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ARTICLE 1191

Areola v CA

2. W/N reinstatement of insurance policy in order to rectify the


error, obliterate the liability for damages?

FACTS:

Ruling

December 17, 1984: Prudential Guarantee And Assurance, Inc.


issued collector's provisional receipt amounting to P1,609.65

Contract of insurance creates reciprocal obligations for both


insurer and insured

June 29, 1985: 7 months after the issuance of petitioner Santos


Areola's Personal Accident Insurance Policy, Prudential Guarantee
And Assurance, Inc. unilaterally cancelled it for failing to pay his
premiums through its manager Teofilo M. Malapit
Shocked by the cancellation of the policy, Santos approached
Carlito Ang, agent of Prudential and demanded the issuance of an
official receipt. Ang told Santos that it was a mistake and assured
its rectification.
July 15, 1985: Santos demanded the same terms and same rate
increase as when he paid the provincial receipt but Malapit insisted
that the partial payment he made was exhausted and that he
should pay the balance or his policy will cease to operate
July 25, 1985 : Assistant Vice-President Mariano M. Ampil III
apologized
August 6, 1985 had filed a complaint for breach of contract with
damages before the lower court
August 13, 1985: Santos received through Carlito Ang the leeter of
Assistant Vice-President Mariano M. Ampil III finding error on their
part since premiums were not remitted Malapit, proposed to
extend its lifetime to December 17, 1985
RTC: favored Santos - Prudential in Bad Faith
CA: Reversed - not motivated by negligence, malice or bad faith in
cancelling subject policy
ISSUE: W/N the Areolas can file against damages despite the effort
to rectify the cancellation
HELD: YES. RTC reinstated
Malapit's fraudulent act of misappropriating the premiums paid is
beyond doubt directly imputable to Prudential
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
tacitly.
Subsequent reinstatement could not possibly absolve Prudential
there being an obvious breach of contract
a contract of insurance creates reciprocal obligations for both
insurer and insured
Article 1191
choice between fulfillment or rescission of the obligation in case
one of the obligors fails to comply with what is incumbent upon
him
entitles the injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the obligation
Nominal damages are "recoverable where a legal right is
technically violated and must be vindicated against an invasion
that has produced no actual present loss of any kind, or where
there has been a breach of contract and no substantial injury or
actual damages whatsoever have been or can be shown.
Other source:
Facts
A Personal Accident Insurance Policy was issued to the petitioner
by respondent company
Private respondent cancelled the same since company records
revealed that P failed to pay his premiums
It was submitted that the fraudulent act of Malapit, manager of
PR's branch office in Baguio in misappropriating funds is the
proximate cause of cancellation of the policy

Under Art. 1191 (2), the injured party is given a choice between
fulfillment or rescission of obligation in case one of the obligors
fails to comply with what is incumbent upon him. Said article
entitles injured party to payment of damages whether he demands
fulfillment or rescission. Untenable then is PR's argument, namely
reinstatement being equivalent to fulfillment of its obligation,
divests petitioner's rightful claim over damages
P should be awarded with damages- nominal damages since no
substantial injury or actual damages have been shown.
Facts only
FACTS: Santos Areola, a lawyer from Dagupan City, availed of a
Personal Accident InsurancePolicy from Prudential, but seven
months after the issuance of the policy, On June 29,
1985,Prudential unilaterally cancelled the policy because company
records revealed that Areolafailed to pay his premiums.A few days
later, however, Prudential found out that Areola actually paid the
premiums andthat the branch manager, Teofilo Malapit, failed to
remit them. Thus, Prudential offered toreinstate the policy and
even proposed to extend its lifetime to December 17, 1985.Areola
filed a suit for breach of contract and damages against Prudential.
(Some details about the policy)
Obtained from Baguio branch of Prudential, for one year (Nov
1984-Nov 1985), premium of1470 but total monthly was 1609.5
(doc stamp 110.25, 2% premium tax of 29.4). The policystates that
the Statement of Account is not a receipt and an official receipt will
be given afterpayment but if payment is done through a
representative, payor will be given a provisionalreceipt. Areola was
given provisional receipt but Malapit just failed to remit and
thereforeAreola received no official receipt. Areola sent demand
letters for immediate reinstatement,bank apologized but did not
immediately reinstate, so he filed the case. The insurance
agentwas Carlito Ang.
Ong v CA
Facts
Petitioner Jaime Ong and Respondent spouses Robles an
Agreement of Purchase and Sale (Nota Bene: Contract to Sell)
with regards two parcels of land with a rice mill and piggery
situated at Quezon for P2M. As part of the terms and conditions,
petitioner shall advance downpayment of 300K, shall pay the loan
of the spouses of the bank, and will pay the balance of the
purchase price quarterly.
Petitioner was able to pay the downpayment and subsequently
occupied the property. However, he gave the spouses postdated
checks which were dishonored due to insufficient funds. To make it
worse, he was not able to fully pay the loan of the spouses in the
bank.
The bank threatened to foreclose the mortgage, so what the
spouses did was to sell three of the transformers of the rice mill in
order to satisfy the loan obligation.
Respondents now want to rescind the contract on account of Ongs
non-fulfillment of obligation and seek to recover the property with
damages.
RTC upheld the rescission and ordered mutual restitution as well as
awarded exemplary damages. The CA deleted the award of
exemplary damages.
Issue:
1. WON the respondent spouses may rescind the contract? YES,
but rescind through 1191 and not 1381.

PR ordered for reinstatement of insurance policy

2. WON there was novation of obligation? NO. (But we wont tackle


it here yet.)

However, complaint for breach of contract with damages had


already been filed by P

Held:

Issues
1. W/N erroneous cancellation of insurance policy entitle petitionerinsured to payment of damages?

The Robles spouses bound themselves to deliver a deed of


absolute sale and clean title covering the two parcels of land upon
full payment by the buyer of the purchase price of P2,000,000.00
(since it is a contract to sell diba?) This promise to sell was subject
to the fulfillment of the suspensive condition of full payment of the

purchase price by the petitioner. Petitioner, however, failed to


complete payment of the purchase price. The non-fulfillment of the
condition of full payment rendered the contract to sell ineffective
and without force and effect.
It must be stressed that the breach contemplated in Article 1191
of the New Civil Code is the obligors failure to comply with an
obligation. Failure to pay, in this instance, is not even a breach but
merely an event which prevents the vendors obligation to convey
title from acquiring binding force. Hence, the agreement of the
parties in the case at bench may be set aside, but not because of a
breach on the part of petitioner for failure to complete payment of
the purchase price. Rather, his failure to do so brought about a
situation which prevented the obligation of respondent spouses to
convey title from acquiring an obligatory force.
1191 vs. 1381
Although both presuppose contracts validly entered into and
subsisting and both require mutual restitution when proper, they
are not entirely identical. Articles 1380 is a remedy granted by law
to the contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if this
should be valid, by restoration of things to their condition at the
moment prior to the celebration of the contract. It implies a
contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone. Article 1191 of the New Civil Code
refers to rescission applicable to reciprocal obligations. Rescission
under Article 1191 is a principal action which is based on breach of
a party, while rescission under Article 1381 is a subsidiary action
limited to cases of rescissible contracts.
UP v Delos Angeles
FACTS:

other words, it is not always necessary for the injured party to


resort to court for rescission of the contract.
Other source:
FACTS:
UP was given a land grant which shall be developed to obtain
additional income for its support.
UP and ALUMCO entered into a logging agreement where
ALUMCO was granted the exclusive authority for an extendible
period of 5 years (by mutual agreement), to cut and remove
timber from the land grant inconsideration of royalties and fees to
be paid to UP.
ALUMCO incurred an unpaid amount of P219,363. UP demanded
payment but it failed to pay. ALUMCO received a letter that UP
would rescind or terminate their logging agreement. They
executed an instrument Acknowledgement of Debt & Proposed
Manner of Payment which the UP President approved. ALUMCO
agreed to give their creditor (UP) the right to consider the logging
agreement as rescinded without necessity of any judicial suit and
creditor will be entitled to P50,000 for liquidated damages.
ALUMCO continued logging but still incurred unpaid accounts. UP
then informed them that as of that date, they considered
rescinded the agreement and of no further legal effect. UP then
filed for collection of the unpaid accounts and the trial court gave
them preliminary injunction to prevent ALUMCO from continuing
their logging.
Through a public bidding, the concession was awarded to Sta.
Clara Lumber Company and a new agreement was entered into
between them and UP.
ALUMCO tried to enjoin the bidding but the contract was already
concluded and Sta. Clara started its operation.

On November 2, 1960, UP and ALUMCO entered into a logging


agreement whereby the latter was granted exclusive authority to
cut, collect and remove timber from the Land Grant for a period
starting from the date of agreement to December 31, 1965,
extendible for a period of 5 years by mutual agreement.

Upon motion by ALUMCO, UP was declared in contempt of court


for violating the writ of injunction against them.

On December 8, 1964, ALUMCO incurred an unpaid account of


P219,362.94. Despite repeated demands, ALUMCO still failed to
pay, so UP sent a notice to rescind the logging agreement. On the
other hand, ALUMCO executed an instrument entitled
Acknowledgment of Debt and Proposed Manner of Payments. It
was approved by the president of UP, which stipulated the
following:

b. Logs cut were rotten; thus, they were unable to sell them.

3. In the event that the payments called for are not sufficient to
liquidate the foregoing indebtedness, the balance outstanding
after the said payments have been applied shall be paid by the
debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its
promises, the Debtor agrees without reservation that Creditor shall
have the right to consider the Logging Agreement rescinded,
without the necessity of any judicial suit ALUMCO continued its
logging operations, but again incurred an unpaid account. On July
19,1965, UP informed ALUMCO that it had, as of that date,
considered rescinded and of no further legal effect the logging
agreement, and that UP had already taken steps to have another
concessionaire take over the logging operation. ALUMCO filed a
petition to enjoin UP from conducting the bidding. The lower court
ruled in favor of ALUMCO, hence, this appeal.
ISSUE:
Can petitioner UP treat its contract with ALUMCO rescinded, and
may disregard the same before any judicial pronouncement to that
effect?
RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated
that upon default by the debtor, UP has the right and the power to
consider the Logging Agreement of December 2, 1960 as
rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the Civil
Code, the Supreme Court, stated in Froilan vs. Pan Oriental
Shipping Co:
There is nothing in the law that prohibits the parties from entering
into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In

ALUMCOs contentions are the following:


a. It blamed its former general manager for their failure to pay
their account.
c. UPs unilateral rescission was invalid without a court order.
ISSUE: W/N UP can validly rescind its agreement with ALUMCO
even without court order. Yes. UP can unilaterally rescind the
agreement.
HELD:
UP and ALUMCO expressly stipulated in their Acknowledgement
of Debt that upon default of payment, creditor UP has the right
and power to rescind their Logging Agreement without the
necessity of a judicial suit.
There is nothing in the law that prohibits the parties from
entering into agreements that violation of terms of the contract
would cause its cancellation even without court intervention.
Act of a party in treating a contract as cancelled on account of
any infraction by the other party must be made known to the other
and is always provisional, being subject to scrutiny and review by
the proper court. If the other party deems the rescission
unjustified, he free to resort to judicial action. The court shall, after
due hearing, decide if the rescission was proper, in which case it
will be affirmed and if not proper, the responsible party will be
liable for damages.
A party who deems the contract violated may consider it
rescinded and act accordingly, even without court action but it
proceeds at its own risk. Only the final judgment of the court will
conclusively settle whether the action taken was proper or not. But
the law does not prohibit the parties from exercising due diligence
to minimize their own damages.
UP was able to show a prima facie case of breach of contract and
default in payment by ALUMCO. Excuses by ALUMCO are not
proper for them to suspend their payments.
Froilan v Pan Oriental
Facts:
Plaintiff, Fernando Froilan filed a complaint against the defendantappellant, Pan Oriental Shipping Co., alleging that he purchased

from the Shipping Commission the vessel for P200,000, paying


P50,000 down and agreeing to pay the balance in instalments. To
secure the payment of the balance of the purchase price, he
executed a chattel mortgage of said vessel in favor of the Shipping
Commission. For various reasons, among them the non-payment of
the installments, the Shipping Commission tool possession of said
vessel and considered the contract of sale cancelled. The Shipping
Commission chartered and delivered said vessel to the defendantappellant Pan Oriental Shipping Co. subject to the approval of the
President of the Philippines. Plaintiff appealed the action of the
Shipping Commission to the President of the Philippines and, in its
meeting the Cabinet restored him to all his rights under his original
contract with the Shipping Commission. Plaintiff had repeatedly
demanded from the Pan Oriental Shipping Co. the possession of
the vessel in question but the latter refused to do so.
Plaintiff, prayed that, upon the approval of the bond accompanying
his complaint, a writ of replevin be issued for the seizure of said
vessel with all its equipment and appurtenances, and that after
hearing, he be adjudged to have the rightful possession thereof .
The lower court issued the writ of replevin prayed for by Froilan
and by virtue thereof the Pan Oriental Shipping Co. was divested of
its possession of said vessel.
Pan Oriental protested to this restoration of Plaintiff s rights under
the contract of sale, for the reason that when the vessel was
delivered to it, the Shipping Administration had authority to
dispose of said authority to the property, Plaintiff having already
relinquished whatever rights he may have thereon. Plaintiff paid
the required cash of P10,000.00 and as Pan Oriental refused to
surrender possession of the vessel, he filed an action to recover
possession thereof and have him declared the rightful owner of
said property. The Republic of the Philippines was allowed to
intervene in said civil case praying for the possession of the in
order that the chattel mortgage constituted thereon may be
foreclosed.
Issues:
Whether or not the Court has jurisdiction over the intervenor with
regard to the counterclaim.
Discussions:
When the government enters into a contract, for the State is then
deem to have divested itself of the mantle of sovereign immunity
and descended to the level of the ordinary individual. Having done
so, it becomes subject to judicial action and processes.
Rulings:
Yes. The Supreme Court held that the government impliedly
allowed itself to be sued when it filed a complaint in intervention
for the purpose of asserting claim for affirmative relief against the
plaintiff to the recovery of the vessel. The immunity of the state
from suits does not deprive it of the right to sue private parties in
its own courts. The state as plaintiff may avail itself of the different
forms of actions open to private litigants. In short, by taking the
initiative in an action against a private party, the state surrenders
its privileged position and comes down to the level of the
defendant. The latter automatically acquires, within certain limits,
the right to set up whatever claims and other defenses he might
have against the state.

8.Sarreal offered to move the fight to Oct 28 for it to be w/in the 30


day allowable postponement in the contract. Yulo refused. He was
willing to approve the fight on Nov 4 provided it will be promoted
by a certain Mamerto Besa.
9.The fight contemplated in the May 1 contract never materialized.
Boysaw and
10.Yulo sued Interphil, Sarreal and Nieto.
11.Boysaw was abroad when he was scheduled to take the witness
stand. Lower court reset the trial. Boysaw was still absent on the
later date. Court reset. On the third instance, a motion for
postponement was denied.
12.Boysaw and Yulo moved for a new trial, but it was denied.
Hence, this appeal.
ISSUES
1. WON there was a violation of the May 1 contract and if so, who
was guilty
2. WON there was legal ground for postponement of the fight
3. WON lower court erred in refusing postponement of the trial for
3rd time
4. WON lower court erred in denying new trial
5. WON lower court erred in awarding appellees damages
HELD
1. Boysaw violated the contract when he fought with Avila. Civil
Code provides, the power to rescind obligations is implied, in
reciprocal ones, (as in this case) in case one of the obligors shld
not comply w/ what is incumbent upon him. Another violation was
made in the transfers of managerial rights. These were in fact
novations which, to be valid, must be consented to by Interphil.
When a contract is unlawfully novated, the aggrieved creditor may
not deal with the substitute.
2. The appellees could have opted to rescind or refuse to recognize
the new manager, but all they wanted was to postpone the fight
owing to an injury Elorde sustained. The desire to postpone the
fight is lawful and reasonable.
The GAB did not act arbitrarily in acceding to the request to reset
the date of the fight and Yulo himself agreed to abide by the GAB
ruling.
The appellees offered to move the fight w/in the 30 day period for
postponement but this was refused by the appellants,
notwithstanding the fact that by virtue of the appellants
violations, they have forfeited any right to the enforcement of the
contract.
3. The issue of denial of postponement of trial was raised in
another petition for certiorari and prohibition. It cant be
resurrected in this case.
4. The court was correct in denying new trial. The alleged newly
discovered evidence are merely clearances fr clerk of court, which
cant alter the result of the trial.
5. Because the appellants willfully refused to participate in the
final hearing and refused to present documentary evidence, they
prevented themselves fr objecting to or presenting proof contrary
to those adduced by the appellees.

Boysaw v Interphil

Angeles v Calasanz

FACTS

Summary: A buyer of a property paid monthly installments for nine


years, but was five months late on the installment payment due.
The seller rescinded the contract and applied the installments
made as rentals.

1.On May 1, 1961, Boysaw and manager Ketchum signed


with Interphil (represented by Sarreal) a contract to engage Flash
Elorde in a boxing match at Rizal Memorial Stadium on Sept 30,
1961 or not later than 30 days shld a postponement be mutually
agreed upon. Boysaw, accdg to contract, shld not engage in other
bouts prior to the contest.
2.Interphil signed Elorde to a similar agreement.
3.Boysaw fought and defeated Louis Avila in Nevada.
4.Ketchum assigned to Amado Araneta his managerial rights, who
later transferred the rights to Alfredo Yulo.
5.Sarreal wrote to Games and Amusement Board (GAB) regarding
this switch of managers bec they werent notified.
6.GAB called for conferences and decided to schedule the ElordeBoysaw bout on
7.Nov 4, 1961. USA National Boxing Assoc approved.

Rule of Law: The act of a party in treating a contract as canceled or


resolved on account of infractions by the other is always
provisional, being ever subject to scrutiny and review by the
proper court.
Facts: Ursula and Tomas Calasanz (D) sold a piece of land to
Buenaventura Angeles (P) and Teofila Juani covered by a contract
to sell.
Angeles (P) paid a downpayment upon the execution of the
contract and started paying the balance in monthly installments.
Angeles (P) paid monthly installments for nine years with only a
few remaining installments left to pay. Although Calasanz (D)
accepted late payments before, Angeles (P) was now five months
late.

Calasanz (D) demanded payment of past due accounts, but did not
receive any. Eventually, Calansanz (D) canceled the said contract
because Angeles (P) failed to pay the subsequent payments.
Angeles (P) asked for reconsideration, but was denied.

cancelled the said contract because the plaintiffs failed to meet


subsequent payments. The plaintiffs letter with their plea for
reconsideration of the said cancellation was denied by the
defendants.

Angeles (P) filed a case to compel the Calasanz (D) to execute in


their favor the final deed of sale alleging that they have already
fully paid the total price of the property. Calasanz (D) alleged in
their answer that Angeles (P) violated the contract to sell when
they failed to pay a monthly installment.

The plaintiffs-appellees filed a case before the Court of First


Instance to compel the defendant to execute in their favor the final
deed of sale alleging inter alia that after computing all subsequent
payments for the land in question, they found out that they have
already paid the total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their answer that
the plaintiffs violated par. 6 of the contract to sell when they failed
and refused to pay and/or offer to pay monthly installments
corresponding to the month of August, 1966 for more than 5
months, thereby constraining the defendants to cancel the said
contract.

A provision in the contract to sell gave Calasanz (D) the right to


cancel the contract and consider the amounts paid as rent for the
property. However, the lower court ruled that the contract was not
validly canceled and ordered Calasanz (D) to execute a final Deed
of Sale in favor of Angeles (P)
Issues: Was the contract to sell validly canceled?
Ruling: No. The rule that it is not always necessary for the injured
party to resort to court for rescission of the contract when the
contract itself provides was qualified by this Court in University of
the Philippines v. De los Angeles, (35 SCRA 102) where we
explained (paraphrased) that:
Of course, the act of a party in treating a contract as canceled or
resolved on account of infractions by the other must be made
known to the other and is always provisional, being ever subject to
scrutiny and review by the proper court. If the other party denies
that rescission is justified, it is free to bring the matter to court.
Then, should the court decide that the resolution of the contract
was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed and
indemnity awarded to the party prejudiced.
In short, the party who deems the contract violated many consider
it resolved or rescinded without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the
court that will conclusively and finally settle whether the action
taken was or was not correct in law.
The right to rescind the contract for non-performance of one of its
stipulations, therefore, is not absolute. In Universal Food
Corporation vs. Court of Appeals (33 SCRA 1) the Court stated that:
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. (Song Fo & Co. vs.
Hawaiian-Philippine Co., 47 Phil. 821) The question of whether a
breach of a contract is substantial depends upon the attendant
circumstances. (Corpus vs. Alikpala, GR L-23707 & L-23720,
January 17, 1968)
The breach of the contract alleged by Calasanz (D) is so slight
considering that Angeles (P) had already paid monthly installments
for almost nine years. In only a short time, the entire obligation
would have been paid. To sanction the rescission made by
Calasanz (D) will work injustice to Angeles (P) and unjustly enrich
Calasanz (D).
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the Calasanz (P) in
cancelling the contract.
Other source:
FACTS:
On December 19, 1957, defendants-appellants Ursula Torres
Calasanz and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of land located
in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per
annum. The plaintiffs-appellees made a downpayment of P392.00
upon the execution of the contract. They promised to pay the
balance in monthly installments of P41.20 until fully paid, the
installment being due and payable on the 19th day of each month.
The plaintiffs-appellees paid the monthly installments until July
1966, when their aggregate payment already amounted to
P4,533.38.
On December 7, 1966, the defendants-appellants wrote the
plantiffs-appellees a letter requesting the remittance of past due
accounts. On January 28, 1967, the defendants-appellants

The Court of First Instance rendered judgment in favor of the


plaintiffs, hence this appeal.
ISSUE:
Has the Contract to Sell been automatically and validly cancelled
by the defendants-appellants?
RULING: No. While it is true that par.2 of the contract obligated the
plaintiffs-appellees to pay the defendants the sum of P3,920 plus
7% interest per annum, it is likewise true that under par 12 the
seller is obligated to transfer the title to the buyer upon payment
of the said price.
The contract to sell, being a contract of adhesion, must be
construed against the party causing it. The Supreme Court agree
with the observation of the plaintiffsappellees to the effect that the
terms of a contract must be interpreted against the party who
drafted the same, especially where such interpretation will help
effect justice to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the
prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which,
in essence, and its entirety is most unfair to the buyers.
Thus, since the principal obligation under the contract is only
P3,920.00 and the plaintiffs-appellees have already paid an
aggregate amount of P4,533.38, the courts should only order the
payment of the few remaining installments but not uphold the
cancellation of the contract. Upon payment of the balance of
P671.67 without any interest thereon, the defendant must
immediately execute the final deed of sale in favor of the plaintiffs
and execute the necessary transfer of documents, as provided in
par.12 of the contract.
Velarde v CA
FACTS: David Raymundo (private respondent) is the absolute and
registered owner of a parcel of land, located at 1918 Kamias St.,
Dasmarias Village Makati, together with the house and other
improvements, which was under lease. It was negotiated by
Davids father with plaintiffs Avelina and Mariano Velarde
(petitioners). A Deed of Sale with Assumption of Mortgage was
executed in favor of the plaintiffs. Part of the consideration of the
sale was the vendees assumption to pay the mortgage obligations
of the property sold in the amount of P 1,800,000.00 in favor of the
Bank of the Philippine Islands. And while their application for the
assumption of the mortgage obligations is not yet approved by the
mortgagee bank, they have agreed to pay the mortgage
obligations on the property with the bank in the name of Mr. David
Raymundo. It was further stated that in the event Velardes violate
any of the terms and conditions of the said Deed of Real Estate
Mortgage, they agree that the downpayment P800,000.00, plus all
the payments made with the BPI on the mortgage loan, shall be
forfeited in Favor of Mr. Raymundo, as and by way of liquidated
damages, w/out necessity of notice or any judicial declaration to
that effect, and Mr. Raymundo shall resume total and complete
ownership and possession of the property, and the same shall be
deemed automatically cancelled, signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the monthly
interest loan for three months but stopped in paying the mortgage
when informed that their application for the assumption of
mortgage was not approved. The defendants through a counsel,
wrote plaintiffs informing the latter that their non-payment to the
mortgagee bank constituted non-performance of their obligation
and the cancellation and rescission of the intended sale. And after

two days, the plaintiffs responded and advised the vendor that he
is willing to pay provided that Mr. Raymundo: (1) delivers actual
possession of the property to them not later than January 15, 1987
for their occupancy (2) causes the release of title and mortgage
from the BPI and make the title available and free from any liens
and encumbrances (3) executes an absolute deed of sale in their
favor free from any liens and encumbrances not later than Jan. 21,
1987.

respondents offered to sell to petitioner one-half of the property


for all the payments the latter had made, instead of rescinding the
contract. If petitioner did not agree with the proposal, private
respondents said they would take steps to enforce the automatic
rescission of the contract. Petitioner did not accept private
respondents proposal. Instead, in a letter dated May 2, 1990, he
offered to pay the balance in full for the entire property, plus
interest and attorneys fees. Private respondents refused the offer.

The RTC of Makati dismissed the complaint of the petitioners


against Mr. Raymundo for specific performance, nullity of
cancellation, writ of possession and damages. However, their
Motion for Reconsideration was granted and the Court instructed
petitioners to pay the balance of P 1.8 million to private
respondent who, in turn were ordered to execute a deed of
absolute sale and to surrender possession of the disputed property
to petitioners.

On May 14, 1990, petitioner instituted an action for specific


performance against private respondents, alleging that he had
already substantially complied with his obligation under the
contract to sell. He also averred that he had already spent
P190,000.00 in obtaining title to the property, subdividing it, and
improving its right-of-way. The lower court decided in favor of the
petitioners stating that the breach committed was only casual and
slight but the Court of Appeals reversed the ruling and favored
respondents rescission of the contract to sell.

Upon the appeal of the private respondent to the CA, the court
upheld the earlier decision of the RTC regarding the validity of the
rescission made by private respondents.
ISSUE: Whether the rescission of contract made by the private
respondent is valid.
HELD: There is a breach of contract because the petitioners did not
merely stopped paying the mortgage obligations but they also
failed to pay the balance purchase price. Their conditional offer to
Mr. Raymundo cannot take the place of actual payment as would
discharge the obligation of the buyer under contract of sale.
Mr. Raymundos source of right to rescind the contract is Art. 1191
of the Civil Code predicated on a breach of faith by the other party
who violates the reciprocity between them. Moreover, the new
obligations as preconditions to the performance of the petitioners
own obligation were repudiation of an existing obligation, which
was legally due and demandable under the contract of sale.
The breach committed by the petitioners was the non-performance
of a reciprocal obligation. The mutual restitution is required to
bring back the parties to their original situation prior to the
inception of the contract. The initial payment and the mortgage
payments advanced by petitioners should be returned by private
respondents, lest the latter unjustly enriched at the expense of the
other. Rescission creates the obligation to return the obligation of
contract. To rescind, is to declare a contract void at its inception
and to put an end to it as though it never was.
The decision of the CA is affirmed with modification that private
respondents are ordered to return to petitioners, the amount they
have received in advanced payment.
Padilla v Paredes
FACTS: On October 20, 1988, Albert R. Padilla and Floresco and
Adelina Paredes entered into a contract to sell a parcel of land in
San Juan, La Union. At that time, the land was untitled although
private respondents were paying taxes thereon. Under the
contract, petitioner undertook to secure title to the property in
private respondents names. Of the P312,840.00 purchase price,
petitioner was to pay a down payment of P50,000.00 upon signing
of the contract, and the balance was to be paid within ten days
from the issuance of a court order directing issuance of a decree of
registration for the property.
On December 27, 1989, the court ordered the issuance of a decree
of land registration for the subject property. The property was
titled in the name of private respondent Adelina Paredes. Private
respondents then demanded payment of the balance of the
purchase price.
Petitioner then made several payments to private respondents,
some even before the court issued an order for the issuance of a
decree of registration and they also offered to pay the land
through a check. Still, petitioner failed to pay the full purchase
price even after the expiration of the period set. In a letter dated
February 14, 1990, private respondents, through counsel,
demanded payment of the remaining balance, with interest and
attorneys fees, within five days from receipt of the letter.
Otherwise, private respondents stated they would consider the
contract rescinded.
On February 28, 1990, petitioner made a payment of P100,000.00
to private respondents, still insufficient to cover the full purchase
price. Shortly thereafter, in a letter dated April 17, 1990 private

ISSUE: Whether or not the payment made by petitioner is one


which is contemplated on the contract.
RULING: Petitioners offer to pay is clearly not the payment
contemplated in the contract. While he might have tendered
payment through a check, this is not considered payment until the
check is encashed. Besides, a mere tender of payment is not
sufficient. Consignation is essential to extinguish petitioners
obligation to pay the purchase price.
The Supreme Court also affirmed the decision of the Court of
Appeals where the respondents have the right to rescind the
contract on the ground that there is failure on the part of the
petitioners to pay the balance within ten days upon the
conveyance of the Court of the Title of Land to respondents. Thus,
private respondents are under no obligation, and may not be
compelled, to convey title to petitioner and receive the full
purchase price.
Tan v CA
FACTS:
Private respondents Singsons are the owners of a house and lot
which were then for sale. Petitioner Tan together with her agent
went to see said spouses at their residence regarding the property.
After Singsons had shown Tan around the house and had
conversation about the encumbrances and/or liens on the
property, the parties finally agreed on the price of Pl.8M, with Tan
to advance earnest money of P200k to enable Singsons to secure
the cancellation of the mortgage and lien annotated on the title of
the property and the balance of the price to be paid by Tan on June
21, 1984. Forthwith, Tan handed to Singsons a check for P200k.
In turn, appellants handed to appellee a xerox copy of the title and
other papers pertaining to the property as well as an inventory of
the furnishings of the house that are included in the sale. 3 days
thereafter, Tan returned to Singsons' house together with her
daughter Corazon and one Ines, to ask for a reduction of the price
to Pl.75M and Singson spouses agreed, and so another receipt
entitled "Agreement" was signed by the parties.
The very same day that Singsons received the earnest money of P
200k, they started paying their mortgage loan with the DBP to
clear up the title of the subject property. DBP then executed a
cancellation of mortgage, which was registered with the Registry
of Property. Spouses also paid all the taxes due and in arrears on
the property.
Appellee accompanied by her daughter Corazon and her lawyer,
Atty. Vicente Quitoriano, went to Baguio City to inquire about the
status of the property and Singsons told her that the DBP was
taking some time processing their payments and preparing the
deed of cancellation of the mortgage. On that occasion, the parties
agreed on an extension of 2 weeks for the execution of the deed of
sale. Here, the parties' respective versions on the matter parted
ways. According to appellants, it was appellee who asked for the
extension because she was not yet ready to pay the balance of P
l.55M. On the other hand, appellee said that it was appellants who
asked for it because the title of the property was not yet cleared.
The court below believed appellee because on said date the DBP
had not yet executed the deed of cancellation of mortgage, and no
title has yet been issued for the driveway although already fully
paid for.

Immediately, upon execution by the DBP of the deed of


cancellation of mortgage, Singsons tried to contact Tan and/or her
daughter Corazon to come to Baguio City for the formal execution
of the deed of sale, but to no avail. Instead, appellants received a
telegram from Atty. Quitoriano cancelling the sale and demanding
the return of the P200k earnest money.

sound discretion, hereby fixes a period of 90 days within which


petitioner shall pay the balance of the purchase price amounting
to Pl.55M plus interest thereon at the legal rate from finality of this
judgment until fully paid. After such payment has been made, the
private respondents are ordered to sign and execute the necessary
absolute deed of sale in favor of petitioner.

Appellants countered with a letter of their lawyer, Atty. Tiofisto


Rodes, calling on appellee to perform her part of the contract
because "the title to the house and lot right now suffers no
imperfection or doubt.

Vda de Umali v CA

Tan then filed a case for recovery of sum of money with damages,
ISSUE: WON THERE WAS SUBSTANTIAL BREACH BY THE SPOUSES,
MERITING RESCISSION OF THE CONTRACT?
HELD: NO. That the power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not comply with
what is incumbent upon him is clear from a reading of the Civil
Code provisions. However, it is equally settled that, in the absence
of a stipulation to the contrary, this power must be invoked
judicially; it cannot be exercised solely on a party's own judgment
that the other has committed a breach of the obligation. Where
there is nothing in the contract empowering the petitioner to
rescind it without resort to the courts, the petitioner's action in
unilaterally terminating the contract in this case is unjustified.
Petitioner, in rescinding the sale, claims that a substantial breach
of the obligation has been committed by the private respondents.
Nevertheless, the alleged breach of the obligation by the private
respondents, which consists in a mere delay for a few days in
clearing the title to the property, cannot be considered substantial
enough to warrant rescission of the contract.
A thorough review of the records clearly indicates that private
respondents had substantially complied with their undertaking of
clearing the title to the property. It is a settled principle of law that
rescission will not be permitted for a slight or casual breach of the
contract but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the
agreement. A court, in determining whether rescission is
warranted, must exercise its discretion judiciously considering that
the question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
In this case, it is true that as of the date set for the execution of
the final deed of sale, the mortgage lien in favor of DBP annotated
in the title has not yet been cancelled as it took DBP some time in
processing the papers relative thereto. However, just a few days
after, the cancellation of the DBP mortgage was entered by the
Register of Deeds and duly noted on the title. Time not being of
the essence in the agreement, a slight delay on the part of the
private respondents in the performance of their obligation, is not
sufficient ground for the resolution of the agreement, more so
when the delay was not totally attributable to them.
Inasmuch as the private respondents are ready, willing and able to
comply with their obligation to deliver title to the property subject
of the sale and had already demanded that petitioner pay the full
amount of the purchase price, the petitioner must be considered
as having incurred in delay. This conclusion is warranted by the
clear provision of Article 1169 of the Civil Code.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. It is basic that the
breach of a contract gives the aggrieved party under the law and
even under general principles of fairness, the right to rescind the
contract or to ask for specific performance. Petitioner having failed
to comply with her obligation of paying the balance of the
purchase price despite demands by private respondents, private
respondents were clearly entitled to their counterclaim for specific
performance, as correctly adjudged by the respondent court.
One final point, the decision of the respondent Court of Appeals
ordered execution by private respondents of the absolute deed of
sale conveying the subject property to petitioner and payment by
petitioner of the balance of the purchase price immediately upon
finality of such judgment. However, under the third paragraph of
Article 1191 of the Civil Code, the Court is given a discretionary
power to allow a period within which a person in default may be
permitted to perform his obligation. Considering the huge amount
of money involved in this sale, the Court, in the exercise of its

Mauricia Castillo was the administratrix in charge over a parcel of


land left be Felipe Castillo. Said land was mortgaged to the
Development Bank of the Philippines and was about to be
foreclosed but then Mauricias nephew, Santiago Rivera, proposed
that they convert the land into 4 subdivisions so that they can
raise the necessary money to avoid foreclosure. Mauricia agreed.
Rivera sought to develop said land through his company, Slobec
Realty Corporation (SRC), of which he was also the president. SRC
then contracted with Bormaheco, Inc. for the purchase of one
tractor. Bormaheco agreed to sell the tractor on an installment
basis. At the same time, SRC mortgaged said tractor to Bormaheco
as security just in case SRC will default. As additional security,
Mauricia and other family members executed a surety agreement
whereby in case of default in paying said tractor, the Insurance
Corporation of the Philippines (ICP) shall pay the balance. The
surety bond agreement between Mauricia and ICP was secured by
Mauricias parcel of land (same land to be developed).
SRC defaulted in paying said tractor. Bormaheco foreclosed the
tractor but it wasnt enough hence ICP paid the deficiency. ICP
then foreclosed the property of Mauricia. ICP later sold said
property to Philippine Machinery Parts Manufacturing Corporation
(PMPMC). PMPMC then demanded Mauricia et al to vacate the
premises of said property.
While all this was going on, Mauricia died. Her successoradministratrix, Buenaflor Umali, questioned the foreclosure made
by ICP. Umali alleged that all the transactions are void and
simulated hence they were defrauded; that through Bormahecos
machinations, Mauricia was fooled into entering into a surety
agreement with ICP; that Bormaheco even made the premium
payments to ICP for said surety bond; that the president of
Bormaheco is a director of PMPMC; that the counsel who assisted
in all the transactions, Atty. Martin De Guzman, was the legal
counsel of ICP, Bormaheco, and PMPMC.
ISSUE: Whether or not the veil of corporate fiction should be
pierced.
HELD: No. There is no clear showing of fraud in this case. The mere
fact that Bormaheco paid said premium payments to ICP does not
constitute fraud per se. As it turned out, Bormaheco is an agent of
ICP. SRC, through Rivera, agreed that part of the payment of the
mortgage shall be paid for the insurance. Naturally, when Rivera
was paying some portions of the mortgage to Bormaheco,
Bormaheco is applying some parts thereof for the payment of the
premium and this was agreed upon beforehand.
Further, piercing the veil of corporate fiction is not the proper
remedy in order that the foreclosure conducted by ICP be declared
a nullity. The nullity may be attacked directly without disregarding
the separate identity of the corporations involved. Further still,
Umali et al are not enforcing a claim against the individual
members of the corporations. They are not claiming said members
to be liable. Umali et al are merely questioning the validity of the
foreclosure.
The veil of corporate fiction cant be pierced also by the simple
reason that the businesses of two or more corporations are
interrelated, absent sufficient showing that the corporate entity
was purposely used as a shield to defraud creditors and third
persons of their rights. In this case, there is no justification for
disregarding their separate personalities.
Rios v Palma
STREET, J.:
This action was instituted in the Court of First Instance of the City
of Manila by Manuel Rios and wife, Paciencia Reyes, for the
purpose of recovering the sum of P23,300, with legal interest, and
costs, as damages alleged to have been incurred by the plaintiffs
by reason of breach of a contract of lease. The defendants named
in the complaint are the firm of Jacinto, Palma y Hermanos, S. C.,

as lessee, in the same firm. Upon hearing the cause the trial court
absolved the defendants from the complaint and the plaintiffs
appealed.
No transcript of the oral testimony appears in the record, with the
result that our view of the case will be limited to the questions of
law arising upon the facts found by the trial court, in connection
with the letter (Exhibit K) referred to in the opinion.
It appears that by contract dated September 1, 1920, the plaintiffs,
as owners of a parcel of land on Gagalangin Street, Tondo District,
Manila, let the same, with the improvements thereon, to the firm
of Jacinto, Palma y Hermanos, S. C., for the term of fifteen years at
a monthly rental of P400 payable in advance during the first ten
days of each month. Among the provisions contained in this
contract we note clause 9, which is to the effect that the terms and
conditions of the contract shall be obligatory upon and redound to
the benefit of the persons composing the lessee firm, their heirs
executors, administrators, successors and assigns, as well as the
successors and assigns of the lessors. The lessee entered upon the
possession of the leased premises upon the date above stated;
and the payment of the agreed rental was continued until
November and December of the year 1923, for which months the
rent fell into arrears.
Meanwhile several successive reorganizations of the lessee firm
had been effected as follows: The first lessee, Jacinto, Palma y
Hermanos, S. C., was succeeded by the firm of P. & F. Jacinto, and
the latter in turn by the firm of Palma Brothers & Co., Ltd., to be
itself again succeeded by Palma & Co,. a corporation. The plaintiffs
were informed of these changes in the personality of the lessee
and, as the trial court found, acquiesced therein.
In view of the default in the payment of the monthly rental for the
months of November and December, 1923, Mr. Gregorio Araneta,
as attorney for Manuel Rios, addressed a letter, on December 27,
1923, to Rafael Palma, as partner in the original firm and its former
manager. In the course of this letter the writer asked Mr. Palma, in
case the lessee could not continue to pay the rent, to return the
property at once to Rios, "without prejudice to ulterior
responsibility for damages for breach of contract." The writer
added that Rios desired prompt action in the matter and that he
must have possession of the property on or before the 29th of the
month, otherwise he would be compelled to begin a detainer suit.
In response to this demand the occupant, Palma Bros. & Co., Ltd.,
or Palma & Co., or whoever had actual possession, vacated the
premises on December 29, giving notification to the plaintiff
Manuel Rios, who at once assumed possession. We gather from the
record that the rent for November and December, 1923, has
subsequently been paid; but the premises appear to have been
entirely vacant during the months of January and February, 1924,
and for this period no compensation has been paid to the plaintiffs
by any one. Beginning with March, 1924, the property was let by
the plaintiffs for a term of three years, renewable for another
three, to the firm of Walter A. Smith Co., Inc., upon the best terms
then procurable in the market, which was at a monthly rental of
P250.
In this court the plaintiffs, as appellants, have assigned error
among other things, to the failure of the trial court to give
judgment for the sum of P800, the stipulated rent for January and
February, 1924, and for the further sum of P22,500, being the
difference between the amount which the lessee had agreed to
pay during the twelve years that the lease was to run from the
time when the plaintiffs resumed possession and the amount
which, during the same period, the plaintiffs would obtain from the
new-lessee, or others, at the rate of P150 a month.
The firm of Jacinto, Palma y Hermanos, S. C., allowed a default
judgment to be entered in this case for its failure to answer, but
the individual defendants interposed an answer relying upon two
special defenses which will be examined in turn. It is first claimed
that the original lessee and the partners in that concern were
discharged by a novation of the original contract whereby the
lessee was changed and new debtor substituted for the original
debtor. We are of the opinion that there is no merit in this defense
and that the facts found by the trial court are not sufficient in law
to show a discharge of the parties liable upon the original lease.
What appears to have occurred, and what the court found, was
that the plaintiff Rios said that it was all right when told of the
successive changes in the personality of the lessee, and he seems
to have been content to receive the monthly rent from anybody

who wanted to pay it.


But by preference to clause 9 of the contract, it will be seen that
the lessors really had no choice in their attitude to these changes.
It was there stipulated that the provisions of the lease should be
obligatory upon and redound to the benefit not only of the persons
composing the lessee firm but their assigns. The transfer of the
lease was therefore anticipated in the lease and stipulated for, and
the lessors had no right to complain as the leased premises passed
from one entity to another. The contract, however, does not
stipulate that the original lessee should be discharged by any such
assignment, and an agreement to this effect cannot be implied
from the mere forced acquiescence of the lessors in the transfer of
the lease. Under article 1204 of the Civil Code the only stipulation
where a novation having the effect of extinguishing a prior
obligation will be implied, in the absence of express stipulation, is
where the new and old obligations are incompatible in every
respect. In the case under consideration the new obligation
assumed by the successive entities taking over the lease was not
all incompatible with the continued liability of the original lessee. It
is very common thing in business affairs for a stranger to a
contract to assume its obligation; ad while this may have the
effect of adding to the number of persons liable, it by no means
necessarily implies the extinguishment of the liability of the first
debtor. (Michigan Stove Co. vs. A. H. Walker & Co., 150 Iowa, 363;
Ann. Cas. 1912D, 505; Testate Estate of Mota vs. Serra, 47 Phil.,
464.)
The second ground of defense to the action is, in the opinion of the
majority of the members of the court, of a more meritorious
character. This defense is planted upon the fact that after the
default occurred in the payment of rent for the months of
November and December, 1923, the lessors voluntarily, and upon
their own demand, resumed possession of the premises. It is
insisted for the defense that this relieved the original lessee and
all other persons liable upon the lease from any liability for future
rent and therefore from any liability for damages that may have
accrued, or might accrue, to the lessors during the remainder of
the term of the lease. The situation is one that must be considered
in the light of certain provisions of the Civil Code, to which
attention will be directed.
In article 1124 of the Civil Code it is declared that an obligation
may be resolved if one of the obligors fails to comply with that
which is incumbent upon him; and it is declared that the person
prejudiced may elect between exacting the fulfillment of the
obligation (specific performance) and its resolution, with
compensation for damage and payment of interest in either case.
This general principle is substantially reproduced in the special
provisions of the Civil Code dealing with the rights and obligations
of lessor and lessees. In the first paragraph of article 1555 it is
declared to be the duty of the lessee to pay the price of the lease
in the manner agreed upon. In article 1556 the failure of the lessee
to comply with this obligation is declared to be ground for the
rescission of the contract and the recovery of damages, or the
latter only, leaving the contract in force. It will thus be seen that
the lessor is permitted to elect between the two remedies of (1)
rescissions, or resolution, with damages and (2) specific
performance, with damages. It will be noted that he is not entitled
to pursue both of these inconsistent remedies; and slight
advertence to the logic of the situation will teach us that, in
estimating the damages to be awarded in case of rescission, those
elements of damages only can be admitted that are compatible
with the idea of rescission; and of course in estimating the
damages to be awarded in the case lessor elects for specific
performance only those elements of damages can be admitted
with are compatible with the conception of specific performance. It
follows that damages which would only be consistent with the
conception of specific performance cannot be awarded in an action
where rescission is sought.
In the case before us the lessors clearly elected to resolve or
rescind the contract. Now it is an inseparable incident of resolution
or rescission that the parties are bound to restore to each other
the thing which has been the subject matter of the contract,
precisely as in the situation where a decree of nullity is granted. In
the common case of the resolution of a contract of sale for failure
of the purchaser to pay the stipulated price, the seller is entitled to
be restored to the possession of the thing sold, if it has already
been delivered. But he cannot have both the thing sold and the
price which was agreed to be paid, for the resolution of the

contract has the effect of destroying the obligation to pay the


price. Similarly, in the case of the resolution, or rescission, of a
contract of lease, the lessor is entitled to be restored to the
possession of the leased premises, but he cannot have both the
possession of the leased premises for the remainder of the term
and the rent which the other party had contracted to pay. The
termination of the lease has the effect of destroying the obligation
to pay rent for the future.
The damages or indemnity conceded in case of resolution by
article 1124 and the damages conceded by article 1556 in the
case of the rescission of a lease have reference to the damages for
the default which gave rise to the right to terminate the lease. In a
case of the kind now before us it would cover rent in arrears and
damage done by the lessee to the leased premises or other special
damages in particular cases resulting from nonperformance of the
lessee's obligation. By no reasonable interpretation of these
provisions can the indemnity or damages be understood as
extending the rent for the future, inasmuch as the termination of
the lease abrogated liability for future rent.
It is interesting to observe that the very point under consideration
was passed upon by the creators of the Civil Code, while that work
was in progress of making; and the manner in which the articles
which we have been discussing are expressed demonstrates an
intention to eliminate damages in lieu of future rent when the
lessor elects to rescind. In this connection it appears that the
Project of the Civil Code of 1851 expressly declared, in article
1840, that if the contract of lease should be resolved for default of
the lessee, he should be required, in addition to other damages
inflicted upon the lessor, to pay the agreed rental for the whole
period of time that might elapse until another lease should be
made. This provision was not incorporated in the ultimate Civil
Code; and this is a good indication that the authors of the Code
thought it unwise to place this liability upon the lessee. (10
Manresa, 2nd ed., 546.)
The jurisprudence of the common law will be found to be in
harmony with the conclusion reached above; for the situation with
which we are confronted is that which is called in the common law
a surrender, and by the consensus of authority a surrender has the
effect of abrogating the liability of the lessee for future rent. (35 C.
J., 1095; 16 R. C. L., 973.) We are not unmindful of the fact that
American and English decisions contain authority to the effect that
when a lessee abandons the leased premises and the lessor
resumes possession for the protection of his property, the
obligations of the lease still remain in force; and the lessor has a
right, if he so elects, to hold the lessee responsible under his
contract until the termination of the lease. But this doctrine is
properly confined to cases of abandonment by the lessee, and the
damages there awarded are in effect given in lieu of specific
performance. In the case before us there was no abandonment by
the lessee, and in the intervention of the lessor to resume
possession was purely voluntary.
At first blush it might appear that the case would perhaps be
affected by the reservation contained in the demand of plaintiffs'
attorney for the surrender of the premises, in which he stated that
the demand was without prejudice to ulterior responsibility for
damages. But a moment's reflection ought to show that the right
of action here reserved must be understood as having reference to
such damages as might be recoverable in law, consistently with
the election of the plaintiffs to rescind the contract.
From what has been said it follows that the judgment absolving the
defendants from the complaint must be affirmed; and it is ordered,
with costs against the appellants.
Johnson, Villamor, Johns and Villa-Real, JJ., concur.
Separate Opinions
OSTRAND, J., with whom concur AVANCEA, C. J., MALCOLM
and ROMUALDEZ, JJ., dissenting:
I dissent and think judgment should have been given the plaintiffs
for the loss or profits by them during the period from January 1,
1924, until the time of the trial of the case by reason of the
defendants' breach of the contract of lease.
The facts are not in dispute. The defendants failed to pay rent for
two months in violation of the terms of the lease. That gave the
plaintiffs the right to demand its resolution or recission (Civil Code,
arts. 1555 and 1556). On December 27, 1923, Mr. Gregorio

Araneta, as attorney for the plaintiff Rios, wrote the defendant


Palma the following letter (Exhibit K):
December 27, 1923
Sr. Don RAFAEL PALMA
553 Leroy, Manila
MY DEAR COMPAERO: I have the honor to
return to you the documents and the
receipt that you were so kind to send me
along with your letter of the 21st instant. By
the receipt of October 1st, this year, I see
that Mr. Rios has continued dealing with
Messrs. Jacinto Palma y Hermanos, S. C.,
which is the entity that has entered into the
contract with him. Inasmuch as you were a
collective partner of Jacinto, Palma y
Hermanos, S. C., I think that you cannot
evade the responsibility that as such
partner will attach to you on account of the
said contract, and that is why I pray you, to
see it immediately, that the property be
returned to Mr. Rios, in case you should be
unable to continue paying the rents,
without prejudice to the responsibility for
damages for non-compliance with the
contract.
My client that prompt action hereon be
taken, that is to say, that he be given
possession of the premises on or before the
29th of this month, as otherwise we shall be
compelled to file an action for unlawful
entry and detainer.
Your affectionate compaero and yours
truly,
(Sgd.) GREGORIO ARANETA
As will be seen, the defendants were offered the alternative of
either paying the rent or else resolve the contract of lease without
prejudice to their responsibility for damages. The defendants
chose the latter alternative and turned the leased property over to
the plaintiffs on January 1, 1924.
The plaintiffs were unable to find a new tenant until March 1, 1924,
when the property was leased to Walter A. Smith, Inc., for the
period of three years at a rental of P250 per month, P150 less than
that which the plaintiffs would have received under the former
lease. On April 4, 1924, the plaintiffs brought the present action for
damages alleged to have been suffered by reason of the
defendants' breach of contract. For the determination of the
defendants' responsibility for damages, we have only to follow the
plain provisions of the Civil Code. Articles 1124, 1555 and 1556 of
that Code read as follows:
ART. 1124. The right to resolve reciprocal obligations, in
case one of the obligors should fail to comply with that
which is incumbent upon him is deemed to be implied.
The person prejudiced chose between exacting the
fulfillment of the obligation or its resolution with
indemnity for damages and payment of interest in either
case. He may also demand the resolution of the obligation
even after having requested its fulfillment, should the
latter be found impossible.
The court shall decree the resolution demanded, unless
there should be grounds which justify the allowance of a
term for the performance of the obligation.
This is understood to be without prejudice to any rights
acquired by third persons in accordance with articles 1295
ad 1298 and with the provisions of the Mortgage Law.
ART. 1555. It shall be the duty of the lessee:
1. To pay the price of the lease in the manner agreed
upon;
2. To use the thing leased as a diligent father of a family
would, applying the same to use the agreed upon, or, in
default of an agreement, to use which may be inferred to
have been intended from the nature of the thing leased,
according to the custom of the country;

3. To pay the expenses of the execution of the instrument


containing the contract.

3 documents drafted: the Deed of REM, a Kasunduan (Agreement


to Sell), and a Deed of Absolute Sale.

ART. 1556. Failure on the part of the lessor or lessee to


comply with the obligations mentioned in the next
preceding articles shall be ground for the rescission of the
contract and the recovery of damages, or the latter only
leaving the contract in force.

The Kasunduan provided that the children of Mariano Rivera,


herein petitioners, would purchase the land for a consideration of
P2M, to be paid in 3 installments. It also provided that the Deed of
Absolute Sale would be executed only after the 2nd installment is
paid and a postdated check for the last installment is deposited
with Fidela.

From the articles quoted it is clear that award of damages to the


prejudiced party is one of the legal consequences of the resolution
or rescission of a contract. The measure of damages in cases of
breach of contract is thus sated in article 1106 of the Civil Code:
The payment of damages shall include not only the
amount of the loss which may have been suffered, but
also that of the profit which the creditor may have failed
to realize, . . . .
It seems to me that the language of the Code is so clear and
explicit that there is no room for special judicial interpretation. The
defendants breached the lease. Acting on the suggestion of the
plaintiffs' attorney, they elected to discontinue payment of rent
and to resolve the contract subject to their liability for damages.
Under the Code, the damages included not only the amount of the
loss which the plaintiffs might until then have suffered, but also
that of the loss of profits which they have failed to realize by
reason of the breach of the contract and its consequent resolution.
Up to the time of the resolution they had suffered no damages,
properly speaking; the two month's rent then overdue was a
contractual obligation on the part of the defendants and not a
liability ex delictoBut is not disputed that the plaintiffs eventually
suffered a loss of profits due to the resolution of the contract. The
defendants' lease called for payment of rent at the rate of P400
per month; the plaintiffs were unable to obtain another tenant until
two months after the resolution of the lease, thus suffering a loss
of P800 during that period; from March 1, 1924, until the month of
November of the same year, when the case was tried, they
received only P250 per month in rent entailing a loss in the
amount of P1,350 for that period. These losses have been fully
proven and it does not appear that the plaintiffs did not use due
diligence in endeavoring to minimize them. Adopting as a criterion
the provisions of article 1106, supra, the total amount of the
damages proven is therefore P2,150 for which the plaintiffs are in
my opinion clearly entitled to judgment.
From the fact that the farmers of the Civil Code did not incorporate
therein in the provision in the Project of 1851 to the effect that a
tenant breaching his lease should upon its resolution pay in
addition to other damages the agreed rental for the whole period
of time that might elapse until another lease should be made, the
court draws the inference that it was the intention to eliminate loss
of future rents as an elements of damages. This inference is, I
think, wholly, unwarranted. On the contrary, the intention was
evidently to place contracts of lease on a level with other contracts
in that respect and apply the same rule to all. The principle
underlying that rule was stated in a better and more accurate form
in the Code and the incorporation therein of the language of the
Project of 1851 was not only unnecessary but would also have
been likely to cause confusion. There is, as far as I can see, no
reason whatever why in regard to damages for its breach, a
contract of lease should not be considered in the same light as any
other ordinary contract and such was evidently the view of the
authors of the Civil Code.
The theory that damages for the loss of profits suffered
subsequent to the rescission of a lease, but before the expiration
of its original term, are incompatible with the idea of rescission, is
entirely new and in direct conflict with the views expressed by this
court in the case of Yunti vs. Dy-Yco (6 Phil., 352). It is also out of
harmony with all other cases upon the subject of damages for
breach of contract in this jurisdiction and cannot be good law.

Rivera v del Rosario


FACTS:
Respondents Fidela, et al. were the registered owners of a parcel of
land. Fidela borrowed P250k from Mariano Rivera and to secure the
loan, she and Mariano Rivera agreed to execute a deed of REM and
an agreement to sell the land. Mariano went to his lawyer to have

Mariano Rivera then went to his lawyer bringing with him the
signed documents. He also brought Fidela and her son Oscar, so
that the latter two may sign the mortgage and the Kasunduan
there. Although Fidela intended to sign only the Kasunduan and
the REM, she inadvertently affixed her signature on all 3
documents. Mariano then gave Fidela the amount for the 1st
installment. Later, he also gave Fidela a check for the 2nd
installment. Mariano also gave Oscar several amounts upon the
latters demand for the payment of the balance despite his lack of
authority to receive payments under the Kasunduan.
Fidela entrusted the owners copy of TCT to Mariano to guarantee
compliance with the Kasunduan.
When Mariano unreasonably refused to return the TCT,
respondents caused the annotation on TCT of an Affidavit of Loss
of the owners duplicate copy of the title. However, Mariano then
registered the Deed of Absolute Sale and got a new TCT.
Respondents then filed a complaint asking that the Kasunduan be
rescinded for failure of the Riveras to comply with its conditions,
with damages. They also sought the annulment of the Deed of
Absolute Sale on the ground of fraud. Respondents claimed that
Fidela never intended to enter into a deed of sale at the time of its
execution and that she signed the said deed on the mistaken belief
that she was merely signing copies of the Kasunduan.
ISSUE: WON the Deed of Absolute Sale is valid and binding?
HELD: NO. The deed is void in its entirety.
Rescission of reciprocal obligations under Article 1191 of the New
Civil Code should be distinguished from rescission of contracts
under Article 1383 of the same Code. Both presuppose contracts
validly entered into as well as subsisting, and both require mutual
restitution when proper, nevertheless they are not entirely
identical.
While Article 1191 uses the term rescission, the original term used
in Article 1124 of the old Civil Code, from which Article 1191 was
based, was resolution. Resolution is a principal action that is based
on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under
Article 1381 of the New Civil Code.
Obviously, the Kasunduan does not fall under any of those
situations mentioned in Article 1381. Consequently, Article 1383 is
inapplicable. Hence, we rule in favor of the respondents.
May the contract entered into between the parties, however, be
rescinded based on Article 1191? A careful reading of the
Kasunduan reveals that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of sale, the title
to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. In a contract to sell, the payment
of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring
an obligatory force.
Respondents in this case bound themselves to deliver a deed of
absolute sale and clean title covering Lot No. 1083-C after
petitioners have made the second installment. This promise to sell
was subject to the fulfillment of the suspensive condition that
petitioners pay P750,000 on August 31, 1987, and deposit a
postdated check for the third installment of P1M. Petitioners,
however, failed to complete payment of the second installment.
The non-fulfillment of the condition rendered the contract to sell
ineffective and without force and effect. It must be stressed that
the breach contemplated in Article 1191 of the New Civil Code is
the obligors failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. Failure
to pay, in this instance, is not even a breach but an event that

prevents the vendors obligation to convey title from acquiring


binding force.
Hence, the agreement of the parties in the instant case may be set
aside, but not because of a breach on the part of petitioners for
failure to complete payment of the second installment. Rather,
their failure to do so prevented the obligation of respondents to
convey title from acquiring an obligatory force.
Coming now to the matter of prescription. Contrary to petitioners
assertion, we find that prescription has not yet set in. Article 1391
states that the action for annulment of void contracts shall be
brought within four years. This period shall begin from the time the
fraud or mistake is discovered. Here, the fraud was discovered in
1992 and the complaint filed in 1993. Thus, the case is well within
the prescriptive period.
Other source:
Facts:
Del Rosario is the registered owners of Lot No. 1083-C, a parcel of
land situated at Lolomboy, Bulacan.
Fidela del Rosario borrowed P250,000 from Mariano Rivera in the
early part of 1987. To secure the loan, she and Mariano Rivera
agreed to execute a deed of real estate mortgage and an
agreement to sell the land. Consequently, Mariano drafted the
Deed of Real Estate Mortgage, a Kasunduan (Agreement to Sell),
and a Deed of Absolute Sale.
The Kasunduan provided the Riveras would purchase the lot for
P2.1M. There were 3 installments:
o

250 K upon the signing of the Kasunduan

750K on August 31, 1987

1.1M on December 31, 1987.

The Deed of Absolute Sale would be executed only after the


second installment is paid and a postdated check for the last
installment is deposited with Fidela.
Although Fidela intended to sign only the Kasunduan & the real
estate mortgage, she inadvertently affixed her signature on all 3
documents.
Rivera failed to complete the payment in the 2nd installment.
Respondents filed a complaint asking for the rescission of
Kasunduan for failure of Riveras to comply with its conditions.
They also sought the annulment of the deed of absolute sale on
the ground of fraud & the reconveyance of the entire property.
Petitioners say that there can be no rescission because in
accordance with Article 1383, the del Rosarios must show that
there were no other legal means available to obtain reparation
other than to file a case for rescission.
NB: Nieto was the tenant of the property. When the Riveras
showed to Nieto that they were the new owners, he desisted from
vacating the property. The Riveras agreed to give him a small
piece of the land in question.
The RTC declared the deed of absolute sale as null and void. The
CA modified the RTCs decision insofar as it deemed the portion
pertaining to Nieto as valid.
Issue:
WON the contract entered into between the parties may be
rescinded based on Art 1191? NO
WON the deed of absolute sale is null and void in its entirety as
opposed to the CAs decision of validity pertaining to Nietos
share? YES, VOID IN ITS ENTIRETY
Held:
The Kasunduan reveals that it is in the nature of a contract to sell,
as distinguished from a contract of sale. In a contract of sale, the
title to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. In a contract to sell, the payment
of the purchase price is a positive suspensive condition, the failure
of which is not a breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring
an obligatory force.
Respondents bound themselves to deliver a deed of absolute sale
and clean title after petitioners have made the second installment.
This promise to sell was subject to the fulfillment of the suspensive

condition. Petitioners however failed to complete payment of the


second installment. The non-fulfillment of the condition rendered
the contract to sell ineffective and without force and effect. It must
be stressed that the breach contemplated in Article 1191 of the
New Civil Code is the obligors failure to comply with an obligation
already extant, not a failure of a condition to render binding that
obligation. Failure to pay, in this instance, is not even a breach but
an event that prevents the vendors obligation to convey title from
acquiring binding force. Hence, the agreement of the parties in the
instant case may be set aside, but not because of a breach on the
part of petitioners for failure to complete payment of the second
installment. Rather, their failure to do so prevented the obligation
of respondents to convey title from acquiring an obligatory force.
While Article 1191 uses the term rescission, the original term used
in Article 1124 of the old Civil Code, from which Article 1191 was
based, was resolution.46 Resolution is a principal action that is
based on breach of a party, while rescission under Article 1383 is a
subsidiary action limited to cases of rescission for lesion under
Article 1381 of the New Civil Code.

Almira v CA
FACTS:
Petitioners are the wife and the children of the late Julio Garcia
whoinherited from his mother, Ma. Alibudbud, a portion of a
90,655 square meterproperty denominated as lot 1642 of the Sta.
Rosa Estate in Brgy. Caingin Sta.Rosa Laguna. The lot was coowned and registered in the names of threepersons with the
following shares: Vicente de Guzman (1/2), Enrique Hemedes(1/4)
and Francisco Alibudbud, the father of Ma. Alibudbud (1/4).
Although therewad no separate title in the name of Julio Garcia,
there were tax declaration inhis name to the intent of his
grandfathers share covering the area of 21460square meter.On
July 5, 1984, petitioner as heirs of Julio Garcia, and
respondentFederico Brines entered a Kasunduan ng Pagbibilihan
(Kasunduan for Brevity)over the 21460 square meter portion for
the sum of P150.000.00. Respondentpaid P65, 000.00 upon
execution of the contract while the balance of P85,000.00 was
made payable within six (6) months from the date of the
executionof the instrument. The time of the execution of the
kasunduan, petitionersallegedly informed respondent that TCT No.
RT-1076 was in the possession of their cousin, Conchila Alibudbud,
who having bought Vicente de Guzmans shares, owned the
bigger portion of lot 1642. This standing
notwithstanding,respondent willingly entered into the Kasunduan
provided that the full paymentof the purchase price will be made
upon delivery to him of the title.Respondent took possession of the
property subject of the Kasunduan andmade various payments to
petitioiners amountiong to P58500.00. However uponfailure of
petitionere to deliver to him a separate title to the property in
thename of Julio Garcia he refused to make further payments,
prompting petitionerto file a civil action before the RTC for a
rescission of the Kasunduan, return byrespondent to petitioner of
the possession of the subject parcel of land, andpayment by
respondent of damages in favour of petitioners.
ISSUE
Whether or not the petitioner may rescind the Kasunduan pursuant
toArticle 1191 of the Civil Code for the failure of respondent to give
full payment of the balance of the purchase price.
RULING:
NO, the right of the parties are governed by the terms ands the
nature of the contract they entered. Hence, although the nature of
the Kasunduan wasnever places in dispute by both parties, it is
necessary to ascertain whether theKasunduan is a contract to sell
or a contract of Sale. Although both parties haveconsistency
referred to the Kasunduan as a contract to Sell, a careful reading
of the provision of the Kasunduan reveals that it is a contract of
Sale. A deed of sale is absolute in nature in the absence of an any
stipulation reserving title tothe vendor until full payment of the
purchase price. The delivery of a separationtitle in the name of
Julio Garcia was a condition imposed on respondentsobligation to
pay the balance of the purchase price. It was not a
conditionimposed in the perfection of the contract of Sale. The
rescission will not prosper since the power to rescind is only given

tothe injured party. The injured party is the party who has faithfully
fulfilled hisobligation. In the case at bar, the petitioners were not
ready, willing and able tocomply with their obligation to deliver a
separate title in the name of Julio Garciato respondent therefore,
thy are not in a position to ask for rescission. Failure tocomply with
a condition imposed on the performance of an obligation gives
theother party the option either to refuse to proceed with the sale
or to waive thecondition under Art 1545 of the civil code. Hence it
is the respondent who has the option.

The mere pecuniary inability to fulfill an engagement does not


discharge the obligation of the contract, nor does it constitute any
defense to a decree of specific performance; and the mere fact of
insolvency of a debtor is never an excuse for the nonfulfillment of
an obligation, but instead, is taken as a breach of contract.

Central Bank v CA

The alleged discovery by ISB of the overvaluation of the loan


collateral cannot exempt it from complying with its obligation to
furnish the entire P80,000 loan because bank officials/employees
have the obligation to investigate the existence and valuation of
the properties being offered as a loan security before approving
the loan application.

Facts:
April 28, 1965 - Island Savings Bank (ISB) approved the loan
application for P80,000 of Sulpicio Tolentino, who, as a security for
the loan, also executed a real estate mortgage over his 100-ha
land. The approved loan application called for P80,000 loan,
repayable in semi-annual installments for a period of 3 years, with
12% interest.
May 22, 1965 a mere P17,000 partial release of the loan was
made by ISB, and Tolentino and his wife Edita signed a promissory
note for P17,000 at 12% annual interest, payable within 3 years
from the date of execution of the contract at semi-annual
installments of P3,459.
An advance interest for the P80,000 loan covering a 6-mo period
amounting to P4,800was deducted from the partial release of
P17,000, but this was refunded to Tolentino on July 23, 1965, after
being informed by ISB that there was no fund yet available for the
release of the P63,000 balance.
Aug. 13, 1965 the Monetary Board of the Central Bank issued
Resolution No. 1049, which prohibited ISB from making new loans
and investments, after finding that it was suffering liquidity
problems.
June 14, 1968 the Monetary Board issued Resolution No. 967,
which prohibited ISB from doing business in the Philippines, after
finding that it failed to put up the required capital to restore its
solvency.
Aug. 1, 1968 ISB, in view of non-payment of the P17,000 covered
by the promissory note, filed an application for the extra-judicial
foreclosure of the real estate mortgage covering the 100-ha land;
and the sheriff scheduled auction.
Tolentino filed a petition with the CFI for injunction, specific
performance or rescission and damages with preliminary
injunction, alleging that since ISB failed to deliver the P63,000
remaining balance of the loan, he is entitled to specific
performance by ordering ISB to deliver it with interest of 12% per
annum from April 28, 1965, and if said balance cannot be
delivered, to rescind the real estate mortgage.
CFI issued a TRO enjoining ISB from continuing with the foreclosure
of the mortgage, however, after finding Tolentinos petition
unmeritorious, ordered the latter to pay ISB P17,000 plus legal
interest and legal charges and lifting the TRO so the sheriff may
proceed with the foreclosure.
CA, on appeal by Tolentino, modified CFIs decision by affirming
dismissal of Tolentinos petition for specific performance, but ruled
that ISB can neither foreclose the mortgage nor collect the
P17,000 loan.
SC: The parties, in the P80,000 loan agreement, undertook
reciprocal obligations, wherein the obligation/promise of each
party is the consideration for that of the other; and when one party
has performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169, CC).
When Tolentino executed a real estate mortgage, he signified his
willingness to pay the P80,000 loan, and from such date, the
obligation of ISB to furnish the loan accrued. Thus, ISBs delay
started on April 28, 1965 and lasted 3 years or when Resolution
No. 967 was issued prohibiting ISB from doing further business,
which made it legally impossible from ISB to furnish the P63,000 of
the loan.
Resolution No. 1049 cannot interrupt the default of ISB in
complying with its obligation to release the P63,000 balance
because it merely prohibited ISB from making new loans and
investments, not from releasing the balance of loan agreements
previously contracted.

The fact that Tolentino demanded and accepted the refund of the
pre-deducted interest cannot be taken as a waiver of his right to
collect the P63,000 balance. The act of ISB in asking for the
advance interest was improper considering that only P17,000 out
of the P80,000 loan was released.

Issues/Held/Ratio
1)
WON the action of Tolenitno for specific performance can
prosper. NO.
Since ISB was in default under the agreement, Tolentino may
choose between specific performance or rescission, but since ISB
is now prohibited from doing further business, the only remedy left
is Rescission only for the P63,000 balance of the loan.
2)
WON Tolentino is liable to pay the P17,000 debt covered
by the promissory note. YES.
The bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000 loan. The promissory note gave rise
to Tolentinos reciprocal obligation to pay such loan when it falls
due and his failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled to
rescission (Art. 1191, CC). ISB has the right to rescind the
promissory note, being the aggrieved party.
Since both parties were in default in the performance of their
reciprocal obligations, both are liable for damages. In case both
parties have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equirably tempered by the
courts (Art. 1192, CC). The liability of ISB for damages in not
furnishing the entire loan is offset by the liability of Tolentino for
damages (penalties and surcharges) for not paying his overdue
P17,000 debt. Since Tolentino derived some benefit for his use of
the P17,000, he should account for the interest thereon (interest
was not included in the offsetting).
3)
WON Tolentinos real estate mortgage can be foreclosed
to satisfy the P17,000 if his liability to pay therefor subsists. NO.
The fact that when Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet
because ISB had not made any release on the loan, does not make
the real estate mortgage void for lack of consideration.
It is not necessary that any consideration should pass at the time
of the execution of the contract of real mortgage. When the
consideration is subsequent to the mortgage, the latter can take
effect only when the debt secured by it is created as a binding
contract to pay. And when there is partial failure of consideration,
the mortgage becomes unenforceable to the extent of such failure.
Where the indebtedness actually owing to the holder of the
mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due.
Since ISB failed to furnish the P63,000 balance, the real estate
mortgage of Tolentino became unenforceable to such extent.
P63,000 is 78.75% of P80,000, hence the mortgage covering 100
ha is unenforceable to the extent of 78.75 ha. The mortgage
covering the remainder of 21.25 ha subsists as a security for the
P17,000 debt.
Judgment:
1)
Tolentino is ordered to pay ISB P17,000 plus P41, 210
(12% interest per annum)
2)
In case Tolentino fails to pay, his real estate mortgage
covering 21.25 ha shall be foreclosed to satisfy his total
indebtedness
3)
The real estate mortgage covering 78.75 ha is
unenforceable and ordered released in favor of Tolentino

Palma Gil v CA

1. WON the Kasulatan was a contract to sell? NO

Facts:

2. WON petitioner is entitled to rescind the contract? NO

Concepcion Gil and sister Nieves Gil are co-owners of a parcel of


land. Nieves and husband constructed a two storey building on the
said land. Concepcion then filed a complaint against her sister. The
Court rendered judgment in favor of Concepcion. Nieves appealed
to the Court of Appeals but the latter also affirmed the assailed
decision.

3. WON the contract is in the nature of a potestative obligation?


NO

The Court issued a writ of execution but Nieves refused to execute


the required deed.
The Sheriff was then ordered to execute but instead, he divided
the property into 4 lots and gave two to Concepcion. Lot 59 C1,
one of the two lots given to Concepcion was then sold by the latter
to Agapito and Iluminada Pacetes. This contract was however
subject to the condition that a deposit shall be given at the time of
the execution of the contract and the remaining amount shall be
paid upon the delivery of the certificate of title to the vendee. The
property was then sold to one Constancio Maglana and was again
sold to the present possessor Emilio Magtulac who is constructing
a building on said lot. Subsequently, Concepcion died and now
represented by her successors as the petitioners in this instant
case.
Petitioners are contending that Concepcions sale of the disputed
property to Iluminada and Agapito Pacetes is merely a contract to
sell because the full price was not paid by the latter to the former.
They also argue that the consignation made by Iluminada did not
produce legal effect. Therefore, subsequent buyers are not
purchasers in good faith.
Issue:
Whether or not the property was validly sold to Iluminada and
Agapito Pacetes.
Held:
The Court ruled that the sale between Concepcion and Iluminada is
a consummated contract of sale. The contract specifies payment
provision wherein a deposit will be made at a time of the execution
of the instrument. The vendor within 120 days shall be delivered
the certificate of title to the vendee. Then, vendee will pay the
remaining amount.
The certificate of title was not delivered. As a consequence of the
death of Concepcion, it is the heirs who have the duty to deliver
such. Apparently, they were not able to deliver the certificate also.
Iluminadas act of paying the remaining amount only after so
many years is still valid because after all she has no duty to pay
until tile has been delivered to her.
Petition denied for lack of merit.
De Mistica v Naguiat
Facts:
Eulalio Mistica is the owner of a parcel of land located at Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to respondent
Naguiat.
Consequently, Mistica entered into a contract to sell with
respondent over a portion of lot containing an area of 200 sq.
mtrs.
The agreement was reduced to writing in a document entitled
Kasulatan sa Pagbibilihan
P 20k as the total purchase:
P 2k upon signing;
P 18k to be paid within 10yrs;
In case non payment, vendee shall pay an interest of 12% per
annum.
Pursuant to said agreement, respondent gave a downpayment of
P2K & made another partial payment of P1K & thereafter failed to
make any payments.
Eulalio Mistica died sometime in Oct. 1986.
Petitioner claims that she is entitled to rescind the Contract under
Article 1191 of the Civil Code, because respondents committed a
substantial breach when they did not pay the balance of the
purchase price within the ten-year period.
Issue:

Held:
1.The Kasulatan was clearly a Contract of Sale. A deed of sale is
considered absolute in nature when there is neither a stipulation in
the deed that title to the property sold is reserved to the seller
until the full payment of the price; nor a stipulation giving the
vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.
2. In a contract of sale, the remedy of an unpaid seller is either
specific performance or rescission. Under Article 1191 of the Civil
Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a
breach of faith by one of them. Rescission, however, is allowed
only where the breach is substantial and fundamental to the
fulfillment of the obligation.
In the present case, the failure of respondents to pay the balance
of the purchase price within ten years from the execution of the
Deed did not amount to a substantial breach. In the Kasulatan, it
was stipulated that payment could be made even after ten years
from the execution of the Contract, provided the vendee paid 12
percent interest. The stipulations of the contract constitute the law
between the parties; thus, courts have no alternative but to
enforce them as agreed upon and written.
Petitioner never made any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by
respondents during her husbands funeral, thus showing that she
was not exactly blameless for the lapse of the ten-year period. Had
she accepted the tender, payment would have been made well
within the agreed period.
3. The Kasulatan does not allow the it to be converted to a
potestative obligation. First, nowhere is it stated in the Deed that
payment of the purchase price is dependent upon whether
respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties
intended to be bound by the Kasulatan.
Cordero v FS Management
FACTS: Belen Cordero, in her own behalf and as attorney-in-fact of
her co-petitioners, entered into a contract to sell with respondent
F.S. Management and Development Corporation (FSMDC) over five
(5) parcels of land located in Batangas. Pursuant to the terms and
conditions of the contract, FSMDC paid earnest money. No further
payments were made thereafter. Cordero sent FSMDC a demand
letter, revoking the contract to sell and treating the payments
already made as payment for damages suffered. FSMDC likewise
demanded the payment for actual damages suffered due to loss of
income.
Cordero thereafter filed before the Regional Trial Court of
Paraaque a complaint for rescission of contract with damages
alleging FSMDC failed to comply with its obligations under the
contract to sell; and that consequently entitled to rescind the
contract to sell as well as demand the payment of damages.
FSMDC, on the other hand, alleged that Cordero has no cause of
action considering that they were the first to violate the contract
to sell. It was Cordero who prevented FSMDC from complying with
its obligation to pay in full by refusing to execute the final contract
of sale unless additional payment of legal interest is made.
Moreover, Corderos refusal to execute the final contract of sale
was due to the willingness of another buyer to pay a higher price.
The RTC issued its decision, finding in favor of Cordero et al. and
ordered FSMDC to pay damages and attorneys fees. The Court of
Appeals affirmed the decision of the lower court and denied their
motion for reconsideration.
ISSUE: Whether or not contract to sell may be subject to rescission
under Article 1191 of the Civil Code
HELD: Under a contract to sell, the seller retains title to the thing
to be sold until the purchaser fully pays the agreed purchase price.
The full payment is a positive suspensive condition, the nonfulfillment of which is not a breach of contract but merely an event
that prevents the seller from conveying title to the purchaser. The

non-payment of the purchase price renders the contract to sell


ineffective and without force and effect.
Since the obligation of Cordero et al. did not arise because of the
failure of FSMDC to fully pay the purchase price, Article 1191 of
the Civil Code would have no application.
The non-fulfillment by the FSMDC of his obligation to pay, which is
a suspensive condition to the obligation of the Cordero et al. to sell
and deliver the title to the property, rendered the contract to sell
ineffective and without force and effect. The parties stand as if the
conditional obligation had never existed. Article 1191 of the New
Civil Code will not apply because it presupposes an obligation
already extant. There can be no rescission of an obligation that is
still non-existing, the suspensive condition not having happened.
Ayala Life v Ray Burton
FACTS: On December 22, 1995, Ayala Inc. and Ray Burton Corp.
entered into a contract denominated as a Contract to Sell, with a
Side Agreement of even date. In these contracts, petitioner
agreed to sell to respondent a parcel of land situated at
Muntinlupa City. The purchase price of the land is payable as
follows:
On contract date: 26%, inclusive of option money
Not later than 1-6-96: 4%
In consecutive quarterly installments for a period of 5 years: 70%
Respondent paid thirty (30%) down payment and the quarterly
amortization. However in 1998, respondent notified petitioner in
writing that it will no longer continue to pay due to the adverse
effects of the economic crisis to its business. Respondent then
asked for the immediate cancellation of the contract and for a
refund of its previous payments as provided in the contract.
Petitioner refused to cancel the contract to sell. Instead, it filed
with the RTC Makati City, a complaint for specific performance
against respondent, demanding from the latter the payment of the
remaining unpaid quarterly installments inclusive of interest and
penalties.
Respondent, in its answer, denied any further obligation to
petitioner, asserting that it (respondent) notified the latter of its
inability to pay the remaining installments. Respondent invoked
the provisions of paragraphs 3 and 3.1 of the contract to sell
providing for the refund to it of the amounts paid, less interest and
the sum of 25% of all sums paid as liquidated damages.
The trial court rendered a Decision in favor of Ayala and holding
that respondent transgressed the law in obvious bad faith. It
ordered the defendant ordered to pay Ayala the unpaid balance,
interest agreed upon, and penalties. Defendant is further ordered
to pay plaintiff for attorneys fees and the costs of suit. Upon full
payment of the aforementioned amounts by defendant, plaintiff
shall, as it is hereby ordered, execute the appropriate deed of
absolute sale conveying and transferring full title and ownership of
the parcel of land subject of the sale to and in favor of defendant.
On appeal, the CA rendered a Decision reversing the trial courts
Decision. Hence, the instant petition for review on certiorari.
ISSUE:
1. WON respondents non-payment of the balance of the purchase
price gave rise to a cause of action on the part of petitioner to
demand full payment of the purchase price; and
2. WON Ayala should refund respondent the amount the latter paid
under the contract to sell.
HELD: The petition is denied. The CA decision is affirmed.
At the outset, it is significant to note that petitioner does not
dispute that its December 22, 1995 transaction with respondent is
a contract to sell. Also, the questioned agreement clearly indicates
that it is a contract to sell, not a contract of sale. Paragraph 4 of
the contract provides:
4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the
property shall transfer to the PURCHASER upon payment of the
balance of the Purchase Price and all expenses, penalties and
other costs which shall be due and payable hereunder or which
may have accrued thereto. Thereupon, the SELLER shall execute a
Deed of Absolute Sale in favor of the PURCHASER conveying all the
SELLERS rights, title and interest in and to the Property to the
PURCHASER

1. NO. Considering that the parties transaction is a contract to


sell, can petitioner, as seller, demand specific performance from
respondent, as buyer?
Blacks Law Dictionary defined specific performance as (t)he
remedy of requiring exact performance of a contract in the specific
form in which it was made, or according to the precise terms
agreed upon. The actual accomplishment of a contract by a party
bound to fulfill it.
Evidently, before the remedy of specific performance may be
availed of, there must be a breach of the contract.
Under a contract to sell, the title of the thing to be sold is retained
by the seller until the purchaser makes full payment of the agreed
purchase price. The non-fulfillment by the respondent of his
obligation to pay, which is a suspensive condition to the obligation
of the petitioners to sell and deliver the title to the property,
rendered the contract to sell ineffective and without force and
effect; failure of which is not really a breach, serious or otherwise,
but an event that prevents the obligation of the petitioners to
convey title from arising, in accordance with Article 1184 of the
Civil Code .
The parties stand as if the conditional obligation had never
existed. Article 1191 of the New Civil Code will not apply because
it presupposes an obligation already extant. There can be no
rescission of an obligation that is still non-existing, the suspensive
condition not having happened Thus, a cause of action for specific
performance does not arise.
Here, the provisions of the contract to sell categorically indicate
that respondents default in the payment of the purchase price is
considered merely as an event, the happening of which gives
rise to the respective obligations of the parties mentioned therein,
thus:
3. EVENT OF DEFAULT. The following event shall constitute an
Event of Default under this contract: the PURCHASER fails to pay
any installment on the balance, for any reason not attributable to
the SELLER, on the date it is due, provided, however, that the
SELLER shall have the right to charge the PURCHASER a late
penalty interest on the said unpaid interest at the rate of 2% per
month computed from the date the amount became due and
payable until full payment thereof.
3.1. If the Event of Default shall have occurred, then at any time
thereafter, if any such event shall then be continuing for a period
of six (6) months, the SELLER shall have the right to cancel this
Contract without need of court declaration to that effect by giving
the PURCHASER a written notice of cancellation sent to the
address of the PURCHASER as specified herein by registered mail
or personal delivery. Thereafter, the SELLER shall return to the
PURCHASER the aggregate amount that the SELLER shall have
received as of the cancellation of this Contract, less: (i) penalties
accrued as of the date of such cancellation, (ii) an amount
equivalent to twenty five percent (25%) of the total amount paid
as liquidated damages, and (iii) any unpaid charges and dues on
the Property. Any amount to be refunded to the PURCHASER shall
be collected by the PURCHASER at the office of the SELLER. Upon
notice to the PURCHASER of such cancellation, the SELLER shall be
free to dispose of the Property covered hereby as if this Contract
had not been executed. Notice to the PURCHASER sent by
registered mail or by personal delivery to its address stated in this
Contract shall be considered as sufficient compliance with all
requirements of notice for purposes of this Contract.14
Therefore, in the event of respondents default in payment,
petitioner, under the above provisions of the contract, has the
right to retain an amount equivalent to 25% of the total payments.
As stated by the CA, petitioner having been informed in writing by
respondent of its intention not to proceed with the contract prior to
incurring delay in payment of succeeding installments, the
provisions in the contract relative to penalties and interest find no
application.
2. YES. The CA is correct that with respect to the award of interest,
petitioner is liable to pay interest of 12% per annum upon the net
refundable amount due from the time respondent made the
extrajudicial demand upon it to refund payment under the
Contract to Sell, pursuant to our ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals.
Gaite v Plaza

FACTS:
The Plaza, through its president, Jose C. Reyes, entered into a
contract with Rhogen Builders, represented by Ramon C. Gaite, for
the construction of a restaurant building in Greenbelt, Makati for
the price of PhP7,600,00.00. To secure Rhogen's compliance with
its obligation, Gaite and FGU Insurance corporation executed a
surety bond in favor of the Plaza.
Subsequently, Gaite was ordered by Engineer Gonzales to stop
construction due to violations of the National Building Code. This
was referred to the Plaza's Project Manager, Tayzon.
Later, the permit for the construction of the restaurant was
revoked for non-compliance with the National Building Code.
Gaiterequested that they fix the problem with cooperation from
the Plaza but the Reyes, on behalf of the Plaza, said that it was not
their responsibility to help Rhogen after its failure to comply with
the construction requirements. Because Reyes would neither
cooperate with Rhogen to fix the problem nor compensate Rhogen
for the percentage of work done, Gaite informed the Plaza that he
would be terminating their contract based on the Contractor's
Right to Stop Work or Terminate Contracts as provided for in their
agreement.
Later, the Plaza filed a case against Gaite and FGU for breach of
contract, sum of money and damages and also a separate case for
nullification of the project development contract. The RTC ruled in
favor of the Plaza saying that instead of rectifying the
violations,Rhogen continued with the construction work thereby
causing more damage. The trial court pointed out that Rhogen is
not only expected to be aware of standard requirements and
pertinent regulations on construction work, but also expressly
bound itself under the General Construction Contract to comply
with all the laws, city and municipal ordinances and all
government regulations.Having failed to complete the project
within the stipulated period and comply with its obligations,
Rhogen was thus declared guilty of breaching the Construction
Contract and is liable for damages under Articles 1170 and 1167 of
the Civil Code.
The CA affirmed the RTC decision saying that the Plaza cannot now
be demanded to comply with its obligation under the contract
since Rhogen has already failed to comply with its own contractual
obligation. Thus, The Plaza had every reason not to pay the
progress billing as a result of Rhogens inability to perform its
obligations under the contract. Further, the stoppage and
revocation orders were issued on account of Rhogens own
violations involving the construction as found by the local building
official. Clearly,Rhogen cannot blame The Plaza for its own failure
to comply with its contractual obligations. The CA stressed that
Rhogen obliged itself to comply with "all the laws, city and
municipal ordinances and all government regulations insofar as
they are binding upon or affect the parties to the contract, the
work or those engaged thereon.
ISSUE: Whether the CA erred in not holding that there were valid
and legal grounds for Rhogen to terminate the contract pursuant
to Article 1191 of the Civil Code and its agreement with the Plaza.
HELD: The petition is unmeritorious.
CIVIL LAW - Contracts; reciprocal obligations
Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous
fulfillment of the other. Respondent The Plaza predicated its action
on Article 1191 of the Civil Code, which provides for the remedy of
"rescission" or more properly resolution, a principal action based
on breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the provision is the
obligors failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The injured
party is the party who has faithfully fulfilled his obligation or is
ready and willing to perform his obligation.
The construction contract between Rhogen and The Plaza provides
for reciprocal obligations whereby the latters obligation to pay the
contract price or progress billing is conditioned on the formers
performance of its undertaking to complete the works within the
stipulated period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual obligation,

The Plaza furnished materials and paid the agreed down payment.
It also exercised the option of furnishing and delivering
construction materials at the jobsite pursuant to Article III of the
Construction Contract. However, just two months after
commencement of the project, construction works were ordered
stopped by the local building official and the building permit
subsequently revoked on account of several violations of the
National Building Code and other regulations of the municipal
authorities.
Since Rhogen had already breached its contractual obligation by
not complying with the National Building Code, it had no right to
terminate the contract based on the Plaza's refusal to compensate
it for the percentage of work done.
Petition is DENIED.
Reyes v Tuparan
Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent)
before the RTC.In her Complaint, petitioner alleged, among others,
that she was the registered owner of a 1,274 square meter
residential and commercial lot located in Karuhatan, Valenzuela
City, and covered by TCT No. V-4130.
Petitioner mortgaged the subject real properties to the Farmers
Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan.
Petitioner then decided to sell her real properties so she could
liquidate her bank loan and finance her businesses. As a gesture of
friendship, respondent verbally offered to conditionally buy
petitioner's real properties.
The parties and FSL Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption of Mortgage.
Due to their close personal friendship and business relationship,
both parties chose not to reduce into writing the other terms of
their agreement mentioned in paragraph 11 of the complaint.
Respondent, however, defaulted in the payment of her obligations
on their due dates. Instead of paying the amounts due in lump
sum on their respective maturity dates, respondent paid petitioner
in small amounts from time to time.
Respondent countered, among others, that the tripartite
agreement erroneously designated by the petitioner as a Deed of
Conditional Sale of Real Property with Assumption of Mortgage was
actually a pure and absolute contract of sale with a term period. It
could not be considered a conditional sale because the acquisition
of contractual rights and the performance of the obligation therein
did not depend upon a future and uncertain event.
Respondent further averred that she successfully rescued the
properties from a definite foreclosure by paying the assumed
mortgage plus interest and other finance charges.
The RTC handed down its decision finding that respondent failed to
pay in full the total purchase price of the subject real properties. It
stated that the checks and receipts presented by respondent refer
to her payments of the mortgage obligation with FSL Bank. The
RTC also considered the Deed of Conditional Sale of Real Property
with Assumption of Mortgage executed by and among the two
parties and FSL Bank a contract to sell, and not a contract of sale.
The CA rendered its decision affirming with modification the RTC
Decision.The CA agreed with the RTC that the contract entered into
by the parties is a contract to sell but ruled that the remedy of
rescission could not apply because the respondent's failure to pay
the petitioner the balance of the purchase was not a breach of
contract, but merely an event that prevented the seller (petitioner)
from conveying title to the purchaser (respondent).
ISSUE: Whether the agreement is a contract to sell and not a
contract of sale.
HELD: YES.
CIVIL LAW: Contract to sell versus contract of sale
The Court agrees with the ruling of the courts below that the
subject Deed of Conditional Sale with Assumption of Mortgage
entered into by and among the two parties and FSL Bank on
November 26, 1990 is a contract to sell and not a contract of sale.
The title and ownership of the subject properties remains with the
petitioner until the respondent fully pays the balance of the
purchase price and the assumed mortgage obligation. Thereafter,
FSL Bank shall then issue the corresponding deed of cancellation

of mortgage and the petitioner shall execute the corresponding


deed of absolute sale in favor of the respondent.
Accordingly, the petitioner's obligation to sell the subject
properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondent's full
payment of the purchase price. Without respondent's full payment,
there can be no breach of contract to speak of because petitioner
has no obligation yet to turn over the title. Respondent's failure to
pay in full the purchase price is not the breach of contract
contemplated under Article 1191 of the New Civil Code but rather
just an event that prevents the petitioner from being bound to
convey title to the respondent.
Thus, the Court fully agrees with the CA when it resolved:
"Considering, however, that the Deed of Conditional Sale was not
cancelled by Vendor Reyes (petitioner) and that out of the total
purchase price of the subject property in the amount of ?
4,200,000.00, the remaining unpaid balance of Tuparan
(respondent) is only ?805,000.00, a substantial amount of the
purchase price has already been paid.It is only right and just to
allow Tuparan to pay the said unpaid balance of the purchase price
to Reyes."
Granting that a rescission can be permitted under Article 1191, the
Court still cannot allow it for the reason that, considering the
circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.
Out of the P1,200,000.00 remaining balance, respondent paid on
several dates the first and second installments of P200,000.00
each. She, however, failed to pay the third and last installment of
P800,000.00 due on December 31, 1991. Nevertheless, on August
31, 1992, respondent, through counsel, offered to pay the amount
of P751,000.00, which was rejected by petitioner for the reason
that the actual balance was P805,000.00 excluding the interest
charges.
Considering that out of the total purchase price of P4,200,000.00,
respondent has already paid the substantial amount of
P3,400,000.00, more or less, leaving an unpaid balance of only
P805,000.00, it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid purchase
price. The Court agrees with the courts below that the respondent
showed her sincerity and willingness to comply with her obligation
when she offered to pay the petitioner the amount of P751,000.00.
PETITION DENIED.
Lalicon v NHA
FACTS:
(1) On November 25, 1980 the National Housing Authority (NHA)
executed a Deed of Sale with Mortgage over a Quezon City lot in
favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). The
deed of sale provided, among others, that the Alfaros could sell the
land within five years from the date of its release from mortgage
without NHA's prior written consent. Thus:
x x x. 5. Except by hereditary succession, the lot herein sold and
conveyed, or any part thereof, cannot be alienated, transferred or
encumbered within five (5) years from the date of release of herein
mortgage without the prior written consent and authority from the
VENDOR-MORTGAGEE (NHA). x x x
The mortgage and the restriction on sale were annotated on the
Alfaros' title on April 14, 1981.
(2) About nine years later or on November 30, 1990, while the
mortgage on the land subsisted, the Alfaros sold the same to their
son, Victor Alfaro.
(3) After full payment of the loan or on March 21, 1991 the NHA
released the mortgage.
(4) Six days later or on March 27 Victor transferred ownership of
the land to his illegitimate daughters. (5) On December 14, 1995
Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo
Ong, and Ida See.
(6) Subsequently, on February 14, 1997 Victor sold the property to
Chua, one of the mortgagees.
RTC: 1990 sale of the land to their son Victor, and the subsequent
sale of the same to Chua, made in violation of NHA rules and
regulations. It ruled that, although the Alfaros clearly violated the
five-year prohibition, the NHA could no longer rescind its sale to

them since its right to do so had already prescribed, applying


Article 1389 of the New Civil Code. The NHA and the Lalicons, who
intervened, filed their respective appeals to the Court of Appeals
(CA).
CA: CA reversed the RTC decision and found the NHA entitled to
rescission. The CA declared TCT 277321 in the name of the Alfaros
and all subsequent titles and deeds of sale null and void. It
ordered Chua to reconvey the subject land to the NHA but the
latter must pay the Lalicons the full amount of their amortization,
plus interest, and the value of the improvements they constructed
on the property.
ISSUE: Whether or not the subsequent sales constituted breach in
the obligation and may give rise to rescission
APPLICABLE LAW/S:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law. (1124)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot
in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
HELD: (1) Lalicons' request for exemption from the five-year
restriction was not granted. Resale without NHA's consent is a
substantial breach.
The five-year restriction against resale, counted from the release
of the property from the NHA mortgage, 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. 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 Lalicons claim that
the NHA unreasonably ignored their letters that asked for consent
to the resale of the subject property. They also claim that their
failure to get NHA's prior written consent was not such a
substantial breach that warranted rescission. 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. And the
resale without the NHA's consent is a substantial breach. The
essence of the government's socialized housing program is to
preserve the beneficiary's ownerships for a reasonable length of
time, here at least within five years from the time he acquired it
free from any encumbrance.
(2) Action has not prescribed.
NHA sought annulment of the Alfaros' sale to Victor because they
violated the five-year restriction against such sale provided in their
contract. Thus, the CA correctly ruled that such violation comes
under Article 1191 where the applicable prescriptive period is that
provided in Article 1144 which is 10 years from the time the right
of action accrues. The NHA's right of action accrued on February
18, 1992 when it learned of the Alfaros' forbidden sale of the
property to Victor. Since the NHA filed its action for annulment of
sale on April 10, 1998, it did so well within the 10-year prescriptive
period.
(3) Lalicons and Chua were not buyers in good faith.

Since the five-year prohibition against alienation without the NHA's


written consent was annotated on the property's title, the Lalicons
very well knew that the Alfaros' sale of the property to their father,
Victor, even before the release of the mortgage violated that
prohibition.
(4) Lastly, since mutual restitution is required in cases involving
rescission under Article 1191, the NHA must return the full amount
of the amortizations it received for the property, plus the value of
the improvements introduced on the same, with 6% interest per
annum from the time of the finality of this judgment.
Sy v Andoks Litson
Petitioner Cely Sy (Sy) entered into a 5-year lease contract with
Andoks Litson Corporation (Andoks). Andoks immediately paid its
four (4) months of advance deposit and a security deposit
equivalent to four (4) months of rental. However, while in the
process of applying for electrical connection on the improvements
to be constructed on Sys land, Andoks discovered that Sy has an
unpaid MERALCO bill amounting to P400,000.00. Andoks further
complained that construction for the improvement it intended for
the leased premises could not proceed because another tenant,
Mediapool, Inc. incurred delay in the construction of a billboard
structure also within the leased premises.
Andoks first informed Sy about the delay in the construction of the
billboard structure on a portion of its leased property. Three more
letters of the same tenor were sent to Sy but the demands fell on
deaf ears. Thus, Andoks filed a complaint for rescission before the
RTC. The RTC ruled in favor of Andoks.
On appeal, the CA affirmed the RTCs ruling.
ISSUE: Whether or not rescission is proper in this case?
HELD: The affirmance by the CA of the judgment of the trial court
is correct.
CIVIL LAW: reciprocal obligation; rescission; lease
Article 1191 of the Civil Code provides that the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. A lease
contract is a reciprocal contract.By signing the lease agreement,
the lessor grants possession over his/her property to the lessee for
a period of time in exchange for rental payment. The aggrieved
party is given the option to the aggrieved party to ask for: (1) the
rescission of the contract; (2) rescission and indemnification for
damages; or (3) only indemnification for damages, allowing the
contract to remain in force.
While Andoks had complied with all its obligations as a lessee, the
lessor failed to render the premises fit for the use intended and to
maintain the lessee in the peaceful and adequate enjoyment of the
lease.
Petition is DENIED.
Fil-Estate v Ronquillo
FACTS:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of
the Central Park Place Tower while co-petitioner Fil-Estate Network,
Inc. is its authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from petitioners
an 82-square meter condominium unit at Central Park Place Tower
in Mandaluyong City for a pre-selling contract price of P
5,174,000.00. On 29 August 1997, respondents executed and
signed a Reservation Application Agreement wherein they
deposited P200,000.00as reservation fee. As agreed upon,
respondents paid the full downpayment of P1,552,200.00 and had
been paying the P63,363.33 monthly amortizations until
September 1998.
Upon learning that construction works had stopped, respondents
likewise stopped paying their monthly amortization. Claiming to
have paid a total of P2,198,949.96 to petitioners, respondents
through two successive letters, demanded a full refund of their
payment with interest. When their demands went unheeded,
respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board
(HLURB). Respondents prayed for reimbursement/refund of
P2,198,949.96representing the total amortization payments,
P200,000.00 as and by way of moral damages, attorneys fees and
other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against


petitioners for failing to file their Answer within the reglementary
period despite service of summons.
Petitioners filed a motion to lift order of default and attached their
position paper attributing the delay in construction to the 1997
Asian financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of
moral damages.
On 13 June 2002, the HLURB, rendered judgment ordering
petitioners to jointly and severally pay respondents the amount of
P2,198,949.96 with 12% interest per annum to be computed from
the time of the complainants demand for refund on October 08,
1998 until fully paid, plus damages and costs of suit.
The Arbiter considered petitioners failure to develop the
condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of
damages. The Arbiter also stated that mere economic hardship is
not an excuse for contractual and legal delay.
Petitioners appealed the Arbiters Decision through a petition for
review pursuant to Rule XII of the 1996 Rules of Procedure of
HLURB. On 17 February 2005, the Board of Commissioners of the
HLURB denied the petition and affirmed the Arbiters Decision. The
HLURB reiterated that the depreciation of the peso as a result of
the Asian financial crisis is not a fortuitous event which will exempt
petitioners from the performance of their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied on 8
May 2006. Thereafter, petitioners filed a Notice of Appeal with the
Office of the President. On 18 April 2007, petitioners appeal was
dismissed by the Office of the President for lack of merit.
Petitioners moved for a reconsideration but their motion was
denied on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a
petition for review under Rule 43 containing the same arguments
they raised before the HLURB and the Office of the President:
On 30 July 2008, the Court of Appeals denied the petition for
review for lack of merit. The appellate court echoed the HLURB
Arbiters ruling that a buyer for a condominium/subdivision unit/lot
unit which has not been developed in accordance with the
approved condominium/subdivision plan within the time limit for
complying with said developmental requirement may opt for
reimbursement under Section 20 in relation to Section 23 of
Presidential Decree (P.D.) 957. The appellate court supported the
HLURB Arbiters conclusion, which was affirmed by the HLURB
Board of Commission and the Office of the President, that
petitioners failure to develop the condominium project is
tantamount to a substantial breach which warrants a refund of the
total amount paid, including interest. The appellate court pointed
out that petitioners failed to prove that the Asian financial crisis
constitutes a fortuitous event which could excuse them from the
performance of their contractual and statutory obligations. The
appellate court also affirmed the award of moral damages in light
of petitioners unjustified refusal to satisfy respondents claim and
the legality of the administrative fine, as provided in Section 20 of
Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution
dated 11 December 2008 by the Court of Appeals. Aggrieved,
petitioners filed the instant petition advancing substantially the
same grounds for review:
ISSUES:
Whether or not the Asian financial crisis constitute a fortuitous
event which would justify delay by petitioners in the performance
of their contractual obligation
Assuming that petitioners are liable, whether or not 12% interest
was correctly imposed on the judgment award
Whether the award of moral damages, attorneys fees and
administrative fine was proper.
HELD: The Court of Appeals decision is affirmed with the
modification that the legal interest to be paid is SIX PERCENT (6%)
on the amount due computed from the time of respondents'
demand for refund on 8 October 1998.
CIVIL LAW: fortuitous event as a ground for rescission of contracts
It is apparent that these issues were repeatedly raised by
petitioners in all the legal fora. The rulings were consistent that
first, the Asian financial crisis is not a fortuitous event that would

excuse petitioners from performing their contractual obligation;


second, as a result of the breach committed by petitioners,
respondents are entitled to rescind the contract and to be
refunded the amount of amortizations paid including interest and
damages; and third, petitioners are likewise obligated to pay
attorneys fees and the administrative fine.

The resulting modification of the award of legal interest is, also, in


line with our recent ruling in Nacar v. Gallery Frames, embodying
the amendment introduced by the Bangko Sentral ng Pilipinas
Monetary Board in BSP-MB Circular No. 799 which pegged the
interest rate at 6% regardless of the source of obligation.

This petition did not present any justification for us to deviate from
the rulings of the HLURB, the Office of the President and the Court
of Appeals.

We likewise affirm the award of attorneys fees because


respondents were forced to litigate for 14 years and incur
expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners. The imposition of
P10,000.00 administrative fine is correct pursuant to Section 38 of
Presidential Decree No. 957 which reads:

Indeed, the non- performance of petitioners obligation entitles


respondents to rescission under Article 1191 of the New Civil Code
which states: Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should
become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule
governing the sale of condominiums, which provides: Section 23.
Non-Forfeiture of Payments. No installment payment made by a
buyer in a subdivision or condominium project for the lot or unit he
contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the
owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit
for complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization interests
but excluding delinquency interests, with interest thereon at the
legal rate.
Conformably with these provisions of law, respondents are entitled
to rescind the contract and demand reimbursement for the
payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the
case of Fil-Estate Properties, Inc. v. Spouses Go promulgated on 17
August 2007, where the Court stated that the Asian financial crisis
is not an instance ofcaso fortuito. Bearing the same factual milieu
as the instant case, G.R. No. 165164 involves the same company,
Fil-Estate, albeit about a different condominium property. The
company likewise reneged on its obligation to respondents therein
by failing to develop the condominium project despite substantial
payment of the contract price. Fil-Estate advanced the same
argument that the 1997 Asian financial crisis is a fortuitous event
which justifies the delay of the construction project. First off, the
Court classified the issue as a question of fact which may not be
raised in a petition for review considering that there was no
variance in the factual findings of the HLURB, the Office of the
President and the Court of Appeals. Second, the Court cited the
previous rulings of Asian Construction and Development
Corporation v. Philippine Commercial International Bank and
Mondragon Leisure and Resorts Corporation v. Court of Appeals
holding that the 1997Asian financial crisis did not constitute a valid
justification to renege on obligations. The Court expounded: Also,
we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It
is unfortunate that petitioner apparently met with considerable
difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as
1995. However, a real estate enterprise engaged in the pre-selling
of condominium units is concededly a master in projections on
commodities and currency movements and business risks. The
fluctuating movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an instance
of caso fortuito.
The aforementioned decision becomes a precedent to future cases
in which the facts are substantially the same, as in this case. The
principle of stare decisis, which means adherence to judicial
precedents, applies.
In said case, the Court ordered the refund of the total
amortizations paid by respondents plus 6% legal interest
computed from the date of demand. The Court also awarded
attorneys fees. We follow that ruling in the case before us.
CIVIL LAW: interest rates on default

CIVIL LAW: when to award damages and attorneys fees

Finally, we sustain the award of moral damages. In order that


moral damages may be awarded in breach of contract cases, the
defendant must have acted in bad faith, must be found guilty of
gross negligence amounting to bad faith, or must have acted in
wanton disregard of contractual obligations. The Arbiter found
petitioners to have acted in bad faith when they breached their
contract, when they failed to address respondents grievances and
when they adamantly refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned
Court of Appeals' Decision and Resolution.
Gotesco v Fajardo
FACTS:
Sps. Fajardo entered into a Contract to Sell with petitionercorporation Gotesco Properties, Inc. (GPI) for the purchase of a lot
in Evergreen Executive Village, a subdivision project owned and
developed by GPI located at Novaliches, Caloocan City. The subject
lot is a portion of a bigger lot covered by Transfer Certificate of
Title (TCT) No. 244220 (mother title). Under the contract, Sps.
Fajardo undertook to pay the purchase within a 10-year period,
including interest at the rate of nine percent (9%) per annum while
GPI, on the other hand, agreed to execute a final deed of sale
(deed) in favor of Sps. Fajardo upon full payment of the stipulated
consideration.
However, despite its full payment of the purchase price and
subsequent demands, GPI failed to execute the deed and to deliver
the title and physical possession of the subject lot.
Thus, Sps. Fajardo filed before the Housing and Land Use
Regulatory Board-Expanded National Capital Region Field Office
(HLURBENCRFO) a complaint for specific performance or rescission
of contract with damages against GPI and the members of its
Board of Directors.
Sps. Fajardo averred that GPI violated Section 20 of Presidential
Decree No. 95710 (PD 957) due to its failure to construct and
provide water facilities, improvements, infrastructures and other
forms of development including water supply and lighting facilities
for the subdivision project. They also alleged that GPI failed to
provide boundary marks for each lot and that the mother title
including the subject lot had no technical description and was even
levied upon by the Bangko Sentral ng Pilipinas (BSP) without their
knowledge. They thus prayed that GPI be ordered to execute the
deed, to deliver the corresponding certificate of title and the
physical possession of the subject lot within a reasonable period,
and to develop Evergreen Executive Village; or in the alternative,
to cancel and/or rescind the contract and refund the total
payments made plus legal interest.
For their part, claimed that the failure to deliver the title to Sps.
Fajardo was beyond their control because while GPI's petition for
inscription of technical description was favorably granted by the
Regional Trial Court the same was reversed by the CA; this caused
the delay in the subdivision of the property into individual lots with
individual titles. Given the foregoing incidents, petitioners thus
argued that Article 1191 of the Civil Code (Code) the provision on
which Sps. Fajardo anchor their right of rescission remained
inapplicable since they were actually willing to comply with their
obligation but were only prevented from doing so due to
circumstances beyond their control. Separately, petitioners
pointed out that BSP's adverse claim/levy which was annotated
long after the execution of the contract had already been settled.
ISSUE:
WON Sps. Fajardo have no right to rescind the contract considering
that GPI's inability to comply therewith was due to reasons beyond

its control and thus, should not be held liable to refund the
payments they had received.

petitioners position that said Article 1385 does not apply to


rescission under Article 1191.

HELD:

In this light, it cannot be denied that only GPI benefited from the
contract, having received full payment of the contract price plus
interests as early as January 17, 2000, while Sps. Fajardo remained
prejudiced by the persisting non-delivery of the subject lot despite
full payment. As a necessary consequence, considering the
propriety of the rescission as earlier discussed, Sps. Fajardo must
be able to recover the price of the property pegged at its
prevailing market value.

NO. Sps. Fajardo have a right to rescind the contract.


RATIO:
It is settled that in a contract to sell, the seller's obligation to
deliver the corresponding certificates of title is simultaneous and
reciprocal to the buyer's full payment of the purchase price. In this
relation, Section 25 of PD 957, which regulates the subject
transaction, imposes on the subdivision owner or developer the
obligation to cause the transfer of the corresponding certificate of
title to the buyer upon full payment.
A perusal of the records shows that GPI acquired the subject
property through a Deed of Partition and Exchange executed
between it and the former registered owner of the property.
However, no plausible explanation was advanced by the
petitioners as to why the petition for inscription was filed only after
almost eight (8) years from the acquisition of the subject property.
Neither did petitioners sufficiently explain why GPI took no positive
action to cause the immediate filing of a new petition for
inscription within a reasonable time from notice of the July 15,
2003 CA Decision which dismissed GPIs earlier petition based on
technical defects, this notwithstanding Sps. Fajardo's full payment
of the purchase price and prior demand for delivery of title.
Clearly, the long delay in the performance of GPI's obligation from
date of demand was unreasonable and unjustified. It cannot
therefore be denied that GPI substantially breached its contract to
sell with Sps. Fajardo which thereby accords the latter the right to
rescind the same pursuant to Article 1191 of the Code, viz:
ART. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
It is noteworthy to point out that rescission does not merely
terminate the contract and release the parties from further
obligations to each other, but abrogates the contract from its
inception and restores the parties to their original positions as if no
contract has been made.31 Consequently, mutual restitution,
which entails the return of the benefits that each party may have
received as a result of the contract, is thus required.32 To be sure,
it has been settled that the effects of rescission as provided for in
Article 1385 of the Code are equally applicable to cases under
Article 1191, to wit:
Mutual restitution is required in cases involving rescission under
Article 1191.1wphi1 This means bringing the parties back to their
original status prior to the inception of the contract. Article 1385 of
the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he may
be obligated to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
This Court has consistently ruled that this provision applies to
rescission under Article 1191:
Since Article 1385 of the Civil Code expressly and clearly states
that "rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the
price with its interest," the Court finds no justification to sustain

Reyes v Rossi
Facts:
Petitioner Reyes and Advanced Foundation, represented by
respondent Ettore Rossi, executed a deed of conditional sale
involving the purchase by Reyes of equipment consisting of a
Dredging Pump. The parties agreed therein that Reyes would pay
the sum of P3,000,000.00 as down payment, and the balance of
P7,000,000.00 through four post-dated checks. Reyes complied,
but he requested the restructuring of his obligation under the deed
of conditional sale by replacing the four post-dated checks with
nine post-dated checks that would include interest accruing on the
unpaid portion of the obligation.
Reyes issued and delivered the following nine postdated checks
drawn against the United Coconut Planters Bank. Rossi deposited
three of the post-dated checks but two of the checks were denied
payment ostensibly upon Reyes instructions to stop their
payment, while the third was dishonored for insufficiency of funds.
Rossi likewise deposited two more checks but the checks were
returned with the notation Account Closed stamped on them. He
did not anymore deposit the three remaining checks on the
assumption that they would be similarly dishonored.
Reyes commenced an action for rescission of contract and
damages and sought judgment declaring the deed of conditional
sale "rescinded and of no further force and effect," and ordering
Advanced Foundation to return the down payment with legal
interest and to pay to him attorneys fees, and various kinds and
amounts of damages.
Rossi charged Reyes with five counts of estafa and five counts of
violation of Batas Pambansa Blg. 22 for the dishonor of the checks.
Reyes submitted his counter-affidavit claiming that the checks had
not been issued for any valuable consideration; that he had
discovered from the start of using the dredging pump involved in
the conditional sale that the Caterpillar diesel engine powering the
pump had been rated at only 560 horsepower instead of the 1200
horsepower; that welding works on the pump had neatly concealed
several cracks; that he had written to Advanced Foundation
complaining about the misrepresentations on the specifications of
the pump and demanding documentary proof of Advanced
Foundations ownership of the pump; that he had caused the order
to stop the payment of three checks; that Advanced Foundation
had replied to his letter saying that the pump had been sold to him
on an as is, where is basis.
The Assistant City Prosecutor handling the preliminary
investigation recommended the dismissal of the charges of estafa
and the suspension of the proceedings relating to the violation of
Batas Pambansa Blg. 22 based on a prejudicial question which the
City Prosecutor of Makati approved.
Issues
W/N the civil action for rescission of the contract of sale raised a
prejudicial question that required the suspension of the criminal
prosecution for violation of Batas Pambansa Blg. 22.
Ruling
The petition for review is without merit.
The action for the rescission of the deed of sale on the ground that
Advanced Foundation did not comply with its obligation actually
seeks one of the alternative remedies available to a contracting
party under Article 1191 of the Civil Code, to wit:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in either

case. He may also seek rescission, even after he has chosen


fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
Article 1191 of the Civil Code recognizes an implied or tacit
resolutory condition in reciprocal obligations. The condition is
imposed by law, and applies even if there is no corresponding
agreement thereon between the parties. The explanation for this is
that in reciprocal obligations a party incurs in delay once the other
party has performed his part of the contract; hence, the party who
has performed or is ready and willing to perform may rescind the
obligation if the other does not perform, or is not ready and willing
to perform.19

developer of New Capitol Estates, the amount of P46,303.44.


Later during trial, Lourdes testified that Constancia instructed Bliss
not to accept amortization payments from anyone.
The RTC rendered its Decision focusing on the sole issue of
whether the spouses Bonrostros delay in their payment of the
installments constitutes a substantial breach of their obligation
under the contract warranting rescission. The RTC ruled that the
delay could not be considered a substantial breach considering
that Lourdes (1) requested for an extension within which to pay;
(2) was willing and ready to pay and even wrote Atty. Carbon about
this; (3) gave Constancia a down payment of P200,000.00; and, (4)
made payment to Bliss.
The CA concluded that there being no cancellation effected in
accordance with the procedure prescribed by law, the contract
therefore remains valid and subsisting. However, the CA modified
the RTC Decision with respect to interest, viz:

It is true that the rescission of a contract results in the


extinguishment of the obligatory relation as if it was never
created, the extinguishment having a retroactive effect. The
rescission is equivalent to invalidating and unmaking the juridical
tie, leaving things in their status before the celebration of the
contract.20 However, until the contract is rescinded, the juridical
tie and the concomitant obligations subsist.

Nevertheless, there is a need to modify the appealed decision


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

Accordingly, we agree with the holding of the CA that the civil


action for the rescission of contract was not determinative of the
guilt or innocence of Reyes. We consider the exposition by the CA
of its reasons to be appropriate enough, to wit:

The rule is that no interest shall be due unless it has been


expressly stipulated in writing (Art. 1956, Civil Code). However,
the contract does not provide for interest in case of default in
payment of the sum of P330,000.00 to Constancia and the
monthly amortizations to BLISS.

A careful perusal of the complaint for rescission of contract and


damages reveals that the causes of action advanced by
respondent Reyes are the alleged misrepresentation committed by
the petitioner and AFCSC and their alleged failure to comply with
his demand for proofs of ownership. On one hand, he posits that
his consent to the contract was vitiated by the fraudulent act of
the company in misrepresenting the condition and quality of the
dredging pump. Alternatively, he claims that the company
committed a breach of contract which is a ground for the
rescission thereof. Either way, he in effect admits the validity and
the binding effect of the deed pending any adjudication which
nullifies the same.
Indeed, under the Law on contracts, vitiated consent does not
make a contract unenforceable but merely voidable, the remedy of
which would be to annul the contract since voidable contracts
produce legal effects until they are annulled. On the other hand,
rescission of contracts in case of breach pursuant to Article 1191
of the Civil Code of the Philippines also presupposes a valid
contract unless rescinded or annulled.
Bonrostro v Luna
FACTS:
Respondent Constancia Luna, as buyer, entered into a Contract to
Sell with Bliss Development Corporation (Bliss) involving a house
and lot of New Capitol Estates in Diliman, Quezon City. Barely a
year after, Constancia, this time as the seller, entered into another
Contract to Sell with petitioner Lourdes Bonrostro concerning the
same property.
Immediately after the execution of the said second contract, the
spouses Bonrostro took possession of the property. However,
except for the P200,000.00 down payment, Lourdes failed to pay
any of the stipulated subsequent amortization payments.
Constancia and her husband, respondent Juan Luna filed before
the RTC a Complaint for Rescission of Contract and Damages
against the spouses Bonrostro praying for the rescission of the
contract, delivery of possession of the subject property, payment
by the latter of their unpaid obligation, and awards of actual, moral
and exemplary damages, litigation expenses and attorneys fees.
In their Answer the spouses Bonrostro averred that they were
willing to pay their total balance to the spouses Luna after they
sought from them a 60-day extension to pay the same. However,
during the time that they were ready to pay the said amount,
Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did
not show up at their rendezvous. Claiming that they are still willing
to settle their obligation, the spouses Bonrostro prayed that the
court fix the period within which they can pay the spouses Luna.
The spouses Bonrostro likewise asserted that they paid Bliss, the

Issue:
W/N tender of payment has been made in this case so as to
amount to consignation?
Held: NO!
The spouses Bonrostro assert that Lourdes letter of November 24,
1993 amounts to tender of payment of the remaining balance
amounting to P630,000.00. Accordingly, thenceforth, accrual of
interest should be suspended.
Tender of payment is the manifestation by the debtor of a desire
to comply with or pay an obligation. If refused without just cause,
the tender of payment will discharge the debtor of the obligation
to pay but only after a valid consignation of the sum due shall
have been made with the proper court. Consignation is the
deposit of the [proper amount with a judicial authority] in
accordance with rules prescribed by law, after the tender of
payment has been refused or because of circumstances which
render direct payment to the creditor impossible or inadvisable.
Tender of payment, without more, produces no effect. [T]o have
the effect of payment and the consequent extinguishment of the
obligation to pay, the law requires the companion acts of tender of
payment and consignation.
As to the effect of tender of payment on interest, noted civilist
Arturo M. Tolentino explained as follows:
When a tender of payment is made in such a form that the creditor
could have immediately realized payment if he had accepted the
tender, followed by a prompt attempt of the debtor to deposit the
means of payment in court by way of consignation, the accrual of
interest on the obligation will be suspended from the date of such
tender. But when the tender of payment is not accompanied by the
means of payment, and the debtor did not take any immediate
step to make a consignation, then interest is not suspended from
the time of such tender. x x x x36 (Emphasis supplied)
Here, the subject letter merely states Lourdes willingness and
readiness to pay but it was not accompanied by payment. She
claimed that she made numerous telephone calls to Atty. Carbon
reminding the latter to collect her payment, but, neither said
lawyer nor Constancia came to collect the payment. After that,
the spouses Bonrostro took no further steps to effect payment.
They did not resort to consignation of the payment with the proper
court despite knowledge that under the contract, non-payment of
the installments on the agreed date would make them liable for
interest thereon. The spouses Bonrostro erroneously assumed that
their notice to pay would excuse them from paying interest. Their
claimed tender of payment did not produce any effect whatsoever
because it was not accompanied by actual payment or followed by
consignation. Hence, it did not suspend the running of interest.

The spouses Bonrostro are therefore liable for interest on the


subject installments from the date of default until full payment of
the sums of P300,000.00 and P330,000.00.
Uy v Valbueco
PERALTA, J.:
This is a petition for review on certiorari 1 of the Court of Appeals
Decision2 dated December 11, 2006 in CA-G.R. CV No. 85877, and
its Resolution dated September 4, 2007, denying petitioners
motion for reconsideration.
The Court of Appeals reversed and set aside the Decision 3 of the
Regional Trial Court (RTC) of Manila, Branch 1, dismissing the
Complaint for specific performance and damages. The Court of
Appeals reinstated the Complaint and directed petitioner to
execute deeds of absolute sale in favor of respondent after
payment of the purchase price of the subject lots.
The facts, as stated by the Court of Appeals, are as follows:
Petitioner Manuel Uy & Sons, Inc. is the registered owner of parcels
of land located in Teresa, Rizal covered by Transfer Certificate of
Title(TCT) No. 59534, covering an area of about 6,119 square
meters; TCT No.59445, covering an area of about 6,838 square
meters; TCT No. 59446,covering an area of about 12,389 square
meters; and TCT No. 59444,covering an area of about 32,047
square meters.
On November 29, 1973, two Conditional Deeds of Sale were
executed by petitioner, as vendor, in favor of respondent Valbueco,
Incorporated, as vendee. The first Conditional Deed of
Sale4 covered TCT Nos. 59534, 59445 and 59446, and contained
the following terms and conditions:

6. That the VENDOR and the VENDEE agree that during


the existence of this Contract and without previous
expressed written permission from the other, they shall
not sell, cede, assign, transfer or mortgage, or in any way
encumber unto another person or party any right, interest
or equity that they may have in and to said parcels of
land. x x x x
8. That it is understood that ownership of the properties
herein conveyed shall not pass to the VENDEE until after
payment of the full purchase price; provided, however,
that the VENDOR shall allow the annotation of this
Conditional Deed of Sale at the back of the titles of the
above-described parcels of land in the corresponding
Registry of Deeds x xx.
9. That upon full payment of the total purchase price, a
Deed of Absolute Sale shall be executed in favor of the
VENDEE and the VENDOR agrees to pay the documentary
stamps and the science stamp tax of the Deed of Sale;
while the VENDEE agrees to pay the registration and other
expenses for the issuance of a new title.
10. That it is mutually agreed that in case of litigation, the
venue of the case shall be in the courts of Manila, having
competent jurisdiction, any other venue being expressly
waived.5
On the other hand, the second Conditional Deed of Sale6 covering
Lot No. 59444 provides, thus:
1. The sum of FIFTY-TWO THOUSAND SEVENTY-SIXAND
37/100 (Php 52,076.37) PESOS, shall be paid upon signing
of this conditional deed of sale; and

That for and in consideration of the sum of ONE HUNDREDSIXTYFOUR THOUSAND SEVEN HUNDRED FORTY-NINE(Php164,749.00)
PESOS, Philippine currency, the VENDOR hereby agrees to SELL,
CEDE, TRANSFER and CONVEY unto the VENDEE xx x the
aforementioned properties, payable under the following terms and
conditions:

2. The balance of ONE HUNDRED FIFTY-SIXTHOUSAND


TWO
HUNDRED
TWENTY-NINE
and
13/100
(Php156,229.13) PESOS shall be paid within a period of
one (1) year from November 15, 1973, with interest of
12% per annum based on the balance, in the mode and
manner specified below:

1.
The
sum
of
FORTY-ONE
THOUSAND
ONE
HUNDREDEIGHTY-SEVEN and 25/100 (Php 41,187.25)
PESOS shall be paid upon signing of this conditional deed
of sale; and

b) On or before May 15, 1974 P67,699.29 plus


interest

2.
The
balance
of
ONE
HUNDRED
TWENTYTHREETHOUSAND FIVE HUNDRED SIXTY-ONE and 75/100
(Php123,561.75) PESOS shall be paid within a period of
one (1) year from November 15, 1973, with interest of
12% per annum based on the balance, in the mode and
manner specified below:
a) January 4, 1974 P16,474.90 plus interest
b) On or before May 15, 1974 P53,543.43 plus
interest
c) On or before November 15, 1974 P53,543.32
plus interest
3. That the vendee shall be given a grace period of thirty
(30)days from the due date of any installment with
corresponding interest to be added, but should the
VENDEE fail to make such payment within the grace
period this contract shall be deemed rescinded and
without force and effect after notice in writing by VENDOR
to VENDEE.
4. That the VENDOR agrees to have the existing
Mortgages on the properties subject of this sale released
on or before May 20, 1974.
5. That the VENDOR agrees to have the above-described
properties freed and cleared of all lessees, tenants,
adverse occupants or squatters within 100 days from the
execution of this conditional deed of sale. In case of
failure by the VENDOR to comply with the undertaking
provided in this paragraph and the VENDEE shall find it
necessary to file a case or cases in court to eject the said
lessees, tenants, occupants and/or squatters from the
land, subject of this sale, the VENDOR agrees to answer
and pay for all the expenses incurred and to be incurred
in connection with said cases until the same are fully and
finally terminated.

a) January 4, 1974 P20,830.55 plus interest

c) On or before November 15, 1974, P67,699.29


plus interest
3. That the VENDEE shall be given a grace period of thirty
(30) days from the due date of any installment with
corresponding interest to be added, but should the
VENDEE fail to make such payment within the grace
period, this contract shall be deemed rescinded and
without force and effect after notice in writing by VENDOR
to VENDEE.
4. That the VENDOR agrees and acknowledges that any
and all payments to be made by the VENDEE by reason of
this presents unless hereafter advised by VENDOR to the
contrary, shall be made in favor of and to the Philippine
Trust Company by way of liquidation and payment of the
existing mortgage on the property subject of this sale.
5. That after each payment adverted to above the
VENDOR shall issue the corresponding receipt for the
amount paid by the VENDOR to the Philippine Trust
Company.
6. That the VENDOR agrees to have the above-described
property freed and cleared of all lessees, tenants, adverse
occupants or squatters within 100 days from the
execution of this conditional deed of sale. In case of
failure by the VENDOR to comply with this undertaking
provided in this paragraph and the VENDEE shall find it
necessary to file a case or cases in court to eject the said
lessees, tenants, occupants and/or squatters from the
land, subject of this sale, the VENDOR agrees to answer
and pay for all the expenses incurred and to be incurred
in connection with said cases until the same are fully and
finally terminated.
7. That the VENDOR and the VENDEE agree that during
the existence of this Contract and without previous
expressed written permission from the other, they shall
not sell, cede, assign, transfer or mortgage, or in any way

encumber unto another person or party any right, interest


or equity that they may have in and to said parcel of land.
xxxx
9. That it is understood that ownership of the property
herein conveyed shall not pass to the VENDEE until after
payment of the full purchase price, provided, however,
that the VENDOR shall allow the annotation of the
Conditional Deed of Sale at the back of the Title of the
above-described parcel of land in the corresponding
Registry of Deeds; x xx.
10. That upon full payment of the total purchase price, a
Deed of Absolute Sale shall be executed in favor of the
VENDEE and the VENDOR agrees to pay the documentary
stamps and the science stamp tax of the Deed of Sale;
while the VENDEE agrees to pay the registration and other
expenses for the issuance of a new title.
11. That it is mutually agreed that in case of litigation, the
venue of the case shall be in the courts of Manila, having
competent jurisdiction, any other venue being expressly
waived.7
Respondent

was

able

to

pay

petitioner

the

amount

of P275,055.558 as partial payment for the two properties


corresponding to the initial payments and the first installments of
the said properties.
At the same time, petitioner complied with its obligation under the
conditional deeds of sale, as follows: (1) the mortgage for TCT No.
59446 was released on May 18, 1984, while the mortgages for TCT
Nos. 59445and 59534 were released on July 19, 1974; (2) the
unlawful occupants of the lots covered by TCT Nos. 59444, 59534,
59445 and 59446 surrendered their possession and use of the said
lots in consideration of the amount of P6,000.00 in a
document9 dated November 19, 1973, and they agreed to
demolish their shanties on or before December 7, 1973; and (3)
the mortgage with Philippine Trust Company covering TCT No.
59444 was discharged10 in 1984.
However, respondent suspended further payment as it was not
satisfied with the manner petitioner complied with its obligations
under the conditional deeds of sale. Consequently, on March 17,
1978, petitioner sent respondent a letter 11 informing respondent
of its intention to rescind the conditional deeds of sale and
attaching therewith the original copy of the respective notarial
rescission.
On November 28, 1994, respondent filed a Complaint 12 for
specific performance and damages against petitioner with the RTC
of Antipolo City. However, on January 15, 1996, the case was
dismissed without prejudice13 for lack of interest, as respondent's
counsel failed to attend the pre-trial conference.
Five years later, or on March 16, 2001, respondent again filed with
the RTC of Manila, Branch 1 (trial court) a Complaint 14 for specific
performance and damages, seeking to compel petitioner to accept
the balance of the purchase price for the two conditional deeds of
sale and to execute the corresponding deeds of absolute sale.
Respondent contended that its non-payment of the installments
was due to the following reasons:(1) Petitioner refused to receive
the balance of the purchase price as the properties were
mortgaged and had to be redeemed first before a deed of absolute
sale could be executed; (2) Petitioner assured that the existing
mortgages on the properties would be discharged on or before
May 20,1974, or that petitioner did not inform it (respondent) that
the mortgages on the properties were already released; and (3)
Petitioner failed to fully eject the unlawful occupants in the area.
In its Answer,15 petitioner argued that the case should be
dismissed, as it was barred by prior judgment. Moreover, petitioner
contended that it could not be compelled to execute any deed of
absolute sale, because respondent failed to pay in full the
purchase price of the subject lots. Petitioner claimed that it gave
respondent a notice of notarial rescission of both conditional deeds
of sale that would take effect 30 days from receipt thereof. The
notice of notarial rescission was allegedly received by respondent
on March 17,1978. Petitioner asserted that since respondent failed
to pay the full purchase price of the subject lots, both conditional
deeds of sale were rescinded as of April 16, 1978; hence,

respondent had no cause of action against it.


In its Reply,16 respondent denied that it received the alleged
notice of notarial rescission. Respondent also denied that the
alleged recipient (one Wenna Laurenciana)17 of the letter dated
March 17, 1978, which was attached to the notice of notarial
rescission, was its employee. Respondent stated that assuming
arguendo that the notice was sent to it, the address (6th Floor,
SGC Bldg., Salcedo Street, Legaspi Village, Makati, Metro Manila)
was not the given address of respondent. Respondent contended
that its address on the conditional deeds of sale and the receipts
issued by it and petitioner showed that its principal business
address was the 7th Floor, Bank of P.I. Bldg, Ayala Avenue, Makati,
Rizal.
On

August

1,

2005,

the

trial

court

rendered

Decision,18 dismissing the complaint, as petitioner had exercised


its right to rescind the contracts. The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, the complaint is DISMISSED for
lack of merit.
Claims and counterclaims for damages are also dismissed.19
The trial court stated that the issues before it were: (1) Did
petitioner unlawfully evade its obligation to execute the final deed
of sale and to eject the squatters/occupants on the properties; (2)
Is the case barred by prior judgment; and (3) Does respondent
have a cause of action against petitioner.
The trial court said that both conditional deeds of sale clearly
provided that "ownership x x x shall not pass to the VENDEE until
after full payment of the purchase price." Respondent admitted
that it has not yet fully paid the purchase price. The trial court held
that the conditions in the conditional deeds of sale being
suspensive, that is, its fulfillment gives rise to the obligation, the
reasons for the inability of respondent to fulfill its own obligations
is material, in order that the obligation of petitioner to execute the
final deeds of absolute sale will arise. The trial court stated that
the evidence showed that petitioner had exercised its right to
rescind the contract by a written notice dated March 17, 1978 and
notarial acts both dated March15, 1978. The trial court noted that
respondent denied having received the notice and disclaimed
knowing the recipient, Wenna Laurenciana. However, on crossexamination, respondent's witness, Gaudencio Juan, who used to
be respondent's Personnel Manager and Forester at the same time,
admitted knowing Laurenciana because she was the secretary of
Mr. Valeriano Bueno, respondent's president at that time, although
Laurenciana was not employed by respondent, but she was
employed by Mahogany Products Corporation, presumably one of
the 14 other companies being controlled by Mr. Bueno. 20
The trial court held that the conditional deeds of sale were
executed on November 29, 1973 and were already covered by
Republic Act (R.A.) No. 6552, otherwise known as the Realty
Installment Buyer Act. Under Section 4 of the law, if the buyer fails
to pay the installments due at the expiration of the grace period,
which is not less than 60 days from the date the installment
became due, the seller may cancel the contract after 30 days from
receipt of the buyer of the notice of cancellation or the demand for
rescission of the contracts by notarial act. The trial court found no
lawful ground to grant the relief prayed for and dismissed the
complaint for lack of merit.
Respondent appealed the decision of the trial court to the Court of
Appeals, and made these assignments of error: (1) the trial court
erred in holding that petitioner did not unlawfully evade executing
a final deed of sale, since respondent's failure to fulfill its own
obligation is material; (2) the trial court erred in holding that it is
unbelievable and a self-contradiction that respondent was
informed of the mortgage only when it was paying the balance of
the properties; and (3) the trial court erred in holding that as early
as November 19, 1973, petitioner had already taken necessary
steps to evict the squatters/occupants through the intercession of
the agrarian reform officer.
On December 11, 2006, the Court of Appeals rendered a Decision,
reversing and setting aside the Decision of the trial court. It
reinstated the complaint of respondent, and directed petitioner to
execute deeds of absolute sale in favor of respondent after
payment of the balance of the purchase price of the subject lots.
The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the August 1, 2005Decision of


the Regional Trial Court of Manila, Branch 1, in Civil Case No. 01100411, is hereby REVERSED and SET ASIDE.
A new one is hereby entered: REINSTATING the complaint and
defendant-appellee MANUEL UY & SONS INC. is hereby DIRECTED,
pursuant to Sec. 4, R. A. No. 6552, otherwise known as the Maceda
Law, to EXECUTE and DELIVER:
(1) Deeds of Absolute Sale in favor of VALBUECO, INC.;
and
(2) Transfer Certificates of Title pertaining to Nos. 59534,
59445,59446 and 59444, in the name of plaintiffappellant VALBUECO, INC., after VALBUECO pays MANUEL
UY & SONS, without additional interest, within thirty days
from finality of this judgment, the balance of the contract
price.
If MANUEL UY & SONS refuses to deliver the Deeds of Absolute
Sale and the co-owner's copy of the TCTs, the Register of Deeds of
Antipolo, Rizal is hereby DIRECTED to CANCEL the latest TCTs
issued derived from TCT Nos. 59534, 59445, 59446 and 59444,
and to
ISSUE new TCTS in the name of VALBUECO.
Only if VALBUECO fails in the payment directed above, then
defendant-appellee MANUEL UY & SONS INC. has the opportunity
to serve a valid notice of notarial rescission.
SO ORDERED.21
The Court of Appeals held that the two conditional deeds of sale in
this case are contracts to sell. It stated that the law applicable to
the said contracts to sell on installments is R.A. No. 6552,
specifically Section 4thereof, as respondent paid less than two
years in installments. It held that upon repeated defaults in
payment by respondent, petitioner had the right to cancel the said
contracts, but subject to the proper receipt of respondent of the
notice of cancellation or the demand for the rescission of the
contracts by notarial act.
However, the Court of Appeals found that petitioner sent the
notice of notarial rescission to the wrong address. The business
address of respondent, as used in all its transactions with
petitioner, was the 7th Floor, Bank of the Philippine Islands
Building, Ayala Avenue, Makati City, but the notice of notarial
rescission was sent to the wrong address at the 6th Floor, SGC
Building, Salcedo Street, Legaspi Village, Makati, Metro Manila.
Petitioner served the notice to the address of Mahogany Products
Corporation. It was established that the person who received the
notice, one Wenna Laurenciana, was an employee of Mahogany
Products Corporation and not an employee of respondent or Mr.
Valeriano Bueno, the alleged president of Mahogany Products
Corporation and respondent company. 22 The appellate court
stated that this cannot be construed as to have been contructively
received by respondent as the two corporations are two separate
entities with a distinct personality independent from each other.
Thus, the Court of Appeals held that the notarial rescission was in
validly served. It stated that it is a general rule that when service
of notice is an issue, the person alleging that the notice was
served must prove the fact of service by a preponderance of
evidence. In this case, the Court of Appeals held that there was no
evidence that the notice of cancellation by notarial act was
actually received by respondent. Thus, for petitioner's failure to
cancel the contract in accordance with the procedure provided by
law, the Court of Appeals held that the contracts to sell on
installment were valid and subsisting, and respondent has the
right to offer to pay for the balance of the purchase price before
actual cancellation.
Petitioner's motion for reconsideration was denied for lack of merit
by the Court of Appeals in a Resolution 23dated September 4,
2007.
Petitioner filed this petition raising the following issues:
I
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED INREVERSING THE RTC DECISION AND
REINSTATING THECOMPLAINT WHEN ON ITS FACE IT
HAS LONG BEENPRESCRIBED, AS IT WAS FILED
AFTER 27 YEARS AND HAS NOJURISDICTION (SIC).
II

THE HONORABLE COURT OF APPEALS SERIOUSLY


ERRED ANDGRAVELY ABUSED ITS DISCRETION IN
COMPELLINGPETITIONER TO EXECUTE A FINAL DEED
OF ABSOLUTE SALE EVEN IF RESPONDENT
JUDICIALLY ADMITTED ITS NON-PAYMENT OF THE
BALANCE OF THE DEEDS OF CONDITIONALSALE DUE
SINCE 1974.
III
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED INGRANTING THE RELIEFS PRAYED BY
RESPONDENT IN ITSCOMPLAINT FOR SPECIFIC
PERFORMANCE WHEN IT WASRESPONDENT WHO
BREACHED THE CONTRACT.
IV
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVEINJUSTICE WHEN IT PENALIZED PETITIONER
FOR EXERCISINGITS LEGAL RIGHT AND DID NOT
COMMIT AN ACTIONABLEWRONG WHILE IT HEFTILY
REWARDED RESPONDENT, WHOBREACHED THE
CONTRACT,
AND
ORDERED
TO
PAY
WITHOUTINTEREST PHP 97,998.95, WHICH IS DUE
SINCE 1974 UNDER THECONTRACT, FOR FOUR (4)
PARCELS OF LAND (57,393 SQUAREMETERS), NOW
WORTH HUNDRED MILLIONS.
V
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED INANNULING THE NOTARIAL RESCISSION
WHEN THE COMPLAINT IS ONLY FOR SPECIFIC
PERFORMANCE AND WAS NOT AN ISSUE RAISED IN
THE PLEADINGS OR DURING THETRIAL.24
The main issue is whether respondent is entitled to the relief
granted by the Court of Appeals. Petitioner contends that the Court
of Appeals erred in directing it to execute deeds of absolute sale
over the subject lots even if respondent admitted non-payment of
the balance of the purchase price.
As found by the Court of Appeals, the two conditional deeds of sale
entered into by the parties are contracts to sell, as they both
contained a stipulation that ownership of the properties shall not
pass to the vendee until after full payment of the purchase price.
In a conditional sale, as in a contract to sell, ownership remains
with the vendor and does not pass to the vendee until full payment
of the purchase price.25 The full payment of the purchase price
partakes of a suspensive condition, and non-fulfillment of the
condition prevents the obligation to sell from arising.26 To
differentiate, a deed of sale is absolute when there is no stipulation
in the contract that title to the property remains with the seller
until full payment of the purchase price.
Ramos v. Heruela27 held that Articles 1191 and 1592 of the Civil
Code28 are applicable to contracts of sale, while R.A. No. 6552
applies to contracts to sell.
The Court of Appeals correctly held that R.A. No. 6552, otherwise
known as the Realty Installment Buyer Act, applies to the subject
contracts to sell. R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right of
the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents
the obligation of the vendor to convey title from acquiring binding
force.29
It also provides the right of the buyer on installments in case he
defaults in the payment of succeeding installments 30 as follows:
Section 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act
Numbered Thirty-eight hundred forty-four, as amended by
Republic Act Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the buyer is
entitled to the following rights in case he defaults in the payment
of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him which is hereby fixed at the rate of one month grace

period for every one year of installment payments made:


Provided, That this right shall be exercised by the buyer
only once in every five years of the life of the contract
and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to
the buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total
payments made, and, after five years of installments, an
additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided,
That the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be
included in the computation of the total number of installment
payments made. chanrobles a law library
Sec. 4. In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. 31
In this case, respondent has paid less than two years of
installments; therefore, Section 4 of R.A. No. 6552 applies.
The Court of Appeals held that even if respondent defaulted in its
full payment of the purchase price of the subject lots, the
conditional deeds of sale remain valid and subsisting, because
there was no valid notice of notarial rescission to respondent, as
the notice was sent to the wrong address, that is, to Mahogany
Products Corporation, and it was received by a person employed
by Mahogany Products Corporation and not the respondent. The
Court of Appeals stated that the allegation that Mahogany
Products Corporation and respondent have the same President,
one Valeriano Bueno, is irrelevant and has not been actually
proven or borne by evidence. The appellate court held that there
was insufficient proof that respondent actually received the notice
of notarial rescission of the conditional deeds of sale; hence, the
unilateral rescission of the conditional deeds of sale cannot be
given credence.
However, upon review of the records of this case, the Court finds
that respondent had been served a notice of the notarial rescission
of the conditional deeds of sale when it was furnished with the
petitioner's Answer, dated February 16, 1995, to its first Complaint
filed on November 28, 1994with the RTC of Antipolo City, which
case was docketed as Civil Case No.94-3426, but the complaint

March 15, 1978, of the two conditional deeds of sale. Hence,


respondent is deemed to have had notice of the notarial rescission
of the two conditional deeds of sale when it received petitioners
Answer to its first complaint filed with the RTC of Antipolo, since
petitioners Answer included notices of notarial rescission of the
two conditional deeds of sale. The first complaint was filed six
years earlier before this complaint was filed. As stated earlier, the
first complaint was dismissed without prejudice, because
respondents counsel failed to appear at the pre-trial. Since
respondent already received notices of the notarial rescission of
the conditional deeds of sale, together with petitioners Answer to
the first Complaint five years before it filed this case, it can no
longer deny having received notices of the notarial rescission in
this case, as respondent admitted the same when it attached the
notices of notarial rescission to its Reply in this case.
Consequently, respondent is not entitled to the relief granted by
the Court of Appeals.
Under R.A. No. 6552, the right of the buyer to refund accrues only
when he has paid at least two years of installments. 34 In this
case, respondent has paid less than two years of installments;
hence, it is not entitled to a refund.35
Moreover, petitioner raises the issue of improper venue and lack of
jurisdiction of the RTC of Manila over the case. It contends that the
complaint involved real properties in Antipolo City and cancellation
of titles; hence, it was improperly filed in the RTC of Manila.
Petitioner's contention lacks merit, as petitioner and respondent
stipulated in both Conditional Deeds of Sale that they mutually
agreed that in case of litigation, the case shall be filed in the
courts of Manila.36
Further, petitioner contends that the action has prescribed.
Petitioner points out that the cause of action is based on a written
contract; hence, the complaint should have been brought within 10
years from the time the right of action accrues under Article 1144
of the Civil Code. Petitioner argues that it is evident on the face of
the complaint and the two contracts of conditional sale that the
cause of action accrued in 1974; yet, the complaint for specific
performance was filed after 27 years. Petitioner asserts that the
action has prescribed.
The contention is meritorious.
Section 1, Rule 9 of the 1997 Rules of Civil Procedure provides:
Section 1. Defense and objections not pleaded. - Defenses and
objections not pleaded whether in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the
pleadings that the court has no jurisdiction over the subject
matter, that there is another action pending between the same
parties for the same cause, or that the action is barred by a prior
judgment or by statute of limitations, the court shall dismiss the

was later dismissed without prejudice on January15, 1996. 32

claim.37

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

In Gicano v. Gegato,38 the Court held:

Five years after the dismissal of the first Complaint, respondent


again filed this case for specific performance and damages, this
time, with the RTC of Manila. Petitioner filed an Answer, and
alleged, among others, that the case was barred by prior
judgment, since respondent filed a complaint on November 28,
1994 before the RTC of Antipolo City, Branch 73, against it
(petitioner) involving the same issues and that the case, docketed
as Civil Case No. 94-3426, was dismissed on January 15, 1996 for
lack of interest. Respondent filed a Reply 33 dated July 18, 2001,
asserting that petitioner prayed for the dismissal of the first case
filed on November 28, 1994 (Civil Case No. 94-3426) on the
ground of improper venue as the parties agreed in the deeds of
conditional sale that in case of litigation, the venue shall be in the
courts of Manila. To prove its assertion, respondent attached to its
Reply a copy of petitioners Answer to the first Complaint in Civil
Case No. 94-3426, which Answer included the written notice dated
March 17, 1978 and two notarial acts of rescission, both dated

x x x (T)rial courts have authority and discretion to dismiss an


action on the ground of prescription when the parties' pleadings or
other facts on record show it to be indeed time-barred; (Francisco
v. Robles, Feb, 15,1954; Sison v. Mc Quaid, 50 O.G. 97; Bambao v.
Lednicky, Jan. 28, 1961;Cordova v. Cordova, Jan. 14, 1958;
Convets, Inc. v. NDC, Feb. 28, 1958;32 SCRA 529; Sinaon v.
Sorongan, 136 SCRA 408); and it may do so on the basis of a
motion to dismiss (Sec. 1,f, Rule 16, Rules of Court), or an answer
which sets up such ground as an affirmative defense (Sec. 5,
Rule16), or even if the ground is alleged after judgment on the
merits, as in a motion for reconsideration (Ferrer v. Ericta, 84 SCRA
705); or even if the defense has not been asserted at all, as where
no statement thereof is found in the pleadings (Garcia v. Mathis,
100 SCRA 250;PNB v. Pacific Commission House, 27 SCRA 766;
Chua Lamco v.Dioso, et al., 97 Phil. 821);
or where a defendant has been declared in default (PNB v. Perez,
16 SCRA 270). What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiff's complaint, or otherwise established by
the evidence.39
Moreover, Dino v. Court of Appeals40 held:

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

CIGI, as contractor and AMC, as owner, entered into a


contract4 whereby the former bound itself to provide labor and
materials for the installation of a medical gas pipeline system for
the first, second and third floors P9,856,725.18 which AMC duly
paid in full.

The herein legal controversy arose after the parties


entered into another agreement continuation of the centralized
medical oxygen and vacuum pipeline system in the hospitals
fourth & fifth floors (Phase 2 installation project) at the cost
(P2,267,344.42). This second contract followed the same terms
and conditions of the contract for the Phase 1 installation project.
CIGI forthwith commenced installation works for Phase 2 while
AMC paid the partial amount of (P1,000,000.00) with the
agreement that the balance shall be paid through progress billing
and within fifteen (15) days from the date of receipt of the original
invoice sent by CIGI.

CIGI sent AMC Charge Sales Invoice No. 125847 as


completion billing for the unpaid balance of P1,267,344.42 for the
Phase 2 installation project. When the sales invoice was left
unheeded, CIGI sent a demand letter to AMC. AMC, however, still
failed to pay thus prompting CIGI to file a collection suit before the
RTC on September 15, 1998.6

CIGI claimed that AMCs obligation to pay the outstanding


balance of the contract price for the Phase 2 installation project is
already due and demandable pursuant to Article II, page 4 of the
contract stating that the project shall be paid through progress
billing within fifteen (15) days from the date of receipt of original
invoice.

In its Answer with Counterclaim,7 AMC averred that its


obligation to pay the balance of the contract price has not yet
accrued because CIGI still has not turned over a complete and
functional medical oxygen and vacuum pipeline system. AMC
alleged that CIGI has not yet tested Phases 1 and 2 which
constitute one centralized medical oxygen and vacuum pipeline
system of the hospital despite substantial payments already made.

As counterclaim, AMC prayed for actual, moral and exemplary


damages, and attorneys fees.
ISSUE: W/O/N CIGIs demand for payment upon AMC is proper
RULING:
The subject installation contractsbear the features of reciprocal
obligations.
"Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous
fulfillment of the other." In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfils his obligation, delay by the
other begins.
Under the subject contracts, CIGI as contractor bound itself to
install a centralized medical oxygen and vacuum pipeline system
for the first to fifth floors of AMC, which in turn, undertook to pay
the contract price therefore in the manner prescribed in the
contract. Being reciprocal in nature, the respective obligations of
AMC and CIGI are dependent upon the performance of the other of
its end of the deal such that any claim of delay or nonperformance can only prosper if the complaining party has
faithfully complied with its own obligation.
Here, CIGI complains that AMC refused to abide by its undertaking
of full payment. While AMC does not dispute its liability to pay the
balance of P1,267,344.42 being claimed by CIGI, it asserts,
however that the same is not yet due because CIGI still has not
turned over a complete and functional medical oxygen and
vacuum pipeline system. CIGI is yet to conduct a test run of the
installation and an orientation/seminar of AMC employees who will
be involved in the operation of the system. CIGI, on the other
hand, does not deny that it failed to conduct the agreed
orientation/seminar and test run but it blames AMC for such
omission and asserts that the latter failed to heed CIGIs request
for electrical facilities necessary for the test run. CIGI also
contends that its obligation is merely to provide labor and
installation.
The Court has painstakingly evaluated the records of the case and
based thereon, there can be no other conclusion than that CIGIs
allegations failed to muster merit. The Court finds that CIGI did not
faithfully complete its prestations and hence, its demand for
payment cannot prosper based on the following grounds: (a) under
the two installation contracts, CIGI was bound to perform more
prestations than merely supplying labor and materials; and (b)
CIGI failed to prove by substantial evidence that it requested AMC
for electrical facilities as such, its failure to conduct a test run and
orientation/seminar is unjustified.
NOTES:
1. The real nature of a contract may be determined from the
express terms of the written agreement and from the
contemporaneous and subsequent acts of the contracting parties.
In the construction or interpretation of an instrument, the intention
of the parties is primordial and is to be pursued. If the terms of the
contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control.6 If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former. The
denomination or title given by the parties in their contract is not
conclusive of the nature of its contents.
2. Lim v. Court of Appeals (182 SCRA 564 [1990]) is most
illuminating. In the said case, a contract to sell and a contract of
sale were clearly and thoroughly distinguished from each other.
CONTRACT TO SELL

the ownership is reserved in the seller and is not to pass until


the full payment of the purchase price is made

full payment is a positive suspensive condition.

the title remains in the vendor if the vendee does not comply
with the condition precedent of making payment at the time
specified in the contract
CONTRACT OF SALE
- the title passes to the buyer upon the delivery of the thing sold

- non-payment of the price is a negative resolutory condition


- vendor has lost and cannot recover the ownership of the property
until and unless the contract of sale is itself resolved and set aside

ARTICLE 1192
MASSIVE CONSTRUCTION, INC., ENRIQUE P. SYQUIA,
RAMON P. SYQUIA, JOSE MA. MENDIETA, JAIME
SANTAMARIA, and JESUS P. SYQUIA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and
JAIME C. UY, respondents.
Syquia Law Offices for petitioners.
R.A. V. Saguisag for private respondent.
BELLOSILLO, J.:
This is an appeal by certiorari under Rule 45, Revised Rules of
Court, from the consolidated decision of the Court of Appeals in
AC-G. R. No. 64077-CV, entitled "Massive Construction Inc. v. Jaime
C. Uy," and AC-G. R. No. 65234-CV, entitled "Jaime Uy v. Enrique P.
Syquia, et al."
In AC-G. R. NO. 64077-CV, the Court of Appeals reversed the
decision of the Court of First Instance of Manila in Civil Code No.
87006, which ordered defendant Jaime C. Uy, (UY for brevity) to
pay plaintiff (MASSIVE for brevity) a sum of money for unrealized
profits resulting from UY's violation of the Agreement dated
December 16, 1971 (AGREEMENT for brevity), attorney's fees and
costs.
In AC-G. R. No. 65234-CV, the Court of Appeals reversed the
decision of the Court of First Instance of Manila in Civil Case No.
87511, which declared the AGREEMENT as rescinded due to the
breach thereof by both UY and defendants Enrique Syquia, et al.
(stockholders of MASSIVE).
The two cases arose from a common background.
MASSIVE was engaged in the construction business in the Greater
Manila Area while UY was connected with Super Highway Lumber
and Construction Supply, Inc. (SUPER HIGHWAY for brevity), a
business run by his wife and engaged in the business of supplying
construction materials.
In the latter part of 1971, MASSIVE suffered financial reverses,
resulting in its corporate reorganization. Ramon P. Syquia, the
general manager of MASSIVE, asked his relatives to help bail out
the company from its financial difficulties. Enrique P. Syquia, Jose
Ma. Mendieta, Jaime Sta. Maria, and Jesus P. Syquia were thus
elected directors.
In the course of operation, MASSIVE became indebted to SUPER
HIGHWAY for purchase of construction materials in an amount
exceeding P100,000.00. In order to settle this obligation,
negotiations were started between the stockholders of MASSIVE on
one hand and UY on the other. After several meetings, the parties
signed on 16 December 1972 their AGREEMENT, particularly
entered into by and among JAIME C. UY as First Party, RAMON P.
SYQUIA as Second Party, and JOSE MA. MENDIETA, JAIME STA.
MARIA, ROMEO ALMARIO, JESUS P. SYQUIA and ENRIQUE P. SYQUIA
jointly as Third Party, with Jose Ma. Mendieta signing his
CONFORME in behalf of MASSIVE, the pertinent terms of which
follow:
1. That the SECOND PARTY and the THIRD PARTY
are the complete stockholders and directors of
MASSIVE CONSTRUCTION, INC., a corporation
duly organized and existing under the laws of the
Philippines.
2. That the FIRST PARTY is desirous of buying the
entire shares of stock of said corporation;
3. That the FIRST PARTY, SECOND PARTY and
THIRD PARTY have agreed that the FIRST PARTY
will purchase the entire shares of stock of the
corporation belonging to the SECOND PARTY for
P250,000.00, under the following terms and
conditions:
a) That the FIRST PARTY will pay to the SECOND
PARTY and THIRD PARTY as earnest money,
P20,000.00 upon the signing of this Agreement,
and which will constitute as down payment after
which the FIRST PARTY complies with this
Agreement, but which will be forfeited in favor of
the SECOND and THIRD PARTY in case of failure
to comply with this Agreement;

b) That aside from the P20,000.00 earnest


money, the FIRST PARTY will pay P30,000.00 on
or before January 5, 1973 and the balance of
P200,000.00
shall
be
paid
in
monthly
installments of P50,000.00 every 5th day of the
month thereafter until the entire amount of
P250,000.00 is paid;
c) That the corporation has monies due it from its
receivable and collections; and the corporation
has also a pending obligation with the FIRST
PARTY; and all parties agree that from this date,
50% of the receivable collected and 30% of the
collections received by the corporation shall be
applied to the balance of P230,000.00 owing
from the FIRST PARTY to the SECOND PARTY and
THIRD PARTY; and these amounts, in turn, shall
be paid by the FIRST PARTY to the corporation by
the reduction and partial payment of the
obligation of the corporation to the FIRST PARTY;
d) That upon payment of the FIRST PARTY of
P20,000.00 to the SECOND PARTY and THIRD
PARTY, the SECOND PARTY and THIRD PARTY will
give P25,000.00 worth of shares to the FIRST
PARTY, and said FIRST PARTY shall also be
elected as director of the Corporation; and upon
succeeding payments made by the FIRST PARTY,
shares of stock will be transferred to him until the
total of P100,000.00 worth of shares have been
transferred to the name of the FIRST PARTY; and
once the entire amount of P250,000.00 is paid by
the FIRST PARTY to the SECOND PARTY and
THIRD PARTY, then the remaining balance of the
shares of stock shall be transferred to him
immediately;
e) That until the FIRST PARTY has fully paid said
amount of P250,000.00, the corporate structure
and management at the present time shall be
maintained, and all the stockholders and
directors shall continue with their present rights,
privileges, and prerogatives;
f) That upon payment by the FIRST PARTY to the
SECOND PARTY and THIRD PARTY of the said
amount of P250,000.00, all the obligations of the
corporation to the SECOND and THIRD PARTY,
which are purely personal in nature, shall be
considered fully liquidated; but this shall not
exceed P4,650.00 a month;
g) That said P250,000.00 shall be utilized in
paying primarily to the SECOND and THIRD
PARTY the monies they have advanced and
loaned to the corporation;
h) That immediately upon the singing of this
agreement, the FIRST PARTY shall make available
to the corporation such materials and capital as
the corporation may need for its projects as
determined by the SECOND PARTY, but this shall
be considered as an obligation of the corporation
to the FIRST PARTY.
4.) That as soon as the FIRST PARTY has paid
P250,000.00 to the SECOND and THIRD PARTY,
and the entire shares of the corporation are
transferred to him, it is agreed that the FIRST
PARTY, in turn, will transfer half of these shares
to the SECOND PARTY; and the FIRST PARTY and
SECOND PARTY shall manage and control the
corporation in equal shares, in equal proportion
and
with
equal
participation
in
the
profits. 1
At the signing of the AGREEMENT, the stockholders of MASSIVE
informed UY that the company had several on-going construction
projects, including those of Queen's Row Subdivision, Republic
Flour Mills, and B. F. Homes. On the same occasion, Uy issued to
Enrique P. Syquia a check postdated 22 December 1971 which
bounced for lack of funds. UY, however, made good the check by
paying Syquia P20,000.00 in cash on 29 December 1971. 2

Out of the P20,000 paid by UY to Enrique P. Syquia, UY borrowed


P2,000.00 payable on or before 5 July 1972. UY failed to pay this
amount, which compelled Syquia to file a collection suit against
him in the City Court of Manila (Civil Case No. 209298). The latter
Court rendered judgment against UY, who appealed the decision to
the Court of First Instance of Manila (Civil Case No. 87310).
Immediately after the signing of the AGREEMENT, UY was made a
co-manager of MASSIVE, pursuant to the AGREEMENT. Ramon P.
Syquia also asked Uy for his promised contribution of materials
and funds. Out of P100,000.00 worth of materials needed for the
projects, UY was able to deliver only P6,085.69. He gave as an
excuse the non-payment by his relatives of the dividends which he
intended to invest in MASSIVE.
MASSIVE made three demands for payment of the damages
caused by UY's failure to comply with his obligation under the
AGREEMENT: the first, addressed to UY dated 14 January
1972, 3 the second, addressed to UY's counsel dated 18 January
1972, 4 and the third, addressed to UY himself dated 18 January
1972. 5
In his answer to the letter dated 14 January 1972 of MASSIVE, 6 UY
wrote that he had been relieved from payment of the P30,000.00
required under paragraph 3(b) of the AGREEMENT because of the
failure of the stockholders of MASSIVE to deliver to him the
company's share of stock worth P25,000.00 upon his payment to
them of the sum of P20,000.00. 7
While Uy received the letters dated 17 and 18 January 1972, he
did not reply to them.
Because of the lack of fresh capital and construction materials,
MASSIVE aborted all its projects.
In Civil Case No. 87006, the trial court found that UY failed to make
available to MASSIVE the construction materials and funds needed
for its projects; that the construction materials delivered by UY to
MASSIVE valued at P6,085.69 were inadequate to carry out its
various projects; that UY's claim that he did not understand the
import of the AGREEMENT was unbelievable; and, that it was UY
who reneged on his obligations under the AGREEMENT. 8
The trial court, after finding that it was UY who had violated the
terms of the contract, particularly paragraph 3(h) thereof, held him
liable to pay MASSIVE P20,000.00 as damages for the Republic
Flour Mills project, P80,000.00 for the Queen's Row Subdivision
project, and P10,000.00 as attorneys' fees. The trial court denied
MASSIVE's claim for damages with respect to the B. F. Homes
project.
The trial court did not resolve the issue on the right of UY to
rescind the contract, saying that this issue would have to be
resolved in Civil Case No. 87511.
In Civil Case No. 87511, the trial court found that Uy entered into
the contract freely and even with the assistance and advice of
counsel; that there was no undue influence or fraud exerted on
him by MASSIVE's stockholders as to justify the nullification of the
contract; and, that the said stockholders did not conceal from Uy
the financial status of MASSIVE. 9
The trial court however did not award any damages after finding
that all the parties had defaulted in the fulfillment of their
obligations but it could not determine who of the parties first
violated the contract. 10
Uy appealed to the Court of Appeals from the decisions in both
cases. The Court of Appeals, viewing the evidence in a different
light, found that the stockholders of MASSIVE were the ones who
first violated the terms of the AGREEMENT when they failed to
assign to UY the P25,000.00 worth of the company's shares of
stock and to elect him a director of the company upon his payment
of P20,000.00. 11
In both AC-G.R. No. 64977-CV and AC-G.R. No. 65234-CV, the Court
of Appeals reversed the decisions of the Court of First Instance. In
addition, in AC-G.R. No. 65234-CV, the Court of Appeals ordered
MASSIVE to refund to Uy the sum of P20,000.00 and to pay
P6,085.69, representing the cost of materials delivered by UY to
MASSIVE, P5,000.00 as attorney's fees and costs. In AC-G.R. No.
65234-CV, the Court of Appeals made the stockholders of MASSIVE
subsidiarily liable to pay UY the amounts adjudged in AC-G.R. No.
64077-CV to be paid by MASSIVE.12 The Court of Appeals,
however, did not sustain UY's claim that his consent to the
contract was obtained by fraud. 13

The Court of Appeals sustained the trial court in its finding that
MASSIVE was a proper party to ask for specific performance of the
contract. The appellate court noted that the contract was signed
by all the directors-stockholders of MASSIVE and even had the
conformity of said company. 14
This Court can review the findings of facts of the Court of Appeals
when the same are contrary to the findings of the trial
court 15 and to the stipulation of facts of the parties. 16
Inasmuch as the AGREEMENT imposed reciprocal obligations, the
question to resolve is who of the parties breached the contract
first. The starting point of the inquiry is the contract itself.
Under the AGREEMENT, UY, as First Party, agreed to buy all the
outstanding shares of stock of MASSIVE and the stockholders of
MASSIVE, as Second and Third Parties, agreed to sell to him the
said shares for P250,000.00, under the following terms:
1) Upon the signing of the contract, Uy, would
pay Ramon P. Syquia and the other stockholders
of Massive the sum of P20,000.00 as earnest
money;
2) Immediately upon the signing of the contract,
Uy would "make available to Massive such
materials and capital as the company may need
for its projects as determined by Ramon P.
Syquia. All the materials and capital given by Uy
would be considered an obligation of Massive;
3) On or before January 5, 1973, Uy would pay
the stockholders of Massive the sum of
P30,000.00;
4) Every 5th day of the month beginning
February 5, 1973, Uy would pay the amount of
P50,000.00 until the balance of P200,000.00 was
paid;
5) Upon the payment of the P20,000.00 to the
stockholders of Massive the latter would give him
P25,000.00 worth of shares and would elect him
a director of the company.
The party required to act first in compliance with the terms of the
contract is no other than UY.
While UY issued a postdated check for P20,000.00 on 16
December 1972 in payment of the earnest money required under
paragraph 3 (a) of the AGREEMENT, the check bounced when it
was deposited for collection. True, UY made good the check on 29
December 1971 but he had to borrow P2,000.00 out of his
payment of P20,000.00. Having failed to pay this amount by 5 July
1972 as promised, UY was sued in the City Court of Manila for its
collection. Effectively, UY was able to pay only P18,000.00 out of
the P20,000.00 he was supposed to pay as earnest money. This
aspect of the case showed the financial difficulties besetting UY
and reflecting poorly on his ability to meet his financial
commitments.
In addition to his obligation to pay the earnest money of
P20,000.00 Uy was required under paragraph 3(h) of the
AGREEMENT to make available to MASSIVE immediately upon the
signing of the contract, such "materials and capital as the
corporation may need for its projects as determined by" Ramon P.
Syquia. Uy was able to deliver to MASSIVE materials valued at only
P6,085.69 out of the P100,000.00 worth as required by the ongoing projects.
The infusion of fresh capital was the lifeblood of the projects and
the essence of his being brought in as an investor. Without his
capital contribution, the company could not possibly operate.
Lastly, UY failed to pay on or before 5 January 1972 the
P30,000.00 required under paragraph 3(b) of the AGREEMENT. UY
cannot claim that he was relieved from the payment of the
monthly installment of P50,000.00 beginning 5 January 1973.
When the parties agreed that the monthly installments should be
paid out of the receivables and collections of MASSIVE (paragraph
3[c], AGREEMENT), it was implied that there was actual cash
received or collected.
The Court of Appeals held that UY was relieved of his obligation to
pay the P30,000.00 after the stockholders of MASSIVE failed to
deliver the P20,000.00 worth of shares of stock of the company.
The thinking of the Court of Appeals was that after UY had paid the
P20,000.00 earnest money, it became the seller's turn to assign

the shares of stock to UY.


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

GRACE PARK ENGINEERING CO., INC., plaintiff-appellee,


vs.
MOHAMAD ALI DIMAPORO, defendant-appellant.
DE CASTRO,* J.:
Appeal (prior to the effectivity of Republic Act No. 5440) by
Mohamad Ali Dimaporo from a decision of the Court of First
Instance of Rizal, Branch VI (in its Civil Case No. 3828), the
dispositive portion of which reads:
WHEREFORE, all premises considered, judgment
is hereby rendered declaring the rescission of the
Contract for the Sale of Cassava Flour and Starch
Processing Machinery and Equipment, Exh. A,
dated April 1, 1954, and ordering mutual
restitution by the parties, defendant to return to
plaintiff the cassava flour and starch processing
machinery and equipment and bear the
transportation expenses thereof to the port of
Cotabato, plaintiff corporation to bear the freight
charges thereof for its shipment to Manila, and,
to pay plaintiff the total amount of P19,628.93
with interest thereon at the rate of 6% per
annum from the date of filing of this complaint
until full payment of the same, and plaintiff to
return to defendant the amount of P15,750.00
representing the partial payment made to it by
defendant for the purchase price of said
machinery and equipment. No pronouncement as
to damages and costs. 1
Defendant-Appellant Dimaporo questions the validity of the
questioned decision in so far as said decision 1) orders him to
return the cassava flour and starch processing machinery and
equipment and 2) orders him to pay plaintiff-appellee Grace Park
Engineering Co. P19,628.93 with interest.
The records disclose that on April 1, 1954, Grace Park Engineering,
Inc., and Mohamad Ali Dimaporo entered into a Contract for the
Sale of Cassava Flour and Starch Processing Machinery and
Equipment (Exh. A) 2 whereby the corporation agreed to sell and
install, for the consideration of P52,000.00, a cassava flour and
starch processing machinery and equipment specifically described
therein at Dimaporo's place in Karomatan Lanao Mill Site, within a
period of 70 working days from the date of signing of the contract.
It was agreed that P5,750.00 shall be paid upon signing of the
contract; P10,000.00 shall be paid within 30 days from the date of
the signing of the contract but before machinery and equipment is
loaded at Manila Harbor and P36,750.00 shall be payable in 12
monthly installments as provided in the contract.
In view of the foregoing considerations, the Corporation
guaranteed said machinery and equipment to process at least 6
tons of cassava flour and starch per 24-hour day operation, while
Dimaporo undertook to supply at his own expenses the building
wherein shall be housed the machinery and equipment, laborers
needed to complement the operation of the mill, food, foundation
materials, and effective water system (par. 6, Exh. A).
In compliance with the agreement, defendant paid plaintiff the
amounts of P5,750.00 and P10,000.00 as agreed upon, thus
leaving a balance of P36,750.00.
It appears on record, however, that during the course of
installation of said machinery and equipment, Dimaporo failed to
comply with his obligations specified in par. 6 of said contract, so
much so that the Corporation was forced to provide the necessary
materials and labor and advance whatever expenses had been
made for that purpose with previous knowledge and consent given
by Dimaporo because the latter was short of funds during that
time.
It took the Corporation one (1) year and three (3) months to install
the said machinery and equipment, after which, it demanded from
Dimaporo complete payment of the balance due and for all
expenses made in advance arising from the supply of materials
and labor which Dimaporo failed to provide on time. Dimaporo
refused to pay on the ground that the balance of P36,750.00 never
became due and demandable because of the Corporation's failure
to complete the installation of the machinery and equipment
within the stipulated period and place the same in satisfactory
running conditions as guaranteed by it in the contract.

Hence, on October 1, 1955 the Corporation brought an action


against Dimaporo for rescission of the aforesaid contract after
mutual restitution by the parties with provision for damages in its
favor. Dimaporo, in his answer, likewise seeks the rescission of the
contract, after mutual restitution by the parties, but with provision
for the payment by the Corporation of freight charges that may be
incurred due to such restitution, and with the award of damages in
his favor.
After hearing on tile merit, the trial court found both parties having
violated the terms and conditions of the contract, defendant
Dimaporo failing to comply with his obligations under par. 6 of the
contract and plaintiff corporation liable for installing machinery
and equipment that are basically defective and inadequate. As to
who was the first infractor in point of time, it was not determined
by the trial court. Rescission of the contract was granted but held
that parties should bear his/its own damages, applying article i 192
of the New Civil Code which provides:
In case both parties have committed a breach of
the obligation, the liability of the first infractor
should be equitably tempered by the Courts. If it
cannot be determined which of the parties first
violated the contract, the same should be
deemed extinguished, and each shall bear his
own damages.
From the judgment of the Court below, Dimaporo directly appealed
to this Court imputing seven (7) assignments of errors committed
by the trial court, which may be synthesized into four (4) main
issues:
a) whether he was guilty of breach of contract.
b) whether he was liable to return the machinery and equipment
subject matter of the contract.
c) whether he was liable to pay appellee Corporation the amount
of P19,628.93 with interest.
d) whether he was entitled to the award of damages in his favor.
Appellant Dimaporo maintained that he has not committed any
breach of contract, Exh. A, particularly par. 6 thereof that it was
appellee Corporation who was guilty thereof, and points in his
appellant's brief testimonial and documentary evidence in support
of the same. Upon the other hand, the trial court, in its decision,
makes the following findings:
From the entire evidence presented, it appears
that defendant had failed to comply with his
obligations under the contract, Exh. A, more
particularly with the provisions of par. 6 thereof.
He was unable to furnish sufficient laborers
needed to complete the operations of the mill,
food, foundation materials and effective water
systems (Exhs. G, G-1, I, I-1, J-1, K, R, CC, KK LL
NN-1). Under Exh. MM, a daily work progress
report duly certified correct by defendant, the
hammer mill and flash drier were already
commercially operated on December 11, 1954
(Exh. MM-3). This necessarily gives the
impression that the installation of the mill has
been completed in accordance with the contract
and the subsequent failure of the project is due
to defendant's fault. ... Taking into consideration
defendant's failure to comply with this obligation,
plaintiff's delay in the complete installation of the
machinery and equipment seems reasonable and
understandable. ... 3
The foregoing is a conclusion of fact of the trial court. The rule is
well-settled that factual findings of the trial court, supported by
substantial evidence, are generally binding on the Supreme Court.
They are entitled to great respect, the lower court having had the
opportunity of weighing carefully what was testified to and did so
without oversight or neglect. 4 Hence the rule that when a party
appeals directly to this Court, he is deemed to have waived the
right to dispute any finding of fact made by the court below. 5
It is next argued for appellant Dimaporo, that the trial court erred
in ordering the return of the machinery and equipment subject
matter of the contract to appellee corporation and maintained that
although a rescission of the contract is in order, he has no
obligation, however, to return the machinery and equipment,
much less pay the transportation expenses thereof to the port of

Cotabato, since the machinery and equipment shipped by appellee


corporation were never delivered to appellant. He contended that
by reference to the contract, Exh. A, it is clear that the obligation
of the appellee did not end with the shipment of the machinery
and equipment to the all site; it must also install the machinery
and equipment in such a manner that they would produce at least
6 tons of cassava flour per 24 hours of operations so much so that
until such machinery and equipment were installed and shown to
be capable of producing at the warranted rate, there could be no
delivery of such machinery and equipment to appellant.
This contention is in Our opinion, not sustained by the terms of the
contract or by the facts appearing in evidence. It is true that under
par. 8 of the contract, E Exh. A, the "SELLER warrants that it will
deliver all the machinery and equipment as agreed in par. 4,
guaranteed to process at least 6 tons of cassava flour or starch per
24-hour day operation." However in said paragraph it was also
stipulated that "this warranty of capacity shall be attained only
when properly coordinated to the necessary manual labor required
for the purpose." And according to the trial court, "the delay of the
completion of the installation as well as the incapacity of the mill
to produce the desired amount of flour/starch as warranted by the
plaintiff under the contract are attributable to defendant's noncompliance with his obligation to furnish food, materials, and
water system."
Even assuming that there is some degree of plausibility in
appellant's position, still the lower court did not commit any error
in ordering appellant to return the machinery and equipment to
appellee corporation, for when the former, as defendant in the
lower court, filed his Answer to the complaint of appellee
corporation, he prayed for the rescission of the contract between
him and the plaintiff and for mutual restitution by the parties. 6 To
sustain appellant's contention that he is not liable for the return of
machinery and equipment would be fundamentally contradicting
the very notion of rescission. The first paragraph of article 1385 of
the New Civil Code provides:
Rescission creates the obligation to return the
things which were the object of the contract,
together with their fruits, and the price with its
interest; consequently, it can be carried out only
when he who demands rescission can return
whatever he may be obliged to restore.
Furthermore, when a contract is resolved or rescinded, it is the
duty of the court to require the parties to surrender that which
they have severally received and to place each as far as
practicable in his original situation; and when a resolution is
granted, it has the effect of abrogating the contract in all parts.
The party seeking resolution cannot ask "performance as to part
and resolution as to remainder. 7
The last two issues are both centered on the question of who is
liable for the payment of damages and interests as a result of the
breach of contract. The trial court, in resolving the issues, applied
Article 1192 of the New Civil Code, which as aforestated,
enunciated the rule if both parties committed a breach of
obligation. The trial court find the following facts: "Both parties
have failed to comply with what is respectively encumbent upon
them to do, and the object of the contract is consequently
defeated; defendant failed to comply with his obligations under the
contract, Exh. A; that further scrutiny of the evidence shows that
the machinery and equipment sold and installed by plaintiff were
all along, by themselves, defective and inadequate. As to who was
the first infractor in point of time, under said circumstances,
cannot be specifically delineated. Hence, parties should bear
his/its own damages.
Based on these findings, the trial court ruled, as aforestated in the
dispositive portion, that appellant Dimaporo must pay appellee
corporation the total amount of P19,628.93 which the latter had
spent by way of advances to the former with which to purchase
the necessary materials and supplies at the rate of 6% per annum;
that appellee corporation must return to appellant the amount of
P15,750.00 representing the partial payment made by it to
appellant for the purchase price of said machinery and equipment.
The trial court, however, made no pronouncement as to damages
and costs.
But appellant would contend that the amount of P19,628.93 should
be offset by the damages that are due to him by reason of the
violations by the appellee corporation of its obligation under the

contract; that appellee must be required to pay interests on the


amount of P15,750.00 since this amount paid has already been
used by it; and that since the first infractor was the appellee's
corporation, therefore, damages should be paid by that party to
the appellant.
The findings of fact of the trial court that both appellant Dimaporo
and appellee corporation have committed a breach of obligation
are fully supported by the evidence on record. As We have stated,
We are not in a position to disturb the same. Therefore, it correctly
applied Article 1192 of the New Civil Code to the effect that in case
both parties have committed a breach of obligation and it cannot
be determined who was the first infractor, the contract shall be
deemed extinguished and each shall bear his/its own damages.
Consequently, the trial court committed no reversible error when it
ordered appellee corporation to pay appellant the amount of
P15,570.00 representing partial payment of the purchase price of
the machinery and equipment. This is but a consequence of the
decree of rescission granted by the trial court. Neither did it
commit any error when it refused to grant any interest on the
aforesaid amount of P15,570.00. This is also but a consequence of
the enunciated rule that each party should bear his/its own
damages. For the same reasons, We hold that although appellant
is liable to pay the amount of P19,628.93 which appellee
corporation had spent by way of advances with which to purchase
the necessary materials and supplies, however, he is not liable to
pay interest thereon at the rate of 6% per annum until full
payment of the same, as held by the lower court. Otherwise, to
hold so would be in conflict with the above-mentioned rule that
each party must bear his/its own damages.
PREMISES CONSIDERED, with the only modification that the sum of
P19,628.93 be paid by appellant Dimaporo to appellee Grace Park
Engineering, Inc., without interest, the judgment appealed from is
affirmed in all other respects. No pronouncement as to costs.
SO ORDERED.

ARTICLE 1193
ERNEST
BERG,
plaintiff-appellee,
vs.
MAGDALENA ESTATE, INC., defendant-appellant.
Claro M. Recto and Eusebio C. Encarnacion for appellant.
Alva Hill, Taada, Pelaez and Teehankee for appellee.
BAUTISTA ANGELO, J.:
This is an action for partition of the property known as Crystal
Arcade situated in the City of Manila.
The complaint avers that plaintiff and defendant are co-owners of
said property, the former being the owner of one-third interest and
the latter of the remaining two-thirds. The division is asked
because plaintiff and defendant are unable to agree upon the
management of the property and upon the partition thereof.
Defendant answered setting up a special defense and a
counterclaim. As a special defense, defendant claims that on
September 22, 1943, it sold to plaintiff one-third of the property in
litigation subject to the express condition that should either vendor
or vendee decide to sell his or its undivided share, the party selling
would grant to the other part first an irrevocable option to
purchase the same at the seller's price. It avers that on January
1946 plaintiff fixed the sum of P200,000 as the price of said share
and offered to sell it to defendant, which offer was accepted, and
for the payment of said price plaintiff gave defendant a period of
time which, including the extensions granted, would expire on May
31, 1947. Defendant claims that, in spite of the acceptance of the
offer, plaintiff refused to accept the payment of the price, and for
this refusal defendant suffered damages in the amount of
P100,000. For these reasons, defendant asks for specific
performance.
Plaintiff filed a reply setting forth therein that the transaction
referred to by the defendant in its special defense relative to the
property in litigation is not supported by any note or memorandum
subscribed by the parties, as in fact no such note or memorandum
has been made evidencing the transaction, for which reason,
plaintiff claims, this transaction falls under the statute of frauds
and cannot form the basis of the special defense invoked by the
defendant.
After trial, at which the parties presented testimonial and
documentary evidence, the lower court found for the plaintiff
holding that no agreement has been reached between the parties
relative to the purchase and sale of the property in question, and,
recognizing the right of plaintiff to demand partition under the
provisions of Rule 71 of the Rules of Court, it granted the relief
prayed for in the complaint. Hence this appeal.
The pivotal issue to be determined is whether an agreement to sell
has actually been reached between plaintiff and defendant of the
share of the former in the property in litigation for the sum of
P200,000, as claimed by defendants, or whether there have been
merely negotiations between them which never ripened into an
agreement, as claimed by plaintiff. And in the determination of this
issue, the preliminary question to be threshed out is the point
raised by plaintiff touching on the evidence submitted by
defendant in the light of the principle underlying the statute of
frauds.
It is an undisputed facts that since September 22, 1943, plaintiff
and defendant were co owners pro indiviso of the property known
as Crystal Arcade in the proportion of one-third interest belonging
to the former and two-thirds to the latter. In the deed of sale
executed by the parties on said date, they stipulated that, should
either of them decide to sell his or her share, the other party will
have an irrevocable option to purchase it at the seller's price. Then
a disagreement ensued between the parties as to what really
occurred concerning the deal.
Thus, while Berg claims that his negotiations with Hemady ended
when an offer by the latter to the former to buy his interest for the
sum of P350,000, Hemady on the other hand claims that Berg
offered to sell it to him for P200,000 subject to the condition that
the necessary permit be obtained from the United States Treasury
Department.
It should be stated that, aside from the testimony of Berg and
Hemady, no document has been presented evidencing that alleged
agreement to sell, and so when defendant made attempts to
prove, through the testimony of Hemady, that plaintiff made an

offer to sell his interest to defendant for the sum of P200,000, the
attempt met the vigorous opposition of plaintiff invoking the rule
that such agreement can only be established by a contract in
writing, or by a note or memorandum subscribed by the party
sought to be charged, as prescribed by the statute of frauds. It was
then that defendant submitted in evidence exhibits "3" and "4",
contending that these documents, read in connection with the
option to sell embodied in exhibit "1", constitute a written proof
contemplated by said statute. The crux of this case, therefore, lies
in the determination of whether said exhibits partake of the nature
of a note or memorandum within the purview of said statute as
contended by defendant.
It appears that right after the liberation of the Philippines, both
Ernest Berg and K.H. Hemady were accused of collaboration for
which reason the Treasury Department of the United States
ordered the freezing of their properties under the law known as
Trading with the Enemy Act. Under the provisions of this Act both
Berg and Hemady could not sell or dispose of their properties
without first securing the permit required by it, and so to comply
this requirement, both Berg and Hemady filed separately an
application with said Department for the purchase and sale of the
property in litigation. These applications are the ones marked as
exhibits "3" and "4". In the application exhibit "3", Ernest berg
stated that he desires a license in order to sell his interest in the
Crystal Arcade, Escolta, Manila, for P200,000 in cash to Magdalena
Estate, Inc. asking at the same time for permission to place the
amount in an account in his name or in the name of the company
he represents and to apply the same from time to time to the
payment of the obligations of Red Star Store Inc. In the application
exhibit "4", defendant in turn stated, through its president K. H.
Hemady, that it desires a license in order "to use a portion of the
P400,000 requested as a loan from the National City Bank of New
York, Manila, or from any other bank in Manila, together with funds
to be collected from old and new sales of his real estate properties,
for the purchase of the one-third (1/3) of the Crystal Arcade
property in the Escolta, Manila, belonging to Mr. Ernest Berg."
It is now defendant's position that if the option granted in exhibit
"1" (deed of sale containing the irrevocable option) is considered
in relation to Berg's application exhibit "3" and defendant's
application exhibit "4", these documents constitute a sufficient
note or memorandum of the parties' alleged contract of purchase
and sale within the purview of the statute of frauds. This claim is
disputed by Ernest Berg, appellee herein. Which of these
contentions is correct?
Before we proceed, it is important to state at this juncture some
principles governing the meaning, extent and scope of the rule
underlying the statute of frauds relative to the note or
memorandum that may serve as proof to determine the existence
of an oral contract or agreement contemplated by it, and for our
purpose, it suffices for us to quote the following authorities:
No particular form of language or instrument is necessary
to constitute a memorandum or note in writing under the
statute of frauds; any document or writing, formal or
informal, written either for the purpose of furnishing
evidence of the contract or for another purpose, which
satisfies all the requirements of the statute as to contents
and signature, as discussed respectively infra secs. 178200, and infra secs. 201-215, is a sufficient memorandum
or note. A memorandum may be written as well as with
lead pencil as with pen and ink. It may also be filled in on
a printed form (37 C.J.S., 653-654).
The note or memorandum required by the statute of fraud
need not be contained in a single document, nor, when
contained in two or more papers, need each paper to be
sufficient as to contents and signature to satisfy the
statute. Two or more writings properly connected may be
considered together, matters missing or uncertain in one
may be supplied or rendered certain by another, and their
sufficiency will depend on whether, taken together, they
meet the requirement of the statute as to contents and
the requirements of the statute as to signature, as
considered respectively infra secs. 179-200 and secs.
201-215.
Papers connected. The rule is frequently applied to two
or more, or a series of letters or telegrams, or letters and
telegrams
sufficiently
connected
to
allow
their

consideration together; but the rule is not confined in its


application to letters and telegrams; any other documents
can be read together when one refers to the other. Thus,
the rule has been applied so as to allow the consideration
together, when properly connected, of a letter and an
order of court, a letter and order for goods, a letter and a
deposition, letters or telegrams and undelivered deeds,
wills, corresponding and related papers, a check and a
letter, a receipt and a check, deeds and a map, a
memorandum of agreement and a deed, a memorandum
of sale and an abstract of title, a memorandum of sale
and a will, a memorandum of sale and a receipt, and a
contract, deed and instruction to a depository in escrow.
The number of papers connected to make out a
memorandum is immaterial. (37 C.J.S. sec. 656-659).
Bearing in mind the foregoing rules, we are of the opinion that the
applications marked exhibits "3" and "4", whether considered
separately or jointly, satisfy all the requirements of the statute as
to contents and signature and, as such, they constitute sufficient
proof to evidence the agreement in question. And we say so
because in both applications all the requirements of a contract are
present, namely, the parties, the price or consideration, and the
subject-matter. In the application exhibit "3", Ernest Berg appears
as the seller and the Magdalena Estate Inc. as the purchaser, the
former's interest in the Crystal Arcade as the subject-matter, and
the sum of P200,000 as the consideration. As the application
appears signed by Ernest Berg, the party sought to be charged by
the obligation. In other words, it can clearly be implied that
between Ernest Berg and the Magdalena Estate Inc. there has
been a clear agreement to sell said property for P200,000. From
the language of the application no other logical conclusion can be
drawn for if there has not been any previous agreement between
the parties it is fool hardly to suppose that Ernest Berg would take
the trouble of filling an application with the Treasury Department
of the United States to secure a license to sell the property. the
claim of Ernest Berg that the negotiations he had with the Hemady
ended with an offer on his part to buy his interest for P350,000
cannot be sustained, for if such is the case it is indeed hard to
comprehend why he should state in his application that he was
selling the property for P200,000. The fact that in the same
application Berg also asked for license to place the money in an
account in his name, or in the name of the company he represents,
and to apply the same to the payment of the obligations of said
company is of no consequence, nor does it argue against the
purpose of the application, for that request only means that,
should the sale be carried out, he would deposit the money in the
name of the company and later would apply it to the payment of
its obligations.
We do not agree with the claim that the application Exhibit "4"
submitted by the Magdalena Estate Inc. does not harmonize with
the terms appearing in the application Exhibit "3", for, contrary to
the claim, those two applications, considered together, harmonize
and complement each other. And we say so because the
application Exhibit "4" states specifically that a portion of the sum
of P400,000 which is desired to be raised as a loan will be used for
the purchase of the one-third interest of Ernest Berg, which portion
undoubtedly refers to the sum of P200,000 mentioned in the
application Exhibit "3". This can be plainly seen by harmonizing
together the two applications. As the rule well points out, the
sufficiency of the two documents will depend on whether, taken
together, they meet the requirements of the statute as to contents
and as to signature, and here both requirements are met because
the two documents should be consider as a whole. Whether,
therefore, we consider the two applications jointly or separately, it
is safe to state that they meet the requirements of the principle
underlying the statutes of frauds.
Let us now take the terms of the agreement to sell, considering
that this has been properly established to see if defendant has
complied with them and can ask now for specific performance. We
have already seen that plaintiff agreed to sell to defendant his
undivided one-third interest in the property for the sum of
P200,000. The next question is: within what period shall this
consideration be paid? Here are two possible theories: one under
application Exhibit "3" and the other application Exhibit "4". If we
follow the application Exhibit "3", it is clear that payment is to be
made in cash, or as soon as the license has been granted to effect
the transaction. This means that it shall be effected immediately

upon obtaining the license, or within a reasonable time thereafter.


It is not disputed that this license was granted, but we find that
defendant failed to make good its offer within a reasonable time
for lack of money, it being a fact that defendant was only able to
raise funds for that purpose when it succeeded in selling a portion
of its real estate to a foreign corporation one year thereafter, or on
March 14, 1947. It is true that, in its answer, defendant claims that
plaintiff granted to defendant an extension of time up to May 31,
1947, within which to realize the transaction, but this claim is not
supported by any proof. In the opinion of the Court, this delay has
the effect of relieving plaintiff of his obligation under the law
(Articles 1124-1451, of the old Civil Code).
Supposing that the term of payment is, as contended by
defendant, until defendant has obtained the loan of P400,000 from
the National City Bank of New York, or after it has obtained funds
from other sources (considering the terms of application Exhibit
"4") what is the legal effect of this alternative clause? Can it be
considered a term within the meaning of our old Civil Code? Let us
analyze it. Under article 1125 of said code, obligations, for the
fulfillment of which a day certain has been fixed, shall be
demandable only when the day arrives. A day certain is
understood to be that which must necessarily arrive, even though
it is not known when. In order that an obligation may be with a
term, it is, therefore, necessary that it should arrive, sooner or
later; otherwise, if its arrival is uncertain, the obligation is
conditional. To constitute a term the period must end on a day
certain.
Viewing in this light the clause on which defendant relies for the
enforcement of its right to buy the property, it would seem that it
is not a term, but a condition. Considering the first alternative, that
is, until defendant shall have obtained a loan from the National
City Bank of New York, it is clear that the granting of such loans is
not definite and cannot be held to come within the terms "day
certain" provided for in the Civil code, for it may or it may not
happen. As a matter of fact, the loan did not materialize. And if we
consider that the period given was until such time as defendant
could raise money from other sources, we also find it to be
indefinite and contingent and so it is also a condition and not a
term within the meaning of the law. In any event it is apparent that
the fulfillment of the condition contained in this second alternative
is made to depend upon the defendant's exclusive will, and viewed
in this light, we are of the opinion that plaintiff's obligation to sell
did not arise, for, under Article 1115 of the old Civil Code, "when
the fulfillment of the condition depends upon the exclusive will of
the debtor the conditional obligation shall be void."
Having reached the foregoing conclusions, we find no legal way by
which plaintiff could be compelled to carry out the terms of his
agreement to sell considering the circumstances surrounding the
transaction. To our mind, it is clear that there was an agreement to
sell between the parties under the terms appearing in the
applications Exhibit "3" and "4". But it also appears that the
plaintiff has decided to agree to sell his interest because of his
need of money at the time. He needed it not only for his
immediate needs but to pay the obligations of his own company,
the Red Star Stores. Inc. At that time the values of real estate were
fast moving. They were growing up in a rapid fashion. Time
element was then of the essence of every transaction, and the
parties knew it. When, therefore, more than a year had transpired
since the negotiations started and defendant failed to come
across, plaintiff changed his mind. The interest of defendant to
purchase the share of plaintiff in the property is understandable,
not only because of the advisability to consolidate its ownership in
said property, but because it was a handsome transaction with a
brighter prospect in the future. But it is to be regretted that both
Berg and Hemady who were both experienced businessmen did
not put the terms of their agreement clearly in writing. Had they
done so perhaps this case would have been avoided.
Finding no error in the decision appealed from, the same is hereby
affirmed, with costs against appellant.
FACTS:
Ever since September 22, 1943 plaintiff, Berg and defendants
under Magdalena Estate, Inc. were co-owners of the Property,
Crystal Arcade. One third of it belonged to the plaintiff-petitioner
and two thirds, to the defendant-respondent. These parties
executed a deed of sale that should either of them sell his share,
the other party will have an irrevocable option to purchase it at the

sellers at the sellers price. The two, eventually had a


disagreement on what really happened with regard to the deal.
On January. 1946, the petitioner offered his share for Php 200,000
and was accepted by the defendant, including the stipulation that
Berg was giving the defendant a period of time which, including
the extensions granted, would expire on May 31, 1947.
The defendant claimed that, in spite of the acceptance of the offer,
plaintiff refused to accept the payment of the price and that
because of this, they suffered damages in the amount of Php
100,000 and asked for specific performance. The plaintiff argued
that this transaction, referred to by the defendant, is not
supported by any note or memorandum subscribed by the parties
and that this transaction falls under the statue of frauds and
cannot be the basis of the defendants special defense.
In an application to sell or dispose their properties, both parties
filed for separate applications regarding the subject property. In
the defendants application, it desired a license in order to use a
portion of the P400,000 requested as a loan from the National City
Bank of New York, Manila, or from any other bank in Manila,
together with funds to be collected from old and new sales of his
real estate properties, for the purchase of the one-third (1/3) of the
Crystal Arcade property in the Escolta, Manila, belonging to Mr.
Ernest Berg.
The lower court found that there was no agreement reached
between the parties regarding the purchase and sale of the
property in question, it granted the case in favor of the petitioner.
ISSUE:
Whether the term of payment stipulated in the defendants
application for license to sell/purchase, until they have obtained
Php 400,000 from the National City Bank of New York, or after it
has obtained funds from other sources, is in line with the Civil
Code.
APPLICABLE LAW:
Article 1193. Obligations for whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily
come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules
of the preceding Section. (1125a)
HELD:
Yes. The term of payment stipulated in the defendants application
for license to sell/purchase, until they have obtained Php 400,000
from the National City Bank of New York, or after it has obtained
funds from other sources,is in line with the Civil Code (Art. 1125).
A day certain is understood to be that which must necessarily
arrive, even though it is unknown when. In order that an obligation
may be with a term, it is, therefore, necessary that it should arrive,
sooner or later; otherwise, if its arrival is uncertain, the obligation
is conditional. To constitute a term, the period must end on a day
certain.
In considering this article as to which the defendant relies for the
enforcement of its right to buy the property, it would seem that it
is not a term, but a condition. Considering the first alternative, that
is, until defendant shall have obtained a loan from the National
City Bank of New York it is clear that the granting of such loans is
not definite and cannot be held to come within the terms day
certain provided for in the Civil code, for it may or it may not
happen.
The loan did not materialize. And if we consider that the period
given was until such time as defendant could raise money from
other sources, we also find it to be indefinite and contingent and
so it is also a condition and not a term within the meaning of the
law.
Both parties did not put the terms in their agreement clearly in
writing. The lower courts judgment is affirmed.

LA COMPAIA GENERAL DE TABACOS DE FILIPINA, plaintiffappellee,


vs.
VICENTE ARAZA, defendant-appellant.
T. L. McGirr for appellant.
Domingo Franco for appellee.
WILLARD, J.:
The plaintiff brought this action in the court below to foreclose a
mortgage for 8,000 pesos upon certain land in the Province of
Leyte. A demurrer to the complaint was overruled, but to the order
overruling it the defendant did not except. The defendant
answered, alleging that the document, the basis of the plaintiff's
claim, was executed through error on his part and through fraud on
the part of the plaintiff. A trial was had and judgment was entered
for the plaintiff as prayed for in its complaint. The defendant
moved for a new trial on the ground that the decision was not
justified by the evidence, this motion was denied, to its denial the
defendant excepted, and he has brought the case here for review.
Upon the questions of fact raised by the answer, the findings of
the court below are sustained by the evidence, in no event they
can be said to be plainly and manifestly against the weight of the
evidence. Those findings include a finding that there was no fraud
on the part of the plaintiff, no mistake on the part of the
defendant, and that there was a sufficient consideration for the
contract, As has been said, there was in the case to support all of
these conclusions.
Upon one point, however, we think that the judgment was
erroneous. The contract send upon was executed on the 11th day
of June, 1901. By terms thereof the defendant promised to pay the
plaintiff 8,000 pesos as follows: 500 pesos on the 30th of June,
1901, and the remainder at the rate of 100 pesos a month,
payable on the 30th day of each month, until the entire 8,000
pesos was paid. The defendant paid 400 pesos and no more.
This suit was commenced on the 12th day of June, 1903. There
was no provision in the contract by which, upon failure to pay one
installment of the debt, the whole debt should thereupon become
at once payable. We are of the opinion that the obligation can be
enforced in this action for only the amount due and payable on the
12th day of June, 1903.
The court below gave no credit for the payment of 400 pesos
admitted by the complaint to have been received by the plaintiff. It
is allowed interest upon the entire debt from the 1st day of July,
1901. The contract does not provide for the payment of any
interest. There is no provision in it declaring expressly that the
failure to pay when due should put the debtor in default. There
was therefore no default which would make him liable for interest
until a demand was made. (Civil Code, art. 1100; Manresa, Com.
on Civil Code, vol 8, p. 56.) The transaction did not constitute a
mercantile loan and article 316 of the Code of Commerce is not
applicable. There was no evidence any demand prior to the
presentation of the complaint. The plaintiff is therefore entitled to
interest only from the commencement of the action.
The judgment is set aside and the case is remanded to the court
below with directions to determine the amount due in accordance
with the views hereinbefore expressed and to enter judgment for
such amount. No costs will be allowed to either party in this court.
So ordered.

ARTICLE 1196

ejectment of tenants.

LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL


CORPORATION, petitioner, vs. HUANG CHAO CHUN AND
YANG TUNG FA, respondents.

3. The LESSEES shall have the option to reconstruct and/or


renovate the improvement found thereon at the expense of the
LESSEES, and whatever improvement introduced therein by the
LESSEES in the premises the ownership of it shall become the
property of the LESSOR without extra compensation of the same.

DECISION
PANGANIBAN, J.:
A stipulation in a lease contract stating that its five-year term
is subject to an option to renew shall be interpreted to be
reciprocal in character. Unless the language shows an intent to
allow the lessee to exercise it unilaterally, such option shall be
deemed to benefit both the lessor and the lessee who
must both consent to the extension or renewal, as well as to its
specific terms and conditions.
Statement of the Case
Before us is a Petition for Review under Rule 45 of the Rules
of Court, assailing the October 29, 1999 Decision[1] and the March
9, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR SP
No. 50618. The decretal portion of the Decision reads as follows:
WHEREFORE, the petition for review is hereby DISMISSED for lack
of merit.[4]
The assailed
Reconsideration.

Resolution

denied

petitioners

Motion

for

The CA sustained the Decision of the Regional Trial Court


(RTC) of Quezon City (Branch 217), which had disposed as follows:
WHEREFORE, premises considered, the Decision appealed from is
AFFIRMED insofar as it dismissed the complaint and it extended
the lease contract up to September 16, 2001; and is MODIFIED
such that, defendants-appellees are ordered to pay plaintiffappellant the amount of P444,800.00 less 5% as withholding tax,
as their rentals on subject premises from July 16, 1994 to
November 13, 1994.
Costs against the plaintiff-appellant.[5]
The Facts
The factual antecedents of the case are summarized by the
Court of Appeals as follows:
[The present case] originated from an unlawful detainer case filed
by petitioner before the Metropolitan Trial Court of Quezon City on
October 9, 1996 which was docketed as Civil Case No. 16349.
In its Complaint, petitioner alleged that respondents Huang Chao
Chun and Yang Tung Fa violated their amended lease contract over
a 1,112 square meter lot it owns, designated as Lot No. 1-A-1,
when they did not pay the monthly rentals thereon in the total
amount of P4,322,900.00. It also alleged that the amended lease
contract already expired on September 16, 1996 but respondents
refused to surrender possession thereof plus the improvements
made thereon, and pay the rental arrearages despite repeated
demands.

4. Upon signing of this Contract of Lease, the LESSEES shall make


a one (1) year deposit to be paid unto the LESSOR as follows:
50% percent upon signing of this Contract of Lease;
50% percent as payment in full of the one (1) year
deposit. Payment of which shall be made unto the LESSOR on the
day of the effectivity date of the Contract of Lease, said deposit
shall be refundable 30 days prior to the termination of the same.
5. The monthly rental is subject to increase, said increase shall be
based upon the imposition of Real Estate Tax for every two (2)
years upon presentation of the increased real estate tax to the
Le[ssees], but said increase shall not be less than 25% percent.
xxxxxxxxx
9. The parties agree as by these presents have agreed to strictly
observe the terms and conditions of the Contract of
Lease. Violation by the Lessees of any of the terms and condition
of said contract is equivalent to forfeitures of the deposit in favor
of the Lessor, furthermore the Lessees agreed to vacate the
lease[d] premises for any violation of the terms and condition of
said contract, without going to court.
Respondent were joined by the Tsai Chun International Resources
Inc. in their answer to the Complaint, wherein they alleged that the
actual lessee over Lot No. 1-A-1 is the corporation.
Respondents and the corporation denied petitioners allegations,
claiming instead that:
1. The amended lease contract did not reflect the true intention of
the parties because it did not contemplate an obsolete building
that can no longer be renovated, such that petitioner did not
become the owner of the new P24,000,000.00 two-storey building
they introduced on Lot No. 1-A-1 when their contract expired.
2. Their failure to pay the monthly rentals on the property was due
to petitioners fault when it attempted to increase the amount of
rent in violation of their contract; and
3. They are entitled to a renewal of their contract in view of the
provision therein providing for automatic renewal, and also in view
of the P24,000,000.00 worth of improvements they introduced on
the leased premises.
After the parties were accorded their respective rights to due
process of law, Branch 32 of the MTC rendered decision on June 23,
1998, the decretal portion of which reads:
WHEREFORE, premises considered, the Court hereby orders the
dismissal of this case, without pronouncement as to costs.
SO ORDERED.

The amended lease contract was entered into by the parties


sometime in August, 1991. [Exact day is not mentioned in
amended contract]. The same amended the lease contract
previously entered into by the parties on August 8, 1991. The
amended contract contains the following provisions:

The aforequoted decision was premised on the resolution of two


issues:

1. That the LESSOR agrees as by the[se] presents hereby agreed


to change the lot from LOT 1-A-2 with an area of 1,091 sq. meters,
to LOT 1-A-1 with an area of 1,112 sq. meters, covered by the
same TCT No. 219417 and located at the same address at No. 2
Scout Chuatuco Street, Quezon City, Metro Manila.

The MTC ruled that the contract entered into by the parties may be
extended by the lessees for reasons of justice and equity, citing as
its legal bases the case of Legarda Koh v. Ongsi[a]co (36 Phil.
[185]) and Cruz v. Alberto (39 Phil. 991). It also ruled that the
corporations failure to pay the monthly rentals as they fell due was
justified by the fact that petitioner refused to honor the basis of
the rental increase as stated in their Lease Agreement.
[6] (Citations omitted)

2. The monthly rental shall be the same at P100.00 per square


meters and/or P111,200.00 per month, Philippine Currency. All
other terms and conditions are the same for strict compliance
thereof.
The terms and conditions referred to in paragraph 2 above are the
following:

(a) Whether or not the Contract of Lease dated August 8, 1991 had
expired; and
(b) Did defendants and/or the corporation incur rental arrearages.

Ruling of the Trial Court

1. x x x It is expressly agreed and understood that the payment of


the rental herein stipulated shall be made without the necessity of
express demand and without delay on any ground whatsoever.

The RTC affirmed the Decision of the Metropolitan Trial Court


(MeTC) dismissing the unlawful detainer case. The RTC likewise
agreed that the Contract of Lease entered into by the parties could
be extended unilaterally by the lessees for another five years or
until September 16, 2001, on the basis of justice and equity.

2. The term of this lease is FIVE (5) YEARS from the effectivity of
said lease, and with the option to renew, specifically shall
commence from September 15, 1991 and shall expire on
September 16, 1996, and maybe adjusted depending upon the

It also held that the parties had a reciprocal obligation: unless


and until petitioner presented the increased realty tax, private
respondents were not under any obligation to pay the increased
monthly rental.[7]

In addition, the RTC ruled that petitioner was not entitled to


legal interest, and that the 25 percent increase provided in the
Contract of Lease should be based on the imposed real estate tax,
not on the monthly rental.

make a new lease for the parties,[18] even on the basis of equity.
[19] Because the Lease Contract ended on September 15, 1996,
without the parties reaching any agreement for renewal,
respondents can be ejected from the premises.[20]

Ruling of the Court of Appeals

On the other hand, respondents and the lower courts argue


that the Contract of Lease provided for an automatic renewal of
the lease period. We are not persuaded.

The Court of Appeals affirmed in toto the RTCs dismissal of


the unlawful detainer case and extension of the lease period for
another five years, holding that the errors raised had already been
fully taken into account by the two courts below.
It also reasoned that [t]he elliptical construction of paragraph
5 of the Lease Contract made it awkward to the point of being
ambiguous. There being no agreement on the proven rent, an
ejectment suit based on the non-payment of rents that were not
agreed upon x x x will not lie.
Hence, this Petition.[8]
Issues
In its Memorandum, petitioner raises the following issues for
the Courts consideration:
I
Whether the court could still extend the term of the lease, after its
expiration. Is expiration of the lease a proper ground in [a] case of
unlawful detainer[?]
II
Whether non-payment of rentals is a ground to eject, in an
unlawful detainer. Is refusal of the lessor to accept or collect
rentals a valid reason for non-payment of rentals[?]
III
May the court allow the introduction of issues other than the
elements of a case for ejectment[?][9]
This Courts Ruling
The Petition is meritorious.
First Issue:
Extension of Lease Period
Petitioner contends that because the Contract, as amended,
had already expired, the MTC had no power to extend the lease
period. We are convinced.
In general, the power of the courts to fix a longer term for a
lease is discretionary. Such power is to be exercised only in
accordance with the particular circumstances of a case: a longer
term to be granted where equities demanding extension come into
play; to be denied where none appear -- always with due
deference to the parties freedom to contract.[10] Thus, courts are
not bound to extend the lease.[11]
Article 1675 of the Civil Code excludes cases falling under
Article 1673 from those under Article 1687. Article 1673 provides
among others, that the lessor may judicially eject the lessee upon
the expiration of the period agreed upon or that which is fixed for
the duration of the leases. Where no period has been fixed by the
parties,[12] the courts, pursuant to Article 1687, have the
potestative authority to set a longer period of lease.[13]
In the case before us, the Contract of Lease provided for a
fixed period of five (5) years -- specifically from September 16,
1991 to September 15, 1996. Because the lease period was for a
determinate time, it ceased, by express provision of Article 1669 of
the Civil Code, on the day fixed, without need of a demand.
[14] Here, the five-year period expired on September 15, 1996,
whereas the Complaint for ejectment was filed on October 6, 1996.
Because there was no longer any lease that could be extended,
the MeTC, in effect, made a new contract for the parties, a power it
did not have.[15] Early on, in Bacolod-Murcia Milling v. Banco
Nacional Filipino,[16] we said that a court could not supply
material stipulations to a contract, as follows:
It is not the province of the court to alter a contract by
construction or to make a new contract for the parties; its duty is
confined to the interpretation of the one which they have made for
themselves, without regard to its wisdom or folly, as the court
cannot supply material stipulations or read into contract words
which it does not contain.
Furthermore, the extension of a lease contract must be made
before the term of the agreement expires, not after.[17] Upon the
lapse of the stipulated period, courts cannot belatedly extend or

Citing Koh v. Ongsiaco[21] and Cruz v. Alberto,[22] the MeTC


-- upheld by the RTC and the CA -- ruled that the stipulation in the
Contract of Lease providing an option to renew should be
construed in favor of and for the benefit of the lessee.[23] This
ruling has however, been expressly reversed in Fernandez v.
CA, from which we quote:[24]
It is also important to bear in mind that in a reciprocal contract like
a lease, the period of the lease must be deemed to have been
agreed upon for the benefit of both parties, absent language
showing that the term was deliberately set for the benefit of the
lessee or lessor alone. We are not aware of any presumption in law
that the term of a lease is designed for the benefit of the lessee
alone. Koh and Cruz in effect rested upon such a presumption. But
that presumption cannot reasonably be indulged in casually in an
era of rapid economic change, marked by, among other things,
volatile costs of living and fluctuations in the value of the domestic
currency. The longer the period the more clearly unreasonable
such a presumption would be. In an age like that we live in, very
specific language is necessary to show an intent to grant a
unilateral faculty to extend or renew a contract of lease to the
lessee alone, or to the lessor alone for that matter. We hold that
the above-quoted rulings in Koh v. Ongsiaco and Cruz v.
Alberto should be and are overruled.[25]
The foregoing doctrine was recently reiterated in Heirs of
Amando Dalisay v. Court of Appeals.[26] Thus, pursuant
to Fernandez, Dalisay and Article 1196[27] of the Civil Code, the
period of the lease contract is deemed to have been set for the
benefit of both parties. Its renewal may be authorized only upon
their mutual agreement or at their joint will.[28] Its continuance,
effectivity or fulfillment cannot be made to depend exclusively
upon the free and uncontrolled choice of just one party. While the
lessee has the option to continue or to stop paying the rentals, the
lessor cannot be completely deprived of any say on the matter.
[29] Absent any contrary stipulation in a reciprocal contract, the
period of lease is deemed to be for the benefit of both parties.[30]
In the instant case, there was nothing in the aforesaid
stipulation or in the actuation of the parties that showed that they
intended an automatic renewal or extension of the term of the
contract.[31] First, demonstrating
petitioners
disinterest
in
renewing the contract was its letter[32] dated August 23,
1996, demanding that respondents vacate the premises for failure
to pay rentals since 1993. As a rule, the owner-lessor has the
prerogative to terminate the lease upon its expiration.
[33] Second, in the present case, the disagreement of the parties
over the increased rental rate and private respondents failure to
pay it precluded the possibility of a mutual renewal. Third, the fact
that the lessor allowed the lessee to introduce improvements on
the property was indicative, not of the formers intention to extend
the contract automatically,[34] but merely of its obedience to its
express terms allowing the improvements. After all, at the
expiration of the lease, those improvements were to become its
property.
As to the contention that it is not fair to eject respondents
from the premises after only five years, considering the value of
the improvements they introduced therein, suffice it to say that
they did so with the knowledge of the risk -- the contract had
plainly provided for a five-year lease period.
Parties are free to enter into any contractual stipulation,
provided it is not illegal or contrary to public morals. When such
agreement, freely and voluntarily entered into, turns out to be
disadvantageous to a party, the courts cannot rescue it without
crossing the constitutional right to contract. They are not
authorized to extricate parties from the necessary consequences
of their acts, and the fact that the contractual stipulations may
turn out to be financially disadvantageous will not relieve the latter
of their obligations.[35]
Second Issue:
Non-Payment of Rentals

Petitioner further argues that respondents should be ejected


for nonpayment of the new rental rates. On the other hand, the
latter counter that they did not agree to these new rates.True,
mere failure to pay rentals does not make possession unlawful, but
when a valid demand to vacate the premises is made by the
lessor, the lessees continued withholding of possession becomes
unlawful.[36] Well-settled is the rule that the failure of the
owners/lessors to collect or their refusal to accept the rentals is
not a valid defense.[37]
Respondents justify their nonpayment of rentals on the
ground that petitioners refused to accept their payments. Article
1256 of the Civil Code, however, provides that if the creditor to
whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility
by the consignation of the thing or sum. This provision is more
explicit under the Rent Control Law,[38] the pertinent portions of
which are similar to the prevailing law -- the Rental Reform Act of
2002[39] -- which we reproduce hereunder:
Section 7. Grounds for Judicial Ejectment.-Ejectment shall be
allowed on the following grounds:
(a) Assignment of lease or subleasing of residential units in whole
or in part, including the acceptance of boarders or bedspacers,
without the written consent of the owner/lessor.
(b) Arrears in payment of rent for a total of three (3)
months: Provided, That in the case of refusal by the lessor to
accept payment of the rental agreed upon, the lessee may either
deposit, by way of consignation, the amount in court, or with the
city or municipal treasurer, as the case may be, or in a bank in the
name of and with notice to the lessor, within one month after the
refusal of the lessor to accept payment.
The lessee shall thereafter deposit the rental within ten days of
every current month. Failure to deposit the rentals for three (3)
months shall constitute a ground for ejectment. If an ejectment
case is already pending, the court upon proper motion may order
the lessee or any person or persons claiming under him to
immediately vacate the leased premises without prejudice to the
continuation of the ejectment proceedings. At any time, the lessor
may, upon authority of the court, withdraw the rentals deposited.
The lessor, upon authority of the court in case of consignation or
upon joint affidavit by him and the lessee to be submitted to the
city or municipal treasurer and to the bank where deposit was
made, shall be allowed to withdraw the deposits.
xxxxxxxxx
(e) Expiration of the period of the lease contract.[40]
On the other hand, the Civil Code provides as follows:
Art. 1673. The lessor may judicially eject the lessee for any of the
following causes:
(1) When the period agreed upon, or that which is fixed for the
duration of lease under Articles 1682 and 1687, has expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed upon in the contract;
(4) When the lessee devotes the thing leased to any use or service
not stipulated which causes the deterioration thereof; or if he does
not observe the requirement in No. 2 of Article 1657, as regards
the use thereof.
The ejectment of tenants of agricultural lands is governed by
special laws.
Based on the foregoing, respondents should have deposited
in a bank or with judicial authorities the rent based on
the previous rate.[41] In the instant case, respondents failed to
pay the rent from October 1993 to March 1998 or for four (4) years
and three (3) months. They should remember that Article 1658 of
the Civil Code provides only two instances in which the lessee may
suspend payment of rent; namely, in case the lessor fails to make
the necessary repairs or to maintain the lessee in peaceful and
adequate enjoyment of the property leased.[42] None of these is
present in the case at bar.
Moreover, the mere subsequent payment of rentals by the
lessee and the receipt thereof by the lessor does not, absent any
other circumstance that may dictate a contrary conclusion,
legitimize the unlawful character of the possession. The lessor may
still pursue the demand for ejectment.[43]

Having said that, we cannot, on the other hand, authorize a


unilateral increase in the rental rate, considering that (1) the
option to renew is reciprocal and, thus, the terms and conditions
thereof -- including the rental rate -- must likewise be reciprocal;
and (2) the contracted clause authorizing an increase -- upon
presentation of the increased real estate tax to lessees -- has not
been complied with by petitioner.
Third Issue:
Issues on Ejectment
Petitioner proceeds to argue that the MeTC should not have
allowed the intervention of the Tsai Chun International Resources,
Inc., allegedly the real lessor of the leased premises. In view of our
foregoing discussion, there is no more need to rule on this issue.
WHEREFORE, the Petition is GRANTED and the assailed
Decision SET ASIDE. Respondents and all persons claiming rights
under them are hereby ORDERED TO VACATE the subject premises
and to restore peaceful possession thereof to petitioner. They are
also DIRECTED TO PAY the accrued rentals (based on the
stipulated rent) from October 1993 until such time that they
vacate the subject property, with interest thereon at the legal
rate. No pronouncement as to costs.
SO ORDERED.

ARTICLE 1197
J.M.
TUASON
and
CO.,
INC., petitioner,
vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS
(FIFTH DIVISION), respondents.
Tuason and Sison for petitioner.
Jose Chuico and Wilfredo E. Dizon for respondents.
REYES, J.B.L., Actg. C.J.:
J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the
decision issued by the Court of Appeals (Fifth Division) in its case
CA-G.R. No. 27259-R, reversing the judgment rendered by the
Court of First Instance of Rizal (Civil Case No. Q-4243) that ordered
defendant (now respondent) Estrella Vda. de Lumanlan to vacate
the lot occupied by her in Sta. Mesa Heights Subdivision, barrio
Tatalon, Quezon City, and to remove therefrom the house and
other structures constructed thereon, paying P240.00 a month
until restoration of the premises to plaintiff.
The facts are stated in the decision of the Court of Appeals
(accepted by both parties) in this wise:1wph1.t
. . . That in the complaint filed in this case by plaintiff, J.
M. Tuason & Co., Inc., hereinafter called Tuason, on 30
April, 1969, the basis is that it being the registered owner
of the property known as Santa Mesa Heights Subdivision,
situated at Barrio North Tatalon, Quezon City, herein
defendant sometime in April, 1949 unlawfully entered into
possession of 800 square meters, and therein constructed
his house so that plaintiff prayed for ejectment and
damages for the occupancy; and defendant in her answer
set forthaffirmative defense that on 12 March, 1949, she
had bought the property she was occupying from one
Pedro Deudor, and that in a compromise agreement
between Pedro and Tuason on 16 March 1953, approved
by the Court of First Instance of Quezon City, she was one
of the buyers therein recognized, so that she asked that
her rights be recognized and the complaint dismissed; but
on the basis of the evidence presented by both parties in
the trial, Lower Court sustained plaintiff, holding that
Tuason being the registered owner, and the question
being purely one of possession, therefore, defendant's
said evidence was "completely immaterial". . . . (Page 2 of
Decision, Annex "A" of Petition.)
Upon the facts thus stated, the Fifth Division of the Court of
Appeals held that, pursuant to this Supreme Court's ruling
in Evangelista vs. Deudor, L-12826, September 10, 1959, the
Compromise Agreement (Exh. 2) between the petitioner Tuason &
Co. and the Deudors constituted a valid defense against the
possessory action filed by Tuason & Co.; that under paragraph 7 of
said Compromise Agreement, petitioner bound and committed
itself to sell to respondent Lumanlan the lot occupied by her at a
reasonable price; that said respondent had a right to compel
petitioner to accept payment for the lot in question; and that the
compromise agreement legalized the possession of respondent.
These pronouncements are assailed by the petitioner in this
appeal as legally incorrect and contrary to the decisions of this
Court.
The terms of the compromise agreement between the heirs of
Telesforo Deudor and J. M. Tuason & Co. have been taken
cognizance of in many decisions of this Court (Evangelista vs.
Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30,
1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al.,
L-18932-34, Sept. 30, 1963; J. M. Tuason vs. Macalindong, L-15398,
Dec. 29, 1962 and others). The Deudors had therein recognized
the registered title of Tuason & Co. over the lands claimed by
them, and received payment of certain sums of money; but as the
Deudors had, prior to the compromise, sold their possessory rights
to various persons, paragraph seventh of the compromise
agreement (case Q-135 of the court of origin) provided:
That the sales of the possessory rights claimed by the
DEUDORS, are described in the lists submitted by them to
the OWNERS which are attached hereto marked Annexes
"B" and "C" and made part hereof. Whatever amounts
may have been collected by the DEUDORS on account
thereof, shall be deducted from the total sum of
P1,201,063.00 to be paid to them. It shall be the joint and

solidary obligation of the DEUDORS to make the buyer of


the lots purportedly sold by them to recognize the title of
the OWNERS over the property purportedly bought by
them, and to make them sign, whenever possible, new
contracts of purchase for said property at the current
paces and terms specified by the OWNERS in their sales
of lots in their subdivision known at "Sta. Mesa Heights
Subdivision." The DEUDORS HEREBY advised the OWNERS
that the buyer listed in Annex "B" herein with the
annotation "continue" shall buy the lots respectively
occupied by them and shall sign contracts, but the sums
already paid by them to the DEUDORS amounting to
P134,922.84 (subject to verification by the Court) shall be
credited to the buyers and shall be deducted from the
sums to be paid to the DEUDORS by the OWNERS. The
DEUDORS also advise the OWNERS that, the buyers listed
in Annex "C" herein with the annotation "Refund" have
decided not to continue with their former contracts or
purchases with the DEUDORS and the sums already paid
by them to the DEUDORS TOTALLING P101,182.42
(subject to verification by the Court) shall be refunded to
them by the OWNERS and deducted from the sums that
may be due to the DEUDORS from the OWNERS (J.M.
Tuason & Co., Inc. vs. Jaramillo, L-18932, Sept. 30, 1963);
Careful analysis of this paragraph of the compromise agreement
will show that while the same created "a sort of contractual
relation" between the J. M. Tuason & Co., Inc., and the Deudor
vendees (as ruled by this Court in Evangelista vs. Deudor, ante),
the same in no way obligated Tuason & Co. to sell to those buyers
the lots occupied by them at the price stipulated with the Deudors,
but at "the current prices and terms specified by the OWNERS
(Tuason) in their sales of lots in their subdivision known as 'Sta.
Mesa Heights Subdivision'". This is what is expressly provided.
Further, the paragraph plainly imports that these buyers of the
Deudors must "recognize the title of the OWNERS (Tuason) over
the property purportedly bought by them" from the Deudors, and
"sign, whenever possible, new contracts of purchase for said
property"; and, if and when they do so, "the sums paid by them to
the Deudors . . . shall be credited to the buyers." All that Tuason &
Co. agreed to, therefore, was to grant the Deudor buyers
preferential right to purchase "at current prices and terms" the lots
occupied by them, upon their recognizing the title of Tuason & Co.,
Inc., and signing new contracts therefor; and to credit them for the
amounts they had paid to the Deudors.
Nowhere in her answer did the respondent Estrella Vda. de
Lumanlan claim that she had signed a new contract with J. M.
Tuason & Co., Inc. for the purchase of the lot occupied. What is
worse, instead of recognizing the title of the owners (Tuason & Co.)
as required by the aforementioned compromise agreement, she
charged in paragraph 6 of her special defense (Rec. on Appeal, p.
10) that "Pedro Deudor and his co-owners and the plaintiff
herein . . . conspired together and helped each other . . . by
entering into a supposed Compromise" whereby "Pedro Deudor
and his co-owners renounced, ceded, waived and quitclaimed all
their rights, title and interest in the property including the land
sold to herein defendant, in favor of the plaintiff J. M. Tuason & Co.,
Inc., in consideration of the sum of P1,201,063.00, without the
knowledge and consent, and much less the intervention of the
herein defendant." In other words, the respondent Lumanlan in her
answer repudiated and assailed the compromise between the
Deudors and J. M. Tuason & Co. How then can she now claim to
take advantage and derive rights from that compromise?
Without the compromise agreement, Lumanlan must justify her
possession on the basis of a pretended superiority of the Deudors'
old Spanish informacion posesoria over Tuason's Certificate of Title
No. 1267, traceable back to the original Certificate of Title No. 735
of Rizal, issued under the Registration Act No. 496. But, as ruled by
this Court in previous cases, Lumanlan is by now barred from
assailing the decree of registration in favor of Tuason & Co., Inc.'s
predecessors twenty years after its issuance (Tiburcio vs. PHHC, L13429, Oct. 31, 1959; Tuason & Co. vs. Bolaos, 95 Phil. 107;
Tuason & Co. vs. Santiago, 99 Phil. 622-623; Tuason & Co. vs.
Macalindong, supra; Tuason & Co. vs. Jaramillo, L-16827, Jan. 31,
1963).
It is thus apparent that no legal basis exists for the pronouncement
in the appealed decision that Tuason & Co. had committed itself to
sell to Lumanlan the lot occupied by her at a reasonable price, or

that the compromise agreement legalized the possession of the


respondent, since the latter does not rely on the compromise but,
on the contrary, she assails it.
The Court of Appeals ruled that the price to be paid by Lumanlan
to Tuason & Co., Inc., is governed by Article 1474 of the new Civil
Code of the Philippines, which provides that:
Where the price cannot be determined in accordance with
the preceding articles, or in any other manner, the
contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the
buyer, he must pay a reasonable price therefor. What is a
reasonable price is a question of fact dependent on the
circumstances of each particular case.
Since there has been no contract between petitioner Tuason & Co.
and respondent Lumanlan for the sale of the lot occupied by the
latter, and by paragraph 7 of the Compromise Agreement
(assuming that respondent-appellee still has the right to invoke
the same, and seek refuge thereunder), Tuason & Co. did not
consider itself bound by the sales made by the Deudors, but
demanded that the Deudor buyers should sign new contracts with
it at current prices specified for the sales of lots in "Sta. Mesa
Heights Subdivision" (ante) the aforequoted Article 1474 can have
no bearing on the case, Lumanlan not being a buyer from Tuason &
Co.
As to Lumanlan's allegation in her counterclaim that she should be
deemed a builder in good faith, a similar contention has been
rejected in Tuason & Co. vs. Macalindong, L-15398, December 29,
1962, where we ruled that there being a presumptive knowledge
of the Torrens titles issued to Tuason & Co. and its predecessors-ininterest since 1914, the buyer from the Deudors (or from their
transferees) can not, in good conscience, say now that she
believed her vendor had rights of ownership over the lot
purchased. The reason given by the Court is that
Had he investigated before buying and before building his
house on the questioned lot, he would have been
informed that the land is registered under the Torrens
system in the name of J. M. Tuason & Co., Inc., If he failed
to make the necessary inquiry, appellant is now bound
conclusively by appellee's Torrens title (Sec. 51, Act 496;
Emas vs. Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs.
Macalindong, ante).
Lumanlan had chosen to ignore the Torrens title of Tuason & Co.,
Inc. and relied instead upon the Deudors' claim of ownership,
perhaps because such course appeared to her as more
advantageous; hence, she has only herself to blame for the
consequences now that the Deudors' claim has been abandoned
by the Deudors themselves, and can not pretend good faith. The
Court of First Instance, therefore, did not err in holding that she
was not a rightful possessor and sentencing her to vacate.
Respondent could have asked that she recover or be credited with
the amounts paid by her to the Deudors, but as no claim to such
credit was ever advanced by her in the trial Court, no
pronouncement can be made thereon in this appeal. Equity
demands, however, that her right to claim such return, or to have
the amount offset against the sums she was sentenced to pay,
should be, as it is, reserved.
WHEREFORE, the decision of the Court of Appeals is reversed and
that of the Court of First Instance reinstated. Costs against
respondent, Estrella Vda. de Lumanlan.

FEDERICO
CALERO, plaintiff-appellant,
vs.
EMILIA CARRION Y SANTA MARINA, ET AL., defendantsappellees.
Ramirez and Ortigas for appellant.
Carlos, Laurea and Associates for appellees.
BARRERA, J.:
From the order of the Court of First Instance of Manila (in Civil Case
No. 31409) dismissing his complaint, on the ground of prescription,
plaintiff Federico Calero interposed this appeal directly to this
Court on questions purely of law.
On December 20, 1956, plaintiff filed with the abovementioned
court a complaint which, in part, reads:
xxx

xxx

xxx

3. Que a principios del ao de l937, el demandante


propuso a don Enrique Carrion, padre de las demandadas,
el siguiente negocio: adquirir entre los dos una finca en la
Plaza Santa Cruz, por al precio de P250,000.00, de los
cuales se pagarian P25,000.00 al contado y el resto a
plazos, en diez aos; en el bien entendido de que para
pagar la suma de P25,000.00, don Enrique Carrion
aportaria P15,000.00 y el demandante aportaria los
P10,000.00 restantes.
4. Que despues de examinar la finca, don Enrique Carrion
acepto la proposicion del demandante, y le autoriza cerrar
la transaccion, a nombre de sus hijas, es decir, de las dos
(2) demandadas principales en este asunto.
5. Que en el entretanto, don Enrique Carrion se ausento
de Filipinas, continuando las negociaciones su apoderado
y administrador, don Santiago Carrion quien tambien era
el apoderado y administrador de las demandadas.
6. Que cuarido se fue a preparar la escritura de compra,
don Santiago Carrion, como apoderado de las
demandadas, explico al demandante que era muy
complicado constituir una communidad de bienes en esa
finca, pues habria necesidad de rendir cuentas
mensuales, y consultarse en caso de reparaciones,
mejoras, etc.
7. Que para evitar estas dificultades, don Santiago Carrion
propuso comprar la finca a nombre exclusive de las
demandadas, con la obligacion de pagar al demandante
el veinte por ciento (20%) de los beneficios, cuando se
vendiera la finca.
8. Que el demandante acepto esa proposicion, en el bien
enteridido de que la finca seria vendida tan pronto como
se encontrara un comprador por una cantidad no menor
de P300,000.00.
9. Que debido a la confianza que existia entre las partes,
el demandante acepto esa proposicion, como ya se ha
dicho, y las partes otorgaron el dia 28 de mayo de 1937,
un contrato formal, en el cual se hizo constar el ultimo
convenio celebrado por las partes, es decir, quea a la
venta de la finca situada en la Plaza Santa Cruz, las
demandadas pagarian al demandante,
una cantidad equivalente un VEINTE POR CIENTO (20%)
de cualquier cantidad que se obtenga de la venta de los
mencionados edificios y terrenos, despues de descontar el
importe total pagado por dichas demandadas.
12. Que la verdadera intension de las partes al otorgar el
contrato exhibito "A" era dar al demandante una
participacion del veinte por ciento (20%), en todos los
beneficios, rentas y utilidades de la finca descrita en ese
contrato.
13. Que desde el ao 1937 el demandante ha hecho
varias ofertas a las demandadas CARRION, para vender
esa finca al precio ofrecido por los compradores.
14. Que ahora el demandante tiene un comprador de
dicha finca por la suma de P1,455,900.00, pero las
demandadas CARRION Continuan negandose a vender
dicha linea por ese precio, a pesar de la enorme ganancia
que representa esa transaccion.
15. Que durante todo el tiempo transcurrido desde el ao
1937 hasta la fecha, las demandadas CARRION se han

lucrado con las rentas de esa finca, sin dar ninguna


participacion al demandante, quien hasta la fecha no ha
recibido un centime de dicha finca por ningun concepto.
16. Que debido a los actos de las demandadas CARRION,
el demandante ha sufrido y sigue sufriendo daos y
perjuicios en una cantidad inestimable con certeza, pero
que. por lo menos, debe ser el veinte por ciento (20%) de
los beneficios liquidos obtenidos de es finca por las
demandadas CARRION.
17. Que el demandante ha requerido a las demandadas
CARRION a rendir cuentas de la Administracion de esa
finca, a lo cual tambien se han negado.
18. Que si vende esa finca ahora en la cantidad de
P1,455,900.00, las demandadas CARRION tendrian un
beneficio liquido de P1,205,900.00, o sea, la diferencia
entre el precio de venta antes mencionado y los
P250,000.00 pagados por dicha finca; y por consiguiente,
el demandante tenria derecho a percibir la suma de
P241,180.00, o sea, el veinte por ciento (20%) de los
beneficios obtenidos, de conformalidad exhibito "A" de
esta demanda.
19. Que las demandadas CARRION se han negado a rendir
cuentas de los beneficios obtenidos de disha finca y a
pagar la participacion del demandante, a pesar de los
repetidos requeriment de dicho demandante.
xxx

xxx

xxx

POR TANTO, el demandante ruega al Hon. Juzgado se


sirva dictar sentencia:
(A) Ordenando a las demandadas CARRION que rindan
cuenta completa y detallada de los ingresos y gastas de
la finca mencionada en el exhibit "A" desde el dia 28 de
mayo de 1937 hasta fecha de la venta, entregando al
demandante un veinte por ciento (20%) del producto
liquido de dichas cuentas, en pago de los daos y
perjuicios ya sufridos hasta la fecha;
(B) Ordenando a las demandadas que vendan esa finca
descrita en el exhibito "A"', por un precio no menor de
P1,455,900.00 en el plazo de tres (3) meses, o de lo
contrario paguen al demandante la cantidad de
P241,180.00, que representa el veinte por ciento (20%)
de los beneficios obtenidos, con sus intereses legales
desde esta fecha hasta su completo pago.
On February 2, 1957, defendants Emilia Carrion, Maria Carrion,
Jose Falco, and Manuel Perez Guzman (the last two as husbands,
respectively, of the first two), filed a motion to dismiss, on the
grounds that (1) the complaint states no cause of action, and (2)
the plaintiff's cause of action, if any, is barred by the Statute of
Limitations (Sec. 1[e], Rule 8, Rules of Court). To this motion,
plaintiff filed an opposition on March 16, 1957. On June 1, 1957,
the court required plaintiff to amend his complaint, in an order
which, in part, reads:
. . . inasmuch as plaintiff concedes in his answer
(opposition) to the motion to dismiss that ". . . por
tratarse de una obligaicion sin plazo fijo, este debe ser
determinado por el Hon. Juzgado", it is plaintiff's duty to
amend his complaint to this effect, because there is
nothing either in its allegations or in its prayer asking that
this Court fix a reasonable period for the sale of the said
property with a view to having defendants comply with
their obligations under the parties' aforesaid agreement.
. . . defendants' obligation has not even become
demandable in view of the suspensive condition found in
the parties' agreement.
WHEREFORE, it is ordered that plaintiff amend his
complaint within twenty (20) days from notice hereof,
failing which the same will be dismissed.
Complying with the above order of the court, plaintiff, on June 15,
1957, filed an amended complaint which is identical to the original
complaint, except that it contained the following new Paragraph 15
and a new prayer, to wit:
15. Que el contrato exhibito "A" no establece un plazo
determinado para la venta de la finca descrita en el
mismo contrato, aunque la intencion de que hubiera un
plazo es evidente de la naturaleza, circunstancias y

condiciones del mismo contrato; y el Hon. Juzgado debe


sealar dicho plazo, de acuerdo con el articulo 1197 del
nuevo Codigo Civil.
POR TANTO, el demandante ruega al Hon. Juzgado se
sirva dictar sentencia:
(A) Sealando un plazo de tres (3) meses para que las
demandadas CARRION vendan la finca decrita en el
exhibito "A" al precio mas alto en el mercado, pero no
menos de la oferta actual de P1,455,99.00;
(B) Ordenando a las demandadas CARRION que paguen al
demandante el viente por ciento (20%) de los beneficios
obtenidos en la venta de dicha finca; . . . .
On July 18,1957, defendant renewed their motion to dismiss, on
the grounds that (1) the amended complaint states no cause of
action (2) the plaintiff's cause of action, if any, is barred by the
Statute of Limitations (Sec. 1[e], Rule 8, Rule of Court), and (3) the
plaintiff's original complaint being without cause of action, it
cannot be amended and/or cured by said amended complaint
which changes plaintiff's theory of the case. In connection with the
second ground mentioned, defendants stated:
Plaintiff's right of action accrued in the year 1937 when
the first of plaintiffs alleged various offers to defendants
to sell the property at price offered by buyers was refused
by defendants (Pars. 13 and 14 of Complaint). It is patent,
therefore, that is, ten (10) years from the year 1937.
Considering that plaintiff's complaint was filed on
December 21, 1956, plaintiff's cause of action if any, is
obviously unenforceable and barred by the Statue of
Limitations.
To this motion, plaintiff filed his opposition on August 2, 1957, to
which defendants filed a rejoinder on August 8, 1957. To this
rejoinder, plaintiff filed a counter-reply on August 12, 1957.
On August 21, 1957, the court issued an order denying
defendant's motion to dismiss. From this order, defendants filed a
motion for reconsideration on August 27, 1957, which was duly
opposed by plaintiff on September 7, 1957. On September 16,
1957, defendants filed a rejoinder to said opposition.
On October 1, 1957, the court issued an order dismissing plaintiff's
complaint on the ground of prescription, as follows:
ORDER
This Court has before it (1) defendants's MOTION FOR
RECONSIDERATION of the order of this Court dated August
21, 1957, (2) CONTESTACION DEL DEMANDANTE A LA
MOCION DE RECONSIDERACION, and (3) defendants'
REJOINDER TO COTESTACION DEL DEMANDANTE A LA
MOCION DE RECONSIDERACION.
It is true that heretofore this Court did not entertain
defendants' motion to dismiss plaintiff's original
complaint; that on June 1, 1957, plaintiff was given twenty
(20) days to amend his complaint; that on June 15, 1957,
the amended complaint was filed; that on July 22, 1957,
defendants again put in a motion to dismiss the said
amended complaint, and that on August 21, 1957, this
Court also denied this latter motion to dismiss.
Defendants, however, have filed a motion for
reconsideration of the order just mentioned of the ground
that plaintiff's action under his amended complaint has
already prescribed, and this Court has to pass upon the
said motion for reconsideration.
Concretely, defendants now contend that plaintiff's action
asking this Court to fix the period for the fulfillment of
defendants' obligation, which is the subject matter of his
amended complaint, has already prescribed under the law
and the applicable authorities. While this Court in
conscience believes that defendants have such obligation
to plaintiff under the express terms and conditions of the
parties' agreement Exhibit A, nevertheless it cannot
ignore defendants' aforesaid contention that plaintiff's
action asking this Court to fix a period for the fulfillment
of the said obligation has in fact already prescribed. For
one thing, this action which may be brought under Article
1197 of the New Civil Code cannot be said to be
imprescriptible. For another, as pointed out by
defendants, in the case of Gonzales vs. Jose, 66 Phil., 369,

among others, it was pertinently held that "The action to


ask the court to fix the period has already prescribed in
accordance with section 43(1) of the Code of Civil
Procedure. This period of prescription is ten years, which
has already elapsed from the execution of the promissory
notes until the filing of the action on June 1, 1934."
Inasmuch as in the instance case, the parties agreement
Exhibit A was executed on May 28, 1937, plaintiff's action
to fix the period for the fulfillment of defendants'
obligation thereunder should have been filed within ten
(10) years from the date just mentioned, following the
said decision based on Section 43 (1) of the Code of Civil
Procedure, in relation to Article 1116 of the New Civil
Code. It is plain to see therefore that plaintiff's present
action commenced only on December 21, 1956, is already
long barred by prescription.
At page 2 of plaintiff's CONTESTACION DEL DEMANDANTE
A LA MOCION DE RECONSIDERACION, the position is taken
that En este asunto el plazo de prescripcion comienza
cuando nace el derecho de accion. Plaintiff's cause of
action in the present case is to have this Court fix the
period which the parties had left to conjecture in their
agreement Exhibit A, and the said cause of action arose
right after the execution of said agreement on May 28,
1937, and lapsed ten (10) years after said date. Plaintiff
further state that "ademas, en nuestro asunto actual este
Hon. Juzgado ya ha resuelto que el derecho de accion ni
siquiera habla comenzado". What this Court really said on
this point in its order of June 1, 1957 is the following: "As
just intimated, defendants' obligation has not even
become demandable in view of the suspensive condition
found in the parties' agreement". Reference therefore is
clearly made to defendants' obligation to plaintiff under
Exhibit A, and not to plaintiff's right to ask for the fixing of
the period contemplated by the parties in the said
agreement. Plaintiff finally submits that "para que se
acepte una mocion de sobreseimiento, el fundaments
debe ser indubitable, (Seccion 3, Regla 8 del Reglamento
de los Tribunates.)" and that "El hecho de que este Hon.
Juzgado
haya denegado
ya dos
mociones
de
sobresiemientos, es la mejor prueba de que su
fundamento es por lo menos muy dudoso". It may be
gathered from the record of this case that this Court has
all along been inclined to try it on the merits with a view
to getting at the truth and rendering judgment
accordingly. However, it now finds itself faced with a
defense, namely, prescription, so clear and unanswerable
that, to overlook the same, would be to disregard legal as
well judical precepts.
Finding defendants' MOTION FOR RECONSIDERATION of
the order of this Court dated August 21, 1957 to be
meritorious, the said reconsideration is hereby granted,
and plaintiff's amended complaint is hereby dismissed,
with costs against him.
SO ORDERED.
From the above-quoted order, plaintiff filed a motion for
reconsideration on October 3, 1957, which was duly opposed by
defendants on October 18, 1957. On October 23, 1957, the court
denied said motion. Hence, this appeal.
Plaintiff claims that the lower court erred in dismissing his
complaint, contending that (a) the agreement Exhibit A attached
to the amended complaint and made an integral part thereof,
created "un fideicomiso implicito" or an implied trust, which is not
subject to prescription, and (b) that even admitting the obligation
is subject to a suspensive undetermined period (not condition), the
action to have such period fixed by the court has not yet
prescribed. In support of his submission that the agreement
created an implied trust, plaintiff-appellant cites the provisions of
Articles 1452 and 1453 of the new Civil Code which read as
follows:
ART. 1452. If two or more persons agree to purchase
property and by common consent the legal title is taken in
the name of one of them for the benefit of all, a trust is
created by force of law in favor of the others in proportion
to the interest of each.

ART. 1453. When property is conveyed to a person in


reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied
trust in favor of the person whose benefit is
contemplated.
The contention is without merit, Article 1452 abovequoted is
inapplicable to this case for the reason that there is absolutely no
stipulation in the contract, Exhibit A, that there would be a joint
purchase of the property and that the legal title thereto was to be
placed in the name of the defendants for the benefit of themselves
and herein plaintiff. The recitals in the contracts preceding the
paragraph containing the obligation assumed by the defendants,
merely refer to the services rendered by the plaintiff as broker who
negotiated the sale of the property to the defendants and which
the defendants agreed to compensate. Nothing contained therein
would indicate that the property was being purchased for the
benefit of the plaintiff and the defendants. The obligation assumed
by the defendants is clear and unequivocal in that:
por y en consideracion, a los trabajos, sugestiones, concejos y
ayuda hasta ahora prestados por Don Federico Calero en relacion
con la compra de los bienes vedidos a las Sras. EMILIA CARRION Y
STA. MARINA Y MARIA DE LAS MERCEDES CARRION Y SANTA
MARINA los trabajos y concejos que dicho seorpromete seguir
dando a los apoderados de las mismas en relacion con la venta,
arriendo, administracion y mejoramiente de los mencionados
bienes, por lapresente, libre y volunta riamente, Don Santiago
Carrion, en su capacidad de apoderado de las mencionadas Da.
EMILIA CARRION Y STA. MARINA y Da. MARIA DE LAS MERCEDES
CARRION Y SANTA MARINA y de la manera mas solemne como sea
necessario y eficaz en derecho, promete pagar a don Federico
Calero sus sucesores y cesionarios, una cantidad equivalente a UN
VEINTE POR CIENTO (20%) de cualquer cantidad que se obtenga
de la venta de los mencionados edificios y terrenos, despues de
degcontar el importe total pagado por Ias Sras. EMILIA CARRION Y
STA. MARINA Y MARIA DE LAS MERCEDES CARRION Y SANTA
MARINA a la due a de los mismos El Hogar Filipino, entendiendose
ademas que este veinte por ciento sera tomado de la ganancia
liquida que les represents a las nuevas dueas ta venta de los
bienes mencionmados ya sea por mediacion del Sr. Calero o sin
ella. (par. 5 of Exh. A). (Emphasis supplied.).
The terms of the contract admit no doubt that the 20% to be paid
the plaintiff is of any amount which may be obtained by the sale of
the property after deducting the purchase price thereof, which
shall be taken from the liquidated benefit obtained by the owners
out of the sale of the said property.
Neither is Article 1453 applicable, because there is absolutely
nothing in the agreement which even remotely indicates that the
property was conveyed to the defendants in reliance upon their
declared intention to hold it for, or transfer it to, another or the
grantor.
Even the very allegations of plaintiff's complaint clearly reflect the
true nature of the agreement. It appears therefrom that although
the original parties to purchase the property tribute P10,000.00
and the defendants to put up P15,000.00 on account of the down
payment of P25,000.00), the same was abandoned and the parties
subsequently agreed that the defendants would buy the property
exclusively in their name and for their own account because "era
muy complicado constituir una comunidad de bienes en esa finca,
pues abria necesidad de rendir cuentas mensuales, y consultares
en caso de reparaciones, mejoras, etc." and that the plaintiff
"acepto esa proposicion, en el bien entendido de que la finca seria
vendida tan pronto como se encontrara un comprador por una
cantidad no menor de P300,000.00" "con la obligacion (on the part
of the defendants) de pagar al demandante el veinte por ciento
(20%) de los beneficios, cuando se vendiera la finca", and that,
lastly, "el demandado acepto esa proposicion, como ya se ha
dicho, y las partes otorgaron el dia 28 de marzo de 1937, un
contrato formal en el cual se hizo constar el ultimo
convenio celebrado por las partes, es decir, que a la venta de la
finca situada en la Plaza Santa Cruz, las demandadas pagarian al
demandante,
una cantidad equivalente a un Veinte Por Ciento (20%)
de cualquier cantidad que se obtenga de la ventade los
mencionados edificios y terrenos, despues de descontar el
importe total pagado por dichas demandadas. (See
paragraphs 3, 6, 7, 8 and 9 of the amended complaint.)

Plaintiff-appellant next contends that the lower court also erred in


dismissing his complaint on the finding that plaintiff's right of
action to have the period fixed for the sale of the property had
already prescribed. It is urged that the time for enforcing their
right of action to have the period judicially determined did not
begin to run until the defendants had been formally demanded
and they refused to sell the property. It was only then, it is argued,
that the period of prescription started to run. This seems to be
illogical. Before the period is fixed, the defendants' obligation to
sell is suspended and they, therefore, cannot be compelled to act.
For this reason, a complaint to enforce immediately the principal
obligation subject to the suspensive period before this is fixed, will
not prosper. But this is not to say that the plaintiff has no cause of
action. His cause of action under the agreement is to have the
court fix the period and after the expiration of that period, to
compel the performance of the principal obligation to sell. And this
right to have the period judicially fixed is born from the date of the
agreement itself which contains the undetermined period.
Extrajudicial demand is not essential for the creation of this cause
of action to have the period fixed.1 It exists by operation of law
from the moment such an agreement subject to an undetermined
period is entered into, whether the period depends upon the will of
the debtor alone, or of the parties themselves, or where from the
nature and the circumstances of the obligation it can be inferred
that a period was intended.
This is the clear intendment of Article 1197 of the New Civil Code
as well as Article 1128 of the Spanish Civil Code and the applicable
doctrine laid down by this Court.2 And since the agreement was
executed on May 28, 1937 and the complaint to have the period
fixed was filed on December 21, 1956 or after almost 20 years,
plaintiff's action is clearly and indisputably barred under the
Statute of Limitations.
Wherefore, finding no reversible error in the order appealed from,
the same is hereby affirmed, with costs against the plaintiffappellant. So ordered.

Pacific Bank vs CA

GAPITA MANAOIS, defendant-appellant.

Facts: An open Fire Policy issued


to
Paramount
Shirt
Manufacturing for Php61,000 on the following: stocks, materils,
supplies, furniture, fixture, machinery, equipment contained on the
1st to 3rd floors. Insurance is for a year starting 21 OCTOBER
1964.

Primicias and Del Castillo for appellee.


Jose Rivera for appellant.

Paramount Shirt is debtor of Pacific Banking amounting to


Php800,000. Goods in policy were held in trust by Paramount for
Pacific under thrust receipts. Fire broke out on 4 January 1964.
Pacific sent letter of demand to Oriental. Insurance Adjuster of
Oriental notified Pacific to submit proof of loss pursuant
to PolicyCondition 11. Pacific did not accede but asked Insurance
Adjuster to verify records form Bureau of Customs.
Pacific filed for sum of money against Oriental. Oriental alleged
that Pacific prematurely filed a suit, for neither filing a formal claim
over loss pursuant to policy nor submitting any proof of loss.
Trial court decided in favor of Pacific. Decision based on
technicality. The defense of lack of proof of loss and defects were
raised for the 1st time. (On presentation of evidences by Pacific, it
was revealed there was violation of Condition No.3, there were
undeclared co-insurances under same property Wellington,
Empire, Asian. The only declared co-insurances were Malayan,
South Sea, and Victory)
CA reversed decision. Concealment of other co-insurances is a
misrepresentation and can easily be fraud.
Issues:
(1) Whether or not unrevealed con-insurances is a violation
of PolicyCondition No.3
(2) Whether or not there was premature filing of action
Held:
(1) Yes. Policy Condition 3 provides that the insured must give
notice of any insurance already in effect or subsequently be in
effect covering same property being insured. Failure to do so,
the policyshall be forfeited.
Failure to reveal before the loss of the 3 other insurances is a clear
misrepresentation or a false declaration. The material fact was
asked for but was not revealed. Representations of facts are the
foundations of the contract. Pacific itself provided for the
evidences
in
trial
court
that
proved
existence
of
misrepresentation.
(2) Yes. Policy Condition 11 is a sine qua non requirement for
maintaining action. It requires that documents necessary to prove
and estimate the loss should be included with notice of loss. Pacific
failed to submit formal claim of loss with supporting documents
but shifted the burden to the insurance company. Failing to submit
claim is failure for insurance company to reject claim. Thus, a lack
of cause of action to file suit.

PADILLA, J.:
The defendants appeal from a judgment of the Court of First
Instance of Pangasinan, Fourth Branch, ordering her to pay the
plaintiff the sum of P4,147.74, lawful interest thereon from 24
March 1954 when the original complaint was by the Court of
Appeals to this Court for it involves only a question of law.
As agreed upon by the parties, the facts are: On different dates
from 10 November 1952 to 30 June 1953 the appellant bought,
took delivery and received from the appellee hardware goods,
lumber and construction materials valued at the total sum of
P12,127.57 (par. 1, stipulation of facts; Exhibits A to Z; AA to OO),
and from 4 November 1952 to 10 March 1954 the appellant paid
the appellee the total sum of P6,979.83 which the latter credited
to the former's account (par. 3, stipulation of facts; Exhibits PP, PP1, QQ, QQ-1 to QQ-2). On 23 December 1954, after the original
complaint had been filed by the appellee ( 24 March 1954), the
appellant paid the appellee the sum on P1,000 which the latter
also credited to the former's account (par. 6, stipulation of facts),
thereby reducing her total indebtedness to P4, 147.74.
The appellant does not deny that she received the wares and
materials listed in the invoices (Exhibits A to Z and AA to OO), and
that she is still indebted to the appellee in the sum of P4,147.74.
At the hearing of the case on 4 June 1956, her counsel withdrew
the objection (filed earlier during the day) to the items listed in
some of the invoices (Minutes of the session of 4 June 1956).
However, she argues that as no time for payment was stipulated
or fixed and from the nature and the circumstances of the
obligation it could be inferred that a period was intended, the
Court should fix the period for payment pursuant to article 1197 of
the new Civil Code.
The parties entered into a contract of sale on credit. In the invoices
(Exhibit A to Z and AA to OO) of the wares and material sold and
delivered to the appellant, the words "credit sales" appear and it is
stated that
All civil actions on this contract shall be instituted in the
courts of the City of Dagupan and it is hereby agreed that
all may/or purchases from this Company are payable in
the said City of Dagupan. It is agreed that if this bill is not
paid within . . . days from date hereof I/we will pay
interest at the rate of 10 percentum per annum on all
overdue accounts. The buyer hereby agrees to pay and all
attorney's fees and court costs should the seller institute
legal action. Goods travel at buyer's risk. No claim of
whatsoever nature will be considered after 24 hours from
date of delivery.

Furthermore, the mortgage clause in the policy specifically


provides that the policy is invalidated by reasons of FRAUD,
MISREPRESENTATION and FRAUD. Concealment can easily be fraud
or misrepresentation.

The parties intended to fix a period for payment of the appellant's


obligation but failed to do so. Under article 1197 of the new Civil
Code, the Court may fix it. Taking into consideration that from 10
November 1952, the first sale, and 30 June 1953, the last sale, to
the present, more than six and nearly seven years already have
elapsed, the appellant who does not deny her obligation must be
ordered to pay the appellee the amount she still owes it within
fifteen (15) days from the date the judgment shall have become
final.

The insured PARAMOUNT is not entitled to proceeds. Moreso,


Pacific as indorsee of policy is not entitled.

With the slight modification just mentioned, the judgment


appealed from is affirmed, with costs against the appellant.

COSMIC
vs.

LUMBER

COMPANY,

INC., plaintiff-appellee,

F. S. DIVINAGRACIA AGRO-COMMERCIAL INC. petitioner,


vs.
HONORABLE
COURT
OF
APPEALS
and
RUFINO
FERNANDEZ, respondents.

(b) Ordering defendant to pay plaintiff the sum of


P3,000.00 a month, as the reasonable rent for
the use of the premises, beginning January,
1976; and
(c) Extending the duration of the lease by
defendant of plaintiff's property to one (1) year
to commence from finality of the decision;

GUERRERO, J.:
This is a petition for certiorari to review the decision of the Court of
Appeals in CA-G.R. No. S.P. 06585 entitled "Rufino Q. Fernandez
vs. Hon. Ricardo M. Ilarde, et al.," promulgated on September 22,
1977.
The facts of this case are clear, undisputed and may be
summarized briefly as follows:
Private respondent's father was the original lessee of the building
and lot owned by the late Doa Concepcion Gay de Loring and the
spouses Mercedes Van Kauffman and Jaime Ibaez de Aldecoa.
This lease dates back to 1899. After his father's demise, private
respondent continued the lease. The building and lot subject of the
lease was bought by petitioner herein from the interest state
estate of the original owners for the sum of P250,000.00 on July 9,
1974. Before its purchase, private respondent was a lessee of the
said owners and was paying them a rental of P1,250.00 a month.
After the purchase, the rental corresponding to first half of the
month of July, 1974 in the sum of P625.00 was paid by private
respondent to the original owners and that of the second half in
the sum of P625.00 to the new owner, petitioner herein. In the
continuance of the lease, it was verbally agreed by and between
the petitioner and private respondent that the rental for the
succeeding months would be increased to P2,000.00 starting
August, 1974. This went on until September, 1975. About the
second week of October, 1975, private respondent was informed
by a representative of petitioner, Atty. Santiago Divinagracia, that
his contract of lease would terminate on October 31, 1975. When
private respondent refused to vacate the premises on October 31,
1975, petitioner reiterated the advice earlier made in a letter
dated November 4, 1975 formally advising him of the termination
of the lease on October 31, 1975 and giving him, the private
respondent, a final extension to occupy the premises up to the end
of November, 1975, for which reason petitioner refused to accept
further payment of rentals for December, 1975. Private respondent
in turn informed petitioner that he was depositing his rentals for
the succeeding months with the Clerk of Court.
A complaint for unlawful detainer was filed by herein petitioner
against private respondent before the City Court of Iloilo, Branch I,
which rendered a decision in favor of private respondent, the
dispositive portion of which reads:
WHEREFORE,
decision

this

court

hereby

renders

its

a. Dismissing the complaint;


b. Ordering defendant to pay plaintiff the sum of
P3,000.00 a month as the reasonable rent for the
use of the premises, beginning January, 1976;
c. Fixing the duration of the lease of defendant
which, since 1899 to the present, is 76 years, at
one year for every 10 years, i.e., that defendant
may continue to lease the premises for seven
and a half (7-1/2) years to commence from
finality of the decision;
without pronouncement as to the costs.
From the decision, petitioner appealed to the Court of First
Instance which modified the City Court's decision by:
(a) Dismissing the complaint;

without pronouncement as to costs.


From the latter decision, private respondent filed a petition for
review before the Court of Appeals which modified the previous
decision. The dispositive portion of the Appellate Court's decision
states:
WHEREFORE, and as thus modified, in the sense
that the lease should be as it is hereby extended
for another five (5) years, the judgment of the
court a quo is affirmed in all other respects.
Without pronouncement as to costs.
From the judgment of the Court of Appeals, petitioner herein
appealed by certiorari to this Coat, assigning a single error
involving a legal issue, to wit:
The respondent Court of Appeals committed a grave error in the
correct application of Article 1687 of the New Civil Code by
extending the lease for another five (5) years which is a grave
abuse of discretion amounting to lack or in excess of its
jurisdiction.
Petitioner, in support of the foregoing assigned error argues upon
the following considerations:
I. The Court of Appeals practically made a
contract between the parties which is contrary to
the spirit and intent of Article 1687 of the New
Civil Code;
II. The Court of Appeals did not show that the
Court of First instance of Iloilo Branch V, presided
by the Hon. Judge Ricardo M. Ilarde to which this
case was originally appealed, gravely abused its
discretion by reducing the term of the lease to
only one (1) year;
III. The conclusion arrived at by the Court of
Appeals are contrary to law, the admitted facts
and admission of the parties;
IV. The Court of Appeals did not observe the
criteria set out by this honorable Court in the
application of Article 1687 of the New Civil Code
in the exercise of its discretion.
The first and fourth arguments of the petitioner relate solely to the
proper application of Article 1687 of the New Civil Code, hence We
are constrained to consider and resolve them together. Petitioner
alleges that there was grave abuse of discretion by the Court of
Appeals in reckoning the occupancy of the lessee from 1899 when
his predecessor-in-interest was the occupant of the premises. It
should have been reckoned only from his personal occupancy of
the premises. Petitioner further alleges that the Court of Appeals
was oblivious of the following facts: (1) There was a change of
ownership - the lessor became owner only on July 9, 1974; (2) The
leased premises is a commercial lot; (3) the Private respondent
was made to understand that in the future, the petitioner may
need the premises for its own use; (4) The private respondent has
admitted that he has two stores, one at the premises subject of
this case and the other located at his own commercial building;
and (5) The petitioner herein was the one who filed the unlawful
detainer case. It could have been another matter had the private

respondent filed an independent action asking for the fixing of the


period of the lease.
Withal, petitioner concluded that the decision of the respondent
Court is most unfair, arbitrary and inequitable. It is unjust and
authoritarian. The Court practically made a contract between the
parties. It curtailed the basic human right of the parties of their
freedom to contract. Petitioner's contention is devoid of merit. In
the first place, it is beyond dispute that Article 1687 of the New
Civil Code is applicable, which article states:
Art. 1687. If the period for the lease has not been
fixed, it is understood to be from year to year, if
the rent agreed upon is annual; from month to
month, if it is monthly, from week to week, if the
rent is weekly; and from day to day, if the rent is
to be paid daily. However, even though a monthly
rent is paid and no period for the lease has been
set, the court may fix a longer term for the lease
after the lessee has occupied the premises for
over one year. ...
Article 1687 of the New Civil Code must be correlated with Article
1197 of the New Civil Code which provides:
Art. 1197. If the obligation does not fix a period,
but from its nature and circumstances it can be
inferred that a period was intended, the court
may fix the duration thereof. ...
Considering both Articles together, it is at once clear and evident
that the court is accorded the power to fix a longer term for the
lease, which power is potestative or discretionary in nature. This
prerogative is addressed to the court's sound judgment and is
controlled by equitable considerations. "The court may fix a longer
term
where
equities
come
into
play
demanding
an
extension." (Divino v. Fable de Marcos, 4 SCRA 186).
It may not, therefore, be contended that the Court of Appeals in
the exercise of its discretionary power under Article 1687 in
relation with Article 1197 made a contract between the parties,
since the very purpose of the law is not the fixing of a longer term
for the lease, but to make the indefinite period of lease definite by
fixing once and for all the remaining duration of the lease.
Neither can We sustain the factors assigned by the petitioner
herein, which the Court of Appeals refused to appreciate. Squarely
resolving these factors that there was a change of ownership, the
lessor became the owner only on July 9, 1974, and that the lease is
not recorded in the Registry of Property, is of no moment. In the
first place, that purchaser is bound to continue the lease is explicit
under Article 1676 of the Civil Code, more specifically the same
article provides: "The purchaser of a piece of land which is under a
lease that is not recorded in the Registry of Property may
terminate the lease, save when there is a stipulation to the
contrary in the contract of sale, or when the purchaser knows of
the existence of the lease." Such knowledge of the lease was
established in the findings of the Court of Appeals, thus:
... that private respondent knew of the existence
of such lease is eloquently shown by the fact that
when the private respondent bought the property
on July 9, 1974, the private respondent received
only the rental corresponding to the second half
of the month of July, or the sum of P625.00. The
rental for the first half of the same month was in
fact paid to the former owner. This circumstance
not only shows that private respondent knew of
the existence of such prior lease, but also that
they knew the monthly rental fixed for the lease
of the premises. ... we therefore entertain no
doubt that private respondent knew of the

existence of such lease and that from its


actuation from August 1974 to September 1975,
it allowed the herein petitioner to continue with
the lease indefinitely ... .
Secondly, that the leased premises is a commercial lot finds no
legal significance. Article 1687 does not make any qualification nor
distinction as to its application. Under the principle of expressio
unius est exclusion alterius, the law applies to both residential and
commercial lands as well. Thirdly, that private respondent was
made to understand that in the future the petitioner may need the
premises for its own use is without importance in the case at bar.
Whether or not there was such an understanding would not affect
the lease contract existing between the parties. Such knowledge is
not sufficient to terminate an existing contract in compliance with
the provisions of Article 1687. To hold otherwise would be making
a fetish of a technicality which the law abominates Besides, every
owner is precisely interested in his own property and the fact that
he may need the property at some future time is beyond human
scruples. But then the question of when such future time win arise
is potestative in nature and will depend on the prevailing
circumstances and conditions as well as the acquiescence of the
parties, so that by reason of equity, justice and fairness, Article
1687 supplies the remedy in the event the parties decide to
terminate their contract. Fourthly, that private respondents
admitted that he has two stores, one at the subject premises and
the other at his own commercial establishment, does not alter the
applicability of Article 1687, considering the fact that the private
respondent's other store is also tenanted and as the Court of
Appeals correctly pointed out, "... It would be most difficult for him
to eject the tenants of his property for him to move in. ...
Moreover, petitioner established his hardware business in the
premises since 1946. Any sudden transfer would certainly affect
his business ..." . Finally, the fact that petitioner herein was the
one who filed the unlawful detainer case instead of the private
respondent is immaterial considering that private respondent had
in his counterclaim prayed that "the Court fix the term of the lease
to ten (10) years from the final termination of the case." The
provision of Article 1687 may be interposed as a defense in the
answer (Imperial Insurance, Inc. v. Simon, 14 SCRA 855), or as a
counterclaim therein. The exercise of the power given to the Court
in Article 1687 to extend the period of the lease when the
defendant has been in occupancy of the premises for more than a
year, does not contemplate a separate action for that purpose.
That power may be exercised as an incident in the action for
ejectment itself and by the court having jurisdiction over it
(Ramirez vs. Sy Chit, 21 SCRA 1364). Moreover, We cannot lose
sight of the fact that it would be an idle and costly procedure to
require the lessee to file another action to have the term of the
lease fixed, with all the possible delays and inconveniences
attendant upon a lawsuit.
Apropos the second argument that the Court of Appeals did not
show that the Court of First Instance of Iloilo to which this case was
originally appealed, gravely abused its discretion, the petitioner
maintains that since it is the lower court which is familiar with the
reigning conditions of each locality. its judgment on the additional
term to be granted to the lessee in each case should not be
interfered with on appeal, absent a clear abuse of discretion.
It is well to stress that in a petition for review, the appellate court
has the discretion to alter, modify or affirm the decision brought to
it on appeal. In the exercise of such discretion, it may either
increase or decrease the extension of the lease period granted by
the lower court.
The onus probandi that the respondent Court committed grave
abuse of discretion is upon the petitioner himself, and not the
court reviewing the decision. The petitioner must show on
certiorari that the appellate Court exercised its discretion

arbitrarily or despotically. We have examined the records and We


find nothing of importance to warrant a disturbance of the
conclusions reached by the respondent Court of Appeals. In view of
Our settled and established jurisprudence, that when the lower
court has jurisdiction over the subject matter of the case, its
actuation in the exercise of such jurisdiction is not correctible by
certiorari (Matanog v. Alejandro, G.R. Nos. L-22502-03, June 30,
1964).
The final argument of the petitioner faults the Court of Appeals'
findings as contrary to law, admitted facts and admission of the
parties. The advocation is without merit. It is a legal rule that not
every error in the proceeding or every erroneous conclusion of law
or of fact is abuse of discretion. In the absence of any indication
and cogent reason, We will not encroach upon the respondent
Court's prerogative. After a careful perusal of the judgment of the
Court of Appeals, We find no reversible error committed that would
warrant the reversal of the present case. We are in full accord with
the findings and conclusions of the respondent Court as the same
are final and binding upon Us. Hence, We again reiterate the
voluminous jurisprudence to the effect that "findings of facts of the
Court of Appeals are binding on the Supreme Court and cannot be
reviewed. (Torres v. People, 39 SCRA 28; Heirs of Francisco Pasco v.
Han Pia, 45 SCRA 164; Tolentino v. De Jesus, 56 SCRA 167; Tiongco
v. De la Merced, 58 SCRA 89).
We are not unmindful that the foregoing established rule admits of
exceptions, such that the findings of fact of the Court of Appeals
may be reviewed by Us:
(1) When the same are grounded entirely on
speculation, surmises or conjectures;
(2) When the inference made is manifestly
mistaken, absurd or impossible;
(3) When there is grave abuse of discretion:
(4)
When
the
judgment
misapprehension of facts; and

is

based

on

(5) When the Court of Appeals, in making its


findings, went beyond the issues of the case and
the same are contrary to the admissions of both
appellant and appellee. (Ramos v. CA, 63 SCRA
331; Napolis v. CA, 43 SCRA 301).
We find that not one of the exceptional circumstances
aforementioned is present in the case at bar. The findings of facts
of the appealed decision are sufficiently supported by substantial
evidence, and the conclusions drawn therefrom are not against the
law or jurisprudence. The decision of the Court, of Appeals rests on
cited doctrinal jurisprudence, justice and equity as it stated that:
Considering the doctrine laid down in the said
decisions (Gregorio Araneta, Inc. vs. Dolores de
Mesa, 35 SCRA 137, and Divino vs. Marcos, et al.,
4 SCRA 186), and the fact that the petitioner had
been in the occupancy of the premises since
1899, petitioner's occupancy has gone for no less
than 70 years, We, therefore, find in the broader
interest of justice and equity the extension of the
lease should be for a period of five (5) years.
After having gone at length over the records of the present case,
and in the light of the above pronouncement, We are positively
convinced that the petitioner is not entitled to the writ of certiorari.
There is absolutely no showing that the respondent Court acted so
"arbitrarily", "despoticall" or "capriciously" as to amount to lack of
jurisdiction in reviewing the appealed decision. It is settled to the
point of being elementary that the only question involved in
certiorari is jurisdiction, either want of jurisdiction or excess

thereof, and abuse of discretion shall warrant the issuance of the


extraordinary remedy of certiorari when the same is so grave as
when the power is exercised in an arbitrary or despotic manner by
reason of passion, prejudice or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty, or to
a virtual refusal to perform a duty enjoined, or to act at all, in
contemplation of law (Abig v. Constantino, 2 SCRA 299; Abad
Santos v. Province of Tarlac, 67 Phil. 480; Alafriz v. Wable 72 Phil.
278). Even mere abuse of discretion is not sufficient by itself to
justify the issuance of a writ of certiorari. For that purpose, the
abuse of discretion must be grave and patent and it must be
shown that it was exercised arbitrarily or despotically. (Travera
Luna, Inc. v. Nable, 72 Phil. 278; Villa Rey Transit, Inc. v. Bello, 75
SCRA 735) which is not the case made out by the present petition.
WHEREFORE, IN VIEW OF THE FOREGOING, the decision of the
Court of Appeals is hereby AFFIRMED, with costs against the
petitioner.
SO ORDERED.

THE SECRETARY OF EDUCATION and DR. BENITO TUMAMAO,


Schools Division Superintendent of Isabela, Petitioners,
vs.
HEIRS OF RUFINO DULAY, SR., represented by IGNACIA
VICENTE, RUFINO DULAY, JR., SUSANA DULAY, ADELAIDA
DULAY, LUZVIMINDA DULAY and CECILIA DULAY, Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision 1 of the
Court of Appeals (CA) in CA-G.R. CV No. 78314 which affirmed the
Decision2 of the Regional Trial Court (RTC) of Santiago City,
Isabela, Branch 35, in Civil Case No. 35-2397.
The spouses Rufino Dulay, Sr. and Ignacia Vicente were the owners
of a parcel of land located in Rizal, Santiago, Isabela, with an area
of 29,002 square meters. The lot was covered by Original
Certificate of Title No. P-6776.
On August 3, 1981, the spouses Dulay executed a deed of
donation3 over a 10,000-square-meter portion of their property in
favor of the Ministry of Education and Culture (now the
Department of Education, Culture and Sports [DECS]). The deed
provided, among others:
That for and in consideration of the benefits that may be derived
from the use of the above described property which is intended for
school purposes, the said DONORS do by by (sic) these presents
TRANSFER AND CONVEY by way of DONATION unto the DONEE, its
successors and assigns, the above property to become effective
upon the signing of this document.4
The property was subdivided. On April 13, 1983, Transfer
Certificate of Title (TCT) No. T-143337 5 covering the portion
identified as Lot 8858-A was issued in the name of the Ministry of
Education and Culture, represented by Laurencio C. Ramel, the
Superintendent of Schools of Isabela. However, the property was
not used for school purposes and remained idle.
Sometime in 1988, the DECS, through its Secretary, started
construction of the Rizal National High School building on a parcel
of land it acquired from Alejandro Feliciano. The school site was
about 2 kilometers away from the land donated by the spouses
Dulay.
In a letter 6 to the DECS Secretary dated August 19, 1994, the
spouses Dulay requested that the property be returned to them
considering that the land was never used since 1981, or a period
of more than 13 years. On August 28, 1994, the Barangay Council
of Rizal, Santiago City issued Resolution No. 39 7 recognizing the
right of the donors to redeem the subject parcel of land because of
the DECS failure to utilize it for the intended purpose. It further
resolved that the Rizal National High School no longer needed the
donated land "considering its distance from the main campus and
[the] failure to utilize the property for a long period of time."
On December 22, 1994, Rufino Dulay, Sr. passed away at the age
of 80.8 His heirs sought the help of the Sangguniang Panlungsod
of Santiago City via an undated letter 9 requesting the approval of
a resolution allowing them to redeem the donated property. The
Sangguniang Panlungsod denied the request inasmuch as the city
government was not a party to the deed of donation. 10
On August 31, 1997, the heirs of Dulay, Sr., herein respondents,
filed a complaint for the revocation of the deed of donation and
cancellation of TCT No. T-143337 before the RTC of Santiago City,
Isabela, Branch 35, against the DECS Secretary and Dr. Benito

Tumamao, the Schools Division Superintendent of Isabela.


Respondents alleged that there was a condition in the deed of
donation: that the DECS, as donee, utilize the subject property for
school purposes, that is, the construction of a building to house
the Rizal National High School. Respondents alleged that the DECS
did not fulfill the condition and that the land remained idle up to
the present. Respondents also averred that the donation inter
vivos was inofficious, since the late Rufino Dulay, Sr. donated more
than what he could give by will.
Petitioners, through the Office of the Solicitor General (OSG),
interposed the following defenses: (a) the DECS complied with said
condition because the land was being used by the school as its
technology and home economics laboratory; (b) the donation was
not inofficious for the donors were the owners of five other parcels
of land, all located at Rizal, Santiago City; (c) the DECS acquired
the disputed property by virtue of purchase made on December 8,
1997 by the barangay of Rizal, Santiago City in the amount
of P18,000.00 as certified by its former Barangay Captain, Jesus
San Juan;11 and (d) the action of the respondents had prescribed.
The OSG also claimed that students planted a portion of the land
with rice, mahogany seedlings, and fruit-bearing trees; the
produce would then be sold and the proceeds used for the
construction of a school building on the subject property.
In their Reply,12 respondents denied that the donated land was
being used as a technology and home economics laboratory, and
averred that there were no improvements on the property.
Moreover, the fact that rice was planted on the lot was contrary to
the intended purpose of the donation. The respondents likewise
denied that the property had been sold to the barangay. While the
other properties of the late donor had been sold, the deeds
thereon had not been registered, and the tax declarations not yet
transferred in the names of the purchasers.
Thereafter, trial ensued. On March 6, 2001, an ocular inspection of
the property was conducted by the parties and their respective
counsels, including the Presiding Judge. It was confirmed that the
land was barren, save for a small portion which was planted with
palay. A demolished house was also found in the periphery of the
donated lot.13
On December 26, 2002, the trial court rendered its decision in
favor of respondents. The fallo reads:
WHEREFORE, in the light of the foregoing considerations, the Court
hereby DECLARES the deed of donation, Exhibit "A," executed by
the late Rufino Dulay, Sr. and his wife Ignacia Vicente over a
portion of the land covered by O.C.T. No. P-6776 and now covered
by T.C.T. No. T-143337 in the name of the donee Department of
Education and Culture as REVOKED. The defendant DECS is
ORDERED to execute the deed of reconveyance of the land in favor
of the plaintiffs heirs of Rufino Dulay, Sr.
SO ORDERED.14
In revoking the deed of donation, the trial court ruled that the
donation was subject to a resolutory condition, namely, that the
land donated shall be used for school purposes. It was no longer
necessary to determine the intended "school purpose" because it
was established that the donee did not use the land. Thus, the
condition was not complied with since the property was donated in
July 1981. Moreover, the DECS did not intend to use the property
for school purposes because a school had already been built and
established in another lot located in the same barangay, about two
kilometers away from the subject land. Finally, the trial court
rejected petitioners contention that the donation was inofficious.
Aggrieved, the OSG appealed the decision to the CA.

On July 30, 2004, the appellate court rendered judgment affirming


the decision. The court held that the DECS failed to comply with
the condition in the donation, that is, to use the property for school
purposes. The CA further ruled that the donation was onerous
considering that the donee was burdened with the obligation to
utilize the land for school purposes; therefore, the four-year
prescriptive period under Article 764 of the New Civil Code did not
apply. Moreover, the CA declared that a deed of donation is
considered a written contract and is governed by Article 1144 of
the New Civil Code, which provides for a 10-year prescriptive
period from the time the cause of action accrues. According to the
CA, the respondents cause of action for the revocation of the
donation should be reckoned from the expiration of a reasonable
opportunity for the DECS to comply with what was incumbent upon
it.
Petitioners filed a motion for reconsideration, which the CA denied.
Petitioners seek relief from this Court via petition for review on
certiorari, contending that:
I.
THE DEPARTMENT OF EDUCATION, THROUGH THE RIZAL
NATIONAL HIGH SCHOOL, HAD COMPLIED WITH THE
CONDITION IMPOSED IN THE DEED OF DONATION.
II.
RESPONDENTS RIGHT TO SEEK THE REVOCATION OF THE
DEED OF DONATION, IF THERE BE ANY, IS ALREADY
BARRED BY PRESCRIPTION AND LACHES.15
The Court shall resolve the issues raised by petitioners seriatim.
The donee failed to comply with the condition imposed in the deed
of donation
The issue of whether or not petitioner DECS was able to comply
with the condition imposed in the deed of donation is one of fact.
There is a question of fact when the doubt or difference arises as
to the truth or falsehood of alleged facts or when the query
necessarily solicits calibration of the whole evidence considering
mostly the credibility of witnesses, existence and relevancy of
specific surrounding circumstances, their relation to each other
and to the whole and probabilities of the situation. 16 Under Rule
45 of the 1997 Rules of Civil Procedure, only questions of law may
be raised in a petition for review on certiorari, for the simple
reason that this Court is not a trier of facts. It is not for the Court to
calibrate the evidence on record, as this is the function of the trial
court. Although there are well-defined exceptions to the rule,
nevertheless, after a review of the records, we find no justification
to depart therefrom. Moreover, the trial courts findings of facts, as
affirmed by the appellate court on appeal, are binding on this
Court, unless the trial and appellate courts overlooked,
misconstrued or misinterpreted facts and circumstances of
substance which, if considered, would change the outcome of the
case. The case has been reviewed thoroughly, and we find no
justification to reverse the CA decision.
Petitioners, through the OSG, maintain that the condition (to use
the property for school purposes) is not limited to the construction
of a school building, but includes utilizing it as a technology and
home economics laboratory where students and teachers plant
palay, mahogany seedlings, and fruit-bearing trees. The OSG
insists that the donee did not specify in the deed that the property
should be used for the construction of a school building. According
to the OSG, the proceeds of the harvest were used and are still
being used by the Rizal National High School for the construction
and improvement of its present school site. Moreover, it was
verified that there was palay planted on the donated property
during the ocular inspection on the property.

In their comment on the petition, respondents dispute petitioners


contentions, and aver that no evidence was presented to prove
that, indeed, palay, mahogany seedlings and fruit-bearing trees
were planted on the property. Respondents also emphasized that
when the trial court inspected the subject property, it was
discovered to be barren and without any improvement although
some portions thereof were planted with palay. Petitioners even
failed to adduce evidence to identify the person who planted the
palay.
The contention of petitioners has no merit.
As gleaned from the CA decision, petitioners failed to prove that
the donated property was used for school purposes as indicated in
the deed of donation:
We find it difficult to sustain that the defendant-appellants have
complied with the condition of donation. It is not amiss to state
that other than the bare allegation of the defendant-appellants,
there is nothing in the records that could concretely prove that the
condition of donation has been complied with by the defendantappellants. In the same breadth, the planting of palay on the land
donated can hardly be considered and could not have been the
"school purposes" referred to and intended by the donors when
they had donated the land in question. Also, the posture of the
defendant-appellants that the land donated is being used as
technology and home economics laboratory of the Rizal National
High School is far from being the truth considering that not only is
the said school located two kilometers away from the land donated
but also there was not even a single classroom built on the land
donated that would reasonably indicate that, indeed, classes have
been conducted therein. These observations, together with the
unrebutted ocular inspection report made by the trial court which
revealed that the land donated remains idle and without any
improvement thereon for more than a decade since the time of the
donation, give Us no other alternative but to conclude that the
defendant-appellants have, indeed, failed to comply with what is
incumbent upon them in the deed of donation.17
In its Order18 dated March 6, 2001, the RTC reiterated that during
the ocular inspection of the property conducted in the presence of
the litigants and their counsel, it observed that "the land was
barren; there were no improvements on the donated property
though a portion thereof was planted with palay [and a demolished
house built in 1979.]"
Moreover, petitioners failed to adduce a shred of evidence to prove
that the palay found in the property was planted by DECS
personnel or at its instance or even by students of the Rizal
National High School. No evidence was adduced to prove that
there were existing plans to use the property for school purposes.
Petitioners even debilitated their cause when they claimed in the
trial court that the barangay acquired the property by purchase,
relying on the certification of former Barangay Captain Jesus San
Juan.
The right to seek the revocation of donation had not yet prescribed
when respondents filed their complaint
Anent the second issue, we reject the contention of the OSG that
respondents cause of action is already barred by prescription
under Article 764 of the New Civil Code, or four years from the
non-compliance with the condition in the deed of donation. Since
such failure to comply with the condition of utilizing the property
for school purposes became manifest sometime in 1988 when the
DECS utilized another property for the construction of the school
building, the four-year prescriptive period did not commence on
such date. Petitioner was given more than enough time to comply
with the condition, and it cannot be allowed to use this fact to its
advantage. It must be stressed that the donation is onerous

because the DECS, as donee, was burdened with the obligation to


utilize the land donated for school purposes. Under Article 733 of
the New Civil Code, a donation with an onerous cause is essentially
a contract and is thus governed by the rules on contract. 19 We
fully agree with the ruling of the appellate court:
xxx With this, [we] decline to apply the four-year prescriptive
period for the revocation of donation provided under Article 764 of
the New Civil Code and instead apply the general rules on
contracts since Article 733 of the same Code, specifically provided
that onerous donations shall be governed by the rules on
contracts.
Corollarily, since a deed of donation is considered a written
contract, it is governed by Article 1144 of the New Civil Code,
which provides that the prescriptive period for an action arising
from a written contract is ten (10) years from the time the cause of
action accrues. In the case of donation, the accrual of the cause of
action is from the expiration of the time within which the donee
must comply with the conditions or obligations of the donation. In
the instant case, however, it must be noted that the subject
donation fixed no period within which the donee can comply with
the condition of donation. As such, resort to Article 1197 of
the New Civil Code is necessary. Said article provides that if the
obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the
courts may fix the duration thereof. Indeed, from the nature and
circumstances of the condition of the subject donation, it can be
inferred that a period was contemplated by the donors. The donors
could not have intended their property to remain idle for a very
long period of time when, in fact, they specifically obliged the
defendant-appellants to utilize the land donated for school
purposes and thus put it in good use. xxx 20
In Central Philippine University v. Court of Appeals, 21 a case
squarely in point, we have established that the legal possibility of
bringing the action begins with the expiration of a reasonable
opportunity for the donee to fulfill what has been charged upon it
by the donor. Likewise, we held that even if Article 1197 of the
New Civil Code provides that the courts may fix the duration when
the obligation does not determine the period but from its nature
and circumstances it can be inferred that a period was intended,
the general rule cannot be applied because to do so would be a
mere technicality and would serve no other purpose than to delay
or lead to an unnecessary and expensive multiplication of suits.22
Altogether, it has been 16 years since the execution of the deed of
donation. Petitioner DECS failed to use the property for the
purpose specified in the deed of donation. The property remained
barren and unutilized. Even after respondents sought the return of
the property before the courts, petitioner DECS still failed to draw
up plans to use the property for school purposes. In fine, petitioner
DECS has no use for the property; hence, the same shall be
reverted to the respondents.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 78314 dated July 30, 2004 is AFFIRMED.
SO ORDERED.

ARTICE 1198
FERNANDO
A.
GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES &
SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE,
PACIFICO
ESCANDOR
and
FERNANDO
TY, defendantsappellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for
defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance
because the claims involved aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder,
either by himself or in a representative capacity, of 11 iron lode
mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"),
Fonacier constituted and appointed plaintiff-appellee Fernando A.
Gaite as his true and lawful attorney-in-fact to enter into a contract
with any individual or juridical person for the exploration and
development of the mining claims aforementioned on a royalty
basis of not less than P0.50 per ton of ore that might be extracted
therefrom. On March 19, 1954, Gaite in turn executed a general
assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap
Iron Mines, a single proprietorship owned solely by and belonging
to him, on the same royalty basis provided for in Exhibit "3".
Thereafter, Gaite embarked upon the development and
exploitation of the mining claims in question, opening and paving
roads within and outside their boundaries, making other
improvements and installing facilities therein for use in the
development of the mines, and in time extracted therefrom what
he claim and estimated to be approximately 24,000 metric tons of
iron ore.
For some reason or another, Isabelo Fonacier decided to revoke
the authority granted by him to Gaite to exploit and develop the
mining claims in question, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled "Revocation of
Power of Attorney and Contract" was executed on December 8,
1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that
Fonacier would receive from the mining claims, all his rights and
interests on all the roads, improvements, and facilities in or
outside said claims, the right to use the business name "Larap Iron
Mines" and its goodwill, and all the records and documents relative
to the mines. In the same document, Gaite transferred to Fonacier
all his rights and interests over the "24,000 tons of iron ore, more
or less" that the former had already extracted from the mineral
claims, in consideration of the sum of P75,000.00, P10,000.00 of
which was paid upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS
(P65,000.00) will be paid from and out of the first letter of
credit covering the first shipment of iron ores and of the
first amount derived from the local sale of iron ore made
by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier
promised to execute in favor of Gaite a surety bond, and pursuant
to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the
Larap Mines and Smelting Co. and its stockholders George
Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante,

and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified,


however, that when this bond was presented to him by Fonacier
together with the "Revocation of Power of Attorney and Contract",
Exhibit "A", on December 8, 1954, he refused to sign said Exhibit
"A" unless another bond under written by a bonding company was
put up by defendants to secure the payment of the P65,000.00
balance of their price of the iron ore in the stockpiles in the mining
claims. Hence, a second bond, also dated December 8, 1954
(Exhibit "B"),was executed by the same parties to the first bond
Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as
additional surety, but it provided that the liability of the surety
company would attach only when there had been an actual sale of
iron ore by the Larap Mines & Smelting Co. for an amount of not
less then P65,000.00, and that, furthermore, the liability of said
surety company would automatically expire on December 8, 1955.
Both bonds were attached to the "Revocation of Power of Attorney
and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he
gave to Gaite and the two executed and signed the "Revocation of
Power of Attorney and Contract", Exhibit "A", Fonacier entered into
a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to
develop, exploit, and explore the mining claims in question,
together with the improvements therein and the use of the name
"Larap Iron Mines" and its good will, in consideration of certain
royalties. Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron ore which
he acquired from Gaite, to the Larap & Smelting Co., in
consideration for the signing by the company and its stockholders
of the surety bonds delivered by Fonacier to Gaite (Record on
Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with
respect to the Far Eastern Surety and Insurance Company, no sale
of the approximately 24,000 tons of iron ore had been made by
the Larap Mines & Smelting Co., Inc., nor had the P65,000.00
balance of the price of said ore been paid to Gaite by Fonacier and
his sureties payment of said amount, on the theory that they had
lost right to make use of the period given them when their bond,
Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And
when Fonacier and his sureties failed to pay as demanded by
Gaite, the latter filed the present complaint against them in the
Court of First Instance of Manila (Civil Case No. 29310) for the
payment of the P65,000.00 balance of the price of the ore,
consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform
defense that the obligation sued upon by Gaite was subject to a
condition that the amount of P65,000.00 would be payable out of
the first letter of credit covering the first shipment of iron ore
and/or the first amount derived from the local sale of the iron ore
by the Larap Mines & Smelting Co., Inc.; that up to the time of the
filing of the complaint, no sale of the iron ore had been made,
hence the condition had not yet been fulfilled; and that
consequently, the obligation was not yet due and demandable.
Defendant Fonacier also contended that only 7,573 tons of the
estimated 24,000 tons of iron ore sold to him by Gaite was actually
delivered, and counterclaimed for more than P200,000.00
damages.
At the trial of the case, the parties agreed to limit the presentation
of evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to
pay Gaite P65,000.00 become due and demandable when the
defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired
on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff
Gaite to defendant Fonacier were actually in existence in the
mining claims when these parties executed the "Revocation of
Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of
the defendants to pay plaintiff the P65,000.00 balance of the price
of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by
defendants, such sale to be effected within one year or before
December 8, 1955; that the giving of security was a condition
precedent to Gait's giving of credit to defendants; and that as the
latter failed to put up a good and sufficient security in lieu of the
Far Eastern Surety bond (Exhibit "B") which expired on December
8, 1955, the obligation became due and demandable under Article
1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff
Gaite did have approximately 24,000 tons of iron ore at the mining
claims in question at the time of the execution of the contract
Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite
ordering defendants to pay him, jointly and severally, P65,000.00
with interest at 6% per annum from December 9, 1955 until
payment, plus costs. From this judgment, defendants jointly
appealed to this Court.
During the pendency of this appeal, several incidental motions
were presented for resolution: a motion to declare the appellants
Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss
the appeal as having become academic and a motion for new trial
and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because
the main allegation therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been
substantiated; and even if true, does not make these appellants
guilty of contempt, because what is under litigation in this appeal
is appellee Gaite's right to the payment of the balance of the price
of the ore, and not the iron ore itself. As for the several motions
presented by appellee Gaite, it is unnecessary to resolve these
motions in view of the results that we have reached in this case,
which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of
appellant Fonacier to pay appellee Gaite the P65,000.00 (balance
of the price of the iron ore in question)is one with a period or term
and not one with a suspensive condition, and that the term expired
on December 8, 1955; and
(2) that the lower court erred in not holding that there were only
10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to
appellant Fonacier.
The first issue involves an interpretation of the following provision
in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby
transfers to Isabelo F. Fonacier all his rights and interests
over the 24,000 tons of iron ore, more or less, abovereferred to together with all his rights and interests to
operate the mine in consideration of the sum of SEVENTYFIVE THOUSAND PESOS (P75,000.00) which the latter
binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon
the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS


(P65,000.00)will be paid from and out of the first letter of
credit covering the first shipment of iron ore made by the
Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.
We find the court below to be legally correct in holding that the
shipment or local sale of the iron ore is not a condition precedent
(or suspensive) to the payment of the balance of P65,000.00, but
was only a suspensive period or term. What characterizes a
conditional obligation is the fact that its efficacy or obligatory force
(as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the
suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. That the parties
to the contract Exhibit "A" did not intend any such state of things
to prevail is supported by several circumstances:
1) The words of the contract express no contingency in the buyer's
obligation to pay: "The balance of Sixty-Five Thousand Pesos
(P65,000.00) will be paid out of the first letter of credit covering
the first shipment of iron ores . . ." etc. There is no uncertainty that
the payment will have to be made sooner or later; what is
undetermined is merely the exact date at which it will be made. By
the very terms of the contract, therefore, the existence of the
obligation
to
pay
is
recognized;
only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not
only does each one of the parties assume a correlative obligation
(the seller to deliver and transfer ownership of the thing sold and
the buyer to pay the price),but each party anticipates performance
by the other from the very start. While in a sale the obligation of
one party can be lawfully subordinated to an uncertain event, so
that the other understands that he assumes the risk of receiving
nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business
to do so; hence, the contingent character of the obligation must
clearly appear. Nothing is found in the record to evidence that
Gaite desired or assumed to run the risk of losing his right over the
ore without getting paid for it, or that Fonacier understood that
Gaite assumed any such risk. This is proved by the fact that Gaite
insisted on a bond a to guarantee payment of the P65,000.00, an
not only upon a bond by Fonacier, the Larap Mines & Smelting Co.,
and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds
indicates that they admitted the definite existence of their
obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00
to the sale or shipment of the ore as a condition precedent, would
be tantamount to leaving the payment at the discretion of the
debtor, for the sale or shipment could not be made unless the
appellants took steps to sell the ore. Appellants would thus be able
to postpone payment indefinitely. The desireability of avoiding
such a construction of the contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of
the contract the parties indented a suspensive condition or a
suspensive period (dies ad quem) for the payment of the
P65,000.00, the rules of interpretation would incline the scales in
favor of "the greater reciprocity of interests", since sale is
essentially onerous. The Civil Code of the Philippines, Article 1378,
paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests.
and there can be no question that greater reciprocity obtains if the
buyer' obligation is deemed to be actually existing, with only its
maturity (due date) postponed or deferred, that if such obligation

were viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore
to Fonacier was a sale on credit, and not an aleatory contract
where the transferor, Gaite, would assume the risk of not being
paid at all; and that the previous sale or shipment of the ore was
not a suspensive condition for the payment of the balance of the
agreed price, but was intended merely to fix the future date of the
payment.
This issue settled, the next point of inquiry is whether appellants,
Fonacier and his sureties, still have the right to insist that Gaite
should wait for the sale or shipment of the ore before receiving
payment; or, in other words, whether or not they are entitled to
take full advantage of the period granted them for making the
payment.
We agree with the court below that the appellant have forfeited
the right court below that the appellants have forfeited the right to
compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace
it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially
reduced the security of the vendor's rights as creditor for the
unpaid P65,000.00, a security that Gaite considered essential and
upon which he had insisted when he executed the deed of sale of
the ore to Fonacier (Exhibit "A"). The case squarely comes under
paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines:
"ART. 1198. The debtor shall lose every right to make use
of the period:
(1) . . .
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised.
(3) When by his own acts he has impaired said guaranties
or securities after their establishment, and when through
fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond
upon its expiration plainly impaired the securities given to the
creditor (appellee Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance
of the surety company's bond with full knowledge that on its face it
would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain barely;
and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the
surety company's bond expired on December 8, 1955. But in the
latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by
virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite
acted within his rights in demanding payment and instituting this
action one year from and after the contract (Exhibit "A") was
executed, either because the appellant debtors had impaired the
securities originally given and thereby forfeited any further time
within which to pay; or because the term of payment was originally
of no more than one year, and the balance of P65,000.00 became
due and payable thereafter.
Coming now to the second issue in this appeal, which is whether
there were really 24,000 tons of iron ore in the stockpiles sold by
appellee Gaite to appellant Fonacier, and whether, if there had
been a short-delivery as claimed by appellants, they are entitled to

the payment of damages, we must, at the outset, stress two


things:first, that this is a case of a sale of a specific mass of
fungible goods for a single price or a lump sum, the quantity of
"24,000 tons of iron ore, more or less," stated in the contract
Exhibit "A," being a mere estimate by the parties of the total
tonnage weight of the mass; and second, that the evidence shows
that neither of the parties had actually measured of weighed the
mass, so that they both tried to arrive at the total quantity by
making an estimate of the volume thereof in cubic meters and
then multiplying it by the estimated weight per ton of each cubic
meter.
The sale between the parties is a sale of a specific mass or iron ore
because no provision was made in their contract for the measuring
or weighing of the ore sold in order to complete or perfect the sale,
nor was the price of P75,000,00 agreed upon by the parties based
upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate
object, the mass, and not the actual number of units or tons
contained therein, so that all that was required of the seller Gaite
was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the
amount estimated by them (Mobile Machinery & Supply Co., Inc.
vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of
the Louisiana Civil Code). There is no charge in this case that Gaite
did not deliver to appellants all the ore found in the stockpiles in
the mining claims in questions; Gaite had, therefore, complied with
his promise to deliver, and appellants in turn are bound to pay the
lump price.
But assuming that plaintiff Gaite undertook to sell and appellants
undertook to buy, not a definite mass, but approximately 24,000
tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the
short-delivery, was there really a short-delivery in this case?
We think not. As already stated, neither of the parties had actually
measured or weighed the whole mass of ore cubic meter by cubic
meter, or ton by ton. Both parties predicate their respective claims
only upon an estimated number of cubic meters of ore multiplied
by the average tonnage factor per cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic
meters in the stockpiles of ore that he sold to Fonacier, while
appellants contend that by actual measurement, their witness
Cirpriano Manlagit found the total volume of ore in the stockpiles
to be only 6.609 cubic meters. As to the average weight in tons
per cubic meter, the parties are again in disagreement, with
appellants claiming the correct tonnage factor to be 2.18 tons to a
cubic meter, while appellee Gaite claims that the correct tonnage
factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable
estimate of the tonnage factor of iron ore in this case to be that
made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the
States and a mining engineering graduate of the Universities of
Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every
cubic meter of iron ore at between 3 metric tons as minimum to 5
metric tons as maximum. This estimate, in turn, closely
corresponds to the average tonnage factor of 3.3 adopted in his
corrected report (Exhibits "FF" and FF-1") by engineer Nemesio
Gamatero, who was sent by the Bureau of Mines to the mining
claims involved at the request of appellant Krakower, precisely to
make an official estimate of the amount of iron ore in Gaite's
stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore
in the stockpiles made by appellant's witness Cipriano Manlagit is
correct, if we multiply it by the average tonnage factor of 3.3 tons

to a cubic meter, the product is 21,809.7 tons, which is not very


far from the estimate of 24,000 tons made by appellee Gaite,
considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error
should be allowed anyone making an estimate of the exact
quantity in tons found in the mass. It must not be forgotten that
the contract Exhibit "A" expressly stated the amount to be 24,000
tons, more or less. (ch. Pine River Logging & Improvement Co. vs
U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would
entitle appellants to the payment of damages, nor could Gaite
have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite's
estimate appears to be substantially correct.
WHEREFORE, finding no error in the decision appealed from, we
hereby affirm the same, with costs against appellants.