner's bid stated that it was submitted "in accordance with" respondent's " advertisement inviting proposals
for the construction" in question "and subject to all conditions and requirements thereof ," one of which is said paragraph
5 just quoted.
As regards the second argument, petitioner's bid did not specify its duration. It enclosed therewith a bond for ten per
centum (10%) of the amount of said bid, in compliance with paragraph 10 of the instruction to bidders. Although
the bond itself stated that it expired on June 15, 1952, this does not mean that the bid lapsed on the same date. The bond
merely guaranteed the performance of a principal obligation of petitioner herein. Needless say, this principal obligation
may stand without said bond, which is merely accessory thereto, although the latter cannot exist without the former.
Moreover, the bond was given for the benefit, not of petitioner, but of respondent, so that the latter could legally waive
said benefit.
Petitioner's brief (p. 4) says that he understood or believed that upon expiration of said bond, on June 15, 1952, his bid,
likewise, lapsed. This allegation is refuted by petitioner's conduct. Upon receipt of notice of the award in his favor,
petitioner did not object thereto upon any ground whatsoever. He did not even say that his offer had expired already or
had been modified. On the contrary, he replied expressing his "thanks and appreciation" for the award, although he
stated, also, that it would be "to the advantage" of respondent to award the plumbing installations "to the contractor of
the main building." What is more, in his answer to respondent's complaint, petitioner alleged, by way of special defense,
that upon notice of the award in his favor, he "prepared all the necessary equipments, materials and plumbers to do and
perform the plumbing installations" in question. For this reason, he alleged, also, in his answer, that he "should be the one
entitled to damages" inasmuch as respondent "awarded to Sanchez and Antigua Engineering Co. . . . the contract for
plumbing installations . . . without prior notice" to petitioner "who is the first awardee, and set up a counterclaim for
damages thus allegedly caused to him. These acts of petitioner herein show, beyond doubt, that, upon receipt of notice of
the award on June 22, 1952, he knew that the contract between him and respondent had become perfected, and that he
must have felt, accordingly, that his bid was still good at that time.
Referring now to the third argument, paragraph 10 of the aforementioned instruction to bidders, imposed upon them the
obligation to execute the corresponding documents "within five (5) days after notice of the acceptance of his bid."
Paragraph 15 of said instruction to bidders, further provided:
The contract shall be made and executed in quadruplicate and shall be accompanied by a bond or bonds given by
the contractor with two or more good and sufficient sureties or with a surety company, satisfactory to the
Manager, Industrial Department, RFC in a penal sum equal to twenty (20) per cent of the full contract price of the
work, conditioned for the faithful performance of the contract according to its tenor and effect and the satisfaction
of obligation for materials used and labor employed upon the same.
The obligation to give the performance bond mentioned in this paragraph, as well as to execute the instrument
incorporating the construction contract, within five (5) days from notice of acceptance of the bid, as stated in paragraph
10 of the instruction to bidders, were accepted by petitioner herein, for he submitted his bid "subject to all conditions and
requirements" of respondent's invitation for bids. Hence, his (petitioner's) bid explicitly says:
We (or I) make this proposal with a full knowledge of the kind, quantity, and quality of the articles and services
required and said proposal is accepted will, after receiving written notice of such acceptance, enter into contract
within five (5) days, with good and sufficient securities for the faithful performance thereof.
Accordingly, respondent's communication of June 16, 1952, advised petitioners that the contract for plumbing installations
was awarded to him for P12,800 "with performance bond of 20% thereof." Again, the letter of respondent's manager in
Davao, dated July 28, 1952, in-formed petitioner that the contract for the plumbing installations had been received from
the head office and asked him to call at the writer's office for the purpose of affixing his signature on said contract, and
requested him to post said performance bond. Petitioner's failure to do so did not relieve him of the obligation arising from
the un-qualified acceptance of his offer. Much less did it affect the existence of a contract between him and respondent.
Petitioner insists that the giving of a performance bond was a condition precedent. But such condition presupposes the
existence of a contract, which is qualified thereby. Compliance with said condition is essential to the existence of
petitioner's right to undertake the plumbing installations and collect the price thereof. But, he had a contractual right to
give the performance bond, in the sense that respondent had granted him by agreement the right to post said bond, and,
once this had been done, he could invoke and enforce his other rights by virtue of the award in his favor. At the same
time, respondent had a contractual right to demand the posting of the performance bond, and, upon failure of petitioner
to do so, respondent had a similar right to refuse to allow petitioner to under-take the plumbing installations and to
demand damages for breach of petitioner's obligations. In either case, the existence of the contractual relation between
the parties did not depend upon the posting the performance bond. Although, the latter was essential to the birth of some
of the rights stipulated in favor ofpetitioner herein, those of respondent were not conditioned upon the giving of said
performance bond.
Being in accordance with the facts and the law, the decision of the Court of Appeals is hereby affirmed, therefore, with
costs against petitioner Brigido R. Valencia. It is so ordered.

G.R. No. L-45843

June 30, 1939

REYNALDO LABAYEN and TEODORO LABAYEN, plaintiffs-appellants,

vs.
TALISAY-SILAY CO., defendant-appellee.
Vicente J. Francisco for appellants.
Nolan and Manaloto and Jose Nava for appellee.
IMPERIAL, J.:
The plaintiffs take this appeal from the order of the Court of First Instance of Occidental Negros, dated June 12, 1937,
sustaining the demurrer to the amended complaint, filed on May 4, 1937, and granting ten days to the plaintiffs to amend
the said pleading, with notice that should they fail to do so within the said period, the same will be dismissed, with costs.
The amended complaint alleges as first cause of action the following: that the plaintiffs on or before August 27, 1919 until
the year 1928, were the undivided owners of the hacienda known as Dos Hermanos, situated in the municipality of
Talisay, Occidental Negros, consisting of lots Nos. 1229 and 1327 of the cadastre of the said municipality, described in
original certificates of title Nos. 9982 and 9286; that on August 27, 1929, the plaintiffs and the defendant entered into a
milling contract the pertinent pacts and conditions of which read:
xxx

xxx

xxx

PACTS TO WHICH THE CENTRAL BIND ITSELF

THIRD: That it shall construct and shall thereafter make or cause to be made everything needed for the
conservation in good condition, and shall operate during the period of this agreement, without any expense on the
part of the planter or planters, a fixed railway, of steam or motor, or both, for the use of the plantation or
plantations in the transportation of sugar cane, sugar, fertilizer and goods which the planter may need for his
land, for his use, for that of his family and that of his employees, and shall make the principal line or a branch
thereof, as the case may be, to reach a point of the plantation to be hereafter described which shall be not be
more than one mile from the boundaries of the said plantation, as the configuration of the land, its curves and
grades will permit; it shall provide the said railway with locomotives or motors and wagons in sufficient number to
expedite the transportation of sugar cane, sugar, fertilizer and goods aforementioned, and it shall likewise
construct a branch of the railway connecting the principal line, factory and warehouses and the aforementioned
pier, and it shall also conveniently equip with switches or otherwise the yard of the factory near the sugar mill. All
the steam locomotives shall be provided with spark arresters. The railway shall consist of a line or way
conveniently and properly designated so that, as far as possible, all the planters may deprive equal benefits
therefrom; the right of way for the principal line of the railway shall be three and one-half (3) meters wide on
each side measuring from the center of the line, and the branches, deviations, and curves shall be more if
necessary.
xxx

xxx

xxx

EIGHTH. It shall receive all the sugar cane planted by the planter or planters, well cut off, completely clear of
leaves, conveniently loaded on the wagons of the Central at those points along the line of its railway or branches
thereof, as the case may be, on such days and time as the Committee of Planters may agree upon, taking into
account the crops of the planters and the kind of sugar cane to be milled, and shall transport the said sugar cane
to the factory free of charge.
The Central shall have the right to refuse the sugar cane which is unclean, sour or burned. In case of delivery of
sugar cane not sufficiently clean or cut off, but which otherwise complies with the other required conditions, the
Central shall make a certain per cent reduction from its weight subject to the determination of the Central and the
Committee of Planters; and in case of disagreement on this matter, the Central shall clean or take off the leaves of
the sugar cane in two wagons to determine the exact amount to be deducted from the weight of all the sugar
cane in question, and the expenses occasioned by said cleaning shall be charged against the delinquent planter.
The burned sugar cane, after twenty-four (24) hours from the time of burning, shall be accepted by the Central
only upon special agreement between the Central and the Committee of Planters, who shall fix the conditions
whereby the same should be milled and the sugar divided.
xxx

xxx

xxx

TENTH. It shall grind, crush, and mill the said sugar cane, through the proper procedure of fabrication, shall
convert the sugar which it guarantees to extract in its mills on an average of not less than ninety-two per cent
(92%) for each sugar crop in centrifugal sugar of high grades, generally known as sugar A and B, and it shall
guarantee an average of ninety-six (96) grades in said sugar class A; and it shall guarantee an average
polarization of ninety-three (93) grades in said sugar class B.
The Committee of Planters and the Central, upon agreement, shall determine the class or classes of sugar to be
made by the factory.
OBLIGATIONS OF THE PLANTER
FIRST. That during a period of thirty (30) years, from the time he is notified by the Central that it is ready to
receive him, he shall deliver to said Central, properly cut and clear of leaves, all the sugar cane planted, cultivated
and produced upon his said lands and haciendas.

That the planter who signs this contract, states and guarantees to the Central that he is the absolute owner of the
following parcel of land, situated in the Municipality of Talisay, Province of Negros Occidental, described in this
contract as "the plantation" or "the plantations" known as lots Nos. (1229) one thousand two hundred twenty-nine
and (1327) one thousand three hundred twenty-seven of the Talisay Cadastre, Province of Negros Occidental, P.I.
The delivery of the sugar cane shall be made on the wagons of the railway of the Central at the places and time
agreed upon by the Manager of the Central and the Committee of Planters.
that pursuant to the said contract the plaintiffs planted on the hacienda Dos Hermanos during the agricultural year 19201921 thirty-five lacsas of sugar cane to be milled by the defendant; that in the following agricultural year, 1921-1922, the
plaintiffs also planted 3,000 lacsas of sugar cane on the same hacienda, also to be milled and converted into centrifugal
sugar by the defendant; that the defendant, in violation of the milling contract, did not construct the railway until a
convenient place on the hacienda Dos Hermanos, as a result of which the sugar cane produced during the said
agricultural years were not brought to and milled by the defendant's central; that for this reason the plaintiffs suffered a
loss amounting to P28,620 for the recovery of which they brought civil case No. 3789 of the Court of First Instance of
Occidental Negros; that in said case judgment was rendered absolving the defendant and sentencing the plaintiffs, upon
the defendant's counterclaim, to pay the latter the sum of P12,114; that the said judgment was appealed to this court
(G.R. No. 29298) and here affirmed (Labayen vs. Talisay-Silay Milling Co., 52 Phil., 440); that on the execution of the
judgment in favor of the defendant in said case and on foreclosure of the mortgage of the hacienda Dos Hermanos, the
sheriff sold the same at public auction and adjudicated it in favor of the defendant; that immediately after it became the
owner of the hacienda, the defendant constructed the railway which, at the trial of the case, it had maintained was
impossible to construct due to the curves and grades found on the hacienda, thereby showing that the defense which it
put up to this effect was false and fraudulent; that the judgments of the Court of First Instance of Occidental Negros and of
the Supreme Court rendered in the said case were obtained by the defendant through fraud; consisting in the false
testimony given by the witnesses who testified in the case; that said witnesses falsely testified that the railway could not
be constructed on the hacienda Dos Hermanos because the curves and grades existing thereon made it materially
impossible, knowing that said statements were untrue and false; that as a result of the judgments fraudulently obtained
by the defendant, the plaintiffs have suffered damages in the sum of P70,000. As second cause of action of the amended
complaint the following facts were alleged: that in the milling contract, through the false representations of the officers of
the defendant, the latter induced the plaintiffs to empower it to obtain a loan from any institution and to secure it by the
mortgage of the hacienda Dos Hermanos, promising to give the plaintiffs a bonus after the loan had been paid and the
mortgage released; that the plaintiffs have been informed, and so allege in their amended complaint, that the defendant,
armed with said power, obtained a loan from a bank which it guaranteed by the hacienda Dos Hermanos and that,
notwithstanding the payment and release of the mortgage, the defendant has refused and still refuses to pay them the
offered bonus to be later determined at the trial. On the strength of the facts alleged in the two causes of action, the
plaintiffs asked that judgment be entered in their favor: declaring null and void the judgment rendered by the Court of
First Instance of Occidental Negros as well as that rendered by this court affirming the former; that the defendant be
sentenced to pay the sum of P70,000; that the hacienda Dos Hermanos be ordered returned to the plaintiffs, without
prejudice to the payment by the latter to the defendant of the indebtedness in its favor; that the defendant be ordered to
pay to the plaintiffs the bonus to which they are entitled, plus the costs.
The defendant interposed a demurrer to the amended complaint and alleged, with respect to the first cause of action, that
the allegations thereof do not constitute a cause of action in favor of the plaintiffs and against the defendant, and that
according to the facts alleged, the question raised was already res judicata as it has been decided in a former case; and
with respect to the second cause of action, it alleged likewise that the allegations thereof do not constitute a cause of
action in favor of the plaintiffs.
In their sole assignment of error, the plaintiffs-appellants contend that the court erred in sustaining the demurrer
interposed to the amended complaint, and in support of the assigned error, they argue that there is no res judicata; that
the nullity of judgments should not be resolved by the general rule regarding fraud in procedure, but by the rule of equity;
that the perjury of the witnesses who testified in the first case and the other findings made by the court are not a bar to
the declaration of nullity of the decision rendered in the former case; and that the allegations contained in the second
cause of action constitute a cause of action.
As to the first cause of action of the amended complaint, the only question to decide is whether or not the fraud invoked
by the appellants was raised, controverted and decided by the court in the first case. If it was, it is res judicata and cannot
serve as a ground to annul both the decision of the trial court and that of this court affirming it. According to the
allegations of the amended complaint the fraud consisted in the perjury committed by the witnesses for the defendant
who stated that the railway was not constructed on the hacienda Dos Hermanos because on the land were found curves
and grades which made its construction materially impossible. This was the special defense put up by the defendant in
that case and was the question submitted to the court and the latter resolved it in favor of the defendant. It therefore,
appears that the facts upon which the plaintiffs base the fraud now invoked by them have been already submitted and
resolved in the first case, and the court, after hearing the parties, held that they were true, hence, it rendered judgment in
favor of the defendant. An action to annul a judgment, upon the ground of fraud, will not lie unless the fraud be extrinsic
or collateral and the facts upon which it is based have not been controverted or resolved in the case where the judgment
sought to be annulled was rendered (Anuran vs. Aquino Ortiz, 38 Phil., 29; Javier vs. Paredes and Gregorio, 52 Phil., 910).
That the testimony upon which a judgment has been based was false or perjured is no ground to assail said judgment,
unless the fraud refers to the jurisdiction. (Scotten vs. Rosenblum, 231 Fed., 357; U.S. vs. Chung Shee, 71 Fed., 277;
Giffen vs. Christ's Church, 48 Cal. A., 151; 191 P., 718; Pratt vs. Griffin, 223 Ill., 349; 79 N.E. 102.) The testimony which is
stigmatized as false and perjured was considered by the court before rendering its decision, and it came to the conclusion
that it was true and believable, for which reason it made the same the basis for its holding that the defendant did not
construct the railway because the land of the hacienda was very rugged and the curves and grades made the

construction thereof impossible. After that holding by the court it is not now proper to question the veracity of said
testimony in a collateral proceeding, otherwise there would be no end to controversies submitted and decided by the
court. Unless the fraud goes directly to the jurisdiction of the court, the facts in which it consists must be extrinsic or
collateral in order that fraud may be a ground to annul a judgment, which has already become final. For these reasons, we
conclude that the contention of the plaintiffs-appellants, upon the questions, is unsound.
The second cause of action of the amended complaint is made to consist in that the appellants received the information
that the defendant, making use of the power which they conferred upon it, mortgaged the hacienda Dos Hermanos to a
bank, and after discharging said mortgage by paying the loan, it refused to pay them the bonus which it had promised. It
has not been alleged that the appellants personally knew the execution of the mortgage; all that is affirmed is that they
had received an information and they made the allegation upon such information; neither has it been alleged mortgage
has been formally executed and registered according to law, wherefore, it appears that, the mortgage, as thus alleged, is
not valid from the legal standpoint. Taking this allegations into account, we are of the opinion that the court did not err in
sustaining the demurrer interposed to the second cause of action because it is evident that the allegations thereof are, at
least, vague and uncertain and the defendant is entitled to have the appellants amend their amended complaint so as to
make the allegations thereof more categorical, intelligible and specific, to the end that it set out a real cause of action to
which the defendant, in turn, may interpose an answer with such special defenses as it may have in its favor.
In view of the foregoing, the appealed order is affirmed, with the costs of this instance to the plaintiffs-appellants. So
ordered.

G.R. No. 140715

September 24, 2004

JOSEFINA L. VALDEZ and CARLOS L. VALDEZ, JR., petitioners,

vs.
COURT OF APPEALS and JOSE LAGON, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Amended Decision1 of the Court of Appeals in CA-G.R. CV No. 49413
affirming on appeal the Decision of the Regional Trial Court of Isulan, Sultan Kudarat, Branch 19, in Civil Case No. 778.
The Antecedents
Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners of a parcel of land with an area of 24,725 square meters
located in the commercial district of Isulan, Sultan Kudarat. The property was designated as Lot No. 3 of Pls-208-D-13 and
was covered by Transfer Certificate of Title (TCT) No. T-19529 (T-1902) issued on August 18, 1967.2 When Carlos Valdez,
Sr. died intestate on March 26, 1966, he was survived by Josefina and their children, including Carlos Valdez, Jr., a
practicing lawyer.
On December 28, 1978, Josefina caused the subdivision survey of the property3 into eight (8) lots, i.e., Lots Nos. 3-A to 3H, all fronting the national road. To enhance the value of the property, she decided to sell a portion thereof to Jose Lagon,
a successful businessman in Sultan Kudarat who owned a construction firm as well as real estate and business
enterprises: the Lagon Enterprises and the Rural Bank of Isulan. He was also one of the clients of her son, Carlos, Jr., a
practicing lawyer.
On May 1, 1979, Josefina executed a Special Power of Attorney authorizing her son, Carlos, Jr. to sell a portion of Lot No. 3C and Lot. No. 3-D to Lagon. The lots subject of the sale had an area of 4,094 square meters, with a frontage of 64.3
square meters. Part of the consideration of the transaction was the condition that Lagon cause the transfer of the Rural
Bank of Isulan to the subject property and construct a commercial building beside the bank.4 On May 9, 1979, Josefina,
through her son and attorney-in-fact, Carlos, Jr., executed a Deed of Absolute Sale of a portion of Lot No. 3 with a frontage
of 64.3 square meters facing the national highway and the National Grains Authority office going towards the Buencamino
Movie House starting from the corner.5 However, the condition imposed by Josefina was not incorporated in the deed;
what was appended thereto was the Special Power of Attorney executed by Josefina. It was indicated in the said deed that
the property was to be sold forP80,000 cash and that Lagon had already paid the said amount to Carlos, Jr. In reality,
however, Lagon purchased the 4,094-square-meter property at P40.00 per square meter, or for the amount
of P163,7606inclusive of Carlos, Jr.s personal account to Lagon in the amount of P73,760. Lagon had not yet remitted to
Josefina the said amount of P163,760.
On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No. 55007805 in the amount of P8,196.00 dated April 21, 1981,
and PCIB Check No. 55007806 postdated June 15, 1981 in the amount of P81,880.00 both checks totaling P90,076.00 in
full payment of the purchase price of the property, after deducting the account of Carlos, Jr. amounting to P73,684.00.
Josefina acknowledged the checks, through Carlos, Jr., who signed a cash voucher for the same.7 Carlos, Jr. was able to
encash PCIB Check No. 55007805, but returned the other check to Lagons wife, Nenita, after the latter paid
him P20,000.00 thereby leaving a balance of P61,880.00 of the purchase price.8
Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by Lagon, where the latter undertook to transfer the Rural
Bank of Isulan to the property and construct a commercial building thereon, to be in full operation within a period of five
(5) years from May 9, 1979, the date of the deed of absolute sale, or until May 9, 1984, 9 as part of the condition of the
sale; and that if Lagon failed to do so, the deed of absolute sale shall be declared null and void without need of demand
therefor.10 Lagon also made it clear in the said affidavit that the consideration of the said Deed of Absolute Sale was not
only the P80,000.00 purchase price, but also that the subject property be commercialized.11
However, Lagon failed to start the construction of a commercial building and to transfer the rural bank thereon; he,
likewise, failed to pay the balance of the purchase price amounting to P61,880.00. Consequently, Josefina and Carlos, Jr.
refused to deliver to Lagon a torrens title over the purchased property. On September 4, 1981, Carlos, Jr. wrote Lagon
demanding the payment of P61,800.00 within ten days from notice thereof, otherwise, the sale would be considered
rescinded.12 Still, Lagon failed to pay or even respond to the letter. Carlos, Jr. again wrote Lagon on September 25, 1981,
and this time proposed the reduction of the area of the property subject of the sale to correspond to the payment so far
made by Lagon in the total amount of P90,676.00.13 There was no response from Lagon.
In the meantime, TCT No. T-19529 was cancelled on October 9, 1981 by eight (8) titles bearing the following particulars:
TCT No.

Lot No.

Area

16436

3-A

2,586 sq. meters14

16437

3-B

2,802 sq. meters15

16438

3-C

2,534 sq. meters16

16439

3-D

3,198 sq. meters17

16440

3-E

3,359 sq. meters18

16441

3-F

2,952 sq. meters19

16442

3-G

3,650 sq. meters20

16443

3-H

3,644 sq. meters21

All the foregoing subdivision titles were under the name of "Josefina L. Valdez, married to Carlos Valdez, Sr."
On December 31, 1982, Josefina and her children executed a deed of extrajudicial settlement of the estate of Carlos
Valdez, Sr. in which the heirs waived all their rights over the estate in favor of their mother, Josefina.
On December 1, 1983, Geodetic Engineer Santiago C. Alhambra conducted a subdivision survey of Lot No. 3-C, covered by
TCT No. 16438 into three (3) subdivision lots with the following areas: Lot No. 3-C-1 with 449 square meters; Lot No. 3-C-2
consisting of 350 square meters; and, Lot No. 3-C-3, 17,355 square meters. Engr. Alhambra prepared a subdivision plan on
his survey which he submitted to the Bureau of Lands on December 12, 1983. Lagon paid for his professional services.
Porfirio L. Cubar, the Bank Manager of the Philippine Commercial Industrial Bank (PCIB) in Isulan talked to Carlos, Jr. and
offered to buy, in behalf of the PCIB, Lot No. 3-C-2 for P100.00 per square meter. Carlos, Jr. agreed. Josefina executed a
deed of absolute sale on May 8, 1984, over Lot No. 3-C-2 for P35,000.00 in favor of PCIB.22 Carlos, Jr. later learned that
Lagon had been saying that he was responsible for the sale of Lot No. 3-C-2 to the PCIB, but the latter informed Carlos, Jr.
in a Letter dated September 13, 1984 that Lagon had nothing to do with the sale.23
On October 3, 1984, the Register of Deeds cancelled TCT No. 16438 and issued TCT No. 18817 over Lot No. 3-C-2 in the
name of PCIB.24 The expenses for the issuance of the said title under the name of the bank were for the account of
Josefina.25
On June 11, 1987, the deed of extrajudicial settlement earlier executed by the heirs of Carlos Valdez, Sr. was filed and
registered in the Office of the Register of Deeds.26 On June 16, 1987, Josefina executed a Deed of Sale over Lot 3-D in
favor of Engr. Rolendo Delfin, who was issued TCT No. 20380 for the property.27
In the meantime, in August 1987, a question ensued in connection with Lagons failure to pay the balance of the purchase
price of the property, to cause the construction of a commercial building and the transfer of the Rural Bank of Isulan to Lot
No. 3, as undertaken by him in his Affidavit dated April 27, 1981. As a reminder, Carlos, Jr. furnished Lagon with a machine
copy of the said affidavit on August 12, 1987. On August 13, 1987, Lagons counsel, Atty. Ernesto I. Catedral, wrote Carlos,
Jr., pointing out that he had earlier sought Lagons consent for the construction of the PCIB Branch in Lot No. 3. Catedral
posited that by consenting to the sale of the property to PCIB and the construction thereon of its branch office, Lagon
thereby substantially complied with his undertaking under the deed of absolute sale. The lawyer asked Carlos, Jr. to set a
conference to thresh out possibilities of an amicable settlement of the matter.28
On September 21, 1987, Carlos, Jr. furnished Atty. Catedral with copies of documents, including a Special Power of
Attorney, executed by Josefina in favor of Carlos, Jr., the deed of absolute sale over Lot No. 3 in favor of Lagon and the
deed of absolute sale executed by Josefina in favor of PCIB, among others.29 Lagon, through his counsel, Atty. Rex G. Rico,
reiterated his request for a conference on May 23, 1988.30 However, Carlos, Jr. was not available on the said date.
On August 4, 1988, Josefina executed a real estate mortgage over Lot No. 3-C-3 covered by TCT No. 18818 in favor of the
Development Bank of the Philippines (DBP) as security for a loan of P150,000.00.31 Josefina executed a deed of absolute
sale over Lot No. 3-C-1 in favor of her son, Carlos, Jr. on February 21, 1989. The Register of Deeds thereafter issued TCT
No. 21943 in the latters name on February 28, 1989.32 In the meantime, in 1984, Carlos, Jr. had an edifice constructed on
the property where he put up his law office, a nipa hut behind the PCIB branch, the Ivy Pharmacy, the "K House" and the
headquarters of the Nationalista Party.33
On September 24, 1990, Lagon filed a Complaint against Josefina, and Carlos, Jr., in his capacity as attorney-in-fact of
Josefina, for specific performance and damages with a prayer for a temporary restraining order and writ of preliminary
injunction. He prayed that, after due proceedings, judgment be rendered in his favor, thus:
WHEREFORE, it is respectfully prayed that upon the filing of this complaint, a restraining order be issued enjoining
defendants from selling, disposing or otherwise encumbering the property subject of this case; after due hearing,
a writ of preliminary prohibitory injunction be issued in the same tenor as that of the restraining order; and after
trial on the merits, judgment be rendered in favor of plaintiff and against the defendants:
a) Making the writ of preliminary prohibitory injunction permanent;
b) Ordering defendants to immediately and without delay, deliver to plaintiff the possession of and the
transfer certificate of title over the remaining area of that parcel of land they sold to plaintiff;
c) Ordering defendants to pay plaintiff, jointly and severally, the following sums:
i. P500,000.00 representing opportunity loss;
ii. P50,000.00 for and as attorneys fees;
iii. P20,000.00 for and as expenses of litigation; and
iv. P50,000.00 for and as moral, exemplary, temperate and nominal damages.
Other reliefs, just and equitable under the premises, are likewise prayed for.34
Lagon testified that Josefina failed to deliver the title to the property he purchased from her, as well as the possession
thereof; hence, he was not certain of the metes and bounds of the property and could not secure a building permit for the

transfer and construction of the Rural Bank of Isulan, as well as the commercial building. Besides, Carlos, Jr. secured his
permission for the construction of the PCIB commercial building on Lot No. 3-C-2 which was sold to him by Josefina, and
even agreed to the deduction of the purchase price thereof; hence, the balance was only P26,880. Lagon demanded that
the title to the property be turned over to him and the occupants thereof be evicted therefrom so that he could comply
with the conditions of the sale for the construction of the commercial building and the transfer of the Isulan Rural Bank.
However, Carlos, Jr. dilly-dallied, saying that the heirs of Carlos, Sr. needed time to execute the extrajudicial settlement of
his estate, and thus failed to deliver said title to him. Lagon averred that his consent to the construction by the PCIB of its
branch on a portion of the property he had purchased from Josefina constituted substantial compliance of his undertaking
under the deed of absolute sale and the affidavit he executed in favor of Josefina. He also alleged that he signed the
affidavit prepared by Carlos, Jr. without reading and understanding the same. He pointed out that although Lot No. 3 had
already been sold to him by Josefina, she still sold Lot No. 3-C-3 to her son, Carlos, Jr.; Lot No. 3-D to Engr. Rolendo Delfin;
and mortgaged Lot No. 3-D to DBP which acquired title over the property.
In their answer to the complaint, Josefina and her son, the defendants therein, alleged that Lagon had no cause of action
against them because he failed to comply with the terms of the deed of absolute sale, his undertaking under his affidavit,
and to pay the purchase price of the property in full. Carlos, Jr. denied securing Lagons consent to the construction of the
PCIB branch on Lot 3-C-2, and agreeing to deduct P35,000 from the balance of Lagons account for the purchase price of
the property. Josefina and Carlos, Jr. interposed counterclaims for damages and attorneys fees.
Lagon withdrew his petition for the issuance of a writ of preliminary injunction which the trial court granted, per its Order
dated February 24, 1993.
On January 20, 1995, the trial court rendered judgment in favor of Lagon. The fallo of the decision reads:
WHEREFORE, upon all the foregoing considerations, judgment is hereby rendered:
1. ORDERING defendant Josefina L. Valdez, by herself, or through her duly authorized attorney-in-fact,
defendant Carlos L. Valdez, Jr., to execute the necessary registrable document of deed of absolute sale in
favor of the plaintiff over the remaining area of that parcel of land, the defendant sold to plaintiff on May
9, 1979, particularly Lot 3-C-3, Psd-12-005408 covered under Transfer Certificate of Title No. T-18816, in
the name of defendant Josefina de Leon Vda. de Valdez, and for the latter to deliver to plaintiff the
possession of and the transfer certificate of title thereof, and ORDERING further the defendants to pay,
jointly and severally, plaintiff the current fair market value of the remaining area of the land sold to the
latter which defendants may not be able to deliver and transfer ownership thereof to the plaintiff, minus
the amount of P26,880.00 representing the unpaid balance of the agreed purchase price of the 4,094
square meter-portion of land sold to plaintiff in the total amount of P163,760.00;
2. ORDERING defendants to pay plaintiff, jointly and severally, the sums of:
(a) P50,000.00 representing attorneys fees for the legal services of plaintiffs counsel,
plusP5,000.00, as appearance fee for plaintiffs counsel, per hearing, for not less than ten (10)
times;
(b) P2,119.00 as filing fees (Exhibits "W", "W-1", "W-2", and "W-3") paid by plaintiff for the filing of
this case;
(c) P23,585.50 representing transportation expenses of plaintiffs counsel through PAL flights from
Manila to attend court hearings in this Court, and in going back to Manila (Exhibits "FF", "FF-1",
"GG", "HH", "II", "JJ", "KK", "LL", and "MM");
(d) P50,000.00 for and as moral and exemplary damages; and, further
ORDERING defendants, jointly and severally, to pay the costs of suit.
For lack of merit, the counterclaim interposed by defendants should be, as it is hereby, dismissed.
IT IS SO ORDERED.35
Josefina and Carlos, Jr. appealed the decision to the Court of Appeals, contending that
I. THE LOWER COURT ERRED IN NOT UPHOLDING THE DEFENSE OF THE DEFENDANTS-APPELLANTS THAT THE
PLAINTIFF-APPELLEE HAS NO VALID CAUSE OF ACTION AGAINST THEM CONSIDERING THAT HE FAILED TO COMPLY
WITH THE TERMS AND CONDITIONS OF HIS WRITTEN CONTRACTS WITH THE DEFENDANTS-APPELLANTS.
II. THE COURT ERRED IN NOT UPHOLDING THAT EXHIBIT "3" WHICH IS THE AFFIDAVIT OF PLAINTIFF-APPELLEE,
WAS PART OF THE AGREEMENTS OF THE PARTIES AS IT WAS ADMITTED BY HIM. IT MUST BE ENFORCED AND
PLAINTIFF-APPELLEE IS LIABLE FOR BREACH OF HIS CONTRACT WITH THE DEFENDANTS-APPELLANTS.
III. THE LOWER COURT ERRED WHEN IT RULED THAT THE TERMS AND CONDITIONS IN THE SPECIAL POWER OF
ATTORNEY (EXHIBITS "1-C" AND "A-1") WERE NOT PART OF THE DEED OF ABSOLUTE SALE (EXHIBITS "1" AND "A")
EXECUTED BY THE PARTIES.
IV. THE LOWER COURT ERRED IN NOT DECLARING THAT THE ACT OF THE DEFENDANTS-APPELLANTS IN
RESCINDING THEIR CONTRACT WITH THE PLAINTIFF-APPELLEE WAS PERFECTLY LEGAL, VALID, EFFECTIVE AND
BINDING ON THE PLAINTIFF-APPELLEE.
V. THE LOWER COURT ERRED IN NOT RENDERING JUDGMENT IN FAVOR OF THE DEFENDANTS-APPELLANTS DESPITE
THE OVERWHELMING EVIDENCE OF THE MANIFEST INCREDULITY AND UNWORTHINESS OF THE EVIDENCE OF THE

PLAINTIFF-APPELLEE.
VI. THE LOWER COURT ERRED IN NOT FINDING THAT THE PLAINTIFF-APPELLEE IS GUILTY OF LACHES OR ESTOPPEL.
VII. THE COURT ERRED IN AWARDING DAMAGES TO THE PLAINTIFF-APPELLEE AND DISMISSING THE
COUNTERCLAIM OF THE DEFENDANTS-APPELLANTS.36
The appellate court rendered judgment on January 28, 1998 reversing the decision of the RTC. The fallo of the decision
reads:
IN VIEW WHEREOF, the Decision of the Lower Court dated January 20, 1995 is hereby REVERSED and SET ASIDE.
Appellants are hereby ordered to return to Appellee the sum of P101,880.00 together with 12% interest per
annum from the finality of this decision. The case filed in the Court a quo is hereby ordered DISMISSED.37
The appellate court ruled that based on the deed of absolute sale, the Special Power of Attorney executed by Josefina, and
the affidavit of the respondent, the parties had executed a contract to sell. The respondent filed a motion for the
reconsideration thereof.
On February 4, 1999, the Court of Appeals reversed itself and rendered an Amended Decision, setting aside its decision
and affirming that of the RTC. This time, the appellate court held that Josefina had, after all, executed a deed of absolute
sale over the 4,094-square-meter portion of Lot No. 3. It declared that the Special Power of Attorney executed by Josefina
and the affidavit did not form part of the deed of absolute sale. It further declared that Lagons affidavit could not be
considered part of the said deed because it was merely an afterthought contrived by Carlos, Jr.
The appellate court also held that even if the Special Power of Attorney and affidavit formed integral parts of the deed of
absolute sale, Lagon was justified in refusing to pay the balance of the purchase price of the property and to comply with
his undertaking thereon, because Josefinas refusal to deliver the title to the property made it impossible to determine the
metes and bounds thereof. According to the appellate court, under Article 1186 of the New Civil Code, the conditions of
the sale are deemed fulfilled. Moreover, the Court of Appeals ruled, the appellants failed to comply with the procedure
under Article 1592 of the New Civil Code in rescinding the sale.
Josefina and Carlos, Jr., now the petitioners, filed their petition for review on certiorari wherein they raised the following
issues:
I. WHETHER OR NOT THE CONTRACT OF THE PARTIES BEING SUBJECT TO THE SUSPENSIVE CONDITIONS AGREED
UPON WAS A CONTRACT TO SELL OR A CONTRACT OF SALE?
II. WHETHER OF (SIC) NOT THE PETITIONERS HAD THE RIGHT TO RESCIND THEIR CONTRACT WITH PRIVATE
RESPONDENT?
III. WHETHER OF (SIC) NOT PRIVATE RESPONDENT IS ENTITLED TO HIS CLAIM FOR SPECIFIC PERFORMANCE AND
DAMAGES CONSIDERING HIS FAILURE TO COMPLY WITH THE SUSPENSIVE CONDITIONS AGREED UPON?38
The petitioners assert that, the contract agreed upon by the parties was a contract to sell and not a contract of sale. The
petitioners contend that the three documents, the deed of absolute sale, the special power of attorney executed by
petitioner Josefina and the affidavit of the respondent dated April 27, 1981, formed integral parts containing the terms
and conditions of one and the same transaction. They emphasize that the respondent knew that his contract with
petitioner Josefina was a contract to sell because he did not acquire a torrens title over the property nor took possession
thereof after the execution of the deed of absolute sale; the respondent even failed to register the said deed with the
Office of the Register of Deeds and to declare the same for taxation purposes under his name. They aver that the
requirements under Article 1592 of the New Civil Code do not apply to a contract to sell but only to a contract of sale.
The petitioners insist that the Court of Appeals erred in declaring that the conditions of the sale were deemed fulfilled by
their failure to deliver the torrens title to the property to the respondent, on its finding that notwithstanding such failure,
the respondent continued making partial payments of the purchase price of the property to the petitioners.
In his comment on the petition, the respondent reiterates that based on the evidence on record, the admissions of the
petitioners, as well as the special power of attorney executed by petitioner Josefina, a deed of absolute sale was executed
between him and petitioner Josefina, not merely a contract to sell of the portions of Lots 3-C and 3-D. He alleges that
under Articles 1477 and 1498 of the New Civil Code, he acquired title and possession of the property upon the execution
of the said deed.
The Ruling of the Court
The Subject Property is the Exclusive Property of Josefina de Leon Valdez
Intricately interwoven with the threshold issue raised by the petitioners is the issue of the nature of Lot No. 3 of Pls-208-D13 covered by TCT No. T-19529 (T-1902).
In the deed of absolute sale executed by petitioner Josefina in favor of the respondent, she declared that she was the
absolute owner of the said property.39 However, in the deed of extrajudicial settlement of the estate of Carlos Valdez, Sr.
executed by petitioner Josefina and her children on December 31, 1982, the subject property was declared as part of the
estate of the deceased.40 The Court of Appeals, under its Amended Decision, affirmed the finding of the RTC that it was
only after the execution of the said deed of extrajudicial settlement that petitioner Josefina became the absolute owner of
the property.41 However, we find that both the trial and appellate courts erred in so ruling.
We note that TCT No. T-19529 (T-1902) covering the property was issued on August 18, 1967, during the marriage of the
Spouses Carlos Valdez, Sr. and petitioner Josefina, under the name "Josefina L. Valdez married to Carlos Valdez, Sr." The

issuance of the title in the name solely of one spouse is not determinative of the conjugal nature of the property, since
there is no showing that it was acquired during the marriage of the Spouses Carlos Valdez, Sr. and Josefina L.
Valdez.42 The presumption under Article 160 of the New Civil Code, that property acquired during marriage is conjugal,
does not apply where there is no showing as to when the property alleged to be conjugal was acquired. The presumption
cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are
involved.43 Moreover, when the property is registered in the name of only one spouse and there is no showing as to when
the property was acquired by same spouse, this is an indication that the property belongs exclusively to the said
spouse.44
In this case, there is no evidence to indicate when the property was acquired by petitioner Josefina. Thus, we agree with
petitioner Josefinas declaration in the deed of absolute sale she executed in favor of the respondent that she was the
absolute and sole owner of the property. We are convinced that the declaration in the deed of extrajudicial settlement of
the estate of the late Carlos Valdez, Sr., that the property formed part of his estate and that his children waived their
rights and claims over the property in favor of their mother, was done merely to facilitate the issuance of a torrens title
over the property in petitioner Josefinas name with her marital status as widow.
Petitioner Josefina Valdez and the Respondent entered into a Contract of Sale over the Subject Property
The RTC, as well as the Court of Appeals in its Amended Decision, held that petitioner Josefina and the respondent entered
into a contract of sale, not a contract to sell, over the subject property, relying solely on the deed of absolute sale
executed by her on May 9, 1979. Although it was expressly stated in the Affidavit executed by the respondent on April 27,
1981 appended to the deed, the appellate court affirmed the ruling of the RTC that such Special Power of Attorney
executed by petitioner Josefina in favor of her son, petitioner Carlos, Jr., did not form part of the said deed. Both tribunals
ratiocinated that, indeed, under the Special Power of Attorney, part of the consideration of the sale of the subject property
was the construction of a commercial building and the transfer of the Isulan Rural Bank thereto within five (5) years from
the execution of the deed. However, since such condition was not actually incorporated in the said deed, the affidavit
prepared by petitioner Carlos, Jr. and signed by the respondent was but an afterthought contrived by petitioner Carlos, Jr.,
thus enabling him to surreptitiously insert a provision or condition in the deed of absolute sale.
We agree with the trial and appellate courts that petitioner Josefina and the respondent entered into a contract of sale
over the subject property and not merely a contract to sell the same.
It is not disputed by the parties that petitioner Josefina executed a Special Power of Attorney in favor of her son, petitioner
Carlos, Jr., as her attorney-in-fact, authorizing the latter to sell the subject property, and petitioner Josefina, through her
son, executed the deed of absolute sale over the subject property. She also acknowledged receipt of partial payments of
the purchase price of the property on April 21, 1981 through her attorney-in-fact; the balance of the purchase price thus
stood at P61,880.00 There is, likewise, no dispute that the respondent signed the affidavit on April 27, 1981. The parties,
however, differ on the real nature of their transaction and on whether the said affidavit formed an integral part of the
deed of absolute sale executed by petitioner Josefina in favor of the respondent.
The real nature of a contract may be determined from the express terms of the written agreement and from the
contemporaneous and subsequent acts of the parties thereto.45
In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued.46 If
the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations shall control.47 If the contract appears to be contrary to the evident intentions of the parties, the latter
shall prevail over the former.48 The denomination given by the parties in their contract is not conclusive of the nature of
the contents.49
The agreement of the parties may be embodied in only one contract or in two or more separate writings. In such event,
the writings of the parties should be read and interpreted together in such a way as to render their intention effective.50
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.51 From the time 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.52
In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery thereof, as
provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property and cannot recover it
until and unless the contract is resolved or rescinded by a notarial deed or by judicial action as provided for in Article 1540
of the New Civil Code. A contract is one of sale, absent any stipulation therein reserving title over the property to the
vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case
of non-payment.53 In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time, existed and discharges the obligations created thereunder.54 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. Such
payment 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.55
In this case, the deed of absolute sale executed by petitioner Josefina reads:
That the Vendor is the registered owner of Lot 3 Allah Valley Pls-208-D-3, located at Isulan, Sultan Kudarat,
covered by Transfer Certificate of Title No. (T-19529) T-1902 of the Register of Deeds of Cotabato, with eight (8)
lots subdivision duly approved pursuant to R.A. 440 on March 27, 1979.
That for and in consideration of the sum of EIGHTY THOUSAND PESOS (P80,000.00), Philippine Currency, in hand

paid by the VENDEE, receipt of which amount in Full is hereby acknowledged by the VENDOR, to the ENTIRE and
full satisfaction of the VENDOR, and who by these presents do hereby sell, cede, deliver and convey unto the said
VENDEE, his heirs, assigns and successors in interests, a portion of the above-mentioned lot, more particularly
described as follows:
TOTAL AREA: FOUR THOUSAND AND NINETY-FOUR (4,094) SQUARE METERS, WITH SIXTY-FOUR POINT
THREE (64.3) METERS, FRONTAGE, FACING THE NATIONAL HIGHWAY and the NGA Office, going towards the
BUENCAMINO MOVIE HOUSE, starting from the corner.
That the Vendor hereby warrants the peaceful possession and ownership of said vendee against any adverse
claim.56
Irrefragably, the deed is one of sale, not a contract to sell. The deed specifically states that the property is sold and
delivered to the respondent as vendee. Petitioner Josefina even warranted the peaceful possession and ownership of the
respondent over the property subject of the transaction. She did not reserve the ownership over the property, as well as
any right to unilaterally rescind the contract. There has been, by the execution of the said deed, a constructive delivery of
the property to the respondent; hence, the latter acquired ownership over the same.57 Upon payment of the purchase
price, petitioner Josefina was obliged to deliver the torrens title over the property to and under the name of the
respondent as the new owner and place him, as vendee, in actual possession thereof; otherwise, the failure or inability to
do so constitutes a breach of the contract sufficient to justify its rescission.58
However, we rule that the deed of absolute sale was unenforceable as of the date of its execution, May 9, 1979. This is so,
because under the Special Power of Attorney petitioner Josefina executed in favor of her son, petitioner Carlos, Jr., the
latter was authorized to sell the property on cash basis only; petitioner Josefina likewise required the construction of a
commercial building and the transfer of the Rural Bank of Isulan, as part of the consideration of the sale to be
incorporated in the said deed as part of the respondents obligation as vendee, thus:
(a) To sell sixty four point three meters FRONTAGE and the full length of Lot 3, ALLAH VALLEY, Pls-208-D-13
described in TCT No. T-(19529) T-1902, somewhere in the 3rd and 4th lots of the 8 lots subdivision, located at
Poblacion, Isulan, Sultan Kudarat, registered in my name, consisting of Four Thousand Ninety-Four (4,094) Square
Meters;
(b) To RECEIVE and SIGN documents and papers necessary in the CONTRACT OF SALE with Mr. JOSE LAGON, and to
RECEIVE the full PRICE in CASH, to be determined by my son, CARLOS L. CARLOS, JR.;
(c) To IMPOSE in the Contract that aside from the PRICE, another consideration would be for Mr. JOSE LAGON to
transfer the RURAL BANK OF ISULAN to the above-mentioned lot and to put a commercial building, different from
the building of the Rural Bank of Isulan on the same lot.59
Clearly, petitioner Carlos, Jr. acted beyond the scope of his authority when he executed the deed of absolute sale in
contravention of petitioner Josefinas express instructions. Worse, he falsely declared in the said deed that the purchase
price was P80,000.00 and that he had already received the said amount, when, in fact, the property was sold for P40.00
per square meters, or a total of P163,760.00, and that as of May 9, 1979, he had not yet received the said amount. Under
Article 1317 of the New Civil Code, contracts executed by agents who have acted beyond their powers are unenforceable
unless ratified by the principal either expressly or impliedly:
Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by
law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it
has been executed, before it is revoked by the other contracting party.
Thus, the effectivity of the contract of sale in the case at bar depends upon the ratification thereof by petitioner Josefina
as principal. If she ratifies the deed, the sale is validated from the moment of its commencement, and not merely from the
time of its ratification.60 In such case, she can no longer maintain an action to annul the same based upon defects
relating to its original validity.61
We find that petitioner Josefina ratified the said deed when she received, through her son and attorney-in-fact petitioner
Carlos, Jr., partial payments of the purchase price of the property from the respondent on April 21, 1981. 62 Such
ratification retroacted to May 9, 1979, the date when petitioner Josefina, through her attorney-in-fact, executed the deed
of sale covering the subject property in favor of the respondent. Moreover, we rule that the respondent agreed on to
transfer the Rural Bank of Isulan to the subject property, and to cause the construction of a commercial building within
five (5) years reckoned from May 9, 1979 or until May 9, 1984, as evidenced by his affidavit.
We reject the findings of the RTC as affirmed by the CA that the affidavit signed by the respondent on April 27, 1981 was
merely an afterthought contrived by petitioner Carlos, Jr., and their conclusion that the said affidavit had no binding effect
on petitioner Josefina. The affidavit of the respondent reads:
1. That I am the Vendee of a Deed of Absolute Sale where the Vendor is Mrs. Josefina L. Valdez, represented by
CARLOS L. CARLOS, JR., through a Special Power of Attorney;
2. That the above-mentioned Deed of Absolute Sale is dated May 9, 1979 and the Special Power of Attorney also
above-mentioned was dated May 1, 1979, both duly notarized by Notary Public Atty. Bienvenido Noveno under
Doc. No. 77; Page No. 16; Book No. XIX; Series of 1979, and Doc. No. 73; Page No. 15; Book No. XIX; Series of
1979; respectively;

3. That the subject of the above-mentioned Deed of Absolute Sale is a lot consisting of 4,094 square meters,
covered by Transfer Certificate of Title No. T-19529 of the Register of Deeds for the Province of Cotabato, facing
the National Highway and the Isulan NGA Office going towards the Buencamino Movie House, starting from the
corner;
4. That the consideration of the above-mentioned Deed of Absolute Sale is EIGHTY THOUSAND PESOS
(P80,000.00) and in addition thereto, I hereby declare and manifest that the above-mentioned 4,094 square
meters be commercialized by putting up at least one (1) bank and any other commercial building in the said 4,094
square meters within a period of five (5) years from the time of the execution of the above-mentioned Deed of
Absolute Sale, in full operation;
5. That should I fail to commercialize the said 4,094 square meters in full operation within a period of five (5)
years as stated above, I hereby declare and manifest that said Deed of Absolute Sale shall be declared null and
void, without need of demand addressed to me;
6. That the purpose of this Affidavit is to make it clear that the consideration of the said Deed of Absolute Sale is
not only P80,000.00 cash but also the fact that the said 4,094 square meters be commercialized.63
The respondent admitted in his complaint that he undertook to construct the said building and transfer the Rural Bank of
Isulan to the property he had purchased from petitioner Josefina.64 The respondent affirmed the authenticity and due
execution of his affidavit and his obligations therein, and testified, thus:
ATTY. VALDEZ:
Q Mr. Lagon, you testified that according to you the construction of the same, the PCIB Isulan was a compliance of
your obligation under your contract with the Valdezes, do you recall having testified on that?
A Yes, Sir.
Q With in (sic) how many years, by the say (sic), were you supposed to comply with that condition by putting up a
bank or a commercial building in that area?
A Supposed to be five years, Sir.
Q From when?
A According to the affidavit, from the time I purchased the property up to or from May 9, 1979 to 1984, Sir.65
In his letter to petitioner Carlos, Jr., the respondent, through counsel, admitted the binding effect of his affidavit as follows:
It is hereby submitted therefore that there is in effect substantial compliance on the part of Mr. Lagon with regards
to the additional condition laid down in his affidavit herein-referred to. If you deem it that Mr. Lagon has not
satisfactorily complied with all the obligations you imposed upon him to do thereunder, it is made to reasons not
of his own making but due to factors brought about by circumstances then prevailing, and elaboration on the
same can only be properly stated on the proper to come.66
Far from being a mere affidavit, the document embodies the unequivocal undertaking of the respondent to construct a
fully operational commercial building and to transfer the Rural Bank of Isulan to the subject property as part of the
consideration of the sale within five (5) years from the execution of the deed of sale, or until May 9, 1984.
The intractable refusal of the respondent to pay the balance of the purchase price of the property despite the petitioners
demands had no legal basis. As such, petitioner Josefinas refusal to deliver the torrens title over the subject property
under the respondents name was justified, precisely because of the respondents refusal to comply with his obligation to
pay the balance of the purchase price. Had the respondent paid the purchase price of the property, such failure on the
part of petitioner Josefina to deliver the torrens title to and under the name of the respondent would have warranted the
suspension of the five-year period agreed upon for the construction of a fully operational commercial building, as well as
the transfer of the aforesaid bank to the property. This is so because absent such torrens title under the name of the
respondent, no building permit for the construction of the buildings could be secured.
Considering all the foregoing, the failure of the respondent to cause the construction of the commercial building and the
transfer of the bank to the property sold under the deed of sale executed between him and petitioner Josefina was due to
the respondents own fault.
There was no need for petitioner Josefina to make a notarized demand to the respondent or file an action to rescind the
deed of absolute sale to enable her to recover the ownership of the property. This is so because the petitioner and the
respondent had agreed that upon the latters failure to construct a new and fully operational commercial building and to
cause the transfer of the Rural Bank of Isulan to the property on or before May 9, 1984, the deed of absolute sale would
be deemed null and void without need of any demand from the petitioners. Such agreement is evidenced by the affidavit
executed by the respondent himself on April 27, 1981.
We do not agree with the respondents contentions that petitioner Josefina, through her son and attorney-in-fact petitioner
Carlos, Jr., had agreed to the sale of a portion of the property, the construction of the PCIB branch office thereon, and the
crediting of the amount paid by the PCIB to the respondents account, and deducted from the balance of the purchase
price. In the first place, the respondent failed to adduce a morsel of evidence that petitioner Josefina had knowledge of
the said agreement and had agreed thereto. Furthermore, the respondent failed to adduce documentary evidence that
petitioner Josefina authorized her son and attorney-in-fact to enter into such an agreement.
It bears stressing that petitioner Josefina specifically and unequivocally required in the special power of attorney, as part

of the consideration of the sale of the property to the respondent, the latters obligation to construct a new and fully
operational commercial building and transfer the Rural Bank of Isulan to the property. Had she agreed to modify the
Special Power of Attorney she executed in favor of her son, petitioner Carlos, Jr., for sure, she would have executed a
document to that effect. She did not do so. Petitioner Carlos, Jr. could not lawfully bind petitioner Josefina thereon because
he was not so authorized to enter into such an agreement with the respondent; neither can such authority be implied from
the Special Power of Attorney petitioner Josefina executed in favor of her son, petitioner Carlos, Jr.
In sum, then, the respondent had no cause for specific performance against the petitioners. However, the petitioners are
obliged to refund to the respondent the latters partial payments for the subject property.67
The petitioners failed to adduce sufficient evidence to prove their counterclaims, and, as such, the counterclaims must
forthwith be dismissed.
IN LIGHT OF ALL THE FOREGOING, the Amended Decision of the Court of Appeals dated February 4, 1999
isREVERSED and SET ASIDE. The complaint of the respondent is DISMISSED. The petitioners are directed to refund to
the respondent the amount of P101,880.00 with interest thereon at the rate of 12% per annum from the finality of this
decision. No costs.
SO ORDERED.

G.R. No. 119641 May 17, 1996

PHILIPPINE
AIRLINES,
vs.
COURT OF APPEALS, DR. JOSEFINO MIRANDA and LUISA MIRANDA, respondents.

INC., petitioner,

REGALADO, J.:p
In this appeal by certiorari, petitioner Philippine Airlines, Inc. (PAL) assails the decision of respondent Court of Appeals in
CA-G.R.
CV
No.
29147 1 which affirmed the judgment of the trial court finding herein petitioner liable as follows:
Wherefore, premises considered, judgment is hereby rendered ordering the defendant, Philippine Airlines
or PAL, to pay to the plaintiffs, Dr. Josefino Miranda and Luisa Miranda, the sum of P100,000.00 as moral
damages; P30,000.00 as exemplary or corrective damages; P10,000.00 as attorney's fees; and the
costs. 2
The factual antecedents of the present petition reveal that sometime in May, 1988, Dr. Josefino Miranda and his wife,
Luisa, who were residents of Surigao City, went to the United States of America on a regular flight of Philippine Airlines,
Inc. (PAL). On June 19, 1988, after a stay of over a month there, they obtained confirmed bookings from PAL's San
Francisco Office for PAL Flight PR 101 from San Francisco to Manila via Honolulu on June 21, 1988; PAL flight PR 851 from
Manila to Cebu on June 24, 1988; and PAL Flight PR 905 from Cebu to Surigao also on June 24, 1988.
Accordingly, on June 21, 1988, private respondents boarded PAL Flight PR 101 in San Francisco with five (5) pieces of
baggage. After a stopover at Honolulu, and upon arrival in Manila on June 23, 1988, they were told by the PAL personnel
that their baggage consisting of two balikbayan boxes, two pieces of luggage and one fishing rod case were off-loaded at
Honolulu, Hawaii due to weight limitations. Consequently, private respondents missed their connecting flight from Manila
to Cebu City, as originally scheduled, since they had to wait for their baggage which arrived the following day, June 24,
1988, after their pre-scheduled connecting flight had left. They consequently also missed their other scheduled
connecting flight from Cebu City to Surigao City.
On June 25, 1988, they departed for Cebu City and therefrom private respondents had to transfer to PAL Flight 471 for
Surigao City. On the way to Surigao City, the pilot announced that they had to return to Mactan Airport due to some
mechanical problem. While at Mactan Airport, the passengers were provided by PAL with lunch and were booked for the
afternoon flight to Surigao City. However, said flight was also canceled.
Since there were no more lights for Surigao City that day, private respondents asked to be billeted at the Cebu Plaza Hotel
where they usually stay whenever they happen to be in Cebu City. They were, however, told by the PAL employees that
they could not be accommodated at said hotel supposedly because it was fully booked. Contrarily, when Dr. Miranda
called the hotel, he was informed that he and his wife could be accommodated there. Although reluctant at first, PAL
eventually agreed to private respondents' overnight stay at said hotel. Oscar Jereza, PAL duty manager, approved the
corresponding hotel authority with standard meals. It was only after private respondents' insistence that their meals be
ordered a la carte that they were allowed to do so by PAL provided that they sign for their orders.
Inasmuch as the shuttle bus had already left by the time private respondents were ready to go to the hotel, PAL offered
them P150.00 to include the fare for the return trip to the airport. Dr. Miranda asked for P150.00 more as he and his wife,
along with all of their baggage, could not be accommodated in just one taxi, aside from the need for tipping money for
hotel boys. Upon refusal of this simple request, Dr. Miranda then declared that he would forego the amenities offered by
PAL. Thus, the voucher for P150.00 and the authority for the hotel accommodations prepared by PAL were voided due to
private respondents' decision not to avail themselves thereof.
To aggravate the muddled situation, when private respondents tried to retrieve their baggage, they were told this time
that the same were loaded on another earlier PAL flight to Surigao City. Thus, private respondents proceeded to the
hotel sans their baggage and of which they were deprived for the remainder of their trip. Private respondents were finally
able to leave on board the first PAL flight to Surigao City only on June 26, 1988. Thereafter, they instituted an action for
damages which, after trial as well as on appeal, was decided in their favor.
Petitioner PAL has come to us via the instant petition for review on certiorari, wherein it challenges the affirmatory
decision of respondent Court of Appeals 3 (1) for applying Articles 2220, 2232 and 2208 of the Civil Code when it
sustained the award of the court a quo for moral and exemplary damages and attorney's fees despite absence of bad faith
on its part; and (2) for not applying the express provisions of the contract of carriage and pertinent provisions of the
Warsaw Convention limiting its liability to US$20.00 per kilo of baggage.
I. Anent the first issue, petitioner argues that there was no bad faith on its part for while there was admittedly a delay in
fulfilling its obligation under the contract of carriage with respect to the transport of passengers and the delivery of their
baggage, such delay was justified by the paramount consideration of ensuring the safety of its passengers. It likewise
maintains that its employees treated private respondents fairly and with courtesy to the extent of acceding to most of
their demands in order to mitigate the inconvenience occasioned by the measures undertaken by the airline to ensure
passenger safety. 4
It reiterated its position that the off-loading of private respondents' baggage was due to "weight limitations," as lengthily
explained by petitioner from an aeronautically technical viewpoint, 5 taking into consideration such variable factors as
flight distance, weather, air resistance, runway condition and fuel requirement. Given the variable weather conditions, it
claimed that the weight limitation for each flight can only be ascertained shortly before take-off. While admittedly there

would be a resulting inconvenience in the accommodations of the passengers and the handling of their cargo, the same is
outweighed by the paramount concern for the safety of the flight.
Petitioner moreover impugns the Court of Appeal's allegedly improper reliance on the inaccurate interpretation of the
testimony of PAL's baggage service representative, Edgar Mondejar, * that private respondents' baggage were off-loaded
to give preference to baggage and/or cargo originating from Honolulu. PAL argues that Mondejar's knowledge of what
transpired in Honolulu was merely based on the telex report forwarded to PAL's Manila station stating that the off-loading
was due to weight limitations. 6
Petitioner enumerates the following incidents as indicative of its good faith in dealing with private respondents: (1) The
cancellation of the flight to Surigao City due to mechanical/engine trouble was to ensure the safety of passengers and
cargo; (2) PAL offered to shoulder private respondents' preferred accommodations, meals and transportation while in Cebu
City with more than the usual amenities given in cases of flight disruption, and gave them priority in the following day's
flight to Surigao City; (3) PAL employees did not act rudely towards private respondents and its managerial personnel
even gave them special attention; (4) It was reasonable for PAL to limit the transportation expense to P150.00,
considering that the fare between the airport and the hotel was only P75.00, and they would be picked up by the shuttle
bus from the hotel to the airport, while the request for money for tips could not be justified; and (5) The inadvertent
loading of private respondents' baggage on the replacement flight to Surigao City was at most simple and excusable
negligence due to the numerous flight disruptions and large number of baggage on that day.
Petitioner strenuously, and understandably, insists that its employees did not lie to private respondents regarding the
want of accommodations at the latter's hotel of preference. The only reason why Cebu Plaza Hotel was not initially offered
to them by PAL was because of the earlier advice of the hotel personnel that not all the stranded PAL passengers could be
accommodated therein. It claimed that it was in accordance with the airline's policy of housing all affected passengers in
one location for easy communication and transportation, which accommodations in this instance could be provided by
Magellan Hotel. However, upon insistence of the Mirandas on their preference for Cebu Plaza Hotel, Jeremias Tumulak,
PAL's passenger relations officer, told them that they could use the office phone and that if they could arrange for such
accommodation PAL would shoulder the expenses. This concession, so petitioner avers, negates any malicious intent on
its part.
Crucial to the determination of the propriety of the award of damages in this case is the lower court's findings on the
matter of bad faith, which deserves to be quoted at length:
These claims were reasonable and appeared to be supported by the evidence. Thus it cannot be denied
that plaintiffs had to undergo some personal inconveniences in Manila for lack of their baggage. It is also
highly probable that plaintiffs' scheduled return to Surigao City was upset because of their having to wait
for one day for their missing things. Consequently, it was quite evident that the off-loading of plaintiffs'
baggage in Honolulu was the proximate cause of plaintiffs subsequent inconveniences for which they
claimed to have suffered social humiliation, wounded feelings, frustration and mental anguish.
xxx xxx xxx
In the present case there was a breach of contract committed in bad faith by the defendant airlines. As
previously noted, plaintiffs had a confirmed booking on PAL Flight PR 101 from San Francisco to Manila.
Therefore plaintiffs were entitled to an assured passage not only for themselves but for their baggage as
well. They had a legal right to rely on this.
The evidence showed that plaintiffs' baggage were properly loaded and stowed in the plane when it left
San Francisco for Honolulu. The off-loading or bumping off by defendant airlines of plaintiffs' baggage to
give way to other passengers or cargo was an arbitrary and oppressive act which clearly amounted to a
breach of contract committed in bad faith and with malice. In the aforecited case, the Supreme Court
defined bad faith as a breach of a known duty through some motive of interest or ill will. Self-enrichment
or fraternal interest, and not personal ill will, may have been the motive, but it is malice nevertheless
(infra).
As correctly pointed out in the Memorandum for Plaintiffs dated June 18, 1990 (pp. 4-5), the following
excerpt from the testimony of Edgar Mondejar clearly demonstrated the act of discrimination perpetrated
by defendant on the herein plaintiffs (TSN, Edgar Mondejar, Feb. 28, 1990, pp. 26-28), thus:
Q Before a plane departs, your office will see to it the plane loads the exact weight
limitation insofar as the cargoes (sic) and passengers are concerned, is that correct?
A Yes.
Q And so with the PR 101 flight starting mainland USA, it complied with the weight
limitation, passengers and baggages (sic) limitation, is that correct?
A Yes.
Q In other words the trip from the mainland USA started in Hawaii to off-load cargoes (sic),
you complied with the weight limitation and so on?
A Yes.
Q But you are saying upon arriving in Honolulu certain containers were off-loaded?
A Yes.

Q That would be therefore some containers were off-loaded to give way to some other
containers starting from Honolulu towards Manila?
A Yes.
Q In other words Mr. Mondejar, preference was given to cargoes (sic) newly loaded at
Honolulu instead of the cargoes (sic) already from mainland USA, is that correct?
A Yes.
The aforesaid testimony constituted a clear admission in defendant's evidence of facts amounting to a
breach of contract in bad faith. This being so, defendant must be held liable in damages for the
consequences of its action. 7 (Corrections indicated in original text.)
The trial court further found that the situation was aggravated by the following incidents: the poor treatment of the
Mirandas by the PAL employees during the stopover at Mactan Airport in Cebu; the cavalier and dubious response of
petitioner's personnel to the Miranda spouses' request to be billeted at the Cebu Plaza Hotel by denying the same
allegedly because it was fully booked, which claim was belied by the fact that Dr. Miranda was easily able to arrange for
accommodations thereat; and, the PAL employees' negligent, almost malicious, act of sending off the baggage of private
respondents to Surigao City, while they were still in Cebu, without any explanation for this gross oversight. 8
The Court of Appeals affirmed these findings of the trial court by stating that
While we recognize an airline's prerogative to off-load baggag(e) to conform with weight limitations for the
purpose of ensuring the safety of passengers, We, however, cannot sanction the motion (sic) and manner
it was carried out in this case.
It is uncontroverted that appellees' baggag(e) were properly weighed and loaded in the plane when it left
San Francisco for Honolulu. When they reached Honolulu, they were not informed that their baggag(e)
would be off-loaded. Ironically, if the purpose of the off-loading was to conform with the weight limitations,
why were other containers loaded in Honolulu? The real reason was revealed by Edgar Montejar, baggage
service representative of the appellant. . . . 9
xxx xxx xxx
As earlier noted, the off-loading of appellees' baggag(e) was done in bad faith because it was not really for
the purpose of complying with weight limitations but to give undue preference to newly-loaded baggag(e)
in Honolulu. This was followed by another mishandling of said baggag(e) in the twice-cancelled connecting
flight from Cebu to Surigao. Appellees' sad experience was further aggravated by the misconduct of
appellant's personnel in Cebu, who lied to appellees in denying their request to be billeted at Cebu Plaza
Hotel. 10
The Court has time and again ruled, and it cannot be over-emphasized, that a contract of air carriage generates a relation
attended with a public duty and any discourteous conduct on the part of a carrier's employee toward a passenger gives
the latter an action for damages and, more so, where there is bad faith. 11
It is settled that bad faith must be duly proved and not merely presumed. The existence of bad faith, being a factual
question, and the Supreme Court not being a trier of facts, the findings thereon of the trial court as well as of the Court of
Appeals shall not be disturbed on appeal and are entitled to great weight and respect. 12 Said findings are final and
conclusive upon the Supreme Court except, inter alia, where the findings of the Court of Appeals and the trial court are
contrary to each other. 13
It is evident that the issues raised in this petition are the correctness of the factual findings of the Court of Appeals of bad
faith on the part of petitioner and the award of damages against it. This Court has consistently held that the findings of
the Court of Appeals and the other lower courts are as a rule binding upon it, subject to certain exceptions created by
case law. As nothing in the record indicates any of such exceptions, the factual conclusions of the appellate court must be
affirmed. 14
It is now firmly settled that moral damages are recoverable in suits predicated on breach of a contract of carriage where it
is proved that the carrier was guilty of fraud or bad faith. 15 Inattention to and lack of care for the interests of its
passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to bad faith which
entitles the passenger to an award of moral damages. What the law considers as bad faith which may furnish the ground
for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the
enforcement of its terms, or any other kind of deceit. 16 Such unprofessional and proscribed conduct is attributable to
petitioner airline in the case at bar and the adverse doctrinal rule is accordingly applicable to it.
In Cathay Pacific Airways, Ltd. vs. Court of Appeals, et al., 17 a case which is virtually on all fours with the present
controversy, we stated:
In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent
and reckless when it failed to deliver the luggage of petitioner at the appointed place and time. We
agree. . . . While the mere failure of CATHAY to deliver respondent's luggage at the agreed place and time
did not ipso facto amount to willful misconduct since the luggage was eventually delivered to private
respondent, albeit belatedly, We are persuaded that the employees of CATHAY acted in bad faith, . . .
. . ., if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and
exemplary damages is proper.

It must, of course, be borne in mind that moral damages are not awarded to penalize the defendant but to compensate
the plaintiff for the injuries he may have suffered. 18 in a contractual or quasi-contractual relationship, exemplary
damages, on the other hand, may be awarded only if the defendant had acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 19 Attorney's fees in the concept of damages may be awarded where there is a finding
of bad faith. 20 The evidence on record amply sustains, and we correspondingly find, that the awards assessed against
petitioner on the aforestated items of damages are justified and reasonable.
At this juncture, it may also be pointed out that it is PAL's duty to provide assistance to private respondents and, for that
matter, any other passenger similarly inconvenienced due to delay in the completion of the transport and the receipt of
their baggage. Therefore, its unilateral and voluntary act of providing cash assistance is deemed part of its obligation as
an air carrier, and is hardly anything to rave about. Likewise, arrangements for and verification of requested hotel
accommodations for private respondents could and should have been done by PAL employees themselves, and not by Dr.
Miranda. It was rather patronizing of PAL to make much of the fact that they allowed Dr. Miranda to use its office
telephone in order to get a hotel room.
While it may be true that there was no direct evidence on record of blatant rudeness on the part of PAL employees
towards the Mirandas, the fact that private respondents were practically compelled to haggle for accommodations, a
situation unbefitting persons of their stature, is rather demeaning and it partakes of discourtesy magnified by PAL's
condescending attitude. Moreover, it cannot be denied that the PAL employees herein concerned were definitely less than
candid, to put it mildly, when they withheld information from private respondents that they could actually be
accommodated in a hotel of their choice.
Indeed, the flamboyant testimony of Oscar Jereza, * as PAL's duty manager, merely pays lip-service to, without putting
into reality, the avowed company policy of invariably making available and always granting the requests for the kind and
standard of accommodations demanded by and appropriate for its passengers. 21 Certainly, a more efficient service, and
not a lackadaisical and disorganized system, is expected of the nation's flag carrier, especially on an international flight.
For, on the picayune matter of transportation expenses, PAL was obviously and unduly scrimping even on the small
amount to be given to the Mirandas. PAL failed to consider that they were making arrangements for two paying round-trip
passengers, not penny-ante freeloaders, who had been inconvenienced by the numerous delays in flight services and
careless handling of their belongings by PAL. The niggardly attitude of its personnel in this unfortunate incident, as well as
their hair-splitting attempts at justification, is a disservice to the image which our national airline seeks to project in its
costly advertisements.
We agree with the findings of the lower court that the request of private respondents for monetary assistance of P300.00
for taxi fare was indeed justified, considering that there were two of them and they had several pieces of luggage which
had to be ferried between the airport and the hotel. Also, the request for a small additional sum for tips is equally
reasonable since tipping, especially in a first-rate hotel, is an accepted practice, of which the Court can take judicial
notice. This is aside from the fact that private respondents, having just arrived from an extended trip abroad, had already
run out of Philippine currency, which predicament was exacerbated by their additional stay in Manila due to the offloading of their baggage. All these inconveniences should have warranted a commonsensical and more understanding
treatment from PAL, considering that private respondents found themselves in. this unpleasant situation through no fault
of theirs.
2. On its second issue, petitioner avers that the express provisions on private respondents' tickets stipulating that liability
for delay in delivery of baggage shall be limited to US$20.00 per kilo of baggage delayed, unless the passenger declares a
higher valuation, constitutes the contract of carriage between PAL and private respondents.
It further contends that these express provisions are in compliance with the provisions of the Warsaw Convention for the
Unification of Rules Relating to International Carrier by Air, to which the Philippines is a signatory. Thereunder, it is
asserted that PAL flight PR 101 from San Francisco, U.S.A., to Manila, Philippines is an "international transportation" well
within the coverage of the Warsaw Convention.
Petitioner obstinately insists on the applicability of the provisions of the Warsaw Convention regarding the carrier's limited
liability since the off-loading was supposedly justified and not attended by bad faith. Neither was there any claim for loss
of baggage as in fact private respondents' baggage were, albeit delayed, received by them in good condition. 22
The court a quo debunked petitioner's arguments by this holding:
The defense raised by defendant airlines that it can be held liable only under the terms of the Warsaw
Convention (Answer, Special and Affirmative Defenses, dated October 26, 1988) is of no moment. For it
has also been held that Articles 17, 18 and 19 of the Warsaw Convention of 1929 merely declare the air
carriers liable for damages in the cases enumerated therein, if the conditions specified are present.
Neither the provisions of said articles nor others regulate or exclude liability for other breaches of contract
by air carriers (Northwest Airlines, Inc. vs. Nicolas Cuenca, et al., 14 SCRA 1063). 23
This ruling of the trial court was affirmed by respondent Court of Appeals, thus:
We are not persuaded. Appellees do not seek payment for loss of any baggage. They are claiming
damages arising from the discriminatory off-loading of their baggag(e). That cannot be limited by the
printed conditions in the tickets and baggage checks. Neither can the Warsaw Convention exclude nor
regulate the liability for other breaches of contract by air carriers. A recognition of the Warsaw Convention
does not preclude the operation of our Civil Code and related laws in determining the extent of liability of
common carriers in breach of contract of carriage, particularly for willful misconduct of their
employees. 24

The congruent finding of both the trial court and respondent court that there was discriminatory off-loading being a
factual question is, as stated earlier, binding upon and can no longer be passed upon by this Court, especially in view of
and in deference to the affirmance of the same by respondent appellate court.
There was no error on the part of the Court of Appeals when it refused to apply the provisions of the Warsaw Convention,
for in the words of this Court in the aforequoted Cathay Pacific case:
. . . although the Warsaw Convention has the force and effect of law in this country, being a treaty
commitment assumed by the Philippine government, said convention does not operate as an exclusive
enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an
absolute limit of the extent of that liability. The Warsaw Convention declares the carrier liable in the
enumerated cases and under certain limitations. However, it must not be construed to preclude the
operation of the Civil Code and pertinent laws. It does not regulate, much less exempt, the carrier from
liability for damages for violating the rights of its passengers under the contract of carriage, especially if
willful misconduct on the part of the carrier's employees is found or established, which is the case before
Us. . . .
ACCORDINGLY, finding no reversible error, the challenged judgment of respondent Court of Appeals is hereby AFFIRMED in
toto.
SO ORDERED.

G.R. No. 176707

February 17, 2010

ARLIN B. OBIASCA, 1 Petitioner,

vs.
JEANE O. BASALLOTE, Respondent.
DECISION
CORONA, J.:
When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness. Dura lex sed lex.
Nonetheless, the law should never be applied or interpreted to oppress one in order to favor another. As a court of law and
of justice, this Court has the duty to adjudicate conflicting claims based not only on the cold provision of the law but also
according to the higher principles of right and justice.
The facts of this case are undisputed.
On May 26, 2003, City Schools Division Superintendent Nelly B. Beloso appointed respondent Jeane O. Basallote to the
position of Administrative Officer II, Item No. OSEC-DECSB-ADO2-390030-1998, of the Department of Education (DepEd),
Tabaco National High School in Albay.2
Subsequently, in a letter dated June 4, 2003,3 the new City Schools Division Superintendent, Ma. Amy O. Oyardo, advised
School Principal Dr. Leticia B. Gonzales that the papers of the applicants for the position of Administrative Officer II of the
school, including those of respondent, were being returned and that a school ranking should be
accomplished and submitted to her office for review. In addition, Gonzales was advised that only qualified applicants
should be endorsed.
Respondent assumed the office of Administrative Officer II on June 19, 2003. Thereafter, however, she received a letter
from Ma. Teresa U. Diaz, Human Resource Management Officer I of the City Schools Division of Tabaco City, Albay,
informing her that her appointment could not be forwarded to the Civil Service Commission (CSC) because of her failure to
submit the position description form (PDF) duly signed by Gonzales.
Respondent tried to obtain Gozales signature but the latter refused despite repeated requests. When respondent
informed Oyardo of the situation, she was instead advised to return to her former teaching position of Teacher I.
Respondent followed the advice.
Meanwhile, on August 25, 2003, Oyardo appointed petitioner Arlin B. Obiasca to the same position of Administrative
Officer II. The appointment was sent to and was properly attested by the CSC.4 Upon learning this, respondent filed a
complaint with the Office of the Deputy Ombudsman for Luzon against Oyardo, Gonzales and Diaz.
In its decision, the Ombudsman found Oyardo and Gonzales administratively liable for withholding information from
respondent on the status of her appointment, and suspended them from the service for three months. Diaz was absolved
of any wrongdoing.5
Respondent also filed a protest with CSC Regional Office V. But the protest was dismissed on the ground that it should first
be submitted to the Grievance Committee of the DepEd for appropriate action.6
On motion for reconsideration, the protest was reinstated but was eventually dismissed for lack of merit. 7Respondent
appealed the dismissal of her protest to the CSC Regional Office which, however, dismissed the appeal for failure to show
that her appointment had been received and attested by the CSC.8
Respondent elevated the matter to the CSC. In its November 29, 2005 resolution, the CSC granted the appeal, approved
respondents appointment and recalled the approval of petitioners appointment.9
Aggrieved, petitioner filed a petition for certiorari in the Court of Appeals (CA) claiming that the CSC acted without factual
and legal bases in recalling his appointment. He also prayed for the issuance of a temporary restraining order and a writ
of preliminary injunction.
In its September 26, 2006 decision,10 the CA denied the petition and upheld respondents appointment which was
deemed effective immediately upon its issuance by the appointing authority on May 26, 2003. This was because
respondent had accepted the appointment upon her assumption of the duties and responsibilities of the position.
The CA found that respondent possessed all the qualifications and none of the disqualifications for the position of
Administrative Officer II; that due to the respondents valid appointment, no other appointment to the same position could
be made without the position being first vacated; that the petitioners appointment to the position was thus void; and
that, contrary to the argument of petitioner that he had been deprived of his right to due process when he was not
allowed to participate in the proceedings in the CSC, it was petitioner who failed to exercise his right by failing to submit a
single pleading despite being furnished with copies of the pleadings in the proceedings in the CSC.
The CA opined that Diaz unreasonably refused to affix her signature on respondents PDF and to submit respondents
appointment to the CSC on the ground of non-submission of respondents PDF. The CA ruled that the PDF was not even
required to be submitted and forwarded to the CSC.
Petitioner filed a motion for reconsideration but his motion was denied on February 8, 2007.11
Hence, this petition.12
Petitioner maintains that respondent was not validly appointed to the position of Administrative Officer II because her

appointment was never attested by the CSC. According to petitioner, without the CSC attestation, respondents
appointment as Administrative Officer II was never completed and never vested her a permanent title. As such,
respondents appointment could still be recalled or withdrawn by the appointing authority. Petitioner further argues that,
under the Omnibus Rules Implementing Book V of Executive Order (EO) No. 292,13 every appointment is required to be
submitted to the CSC within 30 days from the date of issuance; otherwise, the appointment becomes ineffective.14 Thus,
respondents appointment issued on May 23, 2003 should have been transmitted to the CSC not later than June 22, 2003
for proper attestation. However, because respondents appointment was not sent to the CSC within the proper period, her
appointment ceased to be effective and the position of Administrative Officer II was already vacant when petitioner was
appointed to it.
In her comment,15 respondent points out that her appointment was wrongfully not submitted by the proper persons to
the CSC for attestation. The reason given by Oyardo for the non-submission of respondents appointment papers to the
CSC the alleged failure of respondent to have her PDF duly signed by Gonzales was not a valid reason because the
PDF was not even required for the attestation of respondents appointment by the CSC.
After due consideration of the respective arguments of the parties, we deny the petition.
The law on the matter is clear. The problem is petitioners insistence that the law be applied in a manner that is unjust
and unreasonable.
Petitioner relies on an overly restrictive reading of Section 9(h) of PD 80716 which states, in part, that an appointment
must be submitted by the appointing authority to the CSC within 30 days from issuance, otherwise, the appointment
becomes ineffective:
Sec. 9. Powers and Functions of the Commission. The [CSC] shall administer the Civil Service and shall have the
following powers and functions:
xxx

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xxx

(h) Approve all appointments, whether original or promotional, to positions in the civil service, except those of presidential
appointees, members of the Armed Forces of the Philippines, police forces, firemen and jailguards, and disapprove those
where the appointees do not possess the appropriate eligibility or required qualifications. An appointment shall take effect
immediately upon issue by the appointing authority if the appointee assumes his duties immediately and shall remain
effective until it is disapproved by the [CSC], if this should take place, without prejudice to the liability of the appointing
authority for appointments issued in violation of existing laws or rules: Provided, finally, That the [CSC] shall keep a record
of appointments of all officers and employees in the civil service. All appointments requiring the approval of the
[CSC] as herein provided, shall be submitted to it by the appointing authority within thirty days from
issuance, otherwise the appointment becomes ineffective thirty days thereafter. (Emphasis supplied)
This provision is implemented in Section 11, Rule V of the Omnibus Rules Implementing Book V of EO 292 (Omnibus
Rules):
Section 11. An appointment not submitted to the [CSC] within thirty (30) days from the date of issuance which shall be
the date appearing on the fact of the appointment, shall be ineffective. xxx
Based on the foregoing provisions, petitioner argues that respondents appointment became effective on the day of her
appointment but it subsequently ceased to be so when the appointing authority did not submit her appointment to the
CSC for attestation within 30 days.
Petitioner is wrong.
The real issue in this case is whether the deliberate failure of the appointing authority (or other responsible officials) to
submit respondents appointment paper to the CSC within 30 days from its issuance made her appointment ineffective
and incomplete. Substantial reasons dictate that it did not.
Before discussing this issue, however, it must be brought to mind that CSC resolution dated November 29, 2005 recalling
petitioners appointment and approving that of respondent has long become final and executory.
Remedy to Assail CSC Decision or Resolution
Sections 16 and 18, Rule VI of the Omnibus Rules provide the proper remedy to assail a CSC decision or resolution:
Section 16. An employee who is still not satisfied with the decision of the [Merit System Protection Board] may appeal to
the [CSC] within fifteen days from receipt of the decision.
The decision of the [CSC] is final and executory if no petition for reconsideration is filed within fifteen days
from receipt thereof.
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xxx

Section 18. Failure to file a protest, appeal, petition for reconsideration or petition for review within the
prescribed period shall be deemed a waiver of such right and shall render the subject action/decision final
and executory. (Emphasis supplied)
In this case, petitioner did not file a petition for reconsideration of the CSC resolution dated November 29, 2005 before
filing a petition for review in the CA. Such fatal procedural lapse on petitioners part allowed the CSC resolution dated
November 29, 2005 to become final and executory.17 Hence, for all intents and purposes, the CSC resolution dated
November 29, 2005 has become immutable and can no longer be amended or modified.18A final and definitive

judgment can no longer be changed, revised, amended or reversed.19 Thus, in praying for the reversal of the
assailed Court of Appeals decision which affirmed the final and executory CSC resolution dated November 29, 2005,
petitioner would want the Court to reverse a final and executory judgment and disregard the doctrine of immutability of
final judgments.
True, a dissatisfied employee of the civil service is not preempted from availing of remedies other than those provided in
Section 18 of the Omnibus Rules. This is precisely the purpose of Rule 43 of the Rules of Court, which provides for the
filing of a petition for review as a remedy to challenge the decisions of the CSC.
While Section 18 of the Omnibus Rules does not supplant the mode of appeal under Rule 43, we cannot disregard Section
16 of the Omnibus Rules, which requires that a petition for reconsideration should be filed, otherwise, the CSC decision
will become final and executory, viz.:
The decision of the [CSC] is final and executory if no petition for reconsideration is filed within fifteen days
from receipt thereof. 1avvphi1
Note that the foregoing provision is a specific remedy as against CSC decisions involving its administrativefunction, that
is, on matters involving "appointments, whether original or promotional, to positions in the civil service," 20 as opposed to
its quasi-judicial function where it adjudicates the rights of persons before it, in accordance with the standards laid down
by the law.21
The doctrine of exhaustion of administrative remedies requires that, for reasons of law, comity and convenience, where
the enabling statute indicates a procedure for administrative review and provides a system of administrative appeal or
reconsideration, the courts will not entertain a case unless the available administrative remedies have been resorted to
and the appropriate authorities have been given an opportunity to act and correct the errors committed in the
administrative forum.22 In Orosa v. Roa,23 the Court ruled that if an appeal or remedy obtains or is available within the
administrative machinery, this should be resorted to before resort can be made to the courts. 24 While the doctrine of
exhaustion of administrative remedies is subject to certain exceptions,25 these are not present in this case.
Thus, absent any definitive ruling that the second paragraph of Section 16 is not mandatory and the filing of a petition for
reconsideration may be dispensed with, then the Court must adhere to the dictates of Section 16 of the Omnibus Rules.
Moreover, even in its substantive aspect, the petition is bereft of merit.
Section 9(h) of PD 807 Already Amended by Section 12 Book V of EO 292
It is incorrect to interpret Section 9(h) of Presidential Decree (PD) 807 as requiring that an appointment must be submitted
by the appointing authority to the CSC within 30 days from issuance, otherwise, the appointment would become
ineffective. Such interpretation fails to appreciate the relevant part of Section 9(h) which states that " an appointment
shall take effect immediately upon issue by the appointing authority if the appointee assumes his duties
immediately and shall remain effective until it is disapproved by the [CSC]." This provision is reinforced by
Section 1, Rule IV of the Revised Omnibus Rules on Appointments and Other Personnel Actions, which reads:
Section 1. An appointment issued in accordance with pertinent laws and rules shall take effect immediately
upon its issuance by the appointing authority, and if the appointee has assumed the duties of the position, he shall
be entitled to receive his salary at once without awaiting the approval of his appointment by the Commission. The
appointment shall remain effective until disapproved by the Commission. x x x (Emphasis supplied)
More importantly, Section 12, Book V of EO 292 amended Section 9(h) of PD 807 by deleting the requirement that all
appointments subject to CSC approval be submitted to it within 30 days. Section 12 of EO 292 provides:
Sec. 12. Powers and Functions. - The Commission shall have the following powers and functions:
xxx

xxx

xxx

(14) Take appropriate action on all appointments and other personnel matters in the Civil Service, including extension of
Service beyond retirement age;
(15) Inspect and audit the personnel actions and programs of the departments, agencies, bureaus, offices, local
government units and other instrumentalities of the government including government -owned or controlled corporations;
conduct periodic review of the decisions and actions of offices or officials to whom authority has been delegated by the
Commission as well as the conduct of the officials and the employees in these offices and apply appropriate sanctions
whenever necessary.
As a rule, an amendment by the deletion of certain words or phrases indicates an intention to change its meaning. 26 It is
presumed that the deletion would not have been made had there been no intention to effect a change in the meaning of
the law or rule.27 The word, phrase or sentence excised should accordingly be considered inoperative.28
The dissent refuses to recognize the amendment of Section 9(h) of PD 807 by EO 292 but rather finds the requirement of
submission of appointments within 30 days not inconsistent with the authority of the CSC to take appropriate action on all
appointments and other personnel matters. However, the intention to amend by deletion is unmistakable not only in the
operational meaning of EO 292 but in its legislative history as well.
PD 807 and EO 292 are not inconsistent insofar as they require CSC action on appointments to the civil service. This is
evident from the recognition accorded by EO 292, specifically under Section 12 (14) and (15) thereof, to the involvement
of the CSC in all personnel actions and programs of the government. However, while a restrictive period of 30 days within
which appointments must be submitted to the CSC is imposed under the last sentence of Section 9(h) of PD 807, none

was adopted by Section 12 (14) and (15) of EO 292. Rather, provisions subsequent to Section 12 merely state that the
CSC (and its liaison staff in various departments and agencies) shallperiodically monitor, inspect and audit personnel
actions.29 Moreover, under Section 9(h) of PD 807, appointments not submitted within 30 days to the CSC become
ineffective, no such specific adverse effect is contemplated under Section 12 (14) and (15) of EO 292. Certainly, the two
provisions are materially inconsistent with each other. And to insist on reconciling them by restoring the restrictive period
and punitive effect of Section 9(h) of PD 807, which EO 292 deliberately discarded, would be to rewrite the law by mere
judicial interpretation.30
Not even the historical development of civil service laws can justify the retention of such restrictive provisions. Public Law
No. 5,31 the law formally establishing a civil service system, merely directed that all heads of offices notify the Philippine
Civil Service Board "in writing without delay of all appointments x x x made in the classified service."32 The Revised
Administrative Code of 1917 was even less stringent as approval by the Director of the Civil Service of appointments of
temporary and emergency employees was required only when practicable. Finally, Republic Act (RA) 226033 imposed no
period within which appointments were attested to by local government treasurers to whom the CSC delegated its
authority to act on personnel actions but provided that if within 180 days after receipt of said appointments, the CSC shall
not have made any correction or revision, then such appointments shall be deemed to have been properly made.
Consequently, it was only under PD 807 that submission of appointments for approval by the CSC was subjected to a 30day period. That, however, has been lifted and abandoned by EO 292.
There being no requirement in EO 292 that appointments should be submitted to the CSC for attestation within 30 days
from issuance, it is doubtful by what authority the CSC imposed such condition under Section 11, Rule V of the Omnibus
Rules. It certainly cannot restore what EO 292 itself already and deliberately removed. At the very least, that requirement
cannot be used as basis to unjustly prejudice respondent.
Under the facts obtaining in this case, respondent promptly assumed her duties as Administrative Officer II when her
appointment was issued by the appointing authority. Thus, her appointment took effect immediately and remained
effective until disapproved by the CSC.34 Respondents appointment was never disapproved by the CSC. In fact, the CSC
was deprived of the opportunity to act promptly as it was wrongly prevented from doing so. More importantly, the CSC
subsequently approved respondents appointment and recalled that of petitioner, which recall has already become
final and immutable.
Second, it is undisputed that respondents appointment was not submitted to the CSC, not through her own fault but
because of Human Resource Management Officer I Ma. Teresa U. Diazs unjustified refusal to sign it on the feigned and
fallacious ground that respondents position description form had not been duly signed by School Principal Dr. Leticia B.
Gonzales.35 Indeed, the CSC even sanctioned Diaz for her failure to act in the required manner.36 Similarly, the
Ombudsman found both City Schools Division Superintendent Ma. Amy O. Oyardo and Gonzales administratively liable
and suspended them for three months for willfully withholding information from respondent on the status of her
appointment.
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xxx

All along, [respondent] was made to believe that her appointment was in order. During the same period, respondent
Gonzales, with respondent Oyardos knowledge, indifferently allowed [respondent] to plea for the signing of her [position
description form], when they could have easily apprised [respondent] about the revocation/withdrawal of her
appointment. Worse, when [respondent] informed Oyardo on 25 June 2003 about her assumption of office as
[Administrative Officer II], the latter directed [respondent] to go back to her post as Teacher I on the ground that
[respondent] had not been issued an attested appointment as [Administrative Officer II], even when [Oyardo] knew very
well that [respondents] appointment could not be processed with the CSC because of her order to re-evaluate the
applicants. This act by [Oyardo] is a mockery of the trust reposed upon her by [respondent], who, then in the state of
quandary, specifically sought [Oyardos] advice on what to do with her appointment, in the belief that her superior could
enlighten her on the matter.
It was only on 02 July 2003 when [Gonzales], in her letter, first made reference to a re-ranking of the applicants when
[respondent] learned about the recall by [Oyardo] of her appointment. At that time, the thirty-day period within which to
submit her appointment to the CSC has lapsed. [Oyardos] and Gonzales act of withholding information about the real
status of [respondents] appointment unjustly deprived her of pursuing whatever legal remedies available to her at that
time to protect her interest.37
Considering these willful and deliberate acts of the co-conspirators Diaz, Oyardo and Gonzales that caused undue
prejudice to respondent, the Court cannot look the other way and make respondent suffer the malicious consequences of
Gonzaless and Oyardos malfeasance. Otherwise, the Court would be recognizing a result that is unconscionable and
unjust by effectively validating the following inequities: respondent, who was vigilantly following up her appointment
paper, was left to hang and dry; to add insult to injury, not long after Oyardo advised her to return to her teaching
position, she (Oyardo) appointed petitioner in respondents stead.
The obvious misgiving that comes to mind is why Gonzales and Oyardo were able to promptly process petitioners
appointment and transmit the same to the CSC for attestation when they could not do so for respondent. There is no
doubt that office politics was moving behind the scenes.
In effect, Gonzales and Oyardos scheming and plotting unduly deprived respondent of the professional advancement she
deserved. While public office is not property to which one may acquire a vested right, it is nevertheless a protected
right.38
It cannot be overemphasized that respondents appointment became effective upon its issuance by the appointing

authority and it remained effective until disapproved by the CSC (if at all it ever was). Disregarding this rule and putting
undue importance on the provision requiring the submission of the appointment to the CSC within 30 days will reward
wrongdoing in the appointment process of public officials and employees. It will open the door for scheming officials to
block the completion and implementation of an appointment and render it ineffective by the simple expedient of not
submitting the appointment paper to the CSC. As indubitably shown in this case, even respondents vigilance could not
guard against the malice and grave abuse of discretion of her superiors.
There is no dispute that the approval of the CSC is a legal requirement to complete the appointment. Under settled
jurisprudence, the appointee acquires a vested legal right to the position or office pursuant to this completed
appointment.39 Respondents appointment was in fact already approved by the CSC with finality.
The purpose of the requirement to submit the appointment to the CSC is for the latter to approve or disapprove such
appointment depending on whether the appointee possesses the appropriate eligibility or required qualifications and
whether the laws and rules pertinent to the process of appointment have been followed. 40 With this in mind, respondents
appointment should all the more be deemed valid.
Respondents papers were in order. What was sought from her (the position description form duly signed by Gonzales) was
not even a prerequisite before her appointment papers could be forwarded to the CSC. More significantly, respondent was
qualified for the position. Thus, as stated by the CA:
The evidence also reveals compliance with the procedures that should be observed in the selection process for the vacant
position of Administrative Officer II and the issuance of the appointment to the respondent: the vacancy for the said
position was published on February 28, 2003; the Personnel Selection Board of Dep-Ed Division of Tabaco City conducted a
screening of the applicants, which included the respondent and the petitioner; the respondents qualifications met the
minimum qualifications for the position of Administrative Officer II provided by the CSC. She therefore qualified for
permanent appointment.41
There is no doubt that, had the appointing authority only submitted respondents appointment to the CSC within the said
30 days from its issuance, the CSC would (and could ) have approved it. In fact, when the CSC was later apprised of
respondents prior appointment when she protested petitioners subsequent appointment, it was respondents
appointment which the CSC approved. Petitioners appointment was recalled. These points were never rebutted as
petitioner gave undue emphasis to the non-attestation by the CSC of respondents appointment, without any regard for
the fact that the CSC actually approved respondents appointment.
Third, the Court is urged to overlook the injustice done to respondent by citing Favis v. Rupisan42 and Tomali v. Civil
Service Commission.43
However, reliance on Favis is misplaced. In Favis, the issue pertains to the necessity of the CSC approval, not the
submission of the appointment to the CSC within 30 days from issuance. Moreover, unlike Favis where there was an
apparent lack of effort to procure the approval of the CSC, respondent in this case was resolute in following up her
appointment papers. Thus, despite Favis having assumed the responsibilities of PVTA Assistant General Manager for
almost two years, the Court affirmed her removal, ruling that:
The tolerance, acquiescence or mistake of the proper officials, resulting in the non-observance of the pertinent rules on
the matter does not render the legal requirement, on the necessity of approval by the Commissioner of Civil
Service of appointments, ineffective and unenforceable.44 (Emphasis supplied)
Taken in its entirety, this case shows that the lack of CSC approval was not due to any negligence on
respondents part. Neither was it due to the "tolerance, acquiescence or mistake of the proper officials."
Rather, the underhanded machinations of Gonzales and Oyardo, as well as the gullibility of Diaz, were the
major reasons why respondents appointment was not even forwarded to the CSC.
Tomali, likewise, is not applicable. The facts are completely different. In Tomali, petitioner Tomalis appointment was not
approved by the CSC due to the belated transmittal thereof to the latter. The Court, citing Favis, ruled that the appointees
failure to secure the CSCs approval within the 30-day period rendered her appointment ineffective. It quoted the Merit
Systems Protection Boards finding that "there is no showing that the non-submission was motivated by bad faith, spite,
malice or at least attributed to the fault of the newly installed [Office of Muslim Affairs] Executive Director." The Court
observed:
Petitioner herself would not appear to be all that blameless. She assumed the position four months after her appointment
was issued or months after that appointment had already lapsed or had become ineffective by operation of law.
Petitioner's appointment was issued on 01 July 1990, but it was only on 31 May 1991 that it was submitted to the CSC, a
fact which she knew, should have known or should have at least verified considering the relatively long interval of time
between the date of her appointment and the date of her assumption to office.45
The Court also found that "[t]here (was) nothing on record to convince us that the new OMA Director (had) unjustly
favored private respondent nor (had) exercised his power of appointment in an arbitrary, whimsical or despotic
manner."46
The peculiar circumstances in Tomali are definitely not present here. As a matter of fact, the situation was exactly the
opposite. As we have repeatedly stressed, respondent was not remiss in zealously following up the status of her
appointment. It cannot be reasonably claimed that the failure to submit respondents appointment to the CSC was due to
her own fault. The culpability lay in the manner the appointing officials exercised their power with arbitrariness, whim and
despotism. The whole scheme was intended to favor another applicant.
Therefore, the lack of CSC approval in Favis and Tomali should be taken only in that light and not overly stretched to cover

any and all similar cases involving the 30-day rule. Certainly, the CSC approval cannot be done away with. However, an
innocent appointee like the respondent should not be penalized if her papers (which were in the custody and control of
others who, it turned out, were all scheming against her) did not reach the CSC on time. After all, her appointment was
subsequently approved by the CSC anyway.
Under Article 1186 of the Civil Code, "[t]he condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment." Applying this to the appointment process in the civil service, unless the appointee himself is negligent in
following up the submission of his appointment to the CSC for approval, he should not be prejudiced by any willful act
done in bad faith by the appointing authority to prevent the timely submission of his appointment to the CSC. While it may
be argued that the submission of respondents appointment to the CSC within 30 days was one of the conditions for the
approval of respondents appointment, however, deliberately and with bad faith, the officials responsible for the
submission of respondents appointment to the CSC prevented the fulfillment of the said condition. Thus, the said
condition should be deemed fulfilled.
The Court has already had the occasion to rule that an appointment remains valid in certain instances despite noncompliance of the proper officials with the pertinent CSC rules. In Civil Service Commission v. Joson, Jr.,47the CSC
challenged the validity of the appointment of Ong on the ground that, among others, it was not reported in the July 1995
Report of Personnel Action (ROPA), thus making such appointment ineffective. The subject rule provided that an
"appointment issued within the month but not listed in the ROPA for the said month shall become ineffective thirty days
from issuance." Rejecting the CSCs contention, the Court held that there was a legitimate justification for such delayed
observance of the rule:
We find the respondent's justification for the failure of the POEA to include Ong's appointment in its ROPA for July 1995 as
required by CSC Memorandum Circular No. 27, Series of 1994 to be in order. The records show that the [Philippine
Overseas Employment Administration (POEA)] did not include the contractual appointment of Ong in its July ROPA because
its request for exemption from the educational requisite for confidential staff members provided in [Memorandum
Circular] No. 38 had yet been resolved by the CSC. The resolution of the petitioner granting such request was received
only in November, 1995. The POEA, thereafter, reported the appointment in its November, 1995 ROPA.48
The Court reached the same conclusion in the recent case of Chavez v. Ronidel49 where there was a similar inaction from
the responsible officials which resulted in non-compliance with the requirement:
Lastly, we agree with the appellate court that respondent's appointment could not be invalidated solely because of
[Presidential Commission for the Urban Poors (PCUPs)] failure to submit two copies of the ROPA as required by CSC
Resolution No. 97368. xxxx
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We quote with approval the appellate court's ratiocination in this wise:

To our minds, however, the invalidation of the [respondent's] appointment based on this sole technical ground
is unwarranted, if not harsh and arbitrary, considering the factual milieu of this case. For one, it is not the
[respondent's] duty to comply with the requirement of the submission of the ROPA and the certified true copies of
her appointment to [the Civil Service Commission Field Office or] CSCFO within the period stated in the aforequoted CSC
Resolution. The said resolution categorically provides that it is the PCUP, and not the appointee as in the case of the
[respondent] here, which is required to comply with the said reportorial requirements.
Moreover, it bears pointing out that only a few days after the [petitioner] assumed his new post as PCUP Chairman, he
directed the PCUP to hold the processing of [respondent's] appointment papers in abeyance, until such time that an
assessment thereto is officially released from his office. Unfortunately, up to this very day, the [respondent] is still
defending her right to enjoy her promotional appointment as DMO V. Naturally, her appointment failed to comply
with the PCUP's reportorial requirements under CSC Resolution No. 97-3685precisely because of the
[petitioner's] inaction to the same.
We believe that the factual circumstances of this case calls for the application of equity. To our minds, the invalidation
of the [respondent's] appointment due to a procedural lapse which is undoubtedly beyond her control, and
certainly not of her own making but that of the [petitioner], justifies the relaxation of the provisions of CSC
Board Resolution No. 97-3685, pars. 6,7 and 8. Hence, her appointment must be upheld based on equitable
considerations, and that the non-submission of the ROPA and the certified true copies of her appointment to the CSCFO
within the period stated in the aforequoted CSC Resolution should not work to her damage and prejudice. Besides, the
[respondent] could not at all be faulted for negligence as she exerted all the necessary vigilance and efforts
to reap the blessings of a work promotion. Thus, We cannot simply ignore her plight. She has fought hard enough to
claim what is rightfully hers and, as a matter of simple justice, good conscience, and equity, We should not allow
Ourselves to prolong her agony.
All told, We hold that the [respondent's] appointment is valid, notwithstanding the aforecited procedural lapse on the part
of PCUP which obviously was the own making of herein [petitioner]. (Emphasis supplied)
Respondent deserves the same sympathy from the Court because there was also a telling reason behind the nonsubmission of her appointment paper within the 30-day period.
The relevance of Joson and Chavez to this case cannot be simply glossed over. While the agencies concerned in those
cases were accredited agencies of the CSC which could take final action on the appointments, that is not the case here.
Thus, any such differentiation is unnecessary. It did not even factor in the Courts disposition of the issue
in Joson and Chavez. What is crucial is that, in those cases, the Court upheld the appointment despite the non-compliance

with a CSC rule because (1) there were valid justifications for the lapse; (2) the non-compliance was beyond the control of
the appointee and (3) the appointee was not negligent. All these reasons are present in this case, thus, there is no basis in
saying that the afore-cited cases are not applicable here. Similar things merit similar treatment.1avvphi1
Fourth, in appointing petitioner, the appointing authority effectively revoked the previous appointment of respondent and
usurped the power of the CSC to withdraw or revoke an appointment that had already been accepted by the appointee. It
is the CSC, not the appointing authority, which has this power.50 This is clearly provided in Section 9, Rule V of the
Omnibus Rules:
Section 9. An appointment accepted by the appointee cannot be withdrawn or revoked by the appointing
authority and shall remain in force and effect until disapproved by the [CSC]. xxxx (Emphasis supplied)
Thus, the Court ruled in De Rama v. Court of Appeals51 that it is the CSC which is authorized to recall an appointment
initially approved when such appointment and approval are proven to be in disregard of applicable provisions of the civil
service law and regulations.
Petitioner seeks to inflexibly impose the condition of submission of the appointment to the CSC by the appointing
authority within 30 days from issuance, that is, regardless of the negligence/diligence of the appointee and the bad
faith/good faith of the appointing authority to ensure compliance with the condition. However, such stance would
place the appointee at the mercy and whim of the appointing authority even after a valid appointment has
been made. For although the appointing authority may not recall an appointment accepted by the appointee, he or she
can still achieve the same result through underhanded machinations that impedes or prevents the transmittal of the
appointment to the CSC. In other words, the insistence on a strict application of the condition regarding the submission of
the appointment to the CSC within 30 days, would give the appointing authority the power to do indirectly what he or she
cannot do directly. An administrative rule that is of doubtful basis will not only produce unjust consequences but also
corrupt the appointment process. Obviously, such undesirable end result could not have been the intention of the law.
The power to revoke an earlier appointment through the appointment of another may not be conceded to the appointing
authority. Such position is not only contrary to Section 9, Rule V and Section 1, Rule IV of the Omnibus Rules. It is also a
dangerous reading of the law because it unduly expands the discretion given to the appointing authority and removes the
checks and balances that will rein in any abuse that may take place. The Court cannot countenance such erroneous and
perilous interpretation of the law.
Accordingly, petitioners subsequent appointment was void. There can be no appointment to a non-vacant position. The
incumbent must first be legally removed, or her appointment validly terminated, before another can be appointed to
succeed her.52
In sum, the appointment of petitioner was inconsistent with the law and well-established jurisprudence. It not only
disregarded the doctrine of immutability of final judgments but also unduly concentrated on a narrow portion of the
provision of law, overlooking the greater part of the provision and other related rules and using a legal doctrine rigidly and
out of context. Its effect was to perpetuate an injustice.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED.

G.R. No. 172346

July 24, 2013

SPOUSES NAMEAL and LOURDES BONROSTRO, Petitioners,

vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents.
DECISION
DEL CASTILLO, J.:
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 Sell 5 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.
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 ofP46,303.44.
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 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
ofP330,000.00 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.
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.
However, the CA modified the RTC Decision with respect to interest, viz:
Nevertheless, there is a need to modify the appealed decision insofar as (i) the interest imposed on the sum
ofP300,000.00 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 x x
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.
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 above-mentioned modifications. The CA, however, denied for lack of merit the said
motion in a Resolution24 dated April 17, 2006.
Hence, this Petition for Review on Certiorari.
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 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.
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 above-quoted 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.
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 ofP46,303.44.40 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 paidP214,492.62,45 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.
SO ORDERED.

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.
DECISION
DEL CASTILLO, J.:
"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 Decision 3 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 ofP40,000.00 (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 DBP8in 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
Regular Interest
Advances

P 939,973.33
561,037.14
34,589.45

Additional Interest

2,590,786.26

Penalty Charges

1,068,147.19

Total claims as of January 31, 1989

P 5,194,533.37 18

Lim Account:
Matured [Obligation]:
Principal
Regular Interest

P 40,000.00
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
On May 4, 1990, Edmundo made a follow-up 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 toP2,542,285.60 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.
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 60-days 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
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio Tamayo, Jr. (Tamayo). 36Tamayo
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.
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, 1993 60which 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:
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
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.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay the outstanding amount
ofP6,404,412.92, 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?
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 the matter your utmost attention.
The bank also answered Edmundos queries, viz:
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,
- 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 Extra-Judicial 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.
Please give this matter your preferential attention. Thank you.82
On July 28, 1995, petitioners filed before the RTC of General Santos City, a Complaint83 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
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.
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
Ruling of the Regional Trial Court
On December 10, 1996, the RTC rendered a Decision,95 the dispositive portion of which reads:
WHEREFORE, in light of the foregoing, judgment is hereby rendered:
(1) Declaring that the [petitioners] have fully extinguished and discharged their obligation to the [respondent]
Bank;
(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;
(e) Attorneys fees in the amount of P100,000.00; and
(f) Expenses of litigation in the amount of P20,000.00.
[Respondent] Banks counterclaims are hereby DISMISSED.
[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 considered, judgment is hereby rendered:
Ordering the dismissal of the Complaint in Civil Case No. 5608;
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 Seventy-Nine 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.
SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the following issues:
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. 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 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 cut-off 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 Petition is partly meritorious.
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 foreclosure sale is not valid.
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;
(2) advances in the amount of P34,589.45;
(3) additional interest in the amount of P2,590,786.26; and
(4) penalty charges in the amount of P1,068,147.19.
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,
(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) additional interest in the amount of P92,113.56; and
(3) penalty charges in the amount of P39,915.46.
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 "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:
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:
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:
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:
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:
1/3% per month.
Q:
So, the imposition of the additional interest and the penalty charge is based on the same provision?
A:
Yes (TSN, 28 May 1996, pp. 41-42.)
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.
[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:
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 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.
SO ORDERED.

G.R. No. 119255

April 9, 2003

TOMAS K. CHUA, petitioner,

vs.
COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.
CARPIO, J.:
The Case
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:
30 June 1989
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).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 15 5 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
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 VicePresident Julie C. Pe notified in writing 9 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 above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS

only, broken down as follows:

SELLING PRICE
EARNEST MONEY
PARTIAL PAYMENT

P10,800,000.00
P100,000.00
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

80,000.00
P10,295,000.00
x x x.13

On the same day, 14 July 1989, Valdes-Choy, 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 ValdesChoy'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 loss 15 of
the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager's
check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stoppayment 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:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:
a. the owner's duplicate copy of TCT No. 162955 registered in her name;
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 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;
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:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendantappellant;
(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 ValdesChoy. 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.
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.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was due to ValdesChoy's fault.
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:
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;
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;
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 ValdesChoy; 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 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 ownershipof and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
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 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.
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 turn-over 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 Valdes-Choy 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 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 Sale covering the furnishings:
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 pre-requisite 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 Valdes-Choy 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 ValdesChoy 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.
SO ORDERED.

G.R. No. 123672 December 14, 2005

FERNANDO
CARRASCOSO,
JR., Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority Stockholder and On Behalf
of Other Stockholders of El Dorado Plantation, Inc. and EL DORADO PLANTATION, INC., represented by one of
its minority stockholders, Lauro P. Leviste, Respondents
x---------------------------------------x
G.R. No. 164489
PHILIPPINE
LONG
DISTANCE
TELEPHONE
COMPANY, Petitioner,
vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other Stockholders of El Dorado
Plantation, Inc., EL DORADO PLANTATION, INC., represented by Minority Stockholder, Lauro P. Leviste, and
FERNANDO CARRASCOSO, JR., Respondents.
DECISION
CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the property) with an area of
approximately 1,825 hectares covered by Transfer Certificate of Title (TCT) No. T-931 situated in Sablayan, Occidental
Mindoro.
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a Resolution2 was passed authorizing
Feliciano Leviste, then President of El Dorado, to negotiate the sale of the property and sign all documents and contracts
bearing thereon.
On March 23, 1972, by a Deed of Sale of Real Property,3 El Dorado, through Feliciano Leviste, sold the property to
Fernando O. Carrascoso, Jr. (Carrascoso).
The pertinent provisions of the Deed of Sale read:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED THOUSAND (1,800,000.00)
PESOS, Philippine Currency, the Vendor hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs,
successors and assigns, the above-described property subject to the following terms and consitions (sic):
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this sale, P290,000.00 shall be paid, as it is
hereby paid, to the Philippines (sic) National Bank, thereby effecting the release and cancellation fo (sic) the present
mortgage over the above-described property.
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the VENDOR, receipt of which amount
is hereby acknowledged by the VENDOR.
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum shall be paid by the
VENDEE to the VENDOR within a period of three (3) years, as follows:
(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.
(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the VENDOR the sum of FIVE
Hundred NINETEEN THOUSAND EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be transferred to the VENDEE who shall have full
authority to register the same and obtain the corresponding transfer certificate of title in his name.
xxx
6. THE VENDOR certifies and warrants that the property above-described is not being cultivated by any tenant and is
therefore not covered by the provisions of the Land Reform Code. If, therefore, the VENDEE becomes liable under the said
law, the VENDOR shall reimburse the VENDEE for all expenses and damages he may incur thereon. 4 (Underscoring
supplied)
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount of the purchase price on
March 23, 1975.
On even date, the Board of Directors of El Dorado passed a Resolution reading:
"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr. FERNANDO O. CARRASCOSO,
JR., the corporation interposes no objection to the property being mortgage (sic) by Dr. FERNANDO O.
CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed of Sale shall be recognized
by Dr. FERNANDO O. CARRASCOSO, JR.;
"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the property to be subordinated to any
mortgage that may be constituted by Dr. FERNANDO O. CARRASCOSO, JR.;

"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives the preference of any vendors
lien on the property."5 (Emphasis and underscoring supplied)
Feliciano Leviste also executed the following affidavit on the same day:
1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93 as evidenced by the Deed
of Sale attached hereto as Annex "A" and made an integral part hereof, the El Dorado Plantation, Inc. has no objection
to the aforementioned property being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his
choice, as long as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale,
Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though
subordinated to the preferred claim of the mortgagee bank.
2. That in case of any mortgage on the property, the vendor hereby waives the preference of any vendors lien on the
property, subject matter of the deed of sale.
3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando O. Carrascoso, Jr. to
mortgage the property subject of the Deed of Sale, Annex "A" hereof, where the purchase price provided therein has not
been fully paid.
4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation, Inc. 6 (Emphasis and
underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real Estate Mortgage 7 over the
property in favor of Home Savings Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this
amount, P290,000.00 was paid to Philippine National Bank to release the mortgage priorly constituted on the property
and P210,000.00 was paid to El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of
the Deed of Sale.8
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El Dorados TCT No. T-93 as Entry No.
152409 on April 5, 1972. On even date, TCT No. T-93 covering the property was cancelled and TCT No. T-6055 10 was in its
stead issued by the Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate mortgage
in favor of HSB was annotated as Entry No. 15242.11
On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an additional three year loan
of P70,000.00 as requested by the spouses Carrascoso.12 The Amendment of Real Estate Mortgage was also annotated
on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.13
The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed without him having complied
therewith.
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone Company (PLDT), through its
President Ramon Cojuangco, executed an Agreement to Buy and Sell14 whereby the former agreed to sell 1,000 hectares
of the property to the latter at a consideration of P3,000.00 per hectare or a total ofP3,000,000.00.
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on Carrascosos TCT No. T-6055.
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado, through his counsel, Atty.
Benjamin Aquino, by letter15 dated December 27, 1976, called the attention of the Board to Carrascosos failure to pay
the balance of the purchase price of the property amounting to P1,300,000.00. And Lauros lawyer manifested that:
Because of the default for a long time of Mr. Carrascoso to pay the balance of the consideration of the sale, Don Lauro
Leviste, in his behalf and in behalf of the other shareholders similarly situated like him, want a rescission of the sale made
by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take the corresponding action
for rescission.16
Lauros desire to rescind the sale was reiterated in two other letters 17 addressed to the Board dated January 20, 1977 and
March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to Carrascoso informing him that in
view of his failure to pay the balance of the purchase price of the property, El Dorado was seeking the rescission of the
March 23, 1972 Deed of Sale of Real Property.
The pertinent portions of the letter read:
xxx
I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long been due and payable,
although you have mortgaged said property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, which was
subsequently increased to P1,070,000.00 on May 18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned exclusively by the members of
the Leviste family and I am one of the co-owners of the land. As nothing appears to have been done on your part after our
numerous requests for payment of the said amount of P1,300,000.00 and the interest of 10% per annum due thereon,
please be advised that we would like to rescind the contract of sale of the land.19(Underscoring supplied)
Jose Leviste, by letter20 dated March 10, 1977, informed Lauros counsel Atty. Aquino of his (Joses) February 21, 1977
letter to Carrascoso, he lamenting that "Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply" and
advis[ing] that some of the Directors of [El Dorado] could not see their way clear in complying with the demands of your

client [Lauro] and have failed to reach a consensus to bring the corresponding action for rescission of the contract
against . . . Carrascoso."21
Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March 23, 1972 Deed of Sale of
Real Property between El Dorado and Carrascoso with damages before the Court of First Instance (CFI) of Occidental
Mindoro, docketed as Civil Case No. R-226.
Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of Carrascoso and the revival of TCT No.
T-93 in the name of El Dorado, free from any liens and encumbrances. Furthermore, the two prayed for the issuance of an
order for Carrascoso to: (1) reconvey the property to El Dorado upon return to him of P500,000.00, (2) secure a discharge
of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of the fruits of the property
from March 23, 1972 up to the return of possession of the land to El Dorado, (4) turn over said fruits or the equivalent
value thereof to El Dorado and (5) pay the amount ofP100,000.00 for attorneys fees and other damages.23
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a Notice of Lis Pendens, inscribed
as Entry No. 39737.24
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed of Absolute Sale25over the
1,000 hectare portion of the property subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions of
the Deed are as follows:
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on July 11, 1975, which is made a
part hereof by reference;
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute Sale referred to in the
aforementioned agreement to Buy and Sell;
WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder stated, the VENDOR and the
VENDEE have agreed as follows:
1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine currency, of which ONE
HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic) already been received by the VENDOR, the VENDOR hereby
sells, transfers and conveys unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T.
No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision survey plan xxx
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of TWO MILLION FIVE HUNDRED
THOUSAND PESOS (P2,500,000.00) in the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to Home Savings Bank in full payment
of the VENDORs mortgaged obligation therewith;
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY THOUSAND PESOS (P380,000.00),
less such expenses which may be advanced by the VENDEE but which are for the account of the VENDOR under
Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to the VENDORupon issuance of title to the
VENDEE.26 (Underscoring supplied)
In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000 hectare portion of the
property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount
of P2,620,000.00 of which was payable to PLDT upon signing of said Deed, and P380,000.00 to Carrascoso upon issuance
of title to PLDTAC.
In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special meeting, 28 adopted and approved a
Resolution ratifying and conferring "the prosecution of Civil Case No. R-226 of the Court of First Instance of Occidental
Mindoro, entitled Lauro P. Leviste vs. Fernando Carascoso (sic), etc. initiated by stockholder Mr. Lauro P. Leviste."29
In his Answer with Compulsory Counterclaim,30 Carrascoso alleged that: (1) he had not paid his remainingP1,300,000.00
obligation under the March 23, 1972 Deed of Sale of Real Property in view of the extensions of time to comply therewith
granted him by El Dorado; (2) the complaint suffered from fatal defects, there being no showing of compliance with the
condition precedent of exhaustion of intra-corporate remedies and the requirement that a derivative suit instituted by a
complaining stockholder be verified under oath; (3) El Dorado committed a gross misrepresentation when it warranted
that the property was not being cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4)
he suffered damages due to the premature filing of the complaint for which Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the respective Articles of
Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055 as Entry Nos. 24770,31 42774,324276933 and
24772,34 respectively. On even date, Carrascosos TCT No. T-6055 was cancelled and TCT No. T-12480 35 covering the
1,000 hectare portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis Pendens was
carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was granted by the trial court by
Order37 of September 7, 1978.
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim and Crossclaim 38against
Carrascoso on November 13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of Absolute Sale in
favor of PLDT, PLDT was not aware of any litigation involving the 1,000 hectare portion of the property or of any flaw in his

title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30, 1977 Deed of Absolute Sale
in favor of PLDTAC, they had no knowledge of any pending litigation over the property and neither were they aware that a
notice of lis pendens had been annotated on Carrascosos title; and (4) Lauro and El Dorado knew of the sale by
Carrascoso to PLDT and PLDTs actual possession of the 1,000 hectare portion of the property since June 30, 1975 and of
its exercise of exclusive rights of ownership thereon through agricultural development.39
By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional Trial Court to which the CFI has
been renamed, dismissed the complaint on the ground of prematurity, disposing as follows, quotedverbatim:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:
1. Dismissing the plaintiffs complaint against the defendant on the ground of prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and compensatory damages, as well
as the sum of P100,000.00 as and for attorneys fees; provided, however, that the aforesaid amounts must first be set off
from the latters unpaid balance to the former;
3. Dismissing the defendants-intervenors counterclaim and cross-claim; and
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED.41 (Underscoring supplied)
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court, disposing as follows,
quoted verbatim:
WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby DISMISSED and finding El Dorados appeal to be
impressed with merit, We REVERSE the appealed Decision and render the following judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480 (Exhibit Q) is cancelled while TCT
No. T-93 (Exhibit A), is reactivated.
2. Fernando Carrascoso, Jr. is commanded to:
2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado Plantation, Inc. without
prejudice to the landholdings of legitimate tenants thereon;
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July 11, 1975, and of the 825hectare-remaining portion minus the tenants landholdings, from July 11, 1975 up to its delivery to El Dorado Plantation,
Inc. including whatever he may have received from the tenants if any by way of compensation under the Operation Land
Transfer or under any other pertinent agrarian law;
2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation expenses of P30,000.00;
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation P3,000,000.00 plus legal
interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare Farm to El Dorado Plantation,
Inc.;
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr. plus legal interest from
March 23, 1972 until fully paid. The performance of this obligation will however await the full compliance by Fernando
Carrascoso, Jr. of his obligation to account for and deliver the net fruits of the land mentioned above to El Dorado
Plantation, Inc.
5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a quo a full accounting of the
fruits of the land during the period mentioned above for the latters approval, after which the net fruits shall be delivered
to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in
writing within ten (10) days after finality of this decision regarding the exercise of its option under Art. 448 of the Civil
Code.
SO ORDERED.43 (Underscoring supplied)
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration44 of the January 31, 1996 CA Decision, while
Carrascoso went up this Court by filing on March 25, 1996 a petition for review, 45 docketed as G.R. No. 123672, assailing
the January 31, 1996 CA Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court except
with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000 hectare portion of the property was
subject to the notice of lis pendens.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party 46 was filed praying that his
heirs, represented by Conrad C. Leviste, be substituted as respondents. The Motion was granted by Resolution 47 of July
10, 1996.
PLDT and PLDTAC filed their Comment48 to Carrascosos petition and prayed that judgment be rendered finding them to
be purchasers in good faith to thus entitle them to possession and ownership of the 1,000 hectare portion of the property,
together with all the improvements they built thereon. Reiterating that they were not purchaserspendente lite, they

averred that El Dorado and Lauro had actual knowledge of their interests in the said portion of the property prior to the
annotation of the notice of lis pendens to thereby render said notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their Comment49 to Carrascosos
petition, praying that it be dismissed for lack of merit and that paragraph 6 of the dispositive portion of the January 31,
1996 CA Decision be modified to read as follows:
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT Agricultural Corporation in
writing within ten (10) days after finality of this decision regarding the exercise of its option under Arts. 449 and 450 of the
Civil Code, without right to indemnity on the part of the latter should the former decide to keep the improvements under
Article 449.50 (Underscoring supplied)
Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs of Lauro.
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and PLDTAC of the CA decision had
remained unresolved, this Court, by Resolution52 of June 30, 2003, directed the appellate court to resolve the same.
By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTACs Motion for Reconsideration for lack of merit.
PLDT54 thereupon filed on September 2, 2004 a petition for review55 before this Court, docketed as G.R. No. 164489,
seeking to reverse and set aside the January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate court. It
prayed that judgment be rendered upholding its right, interest and title to the 1,000 hectare portion of the property and
that it and its successors-in-interest be declared owners and legal possessors thereof, together with all improvements
built, sown and planted thereon.
By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.
In his petition, Carrascoso faults the CA as follows:
I
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN NOT
DECLARING THAT THE ACTION FOR RESCISSION WAS PREMATURELY FILED.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND COMMITTED A MISTAKE OF LAW IN
DISREGARDING THE CRUCIAL SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE
CONTRACT OF SALE.
III
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING THE DECISION OF THE TRIAL
COURT.57 (Underscoring supplied)
PLDT, on the other hand, faults the CA as follows:
I
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLTAC (sic) TOOK THEIR
RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL CODE.
II
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT PETITIONER AND PLDTAC TOOK THEIR
RIGHT, INTEREST AND TITLE TO THE FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL KNOWLEDGE OF PETITIONER PLDTS
AGREEMENT TO BUY AND SELL WITH RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION,
OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT,
INTEREST AND TITLE AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS
PENDENS.58 (Underscoring supplied)
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste, both dated March 23, 1972,
no objection was interposed to his mortgaging of the property to any bank provided that the balance of the purchase price
of the property under the March 23, 1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the
unpaid balance of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing of the complaint for
rescission with damages on March 15, 1977 was premature as he fully paid his obligation to HSB only on April 5, 1977 as
evidenced by the Cancellation of Mortgage59 signed by HSB President Gregorio B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were verbally accorded him by El Dorados
directors and officers, particularly Jose and Angel Leviste.
Article 1191 of the Civil Code provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation of the other. 60 They are to be performed
simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.61
The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party
who violates the reciprocity between them.62
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer obligates itself to pay therefor a price certain in money or its equivalent.63 The nonpayment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time existed, and
discharges the obligations created thereunder.64 Such failure to pay the price in the manner prescribed by the contract of
sale entitles the unpaid seller to sue for collection or to rescind the contract.65
In the case at bar, El Dorado already performed its obligation through the execution of the March 23, 1972 Deed of Sale of
Real Property which effectively transferred ownership of the property to Carrascoso. The latter, on the other hand, failed
to perform his correlative obligation of paying in full the contract price in the manner and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the purchase price of the property
amounting to P1,300,000.00 plus interest thereon at the rate of 10% per annum within a period of three (3) years from
the signing of the contract on March 23, 1972. When Jose Leviste informed him that El Dorado was seeking rescission of
the contract by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation had long
lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to Carrascosos mortgaging of
the property to any bank did not have the effect of suspending the period to fully pay the purchase price, as expressly
stipulated in the Deed, pending full payment of any mortgage obligation of Carrascoso.
As the CA correctly found:
The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the balance was extended.
Neither can We see in it anything that can logically infer said accommodation.
A partially unpaid seller can agree to the buyers mortgaging the subject of the sale without changing the time fixed for
the payment of the balance of the price. The two agreements are not incompatible with each other such that when one is
to be implemented, the other has to be suspended. In the case at bench, there was no impediment for Carrascoso to pay
the balance of the price after mortgaging the land.
Also, El Dorados subordinating its "preferred claim" or waiving its superior "vendors lien" over the land in favor of the
mortgagee of said property only means that in a situation where the unpaid price of the Land and loan secured by the
mortgage over the Land both become due and demandable, the mortgagee shall have precedence in going after the Land
for the satisfaction of the loan. Such accommodations do not necessarily imply the modification of the period fixed in the
contract of sale for the payment by Carrascoso of the balance.
The palpable purpose of El Dorado in not raising any objection to Carrascosos mortgaging the land was to eliminate any
legal impediment to such a contract. That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President Feleciano
(sic) Leviste. El Dorados yielding its "superior lien" over the land in favor of the mortgagee was plainly intended to
overcome the natural reluctance of lending institutions to accept a land whose price has not yet been fully paid as
collateral of a loan.66 (Underscoring supplied)
Respecting Carrascosos insistence that he was granted verbal extensions within which to pay the balance of the purchase
price of the property by El Dorados directors and officers Jose and Angel Leviste, this Court finds the same
unsubstantiated by the evidence on record.
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his attention to his failure to
comply, despite "numerous" requests, with his obligation to pay the amount of P1,300,000.00 and 10% annual interest
thereon, and advising him that "we would like to rescind the contract of sale." This letter reiterated the term of payment
agreed upon in the March 23, 1972 Deed of Sale of Real Property and Carrascososs non-compliance therewith.
Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel wherein he (Jose Leviste) stated that "some
of the Directors of the corporation could not see their way clear in complying with the demands of [Lauro] and have failed
to reach a consensus to bring the corresponding action for rescission of the contract against Dr. Fernando Carrascoso,"
argues that the extensions priorly given to him "no doubt lead to the logical conclusion on some of the directors inability
to file suit against him."67
The argument is specious. As the CA found, even if some officers of El Dorado were initially reluctant to file suit against
him, the same should not be interpreted to mean that this was brought about by a prior extension of the period to pay the
balance of the purchase price of the property as such reluctance could have been due to a myriad of reasons totally
unrelated to the period of payment of the balance.
The bottomline however is, if El Dorado really intended to extend the period of payment of the balance there was
absolutely no reason why it did not do it in writing in clear and unmistakable terms. That there is no such writing negates
all the speculations of the court a quo and pretensions of Carrascoso.

xxx
The unalterable fact here remains that on March 23, 1973, with or without demand, the obligation of Carrascoso to pay
P519,933.33 became due. The same was true on March 23, 1974 and on March 23, 1975 for equal amounts. Since he did
not perform his obligation under the contract of sale, he, therefore, breached it. Having breached the contract, El Dorados
cause of action for rescission of that contract arose.68 (Underscoring supplied)
Carrascoso goes on to argue that the appellate court erred in ignoring the import of the warranty of non-tenancy
expressly stipulated in the March 23, 1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two weeks
prior to the execution of the Deed of Sale, he discovered, while inspecting the property on board a helicopter, that there
were people and cattle in the area; when he confronted El Dorado about it, he was told that the occupants were
caretakers of cattle who would soon leave;69 four months after the execution of the Deed of Sale, upon inquiry with the
Bureau of Lands and the Bureau of Soils, he was informed that there were people claiming to be tenants in certain
portions of the property;70 and he thus brought the matter again to El Dorado which informed him that the occupants
were not tenants but squatters.71
Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of non-tenancy committed by
El Dorado, he incurred expenses in the amount of P2,890,000.00 for which he should be reimbursed, his unpaid obligation
to El Dorado amounting to P1,300,000.00 to be deducted therefrom.72
The breach of an express warranty makes the seller liable for damages.73 The following requisites must be established in
order that there be an express warranty in a contract of sale: (1) the express warranty must be an affirmation of fact or
any promise by the seller relating to the subject matter of the sale; (2) the natural tendency of such affirmation or
promise is to induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such affirmation or
promise thereon.74
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the property was not being cultivated
by any tenant and was, and therefore, not covered by the provisions of the Land Reform Code. If Carrascoso would
become liable under the said law, he would be reimbursed for all expenses and damages incurred thereon.
Carrascoso claims to have incurred expenses in relocating persons found on the property four months after the execution
of the Deed of Sale. Apart from such bare claim, the records are bereft of any proof that those persons were indeed
tenants.75 The fact of tenancy76 not having been priorly established,77 El Dorado may not be held liable for actual
damages.
Carrascoso further argues that both the trial and appellate courts erred in holding that the sale of the 1,000 hectare
portion of the property to PLDT, as well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice of Lis
Pendens.
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which it entered into with
Carrascoso on July 11, 1975, positing that the efficacy of its purchase from Carrascoso, upon his fulfillment of the
condition it imposed resulting in its decision to formalize their transaction and execute the April 6, 1977 Deed of Sale,
retroacted to July 11, 1975 or before the annotation of the Notice of Lis Pendens.78
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and Carrascoso read:
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to purchase from the former, 1,000
hectares of the above-described parcel of land as shown in the map hereto attached as Annex "A" and made an integral
part hereof and as hereafter to be more particularly determined by the survey to be conducted by Certeza & Co., at the
purchase price of P3,000.00 per hectare or for a total consideration of Three Million Pesos (P3,000,000.00) payable in
cash.
3. That this contract shall be considered rescinded and cancelled and of no further force and effect, upon failure of the
VENDOR to clear the aforementioned 1,000 hectares of land of all the occupants therein located, within a period of one (1)
year from the date of execution of this Agreement. However, the VENDEE shall have the option to extend the life of this
Agreement by another six months, during which period the VENDEE shall definitely inform the VENDOR of its decision on
whether or not to finalize the deed of absolute sale for the aforementioned 1,000 hectares of land.
The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000 hectares of land shall be
spent by him for relocation purposes, which amount however shall be advanced by the VENDEE and which shall not
exceed the total amount of P120,000.00, the same to be thereafter deducted by the VENDEE from the aforementioned
purchase price of P3,000,000.00.
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the VENDOR upon the signing of this
Agreement.
xxx
It is likewise further agreed that the VENDEE shall have the right to enter into any part of the aforementioned 1,000
hectares at any time within the period of this Agreement for purposes of commencing the development of the same.
xxx
5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if there are any unpaid taxes,
existing mortgages, liens and encumbrances on the land, the payments to be made by the VENDEE to the VENDOR of the
purchase price shall first be applied to liquidate said mortgages, liens and/or encumbrances, such that said payments
shall be made directly to the corresponding creditors. Thus, the balance of the purchase price will be paid to the VENDOR

after the title to the land is cleared of all such liens and encumbrances.
xxx
7. The VENDOR agrees that, during the existence of this Agreement and without the previous written permission from the
VENDEE, he shall not sell, cede, assign and/or transfer the parcel of land subject of this Agreement.79
A notice of lis pendens is an announcement to the whole world that a particular real property is in litigation, and serves as
a warning that one who acquires an interest over said property does so at his own risk, or that he gambles on the result of
the litigation over said property.80
Once a notice of lis pendens has been duly registered, any cancellation or issuance of title over the land involved as well
as any subsequent transaction affecting the same would have to be subject to the outcome of the suit. In other words, a
purchaser who buys registered land with full notice of the fact that it is in litigation between the vendor and a third party
stands in the shoes of his vendor and his title is subject to the incidents and result of the pending litigation.81
x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect the real rights of the
registrant while the case involving such rights is pending resolution or decision. With the notice of lis pendensduly
recorded, and while it remains uncancelled, the registrant could rest secure that he would not lose the property or any
part of it during the litigation.
The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the power of the courtuntil the
entry of the final judgment so as to prevent the defeat of the latter by successive alienations; and (2) binds a purchaser of
the land subject of the litigation to the judgment or decree that will be promulgated thereon whether such a purchaser is
a bona fide purchaser or not; but (3) does not create a non-existent right or lien.
The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is to keep the
subject matter of the litigation within the power of the court until the judgment or decree shall have been entered;
otherwise by successive alienations pending the litigation, its judgment or decree shall be rendered abortive and
impossible of execution. The doctrine of lis pendens is based on considerations of public policy and convenience, which
forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of the court then
progressing to enforce those rights, the rule being necessary to the administration of justice in order that decisions in
pending suits may be binding and may be given full effect, by keeping the subject matter in controversy within the power
of the court until final adjudication, that there may be an end to litigation, and to preserve the property that the purpose
of the pending suit may not be defeated by successive alienations and transfers of title.82 (Italics in the original)
In ruling against PLDT and PLDTAC, the appellate court held:
PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975 when Carrascoso and it
entered into the Agreement to Buy and Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory
contract be the same as a contract of sale which is a principal contract? If PLDTs contention is correct that it bought the
Farm on July 11, 1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT and PLDTAC
can extricate themselves from the effects of said Notice of Lis Pendens. It is admitted that PLDT took possession of the
Farm on July 11, 1975 after the execution of the Agreement to Buy and Sell but it did so not as owner but as prospective
buyer of the property. As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did it
pursue and go through with the sale if it had not been willing to gamble with the result of this case? 83 (Underscoring
supplied)
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its inscription was an
Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere contract to sell that did not pass to it the
ownership of the property.
xxx
Ownership was retained by CARRASCOSO which EL DORADO may very well recover through its action for rescission.
xxx
PLDTs possession at the time the notice of lis pendens was registered not being a legal possession based on ownership
but a mere possession in fact and the Agreement to Buy and Sell under which it supposedly took possession not being
registered, it is not protected from an adverse judgment that may be rendered in the case subject of the notice of lis
pendens.84 (Underscoring supplied)
In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell,
ownership is not transferred upon delivery of the property but upon full payment of the purchase price. 85 In the former,
the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in the
latter, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from
becoming effective.86
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of sale, thus calling for the
application of Articles 118187 and 118788 of the Civil Code as held in Coronel v. Court of Appeals.89
The Court is not persuaded.
For in a conditional contract of sale, 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.90 Whereas in a contract to sell, upon fulfillment of the suspensive condition, 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.91
A perusal of the contract92 adverted to in Coronel reveals marked differences from the Agreement to Buy and Sell in the
case at bar. In the Coronel contract, there was a clear intent on the part of the therein petitioners-sellers to transfer title to
the therein respondent-buyer. In the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform
Carrascoso of its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion of the
property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties declared that they "are
now decided to execute" such deed, indicating that the Agreement to Buy and Sell was, as the appellate court held,
merely a preparatory contract in the nature of a contract to sell. In fact, the parties even had to stipulate in the said
Agreement to Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede, assign and/or
transfer the parcel of land," which provision this Court has held to be a typical characteristic of a contract to sell.93
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to PLDT was merely the
beneficial title to the 1,000 hectare portion of the property.
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was merely an inchoate and
expectant right which would ripen into a vested right only upon his acquisition of ownership which, as aforestated, was
contingent upon his full payment of the rentals and compliance with all his contractual obligations thereunder. A vested
right is an immediate fixed right of present and future enjoyment. It is to be distinguished from a right that is expectant or
contingent. It is a right which is fixed, unalterable, absolute, complete and unconditional to the exercise of which no
obstacle exists, and which is perfect in itself and not dependent upon a contingency. Thus, for a property right to be
vested, there must be a transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become fixed or established and is no longer open to doubt or
controversy.94 (Underscoring supplied)
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act of registration is the
operative act to convey and affect the land.
An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As such voluntary instrument,
Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly provides that the act of registration shall be the
operative act to convey and affect the land. And Section 55 of the same Act [now Section 53 of PD 1529] requires the
presentation of the owners duplicate certificate of title for the registration of any deed or voluntary instrument. As the
agreement to sell involves an interest less than an estate in fee simple, the same should have been registered by filing it
with the Register of Deeds who, in turn, makes a brief memorandum thereof upon the original and owners duplicate
certificate of title. The reason for requiring the production of the owners duplicate certificate in the registration of a
voluntary instrument is that, being a willful act of the registered owner, it is to be presumed that he is interested in
registering the instrument and would willingly surrender, present or produce his duplicate certificate of title to the
Register of Deeds in order to accomplish such registration. However, where the owner refuses to surrender the duplicate
certificate for the annotation of the voluntary instrument, the grantee may file with the Register of Deeds a statement
setting forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx95 (Underscoring supplied)
In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land was executed prior to the
annotation of a notice of lis pendens by the original owner thereof but which Deed was registered after such annotation,
this Court held:
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the additional payment by the
CLUB of P54,887.50 as full payment of the purchase price on October 26, 1960, also to ROMERO, cannot be held to be the
dates of sale such as to precede the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis
pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the operative act to convey and
affect the land. That registration was not effected by the CLUB until December 4, 1963, or three (3) years after it had
made full payment to ROMERO. xxx
xxx
As matters stand, therefore, in view of the prior annotations of the adverse claim and lis pendens, the CLUB must be
legally held to have been aware of the flaws in the title. By virtue of the lis pendens, its acquisition of the property was
subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUBs cause of action lies, not against
the SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365, but against ROMERO who
was found to have had no right to dispose of the land.97 (Underscoring supplied)
PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975 Agreement to Buy and Sell is equivalent
to prior registration not affected by the Notice of Lis Pendens. As such, it concludes that it was not a purchaser pendente
lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorados counsel Atty. Aquino from which it infers that Atty.
Aquino filed the complaint for rescission and caused the notice of lis pendens to be annotated on Carrascosos title only
after reading newspaper reports on the sale to PLDT of the 1,000 hectare portion of the property.
The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case of Dr. Carrascoso?

A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering the property as a result of the
filing of the instant complaint.
Q: Do you know the notice of Lis Pendens?
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled "Notice of Lis Pendens".
Q: As a consequence of the filing of the complaint which was annotated, you have known that?
A: Yes.
xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction was held on the property?
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the PLDT, Co.
Q: And what did you do?
A: We verified the portion of the property having recorded under entry No. 24770 xxx and we also discovered that the
articles incorporated (sic) and other corporate matters had been organized and established of the PLDT, Co., and had
been annotated.
xxx
Q: Do you know what happened to the property?
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was already notice of Lis Pendens.
xxx
Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the subject litigation (sic) between
Dr. Fernando Carrascoso, the defendant herein and the PLDT, one of defendants-intervenor, may I say when?
A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of the sold property to PLDT.
xxx
Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the transaction. What was
[confirmed] to us is whether there was really transaction (sic) and we found out that there was in the Register of Deeds
and that was the reason why we obtained the case.
Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard the matter of time when
counsel is being able (sic) to read the newspaper allegedly (interrupted)
xxx
Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis pendens] with regards (sic) to the
transfer of property to PLDT, would have been accorded prior to the pendency of the case.
xxx
A: I cannot remember.98
PLDT also relies on the following testimony of Carrascoso:
Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano Leviste regarding your transaction
with the PLDT in relation to the subject property you allegedly mention (sic) your intention to sell with the PLDT?
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me with respect to my transaction
with the PLDT, sir.
Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste and Dr. Jose Leviste?
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?
A: One of the stockholders and director of the plaintiff-corporation, sir.
Q: Will you please tell us the other officers?
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste?
A: He was the corporate secretary, sir.
Q: If you know, was Dr. Jose Leviste also a director at that time?
A: Yes, sir.99

On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement to Buy and Sell prior to the
filing of the complaint for rescission against Carrascoso and the annotation of the notice of lis pendenson his title. It
further asserts that it always acted in good faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July 11, 1975. There is no evidence
that El Dorado was notified of this contract. The property is located in Mindoro, El Dorado is based in Manila. The land was
planted to rice. This was not an unusual activity on the land, thus it could have been the Petitioner who was using the
land. Not having been notified of this sale, El Dorado could not have stopped PLDT from developing the land.
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this case on March 15, 1977 and
the annotation of a notice of lis pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then PLDTAC
persisted not only in buying the land but also in putting up improvements on the property such as buildings, roads,
irrigation systems and drainage. This was done during the pendency of this case, where PLDT and PLDTAC actively
participated as intervenors. They were not innocent bystanders. xxx100
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting interpretations. As such, it
cannot be the basis for inferring that El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the
annotation of the notice of lis pendens on Carrascosos title.
Respecting Carrascosos allegation that some of the directors and officers of El Dorado had knowledge of his dealings with
PLDT, it is true that knowledge of facts acquired or possessed by an officer or agent of a corporation in the course of his
employment, and in relation to matters within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.101 In the case at bar, however, apart from Carrascosos claim that he in fact
notified several of the directors about his intention to sell the 1,000 hectare portion of the property to PLDT, no evidence
was presented to substantiate his claim. Such self-serving, uncorroborated assertion is indubitably inadequate to prove
that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis
pendens on his title.
PLDT is, of course, not without recourse. As held by the CA:
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in good faith. This is so
because it was Carrascosos refusal to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses.
Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt
thereof until paid.102 (Underscoring supplied)
The appellate courts decision ordering the rescission of the March 23, 1972 Deed of Sale of Real Property between El
Dorado and Carrascoso being in order, mutual restitution follows to put back the parties to their original situation prior to
the consummation of the contract.
The exercise of the power to rescind extinguishes the obligatory relation as if it had never been created, the extinction
having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in
their status before the celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his original situation, the rescission has the effect of
abrogating the contract in all parts.103 (Underscoring supplied)
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis pendens, and as the Court
affirms the declaration by the appellate court of the rescission of the Deed of Sale executed by El Dorado in favor of
Carrascoso, possession of the 1,000 hectare portion of the property should be turned over by PLDT to El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property, a distinction should be
made between those which it built prior to the annotation of the notice of lis pendens and those which it introduced
subsequent thereto.
When a person builds in good faith on the land of another, Article 448 of the Civil Code governs:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548,
or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees.
In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees
after the proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
The above provision covers cases in which the builders, sowers or planters believe themselves to be owners of the land
or, at least, to have a claim of title thereto.104 Good faith is thus identified by the belief that the land is owned; or that by
some title one has the right to build, plant, or sow thereon.105
The owner of the land on which anything has been built, sown or planted in good faith shall have the right to appropriate
as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful
expenses,106 and in the proper case, expenses for pure luxury or mere pleasure.107
The owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land.
If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may
remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value

is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the
owner of the land.
If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.
The right to choose between appropriating the improvement or selling the land on which the improvement of the builder,
planter or sower stands, is given to the owner of the land.108
On the other hand, when a person builds in bad faith on the land of another, Articles 449 and 450 govern:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without
right to indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at
the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the
land, and the sower the proper rent.
In the case at bar, it is undisputed that PLDT commenced construction of improvements on the 1,000 hectare portion of
the property immediately after the execution of the July 11, 1975 Agreement to Buy and Sell with the full consent of
Carrascoso.109 Thus, until March 15, 1977 when the Notice of Lis Pendens was annotated on Carrascosos TCT No. T-6055,
PLDT is deemed to have been in good faith in introducing improvements on the 1,000 hectare portion of the property.
After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good faith.
Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000 hectare portion of the property, it
should only be made to pay for those improvements at the time good faith existed on the part of PLDT or until March 15,
1977,110 to be pegged at its current fair market value.111
The commencement of PLDTs payment of reasonable rent should start on March 15, 1977 as well, to be paid until such
time that the possession of the 1,000 hectare portion is delivered to El Dorado, subject to the reimbursement of expenses
as aforestated, that is, if El Dorado opts to appropriate the improvements.112
If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the actual transfer of
ownership.113
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and Resolution dated July 8, 2004 of the
Court of Appeals are AFFIRMED with MODIFICATION in that
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:
a. determine the present fair price of the 1,000 hectare portion of the property and the amount of the expenses actually
spent by PLDT for the improvements thereon as of March 15, 1977;
b. include for determination the increase in value ("plus value") which the 1,000 hectare portion may have acquired by
reason of the existence of the improvements built by PLDT before March 15, 1977 and the current fair market value of
said improvements;
2. El Dorado is ordered to exercise its option under the law, whether to appropriate the improvements, or to oblige PLDT
to pay the price of the land, and
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per month as reasonable compensation for its
occupancy of the 1,000 hectare portion of the property from the time that its good faith ceased to exist until such time
that possession of the same is delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of
PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is made by PLDT in favor of El
Dorado in case the latter opts for its compulsory sale.
Costs against petitioners.
SO ORDERED

G.R. No. 168770

February 9, 2011

ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ, and CIELO OUANO
MARTINEZ, Petitioners,
vs.
THE REPUBLIC OF THE PHILIPPINES, THE MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY, and THE
REGISTER OF DEEDS FOR THE CITY OF CEBU, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168812
MACTAN-CEBU
INTERNATIONAL
AIRPORT
AUTHORITY
(MCIAA), Petitioner,
vs.
RICARDO L. INOCIAN, in his personal capacity and as Attorney-in-Fact of OLYMPIA E. ESTEVES, EMILIA E.
BACALLA, RESTITUTA E. MONTANA, and RAUL L. INOCIAN; and ALETHA SUICO MAGAT, in her personal
capacity and as Attorney-in-Fact of PHILIP M. SUICO, DORIS S. DELA CRUZ, JAMES M. SUICO, EDWARD M.
SUICO, ROSELYN SUICO-LAWSIN, REX M. SUICO, KHARLA SUICO-GUTIERREZ, ALBERT CHIONGBIAN, and
JOHNNY CHAN, Respondents.
DECISION
VELASCO, JR., J.:
At the center of these two (2) Petitions for Review on Certiorari under Rule 45 is the issue of the right of the former owners
of lots acquired for the expansion of the Lahug Airport in Cebu City to repurchase or secure reconveyance of their
respective properties.
In the first petition, docketed as G.R. No. 168770, petitioners Anunciacion vda. de Ouano, Mario Ouano, Leticia Ouano
Arnaiz and Cielo Ouano Martinez (the Ouanos) seek to nullify the Decision1 dated September 3, 2004 of the Court of
Appeals (CA) in CA-G.R. CV No. 78027, affirming the Order dated December 9, 2002 of the Regional Trial Court (RTC),
Branch 57 in Cebu City, in Civil Case No. CEB-20743, a suit to compel the Republic of the Philippines and/or the MactanCebu International Airport Authority (MCIAA) to reconvey to the Ouanos a parcel of land.
The second petition, docketed as G.R. No. 168812, has the MCIAA seeking principally to annul and set aside the
Decision2 and Resolution3 dated January 14, 2005 and June 29, 2005, respectively, of the CA in CA-G.R. CV No. 64356,
sustaining the RTC, Branch 13 in Cebu City in its Decision of October 7, 1988 in Civil Case No. CEB-18370.
Per its October 19, 2005 Resolution, the Court ordered the consolidation of both cases.
Except for the names of the parties and the specific lot designation involved, the relevant factual antecedents which gave
rise to these consolidated petitions are, for the most part, as set forth in the Courts Decision4 of October 15, 2003, as
reiterated in a Resolution5 dated August 9, 2005, in G.R. No. 156273 entitled Heirs of Timoteo Moreno and Maria Rotea
v. Mactan-Cebu International Airport Authority (Heirs of Moreno), and in other earlier related cases.6
In 1949, the National Airport Corporation (NAC), MCIAAs predecessor agency, pursued a program to expand the Lahug
Airport in Cebu City. Through its team of negotiators, NAC met and negotiated with the owners of the properties situated
around the airport, which included Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942, and 947 of the Banilad
Estate. As the landowners would later claim, the government negotiating team, as a sweetener, assured them that they
could repurchase their respective lands should the Lahug Airport expansion project do not push through or once the Lahug
Airport closes or its operations transferred to Mactan-Cebu Airport. Some of the landowners accepted the assurance and
executed deeds of sale with a right of repurchase. Others, however, including the owners of the aforementioned lots,
refused to sell because the purchase price offered was viewed as way below market, forcing the hand of the Republic,
represented by the then Civil Aeronautics Administration (CAA), as successor agency of the NAC, to file a complaint for the
expropriation of Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942, and 947, among others, docketed as Civil
Case No. R-1881 entitled Republic v. Damian Ouano, et al.
On December 29, 1961, the then Court of First Instance (CFI) of Cebu rendered judgment for the Republic, disposing, in
part, as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
1. Declaring the expropriation of Lots Nos. 75, 76, 76, 89, 90, 91, 92, 105, 106, 107, 108, 104, 921-A, 88, 93, 913B, 72, 77, 916, 777-A, 918, 919, 920, 764-A, 988, 744-A, 745-A, 746, 747, 762-A, 763-A, 951, 942, 720-A, x x x and
947, included in the Lahug Airport, Cebu City, justified in and in lawful exercise of the right of eminent domain.
xxxx
3. After the payment of the foregoing financial obligation to the landowners, directing the latter to deliver to the
plaintiff the corresponding Transfer Certificates of Title to their respective lots; and upon the presentation of the
said titles to the Register of Deeds, ordering the latter to cancel the same and to issue, in lieu thereof, new
Transfer Certificates of Title in the name of the plaintiff.7
In view of the adverted buy-back assurance made by the government, the owners of the lots no longer appealed the
decision of the trial court.8 Following the finality of the judgment of condemnation, certificates of title for the covered
parcels of land were issued in the name of the Republic which, pursuant to Republic Act No. 6958, 9 were subsequently
transferred to MCIAA.

At the end of 1991, or soon after the transfer of the aforesaid lots to MCIAA, Lahug Airport completely ceased operations,
Mactan Airport having opened to accommodate incoming and outgoing commercial flights. On the ground, the
expropriated lots were never utilized for the purpose they were taken as no expansion of Lahug Airport was undertaken.
This development prompted the former lot owners to formally demand from the government that they be allowed to
exercise their promised right to repurchase. The demands went unheeded. Civil suits followed.
G.R. No. 168812 (MCIAA Petition)
On February 8, 1996, Ricardo L. Inocian and four others (all children of Isabel Limbaga who originally owned six [6] of the
lots expropriated); and Aletha Suico Magat and seven others, successors-in-interest of Santiago Suico, the original owner
of two (2) of the condemned lots (collectively, the Inocians), filed before the RTC in Cebu City a complaint for
reconveyance of real properties and damages against MCIAA. The complaint, docketed as Civil Case No. CEB-18370,
was eventually raffled to Branch 13 of the court.
On September 29, 1997, one Albert Chiongbian (Chiongbian), alleging to be the owner of Lot Nos. 761-A and 762-A but
which the Inocians were now claiming, moved and was later allowed to intervene.
During the pre-trial, MCIAA admitted the following facts:
1. That the properties, which are the subject matter of Civil Case No. CEB-18370, are also the properties involved
in Civil Case R-1881;
2. That the purpose of the expropriation was for the expansion of the old Lahug Airport; that the Lahug Airport was
not expanded;
3. That the old Lahug Airport was closed sometime in June 1992;
4. That the price paid to the lot owners in the expropriation case is found in the decision of the court; and
5. That some properties were reconveyed by the MCIAA because the previous owners were able to secure express
waivers or riders wherein the government agreed to return the properties should the expansion of the Lahug
Airport not materialize.
During trial, the Inocians adduced evidence which included the testimony of Ricardo Inocian (Inocian) and Asterio Uy (Uy).
Uy, an employee of the CAA, testified that he was a member of the team which negotiated for the acquisition of certain
lots in Lahug for the proposed expansion of the Lahug Airport. He recalled that he acted as the interpreter/spokesman of
the team since he could speak the Cebuano dialect. He stated that the other members of the team of negotiators were
Atty. Pedro Ocampo, Atty. Lansang, and Atty. Saligumba. He recounted that, in the course of the negotiation, their team
assured the landowners that their landholdings would be reconveyed to them in the event the Lahug Airport would be
abandoned or if its operation were transferred to the Mactan Airport. Some landowners opted to sell, while others were of
a different bent owing to the inadequacy of the offered price.
Inocian testified that he and his mother, Isabel Lambaga, attended a meeting called by the NAC team of negotiators
sometime in 1947 or 1949 where he and the other landowners were given the assurance that they could repurchase their
lands at the same price in the event the Lahug Airport ceases to operate. He further testified that they rejected the NACs
offer. However, he said that they no longer appealed the decree of expropriation due to the repurchase assurance
adverted to.
The MCIAA presented Michael Bacarizas (Bacarizas), who started working for MCIAA as legal assistant in 1996. He testified
that, in the course of doing research work on the lots subject of Civil Case No. CEB-18370, he discovered that the same
lots were covered by the decision in Civil Case No. R-1881. He also found out that the said decision did not expressly
contain any condition on the matter of repurchase.
Ruling of the RTC
On October 7, 1998, the RTC rendered a Decision in Civil Case No. CEB-18370, the dispositive portion of which reads as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered directing defendant Mactan Cebu International
Airport Authority (MCIAA) to reconvey (free from liens and encumbrances) to plaintiffs Ricardo Inocian, Olimpia E. Esteves,
Emilia E. Bacalla, Restituta E. Montana and Raul Inocian Lots No. 744-A, 745-A, 746, 762-A, 747, 761-A and to plaintiffs
Aletha Suico Magat, Philip M. Suico, Doris S. dela Cruz, James M. Suico, Edward M. Suico, Roselyn S. Lawsin, Rex M. Suico
and Kharla Suico-Gutierrez Lots No. 942 and 947, after plaintiffs shall have paid MCIAA the sums indicated in the decision
in Civil Case No. R-1881. Defendant MCIAA is likewise directed to pay the aforementioned plaintiffs the sum or P50,000.00
as and for attorneys fees and P10,000.00 for litigation expenses.
Albert Chiongbians intervention should be, as it is hereby DENIED for utter lack of factual basis.
With costs against defendant MCIAA.10
Therefrom, MCIAA went to the CA on appeal, docketed as CA-G.R. CV No. 64356.
Ruling of the CA
On January 14, 2005, the CA rendered judgment for the Inocians, declaring them entitled to the reconveyance of the
questioned lots as the successors-in-interest of the late Isabel Limbaga and Santiago Suico, as the case may be, who were
the former registered owners of the said lots. The decretal portion of the CAs Decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DISMISSING the appeal filed in this

case and AFFFIRMING the decision rendered by the court a quo on October 7, 1998 in Civil Case No. CEB-18370.
SO ORDERED.
The CA, citing and reproducing excerpts from Heirs of Moreno,11 virtually held that the decision in Civil Case No. R-1881
was conditional, stating "that the expropriation of [plaintiff-appellees] lots for the proposed expansion of the Lahug
Airport was ordered by the CFI of Cebu under the impression that Lahug Airport would continue in operation."12 The
condition, as may be deduced from the CFIs decision, was that should MCIAA, or its precursor agency, discontinue
altogether with the operation of Lahug Airport, then the owners of the lots expropriated may, if so minded, demand of
MCIAA to make good its verbal assurance to allow the repurchase of the properties. To the CA, this assurance, a
demandable agreement of repurchase by itself, has been adequately established.
On September 21, 2005, the MCIAA filed with Us a petition for review of the CAs Decision, docketed as G.R. No. 168812.
G.R. No. 168770 (Ouano Petition)
Soon after the MCIAA jettisoned the Lahug Airport expansion project, informal settlers entered and occupied Lot No. 763-A
which, before its expropriation, belonged to the Ouanos. The Ouanos then formally asked to be allowed to exercise their
right to repurchase the aforementioned lot, but the MCIAA ignored the demand. On August 18, 1997, the Ouanos
instituted a complaint before the Cebu City RTC against the Republic and the MCIAA for reconveyance, docketed as Civil
Case No. CEB-20743.
Answering, the Republic and MCIAA averred that the Ouanos no longer have enforceable rights whatsoever over the
condemned Lot No. 763-A, the decision in Civil Case No. R-1881 not having found any reversionary condition.
Ruling of the RTC
By a Decision dated November 28, 2000, the RTC, Branch 57 in Cebu City ruled in favor of the Ouanos, disposing as
follows:
WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the plaintiffs, Anunciacion Vda.
De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz and Cielo Ouano Martinez and against the Republic of the Philippines and
Mactan Cebu International Airport Authority (MCIAA) to restore to plaintiffs, the possession and ownership of their land,
Lot No. 763-A upon payment of the expropriation price to defendants; and
2. Ordering the Register of Deeds to effect the transfer of the Certificate of Title from defendant Republic of the Philippines
on Lot 763-A, canceling TCT No. 52004 in the name of defendant Republic of the Philippines and to issue a new title on the
same lot in the names of Anunciacion Vda. De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz and Cielo Ouano Martinez.
No pronouncement as to costs.13
Acting on the motion of the Republic and MCIAA for reconsideration, however, the RTC, Branch 57 in Cebu City, presided
this time by Judge Enriqueta L. Belarmino, issued, on December 9, 2002, an Order14 that reversed its earlier decision of
November 28, 2000 and dismissed the Ouanos complaint.
Ruling of the CA
In time, the Ouanos interposed an appeal to the CA, docketed as CA-G.R. CV No. 78027. Eventually, the appellate court
rendered a Decision15 dated September 3, 2004, denying the appeal, thus:
WHEREFORE, premises considered, the Order dated December 9, 2002, of the Regional Trial Court, 7th Judicial Region,
Branch 57, Cebu City, in Civil Case No. CEB-20743, is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Explaining its case disposition, the CA stated that the decision in Civil Case No. R-1881 did not state any condition that Lot
No. 763-A of the Ouanosand all covered lots for that matterwould be returned to them or that they could repurchase
the same property if it were to be used for purposes other than for the Lahug Airport. The appellate court also went on to
declare the inapplicability of the Courts pronouncement in MCIAA v. Court of Appeals, RTC, Branch 9, Cebu City, Melba
Limbago, et al.,16 to support the Ouanos cause, since the affected landowners in that case, unlike the Ouanos, parted
with their property not through expropriation but via a sale and purchase transaction.
The Ouanos filed a motion for reconsideration of the CAs Decision, but was denied per the CAs May 26, 2005
Resolution.17 Hence, they filed this petition in G.R. No. 168770.
The Issues
G.R. No. 168812
GROUNDS FOR ALLOWANCE OF THE PETITION
l. THE ASSAILED ISSUANCES ILLEGALLY STRIPPED THE REPUBLIC OF ITS ABSOLUTE AND UNCONDITIONAL TITLE TO
THE SUBJECT EXPROPRIATED PROPERTIES.
ll. THE IMPUNGED DISPOSITIONS INVALIDLY OVERTURNED THIS HONORABLE COURTS FINAL RULINGS IN FERY V.
MUNICIPALITY OF CABANATUAN, MCIAA V. COURT OF APPEALS AND REYES V. NATIONAL HOUSING AUTHORITY.
lll. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THIS HONORABLE COURTS RULING IN MORENO, ALBEIT
IT HAS NOT YET ATTAINED FINALITY.18

G.R. No. 168770

Questions of law presented in this Petition
Whether or not the testimonial evidence of the petitioners proving the promises, assurances and representations by the
airport officials and lawyers are inadmissbale under the Statute of Frauds.
Whether or not under the ruling of this Honorable Court in the heirs of Moreno Case, and pursuant to the principles
enunciated therein, petitioners herein are entitiled to recover their litigated property.
Reasons for Allowances of this Petition
Respondents did not object during trial to the admissibility of petitioners testimonial evidence under the Statute of Frauds
and have thus waived such objection and are now barred from raising the same. In any event, the Statute of Frauds is not
applicable herein. Consequently, petitioners evidence is admissible and should be duly given weight and credence, as
initially held by the trial court in its original Decision.19
While their respective actions against MCIAA below ended differently, the Ouanos and the Inocians proffered arguments
presented before this Court run along parallel lines, both asserting entitlement to recover the litigated property on the
strength of the Courts ruling in Heirs of Moreno. MCIAA has, however, formulated in its Consolidated Memorandum the
key interrelated issues in these consolidated cases, as follows:
I
WHETHER ABANDONMENT OF THE PUBLIC USE FOR WHICH THE SUBJECT PROPERTIES WERE EXPROPRIATED ENTITLES
PETITIONERS OUANOS, ET AL. AND RESPONDENTS INOCIAN, ET AL. TO REACQUIRE THEM.
II
WHETHER PETITIONERS OUANOS, ET AL. AND RESPONDENTS INOCIAN, ET AL. ARE ENTITLED TO RECONVEYANCE OF THE
SUBJECT PROPERTIES SIMPLY ON THE BASIS OF AN ALLEGED VERBAL PROMISE OR ASSURANCE OF SOME NAC OFFICIALS
THAT THE SUBJECT PROPERTIES WILL BE RETUNRED IF THE AIRPORT PROJECT WOULD BE ABANDONED.
The Courts Ruling
The Republic and MCIAAs petition in G.R. No. 168812 is bereft of merit, while the Ouano petition in G.R. No. 168770 is
meritorious.
At the outset, three (3) fairly established factual premises ought to be emphasized:
First, the MCIAA and/or its predecessor agency had not actually used the lots subject of the final decree of expropriation in
Civil Case No. R-1881 for the purpose they were originally taken by the government, i.e., for the expansion and
development of Lahug Airport.
Second, the Lahug Airport had been closed and abandoned. A significant portion of it had, in fact, been purchased by a
private corporation for development as a commercial complex.20
Third, it has been preponderantly established by evidence that the NAC, through its team of negotiators, had given
assurance to the affected landowners that they would be entitled to repurchase their respective lots in the event they are
no longer used for airport purposes.21 "No less than Asterio Uy," the Court noted in Heirs of Moreno, "one of the members
of the CAA Mactan Legal Team, which interceded for the acquisition of the lots for the Lahug Airports expansion, affirmed
that persistent assurances were given to the landowners to the effect that as soon as the Lahug Airport is abandoned or
transferred to Mactan, the lot owners would be able to reacquire their properties."22 In Civil Case No. CEB-20743, Exhibit
"G," the transcript of the deposition23 of Anunciacion vda. de Ouano covering the assurance made had been formally
offered in evidence and duly considered in the initial decision of the RTC Cebu City. In Civil Case No. CEB-18370, the trial
court, on the basis of testimonial evidence, and later the CA, recognized the reversionary rights of the suing former lot
owners or their successors in interest24 and resolved the case accordingly. In point with respect to the representation and
promise of the government to return the lots taken should the planned airport expansion do not materialize is what the
Court said in Heirs of Moreno, thus:
This is a difficult case calling for a difficult but just solution. To begin with there exists an undeniable historical
narrative that the predecessors of respondent MCIAA had suggested to the landowners of the properties covered by the
Lahug Airport expansion scheme that they could repurchase their properties at the termination of the airports venue.
Some acted on this assurance and sold their properties; other landowners held out and waited for the exercise of eminent
domain to take its course until finally coming to terms with respondents predecessors that they would not appeal nor
block further judgment of condemnation if the right of repurchase was extended to them. A handful failed to prove that
they acted on such assurance when they parted with ownership of their land.25 (Emphasis supplied; citations omitted.)
For perspective, Heirs of Morenolater followed by MCIAA v. Tudtud (Tudtud)26 and the consolidated cases at baris cast
under the same factual setting and centered on the expropriation of privately-owned lots for the public purpose of
expanding the Lahug Airport and the alleged promise of reconveyance given by the negotiating NAC officials to the
private lot owners. All the lots being claimed by the former owners or successors-in-interest of the former owners in
the Heirs of Moreno, Tudtud, and the present cases were similarly adjudged condemned in favor of the Republic in Civil
Case No. R-1881. All the claimants sought was or is to have the condemned lots reconveyed to them upon the payment of
the condemnation price since the public purpose of the expropriation was never met. Indeed, the expropriated lots were
never used and were, in fact, abandoned by the expropriating government agencies.
In all then, the issues and supporting arguments presented by both sets of petitioners in these consolidated cases have

already previously been passed upon, discussed at length, and practically peremptorily resolved in Heirs of Moreno and
the November 2008 Tudtud ruling. The Ouanos, as petitioners in G.R. No. 168770, and the Inocians, as respondents in G.R.
No. 168812, are similarly situated as the heirs of Moreno in Heirs of Moreno and Benjamin Tudtud in Tudtud. Be that as it
may, there is no reason why the ratio decidendi in Heirs of Moreno andTudtud should not be made to apply to petitioners
Ouanos and respondents Inocians such that they shall be entitled to recover their or their predecessors respective
properties under the same manner and arrangement as the heirs of Moreno and Tudtud. Stare decisis et non quieta
movere (to adhere to precedents, and not to unsettle things which are established).27
Just like in Tudtud and earlier in Heirs of Moreno, MCIAA would foist the theory that the judgment of condemnation in Civil
Case No. R-1881 was without qualification and was unconditional. It would, in fact, draw attention to the fallo of the
expropriation courts decision to prove that there is nothing in the decision indicating that the government gave
assurance or undertook to reconvey the covered lots in case the Lahug airport expansion project is aborted. Elaborating
on this angle, MCIAA argues that the claim of the Ouanos and the Inocians regarding the alleged verbal assurance of the
NAC negotiating team that they can reacquire their landholdings is barred by the Statute of Frauds.28
Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for the sale or
acquisition of real property shall be unenforceable unless the same or some note of the contract be in writing and
subscribed by the party charged. Subject to defined exceptions, evidence of the agreement cannot be received without
the writing, or secondary evidence of its contents.
MCIAAs invocation of the Statute of Frauds is misplaced primarily because the statute applies only to executory and not
to completed, executed, or partially consummated contracts.29 Carbonnel v. Poncio, et al., quoting Chief Justice Moran,
explains the rationale behind this rule, thusly:
x x x "The reason is simple. In executory contracts there is a wide field for fraud because unless they may be in writing
there is no palpable evidence of the intention of the contracting parties. The statute has been precisely been enacted to
prevent fraud." x x x 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 derived by him from the
transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted
by him thereby.30 (Emphasis in the original.)
Analyzing the situation of the cases at bar, there can be no serious objection to the proposition that the agreement
package between the government and the private lot owners was already partially performed by the government through
the acquisition of the lots for the expansion of the Lahug airport. The parties, however, failed to accomplish the more
important condition in the CFI decision decreeing the expropriation of the lots litigated upon: the expansion of the Lahug
Airport. The projectthe public purpose behind the forced property takingwas, in fact, never pursued and, as a
consequence, the lots expropriated were abandoned. Be that as it may, the two groups of landowners can, in an action to
compel MCIAA to make good its oral undertaking to allow repurchase, adduce parol evidence to prove the transaction.
At any rate, the objection on the admissibility of evidence on the basis of the Statute of Frauds may be waived if not
timely raised. Records tend to support the conclusion that MCIAA did not, as the Ouanos and the Inocians posit, object to
the introduction of parol evidence to prove its commitment to allow the former landowners to repurchase their respective
properties upon the occurrence of certain events.
In a bid to deny the lot owners the right to repurchase, MCIAA, citing cases, 31 points to the dispositive part of the decision
in Civil Case R-1881 which, as couched, granted the Republic absolute title to the parcels of land declared expropriated.
The MCIAA is correct about the unconditional tone of the dispositive portion of the decision, but that actuality would not
carry the day for the agency. Addressing the matter of the otherwise absolute tenor of the CFIs disposition in Civil Case
No. R-1881, the Court, in Heirs of Moreno, after taking stock of the ensuing portion of the body of the CFIs decision, said:
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
of 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 judgments 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.32 (Emphasis supplied.)
We went on to state as follows:
While the trial court in Civil Case No. R-1881 could have simply acknowledged the presence of public purpose for the
exercise of eminent domain regardless of the survival of the 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 x x x 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.33
Not to be overlooked of course is what the Court said in its Resolution disposing of MCIAAs motion to reconsider the
original ruling in Heirs of Moreno. In that resolution, We stated that the fallo of the decision in Civil Case R-1881 should be
viewed and understood in connection with the entire text, which contemplated a return of the property taken if the airport

expansion project were abandoned. For ease of reference, following is what the Court wrote:
Moreover, we do not subscribe to the [MCIAAs] contention that since the possibility of the Lahug Airports closure was
actually considered by the trial court, a stipulation on reversion or repurchase was so material that it should not have
been discounted by the court a quo in its decision in Civil Case No. R-1881, if, in fact, there was one. We find it proper to
cite, once more, this Courts ruling that the fallo of the decision in Civil Case No. R-1881 must be read in reference to the
other portions of the decision in which it forms a part. A reading of the Courts judgment must not be confined to the
dispositive portion alone; rather it should be meaningfully construed in unanimity with the ratio decidendi thereof to grasp
the true intent and meaning of a decision.34
The Court has, to be sure, taken stock of Fery v. Municipality of Cabanatuan,35 a case MCIAA cites at every possible turn,
where the Court made these observations:
If, for example, land is expropriated for a particular purpose, with the condition that when that purpose is ended or
abandoned the property shall return to its former owner, then of course, when the purpose is terminated or abandoned,
the former owner reacquires the property so expropriated. 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 x x x and
in that case the non-user does not have the effect of defeating the title acquired by the expropriation proceedings x x x.
Fery notwithstanding, MCIAA cannot really rightfully say that it has absolute title to the lots decreed expropriated in Civil
Case No. R-1881. The correct lesson of Fery is captured by what the Court said in that case, thus: "the government
acquires only such rights in expropriated parcels of land as may be allowed by the character of its title over the
properties." In light of our disposition in Heirs of Moreno and Tudtud, the statement immediately adverted to means that
in the event the particular public use for which a parcel of land is expropriated is abandoned, the owner shall not be
entitled to recover or repurchase it as a matter of right, unless such recovery or repurchase is expressed in or irresistibly
deducible from the condemnation judgment. But as has been determined below, the decision in Civil Case No. R-1881
enjoined MCIAA, as a condition of approving expropriation, to allow recovery or repurchase upon abandonment of the
Lahug airport project. To borrow from our underlying decision in Heirs of Moreno, "[n]o doubt, the return or repurchase of
the condemned properties of petitioners could readily be justified as the manifest legal effect of consequence of the trial
courts underlying presumption that Lahug Airport will continue to be in operation when it granted the complaint for
eminent domain and the airport discontinued its activities."36
Providing added support to the Ouanos and the Inocians right to repurchase is what in Heirs of Moreno was referred to as
constructive trust, one that is akin to the implied trust expressed in Art. 1454 of the Civil Code, 37 the purpose of which is
to prevent unjust enrichment.38 In the case at bench, the Ouanos and the Inocians parted with their respective lots in
favor of the MCIAA, the latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its end of
the bargain, MCIAA can be compelled by the former landowners to reconvey the parcels of land to them, otherwise, they
would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the
expropriation was authorized. In effect, the government merely held the properties condemned in trust until the proposed
public use or purpose for which the lots were condemned was actually consummated by the government. Since the
government failed to perform the obligation that is the basis of the transfer of the property, then the lot owners Ouanos
and Inocians can demand the reconveyance of their old properties after the payment of the condemnation price.
Constructive trusts are fictions of equity that courts use as devices to remedy any situation in which the holder of the
legal title, MCIAA in this case, may not, in good conscience, retain the beneficial interest. We add, however, as in Heirs of
Moreno, that the party seeking the aid of equitythe landowners in this instance, in establishing the trustmust himself
do equity in a manner as the court may deem just and reasonable.
The Court, in the recent MCIAA v. Lozada, Sr., revisited and abandoned the Fery ruling that the former owner is not
entitled to reversion of the property even if the public purpose were not pursued and were abandoned, thus:
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.,McConihay v. Theodore Wright, and Reichling v. Covington
Lumber Co., 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.1avvphi1
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. 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.
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.39(Emphasis supplied.)
Clinging to Fery, specifically the fee simple concept underpinning it, is no longer compelling, considering the ensuing
inequity such application entails. Too, the Court resolved Fery not under the cover of any of the Philippine Constitutions,
each decreeing that private property shall not be taken for public use without just compensation. The twin elements of
just compensation and public purpose are, by themselves, direct limitations to the exercise of eminent domain, arguing, in
a way, against the notion of fee simple title.1avvphi1 The fee does not vest until payment of just compensation.40
In esse, expropriation is forced private property taking, the landowner being really without a ghost of a chance to defeat
the case of the expropriating agency. In other words, in expropriation, the private owner is deprived of property against
his will. Withal, the mandatory requirement of due process ought to be strictly followed, such that the state must show, at
the minimum, a genuine need, an exacting public purpose to take private property, the purpose to be specifically alleged
or least reasonably deducible from the complaint.
Public use, as an eminent domain concept, has now acquired an expansive meaning to include any use that is of
"usefulness, utility, or advantage, or what is productive of general benefit [of the public]."41 If the genuine public
necessitythe very reason or condition as it wereallowing, at the first instance, the expropriation of a private land
ceases or disappears, then there is no more cogent point for the governments retention of the expropriated land. The
same legal situation should hold if the government devotes the property to another public use very much different from
the original or deviates from the declared purpose to benefit another private person. It has been said that the direct use
by the state of its power to oblige landowners to renounce their productive possession to another citizen, who will use it
predominantly for that citizens own private gain, is offensive to our laws.42
A condemnor should commit to use the property pursuant to the purpose stated in the petition for expropriation, failing
which it should file another petition for the new purpose. If not, then it behooves the condemnor to return the said
property to its private owner, if the latter so desires. The government cannot plausibly keep the property it expropriated in
any manner it pleases and, in the process, dishonor the judgment of expropriation. This is not in keeping with the idea of
fair play,
The notion, therefore, that the government, via expropriation proceedings, acquires unrestricted ownership over or a fee
simple title to the covered land, is no longer tenable. We suggested as much in Heirs of Moreno and inTudtud and more
recently in Lozada, Sr. Expropriated lands should be differentiated from a piece of land, ownership of which was absolutely
transferred by way of an unconditional purchase and sale contract freely entered by two parties, one without obligation to
buy and the other without the duty to sell. In that case, the fee simple concept really comes into play. There is really no
occasion to apply the "fee simple concept" if the transfer is conditional. The taking of a private land in expropriation
proceedings is always conditioned on its continued devotion to its public purpose. As a necessary corollary, once the
purpose is terminated or peremptorily abandoned, then the former owner, if he so desires, may seek its reversion, subject
of course to the return, at the very least, of the just compensation received.
To be compelled to renounce dominion over a piece of land is, in itself, an already bitter pill to swallow for the owner. But
to be asked to sacrifice for the common good and yield ownership to the government which reneges on its assurance that
the private property shall be for a public purpose may be too much. But it would be worse if the power of eminent domain
were deliberately used as a subterfuge to benefit another with influence and power in the political process, including
development firms. The mischief thus depicted is not at all far-fetched with the continued application of Fery. Even as the
Court deliberates on these consolidated cases, there is an uncontroverted allegation that the MCIAA is poised to sell, if it
has not yet sold, the areas in question to Cebu Property Ventures, Inc. This provides an added dimension to abandon Fery.
Given the foregoing disquisitions, equity and justice demand the reconveyance by MCIAA of the litigated lands in question
to the Ouanos and Inocians. In the same token, justice and fair play also dictate that the Ouanos and Inocian return to
MCIAA what they received as just compensation for the expropriation of their respective properties plus legal interest to
be computed from default, which in this case should run from the time MCIAA complies with the reconveyance
obligation.43 They must likewise pay MCIAA the necessary expenses it might have incurred in sustaining their respective
lots and the monetary value of its services in managing the lots in question to the extent that they, as private owners,
were benefited thereby.
In accordance with Art. 1187 of the Civil Code on mutual compensation, MCIAA may keep whatever income or fruits it may
have obtained from the parcels of land expropriated. In turn, the Ouanos and Inocians need not require the accounting of
interests earned by the amounts they received as just compensation.44
Following Art. 1189 of the Civil Code providing that "[i]f the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor x x x," the Ouanos and Inocians do not have to settle the appreciation of the
values of their respective lots as part of the reconveyance process, since the value increase is merely the natural effect of
nature and time.
Finally, We delete the award of PhP 50,000 and PhP 10,000, as attorneys fees and litigation expenses, respectively, made
in favor of the Inocians by the Cebu City RTC in its judgment in Civil Case No. CEB-18370, as later affirmed by the CA. As a
matter of sound policy, no premium should be set on the right to litigate where there is no doubt about the bona fides of

the exercise of such right,45 as here, albeit the decision of MCIAA to resist the former landowners claim eventually turned
out to be untenable.
WHEREFORE, the petition in G.R. No. 168770 is GRANTED. Accordingly, the CA Decision dated September 3, 2004 in CAG.R. CV No. 78027 is REVERSED and SET ASIDE. Mactan-Cebu International Airport Authority is ordered to reconvey
subject Lot No. 763-A to petitioners Anunciacion vda. de Ouano, Mario P. Ouano, Leticia Ouano Arnaiz, and Cielo Ouano
Martinez. The Register of Deeds of Cebu City is ordered to effect the necessary cancellation of title and transfer it in the
name of the petitioners within fifteen (15) days from finality of judgment.
The petition of the Mactan-Cebu International Airport Authority in G.R. No. 168812 is DENIED, and the CAs Decision and
Resolution dated January 14, 2005 and June 29, 2005, respectively, in CA-G.R. CV No. 64356 are AFFIRMED, except
insofar as they awarded attorneys fees and litigation expenses that are hereby DELETED. Accordingly, Mactan-Cebu
International Airport Authority is ordered to reconvey to respondents Ricardo L. Inocian, Olympia E. Esteves, Emilia E.
Bacalla, Restituta E. Montana, and Raul L. Inocian the litigated Lot Nos. 744-A, 745-A, 746, 762-A, 747, and 761-A; and to
respondents Aletha Suico Magat, Philip M. Suico, Dolores S. dela Cruz, James M. Suico, Edward M. Suico, Roselyn S.
Lawsin, Rex M. Suico, and Kharla Suico-Gutierrez the litigated Lot Nos. 942 and 947. The Register of Deeds of Cebu City is
ordered to effect the necessary cancellation of title and transfer it in the name of respondents within a period of fifteen
(15) days from finality of judgment.
The foregoing dispositions are subject to QUALIFICATIONS, to apply to these consolidated petitions, when appropriate, as
follows:
(1) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L Inocian, et al. in G.R. No. 168812 are
ordered to return to the MCIAA the just compensation they or their predecessors-in-interest received for the
expropriation of their respective lots as stated in Civil Case No. R-1881, within a period of sixty (60) days from
finality of judgment;
(2) The MCIAA shall be entitled to RETAIN whatever fruits and income it may have obtained from the subject
expropriated lots without any obligation to refund the same to the lot owners; and
(3) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L. Inocian, et al. in G.R. No. 168812 shall
RETAIN whatever interests the amounts they received as just compensation may have earned in the meantime
without any obligation to refund the same to MCIAA.
SO ORDERED.

G.R. No. 160088

July 13, 2011

AGUSTIN P. DELA TORRE, Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, CRISOSTOMO G. CONCEPCION, RAMON "BOY" LARRAZABAL,
PHILIPPINE TRIGON SHIPYARD CORPORATION, and ROLAND G. DELA TORRE, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 160565
PHILIPPINE TRIGON SHIPYARD CORPORATION and ROLAND G. DELA TORRE, Petitioners,
vs.
CRISOSTOMO G. CONCEPCION, AGUSTIN DELA TORRE and RAMON "BOY" LARRAZABAL, Respondents.
DECISION
MENDOZA, J.:
These consolidated petitions1 for review on certiorari seek to reverse and set aside the September 30, 2002
Decision2 and September 18, 2003 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 36035, affirming in toto the
July 10, 1991 Decision4 of the Regional Trial Court, Branch 60, Angeles City (RTC). The RTC Decision in Civil Case No. 4609,
an action for Sum of Money and Damages, ordered the defendants, jointly and severally, to pay various damages to the
plaintiff.
The Facts:
Respondent Crisostomo G. Concepcion (Concepcion) owned LCT-Josephine, a vessel registered with the Philippine Coast
Guard. On February 1, 1984, Concepcion entered into a "Preliminary Agreement"5 with Roland de la Torre (Roland) for the
dry-docking and repairs of the said vessel as well as for its charter afterwards.6Under this agreement, Concepcion agreed
that after the dry-docking and repair of LCT-Josephine, it "should" be chartered for P 10,000.00 per month with the
following conditions:
1. The CHARTERER will be the one to pay the insurance premium of the vessel
2. The vessel will be used once every three (3) months for a maximum period of two (2) weeks
3. The SECOND PARTY (referring to Concepcion) agreed that LCT-Josephine should be used by the FIRST PARTY
(referring to Roland) for the maximum period of two (2) years
4. The FIRST PARTY (Roland) will take charge[x] of maintenance cost of the said vessel. [Underscoring Supplied]
On June 20, 1984, Concepcion and the Philippine Trigon Shipyard Corporation7 (PTSC), represented by Roland, entered
into a "Contract of Agreement,"8 wherein the latter would charter LCT-Josephine retroactive to May 1, 1984, under the
following conditions:
a. Chartered amount of the vessel P 20,000.00 per month effective May 1, 1984;
j. The owner (Concepcion) shall pay 50% downpayment for the dry-docking and repair of the vessel and the
balance shall be paid every month in the amount of P 10,000.00, to be deducted from the rental amount of the
vessel;
k. In the event that a THIRD PARTY is interested to purchase the said vessel, the SECOND PARTY (PTSC/ Roland)
has the option for first priority to purchase the vessel. If the SECOND PARTY (PTSC/Roland) refuses the offer of the
FIRST PARTY (Concepcion), shall give the SECOND PARTY (PTSC/Roland) enough time to turn over the vessel so as
not to disrupt previous commitments;
l. That the SECOND PARTY (PTSC/Roland) has the option to terminate the contract in the event of the SECOND
PARTY (PTSC/Roland) decide to stop operating;
m. The SECOND PARTY (PTSC/Roland) shall give 90 days notice of such termination of contract;
n. Next x x year of dry-docking and repair of vessel shall be shouldered by the SECOND PARTY (PTSC/Roland);
(Underscoring Supplied]
On August 1, 1984, PTSC/Roland sub-chartered LCT-Josephine to Trigon Shipping Lines (TSL), a single proprietorship owned
by Rolands father, Agustin de la Torre (Agustin).9 The following are the terms and conditions of that "Contract of
Agreement:"10
a. Chartered amount of the vessel P 30,000.00 per month effective August, 1984;
b. Downpayment of the 50% upon signing of the contract and the balance every end of the month;
c. Any cost for the additional equipment to be installed on the vessel will be borne by the FIRST PARTY (PTSC/
Roland) and the cost of the equipment will be deductible from the monthly rental of the vessel;
d. In the event the vessel is grounded or other [force majeure] that will make the vessel non-opera[xx]ble, the
rental of the vessel shall be suspended from the start until the vessel will be considered operational;
e. The cost for the dry-docking and/or repair of vessel shall not exceed P 200,000.00, any excess shall be borne by
the SECOND PARTY (TSL/Agustin);

f. The SECOND PARTY (TSL/Agustin) undertakes to shoulder the maintenance cost for the duration of the usage;
g. All cost for the necessary repair of the vessel shall be on the account of the SECOND PARTY (TSL/Agustin);
h. That the SECOND PARTY (TSL/Agustin) has the option to terminate the contract in the event the SECOND PARTY
(TSL/Agustin) decides to stop operating;
j. The FIRST PARTY (PTSC/Roland) will terminate the services of all vessels crew and the SECOND PARTY
(TSL/Agustin) shall have the right to replace and rehire the crew of the vessel.
k. Insurance premium of the vessel will be divided equally between the FIRST PARTY (PTSC/Rolando) and the
SECOND PARTY (TSL/ Agustin). [Underscoring supplied]
On November 22, 1984, TSL, this time represented by Roland per Agustins Special Power of Attorney, 11 sub-chartered
LCT-Josephine to Ramon Larrazabal (Larrazabal) for the transport of cargo consisting of sand and gravel to Leyte. The
following were agreed upon in that contract,12 to wit:
1. That the FIRST PARTY (TSL by Roland) agreed that LCT-Josephine shall be used by the SECOND PARTY
(Larrazabal) for and in consideration on the sum of FIVE THOUSAND FIVE HUNDRED (P 5,500.00) PESOS, Philippine
currency per day charter with the following terms and conditions.
2. That the CHARTERER should pay P 2,000.00 as standby pay even that will made (sic) the vessel nonopera[xx]ble cause[d] by natur[al] circumstances.
3. That the CHARTERER will supply the consumed crude oil and lube oil per charter day.
4. That the SECOND PARTY (Larrazabal) is the one responsible to supervise in loading and unloading of cargo load
on the vessel.
5. That the SECOND PARTY (Larrazabal) shall give one week notice for such termination of contract.
6. TERMS OF PAYMENTS that the SECOND PARTY (Larrazabal) agreed to pay 15 days in advance and the balance
should be paid weekly. [Underscoring Supplied]
On November 23, 1984, the LCT-Josephine with its cargo of sand and gravel arrived at Philpos, Isabel, Leyte. The vessel
was beached near the NDC Wharf. With the vessels ramp already lowered, the unloading of the vessels cargo began with
the use of Larrazabals payloader. While the payloader was on the deck of the LCT-Josephine scooping a load of the cargo,
the vessels ramp started to move downward, the vessel tilted and sea water rushed in. Shortly thereafter, LCT-Josephine
sank.13
Concepcion demanded that PTSC/ Roland refloat LCT-Josephine. The latter assured Concepcion that negotiations were
underway for the refloating of his vessel.14 Unfortunately, this did not materialize.
For this reason, Concepcion was constrained to institute a complaint for "Sum of Money and Damages" against PTSC and
Roland before the RTC. PTSC and Roland filed their answer together with a third-party complaint against Agustin. Agustin,
in turn, filed his answer plus a fourth-party complaint against Larrazabal. The latter filed his answer and counterclaim but
was subsequently declared in default by the RTC.15 Eventually, the fourth-party complaint against Larrazabal was
dismissed when the RTC rendered its decision in favor of Concepcion on July 10, 1991. 16 In said RTC decision, the
following observations were written:
The testimonies of Roland de la Torre and Hubart Sungayan quoted above, show: (1) that the payloader was used to
unload the cargo of sand and gravel; (2) that the payloader had to go inside the vessel and scoop up a load; (3) that the
ramp according to Roland de la Torre, "was not properly put into peak (sic) such that the front line will touch the bottom,
particularly will touch the sea x x x"; (4) that "the tires (of the payloader) will be submerged to (sic) the sea"; (5) that
according to Sungayan "the ramp of the vessel was moving down"; (6) that the payloader had to be maneuvered by its
operator who dumped the load at the side of the vessel; (7) that the dumping of the load changed the stability of the
vessel and tilted it to the starboard side; and (8) that the tilting caused the sliding of the cargo toward that side and
opened the manhole through which seawater rushed in.17
Hubart Sungayan, who was the chiefmate of LCT-Josephine and under the employ of TSL/Agustin, also admitted at the trial
that it was TSL/Agustin, through its crew, who was in-charge of LCT-Josephines operations although the responsibility of
loading and unloading the cargo was under Larrazabal. Thus, the RTC declared that the "efficient cause of the sinking of
the LCT-JOSEPHINE was the improper lowering or positioning of the ramp," which was well within the charge or
responsibility of the captain and crew of the vessel.18 The fallo of the RTC Decision reads:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:
1. The defendants, Philippine Trigon Shipping Corporation and Roland de la Torre, and the third-party defendant,
Agustin de la Torre, shall pay the plaintiff, jointly and severally, the sum of EIGHT HUNDRED FORTY-ONE
THOUSAND THREE HUNDRED EIGHTY SIX PESOS AND EIGHTY SIX CENTAVOS (P841,386.86) as the value of the LCT
JOSEPHINE with interest thereon at the legal rate of 6% per annum from the date of demand, that is from March
14, 1985, the date when counsel for the defendant Philippine Trigon Shipyard Corporation answered the demand
of the plaintiff, until fully paid;
2. The defendants, Philippine Trigon Shipyard Corporation and Roland de la Torre, shall pay to the plaintiff the sum
of NINETY THOUSAND PESOS (P 90,000.00) as unpaid rentals for the period from May 1, 1984, to November, 1984,
and the sum of ONE HUNDRED SEVENTY THOUSAND PESOS (P 170,000.00) as lost rentals from December, 1984,
to April 30, 1986, with interest on both amounts at the rate of 6% per annum also from demand on March 14,

1985, until fully paid;

3. The defendants and the third-party defendant shall likewise pay to the plaintiff jointly and severally the sum of
TWENTY-FIVE THOUSAND PESOS (P 25,000.00) as professional fee of plaintiffs counsel plus FIVE HUNDRED PESOS
(P 500.00) per appearance of said counsel in connection with actual trial of this case, the number of such
appearances to be determined from the records of this case;
4. The defendants counterclaim for the unpaid balance of plaintiffs obligation for the dry-docking and repair of
the vessel LCT JOSEPHINE in the amount of TWENTY-FOUR THOUSAND THREE HUNDRED FOUR PESOS AND THIRTYFIVE CENTAVOS (P 24,304.35), being valid, shall be deducted from the unpaid rentals, with interest on the said
unpaid balance at the rate of 6% per annum from the date of the filing of the counter-claim on March 31, 1986;
5. The counter-claim of the defendants in all other respects, for lack of merit, is hereby DISMISSED;
6. The fourth-party complaint against the fourth-party defendant, Ramon Larrazabal, being without basis, is
likewise DISMISSED; and
7. The defendants and third-party defendant shall pay the costs.
SO ORDERED.19
Agustin, PTSC and Roland went to the CA on appeal. The appellate court, in agreement with the findings of the RTC,
affirmed its decision in toto.
Still not in conformity with the CA findings against them, Agustin, PTSC and Roland came to this Court through these
petitions for review. In G.R. No. 160088, petitioner Agustin raises the following issues:
AGUSTINS STATEMENT OF THE ISSUES
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROXIMATE CAUSE OF THE SINKING OF LCT JOSEPHINE IS
THE NEGLIGENCE OF THE PETITIONER (Agustin) AND THE RESPONDENTS TRIGON (PTSC) AND DE LA TORRE
(Roland).
II
THE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENT RAMON LARRAZABAL AS SOLELY LIABLE FOR THE
LOSS AND SINKING OF LCT JOSEPHINE.
III
THE TRIAL COURT AND THE COURT OF APPEALS GRAVELY ERRED IN TAKING JUDICIAL NOTICE OF THE
CHARACTERISTICS OF THE LCT JOSEPHINE AND PAYLOADER WITHOUT INFORMING THE PARTIES OF THEIR
INTENTION.
IV
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DIRECTLY AND SOLIDARILY LIABLE WITH THE
RESPONDENTS TRIGON AND DE LA TORRE DESPITE THE FACT THAT SUCH KIND OF LIABILITY IS NOT DULY ALLEGED
IN THE COMPLAINT OF RESPONDENT CONCEPCION AND NOT ONE OF THE ISSUES TRIED BY THE PARTIES.
V
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE BASED ON CULPA CONTRACTUAL.
VI
THE COURT OF APPEALS ERRED IN NOT EXCULPATING PETITIONER FROM LIABILITY BASED ON THE LIMITED
LIABILITY RULE.
VII
THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE CODE OF COMMERCE ON THE LIABILITY
OF THE SHIP CAPTAIN.20
On the other hand, in G.R. No. 160565, PTSC and Roland submit the following issues:
PTSC and ROLANDS STATEMENT OF THE ISSUES
I.
DID THE HONORABLE COURT OF APPEALS ERRxx IN APPLYING THE PROVISIONS OF THE CIVIL CODE OF THE
PHILIPPINES PARTICULARLY ON CONTRACTS, LEASE, QUASI-DELICT AND DAMAGES INSTEAD OF THE PROVISIONS
OF THE CODE OF COMMERCE ON MARITIME COMMERCE IN ADJUDGING PETITIONERS LIABLE TO PRIVATE
RESPONDENT CONCEPCION.
II.
DID THE HONORABLE COURT OF APPEALS ERRxx IN UPHOLDING THE FINDINGS OF FACT OF THE TRIAL COURT.
III.

DID THE HONORABLE COURT OF APPEALS COMMITxx GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN
EXCESS OF ITS JURISDICTION IN APPRECIATING THE FACTS OF THE CASE.
IV.
DID THE HONORABLE COURT OF APPEALS, IN ADJUDGING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH
RESPONDENT AGUSTIN DE LA TORRE, ERRxx WHEN IT MADE FINDINGS OF FACT AND CONCLUSIONS OF LAW
WHICH ARE BEYOND THE ISSUES SET FORTH AND CONTEMPLATED IN THE ORIGINAL PLEADINGS OF THE
PARTIES.21
From the foregoing, the issues raised in the two petitions can be categorized as: (1) those referring to the factual milieu of
the case; (2) those concerning the applicability of the Code of Commerce, more specifically, the Limited Liability Rule; and
(3) the question on the solidary liability of the petitioners.
As regards the issues requiring a review of the factual findings of the trial court, the Court finds no compelling reason to
deviate from the rule that findings of fact of a trial judge, especially when affirmed by the appellate court, are binding
before this Court.22 The CA, in reviewing the findings of the RTC, made these observations:
We are not persuaded that the trial Court finding should be set aside. The Court a quo sifted through the records and
arrived at the fact that clearly, there was improper lowering or positioning of the ramp, which was not at "peak,"
according to de la Torre and "moving down" according to Sungayan when the payloader entered and scooped up a load of
sand and gravel. Because of this, the payloader was in danger of being lost (submerged) and caused Larrazabal to order
the operator to go back into the vessel, according to de la Torres version, or back off to the shore, per Sungayan.
Whichever it was, the fact remains that the ramp was unsteady (moving) and compelled action to save the payloader
from submerging, especially because of the conformation of the sea and the shore. x x x.
xxx
The contract executed on June 20, 1984, between plaintiff-appellee and defendants-appellants showed that the services of
the crew of the owner of the vessel were terminated. This allowed the charterer, defendants-appellants, to employ their
own. The sub-charter contract between defendants-appellants Philippine Trigon Shipyard Corp. and third-party defendantappellant Trigon Shipping Lines showed similar provision where the crew of Philippine Trigon had to be terminated or
rehired by Trigon Shipping Lines. As to the agreement with fourth-party Larrazabal, it is silent on who would hire the crew
of the vessel. Clearly, the crew manning the vessel when it sunk belonged to third-party defendant-appellant. Hubart
Sungayan, the acting Chief Mate, testified that he was hired by Agustin de la Torre, who in turn admitted to hiring the
crew. The actions of fourth-party defendant, Larrazabal and his payloader operator did not include the operation of
docking where the problem arose.23 [Underscoring supplied]
Similarly, the Court has examined the records at hand and completely agree with the CA that the factual findings of the
RTC are in order.
With respect to petitioners position that the Limited Liability Rule under the Code of Commerce should be applied to
them, the argument is misplaced. The said rule has been explained to be that of the real and hypothecary doctrine in
maritime law where the shipowner or ship agents liability is held as merely co-extensive with his interest in the vessel
such that a total loss thereof results in its extinction.24 In this jurisdiction, this rule is provided in three articles of the
Code of Commerce. These are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the
conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it may have earned during the voyage.
--Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the
results of the acts of the captain referred to in Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel
belonging to him.
--Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to
the value of the vessel with all its appurtenances and freightage served during the voyage.
Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon the
vessel given to the shipowner or ship agent under the first provision Article 587. Similarly, Article 590 is a reiteration of
Article 587, only this time the situation is that the vessel is co-owned by several persons.25Obviously, the forerunner of
the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite clear on which indemnities
may be confined or restricted to the value of the vessel pursuant to the said Rule, and these are the "indemnities in
favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the
vessel." Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or
even the charterer in case of demise or bareboat charter.
The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited Liability
Rule has been conceived to protect. The petitioners cannot invoke this as a defense. In Yangco v. Laserna,26 this Court,
through Justice Moran, wrote:

The policy which the rule is designed to promote is the encouragement of shipbuilding and investment in maritime
commerce.
x x x.
Grotius, in his law of War and Peace, says that men would be deterred from investing in ships if they thereby incurred the
apprehension of being rendered liable to an indefinite amount by the acts of the master, x x x.27
Later, in the case of Monarch Insurance Co., Inc. v. CA,28 this Court, this time through Justice Sabino R. De Leon, Jr., again
explained:
No vessel, no liability, expresses in a nutshell the limited liability rule. The shipowners or agents liability is merely
coextensive with his interest in the vessel such that a total loss thereof results in its extinction. The total destruction of
the vessel extinguishes maritime liens because there is no longer any res to which it can attach. This doctrine is based on
the real and hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and
sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse
conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the
owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any.29
In view of the foregoing, Concepcion as the real shipowner is the one who is supposed to be supported and encouraged to
pursue maritime commerce. Thus, it would be absurd to apply the Limited Liability Rule against him who, in the first place,
should be the one benefitting from the said rule. In distinguishing the rights between the charterer and the shipowner, the
case of Yueng Sheng Exchange and Trading Co. v. Urrutia & Co.30 is most enlightening. In that case, no less than Chief
Justice Arellano wrote:
The whole ground of this assignment of errors rests on the proposition advanced by the appellant company that the
charterer of a vessel, under the conditions stipulated in the charter party in question, is the owner pro hac vice of the ship
and takes upon himself the responsibilities of the owner.
xxx
If G. Urrutia & Co., by virtue of the above-mentioned contract, became the agents of the Cebu, then they must respond for
the damages claimed, because the owner and the agent are civilly responsible for the acts of the captain.
But G. Urrutia & Co. could not in any way exercise the powers or rights of an agent. They could not represent the
ownership of the vessel, nor could they, in their own name and in such capacity, take judicial or extrajudicial steps in all
that relates to commerce; thus if the Cebu were attached, they would have no legal capacity to proceed to secure its
release; speaking generally, not even the fines could or ought to be paid by them, unless such fines were occasioned by
their orders. x x x.
The contract executed by Smith, Bell & Co., as agents for the Cebu, and G. Urrutia & Co., as charterers of the vessel, did
not put the latter in the place of the former, nor make them agents of the owner or owners of the vessel. With relation to
those agents, they retained opposing rights derived from the charter party of the vessel, and at no time could they be
regarded by the third parties, or by the authorities, or by the courts, as being in the place of the owners or the agents in
matters relating to the responsibilities pertaining to the ownership and possession of the vessel. x x x.31
In Yueng Sheng, it was further stressed that the charterer does not completely and absolutely step into the shoes of the
shipowner or even the ship agent because there remains conflicting rights between the former and the real shipowner as
derived from their charter agreement. The Court again quotes Chief Justice Arellano:
Their (the charterers) possession was, therefore, the uncertain title of lease, not a possession of the owner, such as is
that of the agent, who is fully subrogated to the place of the owner in regard to the dominion, possession, free
administration, and navigation of the vessel.32
Therefore, even if the contract is for a bareboat or demise charter where possession, free administration and even
navigation are temporarily surrendered to the charterer, dominion over the vessel remains with the shipowner. Ergo, the
charterer or the sub-charterer, whose rights cannot rise above that of the former, can never set up the Limited Liability
Rule against the very owner of the vessel. Borrowing the words of Chief Justice Artemio V. Panganiban, "Indeed, where the
reason for the rule ceases, the rule itself does not apply."33
The Court now comes to the issue of the liability of the charterer and the sub-charterer.
In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter parties,
obtained the use and service of the entire LCT-Josephine. The vessel was likewise manned by the charterer and later by
the sub-charterers people. With the complete and exclusive relinquishment of possession, command and navigation of
the vessel, the charterer and later the sub-charterer became the vessels owner pro hac vice. Now, and in the absence of
any showing that the vessel or any part thereof was commercially offered for use to the public, the above
agreements/charter parties are that of a private carriage where the rights of the contracting parties are primarily defined
and governed by the stipulations in their contract.34
Although certain statutory rights and obligations of charter parties are found in the Code of Commerce, these provisions
as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the provisions found in the
Code of Commerce deals with the specific rights and obligations between the real shipowner and the charterer obtaining
in this case. Necessarily, the Court looks to the New Civil Code to supply the deficiency. 35 Thus, the RTC and the CA were
both correct in applying the statutory provisions of the New Civil Code in order to define the respective rights and
obligations of the opposing parties.

Thus, Roland, who, in his personal capacity, entered into the Preliminary Agreement with Concepcion for the dry-docking
and repair of LCT-Josephine, is liable under Article 118936 of the New Civil Code. There is no denying that the vessel was
not returned to Concepcion after the repairs because of the provision in the Preliminary Agreement that the same "should"
be used by Roland for the first two years. Before the vessel could be returned, it was lost due to the negligence of Agustin
to whom Roland chose to sub-charter or sublet the vessel.
PTSC is liable to Concepcion under Articles 166537 and 166738 of the New Civil Code. As the charterer or lessee under
the Contract of Agreement dated June 20, 1984, PTSC was contract-bound to return the thing leased and it was liable for
the deterioration or loss of the same.
Agustin, on the other hand, who was the sub-charterer or sub-lessee of LCT-Josephine, is liable under Article 1651 of the
New Civil Code.39 Although he was never privy to the contract between PTSC and Concepcion, he remained bound to
preserve the chartered vessel for the latter. Despite his non-inclusion in the complaint of Concepcion, it was deemed
amended so as to include him because, despite or in the absence of that formality of amending the complaint to include
him, he still had his day in court40 as he was in fact impleaded as a third-party defendant by his own son, Roland the
very same person who represented him in the Contract of Agreement with Larrazabal.1avvphi1
(S)ince the purpose of formally impleading a party is to assure him a day in court, once the protective mantle of due
process of law has in fact been accorded a litigant, whatever the imperfection in form, the real litigant may be held liable
as a party.41
In any case, all three petitioners are liable under Article 1170 of the New Civil Code. 42 The necessity of insuring the LCTJosephine, regardless of who will share in the payment of the premium, is very clear under the Preliminary Agreement and
the subsequent Contracts of Agreement dated June 20, 1984 and August 1, 1984, respectively. The August 17, 1984 letter
of Concepcions representative, Rogelio L. Martinez, addressed to Roland in his capacity as the president of PTSC inquiring
about the insurance of the LCT-Josephine as well as reiterating the importance of insuring the said vessel is quite telling.
August 17, 1984
Mr. Roland de la Torre
President
Phil. Trigon Shipyard Corp.
Cebu City
Dear Sir:
In connection with your chartering of LCT JOSEPHINE effect[ive] May 1, 1984, I wish to inquire regarding the
insurance of said vessel to wit:
1. Name of Insurance Company
2. Policy No.
3. Amount of Premiums
4. Duration of coverage already paid
Please send a Xerox copy of policy to the undersigned as soon as possible.
In no case shall LCT JOSEPHINE sail without any insurance coverage.
Hoping for your (prompt) action on this regard.
Truly yours,
(sgd)ROGELIO L. MARTINEZ
Owners representative43
Clearly, the petitioners, to whom the possession of LCT Josephine had been entrusted as early as the time when it was
dry-docked for repairs, were obliged to insure the same. Unfortunately, they failed to do so in clear contravention of their
respective agreements. Certainly, they should now all answer for the loss of the vessel.
WHEREFORE, the petitions are DENIED.
SO ORDERED.

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.
Gutierrez, Cortes & Gonzales for petitioners.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:
On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitionerinsured failed to pay his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even
proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the
premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance
company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by
petitioner-insured
before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in
an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom?
From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City,
bought,
through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal
accident insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28,
1985. 1 Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was
supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25
and 2% premium tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly
printed:
This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon
payment of this account.
If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is
(sic) not received by you within 7 days please notify us.
If payment is made to our office, demand for an OFFICIAL RECEIPT.
On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitionerinsured for the amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters:
Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not
received by you within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitionerinsured
Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception
dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium
tax" to the account of the insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance
company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy
was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official
receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured
under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his
letter, or that the current commercial rate of increase on the payment he had made under provisional receipt No. 9300 be
returned within five days. 6 Areola also warned that should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of
P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale"
printed at the back of the policy. Malapit warned Areola that should be fail to pay the balance, the company's liability
would cease to operate. 7
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-

President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether
the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven
days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there
was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the
company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this
matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional
receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date
when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his
conformity to the proposal by signing on the space provided for in the letter. 9
The
letter
was
personally
delivered
by
Carlito
Ang
to
Areola
on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for
breach of contract with damages before the lower court.
In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the
failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it
argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its
omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had
complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action
against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully
well its fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance
company to pay the former the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling
subject insurance policy, having done so only after seven months from the time that it had taken force and effect and
despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date
of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks
insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the
insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been
considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent
insurance company, entitling petitioner-insured to an award of the damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally
cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the
latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy.
According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in
cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed,
i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court
of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be
established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance
company
did
not
act
precipitately
or
willfully
to
inflict
a
wrong
on
petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the
letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the
policy with a proposal to extend its effective period to December 17, 1985; and (d) respondent insurance company's
apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance
company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this
petition for review on certiorari anchored on these arguments:
I
Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible
error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was
admittedly caused by the fraudulent acts and bad faith of its own officers.
II
Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling
that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and

evident bad faith.

III
Respondent Court of Appeals committed a reversible error in not finding that even without considering the
fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the
insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad
faith,
because
among
others,
it
was
Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision
of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's
branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the
insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation
himself, notwithstanding his personal knowledge of petitioner-insured's full payment of premiums, further reinforces the
allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent
insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation,
concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance company, contrary
to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of
subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability,
there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted on
him and no amount of rectification could remedy the same.
Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by
petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left
without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively
restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been
against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitionerinsured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent
insurance company, acts solely thru its employees. The latters' acts are considered as its own for which it can be held to
account. 11 The facts are clear as to the relationship between private respondent insurance company and Malapit. As
admitted by private respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is
beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well
within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company
who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.
Article 1910 thus reads:
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within
the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance
company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was
itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums
to its account, does not free the same from its obligation to petitioner Areola. As held inPrudential Bank v. Court of
Appeals 13 citing the ruling in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings
of the officers in their representative capacity but not for acts outside the scope of their authority. A bank
holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to
shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom.
Accordingly, a banking corporation is liable to innocent third persons where the representation is made in
the course of its business by an agent acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his
principal or some other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit
that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance
policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a
contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which
arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. 15
Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a
common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent

insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the
form of premiums to be paid by the latter. Under the law governing reciprocal obligations, particularly the second
paragraph of Article 1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or
rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what
is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he
demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument,
namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for
payment of damages. Such a claim finds no support in our laws on obligations and contracts.
The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by
the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private
respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the
insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the
time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and
must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a
breach of contract and no substantial injury or actual damages whatsoever have been or can be shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R.
No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered
on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to
P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the
damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from
date of filing of complaint until final payment thereof.
SO ORDERED.