PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATON AND RAFAELITON W.

LOPEZ,
PETITIONERS, VS. MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO
T. LAZATIN AND JOSE MARCOS T. LAZATIN, RESPONDENTS.

June 27, 2006

CALLEJO, SR., J.:

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, entered
into a Joint Venture Agreement (JVA) for the development of the aforementioned property (a combined area
of 30,000 square meters located in Tagaytay City) into a residential subdivision to be known as Tagaytay
Garden Villas. Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels of land
as their share in the joint venture. For its part, Primelink undertook to contribute money, labor, personnel,
machineries, equipment, contractors pool, marketing activities, managerial expertise and other needed
resources to develop the property and construct therein the units for sale to the public. Subsequently, on
January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City, Branch 18, a
complaint for rescission accounting and damages, with prayer for temporary restraining order and/or
preliminary injunction against Primelink and Lopez. Lazatins alleged, among others, that, despite the lapse
of almost four (4) years from the execution of the JVA and the delivery of the title and possession of the
land to defendants, the land development aspect of the project had not yet been completed, and the
construction of the housing units had not yet made any headway. Under such premise, the trial court ruled
ordering the rescission of the JVA and to return the possession, including all improvements therein, of the
real estate property belonging to the Lazatins. Primelink appealed the case to the CA. Petitioners point out
that respondents did not pray in their complaint that they be declared the owners and entitled to the
possession of the improvements made by petitioner Primelink on the property; neither did they adduce
evidence to prove their entitlement to said improvements. It follows, petitioners argue, that respondents
were not entitled to the improvements although petitioner Primelink was declared in default. They also
aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary to
cover the damages caused and that, under Article 1385 of the same Code, rescission creates the
obligation to return the things which were not object of the contract, together with their fruits, and the
price with its interest; consequently, it can be effected only when respondents can return whatever they
may be obliged to return. Respondents who sought the rescission of the JVA must place petitioner Primelink
in the status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the benefits of
rescission without assuming its burden. All parties must be restored to their original positions as nearly as
possible upon the rescission of a contract. In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion an appropriate remedy that
would be equitable to both parties and afford complete relief.

Issue:

Which Article applies, Article 1191 or Article 1380?

Ruling:

What applies is Article 1191 of the New Civil Code, which reads:

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.

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They insist that petitioners are not entitled to rescission for the improvements because, as found by the
RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents. Respondents
reiterate the ruling of the CA, and argue as follows:

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that
they are and should be entitled to take over the development of the project, and that the improvements
and existing structures which were introduced by PRIMELINK after spending more or less Forty Million
Pesos be awarded to them. They merely asked in the complaint that the joint venture agreement be
rescinded, and that the parcels of land they contributed to the project be returned to them.

PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return possession of the real
estate property belonging to the LAZATINs including all improvements thereon was not a judgment that
was different in kind than what was prayed for by the LAZATINs. The order to return the property with all
the improvements thereon is just a necessary consequence to the order of rescission.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the
Court.

MARSMAN DRYSDALE LAND, INC., PETITIONER, VS. PHILIPPINE GEOANALYTICS, INC. AND
GOTESCO PROPERTIES, INC., RESPONDENTS.
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June 29, 2010

CARPIO MORALES, J.:

On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc.
(Gotesco) entered into a Joint Venture Agreement (JVA) for the construction and development of an office
building on a land owned by Marsman Drysdale in Makati City. Under the JVA, Marsman Drysdale shall
contribute the Property which is appraised for P420,000,000.00. while Gotesco shall contribute the amount
of P420,000,000.00 (P50,000,000.00. upon the signing of the agreement and the balance shall be paid
based on progress billings, relative to the development of the building).

Via Technical Services Contract (TSC) dated July 14, 1997, the joint venture engaged the services of
Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study
and geotechnical engineering for the project. PGI, was, however, able to drill only four of five boreholes
needed to conduct its subsurface soil exploration and laboratory testing, justifying its failure to drill the
remaining borehole to the failure on the part of the joint venture partners to clear the area where the
drilling was to be made. PGI was able to complete its seismic study though. PGI then billed the joint
venture on November 24, 1997 for P284,553.50 representing the cost of partial subsurface soil
exploration; and on January 15, 1998 for P250,800 representing the cost of the completed seismic study.

Despite repeated demands from PGI, the joint venture failed to pay its obligations.

Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the
planned building project was eventually shelved.

PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages at
the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying PGI
to Gotesco which, under the JVA, was solely liable for the monetary expenses of the project.

Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to
complete the services enumerated in the contract; and that Marsman Drysdale failed to clear the property
of debris which prevented PGI from completing its work.

Issue:

The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco bears
the liability to pay PGI its unpaid claims.

Ruling:

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.

PGI executed a technical service contract with the joint venture and was never a party to the JVA. While
the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco
(cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat
the lawful claim of PGI against the two joint venturers-partners.

The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the
project, and all billing invoices indicated the consortium therein as the client.

As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the latter
is bound to render, entire compliance with the prestations. There is a solidary liability only when the
obligation expressly so states, or when the law or nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal

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shares as there are creditors or debtors, the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits. (emphasis and underscoring supplied),
presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.

The only time that the JVA may be made to apply in the present petitions is when the liability of the joint
venturers to each other would set in. A joint venture being a form of partnership, it is to be governed by
the laws on partnership.

Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.

In the absence of stipulation, the share of each in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in the profits in proportion to
his capital. (emphasis and underscoring supplied)

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did
not provide for the splitting of losses, however. Applying the above-quoted provision of Article 1797 then,
the same ratio applies in splitting the P535,353.50 obligation-loss of the joint venture.

The appellate courts decision must be modified, however. Marsman Drysdale and Gotesco being jointly
liable, there is no need for Gotesco to reimburse Marsman Drysdale for 50% of the aggregate sum due to
PGI.

Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the
law on partnership on division of losses but would partake of a clear case of unjust enrichment at
Gotescos expense. The grant by the lower courts of Marsman Drysdale cross-claim against Gotesco was
thus erroneous.

Marsman Drysdales supplication for the award of attorneys fees in its favor must be denied. It cannot
claim that it was compelled to litigate or that the civil action or proceeding against it was clearly
unfounded, for the JVA provided that, in the event a party advances funds for the project, the joint venture
shall repay the advancing party.

Marsman Drysdale was thus not precluded from advancing funds to pay for PGIs contracted services to
abate any legal action against the joint venture itself. It was in fact hardline insistence on Gotesco having
sole responsibility to pay for the obligation, despite the fact that PGIs services redounded to the benefit of
the joint venture, that spawned the legal action against it and Gotesco.

Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the time of
demand as the delay in payment makes the obligation one of forbearance of money, conformably with this
Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. Marsman Drysdale and Gotesco should
bear legal interest on their respective obligations.

VICELET LALICON AND VVICELEN LALICON, PETITIONERS, VS. NATIONAL HOUSING AUTHORITY,
RESPONDENT.

July 13, 2011

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ABAD, J.:

In November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a
Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). The deed of sale provided,
among others, that the Alfaros could sell the land within five years from the date of its release from
mortgage without NHAs prior written consent. Thus:

x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof,
cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein
mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x x x.

The mortgage and the restriction on sale were annotated on the Alfaros title on April 14, 1981.

About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros
sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had
two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia, who had the means, had a
house built on the property and paid for the amortizations. After full payment of the loan or on March 21,
1991 the NHA released the mortgage. Six days later or on March 27 Victor transferred ownership of the
land to his illegitimate daughters.

About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered the
November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents title. On
December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees, resulting in
the cancellation of his TCT 140646 and the issuance of TCT N-172342 in Chuas name.

A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court
(RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale of the land
to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA rules and
regulations.

On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the Alfaros clearly
violated the five-year prohibition, the NHA could no longer rescind its sale to them since its right to do so
had already prescribed, applying Article 1389 of the New Civil Code.

Issue:

Whether or not the period to rescind the same has already prescribed.

Ruling:

Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil Code the action to claim
rescission must be commenced within four years from the time of the commission of the cause for it.

But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that
Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil
Code which uses the term resolution. Resolution applies only to reciprocal obligations such that a breach
on the part of one party constitutes an implied resolutory condition which entitles the other party to
rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission
or specific performance of the obligation, with payment of damages in either case.

Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which
is a subsidiary action, not based on a partys breach of obligation. The four-year prescriptive period
provided in Article 1389 applies to rescissions under Article 1381..

Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the five-year
restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation
comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is
10 years from the time the right of action accrues. The NHAs right of action accrued on February 18, 1992

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when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for
annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.

Lastly, since mutual restitution is required in cases involving rescission under Article 1191, the NHA must
return the full amount of the amortizations it received for the property, plus the value of the improvements
introduced on the same, with 6% interest per annum from the time of the finality of this judgment. The
Court will no longer dwell on the matter as to who has a better right to receive the amount from the NHA:
the Lalicons, who paid the amortizations and occupied the property, or Chua, who bought the subject lot
from Victor and obtained for herself a title to the same, as this matter was not raised as one of the issues
in this case. Chuas appeal to the Court in a separate case having been denied due course and NHA failing
to file its own petition for review, the CA decision ordering the restitution in favor of the Lalicons has now
become final and binding against them.

MILA A. REYES, PETITIONER, VS. VICTORIA T. TUPARAN, RESPONDENT.

June 1, 2011

MENDOZA, J.:

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Petitioner Mila Reyes owns a three-storey commercial building in Valenzuela City. Respondent, Victoria
Tuparan leased a space on said building for a monthly rental of P4, 000. Aside from being a tenant,
respondent also invested in petitioner's financing business. On June 20, 1988, Petitioner borrowed P2
Million from Farmers Savings and Loan Bank (FSL Bank) and mortgaged the building and lot (subject real
properties). Reyes decided to sell the property for P6.5 Million to liquidate her loan and finance her
business. Respondent offered to conditionally buy the real properties for P4.2 Million on installment basis
without interest and to assume the bank loan. The conditions are the following:

1. Sale will be cancelled if the petitioner can find a buyer of said properties for the amount of P6.5 Million
within the next three months. All payments made by the respondent to the petitioner and the bank will be
refunded to Tuparan with an additional 6% monthly interest.

2. Petitioner Reyes will continue using the space occupied by her drug store without rentals for the
duration of the installment payments.

3. There will be a lease for 15 years in favor of Reyes for a monthly rental of P8, 000 after full payment
has been made by the defendant.

4. The defendant will undertake the renewal and payment of the fire insurance policies of the 2 buildings,
following the expiration of the current policies, up to the time the respondent has fully paid the purchase
price.

They presented the proposal for Tuparan to assume the mortgage to FSL Bank. The bank approved on the
condition that the petitioner would remain as co-maker of the mortgage obligation.

Petitioner contended that under their Deed of Conditional Sale, the respondent is obliged to pay a lump
sum of P1.2 Million in three fixed installments. Respondent, however defaulted in the payment of the
installments. To compensate for her delayed payments, respondent agreed to pay petitioner monthly
interest. But again, respondent failed to fulfill this obligation. The petitioner further alleged that despite her
success in finding another buyer according to their conditional sale agreement, respondent refused to
cancel their transaction. The respondent also neglected to renew the fire insurance policy of the buildings.

Respondent, on his defense alleges that the deed of Conditional Sale of Real Property with Assumption of
Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a
conditional sale because the performance of the obligation therein did not depend upon a future and
uncertain event. She also averred that she was able to fully pay the loan and secure the release of the
mortgage. Since she also paid more than the P4.2 Million purchase price, rescission could not be resorted
to since the parties could no longer be restored to their original positions.

The RTC ruled that the deed of conditional sale was a contract to sell. It was of the opinion that although
the petitioner was entitled to a rescission of the contract, it could not be permitted because her non-
payment in full of the purchase price may not be considered as substantial and fundamental breach of the
contract as to defeat the object of the parties in entering into the contract. The RTC believed that
respondent showed her sincerity and willingness to settle her obligation. Hence, it would be more equitable
to give respondent a chance to pay the balance plus interest within a given period of time. The court
ordered the respondent to pay the petitioner the unpaid balance of the purchase price.

When the case was appealed to the CA, the latter held that the remedy of rescission could not apply
because the respondents failure to pay the petitioner the balance of the purchase price in the total
amount of 805,000.00 was not a breach of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent). Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance
of the purchase price plus interest. Hence, this issue:

Issue:

Can the transaction or obligation be rescinded given that the conditions were not satisfied?

Ruling:

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The SC agrees that the conditional sale is a contract to sell. The title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the balance of the purchase price
and the assumed mortgage obligation. Without respondents full payment, there can be no breach of
contract to speak of because petitioner has no obligation yet to turn over the title. The court agrees that a
substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to
pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be permitted
under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there
was only a slight or casual breach in the fulfillment of the obligation. The court considered fulfillment of
20% of the purchase price is NOT a substantial breach. Unless the parties stipulated it, rescission is
allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the
obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstance.
As for the 6% interest, petitioner failed to substantiate her claim that the respondent committed to pay it.
Petition is denied.

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL AND ERLINDA

CATUNGAL-WESSEL, PETITIONERS, VS. ANGEL S. RODRIGUEZ, RESPONDENT.

March 23, 2011

LEONARDO-DE CASTRO, J.:

Agapita Catungal owned a parcel of land with an area of 65, 246 square meters in Talamban, Cebu City.
She entered into a Contract to Sell with Angel Rodriguez. Subsequently, the Contract to Sell was upgraded
into a Conditional Deed of Sale between the same parties. Rodriguez secured the necessary survey and
plans that reclassified the land from agricultural to residential and actively negotiated for the road right of
way. The spouses Catungal requested an advance of P5,000,000.00 on the purchase price. Rodriguez
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objected on the unwarranted demands in view of the terms of the Conditional Deed of Sale that allowed
him sufficient time to negotiate a road right of way and exclusive right to rescind the contract. Thereafter,
he received a letter from Atty. Catungal that the contract is cancelled and terminated. Catungal filed a
complaint contending that the Catungals unilateral rescission of the Conditional Deed of Sale was
unjustified, arbitrary and unwarranted. However, the Catungals claims that Rodriguez does not have an
exclusive right to rescind the contract it being reciprocal. The trial court ruled in favor of Rodriguez. The
Catungals appealed the decision to the Court of Appeals. In a Motion for Reconsideration, Atty. Borromeo, a
new counsel for the Catungals, argued for the first time that the paragraphs 1(b) and 5(49) of the
Conditional Deed of Sale violated the principle of mutuality under Article 1308 of the Civil Code.

Issue:

Whether paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of
contracts under Article 1308?

Ruling:

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 down payment, interest free,
payable but contingent upon the event that the VENDOR shall have been able to sell the property to
another party.

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.

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."

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."

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 Rodriguez's 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 Rodriguez's 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 oniy 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: "if however said road right of way cannot be negotiated, the VENDEE shall give notice

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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 vendee's 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, Rodriguez's 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."

SPOUSES SOCRATES SY AND CELY SY, PETITIONERS, VS. ANDOKS LITSON CORPORATION,
RESPONDENT.

November 21, 2012

PEREZ, J.:

On 5 July 2005, Sy and Andoks entered into a 5-year lease contract covering the parcel of land owned by
Sy. Monthly rental was fixed at P60,000.00, exclusive of taxes, for the first 2 years and P66,000.00 for the
third, fourth and fifth year with 10% escalation every year beginning on the fourth year. Per contract, the
lessee shall, upon signing the contract, pay four (4) months of advance deposit amounting to P240,000.00

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and a security deposit equivalent to four (4) months of rental in the amount of P240,000.00. Accordingly,
Andoks issued a check to Sy for P480,000.00.

Andoks alleged that while in the process of applying for electrical connection on the improvements to be
constructed on Sys land, it was discovered that Sy has an unpaid Manila Electric Company (MERALCO) bill
amounting to P400,000.00. Andoks presented a system-generated statement from MERALCO. Andoks
further complained that construction for the improvement it intended for the leased premises could not
proceed because another tenant, Mediapool, Inc. incurred delay in the construction of a billboard structure
also within the leased premises. In its letter dated 25 August 2005, Andoks first informed Sy about the
delay in the construction of the billboard structure on a portion of its leased property. Three more letters of
the same tenor were sent to Sy but the demands fell on deaf ears. Consequently, Andoks suffered
damages in the total amount of P627,000.00 which comprises the advance rental and deposit, cost of
money, mobilization cost for the construction of improvement over leased premises, and unrealized
income. The complaint for rescission was filed on 13 February 2008, three years after continued inaction
on the request to have the billboard construction expedited. The RTC and CA ruled in favor of the petitioner
[respondent herein]. Petitioner then filed a petition for review on certiorari before the SC alleging that the
CA faled to appreciate that the respondent itself contractually assumed the risk of delay, and thus any
delay could not be a ground for the resolution or annulment of the contract of lease.

Issue:

Whether or not rescission is statutorily recognized in a contract of lease.

Ruling:

Indeed, rescission is statutorily recognized in a contract of lease. Article 1659 of the Civil Code provides:

Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and
1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or
only the latter, allowing the contract to remain in force.

Article 1659 outlines the remedies for non-compliance with the reciprocal obligations in a lease contract,
which obligations are cited in Articles 1654 and 1657:

Article 1654. The lessor is obliged:

(1) To deliver the thing which is the object of the contract in such a conditions as to render it fit for the use
intended;

(2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use
to which it has been devoted, unless there is a stipulation to the contrary;

(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of
the contract.

Article 1657. The lessee is obliged:

(1) To pay the price of the lease according to the terms stipulated;

(2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the
absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the
custom of the place;

(3) To pay the expenses for the deed of lease.

The aggrieved party is given the option to the aggrieved party to ask for: (1) the rescission of the contract;
(2) rescission and indemnification for damages; or (3) only indemnification for damages, allowing the
contract to remain in force.

While Andoks had complied with all its obligations as a lessee, the lessor failed to render the premises fit
for the use intended and to maintain the lessee in the peaceful and adequate enjoyment of the lease.

W
Andoks paid a total of P480,000.00 as advance deposit for four (4) months and security deposit equivalent
to four (4) months. However, the construction of its outlet store was hindered by two incidents the
unpaid MERALCO bills and the unfinished construction of a billboard structure directly above the leased
property.

Sy argues that per contract, Andoks had assumed the risk of delay by allowing MediaPool, Inc. to construct
a billboard structure on a portion of the leased premises. We reproduce the pertinent provision for brevity:

10. That the LESSEE shall allow persons who will construct, inspect, maintain and repair all billboard
structures to be set up and constructed on the portion of the parcel of land excluded from this contract,
only upon approval of written request to LESSEE AND LESSOR from the billboard LESSEE to avoid
disruption of business operations of Andoks Litson Corporation and its affiliates

True, Andoks agreed to allow MediaPool, Inc. to construct a billboard structure but it was conditioned on
Andoks and the lessors approval to avoid disruption of its business operation. Sy is thus cognizant of the
fact that the said billboard structure construction might disrupt, as it already did, the intended construction
of respondents outlet. It is thereby understood that the construction of a billboard should be done within a
period of time that is reasonable and sufficient so as not to disrupt the business operations of respondent.
In this case, Andoks had agreed to several extensions for MediaPool, Inc. to finish its billboard
construction. It had sent a total of four (4) letters in a span of 8 months, all of which were merely ignored.
Indeed, the indifference demonstrated by Sy leaves no doubt that she has reneged on her obligation.

Sys disregard of Andoks repeated demands for the billboard lessee to finish the construction is a violation
of her obligation to maintain the lessee in peaceful and adequate enjoyment of the lease. The delay in the
construction had obviously caused disruption in respondents business as it could not immediately
commence its business operations despite prompt payment of rent.

The attendant circumstances show substantial breach. The delay in the construction prevented Andoks
from using the leased premises for its business outlet. On top of the failure of Sy to address the delay in
the billboard construction, she also failed to resolve or explain the unpaid electricity bills. Sy resorted to a
blanket denial without however producing any proof that the said bill had been settled. These incidents
refer to the fundamentals of the contract for the lease of Sys premises. She failed to comply with the
obligations that have arisen upon Andoks payment of the amount equivalent to eight months of the
monthly rentals.