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G.R. No.

83748 May 12, 1989
FLAVIO K MACASAET & ASSOCIATES, INC., petitioner,
vs.
COMMISSION ON AUDIT and PHILIPPINE TOURISM AUTHORITY, respondents.
In this Petition for Certiorari, pursuant to Section 7, Article IX of the 1987 Constitution, 1 petitioner,
Flavio K. Macasaet & Associates, Inc., prays that the ruling of public respondent Commission on Audit
(COA) denying its claim for completion of payment of professional fees be overturned. The facts follow.
On 15 September 1977 respondent Philippine Tourism Authority (PTA) entered into a Contract for
"Project Design and Management Services for the development of the proposed Zamboanga Golf and
Country Club, Calarian, Zamboanga City" with petitioner company, but originally with Flavio K
Macasaet alone (hereinafter referred to simply as the "Contract").
Under the Contract, PTA obligated itself to pay petitioner a professional fee of seven (7%) of the actual
construction cost, as follows:

Pursuant to the foregoing Schedule, the PTA made periodic payments of the stipulated professional
fees to petitioner. And, upon completion of the project, PTA paid petitioners what it perceived to be the
balance of the latter's professional fees.
It turned out, however, that after the project was completed, PTA paid Supra Construction Company,
the main contractor, the additional sum of P3,148,198.26 representing the escalation cost of the
contract price due to the increase in the price of construction materials.
Upon learning of the price escalation, petitioner requested payment of P219,302.47 additional
professional fee representing seven (7%) percent of P3,148,198.26.
On 3 July 1985 PTA denied payment on the ground that "the subject price escalation referred to
increased cost of construction materials and did not entail additional work on the part of petitioner as to
entitle it to additional compensation under Article VI of the contract." 2

ARTICLE IV — PROFESSIONAL FEE

Reconsiderations sought by the petitioner, up to respondent COA, were to no avail. The latter
expressed the opinion that "to allow subject claim in the absence of a showing that extra or additional
services had been rendered by claimant would certainly result in overpayment to him to the prejudice
of the Government" (1st Indorsement, July 10, 1987, p. 3, Rollo, p. 42).

In consideration for the professional services to be performed by Designer under
Article I of this Agreement, the Authority shall pay seven percent (7%) of the
actual construction cost.

Hence this Petition, to which we gave due course.

In addition, a Schedule of Payments was provided for while the construction was in progress and up to
its final completion, thus:
ARTICLE V — SCHEDULE OF PAYMENTS
1. Upon the execution of the Agreement but not more than fifteen (15) days, a
minimum payment equivalent to 10 percent of the professional fee as provided in
Art. IV computed upon a reasonable estimated construction cost of the project.
2. Upon the completion of the schematic design services, but not more than 15
days after the submission of the schematic design to the Authority, a sum
equivalent to 15% of the professional fee as stated in Art. IV computed upon the
reasonable estimated construction cost of the project.
3. Upon completion of the design development services, but not more than 15
days after submission of the design development to the authority, a sum
equivalent to 20% of the professional fee as stated in Art. IV, computed upon the
reasonable estimated construction cost.

The basic issue for resolution is petitioner's entitlement to additional professional fees, which, in turn,
hinges on whether or not the price escalation should be included in the "final actual project cost."
Public respondents, through the Solicitor General, maintain that petitioner had been paid its
professional fee upon completion of the project and that its claim for additional payment is without any
legal and factual basis for, after all, no additional architectural services were rendered other than the
ones under the terms of the Contract. On the other hand, petitioner anchors its claim to additional
professional fees, not on any change in services rendered, but on Article IV, and paragraph 5 of Article
V, of the Contract, supra.
The very terminologies used in the Contract call for affirmative relief in petitioner's favor.
Under Article IV of said Contract, petitioner was to be entitled to seven (7%) of the "actual construction
cost." Under paragraphs 1, 2, 3, and 4, Article V, periodic payments were to be based on a
"reasonable estimated construction cost." ultimately, under paragraph 5, Article V, the balance of the
professional fee was to be computed on the basis of "the final actual project cost."

4. Upon completion of the contract document services but not more than 15 days
after submission of the contract document to the Authority, a sum equivalent to
25% of the professional fee as stated in Art. IV, shall be paid computed on the
same basis as above.

The use of the terms "actual construction cost", gradating into "final actual project cost" is not without
significance. The real intendment of the parties, as shown by paragraph 5, Article V, of their Contract
was to base the ultimate balance of petitioner's professional fees not on "actual construction cost"
alone but on the final actual project cost; not on "construction cost" alone but on "project cost." By so
providing, the Contract allowed for flexibility based on actuality and as a matter of equity for the
contracting parties. For evidently, the final actual project cost would not necessarily tally with the actual
construction cost initially computed. The "final actual project cost" covers the totality of all costs as
actually and finally determined, and logically includes the escalation cost of the contract price.

5. Upon completion of the work and acceptance thereof by the Authority, the
balance of the professional fee, computed on the final actual project cost shall be
paid. (Emphasis supplied)

It matters not that the price escalation awarded to the construction company did not entail additional
work for petitioner. As a matter of fact, neither did it for the main contractor. The increased cost of
materials was not the doing of either contracting party.

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That an escalation clause was not specifically provided for in the Contract is of no moment either for it
may be considered as already "built-in" and understood from the very terms "actual construction cost,"
and eventually "final actual project cost."
Article VI of the Contract, supra, has no bearing on the present controversy either. It speaks of any
major change in the planning and engineering aspects necessitating the award and payment of
additional compensation. Admittedly, there was no additional work by petitioner, which required
additional compensation. Rather, petitioner's claim is for payment of the balance of its professional
fees based on the "final actual project cost" and not for additional compensation based on Article VI.
The terminologies in the contract being clear, leaving no doubt as to the intention of the contracting
parties, their literal meaning control (Article 1370, Civil Code). The price escalation cost must be
deemed included in the final actual project cost and petitioner held entitled to the payment of its
additional professional fees. Obligations arising from contract have the force of law between the
contracting parties and should be complied with in good faith (Article 11 59, Civil Code).
WHEREFORE, the ruling of respondent Commission on Audit is hereby SET ASIDE and respondent
Philippines Tourism Authority is hereby ordered to pay petitioner the additional amount of P219,302.47
to complete the payment of its professional fee under their Contract for Project Design and
Management Services.
SO ORDERED.

G.R. No. 140047

July 13, 2004

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner,
vs.
V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO;
SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST
INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents.
This case is an offshoot of a service contract entered into by a Filipino construction firm with the Iraqi
Government for the construction of the Institute of Physical Therapy-Medical Center, Phase II, in
Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing.
In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case No. 91-1906
and assigned to Branch 58, petitioner Philippine Export and Foreign Loan Guarantee Corporation1
(hereinafter Philguarantee) sought reimbursement from the respondents of the sum of money it paid to
Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio Construction, Inc.
(VPECI).
The factual and procedural antecedents in this case are as follows:
On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and
Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal Trading and
Contracting Company (hereinafter Ajyal), a firm duly licensed with the Kuwait Chamber of Commerce
for a total contract price of ID5,416,089/046 (or about US$18,739,668).2

into a joint venture agreement with Ajyal wherein the former undertook the execution of the entire
Project, while the latter would be entitled to a commission of 4% of the contract price. 3 Later, or on 8
April 1981, respondent 3-Plex, not being accredited by or registered with the Philippine Overseas
Construction Board (POCB), assigned and transferred all its rights and interests under the joint venture
agreement to VPECI, a construction and engineering firm duly registered with the POCB.4 However, on
2 May 1981, 3-Plex and VPECI entered into an agreement that the execution of the Project would be
under their joint management.5
The SOB required the contractors to submit (1) a performance bond of ID271,808/610 representing 5%
of the total contract price and (2) an advance payment bond of ID541,608/901 representing 10% of the
advance payment to be released upon signing of the contract.6 To comply with these requirements,
respondents 3-Plex and VPECI applied for the issuance of a guarantee with petitioner Philguarantee, a
government financial institution empowered to issue guarantees for qualified Filipino contractors to
secure the performance of approved service contracts abroad.7
Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee8 were
issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the performance and
advance payment bonds, but they were not accepted by SOB. What SOB required was a letterguarantee from Rafidain Bank, the government bank of Iraq. Rafidain Bank then issued a performance
bond in favor of SOB on the condition that another foreign bank, not Philguarantee, would issue a
counter-guarantee to cover its exposure. Al Ahli Bank of Kuwait was, therefore, engaged to provide a
counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from the
petitioner. Thus, three layers of guarantees had to be arranged.9
Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor of Al
Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance Bond Guarantee) in the amount
of ID271,808/610 and Letter of Guarantee No. 81-195-F11 (Advance Payment Guarantee) in the
amount of ID541,608/901, both for a term of eighteen months from 25 May 1981. These letters of
guarantee were secured by (1) a Deed of Undertaking12 executed by respondents VPECI, Spouses
Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada
Santos; and (2) a surety bond13 issued by respondent First Integrated Bonding and Insurance
Company, Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to increase the amount
of coverage from P6.4 million to P6.967 million and to change the bank in whose favor the petitioner's
guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait.14
On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract15 for the
construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase II, in Baghdad,
Iraq, wherein the joint venture contractor undertook to complete the Project within a period of 547 days
or 18 months. Under the Contract, the Joint Venture would supply manpower and materials, and SOB
would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the
exchange rate of 1 Dinar to 3.37777 US Dollars.16
The construction, which was supposed to start on 2 June 1981, commenced only on the last week of
August 1981. Because of this delay and the slow progress of the construction work due to some
setbacks and difficulties, the Project was not completed on 15 November 1982 as scheduled. But in
October 1982, upon foreseeing the impossibility of meeting the deadline and upon the request of Al
Ahli Bank, the joint venture contractor worked for the renewal or extension of the Performance Bond
and Advance Payment Guarantee. Petitioner's Letters of Guarantee Nos. 81-194-F (Performance
Bond) and 81-195-F (Advance Payment Bond) with expiry date of 25 November 1982 were then
renewed or extended to 9 February 1983 and 9 March 1983, respectively.17 The surety bond was also
extended for another period of one year, from 12 May 1982 to 12 May 1983.18 The Performance Bond
was further extended twelve times with validity of up to 8 December 1986,19 while the Advance
Payment Guarantee was extended three times more up to 24 May 1984 when the latter was cancelled
after full refund or reimbursement by the joint venture contractor.20 The surety bond was likewise
extended to 8 May 1987.21

On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-Plex
International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction business, entered
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As of March 1986, the status of the Project was 51% accomplished, meaning the structures were
already finished. The remaining 47% consisted in electro-mechanical works and the 2%, sanitary
works, which both required importation of equipment and materials.22
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment
of its performance bond counter-guarantee.
Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq
Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the
performance guarantee for being a drastic action in contravention of its mutual agreement with the
latter that (1) the imposition of penalty would be held in abeyance until the completion of the project;
and (2) the time extension would be open, depending on the developments on the negotiations for a
foreign loan to finance the completion of the project.23 It also wrote SOB protesting the call for lack of
factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi government's
lack of foreign exchange with which to pay its (VPECI's) accomplishments and (2) SOB's
noncompliance for the past several years with the provision in the contract that 75% of the billings
would be paid in US dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the
petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of
the Project.25
On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had
already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding
reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related
expenses.26
Both petitioner Philguarantee and respondent VPECI sought the assistance of some government
agencies of the Philippines. On 10 August 1987, VPECI requested the Central Bank to hold in
abeyance the payment by the petitioner "to allow the diplomatic machinery to take its course, for
otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become
instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed
against a Filipino contractor."27
On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of
US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the
performance counter-guarantee for VPECI's project in Iraq. 28

execution of the Project. Considering the Project owner's violations of the contract which rendered
impossible the joint venture contractor's performance of its undertaking, no valid call on the guarantee
could be made. Furthermore, the trial court held that no valid notice was first made by the Project
owner SOB to the joint venture contractor before the call on the guarantee. Accordingly, it dismissed
the complaint, as well as the counterclaims and cross-claim, and ordered the petitioner to pay
attorney's fees of P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and
the Santos Spouses, plus costs. 33
In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision, ratiocinating as
follows:
First, appellant cannot deny the fact that it was fully aware of the status of project
implementation as well as the problems besetting the contractors, between 1982 to 1985,
having sent some of its people to Baghdad during that period. The successive
renewals/extensions of the guarantees in fact, was prompted by delays, not solely
attributable to the contractors, and such extension understandably allowed by the SOB
(project owner) which had not anyway complied with its contractual commitment to tender
75% of payment in US Dollars, and which still retained overdue amounts collectible by
VPECI.

Second, appellant was very much aware of the violations committed by the SOB of its
contractual undertakings with VPECI, principally, the payment of foreign currency (US$) for
75% of the total contract price, as well as of the complications and injustice that will result
from its payment of the full amount of the performance guarantee, as evident in
PHILGUARANTEE's letter dated 13 May 1987 ….

Third, appellant was fully aware that SOB was in fact still obligated to the Joint Venture and
there was still an amount collectible from and still being retained by the project owner, which
amount can be set-off with the sum covered by the performance guarantee.

On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank,
and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner for the
advances made on its counter-guarantee.29
The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January 1988. 30
Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83 representing interest
and penalty charges demanded by the latter bank.31
On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the
amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorney's fees pursuant
to their joint and solidary obligations under the deed of undertaking and surety bond.32 When the
respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a sum of
money against the respondents before the RTC of Makati City.
After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause of
action against the respondents. It opined that at the time the call was made on the guarantee which
was executed for a specific period, the guarantee had already lapsed or expired. There was no valid
renewal or extension of the guarantee for failure of the petitioner to secure respondents' express
consent thereto. The trial court also found that the joint venture contractor incurred no delay in the

Fourth, well-apprised of the above conditions obtaining at the Project site and cognizant of
the war situation at the time in Iraq, appellant, though earlier has made representations with
the SOB regarding a possible amicable termination of the Project as suggested by VPECI,
made a complete turn-around and insisted on acting in favor of the unjustified "call" by the
foreign banks.35
The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Court of
Appeals erred in affirming the trial court's ruling that
I
…RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY
EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF
ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO
RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE.
II
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…PETITIONER CANNOT CLAIM SUBROGATION.
III
…IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLE
UNDER THEIR DEED OF UNDERTAKING.36
The main issue in this case is whether the petitioner is entitled to reimbursement of what it paid under
Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed of undertaking
and surety bond from the respondents.
The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable
the nature and extent of its liability are analogous to those of suretyship. Its liability accrued upon the
failure of the respondents to finish the construction of the Institute of Physical Therapy Buildings in
Baghdad.
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the
principal debtor, the contract is called suretyship. 37
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to
both. In both contracts, there is a promise to answer for the debt or default of another. However, in this
jurisdiction, they may be distinguished thus:
1. A surety is usually bound with his principal by the same instrument executed at the same
time and on the same consideration. On the other hand, the contract of guaranty is the
guarantor's own separate undertaking often supported by a consideration separate from that
supporting the contract of the principal; the original contract of his principal is not his
contract.
2. A surety assumes liability as a regular party to the undertaking; while the liability of a
guarantor is conditional depending on the failure of the primary debtor to pay the obligation.
3. The obligation of a surety is primary, while that of a guarantor is secondary.
4. A surety is an original promissor and debtor from the beginning, while a guarantor is
charged on his own undertaking.
5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is
not bound to take notice of the non-performance of his principal.
6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to
the principal or by want of notice of the default of the principal, no matter how much he may
be injured thereby. A guarantor is often discharged by the mere indulgence of the creditor to
the principal, and is usually not liable unless notified of the default of the principal. 38
In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F, which
provides in part as follows:
In consideration of your issuing the above performance guarantee/counter-guarantee, we
hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay
you on your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand

Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing 100% of the
performance bond required of V.P. EUSEBIO for the construction of the Physical Therapy
Institute, Phase II, Baghdad, Iraq, plus interest and other incidental expenses related
thereto.
In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation
unpaid but in no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest
and other incidental expenses…. (Emphasis supplied)39
Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual
milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the
petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is unconditional
and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its
subsidiary and conditional quality because it does not take effect until the fulfillment of the condition,
namely, that the principal obligor should fail in his obligation at the time and in the form he bound
himself.40 In other words, an unconditional guarantee is still subject to the condition that the principal
debtor should default in his obligation first before resort to the guarantor could be had. A conditional
guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous
event, beyond the mere default of the principal, and generally upon notice of the principal's default and
reasonable diligence in exhausting proper remedies against the principal.41
It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by
respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of
an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner's
guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party should
not be considered a surety where the contract itself stipulates that he is acting only as a guarantor. It is
only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one
of suretyship.42
Having determined petitioner's liability as guarantor, the next question we have to grapple with is
whether the respondent contractor has defaulted in its obligations that would justify resort to the
guaranty. This is a mixed question of fact and law that is better addressed by the lower courts, since
this Court is not a trier of facts.
It is a fundamental and settled rule that the findings of fact of the trial court and the Court of Appeals
are binding or conclusive upon this Court unless they are not supported by the evidence or unless
strong and cogent reasons dictate otherwise.43 The factual findings of the Court of Appeals are
normally not reviewable by us under Rule 45 of the Rules of Court except when they are at variance
with those of the trial court. 44 The trial court and the Court of Appeals were in unison that the
respondent contractor cannot be considered to have defaulted in its obligations because the cause of
the delay was not primarily attributable to it.
A corollary issue is what law should be applied in determining whether the respondent contractor has
defaulted in the performance of its obligations under the service contract. The question of whether
there is a breach of an agreement, which includes default or mora,45 pertains to the essential or
intrinsic validity of a contract. 46
No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule
followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by
the lex contractus or "proper law of the contract." This is the law voluntarily agreed upon by the parties
(the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci
intentionis). The law selected may be implied from such factors as substantial connection with the
transaction, or the nationality or domicile of the parties.47 Philippine courts would do well to adopt the
first and most basic rule in most legal systems, namely, to allow the parties to select the law applicable
to their contract, subject to the limitation that it is not against the law, morals, or public policy of the
forum and that the chosen law must bear a substantive relationship to the transaction. 48
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It must be noted that the service contract between SOB and VPECI contains no express choice of the
law that would govern it. In the United States and Europe, the two rules that now seem to have
emerged as "kings of the hill" are (1) the parties may choose the governing law; and (2) in the absence
of such a choice, the applicable law is that of the State that "has the most significant relationship to the
transaction and the parties."49 Another authority proposed that all matters relating to the time, place,
and manner of performance and valid excuses for non-performance are determined by the law of the
place of performance or lex loci solutionis, which is useful because it is undoubtedly always connected
to the contract in a significant way.50

5.6 That most of the materials specified by SOB in the CONTRACT are not available in Iraq
and therefore have to be imported;
5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui Dinars) out of
Iraq and hence, imported materials, equipment, etc., cannot be purchased or obtained using
Iraqui Dinars as medium of acquisition.

In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is
the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether respondent
VPECI defaulted in its obligations may be determined by the laws of Iraq. However, since that foreign
law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as
the processual presumption, comes into play. Where foreign law is not pleaded or, even if pleaded, is
not proved, the presumption is that foreign law is the same as ours.51
Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to comply in a proper
manner with what is incumbent upon him."
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a
cause imputable to the former. 52 It is the non-fulfillment of an obligation with respect to time.53
It is undisputed that only 51.7% of the total work had been accomplished. The 48.3% unfinished
portion consisted in the purchase and installation of electro-mechanical equipment and materials,
which were available from foreign suppliers, thus requiring US Dollars for their importation. The
monthly billings and payments made by SOB54 reveal that the agreement between the parties was a
periodic payment by the Project owner to the contractor depending on the percentage of
accomplishment within the period. 55 The payments were, in turn, to be used by the contractor to
finance the subsequent phase of the work. 56 However, as explained by VPECI in its letter to the
Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars adversely affected the
completion of the project; thus:
4. Despite protests from the plaintiff, SOB continued paying the accomplishment billings of
the Contractor purely in Iraqi Dinars and which payment came only after some delays.

8. Following the approved construction program of the CONTRACT, upon completion of the
civil works portion of the installation of equipment for the building, should immediately follow,
however, the CONTRACT specified that these equipment which are to be installed and to
form part of the PROJECT have to be procured outside Iraq since these are not being
locally manufactured. Copy f the relevant portion of the Technical Specification is hereto
attached as Annex "C" and made an integral part hereof;

10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist the Iraqi
government in completing the PROJECT, the Contractor without any obligation on its part to
do so but with the knowledge and consent of SOB and the Ministry of Housing &
Construction of Iraq, offered to arrange on behalf of SOB, a foreign currency loan, through
the facilities of Circle International S.A., the Contractor's Sub-contractor and SACE MEDIO
CREDITO which will act as the guarantor for this foreign currency loan.
Arrangements were first made with Banco di Roma. Negotiation started in June 1985. SOB
is informed of the developments of this negotiation, attached is a copy of the draft of the
loan Agreement between SOB as the Borrower and Agent. The Several Banks, as Lender,
and counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine (Mediocredito)
Sezione Speciale Per L'Assicurazione Del Credito All'Exportazione (Sace). Negotiations
went on and continued until it suddenly collapsed due to the reported default by Iraq in the
payment of its obligations with Italian government, copy of the news clipping dated June 18,
1986 is hereto attached as Annex "D" to form an integral part hereof;
15. On September 15, 1986, Contractor received information from Circle International S.A.
that because of the news report that Iraq defaulted in its obligations with European banks,
the approval by Banco di Roma of the loan to SOB shall be deferred indefinitely, a copy of
the letter of Circle International together with the news clippings are hereto attached as
Annexes "F" and "F-1", respectively.57

5. SOB is fully aware of the following:

5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency
(US$), to finance the purchase of various equipment, materials, supplies, tools and to pay
for the cost of project management, supervision and skilled labor not available in Iraq and
therefore have to be imported and or obtained from the Philippines and other sources
outside Iraq.
5.3 That the Ministry of Labor and Employment of the Philippines requires the remittance
into the Philippines of 70% of the salaries of Filipino workers working abroad in US Dollars;

5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannot be
used to purchase equipment, materials, supplies, etc. outside of Iraq;

As found by both the Court of Appeals and the trial court, the delay or the non-completion of the
Project was caused by factors not imputable to the respondent contractor. It was rather due mainly to
the persistent violations by SOB of the terms and conditions of the contract, particularly its failure to
pay 75% of the accomplished work in US Dollars. Indeed, where one of the parties to a contract does
not perform in a proper manner the prestation which he is bound to perform under the contract, he is
not entitled to demand the performance of the other party. A party does not incur in delay if the other
party fails to perform the obligation incumbent upon him.
The petitioner, however, maintains that the payments by SOB of the monthly billings in purely Iraqi
Dinars did not render impossible the performance of the Project by VPECI. Such posture is quite
contrary to its previous representations. In his 26 March 1987 letter to the Office of the Middle Eastern
and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-President Jesus M. Tañedo
stated that while VPECI had taken every possible measure to complete the Project, the war situation in
Iraq, particularly the lack of foreign exchange, was proving to be a great obstacle; thus:
5

CIVIL LAW REVIEW 2

in the first place.63 In this case.62 It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI. the petitioner raised as among the arguments to be presented in support of the cancellation of the counter-guarantee the fact that the amount of ID281. And even if the deed of undertaking and the surety bond secured petitioner's guaranty. Unless the situation in Iraq is improved as to allay the bank's apprehension. in whole or in part. PHILGUARANTEE does not want to be an instrument in any case of inequity committed against a Filipino contractor. It is for this reason that we are constrained to seek your assistance not only in ascertaining the veracity of Al Ahli Bank's claim that it has paid Rafidain Bank but possibly averting such an event. In fact. SOB cannot yet demand complete performance from VPECI because it has not yet itself performed its obligation in a proper manner. As any payment effected by the banks will complicate matters. as well as the situation obtaining in the Project site compounded by the Iran-Iraq war. it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor."64 Also.808/610. 66 But surprisingly.68 However.414/066 retained by SOB from the proposed project is more than the amount of the outstanding counterguarantee. (2) that the debtor delays performance.VPECI has taken every possible measure for the completion of the project but the war situation in Iraq particularly the lack of foreign exchange is proving to be a great obstacle. The VPECI cannot yet be said to have incurred in delay. DFA. This is the hard lesson that the petitioner must learn. which are fully supported by evidence and which have been meritoriously set up against the paying guarantor. since the petitioner was aware of the contractor's outstanding receivables from SOB. the petitioner is precluded from enforcing the same by reason of the petitioner's undue payment on the guaranty. 81-194-F? As a rule. 58 In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated. Our performance counterguarantee was called last 26 October 1986 when the negotiations for a foreign currency loan with the Italian government through Banco de Roma bogged down following news report that Iraq has defaulted in its obligation with major European banks. in its 13 May 1987 letter to the OMEAA. no demand has yet been made by SOB against the respondent contractor. defaulted in its obligation and that the creditor SOB should have first made a demand from the principal debtor. Demand is generally necessary even if a period has been fixed in the obligation. It is only when the debtor does not or cannot pay. the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor. and (3) that the creditor requires the performance because it must appear that the tolerance or benevolence of the creditor must have ended. still the effects of that delay ceased upon the renunciation by the creditor. the petitioner in this case. it stated: VPECI also maintains that the delay in the completion of the project was mainly due to SOB's violation of contract terms and as such. Moreover. a guarantor who pays for a debtor should be indemnified by the latter67 and would be legally subrogated to the rights which the creditor has against the debtor. Manila. … · It could also be argued that the amount of ID281. While PHILGUARANTEE is prepared to honor its commitment under the guarantee.69 If the obligation was subject to defenses on the part of the debtor. And default generally begins from the moment the creditor demands judicially or extrajudicially the performance of the obligation. the petitioner was very much aware of the predicament of the respondents. the petitioner fully knew that the joint venture contractor had collectibles from SOB which could be set off with the amount covered by the performance guarantee.71 When the petitioner guarantor in this case paid against the will of the debtor VPECI. informing it of the note verbale sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint venture contractor from the petitioner would "be deducted from the dues of the two contractors. there is no assurance that the project will ever be completed."72 the petitioner should have exercised prudence and caution under the circumstances. in the project situationer attached to the letter to the OMEAA dated 26 March 1987.61 Moreover. Rights under the deed of undertaking and the surety bond do not arise because these contracts depend on the validity of the enforcement of the guaranty. the petitioner as a guarantor is entitled to the benefit of excussion. which could be implied when the latter granted several extensions of time to the former. the effects of default will not arise. that is. 60 Besides. This brings us to the next question: May the petitioner as a guarantor secure reimbursement from the respondents for what it has paid under Letter of Guarantee No. it would be the height of inequity to allow the 6 CIVIL LAW REVIEW 2 . given the project status and the conditions obtaining at the Project site at that time. Without such demand. Even assuming that there was delay and that the delay was attributable to VPECI. the respondent contractor was found to have valid defenses against SOB. it is clear that the payment made by the petitioner guarantor did not in any way benefit the principal debtor. In February 1987.70 From the findings of the Court of Appeals and the trial court. particularly the payment of the 75% of the cost of the Project in US Dollars. As found by the Court of Appeals. though fully cognizant of SOB's violations of the service contract and VPECI's outstanding receivables from SOB. that the guarantor should pay. the same defenses which could have been set up against the creditor can be set up against the paying guarantor. As the government arm in pursuing its objective of providing "the necessary support and assistance in order to enable … [Filipino exporters and contractors to operate viably under the prevailing economic and business conditions. SOB. the petitioner opted to pay the second layer guarantor not only the full amount of the performance bond counter-guarantee but also interests and penalty charges. the debtor VPECI may set up against it defenses available against the creditor SOB at the time of payment. thus: In a nutshell.65 The petitioner guarantor should have waited for the natural course of guaranty: the debtor VPECI should have. Moreover. 6. As aptly put by the Court of Appeals.1 Present the following arguments in cancelling the counterguarantee: · The Iraqi Government does not have the foreign exchange to fulfill its contractual obligations of paying 75% of progress billings in US dollars. a person who makes payment without the knowledge or against the will of the debtor has the right to recover only insofar as the payment has been beneficial to the debtor. the OMEAA transmitted to the petitioner a copy of a telex dated 10 February 1987 of the Philippine Ambassador in Baghdad. 59 As stated earlier. we cannot help underscore the urgency of VPECI's bid for government intervention for the amicable termination of the contract and release of the performance guarantee. it should have set up compensation as was proposed in its project situationer. however. Iraq.414/066 retained by SOB from the Project was more than enough to cover the counter-guarantee of ID271. call on the guarantee has no basis.

The Court of Appeals reversed the trial court. the petition for review on certiorari is hereby DENIED for lack of merit. No pronouncement as to costs. to construct a windmill system for him. Upon these premises the appellate court concluded that respondent's payment of P15. 1-lot blade materials. This case involves the proper interpretation of the contract entered into between the parties. since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by petitioner.00.S. vs.00 was solely for the windmill assembly and its installation. respondents. 39302 is AFFIRMED. Sometime in April 1987 petitioner Jacinto M. "1"). 117190 January 2. of the project.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively extinguishing his contractual obligation. One (1) lot — Concreting materials foundation. leaving a balance of P15. that petitioner Tanguilig told him that the cost of constructing the deep well would be deducted from the contract price of P60. capacity.R.M. Pursuant to the agreement respondent paid petitioner a down payment of P30.00. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General Merchandising Inc. After some negotiations they agreed on the construction of the windmill for a consideration of P60. Moreover.000. 2 HP.00. This was rejected by respondent.000. The latter proposal was accepted by respondent and the construction immediately followed." 4 The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the proposals of petitioner to construct a windmill system for respondent.000. One (1) lot — Angle bar. WHEREFORE. 14 feet in diameter. CV No. Tower 40 feet high.000.00 with a one-year guaranty from the date of completion and acceptance by respondent Herce Jr. His motion for reconsideration having been denied by the Court of Appeals. operated water pump. it could be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff.00 The second letter-proposal (Exh.e. "A"). this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit their place. we would like to quote to you as follows — One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump. with 20 pieces blade.T. G. Besides. Tanguilig doing business under the name and style J." 3 With respect to the repair of the windmill. One (1) lot — Float valve. we would like to quote to you as follows: One (1) Set — Windmill suitable for 2 inches diameter deepwell. the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the defect of the construction. SO ORDERED. No.000. a force majeure. ENGINEERING AND GENERAL MERCHANDISING.T. Supply of Labor Materials and Installation.. It ruled that the construction of the deep well was included in the agreement of the parties because the term "deep well" was mentioned in both proposals.petitioner to pass on its losses to the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank and constantly apprised it of the developments in the Project implementation. cross Tee coupling. The pertinent portions of the first letter-proposal (Exh. for the contract price of P60. exclusive of other incidental materials needed for the project. Elbow Gate valve. 1997 We reverse the appellate court on the first issue but sustain it on the second.M. It also gave credence to the testimony of respondent's witness Guillermo Pili.00 (Exh. assuming that he owed petitioner a balance of P15. According to respondent. "A") provides as follows: In connection with your Windmill system. whether the agreement to construct the windmill system included the installation of a deep well and. due to the refusal and failure of respondent to pay the balance.R. G.I.000. 6 Stroke. its collapse was attributable to a typhoon. the trial court held that the construction of the deep well was not part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. shafting U. 2 It noted that "[i]f the intention of the parties is to include the construction of the deep well in the project. including mechanism which is not advisable to operate during extra-intensity wind. the same should be stated in the proposals.00. In the absence of such an agreement. 14 feet diameter. On 14 March 1988.. The other was submitted three days later.000. In finding for plaintiff. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. whether petitioner is under obligation to reconstruct the windmill after it collapsed. Reducer Coupling. and the decision of the Court of appeals in CA-G. 40 feet Tower complete with standard appurtenances up to Cylinder pump. "1") are reproduced hereunder — In connection with your Windmill System and Installation. it rejected petitioner's claim of force majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated one-year guaranty.000. COURT OF APPEALS and VICENTE HERCE JR. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at P87. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and working condition to respondent who accepted the same without protest.00 (Exh. Excluding cylinder pump. (SPGMI) which constructed the deep well to which the windmill system was to be connected. petitioner. secondly. petitioner now seeks relief from this Court. adjustable International Metal.000.00 and an installment payment of P15. which relieved him of any liability.000. UNIT CONTRACT PRICE P87. the proprietor of SPGMI which installed the deep well. 7 CIVIL LAW REVIEW 2 . 1 Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system. petitioner filed a complaint to collect the amount.000. on 22 May 1987 which contained more specifications but proposed a lower contract price of P60. However. pipe. He raises two issues: firstly. JACINTO TANGUILIG doing business under the name and style J. i.

In Nakpil vs. rather lamely.000.00 with interest at the legal rate from the date of the filing of the complaint. The contract prices fixed in both proposals cover only the features specifically described therein and no other. it could not have simply contained a request for Pili to install a deep well. these do not indicate that a deep well is part of the windmill system. Tanguilig. 15 When the windmill failed to function properly it became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. In a long line of cases 11 this Court has consistently held that in order for a party to claim exemption from liability by reason of fortuitous event under Art. so (he) just paid the money in his possession. That it was respondent Herce Jr. whom he had never met before. While the law is clear that "payment shall be made to the person in whose favor the obligation has been constituted. in accordance with the one-year guaranty" 16 and to complete the same within three (3) months from the finality of this decision.00 and hence should bear his own loss. or any person authorized to receive it." Since the terms of the instruments are clear and leave no doubt as to their meaning they should not be disturbed. he would have used instead the conjunctions "and" or "with. even remotely.000. an agreement particularly to this effect should have been entered into.000. is untenable." 13 It emphasized that respondent had in his favor the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life. Neither is there an itemization or description of the materials to be used in constructing the deep well. their contemporaneous and subsequent acts shall be principally considered. 12 four (4) requisites must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor. against the latter. if any. These circumstances only show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the installation of the well because the windmill was to be connected to it. To prove his point. asking him to build a deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. respondent cannot be said to have incurred in delay. nowhere in either proposal is the installation of a deep well mentioned.F." 7 Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. the contract for its installation would have been strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. Respondent insists that petitioner verbally agreed that the contract price of P60. petitioner is ordered to "reconstruct subject defective windmill system. a strong wind should be present in places where windmills are constructed. the same would not have collapsed had there been no inherent defect in it which could only be attributable to the appellee. petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15. The alleged letter was never presented in court by private respondent for reasons known only to him. without a written commitment at least from the former. The claim of Pili that Herce Jr. If SPGMI was really commissioned by petitioner to construct the deep well. it is petitioner who should bear the expenses for the reconstruction of the windmill. (d) the debtor must be free from any participation in or aggravation of the injury to the creditor. wrote him a letter is unsubstantiated.00 covered the installation of a deep well pump. and. While the words "deep well" and "deep well pump" are mentioned in both. Respondent cannot claim the benefit of the law concerning "payments made by a third person. if the price of P60. the obligation of respondent was to pay the entire amount to petitioner without prejudice to any action that Guillermo Pili or SPGMI may take. the same shall be executed at his cost. otherwise the windmills will not turn. SO ORDERED. himself who paid for the deep well by handing over to Pili the amount of P15.00 clearly indicates that the contract for the deep well was not part of the windmill project but a separate agreement between respondent and Pili. It strains credulity that respondent would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would come from the contract price of P60." 9 it does not appear from the record that Pili and/or SPGMI was so authorized. or his successor in interest. the appealed decision is MODIFIED. Petitioner merely stated that there was a "strong wind. when asked why he tendered payment directly to Pili and not to petitioner. O. Thus. The appellate court correctly observed that "given the newly-constructed windmill system.000. But granting that this written communication existed. Besides. that he did it "because he has (sic) the money. There is absolutely no mention in the two (2) documents that a deep well pump is a component of the proposed windmill system. Laguna Contract Price P60. For if indeed the deep well were part of the windmill project. Specifically.00 Notably.00 included the deep well. he presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent Herce Jr. witness Pili did not testify that he entered into a contract with petitioner for the construction of respondent's deep well. 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. There is no legal nor factual basis by which this Court can impose upon petitioner an obligation he did not expressly assume nor ratify. it would have also mentioned the party who would pay for the undertaking. As correctly pointed out by petitioner. Moreover. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it. Court of Appeals. Significantly. They merely describe the type of deep well pump for which the proposed windmill would be suitable. In reciprocal obligations.00. in case of doubt. TANGUILIG the balance of P15. it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration 5 and. We are disinclined to accept the version of respondent. Finally. is directed to pay petitioner JACINTO M. the evidence does not disclose that there was actually a typhoon on the day the windmill collapsed. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do the work the cost of which was to be deducted from the contract price. In return. The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions.000. The second issue is not a novel one. respondent explained. (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor relationship between 8 CIVIL LAW REVIEW 2 . petitioner and Guillermo Pili and/or SPGMI has been established regarding the construction of the deep well." 8 Can respondent claim that Pili accepted his payment on behalf of petitioner? No. We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the windmill contract price on the mere representation of petitioner. On the contrary. WHEREFORE. Respondent VICENTE HERCE JR. B. (b) the event must be either unforeseeable or unavoidable.000. the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. Interestingly.000." 14 This presumption has not been rebutted by petitioner. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the contract. 6 An examination of such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him. instead." But a strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable.

Exhibit "C". The Court takes notice of the fact that as alleged in the Comment and Memorandum of respondent company and contained in the questioned order. 32. Whether or not the corporation officers are liable for contempt. An alias writ of execution was filed by petitioner. Regional Trial Court of Makati. Rollo) Petitioner was ordered to pay respondent P5. "1" beforestated due to sudden change of prices by the car manufacturer (Exh. 1 9 CIVIL LAW REVIEW 2 . 1989. viz: This order is not valid unless signed and accepted by the dealer principal. Executive Vice-President of Motorcars.00 for Miscellaneous Expenses and/or Incidental Charges.R. the vehicle sales order. 1983 as required in the aforesaid price quotation. JR. but respondent company continued to defy the Order of the Court. HON. 21. Said motion was anchored on the premise that the obligation has become impossible to comply on the ground that the Delta Motors Corporation has closed shop. the motion to quash was denied. 1987.00. they had decided to exercise the option contained in the vehicle sales order. on December 15. LEE. docketed as G. "2"). On the same date. Expectedly dissatisfied with the aforesaid court's ruling. 1983. No.00 on November 10. petitioner filed a Motion for Writ of Execution.. This Court ruled: The issue of whether or not there was a perfected contract of sale appears to have been correctly decided by the respondent court. (Exhibits "C") which states: Whenever deposits are made by customers for vehicles. respondents. and refund of the deposits shall be made upon request and without undue delay should such option be exercised (p. Domingo Tapas. Thereupon. vs. had acknowledged receipt of the delivery receipt for petitioner. should respondent Motorcars be made liable to fulfill a seemingly impossible obligation? It is well-settled that when after a judgment has become final and executory.. (supra) The trial court rendered judgment in favor of respondent car company ruling as follows: Exhibit "A" is merely a quotation offered by defendant's sales representative. Part of the vehicle sales order also reads. No. President. respondent appealed to this Court. petitioner Lee deposited the amount of P1. 1. Branch 142 and MOTORCARS.. the decision appealed from was affirmed. Carranceja. with the quoted price of P149.00. parts or services shall be at the option of Motorcars. It is the contention of the petitioner that the obligation is not impossible for the 1983 Toyota cars are still available in the market today. 1990 ALEX G. petitioner appealed to the Court of Appeals which reversed the decision appealed from ruling that there was a perfected contract of sale. Atty. 21.833.G. Executive Vice President.00 plus miscellaneous expenses of P10. and that there was the undisputed signature of one Mr. petitioner's counsel. and 2. INCORPORATED. This Court also finds no reason to disturb the ruling of the respondent court on the factual issue of whether or not the branch manager could bind the petitioner. (p. that due to the sudden change of prices by the car manufacturer. 1983 model. 1983. It is however the contention of respondent company that the obligation is impossible for the car manufacturer had closed shop and no longer manufacturing 1983 models of Toyota much less deliver the car specified in Exhibit "C". parts and services ordered. DE GUZMAN.000. petitioner Lee as customer. Respondent company filed an opposition thereto reiterating the grounds relied on in the Motion to quash writ of execution. Benito. Respondent trial court issued the questioned Order.000 as a gesture to buy peace. respondent company filed a motion to quash writ of execution.033. was not signed and accepted by defendant's President. Jr.000 for damages and attorney's fees. Nicolas O. dated August 10. which was adjudged favorably for the respondent company. Lee for the sale of one (1) unit Toyota Corolla Liftback. Hence. that while the Motion for Contempt was pending before the respondent trial court. Exhibit "C" which contains. Whether or not the decision rendered by the Court of Appeals and affirmed by the Supreme Court is capable of performance and can by judiciously executed. In addition.. Petitioner filed a motion for contempt of court for the stance of the respondent company was contumacious in nature. not valid because it exercised the option in Exh. nor its General Sales Manager. a price quotation (Exhibit "A") and delivered to petitioner Alex B. demanding for delivery of the said Toyota car. the sales order. the Court of Appeals ordered respondent company to deliver to petitioner the subject vehicle upon payment by the latter of the amount of P149. this petition for certiorari with mandamus. a free-lance salesman of respondent Motorcars. petitioner. Exhibits "1" and "1-A". Benjamin S. In view of such order. petitioner indicated his willingness to accept a second-hand car but failed to show its availability as the classified ads refer to 1984 Models and could not be said that they are the same models as what appears in Exhibit "C". and the petition was denied. The respondent car company replied on December 19. . to which Tumibay wrote petitioner the information that the Motorcars Inc. Inc. They are: The respondent car company thus offered to refund petitioner's deposit of P1. through the Third Division. (p. having been signed by plaintiff binds him alone There was no perfected contract in accordance with Article 1318. Executive Vice President or General Sales Manager of the dealership . SALVADOR P.. 90926 July 6. 1983. (then Delta Motors Corporation) named Arsenio Tumibay signed in behalf of Domingo Tupaz its Branch Manager in Makati. Doroteo A. the branch manager of Motorcars. Petitioner opposed the quashal of the Writ of execution and consequently. Rollo) When the case was remanded to the trial Court. facts and circumstances transpire which render its execution impossible or unjust.700. the sales for such vehicles. The question is. 77992. Inc.700. On November 8. It appearing that the findings of fact of the respondent court are supported by substantial evidence and there being no showing that its decision is not in accord with law or jurisprudence. . Civil Code. signed the vehicle sales order (Exhibit "C") The delivery of the subject vehicle was within the month of November. Dadal. hence. Thereupon. Rollo) In this Court's resolution dated August 31. 1983. Instead of complying with the Order of the court. Thus. was totally at war with the previous order granting the alias writ of execution. Two issues are presented by both parties for Our consideration. through its counsel Atty. the interested party may ask a competent court to stay its execution or prevent its enforcement. respondent car company even offered the amount of P20. the COURT RESOLVED to DENY the petition.00 and the amount of P8. wrote Mr.R. which order as alleged by the petition. which is not disputed by the petitioner.000.

Barzaga returned to the hardware store to inquire about the delay. if at all. He decided to dismiss his laborers for the day." The reply letter of private respondent company dated December 19. There was therefore delay in the delivery of the subject vehicle which entitles petitioner to be awarded damages. Barzaga purchased the materials and paid in full the amount of P2. However." did not relieve Motorcars from the contract had entered into with petitioner Lee.000. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twenty-sixth. He had his complaint entered in the police blotter. (Annex C. date and place. Alviar did not respond. With that reply petitioner left. But her final entreaty. Alviar's storekeeper. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere. respondents. Besides. But he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow with his construction materials. twenty thousand pesos (P20. 1989 is concerned. The construction materials did not arrive at eight o'clock as promised. The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. But he knew that the niche would not be finish in time for the scheduled burial the following day. are liable for damages. she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer.00) as exemplary damages. 1997 IGNACIO BARZAGA. it was two-and-a-half (2-1/2) days behind schedule. he made up his mind to start his project the following morning. Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. which was just nearby. petitioner was able to buy from another store. Records). he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. unfortunately. Unfortunately it is not possible for Motorcars to comply with the writ of execution since admittedly.00. negligence or delay.We find that respondent Court did not act with grave abuse of discretion in denying the motion for contempt. 1983 which said that "due to the sudden change of prices by the car manufacturer. which was only a kilometer away. the then Delta Motors who manufactured 1983 models of Toyota Liftback had already closed shop. . tormented perhaps by his inability to fulfill his wife's dying wish.R. SO ORDERED. could not be carried out. petitioner sued him before the Regional Trial Court.00) of which as temperate damages 2 inclusive of attorney's fees and the remaining thirty thousand pesos (P30. . by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. it was petitioner and no other who brought about all his personal woes. 23 December. Thereafter he joined his workers at the cemetery. and that. Cavite. On 21 December 1990. his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her dying wish. At seven o'clock the following morning. 22 December. dated August 10. At nine o'clock. and lodged a complaint against Alviar. But since darkness was already setting in and his workers had left. This is Barzaga's story. With this assurance. private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. to await the delivery. there is no question that indeed there was a perfected contract of sale between petitioner Lee and private respondent Motorcars pursuant to this Court's (through the Third Division) resolution dated August 31. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarinas. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December. the delivery truck suffered a flat tire on the way to the store to pick up the materials. they have decided to exercise the option . the petition for certiorari with mandamus is hereby DISMISSED. Forewarned by her attending physicians of her impending death. vs. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials. No. a total amount of damages worth Fifty Thousand Pesos (P50. By ten o'clock. 1987. insofar as the denial of the motion for contempt by the lower court. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. at about three o'clock in the afternoon. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner.000. Marina Boncales agreed to deliver the items at the designated time. petitioner. The relief left for petitioner Lee is that found under Article 1170 of the Civil Code which provides: "(T)hose who in the performance of their obligations are guilty of fraud.00) would be reasonable. and those who in any manner contravene the tenor thereof. He proceeded to the police station. He also asked if the materials could be delivered at once. Distressed that Alviar's employees were not the least concerned. According to Alviar.000. the delivery was still nowhere in sight. 1983. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. G. The records show that the subject vehicle should have been delivered within the month of November.110. COURT OF APPEALS and ANGELITO ALVIAR. In the afternoon of that day. despite his impassioned pleas. This prompted petitioner to return to the store to inquire about the materials. After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. but be this as it may. 1 Resisting petitioner's claim. 115129 February 12. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife. there was still no delivery. Marina Boncales. Consequently. 3 PREMISES CONSIDERED. replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. Considering the circumstances attendant to this case. but the respondent is ordered to give to the petitioner the amount of damages adverted to in the next preceding paragraph. 10 CIVIL LAW REVIEW 2 . Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. On 21 January 1991.

The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. they (respondent's employees) were making a fool out of me. it will not be disturbed on appeal. are liable for damages. cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. For in determining actual damages. The law expressly provides that those who in the performance of their obligation are guilty of fraud. One piece of testimony by respondent's witness Marina Boncales has caught our attention . respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale.00 as temperate damages which we delete. We also affirm the grant of exemplary damages. 7 In their contract of purchase and sale. respondent's employees still made light of his earnest importunings for an immediate delivery. negligence. On appeal. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. . in addition to the fact that work at the cemetery had to be put off on Christmas day.00 as litigation expenses. these by their very nature could be established with certainty by means of payment receipts. attorney's fees and litigation costs is left to the sound discretion of the court. we find petitioner's assertion to be anchored on solid ground. and if such discretion be well exercised. The Court of Appeals also held that assuming that there was delay. and (e) P5. Private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. according to him. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. This undoubtedly prolonged the wake. 6 Significantly. Despite this. for this event. 3 Contrary to the appellate court's factual determination. there was a specific time agreed upon for the delivery of the materials to the cemetery. Consequently.00.000. if indeed it happened. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Under Art.e. petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished. Dasmarinas.110. (b) P5. As petitioner bitterly declared in court " . Petitioner had a deadline to meet. While petitioner may have indeed suffered pecuniary losses. (c) P20. Consequently. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. This is an erroneous application of the concept of temperate damages. or delay and those who in any manner contravene the tenor thereof. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. speculations." 5 We also find unacceptable respondent's justification that his truck had a flat tire. this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. It could not be ready for the scheduled burial of petitioner's wife. as in this case. the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2. 2 The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment. and as such should have been reasonably guarded against.00 as temperate damages.000. It cannot be denied that petitioner and his family suffered wounded feelings. is non-sequitur. was forseeable according to the trial court. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. 8 We affirm the award of attorney's fees and litigation expenses. mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. Award of damages. Instead of commiserating with him. from the nature of the case.000. Cavite. the payment of the purchase price of P2. Barzaga still had sufficient time to build the tomb for his wife. In this case. it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed.000. the trial court ordered respondent Alviar to pay petitioner (a) P2. petitioner had already complied fully with what was required of him as purchaser. i. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. 9 WHEREFORE.that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan.. This is a gratuitous assertion that borders on callousness.00 as attorney's fees. the claim falls unequivocally within the realm of actual or compensatory damages.00 paid by petitioner for the construction materials. 2224 of the Civil Code. and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot. We therefore sustain the award of moral damages. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. temperate damages are more than nominal but less than compensatory. We sustain the trial court. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame.Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner. However. This case is clearly one of non-performance of a reciprocal obligation. except for the award of P5. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. . There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude. petitioner would not have bought the materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper. storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 4 Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. Petitioner's failure to prove actual expenditure consequently conduces to a failure of his claim. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. (d) P5. the decision of the Regional Trial Court granting 11 CIVIL LAW REVIEW 2 . the court cannot rely on mere assertions.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint. As such. Besides. be proved with certainty.110.00 as moral damages. respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish. In fact.000. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation.110. We delete however the award of temperate damages.

200. Norzagaray.. Parts and Plant — P375. The record shows that on November 4. the tunnel work covering a distance of seven (7) kilometers. where the Ipo Dam of the defendant National Power Corporation is located. passing through defendant's Angat Hydro-electric Project and Dam at lpo. The appellant did not submit proofs to traverse the aforementioned documentary evidence. respondents.00 as and for the rentals of a crane to temporarily replace the one "destroyed beyond repair. (b) P20. The appellate court further found that: G. whereby the former undertook to furnish all tools. reduced the amount of damages awarded by the trial court. L-47379.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case. and materials (not furnished by Owner). as a result of which the latter's stockpile of materials and supplies. both parties filed their respective petitions: the National Power Corporation (NPC) in G. The list is supported by several vouchers which were all submitted as Exhibits K to M-38 a. P to U-2 and V to X. No costs. however.R. HONORABLE COURT OF APPEALS and ENGINEERING CONSTRUCTION. We come now to the award of damages. an extraordinary large volume of water rushed out of the gates.110. a part of Norzagaray.R. 47379. equipment. petitioner. Inc. Materials P107. passing through the mountain.00 as one month bonus which the appellee failed to realize in accordance with the contract which the appellee had with NAWASA. is AFFIRMED.00 as litigation expenses. Bulacan. executed a contract in Manila with the National Waterworks and Sewerage Authority (NAWASA). The project involved two (2) major phases: the first phase comprising. Hence. plaintiff Engineering Construction.. No. on November 10. all the equipment no longer needed there were transferred to the Ipo site where some projects were yet to be completed. Bulacan. and heavy rains intermittently fell. lost or destroyed. At that time. To prevent an overflow of water from the dam..00.200. Inc. the defendant corporation caused the opening of the spillway gates. the water in the reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. Inc.785. No. Said rental of the crane allegedly covered the period of one year at the rate of P40. 1 to 4). L-47481 May 16. the gates of the dam could have been opened in a regulated manner. SO ORDERED. being a successful bidder. since the water level had reached the danger height of 212 meters above sea level.000. typhoon 'Welming' hit Central Luzon. and Appurtenant Features. (d) P5. L-47379 May 16.175. as follows: On August 4. from the Ipo river.00 an hour for 16 hours a day. The appellee submitted a list of estimated losses and damages to the tunnel project (Ipo side) caused by the instant flooding of the Angat River (Exh. the appellate court held: The facts are succinctly summarized by the respondent Court of Appeals. camp facilities and permanent structures and accessories either washed away. to Bicti.00. Asian Enterprise Limited. However.700. 1988 NATIONAL POWER CORPORATION. at Norzagaray. and to construct the proposed 2nd lpo-Bicti Tunnel. to wit: Camp Facilities P55.000. We hold that the lower court did not commit any error in awarding P 675. Some portions of the outworks at the Bicti site were still under construction.R. shows that the appellee bought a crane also a crawler type. vs. Intake and Outlet Structures. 1967. the plaintiff corporation already had completed the first major phase of the work. 1964.60-a (Vide: Folders Nos.1967. No. however. As soon as the plaintiff corporation had finished the tunnel excavation work at the Bicti site. 53. But the spillway gates were opened only when typhoon Welming was already at its height. with an aggregate total amount of P675. and (4) P5.785. The appellate court. Rollo) As to the award of damages. the tunnel excavation work. This amount is broken down as follows: P213.51. It cannot be pretended that there was no negligence or that the appellant exercised extraordinary care in the opening of the spillway gates of the Angat Dam." (pp. Equipment. 1967. vs.R. respondents.000.00 as exemplary damages. questioning the same decision for reducing the consequential damages and attorney's fees and for eliminating the exemplary damages. 45-46.000. G. L-47379. But there was an agreement that the shipment of the goods would be effected within 60 12 CIVIL LAW REVIEW 2 . Maintainers of the dam knew very well that it was far more safe to open them gradually. and hit the installations and construction works of ECI at the lpo site with terrific impact." and P120.659. 47481.000. six (6) days after the incident in question (Exh N) And according to the lower court. INC. A). and Appurtenant Structures.31 as actual or compensatory damages.80. labor. the other phase consisting of the outworks at both ends of the tunnel. (p. J-1). COUTRT OF APPEALS and NATIONAL POWER CORPORATION. By September 1967. Due to the heavy downpour. Strong winds struck the project area. when the water in the reservoir was still low. (ECI) in G. 1988 ENGINEERING CONSTRUCTION. N to O. Rollo) The appellate court sustained the findings of the trial court that the evidence preponlderantly established the fact that due to the negligent manner with which the spillway gates of the Angat Dam were opened. petitioner. questioning the decision of the Court of Appeals for holding it liable for damages and the Engineering Construction. 'Action could have been taken as early as November 3.petitioner (a) P2. (c) P10. which finding was never assailed.00 as consequential damages. There is no evidence when the appellee received the crane from the seller. the appellee resumed its normal construction work on the IpoBicti Project after a stoppage of only one month. The evidence.250. These consolidated petitions seek to set aside the decision of the respondent Court of Appeals which adjudged the National Power Corporation liable for damages against Engineering Construction.00 as attorney's fees. in a vain effort to race against time and prevent the overflow of water from the dam as it 'was rising dangerously at the rate of sixty centimeters per hour. namely. and to complete said works within eight hundred (800) calendar days from the date the Contractor receives the formal notice to proceed (Exh. and Permanent Structures and accessories — P137. No. INC.31. The damages were itemized in four categories. Let it be stressed that the appellant knew of the coming of the typhoon four days before it actually hit the project area. We cannot sustain the award of P333. Bulacan.00 as moral damages.

days from the opening of the letter of credit (Exh. Thus. v. there concurs a corresponding fraud. if upon the happening of a fortuitous event or an act of God. The court also eliminated the award of exemplary damages as there was no gross negligence on the part of NPC and reduced the amount of attorney's fees from P50. and removed from the rules applicable to the acts of God. Limpangco & Sons v. negligence.00 to P30. Therefore. 129.00 to P19. The cost of the repair was P 77. the respondent Court of Appeals did not err in holding the NPC liable for damages.000. Police Commission v. The appellee then could have availed of the services of another crane for a period of only one month (after a work stoppage of one month) at the rate of P 40. considering that the incident occurred after more than three (3) years or one thousand one hundred seventy (1. Lasam v. Collector of Customs of Manila v.000. (144 SCRA 596. Likewise. (150 SCRA 26. while there was no categorical statement or admission on the part of ECI that it bought a new crane to replace the damaged one. the whole occurrence is thereby humanized.000. 4379. Milan 49 O. 1174-1175). could have been possibly earned by ECI at that point in time. And even though the typhoon was an act of God or what we may call force majeure. WCC.00 is justified.e.<äre||anº•1àw> It appearing that the contract of sale was consummated. N). L-47379. Yangco Steamship Co. delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code. But the value of the new crane cannot be included as part of actual damages because the old was reactivated after it was repaired. and that the award of P4. 36) we ruled: Moreover. 54-56. (1 Corpus Juris.00 as shown in item No. Both petitions are without merit. It argues that the rapid rise of the water level in the reservoir of its Angat Dam due to heavy rains brought about by the typhoon was an extraordinary occurrence that could not have been foreseen. Court of Appeals. A contrary ruling would result in the unjust enrichment of ECI.. Motors. Phil. 657). Thus. 120 SCRA 890 [1983]. Thus. which results in loss or damage.336.000. which amount of repair was already included in the actual or compensatory damages. Tucker v. but not the value of the new crane.00 bonus was also properly eliminated as the same was granted by the trial court on the premise that it represented ECI's lost opportunity "to earn the one month bonus from NAWASA .336.. ECI assails the reduction of the consequential damages from P333.00. In these consolidated petitions. and in either case at the rate of P4. ECI further assailes the reduction of attorney's fees and the total elimination of exemplary damages. The offer was made by Asian Enterprises a few days after the flood. Intermediate Appellate Court.00 a day or P120.00 an hour for 16 hours a day or a total of P 19. As shown by the records.000. it only can claim rentals for the temporary use of the leased crane for a period of one month. We must conclude or at least assume that the crane was delivered to the appellee within 60 days as stipulated. The supposed liquidated damages for failure to finish the project within the stipulated 13 CIVIL LAW REVIEW 2 .00 to P19.. To be exempt from liability for loss because of an act of God. the loss or damage to ECI's equipment and facilities occurred long after the stipulated deadline to finish the construction.00. 604.. thus. in Tolentino v. therefore. it has been held that when the negligence of a person concurs with an act of God in producing a loss.000. a sales contract was presented to the effect that the new crane would be delivered to it by Asian Enterprises within 60 days from the opening of the letter of credit at the cost of P106. the cause of which is to be considered.000. NPC assails the appellate court's decision as being erroneous on the ground that the destruction and loss of the ECI's equipment and facilities were due to force majeure.000. Furthermore. Court of Appeals. Parts and Plants category (Exh. Lood. The appellate court also found that the damaged crane was subsequently repaired and reactivated and the cost of repair was P77.00 (computed at P4. 113 SCRA 575 [1985]. 90 SCRA 135 [1979].00 on the grounds that the appellate court had no basis in concluding that ECI acquired a new Crawler-type crane and therefore.200.00 a day in case construction is finished before the specified time. (pp. bonus for earlier completion and liquidated damages for delayed performance. the subsequent release of water through the spillway gates and its resultant effect. Nakpil & Sons v.000. Canete v. plus the fact that there was already a sales contract between it and Asian Enterprises. 1 under the Equipment. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or entering into the cause of the mischief. ..000. such person is not exempt from liability by showing that the immediate cause of the damage was the act of God.170) days.00 as rental. 127 SCRA 757 [1984].00. the findings of fact of the Court of Appeals are generally final and conclusive upon the Supreme Court (Leonardo v. In fact it is settled that the Supreme Court is not supposed to weigh evidence but only to determine its substantially (Nuñez v.000. within 800 calendar days). 100 SCRA 433 [1982] and will generally not disturb said findings of fact when supported by substantial evidence (Aytona v.e. Rollo) The appellate court likewise rejected the award of unrealized bonus from NAWASA in the amount of P120. it included the said amount in the award of of compensatory damages. i. as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. pp. As we have ruled in Juan F. 594. 606-607): Thus. it did not err in reducing the consequential damages from P333. 136 SCRA 302 [1985]) Therefore. As compared to the amount of P106. as it was. or failure to act.00 daily. We do not find anything erroneous in the decision of the appellate court that the consequential damages should represent only the service of the temporary crane for one month. the question of whether or not there was negligence on the part of NPC is a question of fact which properly falls within the jurisdiction of the Court of Appeals and will not be disturbed by this Court unless the same is clearly unfounded. is found to be in part the result of the participation of man.000. The P120. J-1). (Fish & Elective Co. there is no reason why ECI should opt to rent a temporary crane for a period of one year. v.200. on ECI's equipment and facilities may rightly be attributed to force majeure. It is clear from the appellate court's decision that based on its findings of fact and that of the trial court's. he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned.000.000. the said award of P120. if any. Smith. 55 Phil. Court of Industrial Relations. Inc. On the other hand substantial evidence is defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Philippine Metal Products.75. 137 SCRA 3 [1985].00. totalling P120. i. 34 Phil. the obligor cannot escape liability. petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened the same gradually and earlier. whether it be from active intervention or neglect.000. Sandiganbayan. NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. Court of appeals. which use petitioner ECI alleged to have lasted for a period of one year. 45 Phil." As stated earlier. On the other hand.00 a month bonus is justified since the period limitation on ECI's contract with NAWASA had dual effects.00 a day as rental for the use of a temporary crane. since NPC's negligence compelled work stoppage for a period of one month.G.75 for a brand new crane and paying the alleged amount of P4. Court of Appeals. and thus. When the effect. No bonus.200.

Abstract speculations cannot here be of much value but this much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or known to them. In the nature of things this change of situation occurred while the automobile was yet some distance away. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. as damages alleged to have been caused by an automobile driven by the defendant. and again because the petitioner is not shown to have acted in a wanton. WHEREFORE. and it was his duty either to bring his car to an immediate stop or. Before he had gotten half way across. negligent in the eye of the law. When he had gotten quite near. fraudulent. Civil Code. 719) we ruled: Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages. as it appeared to him that the man on horseback before him was not observing the rule of the road. continued to approach directly toward the horse without diminution of speed. and are not supposed to be. and would therefore have 14 CIVIL LAW REVIEW 2 . But in view of the known nature of horses. in our opinion.. there was an appreciable risk that. SO ORDERED. When the defendant exposed the horse and rider to this danger he was. From the evidence adduced in the case we believe that when the accident occurred the free space where the pony stood between the automobile and the railing of the bridge was probably less than one and one half meters. 47481 are both DISMISSED for LACK OF MERIT. deceived into doing this by the fact that the horse had not yet exhibited fright. G. and we are of the opinion that he is so liable. Government Service Insurance System. plaintiff-appellant. it as struck on the hock of the left hind leg by the flange of the car and the limb was broken. In Dee Hua Liong Electrical Equipment Corp. 7 SCRA 577. is always necessary before negligence can be held to exist.000. seeks to recover of the defendant. They are not. The question presented for decision is whether or not the defendant in maneuvering his car in the manner above described was guilty of negligence such as gives rise to a civil obligation to repair the damage done. As a result of its injuries the horse died. going at the rate of about ten or twelve miles per hour. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. 47379 and G. reckless or oppressive manner (Art. vs. 23 SCRA 977.80 meters. He was. then he is guilty of negligence. jr. the defendant. A prudent man. The horse fell and its rider was thrown off with some violence. Reasonable foresight of harm. followed by ignoring of the suggestion born of this prevision. No. have recognized that the course which he was pursuing was fraught with risk. We also affirm the reduction of attorney's fees from P50. Pan Pacific (Phil. in the case under consideration. he might get exited and jump under the conditions which here confronted him. Yutuk v. 8 SCRA 527. and from this moment it was not longer within the power of the plaintiff to escape being run down by going to a place of greater safety. As the defendant started across the bridge. As the automobile approached. The bridge is shown to have a length of about 75 meters and a width of 4. It appears that upon the occasion in question the plaintiff was riding on his pony over said bridge. on the Carlatan Bridge. March 15. No. He says that the reason he did this was that he thought he did not have sufficient time to get over to the other side. As to the question of exemplary damages.000. Could a prudent man. FRANK SMITH.00. The plaintiff received contusions which caused temporary unconsciousness and required medical attention for several days. if the animal in question was unacquainted with automobiles. to take the other side and pass sufficiently far away from the horse to avoid the danger of collision. the defendant guided it toward his left.) v. From a judgment of the Court of First Instance of the Province of La Union absolving the defendant from liability the plaintiff has appealed. it was the duty of the actor to take precautions to guard against that harm. seeing that there were no other persons on the bridge. being perturbed by the novelty of the apparition or the rapidity of the approach. omniscient of the future. the defendant ran straight on until he was almost upon the horse. In so doing the defendant assumed that the horseman would move to the other side. defendant-appellee. 2234. The law considers what would be reckless. but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not be done. 24 SCRA 888). Manila Electric Co. the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside of the railing where it as then standing. we sustain the appellate court in eliminating the same since it found that there was no bad faith on the part of NPC and that neither can the latter's negligence be considered gross. Advertising Corp. The plaintiff. there being then no possibility of the horse getting across to the other side. would in our opinion. Stated in these terms. Villegas. It is not shown that NAWASA imposed them. 1912.00 to P30. instead of veering to the right while yet some distance away or slowing down. that being the proper side of the road for the machine.. In so doing. 1918 AMADO PICART. the sum of P31. the proper criterion for determining the existence of negligence in a given case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing conduct or guarding against its consequences. There are no compelling reasons why we should set aside the appellate court's finding that the latter amount suffices for the services rendered by ECI's counsel. As the defendant neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. La Union. but in so doing the automobile passed in such close proximity to the animal that it became frightened and turned its body across the bridge with its head toward the railing. However. Seeing that the pony was apparently quiet.. saw the automobile coming and heard the warning signals. the defendant approached from the opposite direction in an automobile. (145 SCRA 713. foresee harm as a result of the course actually pursued? If so. he had the right to assume that the horse and the rider would pass over to the proper side. Mendoza. Reyes. at San Fernando. Amado Picart. we think.period or the opposite of the claim for bonus is not clearly presented in the records of these petitions. The pony had not as The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that person would have used in the same situation? If not. Carrascoso. L-12219 yet exhibited fright. 2 SCRA 377. The decision appealed from is AFFIRMED. JR. Air France v. and he must in a moment have perceived that it was too late for the horse to cross with safety in front of the moving vehicle. Frank Smith. Hence they can be expected to take care only when there is something before them to suggest or warn of danger. blameworthy. Francisco v. the petitions in G. Instead of doing this. He continued his course and after he had taken the bridge he gave two more successive blasts. and the rider had made no sign for the automobile to stop. No. Phil.R.R.. Applying this test to the conduct of the defendant in the present case we think that negligence is clearly established.R. or negligent in the man of ordinary intelligence and prudence and determines liability by that. Marchan v. The control of the situation had then passed entirely to the defendant. placed in the position of the defendant. The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case.000. In this action the plaintiff. it appears. 18 SCRA 155. Gutierrez v. v. he pulled the pony closely up against the railing on the right side of the bridge instead of going to the left. The occurrence which gave rise to the institution of this action took place on December 12.

Macaraya also gave Calapre the Solidbank passbook.C. The rails were conveyed upon cars which were hauled along a narrow track. As will be seen the defendant's negligence in that case consisted in an omission only. of any liability.C. 6 if Calapre got the passbook. When Macaraya asked for the passbook. It goes without saying that the plaintiff himself was not free from fault.C. absolving petitioner Consolidated Bank and Trust Corporation. we do not feel constrained to attempt to weigh the negligence of the respective parties in order to apportion the damage according to the degree of their relative fault. together with Calapre. Emmanuel Alvarez. respondents. But as we have already stated. The other damages claimed by the plaintiff are remote or otherwise of such character as not to be recoverable. Mercedes Macaraya (―Macaraya‖). since the negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. COURT OF APPEALS and L.000 drawn on Philippine Banking Corporation (―PBC‖).a point upon which it is unnecessary to express an opinion -. Ismael Calapre (―Calapre‖). L. 6 informed him that ―somebody got the passbook. Banzuela and Banzuela. to the effect that the subject matter of the action had been previously adjudicated in the court of a justice of the peace. It was held that while the defendant was liable to the plaintiff by reason of its negligence in having failed to keep the track in proper repair nevertheless the amount of the damages should be reduced on account of the contributory negligence in the plaintiff. Diaz‖). to deposit the money with Solidbank. The questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but modified the decision by deleting the award of exemplary damages. 6 answered that someone shorter than Calapre got the passbook. S. DIAZ and COMPANY.R. 6 the two deposit slips and the passbook.C. vs. This PBC check of L. Macaraya instructed the messenger of L. and judgment is her rendered that the plaintiff recover of the defendant the sum of two hundred pesos (P200).. L. The defendant company had there employed the plaintiff. the plaintiff caused criminal proceedings to be instituted before a justice of the peace charging the defendant with the infliction of serious injuries (lesiones graves). where the defendant was actually present and operating the automobile which caused the damage. Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200. the rails slid off. At the preliminary investigation the defendant was discharged by the magistrate and the proceedings were dismissed.C. filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Diaz (―Diaz‖). (7 Phil. Teller No. CPA’s (―L. Diaz was a check that it had ―long closed. Teller No. Under these circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do so is chargeable with the consequences. and in such case the problem always is to discover which agent is immediately and directly responsible. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. 6 stamped the deposit slips with the words ―DUPLICATE‖ and ―SAVING TELLER 6 SOLIDBANK HEAD OFFICE. On 14 August 1991. Diaz through its cashier.foreseen harm to the horse and the rider as reasonable consequence of that course. G. guilty of contributory negligence in walking at the side of the car instead of being in front or behind. as a laborer. The sum here awarded is estimated to include the value of the horse. petitioner. In a case like the one now before us. to assist in transporting iron rails from a barge in Manila harbor to the company's yards located not far away. Teller No. 2003 THE CONSOLIDATED BANK and TRUST CORPORATION. The teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. So ordered.the action of the justice of the peace in dismissing the criminal proceeding upon the preliminary hearing can have no effect. Rep. It is enough to say that the negligence of the defendant was in this case the immediate and determining cause of the accident and that the antecedent negligence of the plaintiff was a more remote factor in the case. Failing to get back the passbook.C. expenses of litigation and cost of suit. 6 the deposit slip and check. designated as Savings Account No. (See U. It appeared in evidence that the accident was due to the effects of the typhoon which had dislodged one of the supports of the track. Calapre went to Solidbank and presented to Teller No. Diaz. The teller stamped the words ―DUPLICATE‖ and ―SAVING TELLER 6 SOLIDBANK HEAD OFFICE‖ on the duplicate copy of the deposit slip. Macaraya. it could be received in evidence to reduce the damages which would otherwise have been assessed wholly against the other party. and lawful interest on the whole to the date of this recovery. The Case Before us is a petition for review of the Decision of the Court of Appeals dated 27 October 1998 and its Resolution dated 11 May 1999. At certain spot near the water's edge the track gave way by reason of the combined effect of the weight of the car and the insecurity of the road bed. 564. Calapre was then standing beside Macaraya. Diaz through its Chief Executive Officer. The decision in the case of Rkes vs.‖ PBC subsequently dishonored the check because of insufficient funds and because the signature in the check differed from PBC’s specimen signature. Private respondent L. The car was in consequence upset. Diaz and Company. CPA’s. No. Diaz and reported the incident to Macaraya. and the plaintiff's leg was caught and broken.C. S/A 200-16872-6. The Facts Solidbank is a domestic banking corporation organized and existing under Philippine laws.C. Diaz with Allied Bank. Diaz could open a new 15 CIVIL LAW REVIEW 2 . A point of minor importance in the case is indicated in the special defense pleaded in the defendant's answer. called up Solidbank to stop any transaction using the same passbook until L. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for P90. the defendant was also negligent. 15 August 1991. Atlantic. 138569. Calapre then went to Allied Bank. Diaz opened a savings account with Solidbank. without reference to the prior negligence of the other party. is a professional partnership engaged in the practice of accounting. The liability of the company arose from its responsibility for the dangerous condition of its track. Gulf and Pacific Co. Conceding that the acquittal of the defendant at the trial upon the merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the question of his civil liability arising from negligence -. 359) should perhaps be mentioned in this connection.. medical expenses of the plaintiff. The court found that the defendant company was negligent in having failed to repair the bed of the track and also that the plaintiff was. at the moment of the accident. Macaraya went back to her office and reported the matter to the Personnel Manager of L. Rep. attorney’s fees. Sometime in March 1976. L. The following day.C. with costs of other instances. Teller No.C.000. It will be noted that the negligent acts of the two parties were not contemporaneous. vs.‖ Calapre went back to L.) From what has been said it results that the judgment of the lower court must be reversed. Branch 8. he left the passbook with Solidbank. Diaz. went to Solidbank and presented to Teller No.C.C. When Calapre returned to Solidbank to retrieve the passbook. for he was guilty of antecedent negligence in planting himself on the wrong side of the road. In this connection it appears that soon after the accident in question occurred. the loss or damage occasioned to articles of his apparel. Luis C. September 11. This Court there held that while contributory negligence on the part of the person injured did not constitute a bar to recovery. When Macaraya asked Teller No. Under these circumstances the law imposed on the defendant the duty to guard against the threatened harm. 31 Phil. The assailed decision reversed the Decision of the Regional Trial Court of Manila. Teller No.‖ Since the transaction took time and Calapre had to make another deposit for L. now known as Solidbank Corporation (―Solidbank‖).

of P300. Diaz claimed that a letter must accompany withdrawals of more than P20. On 25 August 1992. or some other person for whose acts he must respond. denied signing the withdrawal slip. On 11 May 1999.C. The trial court debunked L. modified its decision by deleting the award of exemplary damages and attorney’s fees. there being fault or negligence. The trial court further justified the dismissal of the complaint by holding that the case was a last ditch effort of L. L. Emerano Ilagan (―Ilagan‖) and one Roscon Verdazola with Estafa through Falsification of Commercial Document. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila. The trial court admonished L. Diaz’s negligence: (1) the possession of the passbook by a person other than the depositor L. Murillo.C.00) as attorney’s fees. however. The trial court ruled that the passbook presented during the questioned transaction was ―now out of the lock and key and presumptively ready for a business transaction. (2) the presentation of a signed withdrawal receipt by an unauthorized person. The trial court pointed out that L.‖ The Ruling of the Court of Appeals The Court of Appeals ruled that Solidbank’s negligence was the proximate cause of the unauthorized withdrawal of P300. Diaz formally wrote Solidbank to make the same request. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor filed a Motion to Dismiss on 4 August 1992. and (c) the connection of cause and effect between the fault or negligence of the defendant and the damage incurred by the plaintiff. Diaz. L. Diaz for not offering in evidence the National Bureau of Investigation (―NBI‖) report on the authenticity of the signatures on the withdrawal slip for P300.‖ IN VIEW OF THE FOREGOING. a certain Noel Tamayo was not only in possession of the passbook.000 was not the direct and proximate cause of the loss.554 without any separate letter of authorization or any communication with Solidbank that the money be converted into a manager’s check. The withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip with the specimen on the signature cards. The rules state that ―possession of this book shall raise the presumption of ownership and any payment or payments made by the bank upon the production of the said book and entry therein of the withdrawal shall have the same effect as if made to the depositor personally. The bearer must also have a letter authorizing him to withdraw the same amount. L. Whoever by act or omission causes damage to another.C. namely: (a) damages suffered by the plaintiff. Diaz. judgment is hereby rendered DISMISSING the complaint. 5. he also presented a withdrawal slip with the signatures of the authorized signatories of L.C. is obliged to pay for the damage done. Diaz then appealed to the Court of Appeals. Diaz disregarded these precautions in its past withdrawal.C. The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for P300.C.C. After trial. Had the teller called up L. Diaz withdrew significant amounts from its account. The appellate court reached this conclusion after applying the provision of the Civil Code on quasi-delict.000 allowed the withdrawal without making the necessary inquiry. SO ORDERED. Diaz to prove that the signatures on the withdrawal slip were forged. L. which check was deposited on the day of the fraudulent withdrawal. should have called up the depositor because the money to be withdrawn was a significant amount.C. The trial court held that L. On 27 October 1998. The dispositive portion of the decision of the trial court reads: The Ruling of the Trial Court The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount of Thirty Thousand Pesos (P30.000.C. The trial court pointed out that the burden of proof now shifted to L. Diaz.account.C. Diaz charged its messenger. L. The specimen signatures of these persons were in the signature cards. the trial court rendered on 28 December 1994 a decision absolving Solidbank and dismissing the complaint. 14 August 1991. Diaz. that person is considered as the owner of the passbook.C. The teller stamped the withdrawal slip with the words ―Saving Teller No.000.‖ When another person presents the passbook for withdrawal prior to Solidbank’s receipt of the notice of loss of the passbook. L. Manuel verified the signatures on the withdrawal slip. In absolving Solidbank. The appellate court held that the three elements of a quasi-delict are present in this case. Diaz through its counsel demanded from Solidbank the return of its money.C. The teller did not even verify the 16 CIVIL LAW REVIEW 2 . Such fault or negligence.C.C. With costs against plaintiff. (b) fault or negligence of the defendant.000 after the dismissal of the criminal case against Ilagan. Solidbank refused. The trial court believed that L. The appellate court stated that the teller.000 from the savings account of L.‖ The teller then passed on the withdrawal slip to Genere Manuel (―Manuel‖) for authentication.000. and (3) the possession by an unauthorized person of a PBC check ―long closed‖ by L. Solidbank did not have any participation in the custody and care of the passbook. Diaz to recover P300. Diaz did not offer this evidence because it is derogatory to its action.C. Diaz’s contention that Solidbank did not follow the precautionary procedures observed by the two parties whenever L. The letter must request Solidbank to allow the withdrawal and convert the amount to a manager’s check.C.C. Another person driving a car must accompany the bearer so that he would not walk from Solidbank to the office in making the withdrawal. the Court of Appeals issued its Resolution denying the motion for reconsideration of Solidbank.000 from its savings account. the Court of Appeals issued its Decision reversing the decision of the trial court.C. Another provision of the rules on savings account states that the depositor must keep the passbook ―under lock and key.C. namely Diaz and Rustico L. The appellate court. It was also on the same day that L. At the time of the withdrawal. however. Diaz. Three facts establish L. the trial court applied the rules on savings account written on the passbook. In an Information dated 5 September 1991.C. The trial court believed that Solidbank’s act of allowing the withdrawal of P300. who was not presented by Solidbank during trial.C.C. On 16 July 1991. Branch 8. The withdrawal slip for the P300. is called a quasi-delict and is governed by the provisions of this chapter. On 24 August 1992. to wit: Article 2176. if there is no pre-existing contractual relation between the parties. Diaz.C. Diaz’s negligence caused the unauthorized withdrawal. Diaz. The trial court concluded that Solidbank acted with care and observed the rules on savings account when it allowed the withdrawal of P300.000 bore the signatures of the authorized signatories of L.000 from the savings account of L. A certain Noel Tamayo received the P300.000. Solidbank would have known that the withdrawal was unauthorized. Diaz learned of the unauthorized withdrawal the day before. The signatories. Diaz withdrew P82. On the same day.

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300. The law on quasi-delict or culpa aquiliana is generally applicable when there is no pre-existing contractual relationship between the parties. The business and functions of banks are affected with public interest. THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE.C.C. the sum of P20. Diaz was also negligent in entrusting its deposits to its messenger and its messenger in leaving the passbook with the teller.000. Banks are obligated to treat the accounts of their depositors with meticulous care.00 as attorney’s fees and expenses of litigation as well as the cost of suit. Article 1980 of the Civil Code expressly provides that ―x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. II. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties. and P20. The Issues Solidbank’s Fiduciary Duty under the Law The rulings of the trial court and the Court of Appeals conflict on the application of the law. AND IN THE SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS. NOTWITHSTANDING ITS FINDING THAT PETITIONER BANK’S NEGLIGENCE WAS ONLY CONTRIBUTORY. The appellate court ruled that while L. the Court of Appeals applied the law on quasi-delict to determine who between the two parties was ultimately negligent. the award of attorney’s fees was also disallowed pursuant to Article 2208 of the Civil Code. always having in mind the fiduciary nature of their relationship with their clients. III. Hence.000. the award of exemplary damages was not justified.C. Invoking Article 2231 of the Civil Code. Thus. Diaz. The expenses of litigation and cost of suit were also not imposed on Solidbank. The Court of Appeals found Solidbank remiss in its duty. premises considered. Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant the sum of Three Hundred Thousand Pesos (P300. Diaz had it called up L.00).00 AFTER FAILING IN ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.000. with interest thereon at the rate of 12% per annum from the date of filing of the complaint until paid. the decision appealed from is hereby REVERSED and a new one entered.00 as attorney’s fees. IV. Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds: 17 CIVIL LAW REVIEW 2 . the appellate court found Solidbank liable for its negligence in the selection and supervision of its employees. 1998 is affirmed with modification by deleting the award of exemplary damages and attorney’s fees. expenses of litigation and cost of suit. foregoing considered. THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR CHANCE AND IN HOLDING THAT PETITIONER BANK’S TELLER HAD THE LAST OPPORTUNITY TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENT’S PASSBOOK WAS DULY PRESENTED. Diaz. WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT. SO ORDERED. the appellate court affirmed its decision but modified the award of damages. Solidbank could not escape liability because of the doctrine of ―last clear chance. Acting on the motion for reconsideration of Solidbank. The Ruling of the Court SO ORDERED. The trial court pinned the liability on L. and Ordering the dismissal of defendant-appellee’s counterclaim in the amount of P30. On the other hand. the appellate court ruled that exemplary damages could be granted if the defendant acted with gross negligence.C. NOR IS THERE ANY BANKING LAW. our decision dated October 27.00 as exemplary damages. The depositor lends the bank money and the bank agrees to pay the depositor on demand. Diaz based on the provisions of the rules on savings account. violating its fiduciary relationship with L. 2. The bank is the debtor and the depositor is the creditor.000. Consequently.C. a recognition of the contractual relationship between Solidbank and L. Since Solidbank was guilty of simple negligence only.000. I.C. The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. this petition.000.identity of the impostor who made the withdrawal.‖ Solidbank could have averted the injury suffered by L. The appellate court deleted the award of exemplary damages and attorney’s fees. SINCE THERE IS NO AGREEMENT BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300. The petition is partly meritorious. The appellate court ruled that the degree of diligence required from Solidbank is more than that of a good father of a family. 1. AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE. The dispositive portion of the Resolution reads as follows: WHEREFORE.‖ There is a debtor-creditor relationship between the bank and its depositor.00 TO RESPONDENT’S MESSENGER EMERANO ILAGAN. the latter being a depositor of the former. Diaz to verify the withdrawal. or culpa contractual. We hold that Solidbank is liable for breach of contract due to negligence.

After completion of the transaction. However. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. 8791 (―RA 8791‖). and in insuring its return to the party authorized to receive the same. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook. The interest spread or differential belongs to the bank and not to the depositors who are not cestui que trust of banks. the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement. declares that the State recognizes the ―fiduciary nature of banking that requires high standards of integrity and performance. once the plaintiff proves a breach of contract. Solidbank’s rules on savings account require that the ―deposit book should be carefully guarded by the depositor and kept under lock and key. The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves. 6. Proximate cause is determined by the facts of each case upon mixed considerations of logic. If the tellers give the passbook to the wrong person. The bank must not only exercise ―high standards of integrity and performance. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person. For the appellate court. or should know. Under Solidbank’s rules on savings account. Diaz to verify the withdrawal. Solidbank failed to present the teller who had the duty to return to Calapre the passbook. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract. Had the passbook not fallen into the hands of the impostor. they would be clothing that person presumptive ownership of the passbook.C. the proximate cause was the teller’s negligence in processing the withdrawal without first verifying with L. Diaz’s savings account. Solidbank failed to discharge its burden. The record does not indicate that Teller No. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan. policy and precedent. mere possession of the passbook raises the presumption of ownership. Section 2 of RA 8791 prescribes the statutory diligence required from banks – that banks must observe ―high standards of integrity and performance‖ in servicing their depositors. Solidbank was in possession of the passbook while it was processing the deposit. Solidbank’s Breach of its Contractual Obligation Article 1172 of the Civil Code provides that ―responsibility arising from negligence in the performance of every kind of obligation is demandable. the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. Calapre left the passbook with Solidbank because the ―transaction took time‖ and he had to go to Allied Bank for another transaction. beyond those required of non-bank debtors under a similar contract of simple loan. unlike in culpa aquiliana. which took effect on 13 June 2000. 6 that gave the impostor presumptive ownership of the passbook. Diaz. then the interest spread or income belongs to the depositors.C. a situation that Congress certainly did not intend in enacting Section 2 of RA 8791. unbroken by any efficient intervening cause. Court of Appeals.C. Proximate cause is that cause which. and that Teller No.000. the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook. facilitating unauthorized withdrawals by that person. whether express or implied. the authorized representative of L. starting with the 1990 case of Simex International v.000 by the impostor who took possession of the passbook. The burden was on Solidbank to prove that there was no negligence on its part or its employees. or culpa contractual. The trial court believed that L. the authorized representative of L.C. and thus failed to prove that this teller exercised the ―high standards of integrity and performance‖ required of Solidbank’s employees. Solidbank had the contractual obligation to return the passbook only to Calapre. Solidbank and Teller No. in natural and continuous sequence. We do not subscribe to the appellate court’s theory that the proximate cause of the unauthorized withdrawal was the teller’s failure to call up L. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre.‖ When the passbook is in the possession of Solidbank’s tellers during withdrawals. For failing to return the passbook to Calapre. Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. Diaz’s negligence in not securing its passbook under lock and key was the proximate cause that allowed the impostor to withdraw the P300. there is a presumption that the defendant was at fault or negligent. Likewise. Proximate Cause of the Unauthorized Withdrawal Another point of disagreement between the trial and appellate courts is the proximate cause of the unauthorized withdrawal.‖ This new provision in the general banking law. If depositors are cestui que trust of banks. Solidbank did not have 18 CIVIL LAW REVIEW 2 . the bank is liable to its depositor. if possible. Section 2 of Republic Act No. that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L. The tellers know.C. always having in mind the fiduciary nature of their relationship. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the P300.The law imposes on banks high standards in view of the fiduciary nature of banking. Solidbank did not present to the trial court Teller No.C.000 would not have happened. and not a breach of trust. common sense. Diaz.C. Failure by the bank to pay the depositor is failure to pay a simple loan. Diaz was not at fault that the passbook landed in the hands of the impostor.000 from L. the loss of P300. jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under RA No. L. 6 implemented this procedure in the present case. and absent such stipulation then the diligence of a good father of a family. holding that ―the bank is under obligation to treat the accounts of its depositors with meticulous care.‖ This fiduciary relationship means that the bank’s obligation to observe ―high standards of integrity and performance‖ is deemed written into every deposit agreement between a bank and its depositor. Diaz. 6 verified the identity of the person who retrieved the passbook. In contrast. Thus. produces the injury and without which the result would not have occurred.‖ it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty. the proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not returning the passbook to Calapre. if there is such a procedure. Solidbank’s failure to return the passbook to Calapre made possible the withdrawal of the P300. is a statutory affirmation of Supreme Court decisions. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. In the present case. It was the negligent act of Solidbank’s Teller No. in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent.C. 8791. The burden is on the defendant to prove that he was not at fault or negligent.C. L. introduced in 2000.‖ For breach of the savings deposit agreement due to negligence. In culpa contractual. Diaz. We do not agree with either court. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook.

C. CPA’s only 60% of the actual damages awarded by the Court of Appeals. Ilagan then hired a taxicab in the amount of P1. L.C.) clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract.C. Diaz to confirm the withdrawal. 6 the P90. Solidbank relies on the following statements in the Booking and Information Sheet of Emerano Ilagan: xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount of P90. the impostor deposited with Teller No. Diaz therefore had the burden to prove that it is the usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. Diaz and Company. In Philippine Bank of Commerce v. who had the last fair chance to prevent the impending harm by the exercise of due diligence. There is no law mandating banks to call up their clients whenever their representatives withdraw significant amounts from their accounts. or if the plaintiff was guilty of contributory negligence. Stated differently. The tellers who processed the deposit of the P90. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal. Court of Appeals. where the Court held the depositor guilty of contributory negligence. There is no arrangement between Solidbank and L.000 check and the withdrawal of the P300. Diaz pertaining to measures that the parties must observe whenever withdrawals of large amounts are made does not direct Solidbank to call up L. Moreover. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.000 to transport him (Ilagan) to his home province at Bauan. Solidbank claims that since Ilagan was also a messenger of L. We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the P300.the duty to call up L.C.000.C. Teller No. Applying the same ruling to this case. Even the agreement between Solidbank and L. We find no justifiable reason to reverse the factual finding of the trial court and the Court of Appeals. the decision of the Court of Appeals is AFFIRMED with MODIFICATION.C. we hold that L. The Court is not a trier of facts.C. This is a case of culpa contractual.000 was a certain Noel Tamayo.000 which he deposited in favor of L. Diaz failed to do so.C. the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant. L.C.C. would exonerate the defendant from liability. Proportionate costs. WHEREFORE.000. L. The remaining 40% of the actual damages shall be borne by private respondent L. the liability of Solidbank should be reduced. Mitigated Damages Under Article 1172. Prior to the withdrawal of P300. SO ORDERED. Diaz. After successfully withdrawing this large sum of money. Diaz. Solidbank must pay the other 60% of the actual damages. according to the circumstances. Thus.C. which later bounced. he was familiar with its teller so that there was no more need for the teller to verify the withdrawal. ―liability (for culpa contractual) may be regulated by the courts.000 PBC check.C. the one who had the last clear opportunity to avoid the loss but failed to do so.C. we allocated the damages between the depositor and the bank on a 40-60 ratio.‖ This means that if the defendant exercised the proper diligence in the selection and supervision of its employee. L.C. is chargeable with the loss. Doctrine of Last Clear Chance The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in cockfight and horse racing. The appellate court thus erred when it imposed on Solidbank the duty to call up L. accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. The impostor apparently deposited a large amount of money to deflect suspicion from the withdrawal of a much bigger amount of money. Such contributory negligence or last 19 CIVIL LAW REVIEW 2 . Petitioner Solidbank Corporation shall pay private respondent L. Diaz and Company. the entry quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the passbook. CPA’s. Diaz refutes Solidbank’s contention by pointing out that the person who withdrew the P300. Ilagan was apprehended and meekly admitted his guilt (Emphasis supplied. Diaz to confirm the withdrawal when no law requires this from banks and when the teller had no reason to be suspicious of the transaction. where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss. Batangas. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Both the trial and appellate courts stated that this Noel Tamayo presented the passbook with the withdrawal slip. Diaz.000 were not presented during trial to substantiate Solidbank’s claim that Ilagan deposited the check and made the questioned withdrawal. Solidbank is liable for breach of contract due to negligence in the performance of its contractual obligation to L. Solidbank continues to foist the defense that Ilagan made the withdrawal. then the courts may reduce the award of damages. or where it is impossible to determine whose fault or negligence caused the loss. In this case.C. Diaz and Company. Diaz to this effect. We do not apply the doctrine of last clear chance to the present case.

246. April 22.m. 8 By 7:00 p.7 in turn engaged the services of TVI to send a barge and tugboat at shipside.000. and litigation expenses. 6 Schmitz Transport.5 The vessel arrived at the port of Manila on October 24. 92-631323 holding petitioner Schmitz Transport Brokerage Corporation (Schmitz Transport). it having had no control and supervision thereover.9 At 9:00 p.16 Industrial Insurance faulted the defendants for undertaking the unloading of the cargoes while typhoon signal No. The barge pitched and rolled with the waves and eventually capsized. 21 All the defendants appealed to the Court of Appeals which. M-91-3747-TIS. 1991 during which the weather condition had become inclement due to an approaching storm. 20 By resolution of February 4. TRANSPORT VENTURE.. of October 27. Petitioner asserts that in chartering the barge and tugboat of TVI. and to deliver them to its (the consignee’s) warehouse at Cainta. the Court renders judgment in favor of the plaintiff. 1991. Branch 21 of the RTC held all the defendants negligent for unloading the cargoes outside of the breakwater notwithstanding the storm signal. Industrial Insurance and Black Sea. a tugboat finally arrived to pull the already empty and damaged barge back to the pier. however. 1 was raised in Metro Manila. as well as the sum of P5. On petition for review is the June 27. as well as its Resolution2 dated September 28.113. INC. SYTCO Pte Ltd.17 By Decision of November 24. 1998. No. affirmed in toto the decision of the trial court. ordering the defendants to pay plaintiff jointly and severally the sum of P5.. And they argued that they were not motivated by gross or evident bad faith and that the incident was caused by a fortuitous event. represented by its ship agent Inchcape Shipping Inc. hence."25 In discrediting the defense of fortuitous event.23 and Schmitz Transport for entering into a contract with Little Giant to transport the cargoes from ship to port for a fee. By 12:30 a. premises considered.24 On October 26. also of October 26. for the recovery of the amount it paid to Little Giant plus adjustment fees.246.11 with interest from the date the complaint was filed until fully satisfied. together with Black Sea Shipping Corporation (Black Sea). Respondents. 28 By Resolution of January 23.00 representing the adjustment fee plus the sum of 20% of the amount recoverable from the defendants as attorney’s fees plus the costs of suit. 2001 Decision1 of the Court of Appeals. the unloading unto the barge of the 37 coils was accomplished. 2005 SCHMITZ TRANSPORT & BROKERAGE CORPORATION. by decision of June 27. 30 20 CIVIL LAW REVIEW 2 . consignee Little Giant. which were to be discharged at the port of Manila in favor of the consignee. Black Sea. and TVI were required to file their respective Comments.m. attorney’s fees. 1997.450 metric tons.m.13 Earnest efforts on the part of both the consignee Little Giant and Industrial Insurance to recover the lost cargoes proved futile.12 At 7:00 a.11 the crew of the barge abandoned it and transferred to the vessel. vs. 2001. 18 The dispositive portion of the decision reads: WHEREFORE. the appellate court ruled that "each one was essential such that without each other’s contributory negligence the incident would not have happened and so much so that the person principally liable cannot be distinguished with sufficient accuracy. Rizal. it was acting for its principal.m. and Black Sea through its representative Inchcape (the defendants) before the RTC of Manila. 2001. Russia on board M/V "Alexander Saveliev" (a vessel of Russian registry and owned by Black Sea) 545 hot rolled steel sheets in coil weighing 6. hence. Schmitz Transport (hereinafter referred to as petitioner) filed the present petition against TVI. In holding all the defendants solidarily liable. washing the 37 coils into the sea. Industrial Insurance later filed a complaint against Schmitz Transport."26 The defendants’ respective motions for reconsideration having been denied by Resolution27 of September 28. 2001 denying the motion for reconsideration. around 4:30 p. arrastre operator Ocean Terminal Services Inc. the tugboat. Singapore shipped from the port of Ilyichevsk. Black Sea argued that the cargoes were received by the consignee through petitioner in good order.G. 2002. herein respondents Industrial Insurance. commenced to unload 37 of the 545 coils from the vessel unto the barge. 150255. and Transport Venture (TVI). TVI’s tugboat "Lailani" towed the barge "Erika V" to shipside. 1991.. 1991.992. they however had control of where to anchor the vessel..m. whose services the consignee engaged to secure the requisite clearances. where discharge will take place and even when the discharging will commence. it cannot be faulted.000. left and returned to the port terminal.000.m.19 To the trial court’s decision. The counterclaims and cross claims of defendants are hereby DISMISSED for lack of [m]erit. At around 5:30 a. the trial court denied the motion for reconsideration. which affirmed that of Branch 21 of the Regional Trial Court (RTC) of Manila in Civil Case No.4 were insured against all risks with Industrial Insurance Company Ltd. On September 25. due to strong waves. the appellate court held that "although defendants obviously had nothing to do with the force of nature. and BLACK SEA SHIPPING AND DODWELL now INCHCAPE SHIPPING SERVICES. the transportation contract was by and between Little Giant and TVI. 22 it finding that all the defendants were common carriers — Black Sea and TVI for engaging in the transport of goods and cargoes over the seas as a regular business and not as an isolated transaction.14 Little Giant thus filed a formal claim against Industrial Insurance which paid it the amount of P5. solidarily liable for the loss of 37 hot rolled steel sheets in coil that were washed overboard a barge. INDUSTRIAL INSURANCE COMPANY.R. Little Giant Steel Pipe Corporation (Little Giant). 1991.10 No tugboat pulled the barge back to the pier.29 By its Comment. Little Giant thereupon executed a subrogation receipt15 in favor of Industrial Insurance. the defendants Schmitz Transport and TVI filed a joint motion for reconsideration assailing the finding that they are common carriers and the award of excessive attorney’s fees of more than P1.. after positioning the barge alongside the vessel. (Inchcape). LTD. The cargoes. Petitioners.113. (Industrial Insurance) under Marine Policy No. to receive the cargoes from the shipside.11. TVI. of October 27. 1991 and the Philippine Ports Authority (PPA) assigned it a place of berth at the outside breakwater at the Manila South Harbor.

34 held that unloading outside the breakwater. . or when the nature of the obligation requires the assumption of risk. the loss could have been avoided. or when it is otherwise declared by stipulation. however. Actually." Atty. 1991 was moderate. who among the parties is/are responsible therefor? In issue then are: Contrary to petitioner’s insistence. therefore. what equipment do (sic) you require or did you use in order to effect this unloading. be said that the defendants were negligent in not unloading the cargoes upon the barge on October 26. When the effect is found to be in part the result of the participation of man. transfer and delivery to the warehouse? A: Actually. Sir. you are supposed to perform.36 From a review of the records of the case. which [was] in-charged (sic) of the barges. What work or duty did you perform in behalf of this company? A: We handled the releases (sic) of their cargo[es] from the Bureau of Customs.32 [T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely by the violence of nature. Except in cases expressly specified by the law. no person shall be responsible for those events which could not be foreseen. xxx Q: Now. as did the appellate court. the sea condition at the port of Manila at 5:00 p. Sir. if you can recall? A: Since 1990.41 The loss thus falls outside the "act of God doctrine. finds that petitioner is a common carrier. and on this we hired or we sub-contracted with [T]ransport Ventures. Q: Now. a material fact which the appellate court failed to properly consider and appreciate40 — the proximate cause of the loss of the cargoes. you said that you are the brokerage firm of this Company. Also. I also handle the various division heads of the company for operation matters. Sir. instead of inside the breakwater. and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor. in connection with this work which you are doing. we used the barges for the ship side operations. Sir. and all other related functions that the President may assign to me from time to time. Q: And since when have you been the brokerage firm of that company. will you please tell the Honorable Court if you came to know the company by the name Little Giant Steel Pipe Corporation? A: Yes. [and] then we used trucks to deliver [the cargoes] to the consignee’s warehouse. Article 1174 of the Civil Code absolves any party from any and all liability arising therefrom: ART. That no tugboat towed back the barge to the pier after the cargoes were completely loaded by 12:30 in the morning39 is. 1991 inside the breakwater. 1991 remained normal with moderate sea condition such that port operations continued and proceeded normally. must be independent of human will.m. (1) Whether the loss of the cargoes was due to a fortuitous event. the testimony of its own Vice-President and General Manager Noel Aro that part of the services it offers to its clients as a brokerage firm includes the transportation of cargoes reflects so. or which though foreseen. this Court. [it] is already considered a common carrier regardless if [it] owns the vehicle to be used or has to hire one. Q: Now. to be considered a fortuitous event. Had the barge been towed back promptly to the pier. Witness. the deteriorating sea conditions notwithstanding. petitioner and TVI. (1) the cause of the unforeseen and unexpected occurrence.For its part.35 It thus concluded that the proximate cause of the loss was Black Sea’s negligence in deciding to unload the cargoes at an unsafe place and while a typhoon was approaching. 21 CIVIL LAW REVIEW 2 .31 The proximate cause of the loss having been determined. When a fortuitous event occurs. this unloading [from] vessel to lighter. 1174."42 That petitioner is a common carrier. states that while typhoon signal No. Mr. For it undertook to transport the cargoes from the shipside of "M/V Alexander Saveliev" to the consignee’s warehouse at Cainta. what precisely [was] your agreement with this Little Giant Steel Pipe Corporation with regards to this shipment? What work did you do with this shipment? A: We handled the unloading of the cargo[es] from vessel to lighter and then the delivery of [the] cargo[es] from lighter to BASECO then to the truck and to the warehouse. the weather on October 26. Aro: Well. 1991. we are the brokerage firm of that Company. Sir. were inevitable. while a storm signal was up constitutes negligence. or if it can be foreseen it must be impossible to avoid. In order. in connection [with] your duties and functions as you mentioned. in affirming the finding of the trial court that human intervention in the form of contributory negligence by all the defendants resulted to the loss of the cargoes. in BASECO compound we are leasing cranes to have the cargo unloaded from the barge to trucks. whether liability for the loss may attach to Black Sea.m. Rizal. We [are] also incharged of the delivery of the goods to their warehouses. however. It cannot. As the defendants proffered. Sir. of October 26. 1 was hoisted over Metro Manila on October 23-31. We also handled the clearances of their shipment at the Bureau of Customs. But the barge was left floating in open sea until big waves set in at 5:30 a. there is no indication that there was greater risk in loading the cargoes outside the breakwater. (2) it must be impossible to foresee the event which constitute the caso fortuito.33 The appellate court.. TVI maintained that it acted as a passive party as it merely received the cargoes and transferred them unto the barge upon the instruction of petitioner. I oversee the entire operation of the brokerage and transport business of the company. Human intervention is to be excluded from creating or entering into the cause of the mischief. causing it to sink along with the cargoes. whether due to his active intervention or neglect or failure to act. or the failure of the debtor to comply with his obligation. Inc. Jubay: Will you please tell us what [are you] functions x x x as Executive Vice-President and General Manager of said Company? Mr. the whole occurrence is then humanized and removed from the rules applicable to the acts of God. As the appellate court put it.37 The weather data report. and (2) If there was negligence.m.11:00 p. independent of any act of negligence on the part of petitioner Black Sea and TVI. (3) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in any manner. "as long as a person or corporation holds [itself] to the public for the purpose of transporting goods as [a] business. Q: Now.38 furnished and verified by the Chief of the Climate Data Section of PAG-ASA and marked as a common exhibit of the parties.

the customs broker is also a common carrier. Thus."47 As for petitioner’s argument that being the agent of Little Giant. the provisions of articles 1171 and 2202. to the Honorable Court why is it you have to contract for the barges of Transport Ventures Incorporated in this particular operation? A: Firstly. knowing that the barge does not have any power of its own and is totally defenseless from the ravages of the sea. therefore. petitioner was discharging its own personal obligation under a contact of carriage. during and after the occurrence of the storm in order that it may be exempted from liability for the loss of the goods. for compensation. or air. therefore. following Article 173953 of the Civil Code. Sanchez Brokerage. it failed to take all available and reasonable precautions to avoid the loss. When negligence shows bad faith. petitioner did not disclose that it was acting on commission and was chartering the vessel for Little Giant. Inc. Those who in the performance of their obligations are guilty of fraud. that liability could only be for tort under the provisions of Article 2176 and related provisions. shall apply. Inc. The contention. In either case. TVI’s failure to promptly provide a tugboat did not only increase the risk that might have been reasonably anticipated during the shipside operation.44 held: The appellate court did not err in finding petitioner. or delay. Not being a party to the service contract. If the law or contract does not state the diligence which is to be observed in the performance. be described? It would be solidary. JUBAY: Will you please explain to us. Common carriers are persons. engaged the services of TVI as handler48 to provide the barge and the tugboat. Was the reasonable care and caution which an ordinarily prudent person would have used in the same situation exercised by TVI?52 This Court holds not. xxx Article 1732 does not distinguish between one whose principal business activity is the carrying of goods and one who does such carrying only as an ancillary activity. Petitioner. petitioner was the broker-agent of Little Giant in securing the release of the cargoes. in conjunction with Article 2180 of the Civil Code. but was the proximate cause of the loss. while it acted as a private carrier for which it was under no duty to observe extraordinary diligence. Articles 1170 and 1173 of the Civil Code provide: ART. before. which did not have any barge or tugboat. that which is expected of a good father of a family shall be required. True. are liable for damages. In effecting the transportation of the cargoes from the shipside and into Little Giant’s warehouse. Should Prudent be made likewise liable? If at all. the members of the crew of a tugboat would be charging overtime pay did not excuse TVI from calling for one such tugboat. Inc.50 Little Giant did not thus automatically become a party to the Service Contract and was not.45 And in Calvo v.. In their Service Contract.Q: And whose trucks do you use from BASECO compound to the consignee’s warehouse? A: We utilized of (sic) our own trucks and we have some other contracted trucks. After noting that TVI failed to arrange for the prompt towage of the barge despite the deteriorating sea conditions. in A. In the discharge of its commitment to ensure the safety of passengers. on the other hand. for it to be relieved of liability.51 In the case of TVI. xxx ATTY. A man of ordinary prudence would not leave a heavily loaded barge floating for a considerable number of hours. water. a customs broker may be regarded as a common carrier. This Court holds then that petitioner and TVI are solidarily liable56 for the loss of the cargoes. and an independent contractor. paragraph 2. at such a precarious time. x x x [O]ne might ask further. it was still required to observe ordinary diligence to ensure the proper and careful handling. For to declare otherwise "would be to deprive those with whom [it] contracts the protection which the law affords them notwithstanding the fact that the obligation to carry goods for [its] customers. it does not persuade.46 this Court held that as the transportation of goods is an integral part of a customs broker. corporations. it should. and in the open sea. While petitioner sent checkers54 and a supervisor55 on board the vessel to counter-check the operations of TVI. the common carrier is not relieved of its responsibilities under the contract of carriage. 1173. of the time and of the place. As for petitioner. however. bound by the terms and conditions therein. on one hand. but it did not. offering their services to the public. 1732. It suffices that petitioner undertakes to deliver the goods for pecuniary consideration. is part and parcel of petitioner’s business. firms or associations engaged in the business of carrying or transporting passengers or goods or both. a customs broker. The following pronouncement of the Supreme Court is instructive: The foundation of LRTA’s liability is the contract of carriage and its obligation to indemnify the victim arises from the breach of that contract by reason of its failure to exercise the high diligence required of the common carrier. (Emphasis supplied)43 It is settled that under a given set of facts. we don’t own any barges. which is Transport Ventures. UCPB General Insurance Co. how then must the liability of the common carrier. prove that it exercised due diligence to prevent or minimize the loss.49 while Little Giant was named as the consignee. A contractual obligation can be 22 CIVIL LAW REVIEW 2 . That it was nighttime and. Sir. Thus. v. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. 1170. Little Giant cannot directly sue TVI based thereon but it can maintain a cause of action for negligence. to be also a common carrier. negligence. any negligence it committed was deemed the negligence of its principal. by land. a carrier may choose to hire its own employees or avail itself of the services of an outsider or an independent firm to undertake the task. ART. this Court. of petitioner that it is not a common carrier but a customs broker whose principal function is to prepare the correct customs declaration and proper shipping documents as required by law is bereft of merit. it should have summoned the same or another tugboat to extend help. Art. care and discharge of the carried goods. therefore. The Honorable Court of Appeals. and those who in any manner contravene the tenor thereof.F. as defined under Article 1732 of the Civil Code. That is why we hired the services of another firm whom we know [al]ready for quite sometime. to wit.

(formerly Globe Mckay Cable and Radio Corporation). 1997 of the decision of the trial court.R. the interest shall begin to run not from the time the claim is made judicially or extrajudicially but from the date the judgment of the court is made (at which the time the quantification of damages may be deemed to have been reasonably ascertained). in turn. Inc. a liability for tort may arise even under a contract. The USDCA contracted with said American companies. May 25. cooperation and sovereign equality: Now. No. foreign military bases. contracted with Globe for the use of the communication facilities. The said communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency (USDCA)."59 The delivery of the goods to the consignee was not from "pier to pier" but from the shipside of "M/V Alexander Saveliev" and into barges.1 The facts of the case are undisputed. when an act which constitutes a breach of contract would have itself constituted the source of a quasi-delictual liability had no contract existed between the parties. CV No. 62 On the award of adjustment fees: The adjustment fees and expense of divers were incurred by Industrial Insurance in its voluntary but unsuccessful efforts to locate and retrieve the lost cargo. however. through petitioner. Pampanga and Subic Naval Base in Cubi Point.58 x-----------------------------x Parties to a contract of carriage may. the contract can be said to have been breached by tort. Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish. Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. Cooperation and Security and its Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval Base. While Industrial Insurance was compelled to litigate its rights. Respecting the award of attorney’s fees in an amount over P1. Since Black Sea had constructively delivered the cargoes to Little Giant. Article XVIII of the 1987 Constitution. Cooperation and 23 CIVIL LAW REVIEW 2 . both parties knew that the Military Bases Agreement between the Republic of the Philippines and the US (RP-US Military Bases Agreement). for which reason the consignee contracted the services of petitioner. On 07 May 1991. it had discharged its duty. in CA-G. To express its decision not to concur in the ratification of the Treaty of Friendship.000. contracted with local service providers such as the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities.57 G. expressing its decision not to concur in the ratification of the Treaty of Friendship. Article 2194 of the Civil Code can well apply. be it Resolved by the Senate.61 To award attorney’s fees to a party just because the judgment is rendered in its favor would be tantamount to imposing a premium on one’s right to litigate or seek judicial redress of legitimate grievances. Costs against petitioner.65 WHEREFORE. as it is hereby resolved. Inc. such fact by itself does not justify the award of attorney’s fees under Article 2208 of the Civil Code. Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals. 147324 As for Black Sea. respondent. v. shall not be allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people in a national referendum when the Congress so requires. among others. for lack of factual and legal basis. 141. (Globe). vs. For several years prior to 1991. Globe Mckay Cable and Radio Corporation. one resulting in culpa contractual and the other in culpa aquiliana. On 16 September 1991. Subsequently. INC. and for security reasons.11 with the MODIFICATION that interest at SIX PERCENT per annum of the amount due should be computed from the promulgation on November 24. petitioner. had been engaged in the coordination of the provision of various communication facilities for the military bases of the United States of America (US) in Clark Air Base. and such new treaty is recognized as such by the US Government. and Transport Venture Incorporation jointly and severally liable for the amount of P5. which include those located at the US Naval Facility in Cubi Point. vs. where tort is that which breaches the contract. respondents. its duty as a common carrier extended only from the time the goods were surrendered or unconditionally placed in its possession and received for transportation until they were delivered actually or constructively to consignee Little Giant.60 In fine.2 The term of the contract was for 60 months. Globe. Court of Appeals64 that when the demand cannot be reasonably established at the time the demand is made.63 As for the court a quo’s award of interest on the amount claimed. and the latter. GLOBE TELECOM.113. were operated only by its personnel or those of American companies contracted by it to operate said facilities. SO ORDERED. PHILIPPINE COMMUNICATION SATELLITE CORPORATION. Bill of Lading No. therefore. Zambales. or five (5) years. In the case at bar. operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. Under Section 25. now Globe Telecom.R. petitioner.00 to Industrial Insurance. They do not constitute actual damages. thereby allowing the rules on tort to apply. judgment is hereby rendered ordering petitioner Schmitz Transport & Brokerage Corporation. dated 27 February 2001.246. was to expire in 1991. agree upon a definition of delivery that extends the services rendered by the carrier.breached by tort and when the same act or omission causes the injury. troops or facilities..3 In turn. For no sufficient showing of bad faith would be reflected in a party’s persistence in a case other than an erroneous conviction of the righteousness of his cause. the Senate passed and adopted Senate Resolution No. In fine.4 At the time of the execution of the Agreement.5 The last two paragraphs of the Resolution state: FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries in the spirit of friendship. Stated differently. this Court sets it aside. no liability may thus attach to Black Sea. INC. 2004 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION. GLOBE TELECOM. the same calls for modification following the ruling in Eastern Shipping Lines. which was the basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point. Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same. on the other hand. 63619. Angeles. 2 covering the shipment provides that delivery be made "to the port of discharge or so near thereto as she may safely get. always afloat.000.

Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts Globe from complying with its obligations under the Agreement. In addition. directions. the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as may be agreed upon by the parties. Globe explained that the occurrence of said events exempted it from paying rentals for the remaining period of the Agreement. It explained that it terminated Philcomsat’s services on 08 November 1992. premises considered. contended that the RTC erred in holding it liable for payment of rent of the earth station for December 1992 and of attorney’s fees. should PHILCOMSAT make use or sell the earth station subject to this agreement. exemplary damages. and the termination by the Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991 as stated in the Philippine Government’s Note Verbale to the US Government. floods. war. regulation. In a letter dated 06 August 1992.136. the Philippine Government sent a Note Verbale to the US Government through the US Embassy. Philcomsat sent a reply letter dated 10 August 1992 to Globe. strikes or other labor difficulties. for the remaining life of the agreement. and its Supplementary Agreements. Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of Friendship.9 Both parties appealed the trial court’s Decision to the Court of Appeals.10 Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.00 plus interest. 3. order. considering that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. the dispositive portion of which reads: WHEREFORE. Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe.00) or its equivalent in Philippine Currency (computed at the exchange rate prevailing at the time of compliance or payment) representing rentals for the month of December 1992 with interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the amount is fully paid. which events constituted force majeure under the Agreement. and 4. or requests of the Government of the Philippines which constitute force majeure. it had no reason to pay for rentals beyond that date. such as the issuance of a formal order by Cdr. stating that "we expect [Globe] to know its commitment to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of the earth station after November 08. Walter Corliss of the US Navy. there were circumstances beyond the control of the parties. Cooperation and Security. and (3) Globe is not liable to Philcomsat for exemplary damages. 1. DISCONTINUANCE OF SERVICE Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation. but not limited to. Globe. insisting that it was constrained to end the Agreement due to the termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation.238. Globe filed an Answer to the Complaint. which prevented further use of the earth station under the Agreement. with legal interest.00) Pesos as and for attorney’s fees. 24 CIVIL LAW REVIEW 2 . However.6 On 05 January 1999. SO ORDERED. Globe notified Philcomsat of its intention to discontinue the use of the earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the RP-US Military Bases Agreement. shall terminate on 31 December 1992. The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship. The Note Verbale stated that since the RP-US Military Bases Agreement. With costs against the defendant. 2. the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and personnel from Cubi Point. praying that the latter be ordered to pay liquidated damages under the Agreement. The case was raffled to Branch 59 of said court. which provides: Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. the Court of Appeals promulgated its Decision dismissing Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that certain events constituting force majeure under Section 8 the Agreement occurred and justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.00 plus interest and attorney’s fees. at the same time reaffirming its desire to continue friendly relations with the government and people of the United States of America. stating as follows: 7. For the purpose of this paragraph. judgment is hereby rendered as follows: On 31 December 1991. on the other hand. notifying it of the Philippines’ termination of the RP-US Military Bases Agreement. attorney’s fees and costs of suit. as amended. Ordering the DISMISSAL of defendant’s counterclaim for lack of merit. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight US Dollars (US$92. a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination.8 After the US military forces left Subic Naval Base. direction or request of the Government of the Philippines. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300.Security and its Supplementary Agreements. On 27 February 2001.238. (2) Globe is not liable to pay the rentals for the remainder of the term of the Agreement. 1992. the withdrawal of all US military forces from Subic Naval Base should be completed by said date. but in no case shall be less than the first two (2) T1 circuits. Notwithstanding the non-use of the earth station. insurrection riots. are acts.910. hence. acts of public enemies. However.000. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement. Either party is thus precluded from performing its obligation until such force majeure or fortuitous event shall terminate. Philcomsat sent Globe a letter dated 24 November 1993 demanding payment of its outstanding obligations under the Agreement amounting to US$4. typhoons or other catastrophies or acts of God. [Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use. However. the trial court rendered its Decision. it is still liable to pay rentals for the December 1992. On 27 January 1995. any law. fire."7 Philcomsat referred to Section 7 of the Agreement. force majeure shall mean circumstances beyond the control of the party involved including. the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s services by 08 November 1992. national emergencies. amounting to US$92. Globe refused to heed Philcomsat’s demand.

regulation. the non-ratification of the Treaty of Friendship. insurrection riots. contends that the Court of Appeals erred in finding it liable for the amount of US$92.15 Philcomsat also maintains that contrary to the appellate court’s findings. No.23 Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases. Philcomsat posits the view that the validity of the parties’ definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of the party involved including.R. Article 1174.00. Philcomsat contends that under Article 1174 of the Civil Code. the petitioner therein. strikes or wars." should be deemed subject to Article 1174 which defines fortuitous events as events which could not be foreseen. Although the Agreement was freely entered into by both parties. A fortuitous event under Article 1174 may either be an "act of God. the non-ratification of the Treaty of Friendship.18 In its Comment. C. an event must be unforeseen in order to exempt a party to a contract from complying with its obligations therein. SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT. No. Cooperation and Security and the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable. such as Section 4. evince the intent of Globe to be bound to pay rentals for the entire fiveyear term. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES. or which. Globe also claims that the termination of the RP-US Military Bases Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement. direction or request of the Government of the Philippines. Moreover. 147334 and required both parties to submit their memoranda. typhoons or other catastrophies or acts of God. Globe. because the US military and personnel completely withdrew from Cubi Point only in December 1992. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT. were inevitable.In G. The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement. acts of public enemies. 25 CIVIL LAW REVIEW 2 . THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE. Globe maintains that Philcomsat is not entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement.17 On the issue of the propriety of awarding attorney’s fees and exemplary damages to Philcomsat. 147334. said ruling is inconsistent with the appellate court’s pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated Philcomsat’s services effective 08 November 1992. Any law. No. but also to those which are foreseeable.114 thereof. There is no merit is Philcomsat’s argument that Section 8 of the Agreement cannot be given effect because the enumeration of events constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid. it is entitled to attorney’s fees and exemplary damages. since Philcomsat’s services were actually terminated on 08 November 1992.13 Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section 7 thereof. such events cannot exempt Globe from performing its obligation of paying rentals for the entire five-year term thereof. Globe only acted in accordance with its rights. order. Cooperation and Security.22 Similarly.25 Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events constituting force majeure: 19 In G.11 petitioner Philcomsat raises the following assignments of error: A. B. any law. though foreseen were inevitable. No reversible error was committed by the Court of Appeals in issuing the assailed Decision. Philcomsat points out that it was Globe which proposed the five-year term of the Agreement.12 Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event because the happening thereof was foreseeable.R. D. or when the nature of the obligation requires the assumption of risk. but inevitable: Art. Section 8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code.24 or an "act of man. could not be foreseen. representing rentals for December 1992. and the consequent withdrawal of US military forces and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat. Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they would be exempt from fulfilling their contractual obligations. It insists that since the expiration of the RP-US Military Bases Agreement. 147324. 1174. hence the petitions are denied. no person shall be responsible for those events which. reiterating their arguments in their respective petitions.16 In its Comment to Philcomsat’s Petition.R." or natural occurrences such as floods or typhoons. but not limited to.238. Except in cases specified by the law. DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT. PROVIDES. but were possibilities known to it and Globe at the time they entered into the Agreement. the Court issued a Resolution giving due course to the Petition filed by Globe in G. fire. national emergencies. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURT’S AWARD OF ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT. refers not only to events that are unforeseeable. (2) whether Globe is liable to pay rentals under the Agreement for the month of December 1992. strikes or other labor difficulties. or which. and (3) whether Philcomsat is entitled to attorney’s fees and exemplary damages. However.R." such as riots. and that the other provisions of the Agreement. or when it is otherwise declared by stipulation. No. Philcomsat claims that Globe’s petition should be dismissed as it raises a factual issue which is not cognizable by the Court in a petition for review on certiorari. though foreseen. order.20 1. the Court issued a Resolution giving due course to Philcomsat’s Petition in G. direction or request of the Philippine Government. In support of its position. floods. regulation. 147324 and required the parties to submit their respective memoranda. on 20 August 2001.21 On 15 August 2001. which exempts an obligor from liability on account of fortuitous events or force majeure. war.

Resolution No. 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US Government are acts. the Court finds that the defendant is exempted from paying the rentals for the facility for the remaining term of the contract. 284 SCRA 357)…. military forces from Subic Naval Base should be completed by said date. morals. Considering the foregoing. The binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have the force of law between the contracting parties. As noted by the appellate court: We also point out the sheer inequity of PHILCOMSAT’s position. Court of Appeals. public order. (Exhibit "2") on September 16. 6. 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the US Government notifying the latter of the former’s termination of the RP-US Military Bases Agreement (as amended) on 31 December 1992 and that accordingly. the foregoing are either unforeseeable. 1992. and there must be mutuality between them based essentially on their equality under which it is repugnant to have one party bound by the contract while leaving the other party free therefrom (Allied Banking Corporation v. To put it blantly (sic). typhoons or other catastrophies or acts of God. War.31 The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant case. the Court likewise affirms the appellate court’s ruling that Globe should pay the same. it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to perform its corresponding obligation under the Agreement. It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and could not have been rendered due to an act of the government which was clearly beyond GLOBE’s control. National emergencies. 5. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when the same expired in 1991. … From the foregoing. 1991 is beyond the control of the parties. and would run contrary to the function of the courts to give force and effect thereto. good customs. There is nothing in the enumeration that runs contrary to. The formal order from Cdr. Moreover. Walter F. morals. the concept of a fortuitous event under Article 1174. Fire. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.33 With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992. 4. the withdrawal of all U. the concurrence of the following elements must be established: (1) the event must be independent of the human will.) The aforementioned events made impossible the continuation of the Agreement until the end of its fiveyear term without fault on the part of either party. or aggravation of. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06. 1992 and a notification from ATT dated July 29. good customs. Clearly. Riots. there was no longer any necessity for the plaintiff to continue maintaining the IBS facility…. or public policy. plaintiff would no longer be in any position to render the service it was obligated under the Agreement. Insurrection. the Court finds and so holds that the afore-narrated circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement. This resolution was followed by the sending on December 31. since the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992. because the prerogative to ratify the treaty extending the life thereof belonged to the Senate.27 Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. 1992. or foreseeable but beyond the control of the parties. clauses. direction or request of the Government of the Philippines and circumstances beyond the control of the defendant. the letter notification from ATT and the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the control of the defendant. 9. Walter Corliss of the USN. 141. parties to a contract may establish such stipulations. terms and conditions as they may deem fit. Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal order issued by Cdr."28 Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law. under Article 130626 of the Civil Code. the date when they actually ceased 26 CIVIL LAW REVIEW 2 . 7. Subsequently.2. Strikes or other labor difficulties. 8. Corliss II Commander USN dated July 31. As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of all US Military forces and personnel from Subic Naval Base would no longer be allowed. good customs. floods. public order or public policy. (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner. morals. the injury to the creditor. 30 In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8. Corliss of the US Navy. Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992: Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental Agreements) under its Resolution No. PHILCOMSAT would like to charge GLOBE rentals for the balance of the lease term without there being any corresponding telecommunications service subject of the lease. and (3) the obligor must be free of participation in. Furthermore. 32 (Emphasis in the original. Section 8 of the Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. as long as the same do not run counter to the law.S. Acts of public enemies. hence. Other circumstances beyond the control of the parties.29 Not being contrary to law. defendant [Globe] received a formal order from Cdr. public order or public policy. for to do so would be to alter the real intent of the parties. 3. or expands.

117009 October 11.23 for the increase in price of labor and materials plus 12% interest thereon per annum from 15 August 1980 until fully paid.000.00 as exemplary damages. No. WHEREFORE. verified Ferrer's claims for additional cost.000. SBTC. payrolls and other documents proving the additional expenses. The additional expenses were made known to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1980." dated 31 August 1994. . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE CONSTRUCTION CONTRACT. BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS. et. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract which states: If at any time prior to the completion of the work to be performed hereunder. Security Bank and Trust Company. which affirmed the decision ** of the Regional Trial Court. . Hence. Respondent Ferrer made timely demands for payment of the increased cost. SO ORDERED. Makati in Civil Case No. CV No.000. Ferrer then filed a complaint for breach of contract with damages. 63619 is AFFIRMED. FERRER. reckless. d) P20. 42712. respondents. . On appeal. . any increase in the price of labor and/or materials resulting in an increase in construction cost above the stipulated contract price will not automatically make petitioners liable to pay for such increased cost. . al. oppressive or malevolent manner. Philcomsat could not have removed or rendered ineffective said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel up to that time. entitled "Ysmael C. the Court of Appeals did not err when it affirmed the trial court’s ruling that Globe is liable for payment of rentals until December 1992.38 or where moral or exemplary damages are awarded. MANHIT. . Branch 63. Manhit to construct the building of SBTC in Davao City for the price of P1. as any payment above the stipulated contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon mutual agreement of both parties". THE LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. e) attorney's fees equivalent to 25% of the principal amount due. 1995 In the present petition for review. IN HOLDING THAT PLAINTIFF-APPELLEE HAS. The award of attorney’s fees is the exception rather than the rule. Ferrer v. until that date. Furthermore. 1 Petitioners argue that under the aforequoted Article IX of the building contract. Exemplary damages may be awarded in cases involving contracts or quasi-contracts. the Court awarded attorney’s fees where a party acted in gross and evident bad faith in refusing to satisfy the other party’s claims and compelled the former to litigate to protect his rights. petitioners assign the following errors to the appellate court: SECURITY BANK & TRUST COMPANY and ROSITO C. Said demands were supported by receipts.00.00. The assailed Decision of the Court of Appeals in CA-G. and must be supported by factual.40 In March 1981. Ysmael C. the USDCA had control over the earth station and had the option of using the same. in cases where both parties have legitimate claims against each other and no party actually prevailed. such as in the present case where the claims of both parties were sustained in part.000.35 Thus.R. it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment of rentals. It is contended that 27 CIVIL LAW REVIEW 2 .00 as actual damages. an award of attorney’s fees would not be warranted. . legal and equitable justifications. and f) costs of suit. petitioners seek a review and reversal of the decision * of respondent Court of Appeals in CA-G.41 In the present case. Manhit to pay: a) P259. 40450. instead of paying the recommended additional amount.00 as moral damages.417. 34 However. c) P20. Private respondent Ysmael C. Respondent Ferrer was able to complete the construction of the building on 15 August 1980 (within the contracted period) but he was compelled by a drastic increase in the cost of construction materials to incur expenses of about P300. It was established during the trial of the case before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992. Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorney’s fees and exemplary damages. vs. increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities which directly or indirectly affects the increase of the cost of the project. CV No.R. the Petitions are DENIED for lack of merit. . The trial court ruled for Ferrer and ordered defendants SBTC and Rosito C.39 However.00 on top of the original cost. SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm consulted by SBTC. fraudulent. the trial court found that the US military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. In this petition for review under Rule 45 of the Rules of Court.760. OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties. IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT. b) P24. The contract dated 4 February 1980 provided that Ferrer would finish the construction in two hundred (200) working days.using the earth station subject of the Agreement was not established during the trial.36 In previously decided cases. a complaint for breach of contract with damages.000.000. A recommendation was then made to settle Ferrer's claim but only for P200. petitioners. . invoices. G. if the erring party acted in a wanton. the Court of Appeals affirmed the trial court decision.R. denied ever authorizing payment of any amount beyond the original contract price. COURT OF APPEALS and YSMAEL C. Ferrer was contracted by herein petitioners Security Bank and Trust Company (SBTC) and Rosito C.37 when the action filed is clearly unfounded.

The award of attorney's fees is thus reduced to P10. Every person who through an act of performance by another.00. guides for human conduct [that] should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice. . SO ORDERED. In the present case. "even with the presence of an agreement between the parties. contending that the absence of a mutual agreement made private respondent's demand premature and baseless. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly refute the arguments raised by petitioners.R. Finally. Manhit and the bank's architectural consultant were directed by the bank to verify and compute private respondent's claims of increased cost. petitioner bank admitted liability for increased cost when a recommendation was made to settle private respondent's claim for P200. which would be at least P60. Further. condition dependent on petitioner bank's sole will. Respondent Ysmael C. the court may nevertheless reduce attorney's fees though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. petitioner bank's Vice-President Rosito C. Petitioners in turn had the increased cost evaluated and audited. with the above modification in respect of the amount of attorney's fees. petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor (private respondent). . to be sure.000. a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor.00. devoid of adequate discussion of the merits of respondent's case.00. Article 22 of the Civil Code which embodies the maxim. It is not denied that private respondent incurred additional expenses in constructing petitioner bank's building due to a drastic and unexpected increase in construction cost. CV No. . . petitioners' obligation to pay amounts above the original contract price never materialized. Private respondent's claim for the increased amount was adequately proven during the trial by receipts. Under Article 1182 of the Civil Code. the issues in this case are far from complex and intricate. Despite this recommendation and several demands from private respondent. on the other hand. SBTC failed to make payment. the Court has previously held that. The above-quoted article is part of the chapter of the Civil Code on Human Relations. In the present case. is not allowed by law. . shall return the same to him. the mutual agreement. Petitioners' arguments are specious. it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an increased cost. 40450 is AFFIRMED. . as the contents of said pleadings are mostly quoted portions of the decision of the Court of Appeals. Such unjust enrichment. Under the previously quoted Article IX of the construction contract. the provisions of which were formulated as "basic principles to be observed for the rightful relationship between human beings and for the stability of the social order.00. designed to indicate certain norms that spring from the fountain of good conscience. It denied authorizing anyone to make a settlement of private respondent's claim and likewise denied any liability. since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost. In fact. Nemo ex alterius incommodo debet lecupletari (no man ought to be made rich out of another's injury) states: Art. to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent.23. 22. When private respondent demanded payment of P259. invoices and other supporting documents. as previously discussed. the appealed decision of the Court of Appeals in CA G. Besides." 3 As previously noted.417. the diligence and legal know-how exhibited by counsel for private respondent hardly justify an award of 25% of the principal amount due.000. the Court had to review the entire records of this case to evaluate the merits of the issues raised by the contending parties. Under these circumstances. opposed the arguments raised by petitioners.000. with respect to the award of attorney's fees to respondent. through counsel.since there was no mutual agreement between the parties. A recommendation was then made to settle private respondent's claim for P200. the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost.000. is in effect a 28 CIVIL LAW REVIEW 2 . acquires or comes into possession of something at the expense of the latter without just or legal ground. or any other means." 2 Hence. expects more diligence and legal know-how from lawyers than what has been exhibited by counsel for respondent in the present case. The Court. Ferrer. petitioners' arguments to support absence of liability for the cost of construction beyond the original contract price are not persuasive. Private respondent informed petitioners of the drastic increase in construction cost as early as March 1980. WHEREFORE.

HAWAIIAN PHILIPPINE CO. in which judgment was asked for P70.000 gallons of molasses.000. the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties. Song Fo. and the same to start after the completion of our grinding season. Messrs.000 gallons of molasses? The trial court found the former amount to be correct. The lower court erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its answer and crosscomplaint. Song Fo gave us to understand that you would pay us at the end of each month for molasses delivered to you. 1922. 1922 HAWAIIAN-PHILIPPINE COMPANY BY R. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35. In this court it has made the following assignment of errors: "I. Neg. 1. 1925 SONG FO & COMPANY. to Song Fo & Company on December 13. defendant-appellant.317. as per our new arrangements. gallons of molasses. (b) All handling charges and expenses at the central and at the dock at Mambaguid for our account. The case was submitted for decision on a stipulation of facts and the exhibits therein mentioned." The specified errors raise three questions which we will consider in the order suggested by the appellant. but it was not for he was Mr. DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. The lower court erred in finding that appellant had agreed to sell to the appellee 400. The contract of the parties is in writing. Regarding the payment for our molasses. we regret to hear that you mentioned Mr. He requested if possible to let you have molasses during January. The Hawaiian-Philippine Co. and costs. From the judgment of the Court of First Instance the defendant only has appealed. In an amended answer and crosscomplaint. who visited this Central. Occ. DEAR SIRS: Confirming our conversation we had today with your Mr. Exhibits F and G. Mr. Song Heng. With reference to the contents of your letter dated the 13th inst. (a) Price.000.000 gallons of molasses. It reads: SILAY. plaintiff-appellee. Iloilo. along with the 300.000 gallons of molasses or 300. (c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the round trip dock to central and central to dock. Iloilo.000 gallons during the next year the same to be taken by you before November 1st. OCC.G. Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co.50. It is found principally in the documents. while we are grinding. 1922. PITCAIRN Administrator.369. altho it interfere with the shipping of our own and planters sugars to Iloilo. HAWAIIAN-PHILIPPINE CO. the latter was compelled to cancel and rescind the said contract.. Yours very truly. Hoping that this is satisfactory and awaiting your answer regarding this matter. C. Yours very truly. 29 CIVIL LAW REVIEW 2 . we wish to state as follows: He agreed to the delivery of 300. P. We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. on December 16. with legal interest from the date of the presentation of the complaint.. altho we are somewhat handicapped. But we believe we can let you have 25. December 13.000 gallons during each of the milling months. Song Fo the one who visited your Central. Song Fo also asked if we could supply him with another 100. with legal interest. Silay. presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co. and not only 300. agreed to deliver to Song Fo & Company 300. and understood all their contents. II.000 gallons in all.. The lower court erred in finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the appellee. This service to be restricted to one trip for the six tanks. we confirm all the arrangements you have stated and in order to make the contract clear. III. In the court of First Instance of Iloilo. SONG FO AND CO.000 gallons of molasses at the same price as last year under the same condition. P.93. The First mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. In connection to yours of the 13th inst.I. Song Fo & Co. The appellant contends that the smaller amount was the basis of the agreement. Mr. No. 1922. The lower court erred in denying appellant's motion for a new trial.R. February and March or in other words. at 2 cents per gallon delivered at the central. 1923.000. IV. and we agreed with him that we would to the best of our ability. the representative and the manager of Messrs. Messrs. Song Fo & Company.. vs. 23769 September 16. NEGROS. and we stated we believe that this is possible and will do our best to let you have these extra 100. plaintiff. defendant. Did the defendant agree to sell to the plaintiff 400. and with costs. we hereby quote below our old contract as amended. we remain.I. SONG FO & COMPANY By __________________________ Manager. This letter reads: December 16th. making 400.

from Warner. Barnes & Co.. Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co.." In connection with the portion of the contract having reference to the payment for the molasses. to song Fo & Company of 300. Song Fo (Mr. Jan.994 gallons of molasses undelivered which the plaintiff had to purchase in the open market. the parties have agree on a table showing the date of delivery of the molasses. 3/23 do Do We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties. Under this hypothesis. is the allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant. at two centavos a gallon. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for nonperformance. a letter of March 28. (a) Price. it is simply that the defendant did not consider itself obliged to deliver to the plaintiff molasses in any amount.. cancelling the contract. as per our new arrangements. 5 206. a letter written by the manager of Song Fo & Company on October 17. Ltd. Not only this. would have had the right to rescind the contract because of the breach of Song Fo & Company. 29 206. the plaintiff had to pay the Central Victorias Milling company one and one-half centavos a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co.174.994 gallons minus the 100. 1923.16 Mar. As expressly conceded by the plaintiff at page 25 of its brief. this meant a loss to the plaintiff of approximately P2. Inc. Still less did it constitute an obligation. As conceded by the plaintiff. 1922. 5 Feb. 20/23 Apr. Barnes & Co. Three hundred thousand gallons of molasses was the total of the agreement. gave as the reason for the rescission. Barnes & Co. 16 206. 1923.006 gallons of molasses were delivered by the defendant to the plaintiff before the breach.16 do do Do Mar. expressly mentions an understanding between the parties of a contract for P300. payment was not made until February 20. 1923. Mr.The Hawaiian-Philippine Co. On the other hand. 26/22 Jan.. 31 3. but the Hawaiian-Philippine Co. and for which accounts were received by it on January 5. But actually. gave notice of the termination of the contract.16 Jan. you were to meet our accounts upon presentation and at each delivery. Exhibit M. of a contract imprudently breached by the Hawaiian-Philippine Co. 43 Phil. If Exhibit T relied upon by the trial court shows anything. Thereafter.. we find Song Fo & Company stating that they understand the contents of Exhibit F. 5 206.000 gallons was not a definite promise. is of a similar tenor. the plaintiff admits that it could have secured it and more from the Central Victorias Milling Company. as we have seen. to Song Fo & Company on April 2. a reasonable deduction is that Song Fo & Company was to pay the Hawaiian-Philippine Co. the date of receipt of account by plaintiff. The terms of payment fixed by the parties are controlling. As the conditions existing at the central of the Hawaiian-Philippine Co. Exhibit F speaks of payments "at the end of each month. and in order to make the contract clear." In Exhibit G. and that they confirm all the arrangements you have stated. So 244. mentions "payment on presentation of bills for each delivery. Translated into pesos and centavos.) Dec.000 gallons.16 Dec.000 gallons of molasses were secured from the Central North Negros Sugar Co.000 gallons just mentioned leaves as a result 144. In other words. We sustain appellant's point of view on the first question and rule that the contract between the parties provided for the delivery by the Hawaiian-Philippine Co. Song Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you. we note this sentence: "Regarding the payment for our molasses. 20 Dec. All the rest of the molasses was paid for either on time or ahead of time. the amount and date thereof.. Instead.16 Mar. not later than January 31 of that year. Inza [1922]. upon presentation of accounts at the end of each month.000 gallons of molasses. But the language used with reference to the additional 100. 2/23 Apr. Exhibit P. another letter from Warner. 505. 24 206. 12 206. 7 or 8 Mar. On the basis first. to Song Fo & Company.000 gallons of molasses. 1923. Song Fo & Company should have paid for the molasses delivered in December. 55. the agent of the The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to secure molasses from other sources.994 gallons. The general rule is that rescission will not be permitted for a slight or casual breach of the contract. we hereby quote below our old contract as amended. at three and one-half centavos per gallon.. As this is the same price specified in the contract between the plaintiff and the defendant.16 do do Do 1923 Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered. 12/23 do Do Feb. 19 Mar. Ltd. 1922." Exhibit G is silent on the point.000 gallons of molasses. agreeable to certain conditions which could easily be imagined. there is here present no outstanding fact which would legally sanction the rescission of the contract by the HawaiianPhilippine Co. This leaves 244. Turning to Exhibit F. 9/23 Mar. what is the measure of damages? We again turn to the facts as agreed upon by the parties. to Song Fo & Company dated April 2. the right to rescind the contract of sale made with Song Fo & Company? The trial judge answers No.16 do do Do Mar. 1923. 27 206. and date of payment. had in reality no excuse for writing its letter of April 2. We sustain the finding of the trial judge in this respect." Resolving such ambiguity as exists and having in mind ordinary business practice. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. 2.91. the Hawaiian-Philippine Co. the plaintiff accordingly suffered no material loss in having to make this purchase. The table mentioned is as follows: Date of delivery Account and date thereof Date of receipt of account by plaintiff Date of payment 1923 1923 1922 Hawaiian-Philippine Co." Not far removed from this statement. of a contract for 300. but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. Theoretically. The time of payment stipulated for in the contract should be treated as of the essence of the contract. 100. 1923. 31/23 do Do Mar. 29 206. at 2 cents per gallon delivered at the central. Had the Hawaiian-Philippine Co. and second. Feb. a communication sent direct by the Hawaiian-Philippine Co. 18 P206. the breach by Song Fo & Company of this condition: "You will recall that under the arrangements made for taking our molasses." Exhibit O. (Warner. also believed it possible to accommodate Song Fo & Company by supplying the latter company with an extra 100. by which the Hawaiian-Philippine Co.16 Mar. at the end of each month upon presentation accounts. As to this amount. vs.16 Jan. may have been different than those found at the Central North 30 CIVIL LAW REVIEW 2 . the appellant Yes. Exhibit A.

been called as a witness. it we may dignify it as such. whether loss of sales or loss of customers. As to what items up the more than P14. plus interest.R. And lastly. until payment.000. 2. in view of the foregoing considerations.00 despite Cortes' delivery of the Deed of Absolute Sale and the TCTs.00 partial down payment.000. which rescinded the contract of sale entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza Development Corporation (Corporation). HON. if the contract of December 13. As stated in the decision sought to be reconsidered.200.000.200. 31113-A. COURT OF APPEALS and VILLA ESPERANZA DEVELOPMENT CORPORATION. The motion was. rescission of the contract is proper.000 of alleged lost profits. 126083 July 12. Upon execution of this instrument. On January 14.6 Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. 2006 ANTONIO R. 1922. we have no means of knowing. however. According to the Corporation.000.200.4 Said Deed was retained by Cortes for notarization. In the second place. In its motion for reconsideration. [Cortes'] counsel at the pre-trial of this case. with legal interest form October 2. Appellant's assignments of error are accordingly found to be well taken in part and not well taken in part. the Corporation contended that the trial court failed to consider their agreement that it would pay the balance of the down payment when Cortes delivers the TCTs. attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents. shall be divided equally between the Vendor and the Vendee. CV No.000. Philippine Currency. respondents. the Corporation should have fully paid the amount of P2. Cortes).. this statement falls far short of presenting proof on which to make a finding as to damages. Payment of the capital gains shall be exclusively for the account of the Vendor. Sometime in September 1983. Cortes refused delivery of the sought documents. No.000. Song Heng.. [Cortes] would sign the Deed of Sale and turn over the certificate of title to the [Corporation]. 1996 Decision1 of the Court of Appeals in CA-G.7 31 CIVIL LAW REVIEW 2 . [The Corporation] did nothing to comply with its undertaking under the agreement between the parties. setting aside the June 24.00) PESOS. to cancel the sale and forfeit the P1.213. It stressed that such is the law between the parties because the Corporation failed to present evidence that there was another agreement that modified the terms of payment as stated in the contract. having failed to pay in full the amount of P2. In his Answer with counterclaim.000. proposed that if [the Corporation] completes the down payment agreed upon and make arrangement for the payment of the balances of the purchase price. Phil. The second cause of action relates to lost profits on account of the breach of the contract.700. It thus prayed for the award of damages. he in turn failed to fully pay the disturbance fee of the lessee who now refused to pay monthly rentals. Inc. Agreeable to the foregoing. 4. less all advances paid by the Vendee to the Vendor in connection with the sale. CORTES (in his capacity as Administrator of the estate of Claro S. the testimony which Mr.000 and on the second cause of action in no amount. he would have testified that the plaintiff would have realized a profit of P14.R. petitioner. SO ORDERED.00. payment of which shall be secured by an irrevocable standby letter of credit to be issued by any reputable local banking institution acceptable to the Vendor.00. the testimony of the witness Song Heng. the judgment appealed from shall be modified and the plaintiff shall have and recover from the defendant the sum of P3. despite its readiness and ability to pay the purchase price. entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND (P2. 1985. And. Branch 138. 1993 Decision2 of the Regional Trial Court of Makati.00. denied by the trial court holding that the rescission should stand because the Corporation did not act on the offer of Cortes' counsel to deliver the TCTs upon payment of the balance of the down payment.00] PESOS. the Motion for Reconsideration is hereby DENIED. Parañaque. and the fact that it is a part of the stipulation by counsel does not change this result. the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1. All expense for the registration of this document with the Register of Deeds concerned. we would concede under the first cause of action in round figures P3. with damages in either case. it would have been insufficient proof of the allegations of the complaint. Metro Manila. xxxx In the first place.00 upon the execution of the contract.43.000. the plaintiff may have been put to greater cost in making the purchase of the molasses in the open market. The antecedents show that for the purchase price of P3.000. is a mere conclusion. Without special finding as to costs in either instance. the Corporation filed the instant case5 for specific performance seeking to compel Cortes to deliver the TCTs and the original copy of the Deed of Absolute Sale. the Corporation as buyer. had been fulfilled by the defendant. 31913-A and TCT No.00.500. He thus prayed that the Corporation be ordered to pay the outstanding balance plus interest and in the alternative. and Cortes as seller. located at Baclaran. 1923. Song Heng taken the witness-stand and made the statement attributed to him. the manager of Song Fo & Company. vs. 1993. We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of action in the amount of P3. 5% commission of Marcosa Sanchez to be deducted upon signing of sale. WHEREFORE.000. Thus: The Court finds no merit in the [Corporation's] Motion for Reconsideration. 32013-A. However. 47856. due to the Corporation's failure to pay in full the sum of P2.Negros Sugar Co. the parties executed a deed of absolute sale containing the following terms:3 1. He added that portion of the subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. it is so ordered.000. G. and as not alone through the delay but through expenses of transportation and incidental expenses. On June 24. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1. Indisputably. and the Central Victorias Milling Company. On various dates in 1983. Currency shall be payable within ONE (1) YEAR from date of execution of this instrument.213.948. which we have found to be unsustainable. The instant petition for review seeks the reversal of the June 13. not a proven fact. had Mr. Song Heng would have given undoubtedly would follow the same line of thought as found in the decision of the trial court. The only evidence in the record on this question is the stipulation of counsel to the effect that had Mr. or what not. including the transfer tax. It ruled that pursuant to the contract of the parties.200.213. TCT No. the Corporation advanced to Cortes the total sum of P1.

SARTE Q When you said upon full payment. including the transfer tax.200.00 down payment. reads: [Q] Now. actions and deeds prior to. xxxx ATTY. during and immediately after executing the agreement. in case one of the obligors should not comply with what is incumbent upon him. [the Corporation's] appeal is GRANTED. 31931-A and 32013-A of the Registry of Deeds for the Province of Rizal. Metro Manila.000. The power to rescind obligations is implied in reciprocal ones. therefore.000. xxxx As to when said failure or delay in performance arise. The issue therefore is whether there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale.487.00. The decretal portion thereof. sir.11 Pertinent portion of the transcript.000.00. simultaneous with the Corporation's payment of the balance of the purchase price of P2. District IV. and which each party is a debtor and a creditor of the other. hence. why did you deliver these three titles to the plaintiff despite the fact that it has not been paid in full the agreed down payment? A Well. 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.10 In the case at bar. The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties. we must first determine the true agreement of the parties. 5% commission of Marcosa Sanchez to be deducted upon signing of sale. he performed what is incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the Deed of Absolute Sale. 1169 A Upon full payment. the phrase "execution of this instrument" 14 as appearing in the Deed of Absolute Sale.000.00. 1191.000.200. the transcript of stenographic notes reveal Cortes' admission that he agreed that the Corporation's full payment of the sum of P2. his main defense in the Answer is that.13 In reciprocal obligations. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. As such. you have it transferred in the name of the plaintiff. so that the performance of one is conditioned upon the simultaneous fulfillment of the other. It found that the parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation.9 Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2. provides: WHEREFORE. documentary and parol evidence may be submitted and admitted to prove such intention. [the Corporation] shall pay [Cortes] the balance of the purchase price of P2.000. Thus – ATTY. are you referring to the agreed down payment of P2. sir.000. under terms and conditions.000. (Emphasis supplied) By agreeing to transfer title upon full payment of P2. premises considered. but the latter refused to pay in full the down payment. states: Q Of course. The meaning of "execution" in the instant case is not limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the 32 CIVIL LAW REVIEW 2 . However. Cortes' impliedly agreed to deliver the TCTs to the Corporation in order to effect said transfer. As agreed upon in paragraph 4 of the Deed of Absolute Sale. Reciprocal obligations are those which arise from the same cause. "All expenses for the registration of this document (the deed of sale) with the Register of Deeds concerned.00 down payment upon execution of the contract. and which event would give rise to the Corporation's obligation to pay in full the amount of P2. The decision appealed from is hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of absolute sale. as correctly noted by the Court of Appeals. the broker told me that the down payment will be given if I surrender the titles. 31113-A. the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the P2. To resolve this issue. as shown not necessarily by the terminology used in the contract but by their conduct.12 What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will be transferred in the name of the Corporation upon full payment of the P2. delay by the other begins.200. The records show that no such delivery was made.200.On appeal.200. the title? ART.8 Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated.00? xxxx A Yes. such that the obligation of one is dependent upon the obligation of the other. Hence. words.00. Payment of the capital gains shall be exclusively for the account of the Vendor." There is no pronouncement as to costs.200. Exhibit D. In fact. can not be construed as referring solely to the signing of the deed. Article 1169 of the same Code provides that – ART. From the moment one of the parties fulfills his obligation. the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs.00 would depend upon his delivery of the TCTs of the three lots. Simultaneously with the execution of the deed of absolute sale and the delivery of the corresponding owner's duplicate copies of TCT Nos.00 provided you surrender or entrust to the plaintiff the titles? A Yes. They are to be performed simultaneously. shall be divided equally between [Cortes and the Corporation]. Exhibit D. ANTARAN Article 1191 of the Civil Code. SO ORDERED. the Corporation was not remiss in the performance of its obligation and therefore justified in not paying the balance.487.000.200.

Q On top of the printed name is Manny Sanchez. performance thereof must be simultaneous. Manny. Indeed.21 such that it is as if no one is guilty of delay. 1986 that he allegedly gave you the title to the property in question. if the said documents were already in the hands of the Corporation. Considering that their obligation was reciprocal. delivered the same to the Corporation. Marcosa Sanchez.e. Actually. Q How do you know that it was delivered to the plaintiff by the son of the broker? COURT A The broker told me that she delivered the title to the plaintiff. Cortes testified that he delivered the same to Manny Sanchez.200. Marcosa Sanchez's unrebutted testimony is that. xxxx Q May we know the full name of the real estate broker? A Marcosa Sanchez xxxx Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff? A That is what [s]he told me. ATTY. and that Manny told him that her mother. A I have not seen any receipt. Having established the true agreement of the parties. This mutual delay of the parties cancels out the effects of default. she did not receive the TCTs. to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs. i. what relation has this receipt with that receipt that you have mentioned? A That is the receipt of the real estate broker when she received the titles. both parties were in delay. but to set into motion the process that would facilitate the transfer of title of the lots. there was no need for Cortes' counsel to make such offer. there is a signature. sir. She gave them to the plaintiff.16 ATTY. you are not sure whether the title has been delivered to the plaintiff or not. x x x x. Cortes argued that with his counsel's 33 CIVIL LAW REVIEW 2 . while the Corporation is yet to pay in full the agreed down payment of P2. 1983. Q He likewise said that the title was delivered to your son. Q I am showing to you a receipt dated October 29. It is only upon the allegation of the broker? A Yes.19 What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject documents was the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the balance of the down payment.00. sir. ANTARAN Q Are you really sure that the title is in the hands of the plaintiff? xxxx Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff? Q The defendant.parties' agreement.18 However. A Yes. the Court must now determine whether Cortes delivered the TCTs and the original Deed to the Corporation. The mutual inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their part in their reciprocal obligation. the son of the broker. thus: A That is the son of the broker. Cortes' obligation is not only to affix his signature in the Deed.000. The Court of Appeals found that Cortes never surrendered said documents to the Corporation. therefore. sir. is it true? A I did not receive the title. Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs.22 We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed settlement at the pre-trial must be construed against the latter.20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs. She also denied knowledge of delivery thereof to her son. do you know about that? A I do not know anything about that. the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that was remiss in the performance of its obligation..15 With the transfer of titles as the corresponding reciprocal obligation of payment. Antonio Cortes testified during the hearing on March 11. ANTARAN Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff? Q Did she not show you any receipt that she delivered to [Mr. do you know who is that Manny Sanchez? Q So.] Dragon17 the title without any receipt? A Yes.

700. And since the Corporation did not question the Court of Appeal's decision and even prayed for its affirmance. is AFFIRMED. For another. petitioner. SO ORDERED. payable in 120 equal monthly installments at the rate of P16.00 down payment. respondents. Again.56 to complete the payment of four monthly installments covering the months of July. respectively. For one. CV No. September. L-33998-R entitled "Felipe C. it was agreed that the purchase price of these two lots would be at the uniform rate of P17. with Lots 4 and 12. 1970 in CA-G. among others. Plaintiff demanded upon defendant not only to pay the stipulated monthly installments in arrears. delay by the other begins. the subject matter of their previous agreement. promising at first that he would pay not only the installments in arrears but also make up-to-date his payment. the Corporation would have been placed in default if it chose not to pay in full the required down payment. but subsequently backed out of his promise and refused to sign any contract in noncompliance with what he had represented on several occasions. 1954. of said property. in a formal letter. In addition. defendant did not deem it wise nor proper to answer the same. the Corporation could not be faulted for not automatically heeding to the offer of Cortes.R. vs. the appellee maintains that the appellant was bound to pay monthly installments. 2 and 9. instead of complying with the demands. and the Resolution of the respondent court denying petitioner's motion for reconsideration. When the document Exhibit "A" was executed on June 25. disagree on the mode of payment. G.offer to surrender the original Deed and the TCTs.. its payment should rightfully consist not only of the amount of P987. No. Notwithstanding the receipt of said letter. 2 and 9. plaintiff-appellee. However. While the appellant claims that he could pay the purchase price at any time within a period of ten years with a gradual proportionate discount on the price. the petition is DENIED and the June 13. and the plaintiff referred to the proposed lots appearing in the tentative plan. Quezon City. Block 2 of the approved subdivision plan. 47856. Block 2 of the approved subdivision plan. P15. And plaintiff relied on the good faith of defendant to make good his promise because defendant is a professional and had been rather good to him (plaintiff). which are corner lots.00. and enclosed them. defendant paid to plaintiff the sum of P150.00.000. i. Q-4922 in favor of petitioner. under the new contract to sell. its complaint has a prayer for damages which it may not want to waive by agreeing to the offer of Cortes' counsel. 1980 FELIPE C.R. for Cortes to. defendant failed to make any further payment on account of the agreed monthly installments for the two lots in dispute. the remaining balance in the P3. On or about November 3. Defendant was likewise requested by the plaintiff to sign the corresponding contract to sell in accordance with his previous commitment. deliver the necessary documents to the Corporation and for the latter to pay in full. Moreover.e. L-32811 March 31. 1970 which affirmed the decision of the Court of First Instance of Rizal (Quezon City Branch) in Civil Case No. In reference to the mode of payment. the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. with interest at 8% annually on the balance unpaid. including the portion where his house now stands. 1954. situated in Balintawak. On this point. being corner lots. not only the down payment. 1996 Decision of the Court of Appeals in CAG. defendant promised that he would sign the required contract to sell when he shall have made up-to-date the stipulated monthly installments on the lots in question. 1955.00 and the amount of P740. WHEREFORE. Since Cortes did not perform his part. and October.200 square meters. with an aggregate area of 1.00. prior to the approval by the National Planning Commission of the consolidation and subdivision plan of plaintiff's property known as the Rockville Subdivision. In accordance with said agreement.200. but defendant.00 per square meter. defendant requested plaintiff that he be allowed to abandon and substitute Lots 1. but later on refused altogether to comply with plaintiff's demands. 1957.56 which were paid under their previous agreement. versus Nicanor Lapuz. (Exh.00 purchase price. The facts of this case are as recited in the decision of the Trial Court which was adopted and affirmed by the Court of Appeals: Sometime in 1964. kept on asking for extensions.R. No. "B").487. plaintiff demanded upon defendant to vacate the lots in question and to pay the reasonable rentals thereon at the rate of P60. representing the balance of the P2. Block 1. NICANOR LAPUZ and THE COURT OF APPEALS. the Honorable Court of Appeals found — Both parties are agreed that the period within which to pay the lots in question is ten years. the Corporation should have consigned the balance of the down payment. The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of sale. 1955. of the Rockville Subdivision. defendant occupied and possessed Lots 4 and 12. After the approval of the subdivision plan by the Bureau of Lands on January 24. and besides the two lots he had chosen were better lots. They however. to which request plaintiff graciously acceded. with barbed wires and adobe walls. The evidence discloses that defendant proposed to plaintiff modification of their previous contract to sell because he found it quite difficult to pay the monthly installments on the three lots. from the moment one of the parties fulfills his obligation. is enough reason for the Corporation to be more cautious in dealing with him. (Exhs. the previous representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in fact made. August. but the entire purchase price. Roque. plaintiff and defendant entered into an agreement of sale covering Lots 1. defendantappellant" amending its original decision of April 23. With such delivery. Pursuant to this new agreement.00 per square (meter) payable in 120 equal monthly installments. but the total amount of P2. but also to make up-todate his payments. Appeal by certiorari from the Resolution of the respondent court 1 dated October 12. with a total area of 725 square meters.000. the plan covering plaintiff's property was merely tentative. aside from the deposit of P150. A and B).00 per month from August. Under Article 1169 of the Civil Code. the trial court correctly held that — 34 CIVIL LAW REVIEW 2 .00 as deposit and the further sum of P740.000. This argument would have been correct if Cortes actually surrendered the Deed and the TCTs to the Corporation. ROQUE.000.

payable at any time within ten years. meters and previously known as Lots 1. Defendant admits having occupied the lots in question. that no demand for payment of the balance was ever made. documentary or circumstantial. and (c) Condemning defendant to pay plaintiff the sum of P2. affirmed the same. and to pay the sum of P2. finding the judgment appealed from being in accordance with law and evidence. as would render improbable the fixing of ten ears as the period within which payment of the stipulated price was to be payable by appellant. Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof. at the same time. that there was modification of the original agreement when defendant actually occupied Lots Nos. not to mention the other evidences on records is indicative that the real intention of the parties is for the payment of the purchase price of the lot in question on an equal monthly installment basis for a period of ten years (Exhibits "A". Furthermore. 1960. that due to the filing of the present action. It is highly improbable to expect plaintiff. defendant filed his Answer alleging that he bought three lots from the plaintiff containing an aggregate area of 1. plausible and credible.00.000. Third — Appellee has no right.000. that the present action for rescission has prescribed.00. Fourth — Assuming that any action for rescission is availability to appellee. the appellate court. 2 and 9. and that the action being based on reciprocal obligations. under the circumstances on the case at bar. as well as the costs of the suit. 1955 until he shall have actually vacated premises. 2 and 9 of Block 1 of Rockville Subdivision at P16. defendant alleges that because of the acts of the plaintiff. contrary to the findings of the decision herein.00 and P15. he must first comply what is incumbent upon him. or any real estate subdivision owner for that matter. and (c) Condemning defendant to pay plaintiff the sum of P2. to agree to a sale of his land which would be payable anytime in ten years at the exclusive option of the purchaser. 118) (a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and 12. As counterclaim. the context of the document. the dispositive portion of which reads: WHEREFORE.It is further argued by defendant that under the agreement to sell in question. defendant appealed to the Court of Appeals. costs of the suit and award such other relief or remedy as may be deemed just and equitable in the premises. to a graduated reduction of the price. as would justify an assumption that he would have agreed to extend to defendant such an extra. Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of action. and that the present action was filed within five years from the time the right of action accrued. a relative. "J" and "K"). P15. (Record on Appeal. found and held that the real intention of the parties is for the payment of the purchase price of the lots in question on an equal monthly installment basis for the period of ten years. to demand and be entitled to the rescission of the contract had with appellant.200 sq. p. as well as the costs of the suit. (b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the reasonable rental thereof at the rate of P60. 35 CIVIL LAW REVIEW 2 . The Court is constrained to reject this version not only because it is contradicted by the weight of evidence but also because it is not consistent with what is reasonable. which motion was denied by the court.00 per month from August. 1. the trial court rendered judgment. he being entitled. the Court renders judgment in favor of plain.00 and incurred expenses for attorney's fees in the sum of P5. as follows: (a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and 12.00 a month from August 1955 until such time as he shall have vacated the premises. after holding that the findings of fact of the trial court are fully supported by the evidence.00 as attorney's fees. before one party may compel performance.000.00 as attorney's fees. he has the right or option to pay the purchase price at anytime within a period of ten years from 1954. resolved and cancelled. respectively. that the present action has not prescribed since Article 1191 of the New Civil Code authorizing rescission in reciprocal obligations upon noncompliance by one of the obligors is the applicable provision in relation to Article 1149 of the New Civil Code. 118) Not satisfied with the decision of the trial court. petitioner Felipe C. 4 and 12 of Block 2 which were corner lots that commanded a better price instead of the original Lots Nos. As affirmative and special defenses. meters and as a consequence. resolved and cancelled.00. Defendant filed a Motion for Reconsideration of the appellate court's decision on the following grounds: First — Neither the pleadings nor the evidence.00. he suffered moral damages in the amount of P200. for rescission and cancellation of the agreement of sale between them involving the two lots in question and prayed that judgment be rendered ordering the rescission and cancellation of the agreement of sale.ordinary concession. Thereafter. Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded. 1955 until he shall have actually vacated the premises.000. (b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the reasonable rental thereof at the rate of P60. There is no showing that defendant is a friend. The latter court. he lost two lots containing an area of 800 sq. Quezon City Branch. the same. In its decision. he suffered moral damages amounting to P100. After due hearing. that appellant's bare assertion that the agreement is not rescindable because the appellee did not comply with his obligation to put up the requisite facilities in the subdivision was insufficient to overcome the presumption that the law has been obeyed by the appellee.00 per month from August. has prescribed. Roque (plaintiff below) filed the complaint against defendant Nicanor Lapuz (private respondent herein) with the Court of First Instance of Rizal.00 as attorney's fees. justify the conclusion as to the existence of an alleged subsequent agreement novatory of the original contract admittedly entered into between the parties: Second — There is nothing so unusual or extraordinary. plaintiff and against the defendant. or someone to whom plaintiff had to be grateful.000.000. Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded. (Record on Appeal. "II". On January 22. the defendant to vacate the two parcels of land and remove his house therefrom and to pay to the plaintiff the reasonable rental thereof at the rate of P60. testimonial. p. defendant alleges that the complaint states no cause of action. Exhibit "B". Block I of the Rockville Subdivision.

holding that to oust the defendant from the lots without giving him a chance to recover what his father and he himself had spent may amount to a virtual forfeiture of valuable rights. to a fixing of a new period. 1920). Dejarme and Alvero. Petitioner Roque. 1955 until fully paid.46. or a total of P890. be synthesized into one issue and that is. paragraph 3 of the New Civil Code applies to the case at Bar as held by the appellate court and supported by the private respondent. provides: Art.44 interest due on the purchase price of P12. by reason of a just cause. 1191.00. in granting respondent Lapuz a period of ninety (90) days from entry of judgment within which to pay the balance of the purchase price. Petitioner assails the decision of the Court of Appeals for the following alleged errors: I. IV. V. paragraph 3 of the Civil Code aforesaid because he did not raise in his answer or in any of the pleadings he filed in the trial court the question of whether or not he is entitled. it is well that We lay clown the oda provisions and pertinent rulings of the Supreme Court bearing on the crucial issue of whether Art.44 with interest thereon at the rate of 8% 1et annum from August 17. 1191.G.325. still the Honorable Court of Appeals erred in not holding that aforesaid respondent is not entitled to a new period within which to pay petitioner the balance of P11. Article 1592 of the New Civil Code which specifically covers sales of immovable property and which constitute an exception to the third paragraph of Art. 1191 of aid Code. concedes that plaintiff's failure to comply with his obligation to put up the necessary facilities in the subdivision will not deter him from asking f• r the rescission of the agreement since this obligation is not correlative with defendant's obligation to buy the property. our original judgment stands. and thus being the case. the Court of Appeals sustained the sixth ground raised by the appellant. New Civil Code. II. 47 O. that after appellant had testified that plaintiff failed to comply with his part of the contract to put up the requisite facilities in the subdivision. that assuming that a cause of action for rescission exists." Cited as authorities are the cases of Kapisanan Banahaw vs. however. is applicable to the present case. (Rollo. 87-88) Acting on the Motion for Reconsideration. 1970 which affirmed the decision of the trial court. "as a matter of justice and equity. which specifically covers sales of immovable property and which constitutes an exception to the third paragraph of Article 1191 of said Code. III. Article 1191 of the Civil Code which refers to reciprocal obligations in general and. the Honorable Court of Appeals nonetheless erred in not declaring that aid respondent has not shown the existence of a just cause which would authorize said Court to fix a new period within which to pay the balance aforesaid. 1970 is hereby amended in the sense that the defendant Nicanor Lapuz is hereby granted a period of ninety (90) days from entry hereof within which to pay the balance of the purchase price in the amount of P11. he should nevertheless be entitled to the fixing of a period within which to comply with his obligation. 1955 and he taxing of attorney's fees against appellant are not warranted b the circumstances at bar. and the case of Puerto vs. Assuming arguendo that paragraph 3. Sixth — Assuming furthermore that a cause of action for rescission exists. the defendant should be granted a period within which to fulfill his obligations under the agreement. Article 1191.434.000. The Honorable Court of Appeals erred in reconsidering its original decision promulgated on April 23. pursuant thereto. or Art. the affirmance of the judgment for the payment of rentals on the premises from August. Go Ye Pin. In the event that the defendant fails to comply with his obligation as above stated within the period fixed herein. upon the presumption that the law has been obeyed. In resolving petitioner's assignment of errors.434. whether private respondent is entitled to the Benefits of the third paragraph of Article 1191. 344. The respondent Court of Appeals rationalizes its amending decision by considering that the house presently erected on the land subject of the contract is worth P45. Article 1191. 1592 of the same Code which petitioner strongly argues in view of the peculiar facts and circumstances attending this case.434. and Seventh — At all events. The power to rescind obligations is implied in reciprocal ones. The Honorable Court of Appeals erred in applying paragraph 3. the Court of Appeals denied it. filed a Motion for Reconsideration. petitioner maintains that respondent is not entitled to the Benefits of paragraph 3. plaintiff did not introduce any evidence to rebut defendant's testimony but simply relied. appellant should nevertheless be entitled to tile fixing of a period within which to comply with his obligation. which improvements introduced by defendant on the lots subject of the contract are very substantial.Fifth — Assumming further that appellee's action for rescission.00. Article 1191 of the Civil Code is applicable and may be availed of by respondent. is the applicable law to the case at bar. 51 O.325. if any.00 of the lots. where it is held that the discretionary power of the court to allow a period within which a person in default may be permitted to perform the stipulation upon which the claim for resolution of the contract is based should be exercised without hesitation in a case where a virtual forfeiture of valuable rights is sought to be enforced as an act of mere reprisal for a refusal of the debtor to submit to a usurious charge. amended its original decision in the following wise and manner: WHEREFORE. The above errors may. 55 Phil. and that is to pay the balance of P11. our decision dated April 23. has not yet prescribed. considering that the removal of defendant's house would amount to a virtual forfeiture of the value of the house. As further reasons for allowing a period within which defendant could fulfill his obligation. The Court of Appeals. the respondent court held that there exists good reasons therefor.46. Blas. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot avail of the provisions of Article 1191. The Honorable Court of Appeals erred in not holding that Article 1592 of the same Code.44 with interest thereon at the rate of 8% per annum from August 17.G. VI. for the fixing of period within which he should comply with what is incumbent upon him. the total price of the two lots agreed upon being P12. He now comes and appeals to this Court on a writ of certiorari. therefore. For his part. Assuming arguendo that the agreement entered into by and between petitioner and respondent Lapuz was a mere promise to sell or contract to sell. the same is at least barred by laches. 1955 until fully paid since private respondent had paid only P150. in case one at the obligors should not comply with hat is incumbent upon him 36 CIVIL LAW REVIEW 2 . however. having in mind that which affords greater reciprocity of rights (Ramos vs. as plaintiff-appellee below. 338. New Civil Code. 264. under which title to the lots in question did not pass from petitioner to respondent. NCC and that instead. thus said presumption had been successfully rebutted as Exhibit "5-D" shows that the road therein shown is not paved The Court. pp.00 as deposit and 4 months intallments amounting to P740.

3. where title remains with the vendor until fulfillment to a positive condition. 37 CIVIL LAW REVIEW 2 . refuse conveyance and retain the sums or installments already received. 1972. The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment. willfully and in bad faith failed since March. to enforce the terms of the contract to sell and to declare the same terminated and cancelled.. Reyes said: Under the circumstances. Derecho Civil. Teoria de Obligaciones. January 31. even after the expiration of the period.. the failure of which is not a breach." Continuing.000. if the latter should become impossible. even after he has chosen fulfillment. In its suit.B. G. — monthly rentals from the lessee Luzon Brokerage Co. unless there be just cause authorizing the fixing of a period. "dolo" being succinctly defined as a "conscious and intention design to evade the normal fulfillment of existing obligations" (Capistrano. that: In contracts to sell. The decision also stressed that "there can be no rescission or resolution of an obligation as yet nonexistent. No. its obligation to sell to Maritime never arose or never became effective and. Vol. the full payment of the price through the punctual performance of the monthly payments is a condition precedent to the execution of the final sale 4nd to the transfer of the property from the owner to the proposed buyer. where such rights are expressly provided for. it (Myers) was entitled to repossess the property object of the contract. 86 SCRA 309. and Myers Building Co. Reyes. In the Resolution denying the first Motion for Reconsideration. ante page 5). 1. 109 Phil. possession being a mere incident to its right of ownership. vs. Rodriguez. 1190). as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. reiterated the rule that in a contract to sell. Myers was not rescinding (or more properly." (Manuel vs. He may also seek rescission. thus: (a) The contract between the parties was a contract to sell or conditional sale with title expressly reserved in the vendor Myers Building Co. When the vendee. which is not the case. where non-payment is a resolutory condition. Maritime Building Co. 7th Ed. so that there will be no actual sale until and unless full payment is made. The controlling and latest jurisprudence is established and settled in the celebrated case of Luzon Brokerage Co. Article 1592 also provides: Art. Inc. and therefore incompatible with good faith (Castan. which is to pay the installments as they fell due. In the sale of immovable property. merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d]. L-25885.L. Rodriguez. in accordance with articles 1385 and 1388 and the Mortgage Law. 1504 of Old Civil Code) requiring demand by suit or notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell or promise to sell. the court may not grant him a new term. — monthly installments notwithstanding that it was punctually collecting P10.B. an attitude repugnant to the stability and obligatory force of contracts. the Supreme Court declared: . such payment. but precisely enforcing the Provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specific condition precedent. it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding i force in accordance with Article 1117 of the Old Civil Code. appellant Maritime.. neither was it seeking a declaration that its obligation to sell was extinguished. but one in which the vendor retained ownership of the immovable object of the sale. even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place. 86 SCRA 305. In suing to recover possession of the building from Maritime appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante as contemplated by Article 1592. Myers was entitled. Vol... 46 SCRA 381. 1978..The injured partner may choose between the fulfillment and the rescission of the obligation. to extrajudicially terminate the operation of the contract.L.. as distinguished from mere negligence (culpa). The court shall decree the rescission claimed. 1592. as it did in law and fact. p. Civil Code of the Philippines. Inc. casual or serious. page 38). which once more denied Maritimes Second Motion for Reconsideration of October 7. What is sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled.. 1978. Article 1592 of the New Civil Code (Art. 1. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Maritime. therefore. In the original decision. as in the case at bar. with the payment of damages in either case. the Supreme Court speaking thru Justice J. 9) Maritime's Second Motion for Reconsideration was denied in the Resolution of the Court dated November 16. because the suspensive condition did not happen. 1972. 46 SCRA 381 and emphatically repeated in the Resolution on Second Motion for Reconsideration promulgated November 16. such as full payment of the price.000. originally decided in 1972. appellant overlooks that its contract with appellee Myers s not the ordinary sale envisaged by Article 1592. The decision reiterated the rule pointed out by the Supreme Court in Manuel vs. The Court further ruled that in seeking to oust Maritime for failure to pay the price as agreed upon.R. the vendee may pay. 10. This is understood to be without prejudice to the rights of third persons who have acquired the thing. 43 SCRA 93. expressed or implied (Art. where the governing law and precedents were briefly summarized in the strong and emphatic language of Justice Teehankee. as we said is a positive suspensive condition. page 129. resolving) the contract but precisely enforcing it according to its expressed terms. transferring ownership simultaneously with the delivery of the real property sold. Myers until the suspensive condition of full and punctual payment of the full price shall have been met on pain of automatic cancellation of the contract upon failure to pay any of the monthly installments when due and retention of the sums theretofore paid as rentals. the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo). Diaz Pairo. 109 Phil. reiterated in the Resolution on Motion to Reconsider dated August 18. 1961 to pay the P5. page 116). the Court again speaking thru Justice J. After the demand. Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of). Thus the lower court committed no error in refusing to extend the periods for payment. 3. such restoration being the logical consequence of the fulfillment of a resolutory condition. Vol. Maritime having acted in bad faith. where ownership is retained by the seller and is not to pass until the fun payment of the price. Inc. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale. 1972.

which are corner lots.. subject to the provisions of the law governing the form of contract. Hence. his insistence that he had the option to pay the purchase price any time in ten years inspire of the clearness and certainty of his agreement with the petitioner as evidenced further by the receipt.C. We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force . 635: Worcestor vs. 28 Phil. This is the ruling in Caridad Estates vs. 34 Phil. We must say that the standard printed contracts for the sale of the lots in the Rockville Subdivision on a monthly installment basis showing the terms and conditions thereof are immaterial to the case at bar since they have not been signed by either of the parties to this case. Art. he is not entitled to the new period of 90 days from entry of judgment within which to pay petitioner the balance of P11. (Manuel vs. casual or serious. 646). (c) As stressed in the Court's decision. 3. To allow and grant respondent an additional period for him to pay the balance of the purchase price.. "A" and the payment of the 4. Feb. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. 354. The first and second assignments of errors are without merit. N.(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to self or conditional sales and no error was committed by the trial court in refusing to extend the periods for payment. 120. or 120 equal monthly installments. 1. 15) And he concludes that the sale was consummated by the delivery of the two lots. 1954.. are all unreasonable and unjustified which altogether manifest clear bad faith and malice on the part of respondent puzzle making inapplicable and unwarranted the benefits of paragraph 3. 38 CIVIL LAW REVIEW 2 . Exh. Capitol Subdivision. et al. Miranda vs.00 as deposit under Exh. which takes the case out of the application of the benefits of pa paragraph 3. respondent's failure to pay the succeeding 116 monthly installments after paying only 4 monthly installments is a substantial and material breach on his part. 1954. 1955. Raymundo. 13 Phil. there is no writing or document evidencing the agreement originally entered into between petitioner and private respondent except the receipt showing the initial deposit of P150. Rodriguez. 1960. pursuant to Section 50 of Act 496.44 with interest due on the purchase price of P12. ownership likewise was transferred to the latter. "A" and P740. and his failure to deposit or make available any amount since the execution of Exh "B" on June 28." shown in Exh. Respondent a paid P150. security and obligatory force of contracts. it appears that the two lots subject of the agreement between the parties herein were delivered by the petitioner to the private respondent who took possession thereof and occupied the same and thereafter built his house thereon. all reiterated in Manuel vs. But the property being registered under the Land Registration Act. the failure of which is not a breach.00 as At any rate. (e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code could be deemed applicable. Under the first and second assignments of error which petitioner jointly discusses.56 for the 4-months installments corresponding to the months of July to October. 1950. (d) It should be noted. et al. would be tantamount to excusing his bad faith and sanctioning the deliberate infringement of a contractual obligation that is repugnant and contrary to the stability. 109 Phil. which balance is about 92% of the agreed price. Upon the law and jurisprudence hereinabove cited and considering the nature of the transaction or agreement between petitioner and respondent which We affirm and sustain to be a contract to sell. Santero. Aldea vs. Maritime cases has laid down the rule that Article 1592 of the New Civil Code does not apply to a contract to sell where title remains with the vendor until full payment of the price as in the case at bar. 1954 to October. Jocon vs. the following resolutions of petitioner's assignment of errors necessarily arise. but only a transfer after full payment of the price. Which yields the conclusion that. the fact that respondent failed to comply with the suspensive condition which is the full payment of the price through the punctual performance of the monthly payments rendered petitioner's Petitioner contends that "(n)othing in the decision of the courts below would show that ownership of the property remained with plaintiff for so long as the installments have not been fully paid. 1954 up to the present or a period of 26 years. 1954 in the sum of P740. respondent began to default in complying with his obligation and continued to do so for the remaining 116 monthly interest. enclosing the lots with adobe stone walls and barbed wires. and (f) Assumming further that Article 1191 of the new Civil Code governing rescission of reciprocal obligations could be applied (although Article 1592 of the same Code is controlling since it deals specifically with sales of real property). Under the findings of facts by the appellate court. his dilatory tactic of refusing to sign the necessary contract of sale on the pretext that he will sign later when he shall have updated his monthly payments in arrears but which he never attempted to update. "it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious" for as pointed out in Manuel vs. said article provides that '(T)he court shall decree the rescission claimed. 'after the demand. elects to rescind or cancel his obligation to deliver the ownership of the two lots in question for failure of the respondent to pay in fun the purchase price on the basis of 120 monthly equal installments. such payment being a positive suspensive condition and failure of which is not a breach. 1191. 1601. Tuazon vs.. 1191. Rodriguez. L-13435. the subject thereof. Inquimboy 86 Phil. . the parties may reciprocally demand performance. In the case at bar. Neither is there any writing or document evidencing the modified agreement when the 3 lots were changed to Lots 4 and 12 with a reduced area of 725 sq. 28. The judgment of the lower court and the Court of Appeals held that respondent was under the obligation to pay the purchase price of the lots m question on an equal monthly installment basis for a period of ten years. From that moment. the court may not grant him a new term for payment. Lichauco. such payment..325. Rodriguez. casual or serious. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art.434. is a positive suspensive condition. 1191 of the New Civil Code is the applicable provision where the obligee. however. p. L-6573. Myers' answer to the complaint for interpleaded in the court below constituted a judicial demand for rescission of the contract and by the very provision of the cited codal article. Caridad Estates. "B". by the delivery of the lots to defendant. Moreover. Buzon vs. as we said. promptly and punctually for a period of 10 years.. Art. Inc. 1191. L2121 Oct. 71 Phil. July 27.56 as shown in Exh. Ocampo. 2. '(I)n contracts to self. like petitioner herein. We agree with the respondent Court of Appeals that Art. he argues that the agreement entered into between him and the respondent is a perfected contract of purchase and sale within the meaning of Article 1475 of the New Civil Code which provides that "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. unless there be just cause authorizing the fixing of a period' and there exists to "just cause" as shown above for the fixing of a further period. it is the act of registration of the Deed of Sale which could legally effect the transfer of title of ownership to the transferee. and so We hold that: 1. The overwhelming weight of authority culminating in the Luzon Brokerage vs. 1. Parenthetically. This absence of a formal deed of conveyance is a very strong indication that the parties did not intend immediate transfer of ownership and title. meters.. whether ownership is retained by the seller and is not to pass until the full payment of the price.C. L-2077 and Aspuria vs. Caridad Estates. "B". Beginning November. NCC Having been in default. His refusal to pay further installments on the purchase price. 109 Phil.C. that Maritimes breach was far from casual but a most serious breach of contract . by him to the respondent.C.00 for the two lots." (Brief for the Petitioner.. N.months installment made by respondent corresponding to July. not merely casual.

To grant the period to the respondent because of the substantial value of his house is to make the land an accessory to the house. With malice and deliberate intent.691. 1970 by the Court of Appeals. vs.. Yulo. and the Court sustained the revocation and ordered the vendee ousted from the possession of the land. Ltd.s favor under the amended decision of the respondent court. 1956 (Answer of Defendant. pp. adequate drainage facilities. It is only right that We strive and search for the application of the law whereby every person must.M. the vendee paid. (2) in Legarda Hermanos vs. after default. 1y54. fair and reciprocal with the petitioner. 19. On the other hand there are also cases where rescission was not granted and no new or additional period was authorized.00 and that he has not paid the real estate taxes assessed by the government on his house erected on the property under litigation. that respondent has not protested to the petitioner nor to the authorities concerned the alleged failure of petitioner to put up and provide such facilities in the subdivision because he knew too well that he has paid only the aggregate sum of P890. Arcache. July 27. 4. Inc. 46 SCRA 381). that such failure continued and persisted the next month and every month thereafter in 1955. following the Roman maxim "omne quod solo inadeficatur solo cedit" (Everything that is built on the soil yields to the soil). We affirm the same to be fair and reasonable.. Tuazon de Paterno. the total price of the land was P457. the buyer initially paid P100.. Saldaña. in Caridad Estates vs. in fact offered the same to the vendor. the former is entitled to a certificate of title to one lot in case of default. 39 CIVIL LAW REVIEW 2 . equity and justice may not be invoked and applied. The right of rescission would then depend upon an extraneous consideration which the law does not contemplate. Thus.00 or about 25% of the purchase price of P30. give everyone his due. Inc. 114.56 which represents more or less 7% of the agreed price of P12. the price of the land. 29. granted in the form of rental at the rate of P60. Javier. Inc. Record on Appeal. act with justice. 1955 until respondent shall have actually vacated the premises. more than twice the period of ten years that he obliged himself to complete payment of the price. tree plantings. therefore.00. G. Since this is so conceded. possession being a mere incident to his right of ownership (Luzon Brokerage Co. 1967. 35-36) which was two years after the agreement in question was entered into June. vs. This is unjust and unconscionable since it is a rule in Our Law that buildings and constructions are regarded as mere accessories to the land which is the principal.. meters at the uniform price of P17. petitioner would have assumed the additional obligation "to provide the subdivision with streets . 1954. Santero.325.00 per sq.1959).325. One final point. L-2886.000.00 and placed adobe stone walls with barbed wires around.00 for the three lots involved and when the vendor demanded revocation upon the vendee's default two years after. 1959.08 including interests on the principal obligation of only P3. or even offering to add a single centavo to the sum he had originally paid in 1954 which represents a mere 7% of the total price agreed upon. the vendee offered to pay the arears in check which the vendor refused. from a subdivision owner two lots and has paid more than the value of one lot. Neither has respondent made any allegation in his Answer and in all his pleadings before the court up to the promulgation of the Resolution dated October 12. petitioner was entitled to repossess the property object of the contract.R.00 per month from August. strategem or scheme. and observe honesty and good faith (Art. 71 Phil.404. the vendee was willing to pay all arrears. 1957 and year after year to the end of the ten-year period in 1964 (10 years is respondent's contention) and even to this time. Tuazon Co. now more than twice as long a time as the original period without respondent adding. August 22.20. The scales of justice are already tipped in respondent. Maritime Building Co. respondent's house. provide said streets with street pavements concrete curbs and gutters.000. the court granted an additional period of 60 days -from receipt of judgment for the vendee to make all installment in arrears plus interest. it is highly doubtful if not improbable that aside from his obligation to deliver title and transfer ownership to the respondent as a reciprocal obligation to that of the respondent in paying the price in full and promptly as the installments fall due. As matters stand. adequate water facilities" as required under Ordinance No. Under this design. Pursuant to Art. the Court ruled that where one purchase. The doctrinal rulings that "a slight or casual breach of contract is not a ground for rescission. Inc. 1956. the vendee can cleverly and easily "improve out" the vendor of his land. a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement"( Biando vs. The fact remains. 33 SCRA 1). It is quite clear that it is already too late in the day for respondent to claim an additional period within which to comply with his obligation. however. which can hardly be said of the private respondent. on the supposed substantial improvements erected on the land. 2969 of Quezon City approved on May 11. the Court ordered rescission in view of the substantial breach and granted no extension to the vendee to comply with his obligation. in the exercise of his rights and in the performance of his duties. in the latter's original decision.. meter making a total price of P12. fillings as required by regulations. L-22558. 3. hence the Court could not proceed to do so unless the Answer is first amended. Philippine Sugar Estates Development Co. Court of Appeals. petitioner is entitled to rescission with payment of damages which the trial court and the appellate court. vs. May 31. delay or default was committed as early as in the payment of the fifth monthly installment for November. The Judgment of the appellate court concedes that petitioner's failure to comply with his obligation to put up the necessary facilities in the subdivision will not deter him from asking for the rescission of the agreement since his obligation is not correlative with respondent's obligation to buy the property.00 or about 25% of the agreed price. 335). In Ayala y Cia vs. 1962. he has twisted the clear import of his agreement with the petitioner in order to suit his ends and delay the fulfillment of his obligation to pay the land he had enjoyed for the last 26 years. We further rule that there exists no just cause authorizing the fixing of a new period within which private respondent may pay the balance of the purchase price. totalling P7. New Civil Code. respondent has not been honest. at the rate the two lots were sold to respondent with a combined area of 725 sq. We cannot sanction this claim for equity of the respondent for to grant the same would place the vendor at the mercy of the vendee who can easily construct substantial improvements on the land but beyond the capacity of the vendor to reimburse in case he elects to rescind the contract by reason of the vendee's default or deliberate refusal to pay or continue paying the purchase price of the land. 98 Phil. that "where time is not of the essence of t agreement. respondent has been enjoying the possession and occupancy of the land without paying the other 116 monthly installments as they fall due. (Gregorio Araneta. 31 SCRA 829 where the vendee religiously satisfied the monthly installments for eight years and paid a total of P4. et al. convince and persuade Us that in the case at bar where the breach. One who seeks equity and justice must come to court with clean hands..00 payable in installments. 1191. do not warrant the fixing of an additional period. to the effect that he was entitled to a new period within which to comply with his obligation. 55 SCRA 324. then the right of the petitioner to rescind the agreement upon the happening or in the event that respondent fails or defaults in any of the monthly installments would be rendered nugatory and ineffective. Villanueva vs. We also sustain the right of the petitioner to the possession of the land. No. that he has built his house on the property worth P45. respondent has not acted in good faith. vs.590. The equitable grounds or considerations which are the basis of the respondent court in the fixing of an additional period because respondent had constructed valuable improvements on the land. Embestro L-11919. L-12985.00 as attorney's fees. hence it would not be fair and reasonable to the petitioner to apply a solution that affords greater reciprocity of rights which the appealed decision tried to effect between the parties.000. It must be so substantial and fundamental to defeat the object of the parties" (Gregorio Araneta Inc.134. Dec. 20 SCRA 330. Respondent's contention that petitioner has not complied with his obligation to put up the necessary facilities in the Rockville Subdivision is not sufficient nor does it constitute good reason to justify the grant of an additional period of 90 days from entry of judgment within which respondent may pay the balance of the purchase price agreed upon. New Civil Code) In the case at bar. cases cited in Notes appended to Universal Foods Corporation vs..000. Besides. plus P2. More than that. Precedents there are in Philippine jurisprudence where the Supreme Court granted the buyer of real property additional period within which to complete payment of the purchase price on grounds of equity and justice as in (1) J. ordering thereby respondent to vacate the same and remove his house therefrom.obligation to sell ineffective and. 273..

2 square meters. On motion of the plaintiff (Concepcion). the court rendered judgment in favor of the plaintiff and against the defendants. within the period of ONE HUNDRED TWENTY (120) DAYS.100. The defendants are further judged to pay the plaintiff the amount of ONE HUNDRED FIFTY PESOS (P150. No. 1996. The vendee obliged herself to pay the said amount. cumpla con los terminos del documento (Exh. petitioners. 256 metros cuadrados con 20 centimetros‖ del Lote No. the latter did not remit the balance of the purchase price of the property to Concepcion. in Civil Case No.00 to be paid upon the delivery of the corresponding Certificate of Title in the name of the VENDEE. vs. Nieves filed a motion in Civil Case No. by virtue thereof. deprived of the plaintiff due to the unlawful possession of the defendants. The decision of the respondent court dated April 23. identified as Lot No. 2151 for the nullification of the deed of transfer executed by the sheriff. with an area of 218 square meters.2 square meters: A la vista de los datos expuestos. IN VIEW OF THE FOREGOING. In due course. removing whatever improvements they have constructed thereon. The appealed decision affirmed in toto the judgment of the Regional Trial Court. undertake and work for the issuance of the corresponding Certificate of Title of the said Lot No. 2246. For review on appeal by certiorari are the Decision of the Court of Appeals in CA-G.500. On October 13. 2003 PERLA PALMA GIL. Concepcion filed a complaint for unlawful detainer against the spouses Angel and Nieves Villarica with the Municipal Trial Court docketed as Civil Case No. although under the subdivision plan.R. with an area of 14 square meters. 1956. denying the petitioners’ Motion for Reconsideration of the said decision. 1970 is hereby REVERSED. 1956. She then filed a motion to dismiss the complaint. the court issued an order authorizing ex-officio Sheriff Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an undivided portion of the property with a total area of 256. On the basis of the deed of transfer executed by Sheriff Iriberto A. ―A‖) ordenando a aquella que otogue los documentos necesarios traspasando a favor de la demandante (CONCEPCION PALMA GIL). which was granted by the court. Lot 59-C-3. docketed as G. In a parallel development. The sheriff thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot 59-C-2 with a total area of 256. On October 4. 1996. 59-C. Concepcion filed a complaint against her sister Nieves with the then Court of First Instance of Davao City. and hereby finds in favor of the plaintiff. COURT OF APPEALS. Concepcion executed a deed of absolute sale over Lot 59-C-1 in favor of Iluminada Pacetes. the Register of Deeds issued TCT No. docketed as Civil Case No.R. 1956. with an area of 560 square meters. 1956. Nieves appealed to the Court of Appeals which affirmed the assailed decision. 1970 is hereby REINSTATED and AFFIRMED. with an area of 38 square meters.00 to be paid upon the signing of this instrument. the court issued a writ of execution. 22008-R. L-15801. the latter failed to transfer title to the property to and under the name of Iluminada Pacetes. docketed as Civil Case No.. the parties further agreed as follows: G. No. ordering the defendant to deliver to the plaintiff an undivided portion of the said property with an area of 256. The Antecedents Concepcion Palma Gil. Consequently. 22438-R. the decision became final and executory. In the said deed. 1160 and 2151 were certified by the CA to this Court. Nieves Palma Gil de Villarica.R. 1160 for specific performance. and to pay the costs of this suit. That the VENDOR shall. the area of Lot 59-C-1 appeared as ―256 square meters‖ 2. the Resolution appealed from dated October 12. respondents. No. the VENDEE shall collect and receive any and all rentals and such other income from the land above-described for her own account and benefit. 127206. 59-C-1 in her favor with the proper government office or offices.WHEREFORE. 432. to wit: 1. 1954 in favor of Concepcion. That pending the full and complete payment of the purchase price to the VENDOR. No. However. Davao City. it is indeed evident and clear that the herein defendants have been unlawfully withholding possession of the land from the plaintiff. and ANGEL PALMA GIL. No. Instead of doing so. and against the defendants. and the balance of P14. HON. to the end that the same can be duly transferred in the name of the herein VENDEE. Nieves Palma Gil. 1956. The purchase price of P21. In the meantime. the sheriff had the property subdivided into four lots namely. SO ORDERED. No. 56-C descrito mas particularmente en el Certificado de Titulo No. The motion was denied. 3. L-15799 and G.R. CONSTANCIO MAGLANA. all covered by a subdivision plan. and its Resolution dated October 17. 43188 promulgated on March 19. On April 27. Nieves appealed to the Court of Appeals which appeal was docketed as CA-G. with costs against private respondent. 432 located in Davao City.R. 7450 over Lot 59-C-1 and 59-C-2 on July 17. which appeal was docketed as CA-G. and her sister. covered by Transfer Certificate of Title (TCT) No. The spouses Angel and Nieves Villarica filed a complaint on October 24. the decretal portion of which reads as follows: From the foregoing. The court granted the motion. AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO CITY. 15. with a total area of 256. Branch 16. HEIRS OF EMILIO MATULAC.356 which dismissed the complaint of the herein petitioners.2 square meters. On December 21. el Juzgado dicta sentencia condenando a la demanda.R. 1956 against the sheriff and Concepcion with the Court of First Instance of Davao City. Nieves’ appeals in Civil Cases Nos. On October 24. September 12.2 square meters.2 square meters. 2151. as vendee of the property subject of the case. VICENTE HIZON. 1956. from the signing of this agreement. this right of the VENDEE to begin from December 1. CV. married to Angel Villarica. the court rendered judgment on April 7. to compel the defendant to cede and deliver to her an undivided portion of the said property with an area of 256. 40 CIVIL LAW REVIEW 2 . however. were the coowners of a parcel of commercial land with an area of 829 square meters.00) a month from the time of the filing of this complaint until the lot is finally vacated in concept of rentals. Iluminada Pacetes filed a motion to intervene in Civil Case No. 1957 in the name of Concepcion. Unson.00 shall be paid as follows: P7. the area of the property was only 218 square meters. Lot 59-C-2. refused to execute the requisite deed in favor of her sister. JR. and Lot 59-C-4. 1953. A motion for reconsideration of the denial met the same fate. ordering the latter to vacate the premises described in the complaint. Lot 59-C-1. 1160 to compel the sheriff to report on his compliance with the court’s Order dated April 27. Nieves appealed to the Court of Appeals. After due proceedings. The spouses Angel and Nieves Villarica had constructed a two-storey commercial building on the property. The decision became final and executory but the plaintiff did not file any motion for a writ of execution. Under the deed of absolute sale. Nieves.600.

Iluminada filed a complaint docketed as Civil Case No. in part. 1956 due to the unwarranted and illegal occupation of the said lots by defendant. 1977. On October 29. the spouses Agapito and Iluminada Pacetes filed a complaint against Nieves in the Court of First Instance of Davao City. 1959. 2246 being enforced. and d. Iluminada filed a motion in Civil Case No. 2. On March 16. the instant appeal is dismissed and the resolution of the Court of Appeals dated July 31. thus. No. 1964. 1966. hence. The lessees took actual possession of the leased property. 3. that the complaint was barred by the decision of the CFI in Civil Case No. 4413. The deed of absolute sale executed by Concepcion in favor of the plaintiff was an executory. L15801.983. covered by TCT No. this Court denied the petition for certiorari filed by Nieves in G. Thus. On August 2. she had not acquired title over the lot and the right to evict the defendant. L-15801. this Court rendered judgment in G. On May 15. 2246. Nieves appealed the order to the CA which dismissed the appeal for her failure to file a record on appeal. the Court believes that the plaintiff herein has not been properly and legally subrogated to the rights and action of deceased Concepcion Palma Gil and. for these reasons the Court dismisses this case without pronouncement as to costs. 1160 for her substitution as party-plaintiff in lieu of the deceased Concepcion. Virginia Jorge and Anita Vergara continued to be in physical possession of the property.R. Nieves filed a petition for review with this Court docketed as G. 1975.R. 8836. Accordingly. Pay the Plaintiffs the amount consisting of compensation for the use of the land they have been depribed (sic) of to receive and enjoy since October 24. Defendant be ordered: a. The Court.000. 1977. b. OTHER RELIEFS consonant with justice and equity are prayed for.R. Pay Plaintiffs such expenses of litigation as may be proven during the trial. but not an executed contract. declaring that the defendant had waived the benefits of the Decision of the Court on August 31. L-28363. Nieves Villarica executed a lease agreement with Virginia Jorge and Anita Vergara over Lots 59-C-1 and 59-C-2. 4413 in the Court of First Instance of Davao City. 7450.00. 1977. The defendant filed a petition for certiorari with the Court of Appeals docketed as CA-G. averred that Iluminada had not yet paid the balance of the purchase price of Lot 59-C-1. the defendants filed a motion to dismiss (demurrer to evidence). it is most respectfully prayed that: 1. The court issued an order on August 19. On August 4. 8836 for the recovery of possession of Lot 59-C-1 and Lot 59-C-2. not an executed deed. In their Answer to the complaint in Civil Case No. 1961 in G. which ruled that the Deed of Absolute Sale executed by Concepcion in favor of Iluminada was merely an executory. 1160 and discovered that the defendant had mortgaged Lot 59-C-4 to the Prudential Bank. No. L-15799 and L-15801 setting aside the deed of transfer executed by the sheriff in favor of Concepcion Palma Gil. Maglana for P110. 1967 and its resolution dated October 18. As successor-in-interest of Concepcion. the defendants averred. 2246 (the unlawful detainer case). hence. 1961. On August 31. To refrain from collecting rentals from the tenants or occupants of the building erected in said Lot 59-C-1. After the plaintiffs had rested their case. she likewise filed a motion for execution in Civil Case No. 1956 must stand. as Concepcion’s successor-in-interest. In compliance with the Decision of this Court in G.00 only as payment of the purchase price of the property.R. the trial court conducted further proceedings in Civil Case No. she acquired the right of action to enforce the decision in Civil Case No. The spouses-vendors undertook to secure title over the lots under the name of the vendee within ninety days. The decretal portion reads: IN VIEW OF THE FOREGOING. The plaintiff therein averred that. in that the tenants be directed to pay their rental to the plaintiff. which petition was dismissed 41 CIVIL LAW REVIEW 2 . Defendant be ordered to: a. The defendants. 7450 under the name of Concepcion. and remanding the records to the trial court for further proceedings. During the pendency of this case. Pay Plaintiffs expenses for services of counsel they had to incurr (sic) in this complaint. on August 8. The Pacetes spouses claimed that Lot 59-C-2 was included in TCT No. the court rendered judgment in favor of the defendants and dismissed the complaint. Consequently. In the meantime. by way of defense. c. 1160 for the eviction of the defendant Nieves Villarica and all those acting for and in her behalf. the spouses Angel and Nieves Villarica executed a real estate mortgage over Lot 59-C-4 in favor of Prudential Bank as security for a loan. L-28363. for the revival and execution of the decision of the Municipal Trial Court in Civil Case No. On January 26. ruled: But while the issue at bar exclusively involves the timeliness of the appeal of the petitioners to the Court of Appeals. 1977 granting the motion. The counterclaim is also hereby ordered dismissed. No. on the other hand. Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale over Lot 59-C-1 and Lot 59-C-2 in favor of Constancio B. To demolish her aforesaid building of strong materials and vacate the premises of Lot 59-C-1 and Lot 59-C-2. 62957-R. 1964. 4413. the court issued an order granting the motion. The defendants filed a motion for reconsideration of the order claiming that Iluminada was not a party to the case which the court denied on September 2. The decision of the Court became final and executory. On May 10. Iluminada consigned with the court in Civil Case No. 1160 the amount of P11. No.In the interim. b. Nieves filed a motion for the reconsideration of the said order but the court denied the same in an Order dated February 29. 1961.R. No. After hearing. 1965. docketed as Civil Case No. The defendant filed another motion for reconsideration which was likewise denied on September 16. 1967 are affirmed. the court issued an order dismissing the complaint on the ground that the action was barred by the decision of the court in Civil Case No. On May 5. the conveyance of the property made by Concepcion in favor of Iluminada on October 24. 1974. this Court has nonetheless examined and analyzed the substantive aspects of this case and is satisfied that the ORDERS of the trial court complained of are morally just. Iluminada was issued receipts for the amount. 1977. The spouses prayed that judgment be rendered in their favor after due proceedings thus: PRAYER PREMISES CONSIDERED. More than five years having elapsed without the decision in Civil Case No. Concepcion died intestate and was survived by Nieves Villarica and her nephews and nieces.R. Nos. the court issued an order on February 17. 1975. Pay Plaintiffs moral and exemplary damages in such amount as the Honorable Court may fix considering the facts and the law.

on August 26. On February 18. TCT No. the court issued an order in Civil Case No. On January 13. 62975R and dismissed the petition for certiorari in G. Nieves filed a motion for the reconsideration of the order which the court denied in its Order dated March 17. L-60690. Annexes ―B. Agapito Pacetes. 7450.R. the trial court issued an order granting the motion for a writ of execution on April 30. Nieves filed a petition with the Court of Appeals for the nullification of the same. in view of the aforecited reasons it is most respectfully prayed that: On April 21. paving the way for the execution of the decision of the trial court in Civil Case No. and the Register of Deeds. Vicente Hizon. 15. and Angel Palma Gil. The plaintiffs prayed for the issuance of a temporary restraining order and a writ of preliminary injunction to enjoin the defendant Emilio Matulac from continuing with the construction of a building on the property. This Court said: 42 CIVIL LAW REVIEW 2 . 1982. thus. No. the Register of Deeds issued TCT No. including the properties owned by Virginia Jorge and Anita Vergara. 1977. 1160. and not an executed contract. Nonetheless.R. L-56399. Three of the surviving heirs of Concepcion Gil. upon said defendant’s failure to do so authorizing plaintiffs to order said removal at defendant’s expense. docketed as Civil Case No. The plaintiffs alleged. one of Nieves Villarica’s children. Alovera. Villarica her rights and interests over the property covered by TCT No. Emilio Matulac filed a motion in Civil Case No. Iluminada presented the said order and the deed of absolute sale executed by Concepcion in her favor. the court granted the petition and ordered the Register of Deeds to issue an owner’s duplicate of the said title under the name of Concepcion Gil. and (d) he is a purchaser in good faith. No. as declared by the Court of First Instance in Civil Cases Nos. filed on June 17.‖ ―C.000. Antero P.‖ and ―D‖ hereof. Vicente Villarica. The plaintiffs likewise prayed that after due proceedings. including the writ of execution issued by the court. thus: WHEREFORE.R. 1160. L-56399. including his widow Nieves. the deed of sale executed by the latter in favor of Constancio Maglana. Emperatriz V. Litigation expenses and other reliefs as may be justified under this case. in the name of Iluminada Pacetes. 1974.R. defendant spouses Agapito and Iluminada Pacetes failed to pay the balance of the purchase price of the property during the lifetime of Concepcion. this Court affirmed the resolution of the Court of Appeals. No. For their part. namely. However. In the meantime. Constancio Maglana. Nieves filed a motion for reconsideration of the order. The CA rendered a decision granting the petition and ordering the trial court to conduct further proceedings to implement the August 19. 1982. 1982. Emilio Matulac died intestate and was substituted by his heirs Sonia Matulac.00 as attorney’s fees. The buildings on the property. 1160 to annul the proceedings. the 1) An order be rendered immediately enjoining defendant Matulac from doing further work in the construction of the building and enjoining him from entering the premises and the land subject of this complaint and after trial making the injunction above-mentioned permanent.00. Virginia Jorge and Anita Vergara. The Court appointed Sonia Matulac as administratrix of the estate. Napoleon P. Zenaida V. Sonia Matulac filed a petition for review on certiorari with this Court docketed as G. 1978. 73412 and 80631 under the respective names of the vendees. 61514 over Lot 59-C-1. 85538 for the nullification of the decision of the CA. Villarica and Rupendo P. denying the motion for the nullification of the proceedings and for a writ of preliminary injunction. The next day. 2747. Garcia. (c) the plaintiffs are estopped from assailing the sale to him of the property.G. On November 29. 61514. a complaint against Emilio Matulac. through their first cousin. 1982. Jr. On March 22. Iluminada filed a petition with the RTC docketed as Miscellaneous Case No. 1978. the lessees refused to vacate the property after said date. Villarica. b. 1989. in the meantime. 1982. in CA-G. per its Order dated August 19. defendant Emilio Matulac interposed the following special and affirmative defenses: (a) he is the lawful owner of the property. Atty. 4715 for the issuance of an owner’s duplicate of TCT No. The defendant Nieves Villarica. the court issued an order denying the motion. hence. what was embodied in the said deed was not fulfilled by the vendee. No. were demolished on June 14. filed a motion for reconsideration but the court denied the motion. 1982.G. The defendant filed a petition with this Court docketed as G. On July 7. T-61514. 1160 for the issuance of a writ of execution and an order of demolition. and the issuance of a restraining order. ordering the removal of any structure and other construction within the plaintiffs’ above-described property and thereafter. the Register of Deeds issued TCT No.356 for the cancellation of the deed of sale executed by Concepcion in favor of Iliminada Pacetes. The court also issued a special order for the demolition of the buildings on the property. with the Court of First Instance. ceded and transferred to her children Teresita Magpantay. executed an Extra-Judicial Settlement of Estate of Deceased in which the latter waived. Constancio Maglana executed a deed of sale not only over Lot 59-C-1 but also Lot 59-C-2.R. T-73412 and T-80631 and issued (sic) a new Transfer Certificate of Title in the name of the abovementioned heirs of the late Concepcion Palma Gil nullifying the deeds of sale. 1980. No. On April 10. The Court granted the motion on February 18. 80631 to and under the name of Emilio Matulac over the two lots. this Court rendered a Decision dismissing the petition in G. his heirs.R. in favor of Emilio Matulac for the purchase price of P150. 1981. In the meantime. Defendant Register of Deeds to cancel TCT No. 1982. In the meantime. 1982. judgment be rendered in their favor and against the defendants. Emilio Matulac thereafter commenced the construction of a building thereon. No. the lessees were allowed to stay in the property until April 9. No. The CA ruled that Iluminada Pacetes was the real party-in-interest as the vendee of the property. 7450. that the deed of absolute sale executed by Concepcion in favor of Iluminada over Lots 59-C-1 and 59-C-2 was a contract to sell. A petition was filed with the RTC of Davao City for the settlement of his estate docketed as SP-No. the sale is null and void. 4413 and 8836.G. and c. Defendants Pacetes. as well as TCT Nos. Maglana and Matulac jointly and solidarily liable to plaintiffs for moral and exemplary damages as may be granted by this Honorable Court and the amount of P25. Josephine Matulac and Gregorio Matulac. Angel Villarica had died on April 20. Consequently.R. On May 9. On November 24. Virginia Jorge and Anita Vergara filed a petition for certiorari with this Court docketed as G. (b) the action is barred by the Decision of this Court in G. filed a motion in Civil Case No. L-60690 for the nullification of the aforesaid orders and the writ of demolition issued by the trial court in Civil Case No. 1160. On the basis of the said deed. the lessees. the deed of sale executed by the latter in favor of Emilio Matulac. 1977 Order. 1982. Emilio Matulac filed a motion for the issuance of a writ of execution. In his answer to the complaint.000. 1983. 73412 was issued by the Register of Deeds of Davao City in favor of Constancio Maglana over Lot 59-C-1 only. On April 20. 2) Judgment be rendered ordering: a. 1982. an executory contract. with an area of 218 square meters. 1980. L-56399. inter alia. Perla Palma Gil.

The subsequent transfers of the property from Pacetes to Maglana. the latter became the new owner of the property. The said court declared: Being already a plaintiff together with the other plaintiffs in thise (sic) case. Respondents deprived petitioner Concepcion Palma Gil and her successors-in-interest of their legal right to possess the land. The appellants. 43 CIVIL LAW REVIEW 2 . On March 19. 1961. owned the subject property. a mode of acquiring the property. L-60690 on November 24. Meanwhile. L-60690. three of whom are the petitioners herein. the payment was still timely. That the trial court erred in not declaring the sale of the properties in question from Iluminada Pacetes to Constancio Maglana. in Jorge vs. Concepcion Palma Gil. They did consign and deposit the amount of P11.R. He is thus the party who now has a substantial interest in the property. which granted the motion for execution filed by Pacetes. II. 1996. the estate of Emilio Matulac executed a deed of sale of real estate in which the estate sold Lots 59-C-1 and 59-C-2 and the building thereon to the Prudential Education Plan. in effect We had confirmed the sale by plaintiff in Civil case No. was appointed by the court as administratrix of the estate of Concepcion on December 29. was. Although Iluminada paid the balance of the purchase price of the property only on August 8. 1982 and February 18. one of the plaintiffs.00. as aptly put by the trial court. 1964. and not the estate of Concepcion.356. was succeeded in all his rights and interests. That the trial court erred in not holding the appellees liable for damages to the appellants. Matulac. 15. considering the continued failure of the defendant Nieves Palma Gil-Villarica. No. No. the body of the decision must be consulted in case of ambiguity in the dispositive portion. 85538. we ruled that the execution of the judgment cannot be limited to its dispositive portion. in G. 1990. thus the claim of the plaintiff should be filed in SP-No. That the trial court erred in not ordering the cancellation of transfer Certificate of Title No.When We dismissed on September 16. were transmitted to her sister. They do not in any way run counter to the order of the lower court dated August 19. Consolacion (supra).R. 1160 did not award the parties their respective shares in the property. Although the dispositive portion of the judgment rendered in Civil Case No. twenty one years from the execution of the Deed of Absolute Sale in favor of the said spouses. V. as earlier pointed out. On January 8. a spinster. for P7. the power of the court to issue the order of execution cannot be limited to what is stated in the dispositive portion of the judgment. subrogated to all the rights and obligations of Pacetes. and her nephews and nieces. 1994. L-60690 and G. the petition for certiorari filed by defendants questioning the orders. Nicolas (189 SCRA 728 [1990]). On April 7. and the rights and obligations under the Deed of Absolute Sale executed in favor of Iluminada Pacetes. in light of Article 1592 of the New Civil Code.00.000. plaintiff in Civil Case No. Hence. dated December 7. private respondents Constancio Maglana and Agapito Pacetes averred that the action of the petitioners in the court a quo was barred by the Decision of this Court in G. Besides. on June 29. Concepcion Gil. Upon Concepcion’s demise. The CA ruled that the deed of absolute sale executed by Concepcion in favor of Iluminada Pacetes was a deed of absolute sale over Lots 59-C-1 and 59-C-2. said intervention by plaintiff Perla Palma Gil is not absolutely necessary and imperative. The heirs of Emilio Matulac opposed the motion considering that they.R. the said motion was denied by the trial court. No. This Court ruled in the said case as follows: When Concepcion Palma Gil. thence.00. 1974. including the right to the issuance of a writ of execution in his name. We note that the petitioners failed to implead all the compulsory heirs of the deceased Concepcion Gil in their complaint. No. and filed in the said case a motion to intervene as plaintiff in her capacity as administratrix in behalf of all the heirs of Concepcion. In the meantime. the two-storey building constructed by the spouses Angel and Nieves Villarica on the said property was still existing. Inc. 1993. this Court dismissed the petition in G. of Lot 59-C-1 and 59-C-2 to Illuminada Pacetes and affirmed the ruling of the trial court that defendants had waived the benefit of Our Resolution rendered on August 31. Hence. The petitioners filed a motion for reconsideration and on July 2. the decision of the CA should be reversed and set aside.R. from Constancio Maglana to Emilio Matulac NULL and VOID. was acquired pendente lite. who. this Court granted the motion and reversed the decision of the CA. 1983 as well as the Writ of Possession issued pursuant to the aforementioned orders are valid. 1977. That the trial court erred in dismissing the complaint. by herein petitioner. the trial court rendered judgment in Civil Case No.983.R. T-80631 in the name of Emilio Matulac and the issuance of a new title in the name of Concepcion Palma Gil. According to the petitioners. and her nephews and nieces by way of succession.R. 1990. the consignation made by Iluminada Pacetes of the amount did not produce any legal effect. then to Constancio Maglana and to Emilio Matulac. The trial court ruled that this Court had affirmed. the property had already been sold to the respondents Constancio Maglana and Emilio Matulac. 1992. all her rights and interests over her properties. 1977. Matulac is a real party-in. and by the latter to Emilio Matulac. 15. Hence. private respondents Constancio Maglana and Emilio Matulac were not purchasers in good faith because at the time they purchased the respective properties. (Underscoring supplied) On June 11. the validity of the sales of the subject lots by Concepcion to Iluminada. 1956. 1977. to comply with what was required of her in the judgment. It would only delay the early disposition of the case if allowed. III. When she died intestate. 1989. 1160. 1989. which was correctly granted by the trial court in the questioned Order dated August 19. THE RULING OF THE COURT The petition is denied due course.100. No. Perla Palma Gil in Civil Case No. The plaintiffs appealed to the CA with the following assignment of errors: I. No. 2747. was survived by her sister Nieves. 85538.000. the CA rendered a decision affirming the decision assailed therein and dismissing the appeal. by the latter to Constancio Maglana. said new owner (Pacetes) became a formal party---the party plaintiff. 1961 and December 17. hence. As the new party plaintiff. In their Comment on the petition. now petitioners in this case. The heirs stepped into the shoes of the decedent upon the latter’s death.356 in favor of the defendants. the trial court was barred by the rulings of this Court. 85538 and G. IV. The latter (Matulac) as the latest owner of the property. had been confirmed by this Court in G. rights and obligation of the decedent to the extent of the value of the inheritance of the heirs. and then from Maglana to herein movant Matulac. Moreover.interest subrogated to all the rights of Iluminada Pacetes. but only on August 8. the sales of the property from Concepcion Palma Gil to Iluminada Pacetes. As held in Paylago vs. Pacetes had the right to move for the issuance of a writ of execution. the questioned orders of the lower court dated November 29. 1160 sold the land in question to Iluminada Pacetes on October 24. assert that private respondents Agapito and Iluminada Pacetes failed to pay the balance of the purchase price in the amount of P14. 1977. By virtue of the order of substitution issued by the court. without the latter instituting an action for the cancellation of their obligation. Furthermore. under which the ownership over the property subject thereof was transferred to the vendee. The trial court erred in not holding that Iluminada Pacetes had no right to sell or transfer the two (2) parcels of land to Constancio Maglana.

ATTY. Even if we were to brush aside this procedural lapse and delve into the merits of the case. Such right is premised on the general principles of reciprocal obligations.In their complaint. and F. in the case of the vendee. delay in the other begins.since 3 of us were there during the demolition. Q Now. Under the last paragraph of Article 1169 of the New Civil Code. we held that the non-payment of the purchase price of property is a resolutory condition for which the remedy is either rescission or specific performance under Article 1191 of the New Civil Code. That upon the death of the late Concepcion Palma Gil. the petition at bar should be dismissed. the demolition was on June 14. not only as to the absent parties. Your Honor. the fulfillment of certain express warranties. Children of the deceased Jose Palma Gil. Q When was the case filed? A June 14. and we filed it right away because we were in a hurry. as party plaintiff. So we were not able to contact all the heirs and I have contacted . David Palma Gil one of whom is plaintiff Angel Palma Gil. Hence. reciprocal obligations are to be performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other. A We had it on June 14 the demolition. Article 1191 in tandem with Article 1592 of the New Civil Code are central to the issues at bar. nephews and nieces of the decedent in the complaint as parties-plaintiffs. QUITAIN: The best evidence would be the motion for intervention and it would seem that compañero is contending that there is a need to include all heirs. They failed to do so. This is true for reciprocal obligations where the obligation is a resolutory condition of the other. the absence of the surviving sister. We cannot get all the heirs. whom I contacted at the Apo View Hotel and I contacted also Julian Rodriguez. her heirs namely: A. 1982? In another case. D. the trial court could not validly grant relief as to the present parties and as to those who were not impleaded Being indispensable parties. otherwise. but even as to those present. the right to rescind the said contract depends upon the fulfillment or non-fulfillment of the prescribed condition. GALLARDO: With the Court’s permission. Concepcion Gil sold Lot 59-C-1 to Iluminada Pacetes for P21. Jr. From the moment one of the parties fulfills his obligation. the payment by the vendee of the agreed purchase price and in the case of the vendor. The right of rescission of a party to an obligation under Article 1191 of the New Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. and Angel Palma Gil was also there and also Vicente Hizon Jr. Nieves Palma Gil Villarica.600. we found out that during the confrontation that we have to hurry and file the case right away. the petitioners alleged that: 7. another cousin thru telephone and he told us to go ahead and file the case. aside from these 3 plaintiffs who are supposed to be the heirs of the late Concepcion Palma Gil. That the deed of absolute sale executed by Concepcion Gil in favor of Iluminada Pacetes is an executory contract and not an executed contract is a settled matter. The vendee is entitled to retain the purchase price or a part of the purchase price of realty if the vendor fails to perform any essential obligation of the contract. 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. the trial court denied the petitioners’ plea.. petitioner Palma Gil stated that: ATTY. we ruled that the non-payment of the purchase price of property constitutes a very good reason to rescind a sale for it violates the very essence of the contract of sale. Children of the deceased Asuncion Palma Gil Hizon one of whom is plaintiff Vicente Hizon. ipso facto became co-owners of the said subject property by operation of law. and in this case. so we just filed the case. B. E. because that time when they demolished the building and I accompanied Atty. . When she testified. C. there are also other heirs who were not included as plaintiffs in this case? A Yes. 1982 up to the present the other heirs did not do anything to be included in the complaint? ATTY. We cannot gather all of them and we will have a hard time asking them to sign. GALLARDO: 44 CIVIL LAW REVIEW 2 . Q Since June 16. as parties-petitioners. a denial in due course is inevitable. . Q You said that you are one of the 3 plaintiffs in this case? A Yes. Villarica at the site where they had the demolition. Perla Palma Gil. Q You are telling the court that the other heirs were not included because they were not available to sign the complaint? A They were not there during the demolition. Thus. In Central Bank of the Philippines v. sir. We ruled that the condition pertains in reality to the compliance by one party of an undertaking the fulfillment of which would give rise to the demandability of the reciprocal obligation pertaining to the other party. In a perfected contract of sale of realty. The petitioners were duty bound to implead all their cousins as parties-plaintiffs. Although the petitioners sought leave from the trial court to amend their complaint to implead the intestate estate of the deceased Concepcion Gil through her administratrix Perla Palma Gil. Bichara. QUITAIN: Q It appears in the complaint that it was filed sometime on June 16. so we decided that I will be one. Under the civil law on property even one coowner may file a case. The reciprocal obligation envisaged would normally be. in reciprocal obligations. Children of the deceased Pilar Palma Gil Rodriguez. In this case.00 payable as follows: The best evidence would be the complaint. 1982. renders all subsequent actions of the trial court null and void for want of authority to act. The petitioners manifested to the trial court that they would assign the denial of their plea as one of the assigned errors in case of appeal to the CA. ATTY.

When she died intestate on August 4. including the petitioners. to be paid upon the signing of this instrument. It was Concepcion’s heirs. the same shall be executed at his cost. the petition for review is DENIED for lack of merit. this right of the VENDEE to begin from December 1. with all the personal circumstances above-stated. The consignation by the vendee of the purchase price of the property is sufficient to defeat the right of the petitioners to demand for a rescission of the said deed of absolute sale. It was only on May 9. failed to deliver the said title to the vendee. the heirs of Concepcion. By the terms of the contract. Although the vendee consigned with the Court only the amount of P11. And I. by virtue thereof. That the VENDOR shall. are not the injured parties entitled to a rescission of the deed of absolute sale. The purchase price of P21. 1959.00. the decision of the CA affirming the decision of the RTC dismissing the complaint of the petitioners is affirmed. SO ORDERED. or filed any action for the rescission of the said deed with the appropriate court.983. but had failed to comply with the obligation. IN LIGHT OF ALL THE FOREGOING.00 due to the heirs of Concepcion Gil as the vendor’s successors-in-interest. Concepcion failed to secure a certificate of title over the property. she nevertheless consigned the amount of P11. 1167. hereby confirm all the terms and conditions stipulated in this instrument. 3. The vendee paid the downpayment of P7.500. 59-C-1 in her favor with the proper government office or offices. a petition with the RTC docketed as Miscellaneous Case No. had not yet sent any notarial demand for the rescission of the deed of absolute sale to the vendee. including the petitioners. the expenses incurred by the vendee should be charged against the amount of P2. and the balance of P14.000. 2. including the petitioners. Pursuant to Article 1167. it cannot be claimed that Concepcion was an unpaid seller because under the deed of sale.00 short of the purchase price of P14. Furthermore. 1956. 1978. free from all liens and encumbrances within 120 days from the execution of the deed of absolute sale on October 24. Concepcion Gil obliged herself to transfer title over the property to and under the name of the vendee within 120 days from the execution of the deed. Still. with the court in Civil Case No. part of the balance of the purchase price of P14. P2. According to Article 1167 of the New Civil Code: Art. from the signing of this agreement. That pending the full and complete payment of the purchase price to the VENDOR. 1956. 1978 that Iluminada managed to secure TCT No. to be paid upon the delivery of the corresponding Certificate of Title in the name of the VENDEE.617. undertake and work for the issuance of the corresponding Certificate of Title of the said Lot No.000.00. within the period of ONE HUNDRED TWENTY (120) DAYS. which she failed to do so. 7450 and thereafter secure its transfer in her name.00.600. The said heirs. but as a sign of good faith. 1977 to pay the balance of the purchase price of the property.983. and the delivery thereof by the vendor Concepcion Gil to the latter.00. the heirs of Concepcion Gil. If a person obliged to do something fails to do it. CONCEPCION PALMA GIL.00. she was still obligated to transfer the property in the name of the vendee. The petitioners. (1098) The vendee (Iluminada) had to obtain the owner’s duplicate of TCT No.00. at her expense. her obligation to deliver the said title to the vendee devolved upon her heirs. That it is further stipulated that this contract shall be binding upon the heirs. despite the lapse of eighteen years since Concepcion’s death. including the petitioners failed to do so. Iluminada was not yet obliged on August 8. executors and administrators of the respective parties hereof. 61514 over the property under her name.100. 1160. This same rule shall be observed if he does it in contravention of the tenor of the obligation.00. The court accepted the consignation and she was issued receipts therefor. as successors-in-interest of the vendor. It bears stressing that when the vendee consigned part of the purchase price with the Court and secured title over the property in her name. 4715 for the issuance of an owner’s duplicate of TCT No.500. 45 CIVIL LAW REVIEW 2 . Iluminada Pacetes was impelled to resort to legal means to protect her rights and interests. including the petitioners. In sum. to the end that the same can be duly transferred in the name of the herein VENDEE. the obligation of the vendee to pay the balance of the purchase price ensued only upon the issuance of the certificate of title by the Register of Deeds over the property sold to and under the name of the vendee. the VENDEE shall collect and receive any and all rentals and such other income from the land above-described for her own account and benefit. it may be decreed that what has been poorly done be undone.017.1. Upon the failure of the heirs to comply with the decedent’s prestation. Iluminada was compelled to file. who were obliged to deliver to the vendee a certificate of title over the property under the latter’s name. 7450 covering the property sold which was granted by the court on March 22.00 shall be paid as follows: P7.

981. The PSB disapproved his application.14 Petitioner Orlando Rayos again wrote respondent Rogelio Miranda on November 30. 1. 15984 for sum of money and damages. This is a petition for review on certiorari of the Decision1 of the Court of Appeals2 in CA-G. THE COURT OF APPEALS and SPOUSES ROGELIO and VENUS MIRANDA.8 In the meantime. 3. 30% of the award to you in the concept of No.R. executed a Deed of Sale with Assumption of Mortgage over the subject property for the price of P214.5 On December 26. 13 The respondent opposed the motion. claiming that the petitioner agreed to render professional services on a contingent basis. 135528 July 14. 1986. even if the latter paid the last quarterly installment on the loan. 46727 which affirmed the Decision3 of the Regional Trial Court of Makati. executed a Contract to Sell the said property in favor of the respondents for P250. Award to you of any amount in terms of moral. 15639 for specific performance and damages. relative to a loan from the bank in the amount of P100.R. 1985.777.93. respondents. 1986. 1985. and if appealed from there to the Supreme Court. petitioner Orlando Rayos paid P27. as they had not assumed the payment of the same. 12 Petitioner Orlando Rayos demanded the payment of attorney's fees in the amount of P5. 1986.00 with the following condition: 3. Metro Manila. Execution of judgment expenses shall be for your account.31. 1986.215. 1986. All attorney's fees that the court shall award to me or by the management of TMBC if they agree to extrajudicially settle shall pertain exclusively to me. 13670 should be treated differently.00 as filing fee and other miscellaneous expenses which I personally received from you this morning. the petitioners. on the same date. 2 hereof shall pertain to me as my contingent fee. and the respondents. 1986. the first quarterly payment to start on March 24. as vendees. respondent Rogelio Miranda arrived at the PSB to pay the last installment on the petitioners' loan in the amount of P29. RAYOS and MERCEDES T. exemplary or actual and other forms of damages shall accrue to you in the amount of 70% thereof. a Real Estate Mortgage over their property covered by Transfer Certificate of Title (TCT) No. Rayos.631.9 On May 14. respondent Rogelio Miranda paid the first quarterly installment on the petitioners' loan on March 21.28. and appended thereto a General Information sheet. 1986 with the PSB to secure the approval of his assumption of the petitioners' obligation on the loan. secured a short-term loan from the Philippine Savings Bank (PSB) payable within a period of one (1) year in quarterly installments of P29. Both parties agreed to the payment of attorney's fees. the SELLER hereby represents that all association dues has been paid but that subsequent to the execution of this Contract the payment of the same shall devolve upon the BUYER. petitioner Mercedes T. RAYOS.190.459. transfer tax. Spouses Miranda. CV No.00.048.04. and Civil Case No.190. On November 12. petitioner Orlando Rayos wrote to respondent Rogelio Miranda and enclosed a copy of his motion in Civil Case No. 2004 SPOUSES ORLANDO A. as vendors. Petitioner Orlando Rayos also wrote that their dispute over his attorney's fees in Civil Case No. petitioner Orlando Rayos filed respondent Rogelio Miranda's complaint against the bank with the Regional Trial Court of Makati.67.4 To secure the payment of the loan. 13670. Respondent Rogelio Miranda.11 The trial court rendered judgment on October 23.15 Petitioner Orlando Rayos then received a Letter dated November 27. then another 10% shall accrue to me. 1986 from the PSB. respondent Rogelio Miranda secured the services of petitioner Orlando Rayos as his counsel in a suit he filed against the Manila Banking Corporation. The loan was evidenced by a promissory note which the petitioners executed on December 24. Rayos. the petitioner advised the PSB not to turn over to the respondents the owner's duplicate of the title over the subject property.00. 100156 located in Las Piñas. 2.66. the SELLER shall execute a Deed of Absolute Sale in favor of the BUYER that the payment of capital gains tax shall be for the account of the SELLER and that documentary stamps. Should the case be appealed.10 In the meantime. 13670 in which they agreed that each party shall pay for the respective fees of their respective counsels. likewise. the petitioners-spouses executed.G. paid the second quarterly installment in the amount of P29. 6 The petitioners obliged themselves to execute a deed of absolute sale over the property in favor of the respondents upon the full payment of the purchase price thereof. 1986 in the amount of P29. The said amount was paid for the account of the petitioners. in Civil Case No. He informed the bank that the petitioners had executed a deed of sale with assumption of mortgage in their favor. and that it expected him to pay his loan on or before the said date. petitioner Orlando A. docketed as Civil Case No. leaving the balance of P1. as follows: Our agreement is as follows: 6. reminding him that his loan with the bank would mature on December 24. on January 29. 1986 and other miscellaneous expenses shall be for the account of the BUYER. 13670 for the annotation of his attorney's lien at the dorsal portion of the latter's title used as security for the loan with the Manila Banking Corporation. and his wife. reminding the latter of the last quarterly payment of his loan with the PSB. He also advised the respondent to thereafter request the bank for the cancellation of the mortgage on his property and to receive the owner's duplicate of his title over the same. also for the account of the petitioners. 1986 based on the said compromise agreement. In a Letter dated December 18. petitioners. Nevertheless.00 on June 23. vs.7 Respondent Rogelio Miranda stated therein that he was the Acting Municipal Treasurer of Las Piñas and had an unpaid account with the Manila Banking Corporation in the amount of P18.4117 to the bank on December 12. 1985. but respondent Rogelio Miranda refused to pay. for which the bank issued a receipt for the account of the petitioners. registration expenses for the transfer of title including the notarization and preparation of this Contract and subsequent documents if any are to be executed. my contingent fee shall increase by 10% if the appeal is to the Intermediate Appellate Court on questions of facts and law. 1986. Branch 62.28. The parties executed a Compromise Agreement in Civil Case No. real estate taxes from January 1. a practicing lawyer. the latter paid the third quarterly installment on the PSB loan account amounting to P29.18 On December 24. However.16 Fearing that the respondents would not be able to pay the amount due. and that he was paying the 46 CIVIL LAW REVIEW 2 . 1986. the petitioners-spouses.000. That upon full payment of the consideration hereof. Respondent Rogelio Miranda filed an application dated May 4.223. 1986. You will pay me P700. 1986. The two (2) cases stemmed from the following antecedent facts: 5. No. On December 24.000. 4.000. likewise.

223.223.197. jointly and severally.197. He alleged that of the purchase price of the property of P214.000. and showed petitioner Orlando Rayos' Letter dated December 18. as follows: (a) Ordering defendants spouses Orlando A. 1986. 1987. and that petitioner Orlando Rayos acted unethically in trying to collect P5. reiterating his stance in his Letters of January 3 and 5.000. to pay the costs of suit. 17. 1987 a Release of Real Estate Mortgage in favor of the petitioners. ordering the latter.000. and 20. On the other hand. 15984 for Specific Performance with Damages for the collection of the amount of P29. respondent Rogelio Miranda filed a complaint against the petitioners and the PSB for damages with a prayer for a writ of preliminary attachment with the RTC of Makati. and in refusing to turn over the owner's duplicate of TCT No.S. 100156. WHEREFORE.33. 01193344 payable to PSB.631. docketed as Civil Case No. He. likewise.93 from him as his attorney's fees in Civil Case No.000. the PSB wrote respondent Rogelio Miranda that it was returning his check. In the meantime.00 for and as attorney's fees. the PSB executed on January 8. 1986. tendering the amount of P29. 1987. it is respectfully prayed that judgment be rendered in favor of plaintiff and against defendants. 13670. and (g) That a Writ of Attachment be issued against the properties of defendant Rayos spouses as security for the satisfaction of any judgment that may be recovered. to pay to plaintiff the sum of P100.20 Thereafter. (d) Ordering defendants. petitioner Orlando Rayos wrote respondent Rogelio Miranda. to pay to plaintiff the sum of P1.00 as moral damages.00 as moral damages. (f) To pay for the costs of suit. jointly and severally. thereby preventing the transfer of the title to the property in his name. 1986.000.41.25 The respondent failed to respond. 13670. 15639 and filed their Answer with Counterclaim in which they alleged that: 14. 1986." "1-A. 15639 for specific performance with damages. Rayos to deliver forthwith to plaintiff the Owner's Duplicate of Transfer Certificate of Title No.00. Respondent Rogelio Miranda prayed that.24 On January 5.00 for and as attorney's fees.00. 15639 and raffled to Branch 61 of the court. Unaware of the said complaint. the respondent also filed a criminal complaint against petitioner Orlando Rayos for estafa with the Office of the Provincial Prosecutor of Makati. the petitioners paid the balance of their loan with the bank in the amount of P1. conformably to said deed. The respondent was also informed that the petitioners had earlier paid the amount of P27. jointly and severally. the owner's duplicate of the title would be released to him.26 and released the owner's duplicate of title of TCT No. after due proceedings. PLAINTIFF FURTHER PRAYS for such other remedies and relief as are just or equitable in the premises.19 On even date. the latter are willing to deliver the title sought by plaintiff under the terms set out in their letters dated January 3. jointly and severally.981.67 and enclosed Interbank Check No.000.balance of the loan. 1986. Registry of Deeds for Pasay City. and confirmed its refusal in a Letter dated December 24. respondent Rogelio Miranda wrote the PSB.27 On January 17.33 as exemplary damages by way of example or correction for the public good.21 On January 2. (b) Ordering defendants. 1987 against respondent Rogelio Miranda with the Regional Trial Court of Makati. as actual or compensatory damages representing the unreturned price of the land. hereto marked as Annexes "1. and in having such claim annotated at the dorsal portion of his title over the property he mortgaged to the Manila Banking Corporation. docketed as I.000. on December 29. reiterating that he would release the title in exchange for his cash settlement of P29." "1-B" and "1-C. and his attorney's fees in Civil Case No.00 as exemplary damages by way of example or correction for the public good.000. (e) Ordering defendants. as follows: (a) To pay to plaintiff the sum of P267.67 was refunded.67 which he had paid to the PSB on December 12 and 19.22 On January 2. The bank refused respondent Rogelio Miranda's offer to pay the loan. The trial court consolidated the cases in Branch 62 of the RTC. (c) Ordering defendants. (c) To pay to plaintiff the sum of P1. 2974. 1987.29 47 CIVIL LAW REVIEW 2 . 100156. the bank informed the respondent that it was not bound by said deed. (e) To pay to plaintiff the sum of P100. to pay to plaintiff the sum of P867.081. and (f) Ordering the issuance of a Writ of Attachment against the properties of defendants Rayos spouses as security for the satisfaction of any judgment that may be recovered. impleading the officers of the PSB as parties-defendants. the petitioner wrote the respondent on January 3. That plaintiff has no cause of action against defendants Rayos. No. 1986 that as soon as his payment to the PSB of P29. 100156.000. 5. PLAINTIFF further prays for such other remedies and relief as are just or equitable in the premises. Respondent Rogelio Miranda prayed that: WHEREFORE. 87-150. (d) To pay to plaintiff the sum of P100. the petitioners received the complaint in Civil Case No. Respondent Rogelio Miranda filed an Amended Complaint in Civil Case No. Rayos and Mercedes T.000. docketed as Administrative Case No.41 on the loan.39 and were issued a receipt therefor. judgment be rendered in his favor. In the meantime. with legal interest from date of demand. filed a complaint for disbarment in this Court against petitioner Orlando Rayos. petitioner Orlando Rayos wrote respondent Rogelio Miranda. The case was docketed as Civil Case No."28 Petitioner Orlando Rayos filed a complaint on February 1. jointly. he had paid the entirety thereof to the petitioners. despite the existence of the deed of sale with assumption of mortgage executed by him and the petitioners. thus: (b) To pay to plaintiff the sum of P500.23 The trial court granted the respondent's plea for a writ of preliminary attachment on a bond of P260. it is respectfully prayed that judgment be rendered in favor of plaintiff and against defendants. 1987. After posting the requisite bond.223.00 as consequential damages. The respondent alleged inter alia that the petitioners and the PSB conspired to prevent him from paying the last quarterly payment of the petitioners' loan with the bank.421.

In a Resolution dated July 26. On November 15. which payments were duly and accordingly receipted. 15639 agreed to submit the case for the trial court's decision on the basis of their pleadings and their respective affidavits.45 from Rogelio Miranda. HE CANNOT NOW DEMAND SPECIFIC PERFORMANCE AND THE COURT A QUO SHOULD HAVE LEFT THE PARTIES AS THEY ARE. Raul Totanes.30 The court also denied the respondents' motion for reconsideration of the Order of the court. then Undersecretary of Justice Silvestre Bello III affirmed the Public Prosecutor's resolution in I. and Belinda Lim.34 On January 29. 11. THE CA COMMITTED AN ERROR IN FINDING BOTH PARTIES GUILTY OF FIRST VIOLATING THE OBLIGATIONS INCUMBENT UPON THEM EVEN INFERRING THAT PETITIONERS COMMITTED THE BREACH FIRST BUT LATER CONCLUDING THAT THE BREACH WAS COMMITTED BY BOTH PARTIES. ALFREDO BERWIN & CO. Rayos paid to PS Bank as the last amortization and as release of mortgage fee. (b) Dismissing the complaint for damages of Plaintiff Rogelio Miranda against Spouses Orlando and Remedios (sic) T. while the counterclaims of PS Bank. 15639. Cesar I. as follows: I. The respondents. 27. MIRANDA COMMITTED A BREACH OF CONTRACT IN NOT PAYING THE FULL CONTINGENT FEE OF 30% IN WRITING IN THE MANILABANK CASE AND BECAUSE OF THAT BREACH. Valenzuela. THE COURT A QUO COMMITTED A GRAVE ERROR IN NOT FINDING THAT ROGELIO A. the dispositive portion of which reads: WHEREFORE. Rayos the total sum of P29. for insufficiency of evidence. 1988. are likewise dismissed for insufficiency of evidence. Jose Araullo. 1989. The acceptance of the payments made by the plaintiff for three (3) amortizations on the loan of defendants Spouses Rayos was merely allowed upon the insistence of the plaintiff. 1989. Dionisio Hernandez. The trial court admitted the said complaint. thus: No costs in both cases. judgment is hereby rendered.32 The parties in Civil Case No. Spouses Orlando and Mercedes T. THE COURT OF APPEALS (CA) COMMITTED AN ERROR IN NOT FINDING THAT THE PRIVATE RESPONDENT MIRANDA COMMITTED THE FIRST BREACH FOR FAILURE TO ASSUME THE LOAN THUS HE FAILED TO SURROGATE (sic) HIMSELF TO PSB.19 at 12% interest per annum.069. 1998. thereafter. & MEDEL" IS APPLICABLE FOUR SQUARE WHEREBY HE WHO BREACHES HIS CONTRACT IS NOT ENTITLED TO SPECIFIC PERFORMANCE.In the meantime.A. with the modification abovestated.33 On January 30. petitioner Orlando Rayos filed an Amended Complaint in Civil Case No. III. FROM THE 48 CIVIL LAW REVIEW 2 . Cesar (c) The counterclaims of Spouses Orlando and Mercedes T. the petitioners sold the property to Spouses Mario and Enriqueta Ercia for P144. appending thereto a copy of the Contract to Sell in favor of the respondents. because the credit standing of the plaintiff was found out to be not good. IT DID NOT MAKE A CORRECT ASSESSMENT OF WHO ACTUALLY COMMITTED THE FIRST BREACH. the PSB and its officers filed their Answer in Civil Case No. 15984. Valenzuela. thus: WHEREFORE. Rayos will be treated in Civil Case No. 15984 impleading his wife and that of respondent Rogelio Miranda as parties to the case. P. (a) In Civil Case No. 1987. and upon receipt of the sum of P29. and alleged the following by way of special and/or affirmative defenses.S.35 The petitioners appealed the decision to the Court of Appeals contending that: I. On May 18. and Belinda Lim. this Court rendered its Decision dismissing the complaint for disbarment against Rayos. this Court orders plaintiff Rogelio Miranda to refund to spouses Orlando and Mercedes T. 1987 until fully paid.45. the trial court rendered judgment. THE CA COMMITTED AN ERROR IN FINDING THAT PETITIONERS PRE-EMPTED PRIVATE RESPONDENT MIRANDA IN DEPOSITING THE LAST AMORTIZATION WHEN MIRANDA HAD NO LEGAL STANDING WITH PSB DUE TO THE LATTER'S NONAPPROVAL OF THE ASSUMPTION OF THE LOAN. 1987. is hereby AFFIRMED. On May 26. II. premises considered. Valenzuela. II. the Court of Appeals rendered judgment affirming with modification the decision of the RTC. the trial court issued an Order granting the petitioners' motion in Civil Case No. On July 9. 87150. filed a petition for review with the Court of Appeals for the nullification of the said Order. the appealed decision of the Regional Trial Court of Makati City. 1987. Valenzuela. Rayos shall deliver to Rogelio Miranda Transfer Certificate of Title No. and said acceptance was in accordance with the terms of the Real Estate Mortgage executed by the defendants Spouses Rayos in favor of the defendant PSBank and is also allowed by law. 15639. Raul T. without any interest. Rayos. 28. from the date of the filing of the complaint on Feb. Nestor E. 1989. 15984. 100156 of the Registry of Deeds of Pasay City.069. and. SO ORDERED.00. THE COURT A QUO SIMILARLY COMMITTED AN ERROR IN NOT FINDING THAT THE DECISION IN "SEVA VS. 15639. The said spouses were not impleaded as parties-defendants in Civil Case No. In Civil Case No. Nestor E.133. 15639 for the discharge of the attachment on their property. 1993. and ascribed the following errors on the appellate court: I. Philippine Savings Bank. No. II.000. THE CA COMMITTED AN ERROR IN NOT ALLOWING THE OFFSET IF ITS DECISION STOOD OF THE AMOUNT OF P4. IV.36 On July 27. On March 4.19 PLUS 12% INT.37 The petitioners filed the instant petition. Totanes. Dionisio Hernandez. 15984. deliver to Rogelio Miranda the possession of the parcel of land described in the said title. and it was NOT even recommended by the Marketing Group of defendant PSBank for approval by its Top Management. the petitioners filed an amended complaint in Civil Case No. The application for the plaintiff to assume the mortgage loan of the defendants Spouses Rayos was not approved. this Court orders Defendant Rogelio Miranda to pay to Plaintiff Orlando Rayos the sum of P4. premises considered. the public prosecutor dismissed the charge of estafa against petitioner Orlando Rayos.133.31 The respondents appealed the resolution to the Department of Justice. Jose Araullo.

it behooved the Court of Appeals to apply Article 1192 of the Civil Code in the instant case. repudiation of an agreement validly entered into cannot be made without any ground or reason in law or in fact for such repudiation. Pre-Law and B.062. to the prejudice of the other party. that they were ready to execute the deed of absolute sale and turn over the owner's duplicate of TCT No. because he was beaten to the draw. the appellants had unilaterally cancelled the deed of sale with assumption of mortgage. Even if complainant was able to pay the last installment of the mortgage loan. The petitioners fault the Court of Appeals for not relying on the resolution of Undersecretary Silvestre Bello III affirming the dismissal of the criminal complaint for estafa in I. No. likewise. 100156 upon the respondents' remittance of the amount of P29.43 In fact. In short. He may also seek rescission. but he was refused by the bank. In fact. for some reasons. or to proceed contrary thereto. 100156 unless the respondents refunded the said amount. that the sale of the property covered by the mortgage does not in any manner relieve the mortgagor of his obligation but that "on the contrary. We find respondent spouses' version that when complainant's application to assume the mortgage loan was disapproved he begged that he be allowed to pay the quarterly amortization credible. Respondent Orland Rayos paid the last amortization when it became apparent that complainant would not be able to give the payment on the due date as he was still trying to sell his Lancer car. both the vendor and the vendee." There is every reason to believe that it was pursuant to the said provision in the real estate mortgage that complainant tried to assume the loan obligation of the Rayoses by filling up and submitted the loan application (page 30. in case one of the obligors should not comply with what is incumbent upon him. Rayos. 1986. even after he has chosen fulfillment. In the same way that the Rayos spouses must respect their contract with the Mirandas for the sale of real property and assumption of mortgage. The petitioners cannot.39 where it was also held that petitioner Orlando Rayos paid the last quarterly installment because he thought that the respondents would not be able to pay the same. The petitioners contend that even if the parties committed a breach of their respective obligations under the contract to sell. respondents' version is more satisfactory and convincing. by the appellants. he is not an ordinary layman. This is understood to be without prejudice to the rights of third persons who have acquired the thing. ALFRED BERWIN & CO. there was no substitution of parties and so he had to pay for the account of respondent spouses as shown by the receipts issued by the PSB. records) sent by Orland Rayos. ENTIRELY DISREGARDING THE DECISION OF THE TRIAL COURT IN SAID CASE ALLOWING ONLY THE DECISION IN CV 15639. injudicious as under Article 1308 of the Civil Code. Hence.40 The Court of Appeals erred in so ruling. The respondents were obliged under the contract to sell to pay the said amount to the PSB as part of the purchase price of the property. if the latter should become impossible. the petitioners did not unilaterally cancel their contract to sell with the respondents when they paid the total amount of P29. be faulted for refusing to execute a deed of absolute sale over the property in favor of the respondents. This conduct by the appellants is. The court shall decree the rescission claimed. The injured party may choose between the fulfillment and the rescission of the obligation. jointly and severally. He is a degree holder (A. unless there be just cause authorizing the fixing of a period. Appellants were able to do so because.FILING OF THE COMPLAINT (CV 15984). liable for said mortgage obligations.C. 87-150. By signing the loan application and the general information sheet (page 31. it cannot be argued by the 49 CIVIL LAW REVIEW 2 .80 to the PSB in December 1986.38 The petitioners assert that the Court of Appeals erred in not finding that the respondents first committed a breach of their contract to sell upon their failure to pay the amount due for the last quarterly installment of their loan from the PSB. In doing so. There is no sufficient showing that Miranda was in danger of defaulting on the said payment. so to speak. owing to the fact that complainant made the payments for the account of the Rayoses.S. once a contract is entered into. coupled by its denial of the respondents' request to assume the payment of the loan.42 Contrary to the ruling of the Court of Appeals. On the other hand. The petitioners argue that they had no other alternative but to pay the last quarterly installment due on their loan with the PSB. it appears that he approached the bank to tender payment. THUS. THE CA COMMITTED AN ERROR IN NOT APPLYING THE DECSION (sic) LAID DOWN IN "SEVA VS. they should not have preempted Miranda in paying the final amortization. contracts must bind both contracting parties and their validity or compliance cannot be left to the will of one of them. no party can renounce it unilaterally or without the consent of the other. among others. the Mirandas' assumption of the mortgage has not been approved by the bank. to say the least.) and Acting Municipal Treasurer of Las Piñas. with the payment of damages in either case. records) in connection with said application. Rayos. In a regime of law and order.B. 1987. The findings and disquisitions of the Court of Appeals cannot prevail over our findings in Miranda v. without the consent of the Mirandas.41 a case which involves the same parties. AND MEDEL" THAT A PERSON HIMSELF AT FAULT CANNOT ENFORCE SPECIFIC PERFORMANCE. as cited by this Court in its decision in Miranda v. the title would not be released to him as he knew very well that his application to assume the mortgage was disapproved and he had no personality as far as PSB was concerned. and where we held that the petitioners cannot be faulted for paying the amortization due for the last quarterly installment on their loan with the PSB: It is difficult to imagine that complainant would be so naïve as to be totally unaware of the provisions of the original contract between the PSB and the spouses Rayos.223. The petition has no merit. They insist that they did not block the respondents' payment of the balance of the loan with the bank.67. Even if the appellants wanted to keep their good credit standing. complainant showed that he knew that there was a need to formally apply to the bank in order for him to assume the mortgage. in the same manner.S. It is As for the charge that Rayos paid the last installment to block complainant from getting the title and transferring the same to his name. Just as nobody can be forced to enter into a contract. complainant knew that since his application to the PSB was not approved. V. The petitioners reiterated the same stance in their Answer with Counterclaim in Civil Case No. a general principle of law that no one may be permitted to change his mind or disavow and go back upon his own acts. The assailed ruling of the Court of Appeals reads: After due study. 15639. considering that they received a demand letter from the bank on November 28. 5 and 17. and in refusing to turn over the owner's duplicate of TCT No. which reads: … The power to rescind obligation is implied in reciprocal ones. As a buyer with a knowledge of law. the petitioners wrote the respondents on January 3. it was unnatural for him to read the provisions of the real estate mortgage wherein it is provided. or the party in whose favor the alienation or encumbrance is made shall be. Rogelio Miranda has to recognize his obligations under his agreement to pay contingent attorney's fees to Orlando Rayos. in accordance with articles 1385 and 1388 and the Mortgage Law. the Court finds that there was no basis in fact and law for the appellants to usurp the payment of the last amortization on the mortgage upon the parcel of land it had conveyed to the Mirandas.

Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. On August 1." Costs against the petitioners. vs. resulting in the cancellation of his TCT 140646 and the issuance of TCT N-172342 in Chua’s name.49 The parties stand as if the conditional obligation had never existed. 2004 the RTC rendered a decision in the case.45 Construing the contracts together. petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia. 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City lot1 in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). Respondent. After full payment of the loan or on March 21. Court of Appeals. who intervened. Rosa Sy.2 (Emphasis supplied) The mortgage and the restriction on sale were annotated on the Alfaros’ title on April 14. Thus: x x x. rendered the contract to sell ineffective and without force and effect. except as to the factual finding that the petitioners "usurped the payment of the last amortization on the mortgage upon the parcel of land. cannot be alienated. the petitioners had decided before and after the respondents filed this complaint in Civil Case No. failure of which is not really a breach but an event that prevents the obligation of the vendor to convey title in accordance with Article 1184 of the Civil Code. Victor registered the November 30. 5. Petitioners. which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property. registration expenses for the transfer of title including the notarization and preparation of this Contract and subsequent documents if any are to be executed. 2008 the CA reversed the RTC decision and found the NHA entitled to rescission. although the Alfaros clearly violated the five-year prohibition. To determine the intention of the parties. had a house built on the property and paid for the amortizations. 1981. IN VIEW OF ALL THE FOREGOING. or any part thereof.47 In Lacanilao v. 1991 the NHA released the mortgage. 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the annulment of the NHA’s 1980 sale of the land to the Alfaros. 1985. 1995 Victor mortgaged the land to Marcela Lao Chua. applying Article 1389 of the New Civil Code. but an event that prevents the obligation of the petitioners to convey title from arising. This case is about (a) the right of the National Housing Authority to seek annulment of sales made by housing beneficiaries of lands they bought from it within the prohibited period and (b) the distinction between actions for rescission instituted under Article 1191 of the Civil Code and those instituted under Article 1381 of the same code. the agreement is a contract to sell.50 There can be no rescission of an obligation that is still non-existing. and the subsequent sale of the same to Chua.67. 46727 is AFFIRMED. to execute the deed of absolute sale over the property and cause the transfer of the title of the subject property to the respondents.48 we held that: It is well established that where the seller promised to execute a deed of absolute sale upon completion of payment of the purchase price by the buyer. the SELLER shall execute a Deed of Absolute Sale in favor of the BUYER that the payment of capital gains tax shall be for the account of the SELLER and that documentary stamps. In contracts to sell. filed their respective appeals to the Court of Appeals (CA). SO ORDERED. Amparo Ong. Victor Alfaro. thus. made in violation of NHA rules and regulations. On February 12. 1997 Victor sold the property to Chua. G. The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. who had the means. the SELLER hereby represents that all association dues has been paid but that subsequent to the execution of this Contract the payment of the same shall devolve upon the BUYER. on February 14.R. Cecilia. the latter’s 1990 sale of the land to their son Victor. The NHA and the Lalicons. The petitioners retained ownership without further remedies by the respondents46 until the payment of the purchase price of the property in full. Subsequently. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons 50 CIVIL LAW REVIEW 2 . The Facts and the Case On November 25. the Quezon City Registry of Deeds issued Transfer Certificate of Title (TCT) 277321 in the name of the Alfaros. Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. 1986. and Ida See. where ownership is retained by the seller until payment of the price in full.67. while the mortgage on the land subsisted.223. real estate taxes from January 1. The Court of Appeals cannot. x x x.223. the NHA could no longer rescind its sale to them since its right to do so had already prescribed. 1990. About nine years later or on November 30. and the petitioners may agree thereto and accept the respondents' late payment. in accordance with Article 1184 of the Civil Code. 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). 15984 for the collection of the said amount. On December 14.223. 1990 sale of the land in his favor. About four and a half years after the release of the mortgage or on October 4. Such payment is a positive suspensive condition. the suspensive condition not having happened. Except by hereditary succession. No. one of the mortgagees. with whom he had two daughters. provided that the property has not been sold to a third-party who acted in good faith. who had taken in a common-law wife. that the Alfaros could sell the land within five years from the date of its release from mortgage without NHA’s prior written consent. inclusive of the quarterly installments due on the petitioners' loan with the PSB: 3. The deed of sale provided. among others. resulting in the cancellation of his parents’ title. the lot herein sold and conveyed. It bears stressing that the petitioners and the respondents executed two interrelated contracts. CV No. That upon full payment of the consideration hereof. In due time. 185440 July 13. be faulted for affirming the decision of the trial court and ordering the petitioners to convey the property to the respondents upon the latter's payment of the amount of P29. such payment is a positive suspensive condition. transfer tax. The non-fulfillment by the respondent of his obligation to pay. viz: the Deed of Sale with Assumption of Mortgage dated December 26.67. NATIONAL HOUSING AUTHORITY. 15639 to accept the payment of P29.petitioners that the respondents committed a breach of their obligation when they refused to refund the said amount.52 In this case. The Decision of the Court of Appeals in CA-G. and the Contract to Sell dated January 29. 2011 VICELET LALICON and VICELEN LALICON. A year later or on April 10. the petitioners bound and obliged themselves to execute a deed of absolute sale over the property and transfer title thereon to the respondents after the payment of the full purchase price of the property. the petition is DENIED DUE COURSE. the respondents may reinstate the contract to sell by paying the P29.51 However. it is evident that the parties executed a contract to sell and not a contract of sale.R. The register of deeds issued TCT 140646 in Victor’s name. 1986 and other miscellaneous expenses shall be for the account of the BUYER. failure of which is not really a breach. the two contracts must be read and interpreted together. The petitioners even filed its amended complaint in Civil Case No. the Alfaros sold the same to their son. 1995. serious or otherwise. It ruled that.44 Under the two contracts.

Chua cannot claim lack of awareness of the illegality of Victor’s acquisition of the property from the Alfaros. The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the resale of the subject property. Rescission under Article 1381. the NHA sought annulment of the Alfaros’ sale to Victor because they violated the five-year restriction against such sale provided in their contract. Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA. The Rulings of the Court First. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date of the release of the mortgage in their favor. 1991. who paid the amortizations and occupied the property. or Chua. as principal actions. with payment of damages in either case. here at least within five years from the time he acquired it free from any encumbrance. CV 82298 dated August 1. party to rescission. And the resale without the NHA’s consent is a substantial breach. with 6% interest per annum from the time of the finality of this judgment. Chua knew. The five-year restriction against resale. the Court AFFIRMS the Decision of the Court of Appeals in CA-G. based on the annotated restriction on the property. Third. 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. that Victor had no right to mortgage the property to her group considering that the Alfaros could not yet sell the same to him without the NHA’s consent. measures out the desired hold that the government felt it needed to ensure that its objective of providing cheap housing for the homeless is not defeated by wily entrepreneurs. therefore. Since the five-year prohibition against alienation without the NHA’s written consent was annotated on the property’s title." 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 51 CIVIL LAW REVIEW 2 . Here. plus interest. But the Lalicons are trying to be clever. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. 2008. she and a few others with her took the property by way of mortgage from Victor in 1995. 5 the NHA must return the full amount of the amortizations it received for the property. the Lalicons very well knew that the Alfaros’ sale of the property to their father. well within the prohibited period. The restriction clause is more of a condition on the sale of the property to the Alfaros rather than a condition on the mortgage constituted on it. the CA decision ordering the restitution in favor of the Lalicons has now become final and binding against them. But an action for rescission can proceed from either Article 1191 or Article 1381. 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. The essence of the government’s socialized housing program is to preserve the beneficiary’s ownerships for a reasonable length of time. Lastly. SO ORDERED. Whether or not the NHA’s right to rescind has prescribed. 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. The Lalicons contend. not based on a party’s breach of obligation. Invoking the RTC ruling. Clearly. Victor. not a transfer of the same prior to such release. the prohibition against resale remained even after the land had been released from the mortgage. Consequently. and 3. cannot be affected by the rescission. was taken from Article 1291 of the Old Civil Code. 1992 when it learned of the Alfaros’ forbidden sale of the property to Victor. Second. As regards Chua. however. therefore. that the Alfaros did not violate the five-year restriction against resale since what the contract between the parties barred was a transfer of the property within five years from the release of the mortgage.4 The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381. WHEREFORE. 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. But the NHA had no obligation to grant the Lalicons’ request for exemption from the five-year restriction as to warrant their proceeding with the sale when such consent was not immediately forthcoming.R. 1998. either a rescission or specific performance of the obligation. even before the release of the mortgage violated that prohibition. although Victor later sold the property to Chua after the five-year restriction had lapsed. 2. the Alfaros violated the five-year restriction.3 But the Alfaros sold the property to Victor on November 30. thus entitling the NHA to rescind the contract. plus the value of the improvements introduced on the same.1avvphi1 The NHA’s right of action accrued on February 18. Chua’s appeal to the Court in a separate case6 having been denied due course and NHA failing to file its own petition for review. which is a subsidiary action. since mutual restitution is required in cases involving rescission under Article 1191.the full amount of their amortization. Indeed. The Issues Presented The issues in this case are: 1. Whether or not the subsequent buyers of the land acted in good faith and their rights. 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. They also claim that their failure to get NHA’s prior written consent was not such a substantial breach that warranted rescission. 1990 even before the NHA could release the mortgage in their favor on March 21. Resolution grants the injured party the option to pursue. counted from the release of the property from the NHA mortgage. it did so well within the 10-year prescriptive period. Thus. and the value of the improvements they constructed on the property. on the other hand. Since the NHA filed its action for annulment of sale on April 10.