FIRST DIVISION
constitutes a violation of the contract which entitles her to
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 petitioner’s 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: [respondents] to pay the balance of the purchase price
‘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:x x x
‘Na alang-alang sa halagang DALAWANG PUNG LIBONG
PISO (₱20,000.00) 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:x x x
‘Na magbibigay ng paunang bayad ang BUMIBILI SA
NAGBIBILI na halagang DALAWANG LIBONG PISO
(₱2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang
kasulatang ito.
‘Na ang natitirang halagang LABING WALONG LIBONG
PISO (₱18,000.00) 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 ito’y 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) (signed)
BERNARDINO EULALIO MISTICA
NAGUIAT Nagbibili'
Bumibili
"Pursuant to said agreement, [Respondent Bernardino
Naguiat] gave a downpayment of ₱2,000.00. He made
another partial payment of ₱1,000.00 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
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 ₱200.00 a month; that on account of the
unjustified actuations of [respondents], [petitioner] has
been constrained to litigate where she incurred expenses
for attorney’s fees and litigation expenses in the sum of
₱20,000.00.
"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 ₱50,000.00; exemplary
damages in the amount of ₱30,000.00; attorney’s fees in
the amount of ₱10,000.00 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] attorney’s fee in the amount of
₱10,000.00 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
₱17,000.00, 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)
CA’s 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 husband’s
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 Court’s 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 husband’s 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 buyer’s 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 debtor’s 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.1âwphi1 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.20 Registration 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 petitioner’s 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
THIRD DIVISION
[G.R. No. 112330. August 17, 1999]
SPS. HENRY CO AND ELIZABETH CO AND
MELODY CO, petitioners, vs. COURT OF
APPEALS AND MRS. ADORACION CUSTODIO,
represented by her Attorney-in-fact, TRINIDAD
KALAGAYAN, respondents.
DECISION
GONZAGA-REYES, J.:
Before us is a Petition for Review on Certiorari of the
decision of the Court of Appeals[1] in CA-G.R. CV No.
32972 entitled MRS. ADORACION CUSTODIO,
represented by her Attorney-in-fact, TRINIDAD
KALAGAYAN vs. SPS. HENRY CO AND ELIZABETH CO
AND MELODY CO.
The following facts as found by the lower court and
adopted by the Court of Appeals are undisputed:
xxx sometime on October 9, 1984, plaintiff entered into a
verbal contract with defendant for her purchase of the
latters house and lot located at 316 Beata St., New Alabang
Village, Muntinlupa, Metro Manila, for and in
consideration of the sum of $100,000.00. One week
thereafter, and shortly before she left for the United States,
plaintiff paid to the defendants the amounts of $1,000.00
and P40,000.00 as earnest money, in order that the same
may be reserved for her purchase, said earnest money to
be deducted from the total purchase price. The purchase
price of $100,000.00 is payable in two payments
$40,000.00 on December 4, 1984 and the balance of
$60,000.00 on January 5, 1985. On January 25, 1985,
although the period of payment had already expired,
plaintiff paid to the defendant Melody Co in the United
States, the sum of $30,000.00, as partial payment of the
purchase price. Defendants counsel, Atty. Leopoldo
Cotaco, wrote a letter to the plaintiff dated March 15, 1985,
demanding that she pay the balance of $70,000.00 and
not receiving any response thereto, said lawyer wrote
another letter to plaintiff dated August 8, 1986, informing
her that she has lost her option to purchase the property
subject of this case and offered to sell her another
property.
Under date of September 5 (1986), Atty. Estrella O. Laysa,
counsel for plaintiff, wrote a letter to Atty. Leopoldo
Cotaco informing him that plaintiff is now ready to pay the
remaining balance to complete the sum of $100,000.00,
the agreed amount as selling price and on October 24,
1986, plaintiff filed the instant complaint.[2]
The Regional Trial Court (RTC) ruled in favor of
private respondent Adoracion Custodio (CUSTODIO) and
ordered the petitioner spouses Henry and Elizabeth Co
(COS) to refund the amount of $30,000.00 in
CUSTODIOs favor. The dispositive portion of the RTCs
decision reads:
WHEREFORE, the Court hereby orders:
1. that the earnest money of $1,000.00 and
P40,000.00 is hereby forfeited in favor of
the defendants, and
2. the defendants are ordered to remit to
plaintiff the peso equivalent of THIRTY
THOUSAND ($30,000.00) U.S. DOLLARS,
at the prevailing rate of exchange at the
time of payment.
Costs against plaintiff.
SO ORDERED.[3]
Not satisfied with the decision, the COS appealed to
the Court of Appeals which affirmed the decision of the
RTC. Hence, this appeal where the COS assign as sole
error the following:
PETITIONER RESPECTFULLY SUBMITS THAT
RESPONDENT COURT OF APPEALS HAS
DECIDED A QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND THE APPLICABLE
DECISIONS OF THE SUPREME COURT.[4]
The COS argue that the Court of Appeals erred in
ruling that CUSTODIO could still exercise her option to
pay the balance of the purchase price of the property. The
COS claim that CUSTODIO was in default since she failed
to pay after a demand was made by the petitioners in their
March 15, 1985 letter[5]. The COS claim that they never
granted CUSTODIO an extension of time to exercise the
option contrary to the finding of the Court of Appeals that
a thirty (30) day period of time was granted to her in their
August 8, 1986 letter[6]. Said period refers to another
option which the COS gave CUSTODIO to buy another
piece of property and not the Beata property as they could
no longer hold the Beata property for CUSTODIO. In fact,
said letter specifically states that CUSTODIO lost her
option to purchase the subject property; that the COS were
willing to apply the payments already made to the
payment of the second property; and that if CUSTODIO
failed to purchase the second property within thirty (30)
days, she would forfeit her previous payments. Since
CUSTODIO manifested her readiness to exercise her
option to pay the balance of the purchase price of the
Beata property and not the second property, her
manifestation was no longer of any legal effect as this
option was no longer available to her. This being the case,
the Court of Appeals should have ruled that the COS
properly rescinded their contract with CUSTODIO over
the Beata property pursuant to Article 1191[7] of the Civil
Code and should have further ordered her to pay them
damages consequent to the rescission. Moreover, even
assuming that they waived the deadline by accepting the
payment of $30,000.00 on January 26, 1986, CUSTODIO
still failed to pay the remaining balance of
$70,000.00. Her offer to pay the remaining balance came
too late as the option given to her had already been lost. In
addition, the Court of Appeals also erred in ordering the
COS to return the $30,000.00 dollars since the August 8,
1986 letter warned CUSTODIO that if the she did not
exercise her option within thirty days, she would lose her
option and other rights and any payments made shall be
forfeited. Finally, the COS claim that the Court of Appeals
erred in not granting them attorneys fees when the law
allows recovery therefor considering that by the
defendants act or omission, the plaintiff is compelled to
litigate with third persons or to incur expenses to protect
his rights.[8]
The core issue is whether or not the Court of Appeals
erred in ordering the COS to return the $30,000.00 paid
by CUSTODIO pursuant to the option granted to her over
the Beata property?
We rule in the negative.
The COS main argument is that CUSTODIO lost her
option over the Beata property and her failure to exercise
said option resulted in the forfeiture of any amounts paid
by her pursuant to the August letter.
An option is a contract granting a privilege to buy or
sell within an agreed time and at a determined price. It is a
separate and distinct contract from that which the parties
may enter into upon the consummation of the option. It
must be supported by consideration.[9] An option contract
conforms with the second paragraph of Article 1479 of the
Civil Code[10] which reads:
Article 1479. xxx
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.
However, the March 15, 1985 letter[11] sent by the
COS through their lawyer to the CUSTODIO reveals that
the parties entered into a perfected contract of sale and not
an option contract.
A contract of sale is a consensual contract and is
perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon
the price. From that moment the parties may reciprocally
demand performance subject to the provisions of the law
governing the form of contracts.[12] The elements of a valid
contract of sale under Article 1458 of the Civil Code are (1)
consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its
equivalent.[13] As evidenced by the March 15, 1985 letter,
all three elements of a contract of sale are present in the
transaction between the petitioners and
respondent. CUSTODIOs offer to purchase the Beata
property, subject of the sale at a price of $100,000.00 was
accepted by the COS. Even the manner of payment of the
price was set forth in the letter. Earnest money in the
amounts of US$1,000.00 and P40,000.00 was already
received by the COS. Under Article 1482[14] of the Civil
Code, earnest money given in a sale transaction is
considered part of the purchase price and proof of the
perfection of the sale.[15]
Despite the fact that CUSTODIOs failure to pay the
amounts of US$ 40,000.00 and US$ 60,000.00 on or
before December 4, 1984 and January 5, 1985 respectively
was a breach of her obligation under Article 1191[16] of the
Civil Code, the COS did not sue for either specific
performance or rescission of the contract. The COS were of
the mistaken belief that CUSTODIO had lost her option
over the Beata property when she failed to pay the
remaining balance of $70,000.00 pursuant to their August
8, 1986 letter. In the absence of an express stipulation
authorizing the sellers to extrajudicially rescind the
contract of sale, the COS cannot unilaterally and
extrajudicially rescind the contract of sale.[17] Accordingly,
CUSTODIO acted well within her rights when she
attempted to pay the remaining balance of $70,000.00 to
complete the sum owed of $100,000.00 as the contract
was still subsisting at that time. When the COS refused to
accept said payment and to deliver the Beata property,
CUSTODIO immediately sued for the rescission of the
contract of sale and prayed for the return of the
$30,000.00 she had initially paid.
Under Article 1385[18] of the Civil Code, rescission
creates the obligation to return the things which were the
object of the contract but such rescission can only be
carried out when the one who demands rescission can
return whatever he may be obliged to restore. This
principle has been applied to rescission of reciprocal
obligations under Article 1191 of the Civil Code.[19] The
Court of Appeals therefore did not err in ordering the COS
to return the amount of $30,000.00 to CUSTODIO after
ordering the rescission of the contract of sale over the
Beata property. We quote with approval the Court of
Appeals decision to wit:
Since it has been shown that the appellee who was not in
default, was willing to perform part of the contract while
the appellants were not, rescission of the contract is in
order. 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, (Article 1191,
same Code). Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest x x x x (Article
1385, same Code).
In the case at bar, the property involved has not been
delivered to the appellee. She has therefore nothing to
return to the appellants. The price received by the
appellants has to be returned to the appellee as aptly ruled
by the lower court, for such is a consequence of rescission,
which is to restore the parties in their former situations.
No error was committed by the lower court when it did not
award attorneys fees to the appellants for as has been
shown, the appellees complaint is not unfounded.[20]
We cannot uphold the forfeiture clause contained in
the petitioners August 8, 1986 letter. It appears that such
condition was unilaterally imposed by the COS and was
not agreed to by CUSTODIO. It cannot therefore be
considered as part of the contract of sale as it lacks the
consent of CUSTODIO.[21]
Finally, the Court of Appeals did not err in not
awarding the COS attorneys fees. Although attorneys fees
may be awarded if the claimant is compelled to litigate
with third persons or to incur expenses to protect his
interest by reason of an unjustified act or omission of the
party from whom it is sought[22], we find that CUSTODIOs
act clearly was not unjustified.
WHEREFORE, the instant petition is hereby
DENIED, and the appealed decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 173441 December 3, 2009
HEIRS OF SOFIA QUIRONG, Represented by
ROMEO P. QUIRONG, Petitioners,
vs.
DEVELOPMENT BANK OF THE
PHILIPPINES, Respondent.
DECISION
ABAD, J.:
This case is about the prescriptive period of an action for
rescission of a contract of sale where the buyer is evicted
from the thing sold by a subsequent judicial order in favor
of a third party.
The Facts and the Case
The facts are not disputed. When the late Emilio Dalope
died, he left a 589-square meter untitled lot1 in Sta.
Barbara, Pangasinan, to his wife, Felisa Dalope (Felisa)
and their nine children, one of whom was Rosa Dalope-
Funcion.2 To enable Rosa and her husband Antonio
Funcion (the Funcions) get a loan from respondent
Development Bank of the Philippines (DBP), Felisa sold
the whole lot to the Funcions. With the deed of sale in
their favor and the tax declaration transferred in their
names, the Funcions mortgaged the lot with the DBP.
On February 12, 1979, after the Funcions failed to pay their
loan, the DBP foreclosed the mortgage on the lot and
consolidated ownership in its name on June 17, 1981.3
Four years later or on September 20, 1983 the DBP
conditionally sold the lot to Sofia Quirong4 for the price of
P78,000.00. In their contract of sale, Sofia Quirong
waived any warranty against eviction. The contract
provided that the DBP did not guarantee possession of the
property and that it would not be liable for any lien or
encumbrance on the same. Quirong gave a down payment
of P14,000.00.
Two months after that sale or on November 28, 1983
Felisa and her eight children (collectively, the
Dalopes)5 filed an action for partition and declaration of
nullity of documents with damages against the DBP and
the Funcions before the Regional Trial Court (RTC) of
Dagupan City, Branch 42, in Civil Case D-7159.
On December 27, 1984, notwithstanding the suit, the DBP
executed a deed of absolute sale of the subject lot in Sofia
Quirong’s favor. The deed of sale carried substantially the
same waiver of warranty against eviction and of any
adverse lien or encumbrance.
On May 11, 1985, Sofia Quirong having since died, her
heirs (petitioner Quirong heirs) filed an answer in
intervention6 in Civil Case D-7159 in which they asked the
RTC to award the lot to them and, should it instead be
given to the Dalopes, to allow the Quirong heirs to recover
the lot’s value from the DBP. But, because the heirs failed
to file a formal offer of evidence, the trial court did not rule
on the merits of their claim to the lot and, alternatively, to
relief from the DBP.7
On December 16, 1992 the RTC rendered a decision,
declaring the DBP’s sale to Sofia Quirong valid only with
respect to the shares of Felisa and Rosa Funcion in the
property. It declared Felisa’s sale to the Funcions, the
latter’s mortgage to the DBP, and the latter’s sale to Sofia
Quirong void insofar as they prejudiced the shares of the
eight other children of Emilio and Felisa who were each
entitled to a tenth share in the subject lot.
The DBP received a copy of the decision on January 13,
1993 and, therefore, it had until January 28, 1993 within
which to file a motion for its reconsideration or a notice of
appeal from it. But the DBP failed to appeal supposedly
because of excusable negligence and the withdrawal of its
previous counsel of record.8
When the RTC judgment became final and the court issued
a writ of execution, the DBP resisted the writ by motion to
quash, claiming that the decision could not be enforced
because it failed to state by metes and bounds the
particular portions of the lot that would be assigned to the
different parties in the case. The RTC denied the DBP’s
motion, prompting the latter to seek recourse by special
civil action of certiorari directly with this Court in G.R.
116575, Development Bank of the Philippines v. Fontanilla.
On September 7, 1994 the Court issued a resolution,
denying the petition for failure of the DBP to pay the
prescribed fees. This resolution became final and
executory on January 17, 1995.9
On June 10, 1998 the Quirong heirs filed the present
action10 against the DBP before the RTC of Dagupan City,
Branch 44, in Civil Case CV-98-02399-D for rescission of
the contract of sale between Sofia Quirong, their
predecessor, and the DBP and praying for the
reimbursement of the price of P78,000.00 that she paid
the bank plus damages. The heirs alleged that they were
entitled to the rescission of the sale because the decision in
Civil Case D-7159 stripped them of nearly the whole of the
lot that Sofia Quirong, their predecessor, bought from the
DBP. The DBP filed a motion to dismiss the action on
ground of prescription and res judicata but the RTC
denied their motion.
On June 14, 2004, after hearing the case, the RTC
rendered a decision,11 rescinding the sale between Sofia
Quirong and the DBP and ordering the latter to return to
the Quirong heirs the P78,000.00 Sofia Quirong paid the
bank.12 On appeal by the DBP, the Court of Appeals (CA)
reversed the RTC decision and dismissed the heirs’ action
on the ground of prescription. The CA concluded that,
reckoned from the finality of the December 16, 1992
decision in Civil Case D-7159, the complaint filed on June
10, 1998 was already barred by the four-year prescriptive
period under Article 1389 of the Civil Code.13 The Quirong
heirs filed a motion for reconsideration of the decision but
the appellate court denied it,14 thus, this petition.
The Issues Presented
The issues presented in this case are:
1. Whether or not the Quirong heirs’ action for rescission
of respondent DBP’s sale of the subject property to Sofia
Quirong was already barred by prescription; and
2. In the negative, whether or not the heirs of Quirong
were entitled to the rescission of the DBP’s sale of the
subject lot to the late Sofia Quirong as a consequence of
her heirs having been evicted from it.
The Court’s Rulings
The CA held that the Quirong heirs’ action for rescission of
the sale between DBP and their predecessor, Sofia
Quirong, is barred by prescription reckoned from the date
of finality of the December 16, 1992 RTC decision in Civil
Case D-7159 and applying the prescriptive period of four
years set by Article 1389 of the Civil Code.
Unfortunately, the CA did not state in its decision the date
when the RTC decision in Civil Case D-7159 became final
and executory, which decision resulted in the Quirong
heirs’ loss of 80% of the lot that the DBP sold to Sofia
Quirong. Petitioner heirs claim that the prescriptive period
should be reckoned from January 17, 1995, the date this
Court’s resolution in G.R. 116575 became final and
executory.15
But the incident before this Court in G.R. 116575 did not
deal with the merit of the RTC decision in Civil Case D-
7159. That decision became final and executory on January
28, 1993 when the DBP failed to appeal from it within the
time set for such appeal. The incident before this Court in
G.R. 116575 involved the issuance of the writ of execution
in that case. The DBP contested such issuance supposedly
because the dispositive portion of the decision failed to
specify details that were needed for its implementation.
Since this incident did not affect the finality of the decision
in Civil Case D-7159, the prescriptive period remained to
be reckoned from January 28, 1993, the date of such
finality.
The next question that needs to be resolved is the
applicable period of prescription. The DBP claims that it
should be four years as provided under Article 1389 of the
Civil Code.16 Article 1389 provides that "the action to claim
rescission must be commenced within four years." The
Quirong heirs, on the other hand, claim that it should be
10 years as provided under Article 1144 which states that
actions "upon a written contract" must be brought "within
10 years from the date the right of action accrues."
Now, was the action of the Quirong heirs "for rescission"
or "upon a written contract"? There is no question that
their action was for rescission, since their complaint in
Civil Case CV-98-02399-D asked for the rescission of the
contract of sale between Sofia Quirong, their predecessor,
and the DBP and the reimbursement of the price of
P78,000.00 that Sofia Quirong paid the bank plus
damages. The prescriptive period for rescission is four
years.
But it is not that simple. The remedy of "rescission" is not
confined to the rescissible contracts enumerated under
Article 1381.17 Article 1191 of the Civil Code gives the
injured party in reciprocal obligations, such as what
contracts are about, the option to choose between
fulfillment and "rescission." Arturo M. Tolentino, a well-
known authority in civil law, is quick to note, however,
that the equivalent of Article 1191 in the old code actually
uses the term "resolution" rather than the present
"rescission."18 The calibrated meanings of these terms are
distinct.
"Rescission" is a subsidiary action based on injury to the
plaintiff’s economic interests as described in Articles 1380
and 1381. "Resolution," the action referred to in Article
1191, on the other hand, is based on the defendant’s breach
of faith, a violation of the reciprocity between the parties.
As an action based on the binding force of a written
contract, therefore, rescission (resolution) under Article
1191 prescribes in 10 years. Ten years is the period of
prescription of actions based on a written contract under
Article 1144.
The distinction makes sense. Article 1191 gives the injured
party an option to choose between, first, fulfillment of the
contract and, second, its rescission. An action to enforce a
written contract (fulfillment) is definitely an "action upon
a written contract," which prescribes in 10 years (Article
1144). It will not be logical to make the remedy of
fulfillment prescribe in 10 years while the alternative
remedy of rescission (or resolution) is made to prescribe
after only four years as provided in Article 1389 when the
injury from which the two kinds of actions derive is the
same.
Here, the Quirong heirs alleged in their complaint that
they were entitled to the rescission of the contract of sale
of the lot between the DBP and Sofia Quirong because the
decision in Civil Case D-7159 deprived her heirs of nearly
the whole of that lot. But what was the status of that
contract at the time of the filing of the action for
rescission? Apparently, that contract of sale had already
been fully performed when Sofia Quirong paid the full
price for the lot and when, in exchange, the DBP executed
the deed of absolute sale in her favor. There was a turnover
of control of the property from DBP to Sofia Quirong since
she assumed under their contract, "the ejectment of
squatters and/or occupants" on the lot, at her own
expense.19
Actually, the cause of action of the Quirong heirs stems
from their having been ousted by final judgment from the
ownership of the lot that the DBP sold to Sofia Quirong,
their predecessor, in violation of the warranty against
eviction that comes with every sale of property or thing.
Article 1548 of the Civil Code provides:
Article 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the
whole or of a part of thing purchased.
xxxx
With the loss of 80% of the subject lot to the Dalopes by
reason of the judgment of the RTC in Civil Case D-7159,
the Quirong heirs had the right to file an action for
rescission against the DBP pursuant to the provision of
Article 1556 of the Civil Code which provides:
Article 1556. Should the vendee lose, by reason of the
eviction, a part of the thing sold of such importance, in
relation to the whole, that he would not have bought it
without said part, he may demand the rescission of the
contract; but with the obligation to return the thing
without other encumbrances than those which it had when
he acquired it. x x x
And that action for rescission, which is based on a
subsequent economic loss suffered by the buyer, was
precisely the action that the Quirong heirs took against the
DBP. Consequently, it prescribed as Article 1389 provides
in four years from the time the action accrued. Since it
accrued on January 28, 1993 when the decision in Civil
Case D-7159 became final and executory and ousted the
heirs from a substantial portion of the lot, the latter had
only until January 28, 1997 within which to file their
action for rescission. Given that they filed their action on
June 10, 1998, they did so beyond the four-year period.
With the conclusion that the Court has reached respecting
the first issue presented in this case, it would serve no
useful purpose for it to further consider the issue of
whether or not the heirs of Quirong would have been
entitled to the rescission of the DBP’s sale of the subject lot
to Sofia Quirong as a consequence of her heirs having been
evicted from it. As the Court has ruled above, their action
was barred by prescription. The CA acted correctly in
reversing the RTC decision and dismissing their action.
Parenthetically, the Quirong heirs were allowed by the
RTC to intervene in the original action for annulment of
sale in Civil Case D-7159 that the Dalopes filed against the
DBP and the Funcions. Not only did the heirs intervene in
defense of the sale, they likewise filed a cross claim against
the DBP. And they were apparently heard on their defense
and cross claim but the RTC did not adjudicate their claim
for the reason that they failed to make a formal offer of
their documentary exhibits. Yet, they did not appeal from
this omission or from the judgment of the RTC, annulling
the DBP’s sale of the subject lot to Sofia Quirong. This
point is of course entirely academic but it shows that the
Quirong heirs have themselves to blame for the loss of
whatever right they may have in the case.
WHEREFORE, the Court DENIES the petition
and AFFIRMS the November 30, 2005 decision of the
Court of Appeals in CA-G.R. CV 83897.
SO ORDERED.
THIRD DIVISION
G.R. No. 177685 January 26, 2011
HEIRS OF RAMON C. GAITE, CYNTHIA
GOROSTIZA GAITE and RHOGEN
BUILDERS, Petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE
CORPORATION, Respondents.
DECISION
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the 1997
Rules of Civil Procedure, as amended, which seeks to
reverse and set aside the Decision1 dated June 27, 2006
and Resolution2 dated April 20, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed
with modification the Decision3 dated July 3, 1997 of the
Regional Trial Court (RTC) of Makati City, Branch 63, in
Civil Case Nos. 1328 (43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a
corporation engaged in the restaurant business, through
its President, Jose C. Reyes, entered into a contract4 with
Rhogen Builders (Rhogen), represented by Ramon C.
Gaite, for the construction of a restaurant building in
Greenbelt, Makati, Metro Manila for the price of
₱7,600,000.00. On July 18, 1980, to secure Rhogen’s
compliance with its obligation under the contract, Gaite
and FGU Insurance Corporation (FGU) executed a surety
bond in the amount of ₱1,155,000.00 in favor of The Plaza.
On July 28, 1980, The Plaza paid ₱1,155,000.00 less
withholding taxes as down payment to Gaite. Thereafter,
Rhogen commenced construction of the restaurant
building.
In a letter dated September 10, 1980, Engineer Angelito Z.
Gonzales, the Acting Building Official of the Municipality
of Makati, ordered Gaite to cease and desist from
continuing with the construction of the building for
violation of Sections 301 and 302 of the National Building
Code (P.D. 1096) and its implementing rules and
regulations.5 The letter was referred to The Plaza’s Project
Manager, Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite
that the building permit for the construction of the
restaurant was revoked for non-compliance with the
provisions of the National Building Code and for the
additional temporary construction without permit.6 The
Memorandum Report of Building Inspector Victor Gregory
enumerated the following violations of Rhogen in the
construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman
refused to [receive] the Letter of Stoppage dated
September 10, 1980.
5) Mr. Ramon Gaite [is] questioning the authority
of the Building Official’s Inspector.
6) Construction plans use[d] on the job site is not
in accordance to the approved plan.7
On September 19, 1980, the Project Manager (Tayzon) in
his Construction Memo #23 reported on his evaluation of
Progress Billing #1 submitted by Rhogen. Tayzon stated
that actual jobsite assessment showed that the finished
works fall short of Rhogen’s claimed percentage of
accomplishment and Rhogen was entitled to only
₱32,684.16 and not ₱260,649.91 being demanded by
Rhogen. Further, he recommended that said amount
payable to Rhogen be withheld pending compliance with
Construction Memo #18, resolution of cases regarding
unauthorized withdrawal of materials from jobsite and
stoppage of work by the Municipal Engineer’s Office of
Makati.8
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes,
President of The Plaza regarding his actions/observations
on the stoppage order issued. On the permit for temporary
structure, Gaite said the plans were being readied for
submission to the Engineering Department of the
Municipality of Makati and the application was being
resent to Reyes for his appropriate action. As to the notice
for concrete pouring, Gaite said that their construction set-
up provides for a Project Manager to whom the Pouring
Request is first submitted and whose job is to clear to
whoever parties are involved (this could still be worked out
with the Building Inspector). Regarding the safety devices
for workers, Gaite averred that he had given strict rules on
this but in the course of construction some workers have
personal preferences. On the refusal of the secretary and
construction foreman to receive the stoppage order dated
September 10, 1980, Gaite took responsibility but insisted
it was not a violation of the National Building Code.
Likewise, questioning the authority of the Building
Inspector is not a violation of the Code although Gaite
denied he ever did so. Lastly, on the construction plans
used in the jobsite not being in accordance with the
approved plan, Gaite said he had sent Engr. Cristino V.
Laurel on October 3, 1980 to Reyes’ office and make a copy
of the only approved plan which was in the care of Reyes,
but the latter did not give it to Engr. Laurel. Gaite thus
thought that Reyes would handle the matter by himself.9
On the same day, Gaite notified Reyes that he is
suspending all construction works until Reyes and the
Project Manager cooperate to resolve the issue he had
raised to address the problem.10 This was followed by
another letter dated November 18, 1980 in which Gaite
expressed his sentiments on their aborted project and
reiterated that they can still resolve the matter with
cooperation from the side of The Plaza.11 In his reply-letter
dated November 24, 1980, Reyes asserted that The Plaza is
not the one to initiate a solution to the situation, especially
after The Plaza already paid the agreed down payment of
₱1,155,000.00, which compensation so far exceeds the
work completed by Rhogen before the municipal
authorities stopped the construction for several violations.
Reyes made it clear they have no obligation to help Rhogen
get out of the situation arising from non-performance of
its own contractual undertakings, and that The Plaza has
its rights and remedies to protect its interest.12
Subsequently, the correspondence between Gaite and
Reyes involved the custody of remaining bags of cement in
the jobsite, in the course of which Gaite was charged with
estafa for ordering the removal of said items. Gaite
complained that Reyes continued to be uncooperative in
refusing to meet with him to resolve the delay. Gaite
further answered the estafa charge by saying that he only
acted to protect the interest of the owner (prevent
spoilage/hardening of cement) and that Reyes did not
reply to his request for exchange.13
On January 9, 1981, Gaite informed The Plaza that he is
terminating their contract based on the Contractor’s Right
to Stop Work or Terminate Contracts as provided for in
the General Conditions of the Contract. In his letter, Gaite
accused Reyes of not cooperating with Rhogen in solving
the problem concerning the revocation of the building
permits, which he described as a "minor problem."
Additionally, Gaite demanded the payment of ₱63,058.50
from The Plaza representing the work that has already
been completed by Rhogen.14
On January 13, 1981, The Plaza, through Reyes, countered
that it will hold Gaite and Rhogen fully responsible for
failure to comply with the terms of the contract and to
deliver the finished structure on the stipulated date. Reyes
argued that the down payment made by The Plaza was
more than enough to cover Rhogen’s expenses.15
In a subsequent letter dated January 20, 1981, Reyes
adverted to Rhogen’s undertaking to complete the
construction within 180 calendar days from July 16, 1980
or up to January 12, 1981, and to pay the agreed payment
of liquidated damages for every month of delay, chargeable
against the performance bond posted by FGU. Reyes
invoked Section 121 of the Articles of General Conditions
granting the owner the right to terminate the contract if
the contractor fails to execute the work properly and to
make good such deficiencies and deducting the cost from
the payment due to the contractor. Reyes also informed
Gaite that The Plaza will continue the completion of the
structure utilizing the services of a competent contractor
but will charge Rhogen for liquidated damages as
stipulated in Article VIII of the Contract. After proper
evaluation of the works completed by Rhogen, The Plaza
shall then resume the construction and charge Rhogen for
all the costs and expenses incurred in excess of the
contract price. In the meantime that The Plaza is still
evaluating the extent and condition of the works
performed by Rhogen to determine whether these are
done in accordance with the approved plans, Reyes
demanded from Gaite the reimbursement of the balance of
their initial payment of ₱1,155,000.00 from the value of
the works correctly completed by Rhogen, or if none, to
reimburse the entire down payment plus expenses of
removal and replacement. Rhogen was also asked to turn
over the jobsite premises as soon as possible.16 The Plaza
sent copy of said letter to FGU but the latter replied that it
has no liability under the circumstances and hence it could
not act favorably on its claim against the bond.17
On March 3, 1981, The Plaza notified Gaite that it could no
longer credit any payment to Rhogen for the work it had
completed because the evaluation of the extent, condition,
and cost of work done revealed that in addition to the
violations committed during the construction of the
building, the structure was not in accordance with plans
approved by the government and accepted by Ayala.
Hence, The Plaza demanded the reimbursement of the
down payment, the cost of uprooting or removal of the
defective structures, the value of owner-furnished
materials, and payment of liquidated damages.18
On March 26, 1981, The Plaza filed Civil Case No.
40755 for breach of contract, sum of money and damages
against Gaite and FGU in the Court of First Instance (CFI)
of Rizal.19 The Plaza later amended its complaint to
include Cynthia G. Gaite and Rhogen.20 The Plaza likewise
filed Civil Case No. 1328 (43083) against Ramon C. Gaite,
Cynthia G. Gaite and/or Rhogen Builders also in the CFI of
Rizal for nullification of the project development contract
executed prior to the General Construction Contract
subject of Civil Case No. 40755, which was allegedly in
violation of the provisions of R.A. No. 545 (Architectural
Law of the Philippines).21 After the reorganization of the
Judiciary in 1983, the cases were transferred to the RTC of
Makati and eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its
decision granting the claims of The Plaza against Rhogen,
the Gaites and FGU, and the cross-claim of FGU against
Rhogen and the Gaites. The trial court ruled that the
Project Manager was justified in recommending that The
Plaza withhold payment on the progress billings submitted
by Rhogen based on his evaluation that The Plaza is liable
to pay only ₱32,684.16 and not ₱260,649.91. The other
valid grounds for the withholding of payment were the
pending estafa case against Gaite, non-compliance by
Rhogen with Construction Memorandum No. 18 and the
non-lifting of the stoppage order.22
Regarding the non-lifting of the stoppage order, which the
trial court said was based on simple infractions, the same
was held to be solely attributable to Rhogen’s willful
inaction. Instead of readily rectifying the violations,
Rhogen continued with the construction works thereby
causing more damage. The trial court pointed out that
Rhogen is not only expected to be aware of standard
requirements and pertinent regulations on construction
work, but also expressly bound itself under the General
Construction Contract to comply with all the laws, city and
municipal ordinances and all government regulations.
Having failed to complete the project within the stipulated
period and comply with its obligations, Rhogen was thus
declared guilty of breaching the Construction Contract and
is liable for damages under Articles 1170 and 1167 of
the Civil Code.23
The dispositive portion of the trial court’s decision reads:
WHEREFORE, in Civil Case No. 40755, defendants
Ramon Gaite, Cynthia Gaite and Rhogen Builders are
jointly and severally ordered to pay plaintiff:
1. the amount of ₱525,422.73 as actual damages
representing owner-furnished materials with legal interest
from the time of filing of the complaint until full payment;
2. the amount of ₱14,504.66 as actual damages
representing expenses for uprooting with interest from the
time of filing the complaint until full payment;
3. the amount of ₱1,155,000.00 as actual damages
representing the downpayment with legal interest from the
time of filing the complaint until full payment;
4. the amount of ₱150,000.00 for moral damages;
5. the amount of ₱100,000.00 for exemplary damages;
6. the amount of ₱500,000.00 as liquidated damages;
7. the amount of ₱100,000.00 as reasonable attorney’s
fees; and,
8. the cost of suit.
Under the surety bond, defendants Rhogen and FGU are
jointly and severally ordered to pay plaintiff the amount of
₱1,155,000.00 with legal interest from the time of filing
the complaint until full payment. In the event [that] FGU
pays the said amount, third-party defendants are jointly
and severally ordered to pay the same amount to FGU plus
₱50,000.00 as reasonable attorney’s fees, the latter having
been forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no
pronouncement as to cost.
SO ORDERED.24
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU
appealed to the CA.25 In view of the death of Ramon C.
Gaite on April 21, 1999, the CA issued a Resolution dated
July 12, 2000 granting the substitution of the former by
his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite,
Genevieve G. Gaite and Roman Juan G. Gaite.26
In their appeal, the heirs of Ramon C. Gaite, Cynthia G.
Gaite and Rhogen assigned the following errors, to wit:
I. THE TRIAL COURT ERRED IN DECLARING THAT
THE GROUNDS RELIED UPON BY DEFENDANT-
APPELLANT RHOGEN BUILDERS IN TERMINATING
THE CONTRACT ARE UNTENABLE;
II. THE TRIAL COURT ERRED IN DECLARING THAT
THE NON-LIFTING OF THE STOPPAGE ORDER OF
THE THEN MUNICIPAL GOVERNMENT OF MAKATI
WAS SOLELY ATTRIBUTABLE TO DEFENDANT-
APPELLANT RHOGEN’S WILLFUL INACTION;
III. THE TRIAL COURT ERRED IN FAILING TO
CONSIDER THAT IT WAS THE WILLFUL INACTION OF
PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE
FOR DEFENDANT–APPELLANT RHOGEN TO
PERFORM ITS OBLIGATIONS UNDER THE
CONTRACT;
IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL
DAMAGES AS WELL AS MORAL, EXEMPLARY, AND
LIQUIDATED DAMAGES AND ATTORNEY’S FEES
SINCE THERE WERE NO FACTUAL AND LEGAL BASES
THEREFOR; AND
V. THE TRIAL COURT ERRED IN FAILING TO AWARD
ACTUAL, MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES IN FAVOR OF DEFENDANTS-
APPELLANTS.27
For its part, FGU interposed the following assignment of
errors:
I. THE REGIONAL TRIAL COURT ERRED IN NOT
RULING THAT DEFENDANT-APPELLANT RAMON
GAITE VALIDLY TERMINATED THE CONTRACT
BETWEEN HIM AND PLAINTIFF-APPELLEE.
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING
DEFENDANT-APPELLANT RAMON GAITE
RESPONSIBLE FOR THE STOPPAGE OF THE
CONSTRUCTION.
III. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON GAITE
TO PAY THE AMOUNT OF P525,422.73 FOR THE
OWNER FURNISHED MATERIALS.
IV. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON GAITE
TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF
P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING
THE WORK HE PERFORMED.
V. THE REGIONAL TRIAL COURT ERRED IN
ORDERING DEFENDANT-APPELLANT RAMON GAITE
TO REFUND THE DOWN PAYMENT OF P1,155,000.00
PLAINTIFF-APPELLEE PAID HIM.
VI. THE REGIONAL TRIAL COURT ERRED IN
AWARDING MORAL DAMAGES TO PLAINTIFF-
APPELLEE.
VII. THE REGIONAL TRIAL COURT ERRED IN
AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-
APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN
AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-
APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN
AWARDING ATTORNEY’S FEES TO PLAINTIFF-
APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING
DEFENDANT-APPELLANT FGU INSURANCE
CORPORATION LIABLE TO PLAINTIFF-APPELLEE.28
On June 27, 2006, the CA affirmed the Decision of the trial
court but modified the award of damages as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered
by the Regional Trial Court of Makati City, Branch 63 in
Civil Case Nos. 40755 and 1328 is AFFIRMED with
the modification that: (a) the award for actual damages
representing the owner-furnished materials and the
expenses for uprooting are deleted, and in lieu thereof, the
amount of P300,000.00 as temperate damages is
awarded; and (b) the awards for moral, exemplary,
liquidated and attorney’s fees are likewise deleted.
SO ORDERED.29
According to the CA, The Plaza cannot now be demanded
to comply with its obligation under the contract since
Rhogen has already failed to comply with its own
contractual obligation. Thus, The Plaza had every reason
not to pay the progress billing as a result of Rhogen’s
inability to perform its obligations under the contract.
Further, the stoppage and revocation orders were issued
on account of Rhogen’s own violations involving the
construction as found by the local building official. Clearly,
Rhogen cannot blame The Plaza for its own failure to
comply with its contractual obligations. The CA stressed
that Rhogen obliged itself to comply with "all the laws, city
and municipal ordinances and all government regulations
insofar as they are binding upon or affect the parties [to
the contract] , the work or those engaged thereon."30 As
such, it was responsible for the lifting of the stoppage and
revocation orders. As to Rhogen’s act of challenging the
validity of the stoppage and revocation orders, the CA held
that it cannot be done in the present case because under
Section 307 of the National Building Code, appeal to the
Secretary of the Department of Public Works and
Highways (DPWH) – whose decision is subject to review
by the Office of the President -- is available as remedy for
Rhogen.31
However, the CA modified the award of damages holding
that the claim for actual damages of ₱525,422.73
representing the damaged owner-furnished materials was
not supported by any evidence. Instead, the CA granted
temperate damages in the amount of ₱300,000.00. As to
moral damages, no specific finding for the factual basis of
said award was made by the trial court, and hence it
should be deleted. Likewise, liquidated damages is not
proper considering that this is not a case of delay but non-
completion of the project. The Plaza similarly failed to
establish that Rhogen and Gaite acted with malice or bad
faith; consequently, the award of exemplary damages must
be deleted. Finally, there being no bad faith on the part of
the defendants, the award of attorneys’ fees cannot be
sustained.32
The motion for reconsideration of the aforesaid Decision
was denied in the Resolution dated April 20, 2007 for lack
of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
found that Petitioner Rhogen had no factual or legal basis
to terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, as a
consequence of its finding that Petitioners did not have
valid grounds to terminate the Construction Contract, it
directed Petitioners to return the downpayment paid by
The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, in
addition thereto, it awarded temperate damages to The
Plaza.
IV.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
failed to award damages in favor of Petitioners.33
Petitioners contend that the CA gravely erred in not
holding that there were valid and legal grounds for Rhogen
to terminate the contract pursuant to Article 1191 of
the Civil Code and Article 123 of the General Conditions of
the Construction Contract. Petitioners claim that Rhogen
sent Progress Billing No. 1 dated September 10, 1980 and
demanded payment from The Plaza in the net amount of
₱473,554.06 for the work it had accomplished from July
28, 1980 until September 7, 1980. The Plaza, however,
failed to pay the said amount. According to petitioners,
Article 123 of the General Conditions of the Construction
Contract gives The Plaza seven days from notice within
which to pay the Progress Billing; otherwise, Rhogen may
terminate the contract. Petitioners also invoke Article 1191
of the Civil Code, which states that the power to rescind
obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon
him.
We deny the petition.
Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed
simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the
other. Respondent The Plaza predicated its action on
Article 119134 of the Civil Code, which provides for the
remedy of "rescission" or more properly resolution, a
principal action based on breach of faith by the other party
who violates the reciprocity between them. The breach
contemplated in the provision is the obligor’s failure to
comply with an existing obligation. Thus, the power to
rescind is given only to the injured party. The injured party
is the party who has faithfully fulfilled his obligation or is
ready and willing to perform his obligation.35
The construction contract between Rhogen and The Plaza
provides for reciprocal obligations whereby the latter’s
obligation to pay the contract price or progress billing is
conditioned on the former’s performance of its
undertaking to complete the works within the stipulated
period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual
obligation, The Plaza furnished materials and paid the
agreed down payment. It also exercised the option of
furnishing and delivering construction materials at the
jobsite pursuant to Article III of the Construction
Contract. However, just two months after commencement
of the project, construction works were ordered stopped by
the local building official and the building permit
subsequently revoked on account of several violations of
the National Building Code and other regulations of the
municipal authorities.
Petitioners reiterate their position that the stoppage order
was unlawful, citing the fact that when the new contractor
(ACK Construction, Inc.) took over the project, the local
government of Makati allowed the construction of the
building using the old building permit; moreover, the
basement depth of only two meters was retained, with no
further excavation made. They cite the testimony of the
late Ramon Gaite before the trial court that at the time, he
had incurred the ire of then Mayor of Makati because his
(Gaite) brother was the Mayor’s political opponent; hence,
they sought to file whatever charge they could against him
in order to call the attention of his brother. This "political
harassment" defense was raised by petitioners in their
Amended Answer. Gaite’s testimony was intended to
explain the circumstances leading to his decision to
terminate the construction contract and not to question
the revocation of the building permit. As the available
remedy was already foreclosed, it was thus error for the CA
to suggest that Rhogen should have appealed the stoppage
and revocations orders issued by the municipal authorities
to the DPWH and then to the OP.36
Article 123 of the Articles of General Conditions states the
grounds for the termination of the work or contract by the
Contractor:
123. CONTRACTOR’S RIGHT TO STOP WORK OR
TERMINATE
CONTRACT
If work should be stopped under order of any court, or
other public authority, for period of three (3) months
through no act or fault of Contractor or of anyone
employed by him, or if Owner’s Representative should fail
to issue any certificate of payment within seven (7) days
after its maturity and presentation of any sum certified by
Owner’s Representative or awarded arbitrator, then
contractor, may, stop work or terminate Contract, recover
from Owner payment for work executed, loss sustained
upon any plant or materials, reasonable profit,
damages.37 (Emphasis supplied.)
Petitioners may not justify Rhogen’s termination of the
contract upon grounds of non-payment of progress billing
and uncooperative attitude of respondent The Plaza and
its employees in rectifying the violations which were the
basis for issuance of the stoppage order. Having breached
the contractual obligation it had expressly assumed, i.e., to
comply with all laws, rules and regulations of the local
authorities, Rhogen was already at fault. Respondent The
Plaza, on the other hand, was justified in withholding
payment on Rhogen’s first progress billing, on account of
the stoppage order and additionally due to disappearance
of owner-furnished materials at the jobsite. In failing to
have the stoppage and revocation orders lifted or recalled,
Rhogen should take full responsibility in accordance with
its contractual undertaking, thus:
In the performance of the works, services, and obligations
subject of this Contract, the CONTRACTOR binds itself to
observe all pertinent and applicable laws, rules and
regulations promulgated by duly constituted authorities
and to be personally, fully and solely liable for any and all
violations of the same.38 (Emphasis supplied.)
Significantly, Rhogen did not mention in its
communications to Reyes that Gaite was merely a victim of
abuse by a local official and this was the primary reason
for the problems besetting the project. On the contrary,
the site appraisal inspection conducted on February 12 and
13, 1981 in the presence of representatives from The Plaza,
Rhogen, FGU and Municipal Engineer Victor Gregory,
disclosed that in addition to the violations committed by
Rhogen which resulted in the issuance of the stoppage
order, Rhogen built the structure not in accordance with
government approved plans and/or without securing the
approval of the Municipal Engineer before making the
changes thereon.39
Such non-observance of laws and regulations of the local
authorities affecting the construction project constitutes a
substantial violation of the Construction Contract which
entitles The Plaza to terminate the same, without
obligation to make further payment to Rhogen until the
work is finished or subject to refund of payment exceeding
the expenses of completing the works. This is evident from
a reading of Article 122 which states:
122. OWNER’S RIGHT TO TERMINATE CONTRACT
“A. If Contractor should be adjudged bankrupt, or if he
should make general assignment for benefit of his
creditors, or if receiver should be appointed on account of
his insolvency, or if he should persistently or repeatedly
refuse or should fail, except in cases for which extension of
time is provided, to supply enough properly skilled
workmen or proper materials, or if he should fail to make
prompt payment to Sub-Contractors or for materials of
labor, or persistently disregard laws, ordinances, or
instructions of Owner’s Representative or otherwise be
guilty of substantial violation of any provision of [the]
Contract, then Owner, upon certification by Owner’s
Representative that sufficient cause exists to justify such
action, may, without prejudice to any right or remedy,
after giving Contractor seven days written notice,
terminate contract with Contractor, take possession of
premises, materials, tools, appliances, thereon, finish work
by whatever method he may deem expedient. In such
cases, Contractor shall not be entitled to receive any
further payment until work is finished.
B. If unpaid balance of Contract sum shall exceed expense
of finishing work including compensation for additional
managerial and administrative services, such excess, paid
to Contractor. Refund the difference to Owner if such
expense shall exceed unpaid balance.40 (Emphasis
supplied.)”
Upon the facts duly established, the CA therefore did not
err in holding that Rhogen committed a serious breach of
its contract with The Plaza, which justified the latter in
terminating the contract. Petitioners are thus liable for
damages for having breached their contract with
respondent The Plaza. Article 1170 of the Civil
Code provides that those who in the performance of their
obligations are guilty of fraud, negligence or delay and
those who in any manner contravene the tenor thereof are
liable for damages.
Petitioners assail the order for the return of down
payment, asserting that the principle of quantum meruit
demands that Rhogen as contractor be paid for the work
already accomplished.
We disagree.
Under the principle of quantum meruit, a contractor is
allowed to recover the reasonable value of the thing or
services rendered despite the lack of a written contract, in
order to avoid unjust enrichment. Quantum meruit means
that in an action for work and labor, payment shall be
made in such amount as the plaintiff reasonably deserves.
To deny payment for a building almost completed and
already occupied would be to permit unjust enrichment at
the expense of the contractor.41
Rhogen failed to finish even a substantial portion of the
works due to the stoppage order issued just two months
from the start of construction. Despite the down payment
received from The Plaza, Rhogen, upon evaluation of the
Project Manager, was able to complete a meager
percentage much lower than that claimed by it under the
first progress billing between July and September 1980.
Moreover, after it relinquished the project in January
1981, the site inspection appraisal jointly conducted by the
Project Manager, Building Inspector Engr. Gregory and
representatives from FGU and Rhogen, Rhogen was found
to have executed the works not in accordance with the
approved plans or failed to seek prior approval of the
Municipal Engineer. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his
cost.
Art. 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore,
it may be decreed that what has been poorly done be
undone.
In addition, Article 122 of the Articles of General
Conditions provides that the contractor shall not be
entitled to receive further payment "until the work is
finished." As the works completed by Rhogen were not in
accordance with approved plans, it should have been
executed at its cost had it not relinquished the project in
January 1981. The CA thus did not err in sustaining the
trial court’s order for the return of the down payment
given by The Plaza to Rhogen.
As to temperate damages, Article 2224 of the Civil
Code provides that temperate or moderate damages, which
are more than nominal but less than compensatory
damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with
certainty. The rationale behind temperate damages is
precisely that from the nature of the case, definite proof of
pecuniary loss cannot be offered. When the court is
convinced that there has been such loss, the judge is
empowered to calculate moderate damages, rather than let
the complainant suffer without redress from the
defendant’s wrongful act.42Petitioners’ contention that
such award is improper because The Plaza could have
presented receipts to support the claim for actual
damages, must fail considering that Rhogen never denied
the delivery of the owner-furnished materials which were
under its custody at the jobsite during the work stoppage
and before it terminated the contract. Since Rhogen failed
to account either for those items which it had caused to be
withdrawn from the premises, or those considered
damaged or lost due spoilage, or disappeared for whatever
reason – there was no way of determining the exact
quantity and cost of those materials.1âwphi1 Hence, The
Plaza was correctly allowed to recover temperate damages.
Upon the foregoing, we find petitioners’ claim for actual,
moral and exemplary damages and attorney’s fees lacking
in legal basis and undeserving of further discussion.
WHEREFORE, the petition is DENIED. The Decision
dated June 27, 2006 and the Resolution dated April 20,
2007 of the Court of Appeals in CA-G.R. CV No. 58790
are AFFIRMED.
With costs against petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. 176868 July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON
CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA)
Decision1 dated September 21, 2006 and Resolution2 dated
February 23, 2007, which denied petitioner’s motion for
reconsideration. The assailed Decision denied petitioner’s
claim for reimbursement for the amount it paid to
respondent for the manufacture of corrugated carton
boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc.,
entered into an agreement with respondent, Davao
Corrugated Carton Corporation, for the purchase of
corrugated carton boxes, specifically designed for
petitioner’s business of exporting fresh bananas, at
US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner
deposited, on March 31, 1998, US$40,150.00 in
respondent’s US Dollar Savings Account with Westmont
Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes
from respondent. On January 3, 2001, petitioner wrote a
demand letter for reimbursement of the amount paid.3 On
February 19, 2001, respondent replied that the boxes had
been completed as early as April 3, 1998 and that
petitioner failed to pick them up from the former’s
warehouse 30 days from completion, as agreed upon.
Respondent mentioned that petitioner even placed an
additional order of 24,000 boxes, out of which, 14,000 had
been manufactured without any advanced payment from
petitioner. Respondent then demanded petitioner to
remove the boxes from the factory and to pay the balance
of US$15,400.00 for the additional boxes and
₱132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum
of money and damages against respondent. The Complaint
averred that the parties agreed that the boxes will be
delivered within 30 days from payment but respondent
failed to manufacture and deliver the boxes within such
time. It further alleged
6. That repeated follow-up was made by the plaintiff for
the immediate production of the ordered boxes, but every
time, defendant [would] only show samples of boxes and
ma[k]e repeated promises to deliver the said ordered
boxes.
7. That because of the failure of the defendant to deliver
the ordered boxes, plaintiff ha[d] to cancel the same and
demand payment and/or refund from the defendant but
the latter refused to pay and/or refund the US$40,150.00
payment made by the former for the ordered
boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted
that, as early as April 3, 1998, it had already completed
production of the 36,500 boxes, contrary to petitioner’s
allegation. According to respondent, petitioner, in fact,
made an additional order of 24,000 boxes, out of which,
14,000 had been completed without waiting for
petitioner’s payment. Respondent stated that petitioner
was to pick up the boxes at the factory as agreed upon, but
petitioner failed to do so. Respondent averred that, on
October 8, 1998, petitioner’s representative, Bobby Que
(Que), went to the factory and saw that the boxes were
ready for pick up. On February 20, 1999, Que visited the
factory again and supposedly advised respondent to sell
the boxes as rejects to recoup the cost of the unpaid
14,000 boxes, because petitioner’s transaction to ship
bananas to China did not materialize. Respondent claimed
that the boxes were occupying warehouse space and that
petitioner should be made to pay storage fee at ₱60.00 per
square meter for every month from April 1998. As
counterclaim, respondent prayed that judgment be
rendered ordering petitioner to pay $15,400.00, plus
interest, moral and exemplary damages, attorney’s fees,
and costs of the suit.
In reply, petitioner denied that it made a second order of
24,000 boxes and that respondent already completed the
initial order of 36,500 boxes and 14,000 boxes out of the
second order. It maintained that
respondent only manufactured a sample of the ordered
boxes and that respondent could not have produced
14,000 boxes without the required pre-payments.6
During trial, petitioner presented Que as its sole witness.
Que testified that he ordered the boxes from respondent
and deposited the money in respondent’s account.7 He
specifically stated that, when he visited respondent’s
factory, he saw that the boxes had no print of petitioner’s
logo.8 A few months later, he followed-up the order and
was told that the company had full production, and thus,
was promised that production of the order would be
rushed. He told respondent that it should indeed rush
production because the need for the boxes was urgent.
Thereafter, he asked his partner, Alfred Ong, to cancel the
order because it was already late for them to meet their
commitment to ship the bananas to China.9 On cross-
examination, Que further testified that China Zero Food,
the Chinese company that ordered the bananas, was
sending a ship to Davao to get the bananas, but since there
were no cartons, the ship could not proceed. He said that,
at that time, bananas from Tagum Agricultural
Development Corporation (TADECO) were already there.
He denied that petitioner made an additional order of
24,000 boxes. He explained that it took three years to
refer the matter to counsel because respondent promised
to pay.10
For respondent, Bienvenido Estanislao (Estanislao)
testified that he met Que in Davao in October 1998 to
inspect the boxes and that the latter got samples of them.
In February 2000, they inspected the boxes again and Que
got more samples. Estanislao said that petitioner did not
pick up the boxes because the ship did not arrive.11 Jaime
Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April
3, 1998 and that petitioner made a second order of 24,000
boxes. He said that the agreement was for respondent to
produce the boxes and for petitioner to pick them up from
the warehouse.12 He also said that the reason why
petitioner did not pick up the boxes was that the ship that
was to carry the bananas did not arrive.13 According to
him, during the last visit of Que and Estanislao, he asked
them to withdraw the boxes immediately because they
were occupying a big space in his plant, but they, instead,
told him to sell the cartons as rejects. He was able to sell
5,000 boxes at ₱20.00 each for a total of ₱100,000.00.
They then told him to apply the said amount to the unpaid
balance.
In its March 2, 2004 Decision, the Regional Trial Court
(RTC) ruled that respondent did not commit any breach of
faith that would justify rescission of the contract and the
consequent reimbursement of the amount paid by
petitioner. The RTC said that respondent was able to
produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus
dismissed the complaint and respondent’s counterclaims,
disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of defendant and against the plaintiff
and, accordingly, plaintiff’s complaint is hereby ordered
DISMISSED without pronouncement as to cost.
Defendant’s counterclaims are similarly dismissed for lack
of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack
of merit.15 The appellate court held that petitioner failed to
discharge its burden of proving what it claimed to be the
parties’ agreement with respect to the delivery of the
boxes. According to the CA, it was unthinkable that, over a
period of more than two years, petitioner did not even
demand for the delivery of the boxes. The CA added that
even assuming that the agreement was for respondent to
deliver the boxes, respondent would not be liable for
breach of contract as petitioner had not yet demanded
from it the delivery of the boxes.16
Petitioner moved for reconsideration,17but the motion was
denied by the CA in its Resolution of February 23, 2007.18
In this petition, petitioner insists that respondent did not
completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to
TADECO.
We find no reversible error in the assailed Decision that
would justify the grant of this petition.
Petitioner’s claim for reimbursement is actually one for
rescission (or resolution) of contract under Article 1191 of
the 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.
The right to rescind a contract arises once the other party
defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be
taken in conjunction with Art. 1169 of the same law, which
provides:
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.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
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 fulfills his obligation, delay
by the other begins.
In reciprocal obligations, as in a contract of sale, the
general rule is that the fulfillment of the parties’ respective
obligations should be simultaneous. Hence, no demand is
generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for
each obligation must be determined by the rules given in
the first paragraph of the present article,19 that is, the
other party would incur in delay only from the moment the
other party demands fulfillment of the former’s obligation.
Thus, even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the
obligee is still necessary before the obligor can be
considered in default and before a cause of action for
rescission will accrue.
Evident from the records and even from the allegations in
the complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and
deliver the boxes. The Complaint only alleged that
petitioner made a "follow-up" upon respondent, which,
however, would not qualify as a demand for the fulfillment
of the obligation. Petitioner’s witness also testified that
they made a follow-up of the boxes, but not a demand.
Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness
testified that a demand letter was sent to respondent.
Without a previous demand for the fulfillment of the
obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be
considered in breach of its contractual obligation.
Even assuming that a demand had been previously made
before filing the present case, petitioner’s claim for
reimbursement would still fail, as the circumstances would
show that respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not
usually reviewed in a petition for review under Rule
45.20 The Court, in petitions for review, limits its inquiry
only to questions of law. After all, it is not a trier of facts,
and findings of fact made by the trial court, especially
when reiterated by the CA, must be given great respect if
not considered as final.21 In dealing with this petition, we
will not veer away from this doctrine and will thus sustain
the factual findings of the CA, which we find to be
adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of
the finished boxes and the production report thereof, there
is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of
Estanislao who accompanied Que to the factory, attesting
that, during their first visit to the company, they saw the
pile of petitioner’s boxes and Que took samples thereof.
Que, petitioner’s witness, himself confirmed this incident.
He testified that Tan pointed the boxes to him and that he
got a sample and saw that it was blank. Que’s absolute
assertion that the boxes were not manufactured is,
therefore, implausible and suspicious.
In fact, we note that respondent’s counsel manifested in
court, during trial, that his client was willing to shoulder
expenses for a representative of the court to visit the plant
and see the boxes.22 Had it been true that the boxes were
not yet completed, respondent would not have been so
bold as to challenge the court to conduct an ocular
inspection of their warehouse. Even in its Comment to this
petition, respondent prays that petitioner be ordered to
remove the boxes from its factory site,23 which could only
mean that the boxes are, up to the present, still in
respondent’s premises.
We also believe that the agreement between the parties
was for petitioner to pick up the boxes from respondent’s
warehouse, contrary to petitioner’s allegation. Thus, it was
due to petitioner’s fault that the boxes were not delivered
to TADECO.
Petitioner had the burden to prove that the agreement
was, in fact, for respondent to deliver the boxes within 30
days from payment, as alleged in the Complaint. Its sole
witness, Que, was not even competent to testify on the
terms of the agreement and, therefore, we cannot give
much credence to his testimony. It appeared from the
testimony of Que that he did not personally place the order
with Tan, thus:
“Q. No, my question is, you went to Davao City and placed
your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred
Ong has a contact with Mr. Tan.
Q. So, your first statement that you were the one who
placed the order is not true?
A. That’s true. The Solar Harvest made a contact with Mr.
Tan and I deposited the money in the bank.
Q. You said a while ago [t]hat you were the one who called
Mr. Tan and placed the order for 36,500 boxes, isn’t it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
Q. Is it not a fact that the cartons were ordered through
Mr. Bienvenido Estanislao?
A. Yes, sir.”
Moreover, assuming that respondent was obliged to
deliver the boxes, it could not have complied with such
obligation. Que, insisting that the boxes had not been
manufactured, admitted that he did not give respondent
the authority to deliver the boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes
to TADECO?
A. No, sir. As I have said, before the delivery, we must have
to check the carton, the quantity and quality. But I have
not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only
after the boxes are completed, will you give authority to
Mr. Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen
any carton. I asked Mr. Tan to rush the carton but not…26
Q. Did you give any authority for Mr. Tan to deliver these
boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don’t have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have
allowed respondent to deposit the boxes within its
premises.
In sum, the Court finds that petitioner failed to establish a
cause of action for rescission, the evidence having shown
that respondent did not commit any breach of its
contractual obligation. As previously stated, the subject
boxes are still within respondent’s premises. To put a rest
to this dispute, we therefore relieve respondent from the
burden of having to keep the boxes within its premises
and, consequently, give it the right to dispose of them,
after petitioner is given a period of time within which to
remove them from the premises.
WHEREFORE, premises considered, the petition is
DENIED. The Court of Appeals Decision dated September
21, 2006 and Resolution dated February 23, 2007 are
AFFIRMED. In addition, petitioner is given a period of 30
days from notice within which to cause the removal of the
36,500
boxes from respondent’s warehouse. After the lapse of said
period and petitioner fails to effect such removal,
respondent shall have the right to dispose of the boxes in
any manner it may deem fit.

SO ORDERED.