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Obligations & Contracts


Article 1191. The power to rescind obligations is mortgage obligations with the NHMFC and with
implied in reciprocal ones, in case one of the obligors CERF Realty5 (the Developer of the property).
should not comply with what is incumbent upon him.
Of the P120,000.00, the following payments were
The injured party may choose between the fulfillment made by petitioners:
and the rescission of the obligation, with the payment
of damages in either case. He may also seek Date Amount Paid
rescission, even after he has chosen fulfillment, if the
July 19, 1990 P40,000.006
latter should become impossible.
March 13, 1991 15,000.007
The court shall decree the rescission claimed, unless April 6, 1991 15,000.008
there be just cause authorizing the fixing of a period. November 28, 1991 5,000.009
Total P75,000.00
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, Thus, leaving a balance of P45,000.00.
in accordance with articles 1385 and 1388 and the
Mortgage Law. A Deed of Sale with Assumption of Mortgage
Obligation10 dated 20 August 1990 was made and
G.R. No. 139523 May 26, 2005 entered into by and between spouses Fernandina
and Gil Galang (vendors) and spouses Leticia and
SPS. FELIPE AND LETICIA CANNU, petitioners, Felipe Cannu (vendees) over the house and lot in
vs. question which contains, inter alia, the following:
CORPORATION,respondents. consideration of the sum of TWO HUNDRED
DECISION Philippine Currency, receipt of which is
hereby acknowledged by the Vendors and
CHICO-NAZARIO, J.: the assumption of the mortgage obligation,
the Vendors hereby sell, cede and transfer
unto the Vendees, their heirs, assigns and
Before Us is a Petition for Review on Certiorari which
successor in interest the above-described
seeks to set aside the decision1 of the Court of
property together with the existing
Appeals dated 30 September 1998 which affirmed
improvement thereon.
with modification the decision of Branch 135 of the
Regional Trial Court (RTC) of Makati City, dismissing
the complaint for Specific Performance and Damages It is a special condition of this contract that
filed by petitioners, and its Resolution2 dated 22 July the Vendees shall assume and continue with
1999 denying petitioners motion for reconsideration. the payment of the amortization with the
National Home Mortgage Finance
Corporation Inc. in the outstanding balance
A complaint3 for Specific Performance and Damages
ofP_______________, as of __________
was filed by petitioners-spouses Felipe and Leticia
and shall comply with and abide by the terms
Cannu against respondents-spouses Gil and
and conditions of the mortgage document
Fernandina Galang and the National Home Mortgage
dated Feb. 27, 1989 and identified as Doc.
Finance Corporation (NHMFC) before Branch 135 of
No. 82, Page 18, Book VII, S. of 1989 of
the RTC of Makati, on 24 June 1993. The case was
Notary Public for Quezon City Marites Sto.
docketed as Civil Case No. 93-2069.
Tomas Alonzo, as if the Vendees are the
original signatories.
The facts that gave rise to the aforesaid complaint
are as follows:
Petitioners immediately took possession and
occupied the house and lot.
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan
Petitioners made the following payments to the
Association forP173,800.00 to purchase a house and
lot located at Pulang Lupa, Las Pias, with an area of
150 square meters covered by Transfer Certificate of
Title (TCT) No. T-8505 in the names of respondents- Petitioners paid the "equity" or second mortgage to
spouses. To secure payment, a real estate mortgage CERF Realty.17
was constituted on the said house and lot in favor of
Fortune Savings & Loan Association. In early 1990, Despite requests from Adelina R. Timbang and
NHMFC purchased the mortgage loan of Fernandina Galang to pay the balance of P45,000.00
respondents-spouses from Fortune Savings & Loan or in the alternative to vacate the property in
Association for P173,800.00. Date Amount Receipt No.
July 9, 1990 P 14,312.47 D-50398611
Respondent Fernandina Galang authorized4 her
March 12, 1991 8,000.00 D-72947812
attorney-in-fact, Adelina R. Timbang, to sell the
subject house and lot. February 4, 1992 10,000.00 D-99912713
March 31, 1993 6,000.00 E-56374914
Petitioner Leticia Cannu agreed to buy the property April 19, 1993 10,000.00 E-58243215
for P120,000.00 and to assume the balance of the April 27, 1993 7,000.00 E-61832616
P 55,312.47
Obligations & Contracts

question, petitioners refused to do so. successors-in-interest to the property,

plaintiffs should have no legal personality to
In a letter18 dated 29 March 1993, petitioner Leticia claim any right to the same property.23
Cannu informed Mr. Fermin T. Arzaga, Vice
President, Fund Management Group of the NHMFC, The decretal portion of the decision reads:
that the ownership rights over the land covered by
TCT No. T-8505 in the names of respondents- Premises considered, the foregoing
spouses had been ceded and transferred to her and complaint has not been proven even by
her husband per Deed of Sale with Assumption of preponderance of evidence, and, as such,
Mortgage, and that they were obligated to assume plaintiffs have no cause of action against the
the mortgage and pay the remaining unpaid loan defendants herein. The above-entitled case
balance. Petitioners formal assumption of mortgage is ordered dismissed for lack of merit.
was not approved by the NHMFC.19
Judgment is hereby rendered by way of
Because the Cannus failed to fully comply with their counterclaim, in favor of defendants and
obligations, respondent Fernandina Galang, on 21 against plaintiffs, to wit:
May 1993, paid P233,957.64 as full payment of her
remaining mortgage loan with NHMFC.20 1. Ordering the Deed of Sale With
Assumption of Mortgage Obligation (Exhs.
Petitioners opposed the release of TCT No. T-8505 "C" and "3") rescinded and hereby declared
in favor of respondents-spouses insisting that the the same as nullified without prejudice for
subject property had already been sold to them. defendants-spouses Galang to return the
Consequently, the NHMFC held in abeyance the partial payments made by plaintiffs; and the
release of said TCT. plaintiffs are ordered, on the other hand, to
return the physical and legal possession of
Thereupon, a Complaint for Specific Performance the subject property to spouses Galang by
and Damages was filed asking, among other things, way of mutual restitution;
that petitioners (plaintiffs therein) be declared the
owners of the property involved subject to 2. To pay defendants spouses Galang and
reimbursements of the amount made by NHMFC, each the amount of P10,000.00 as
respondents-spouses (defendants therein) in litigation expenses, jointly and severally;
preterminating the mortgage loan with NHMFC.
3. To pay attorneys fees to defendants in the
Respondent NHMFC filed its Answer.21 It claimed that amount of P20,000.00, jointly and severally;
petitioners have no cause of action against it and
because they have not submitted the formal
requirements to be considered assignees and
4. The costs of suit.
successors-in-interest of the property under litigation.
5. No moral and exemplary damages
In their Answer,22 respondents-spouses alleged that
because of petitioners-spouses failure to fully pay
the consideration and to update the monthly
amortizations with the NHMFC, they paid in full the A Motion for Reconsideration25 was filed, but same
existing obligations with NHMFC as an initial step in was denied. Petitioners appealed the decision of the
the rescission and annulment of the Deed of Sale RTC to the Court of Appeals. On 30 September
with Assumption of Mortgage. In their counterclaim, 1998, the Court of Appeals disposed of the appeal as
they maintain that the acts of petitioners in not fully follows:
complying with their obligations give rise to rescission
of the Deed of Sale with Assumption of Mortgage Obligations arising from contract have the
with the corresponding damages. force of law between the contracting parties
and should be complied in good faith. The
After trial, the lower court rendered its decision terms of a written contract are binding on the
ratiocinating: parties thereto.

On the basis of the evidence on record, Plaintiffs-appellants therefore are under

testimonial and documentary, this Court is of obligation to pay defendants-appellees
the view that plaintiffs have no cause of spouses Galang the sum of P250,000.00,
action either against the spouses Galang or and to assume the mortgage.
the NHMFC. Plaintiffs have admitted on
record they failed to pay the amount of Records show that upon the execution of the
P45,000.00 the balance due to the Galangs Contract of Sale or on July 19, 1990
in consideration of the Deed of Sale With plaintiffs-appellants paid defendants-
Assumption of Mortgage Obligation (Exhs. appellees spouses Galang the amount of
"C" and "3"). Consequently, this is a breach only P40,000.00.
of contract and evidently a failure to comply
with obligation arising from contracts. . . In The next payment was made by plaintiffs-
this case, NHMFC has not been duly appellants on March 13, 1991 or eight (8)
informed due to lack of formal requirements months after the execution of the contract.
to acknowledge plaintiffs as legal assignees, Plaintiffs-appellants paid the amount of
or legitimate tranferees and, therefore, P5,000.00.
Obligations & Contracts

The next payment was made on April 6, 1. THE HONORABLE COURT OF APPEALS
1991 for P15,000.00 and on November 28, ERRED WHEN IT HELD THAT
1991, for another P15,000.00. PETITIONERS BREACH OF THE
From 1991 until the present, no other
payments were made by plaintiffs-appellants 2. THE HONORABLE COURT OF APPEALS
to defendants-appellees spouses Galang. ERRED WHEN IN EFFECT IT HELD THAT
Out of the P250,000.00 purchase price which COMPLIANCE WITH THE OBLIGATION TO
was supposed to be paid on the day of the PAY THE MONTHLY AMORTIZATION
execution of contract in July, 1990 plaintiffs- WITH NHMFC.
appellants have paid, in the span of eight (8)
years, from 1990 to present, the amount of 3. THE HONORABLE COURT OF APPEALS
only P75,000.00. Plaintiffs-appellants should ERRED WHEN IT FAILED TO CONSIDER
have paid the P250,000.00 at the time of the THE OTHER FACTS AND
execution of contract in 1990. Eight (8) years CIRCUMSTANCES THAT MILITATE
have already lapsed and plaintiffs-appellants AGAINST RESCISSION.
have not yet complied with their obligation.
We consider this breach to be substantial. ERRED WHEN IT FAILED TO CONSIDER
The tender made by plaintiffs-appellants after SUBSIDIARY.29
the filing of this case, of the Managerial
Check in the amount of P278,957.00 dated Before discussing the errors allegedly committed by
January 24, 1994 cannot be considered as the Court of Appeals, it must be stated a priori that
an effective mode of payment. the latter made a misappreciation of evidence
regarding the consideration of the property in
Performance or payment may be effected not litigation when it relied solely on the Deed of Sale
by tender of payment alone but by both with Assumption of Mortgage executed by the
tender and consignation. It is consignation respondents-spouses Galang and petitioners-
which is essential in order to extinguish spouses Cannu.
plaintiffs-appellants obligation to pay the
balance of the purchase price. As above-quoted, the consideration for the house
and lot stated in the Deed of Sale with Assumption of
In addition, plaintiffs-appellants failed to Mortgage is P250,000.00, plus the assumption of the
comply with their obligation to pay the balance of the mortgage loan with NHMFC. However,
monthly amortizations due on the mortgage. after going over the record of the case, more
particularly the Answer of respondents-spouses, the
In the span of three (3) years from 1990 to evidence shows the consideration therefor
is P120,000.00, plus the payment of the outstanding
1993, plaintiffs-appellants made only six
loan mortgage with NHMFC, and of the "equity" or
payments. The payments made by plaintiffs-
second mortgage with CERF Realty (Developer of
appellants are not even sufficient to answer
the property).30
for the arrearages, interests and penalty
Nowhere in the complaint and answer of the
petitioners-spouses Cannu and respondents-spouses
On account of these circumstances, the
Galang shows that the consideration is
rescission of the Contract of Sale is
"P250,000.00." In fact, what is clear is that of
warranted and justified.
the P120,000.00 to be paid to the latter,
only P75,000.00 was paid to Adelina Timbang, the
... spouses Galangs attorney-in-fact. This debunks the
provision in the Deed of Sale with Assumption of
WHEREFORE, foregoing considered, the Mortgage that the amount of P250,000.00 has been
appealed decision is hereby AFFIRMED with received by petitioners.
modification. Defendants-appellees spouses
Galang are hereby ordered to return the Inasmuch as the Deed of Sale with Assumption of
partial payments made by plaintiff-appellants Mortgage failed to express the true intent and
in the amount of P135,000.00. agreement of the parties regarding its consideration,
the same should not be fully relied upon. The
No pronouncement as to cost.26 foregoing facts lead us to hold that the case on hand
falls within one of the recognized exceptions to the
The motion for reconsideration27 filed by petitioners parole evidence rule. Under the Rules of Court, a
was denied by the Court of Appeals in a party may present evidence to modify, explain or add
Resolution28 dated 22 July 1999. to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to
Hence, this Petition for Certiorari. express the true intent and agreement of the parties
Petitioners raise the following assignment of errors:
In the case at bar, when respondents-spouses
enumerated in their Answer the terms and conditions
Obligations & Contracts

for the sale of the property under litigation, which is They had all the time to do what was required of
different from that stated in the Deed of Sale with them (i.e., pay the P45,000.00 balance and to
Assumption with Mortgage, they already put in issue properly assume the mortgage loan with the
the matter of consideration. Since there is a NHMFC), but still they failed to comply. Despite
difference as to what the true consideration is, this demands for them to pay the balance, no payments
Court has admitted evidence aliunde to explain such were made.39
inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out The fact that petitioners tendered a Managers Check
the discrepancy and to clarify the intent of the parties. to respondents-spouses Galang in the amount of
P278,957.00 seven months after the filing of this
As regards the computation32 of petitioners as to the case is of no moment. Tender of payment does not
breakdown of the P250,000.00 consideration, we find by itself produce legal payment, unless it is
the same to be self-serving and unsupported by completed by consignation.40 Their failure to fulfill
evidence. their obligation gave the respondents-spouses
Galang the right to rescission.
On the first assigned error, petitioners argue that the
Court erred when it ruled that their breach of the Anent the second assigned error, we find that
obligation was substantial. petitioners were not religious in paying the
amortization with the NHMFC. As admitted by them,
Settled is the rule that rescission or, more accurately, in the span of three years from 1990 to 1993, their
resolution,33 of a party to an obligation under Article payments covered only thirty months.41 This, indeed,
119134is predicated on a breach of faith by the other constitutes another breach or violation of the Deed of
party that violates the reciprocity between Sale with Assumption of Mortgage. On top of this,
them.35 Article 1191 reads: there was no formal assumption of the mortgage
obligation with NHMFC because of the lack of
approval by the NHMFC42 on account of petitioners
Art. 1191. The power to rescind obligations is
non-submission of requirements in order to be
implied in reciprocal ones, in case one of the
considered as assignees/successors-in-interest over
obligors should not comply with what is
the property covered by the mortgage obligation.43
incumbent upon him.

On the third assigned error, petitioners claim there

The injured party may choose between the
was no clear evidence to show that respondents-
fulfillment and the rescission of the
spouses Galang demanded from them a strict and/or
obligation, with the payment of damages in
either case. He may also seek rescission, faithful compliance of the Deed of Sale with
even after he has chosen fulfillment, if the Assumption of Mortgage.
latter should become impossible.
We do not agree.
The court shall decree the rescission
claimed, unless there be just cause There is sufficient evidence showing that demands
authorizing the fixing of a period. were made from petitioners to comply with their
obligation. Adelina R. Timbang, attorney-in-fact of
respondents-spouses, per instruction of respondent
Rescission will not be permitted for a slight or casual
Fernandina Galang, made constant follow-ups after
breach of the contract. Rescission may be had only
for such breaches that are substantial and the last payment made on 28 November 1991, but
fundamental as to defeat the object of the parties in petitioners did not pay.44Respondent Fernandina
Galang stated in her Answer45 that upon her arrival
making the agreement.36The question of whether a
from America in October 1992, she demanded from
breach of contract is substantial depends upon the
petitioners the complete compliance of their
attending circumstances37 and not merely on the
obligation by paying the full amount of the
percentage of the amount not paid.
consideration (P120,000.00) or in the alternative to
vacate the property in question, but still, petitioners
In the case at bar, we find petitioners failure to pay refused to fulfill their obligations under the Deed of
the remaining balance of P45,000.00 to be Sale with Assumption of Mortgage. Sometime in
substantial. Even assuming arguendo that only said March 1993, due to the fact that full payment has not
amount was left out of the supposed consideration been paid and that the monthly amortizations with the
of P250,000.00, or eighteen (18%) percent thereof, NHMFC have not been fully updated, she made her
this percentage is still substantial. Taken together intentions clear with petitioner Leticia Cannu that she
with the fact that the last payment made was on 28 will rescind or annul the Deed of Sale with
November 1991, eighteen months before the Assumption of Mortgage.
respondent Fernandina Galang paid the outstanding
balance of the mortgage loan with NHMFC, the
intention of petitioners to renege on their obligation is We likewise rule that there was no waiver on the part
of petitioners to demand the rescission of the Deed of
utterly clear.
Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their
Citing Massive Construction, Inc. v. Intermediate attorney-in-fact, payments in installments does not
Appellate Court,38 petitioners ask that they be granted constitute waiver on their part to exercise their right
additional time to complete their obligation. Under the to rescind the Deed of Sale with Assumption of
facts of the case, to give petitioners additional time to Mortgage. Adelina Timbang merely accepted the
comply with their obligation will be putting premium installment payments as an accommodation to
on their blatant non-compliance of their obligation. petitioners since they kept on promising they would
Obligations & Contracts

pay. However, after the lapse of considerable time Their reliance on Article 1383 is misplaced.
(18 months from last payment) and the purchase
price was not yet fully paid, respondents-spouses The subsidiary character of the action for rescission
exercised their right of rescission when they paid the applies to contracts enumerated in Articles 138148 of
outstanding balance of the mortgage loan with the Civil Code. The contract involved in the case
NHMFC. It was only after petitioners stopped paying before us is not one of those mentioned therein. The
that respondents-spouses moved to exercise their provision that applies in the case at bar is Article
right of rescission. 1191.

Petitioners cite the case of Angeles v. Calasanz46 to In the concurring opinion of Justice Jose B.L. Reyes
support their claim that respondents-spouses waived in Universal Food Corp. v. Court of
their right to rescind. We cannot apply this case since Appeals,49 rescission under Article 1191 was
it is not on all fours with the case before us. First, distinguished from rescission under Article 1381.
in Angeles, the breach was only slight and casual Justice J.B.L. Reyes said:
which is not true in the case before us. Second,
in Angeles, the buyer had already paid more than the
. . . The rescission on account of breach of
principal obligation, while in the instant case, the
stipulations is not predicated on injury to
buyers (petitioners) did not pay P45,000.00 of the
economic interests of the party plaintiff but
P120,000.00 they were obligated to pay. on the breach of faith by the defendant, that
violates the reciprocity between the parties. It
We find petitioners statement that there is no is not a subsidiary action, and Article 1191
evidence of prejudice or damage to justify rescission may be scanned without disclosing anywhere
in favor of respondents-spouses to be unfounded. that the action for rescission thereunder is
The damage suffered by respondents-spouses is the subordinated to anything other than the
effect of petitioners failure to fully comply with their culpable breach of his obligations by the
obligation, that is, their failure to pay the remaining defendant. This rescission is a principal
P45,000.00 and to update the amortizations on the action retaliatory in character, it being unjust
mortgage loan with the NHMFC. Petitioners have in that a party be held bound to fulfill his
their possession the property under litigation. Having promises when the other violates his. As
parted with their house and lot, respondents-spouses expressed in the old Latin aphorism: "Non
should be fully compensated for it, not only servanti fidem, non est fides servanda."
monetarily, but also as to the terms and conditions Hence, the reparation of damages for the
agreed upon by the parties. This did not happen in breach is purely secondary.
the case before us.
On the contrary, in the rescission by reason
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue of lesion or economic prejudice, the cause of
that no rescission should be decreed because there action is subordinated to the existence of that
is no evidence on record that respondent Fernandina prejudice, because it is the raison d tre as
Galang is ready, willing and able to comply with her well as the measure of the right to rescind.
own obligation to restore to them the total payments Hence, where the defendant makes good the
they made. They added that no allegation to that damages caused, the action cannot be
effect is contained in respondents-spouses Answer. maintained or continued, as expressly
provided in Articles 1383 and 1384. But the
We find this argument to be misleading. operation of these two articles is limited to
the cases of rescission for lesion enumerated
First, the facts obtaining in Seva case do not fall in Article 1381 of the Civil Code of the
squarely with the case on hand. In the former, the Philippines, and does not apply to cases
failure of one party to perform his obligation was the under Article 1191.
fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their From the foregoing, it is clear that rescission
obligation was due to their own fault. ("resolution" in the Old Civil Code) under Article 1191
is a principal action, while rescission under Article
Second, what is stated in the book of Justice 1383 is a subsidiary action. The former is based on
Edgardo L. Paras is "[i]t (referring to the right to breach by the other party that violates the reciprocity
rescind or resolve) can be demanded only if the between the parties, while the latter is not.
plaintiff is ready, willing and able to comply with his
own obligation, and the other is not." In other words, In the case at bar, the reciprocity between the parties
if one party has complied or fulfilled his obligation, was violated when petitioners failed to fully pay the
and the other has not, then the former can exercise balance of P45,000.00 to respondents-spouses and
his right to rescind. In this case, respondents- their failure to update their amortizations with the
spouses complied with their obligation when they NHMFC.
gave the possession of the property in question to
petitioners. Thus, they have the right to ask for the Petitioners maintain that inasmuch as respondents-
rescission of the Deed of Sale with Assumption of spouses Galang were not granted the right to
Mortgage. unilaterally rescind the sale under the Deed of Sale
with Assumption of Mortgage, they should have first
On the fourth assigned error, petitioners, relying on asked the court for the rescission thereof before they
Article 1383 of the Civil Code, maintain that the Court fully paid the outstanding balance of the mortgage
of Appeals erred when it failed to consider that the loan with the NHMFC. They claim that such payment
action for rescission is subsidiary.
Obligations & Contracts

is a unilateral act of rescission which violates existing payments made by petitioners in the amount of
jurisprudence. P165,312.47. With costs.

In Tan v. Court of Appeals,50 this court said: SO ORDERED.

. . . [T]he power to rescind obligations is Puno, Acting C.J., (Chairman), Austria-Martinez, and
implied in reciprocal ones in case one of the Callejo, Sr., JJ., concur.
obligors should not comply with what is Tinga, J., out of the country.
incumbent upon him is clear from a reading
of the Civil Code provisions. However, it is Footnotes
equally settled that, in the absence of a
stipulation to the contrary, this power must 1
CA Rollo, pp. 50-56; Penned by Associate Justice Eugenio S.
be invoked judicially; it cannot be exercised Labitoria with Associate Justices Jesus M. Elbinias and Marina L.
solely on a partys own judgment that the Buzon, concurring.2 Id., at 77.
Records, pp. 1-12.4 Exh. A; Records, p. 141.5 The records do not
other has committed a breach of the disclose the nature of the transaction between respondents-
obligation. Where there is nothing in the spouses and CERF Realty.6 Exh. G-1; Records, p. 149.7 Exh. G-
contract empowering the petitioner to rescind 3; Id., p. 150.8 Exh. G-4; Id., p. 152.9 Exh. G-2; Id., p. 150.10 Exh.
it without resort to the courts, the petitioners C; Records, pp. 144-145.11 Exh. I-1; Id., p. 154.12 Exh. I-3; Id., p.
155.13 Exh. I-6; Id., p. 157.14 Exh. I-2; Id., p. 155.15 Exh. I-5; Id., p.
action in unilaterally terminating the contract 156.16 Exh. I-4; Id.17 TSN, 13 October 1994, pp. 41-42.
in this case is unjustified. 18
Exh. F; Records, p. 148.
TSN, 13 October 1994, p. 37; Answer with Affirmative Defense
of NHMFC, Records, p. 29.
It is evident that the contract under consideration 20
Exhs. L and L-1; Records, p. 162.
does not contain a provision authorizing its 21
Records, pp. 28-30.22 Id., pp. 38-45.23 Rollo, pp. 60-61.24 Rollo,
extrajudicial rescission in case one of the parties fails pp. 61-62.25 Records, p. 229.26 Rollo, pp. 38-40.27 Id., pp. 57-
to comply with what is incumbent upon him. This 68.28 Id., p. 77.29 Rollo, pp. 18-19.30 TSN, 13 October 1994, pp. 41-
42; 09 November 1994, p. 19; Complaint, p. 2, Records, p. 2;
being the case, respondents-spouses should have Answer of Respondents-spouses Galang, p. 3, Records, p. 40.
asked for judicial intervention to obtain a judicial 31
American Home Assurance Co. v. Tantuco Enterprises,
declaration of rescission. Be that as it may, and Inc., G.R. No. 138941, 08 October 2001, 366 SCRA 740, 746-747.
Exh. H; Records, p. 153.
considering that respondents-spouses Answer (with 33
As used in the Old Civil Code.
affirmative defenses) with Counterclaim seeks for the 34
Civil Code.
rescission of the Deed of Sale with Assumption of 35
Uy v. Court of Appeals, G.R. No. 120465, 09 September 1999,
Mortgage, it behooves the court to settle the matter 314 SCRA 69, 81; Romero v. Court of Appeals, G.R. No. 107207,
23 November 1995, 250 SCRA 223, 235.
once and for all than to have the case re-litigated 36
Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989,
again on an issue already heard on the merits and 170 SCRA 286, 296; Tan v. Court of Appeals, G.R. No. 80479, 28
which this court has already taken cognizance of. July 1989, 175 SCRA 656, 663.
Having found that petitioners seriously breached the Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of
contract, we, therefore, declare the same is Appeals, G.R. No. 102432, 21 January 1993, 217 SCRA 372, 384.
G.R. Nos. 70310-11, 01 June 1993, 223 SCRA 1, 10.
rescinded in favor of respondents-spouses. 39
TSN, 09 November 1994, pp. 12, 16.
Philippine National Bank v. Relativo, G.R. No. L-5298, 29
October 1952, 92 Phil. 203, 206.
As a consequence of the rescission or, more 41
Rollo, p. 25.
accurately, resolution of the Deed of Sale with 42
TSN, 13 October 1994, p. 37.
Assumption of Mortgage, it is the duty of the court to 43
Records, p. 29.
require the parties to surrender whatever they may TSN, 09 November 1994, p. 12.
Records, pp. 41-42.
have received from the other. The parties should be 46
G.R. No. L-42283, 18 March 1985, 135 SCRA 323, 332.
restored to their original situation.51 47
48 Phil. 581; Civil Code of the Philippines by Paras, Vol. 4 (1994
Art. 1381. The following contracts are rescissible:
The record shows petitioners paid respondents- (1) Those which are entered into by guardians whenever the wards
spouses the amount of P75,000.00 out of the whom they represent suffer lesion by more than one-fourth of the
P120,000.00 agreed upon. They also made value of the things which are the object thereof;
payments to NHMFC amounting to P55,312.47. As to (2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
the petitioners alleged payment to CERF Realty of (3) Those undertaken in fraud of creditors when the latter cannot in
P46,616.70, except for petitioner Leticia Cannus any other manner collect the claim due them;
bare allegation, we find the same not to be supported (4) Those which refer to things under litigation if they have been
by competent evidence. As a general rule, one who entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority;
pleads payment has the burden of proving (5) All other contracts specially declared by law to be subject to
it.52 However, since it has been admitted in rescission.
respondents-spouses Answer that petitioners shall 49
G.R. No. L-29155, 13 May 1970, 33 SCRA 1, 22-23.
assume the second mortgage with CERF Realty in G.R. No. 80479, 28 July 1989, 175 SCRA 656, 661-662.
Ang v. Court of Appeals, G.R. No. 80058, 13 February 1989,
the amount of P35,000.00, and that Adelina 170 SCRA 286, 297.
Timbang, respondents-spouses very own witness, 52
Jimenez v. National Labor Relations Commission, G.R. No.
testified53 that same has been paid, it is but proper to 116960, 02 April 1996, 256 SCRA 84, 89.
return this amount to petitioners. The three amounts TSN, 09 November 1994, p. 19.
total P165,312.47 -- the sum to be returned to

WHEREFORE, premises considered, the decision of

the Court of Appeals is hereby AFFIRMED with
MODIFICATION. Spouses Gil and Fernandina
Galang are hereby ordered to return the partial
Obligations & Contracts

FIRST DIVISION On the other hand, respondent alleged that she paid
her monthly installments religiously, until sometime in
G.R. No. 147695 September 13, 2007 1980 when Patricio changed his mind and offered to
refund all her payments provided she would
MANUEL C. PAGTALUNAN, petitioner, surrender the house. She refused. Patricio then
started harassing her and began demolishing the
RUFINA DELA CRUZ VDA. DE house portion by portion. Respondent admitted that
MANZANO, respondent. she failed to pay some installments after December
1979, but that she resumed paying in 1980 until her
balance dwindled to P5,650. She claimed that
DECISION despite several months of delay in payment, Patricio
never sued for ejectment and even accepted her late
AZCUNA, J.: payments.

This is a petition for review on certiorari under Rule Respondent also averred that on September 14,
45 of the Rules of Court of the Court of Appeals (CA) 1981, she and Patricio signed an agreement (Exh. 2)
Decision promulgated on October 30, 2000 and its whereby he consented to the suspension of
Resolution dated March 23, 2001 denying petitioners respondents monthly payments until December
motion for reconsideration. The Decision of the CA 1981. However, even before the lapse of said period,
affirmed the Decision of the Regional Trial Court Patricio resumed demolishing respondents house,
(RTC) of Malolos, Bulacan, dated June 25, 1999 prompting her to lodge a complaint with
dismissing the case of unlawful detainer for lack of the Barangay Captain who advised her that she
merit. could continue suspending payment even beyond
December 31, 1981 until Patricio returned all the
The facts are as follows: materials he took from her house. This Patricio failed
to do until his death.
On July 19, 1974, Patricio Pagtalunan (Patricio),
petitioners stepfather and predecessor-in-interest, Respondent did not deny that she still owed
entered into a Contract to Sell with respondent, wife Patricio P5,650, but claimed that she did not resume
of Patricios former mechanic, Teodoro Manzano, paying her monthly installment because of the
whereby the former agreed to sell, and the latter to unlawful acts committed by Patricio, as well as the
buy, a house and lot which formed half of a parcel of filing of the ejectment case against her. She denied
land, covered by Transfer Certificate of Title (TCT) having any knowledge of the Kasunduan of
No. T-10029 (now TCT No. RT59929 [T-254773]), November 18, 1979.
with an area of 236 square meters. The consideration
of P17,800 was agreed to be paid in the following Patricio and his wife died on September 17, 1992
manner: P1,500 as downpayment upon execution of and on October 17, 1994, respectively. Petitioner
the Contract to Sell, and the balance to be paid in became their sole successor-in-interest pursuant to a
equal monthly installments of P150 on or before the waiver by the other heirs. On March 5, 1997,
last day of each month until fully paid. respondent received a letter from petitioners counsel
dated February 24, 1997 demanding that she vacate
It was also stipulated in the contract that respondent the premises within five days on the ground that her
could immediately occupy the house and lot; that in possession had become unlawful. Respondent
case of default in the payment of any of the ignored the demand. The Punong Barangayfailed to
installments for 90 days after its due date, the settle the dispute amicably.
contract would be automatically rescinded without
need of judicial declaration, and that all payments On April 8, 1997, petitioner filed a Complaint for
made and all improvements done on the premises by unlawful detainer against respondent with the
respondent would be considered as rentals for the Municipal Trial Court (MTC) of Guiguinto, Bulacan
use and occupation of the property or payment for praying that, after hearing, judgment be rendered
damages suffered, and respondent was obliged to ordering respondent to immediately vacate the
peacefully vacate the premises and deliver the subject property and surrender it to petitioner;
possession thereof to the vendor. forfeiting the amount of P12,950 in favor of petitioner
as rentals; ordering respondent to pay petitioner the
Petitioner claimed that respondent paid amount of P3,000 under the Kasunduan and the
only P12,950. She allegedly stopped paying after amount of P500 per month from January 1980 until
December 1979 without any justification or she vacates the property, and to pay petitioner
explanation. Moreover, in a "Kasunduan"1 dated attorneys fees and the costs.
November 18, 1979, respondent borrowedP3,000
from Patricio payable in one year either in one lump On December 22, 1998, the MTC rendered a
sum payment or by installments, failing which the decision in favor of petitioner. It stated that although
balance of the loan would be added to the principal the Contract to Sell provides for a rescission of the
subject of the monthly amortizations on the land. agreement upon failure of the vendee to pay any
installment, what the contract actually allows is
Lastly, petitioner asserted that when respondent properly termed a resolution under Art. 1191 of the
ceased paying her installments, her status of buyer Civil Code.
was automatically transformed to that of a lessee.
Therefore, she continued to possess the property by The MTC held that respondents failure to pay not a
mere tolerance of Patricio and, subsequently, of few installments caused the resolution or termination
petitioner. of the Contract to Sell. The last payment made by
Obligations & Contracts

respondent was on January 9, 1980 (Exh. 71). dated 25 June 1999 and its Order dated 10
Thereafter, respondents right of possession ipso August 1999 are hereby AFFIRMED.
facto ceased to be a legal right, and became
possession by mere tolerance of Patricio and his SO ORDERED. 4
successors-in-interest. Said tolerance ceased upon
demand on respondent to vacate the property.
The CA found that the parties, as well as the MTC
and RTC failed to advert to and to apply Republic Act
The dispositive portion of the MTC Decision reads: (R.A.) No. 6552, more commonly referred to as the
Maceda Law, which is a special law enacted in 1972
Wherefore, all the foregoing considered, to protect buyers of real estate on installment
judgment is hereby rendered, ordering the payments against onerous and oppressive
defendant: conditions.

a. to vacate the property covered by Transfer The CA held that the Contract to Sell was not validly
Certificate of Title No. T-10029 of the cancelled or rescinded under Sec. 3 (b) of R.A. No.
Register of Deeds of Bulacan (now TCT No. 6552, and recognized respondents right to continue
RT-59929 of the Register of Deeds of occupying unmolested the property subject of the
Bulacan), and to surrender possession contract to sell.
thereof to the plaintiff;
The CA denied petitioners motion for reconsideration
b. to pay the plaintiff the amount of P113,500 in a Resolution dated March 23, 2001.
representing rentals from January 1980 to
the present; Hence, this petition for review on certiorari.

c. to pay the plaintiff such amount of rentals, Petitioner contends that:

at P500/month, that may become due after
the date of judgment, until she finally vacates A. Respondent Dela Cruz must bear the
the subject property; consequences of her deliberate withholding
of, and refusal to pay, the monthly payment.
d. to pay to the plaintiff the amount The Court of Appeals erred in allowing Dela
of P25,000 as attorneys fees. Cruz who acted in bad faith from benefiting
under the Maceda Law.
B. The Court of Appeals erred in resolving
On appeal, the RTC of Malolos, Bulacan, in a the issue on the applicability of the Maceda
Decision dated June 25, 1999, reversed the decision Law, which issue was not raised in the
of the MTC and dismissed the case for lack of merit. proceedings a quo.
According to the RTC, the agreement could not be
automatically rescinded since there was delivery to C. Assuming arguendo that the RTC was
the buyer. A judicial determination of rescission must correct in ruling that the MTC has no
be secured by petitioner as a condition precedent to jurisdiction over a rescission case, the Court
convert the possession de facto of respondent from of Appeals erred in not remanding the case
lawful to unlawful. to the RTC for trial.5

The dispositive portion of the RTC Decision states: Petitioner submits that the Maceda Law supports and
recognizes the right of vendors of real estate to
WHEREFORE, judgment is hereby rendered cancel the sale outside of court, without need for a
reversing the decision of the Municipal Trial judicial declaration of rescission, citing Luzon
Court of Guiguinto, Bulacan and the Brokerage Co., Inc., v. Maritime Building Co., Inc.6
ejectment case instead be dismissed for lack
of merit.3 Petitioner contends that respondent also had more
than the grace periods provided under the Maceda
The motion for reconsideration and motion for Law within which to pay. Under Sec. 37 of the said
execution filed by petitioner were denied by the RTC law, a buyer who has paid at least two years of
for lack of merit in an Order dated August 10, 1999. installments has a grace period of one month for
every year of installment paid. Based on the amount
Thereafter, petitioner filed a petition for review with of P12,950 which respondent had already paid, she
the CA. is entitled to a grace period of six months within
which to pay her unpaid installments after December,
1979. Respondent was given more than six months
In a Decision promulgated on October 30, 2000, the
CA denied the petition and affirmed the Decision of from January 1980 within which to settle her unpaid
the RTC. The dispositive portion of the Decision installments, but she failed to do so. Petitioners
demand to vacate was sent to respondent in
February 1997.
WHEREFORE, the petition for review on
certiorari is Denied. The assailed Decision of There is nothing in the Maceda Law, petitioner
the Regional Trial Court of Malolos, Bulacan asserts, which gives the buyer a right to pay
arrearages after the grace periods have lapsed, in
the event of an invalid demand for rescission. The
Obligations & Contracts

Maceda Law only provides that actual cancellation following rights in case he defaults in the
shall take place after 30 days from receipt of the payment of succeeding installments:
notice of cancellation or demand for rescission and
upon full payment of the cash surrender value to the (a) To pay, without additional interest, the
buyer. unpaid installments due within the total grace
period earned by him, which is hereby fixed
Petitioner contends that his demand letter dated at the rate of one month grace period for
February 24, 1997 should be considered the notice of every one year of installment payments
cancellation since the demand letter informed made: Provided, That this right shall be
respondent that she had "long ceased to have any exercised by the buyer only once in every
right to possess the premises in question due to [her] five years of the life of the contract and its
failure to pay without justifiable cause." In support of extensions, if any.
his contention, he citedLayug v. Intermediate
Appellate Court8 which held that "the additional (b) If the contract is cancelled, the seller
formality of a demand on [the sellers] part for shall refund to the buyer the cash
rescission by notarial act would appear, in the surrender value of the payments on the
premises, to be merely circuitous and consequently property equivalent to fifty percent of the
superfluous." He stated that in Layug, the seller total payments made and, after five years of
already made a written demand upon the buyer. installments, an additional five percent every
year but not to exceed ninety percent of the
In addition, petitioner asserts that whatever cash total payments made: Provided, That the
surrender value respondent is entitled to have been actual cancellation of the contract shall
applied and must be applied to rentals for her use of take place after thirty days from receipt
the house and lot after December, 1979 or after she by the buyer of the notice of cancellation
stopped payment of her installments. or the demand for rescission of the
contract by a notarial act and upon full
Petitioner argues that assuming Patricio accepted payment of the cash surrender value to
respondents delayed installments in 1981, such act the buyer.9
cannot prevent the cancellation of the Contract to
Sell. Installments after 1981 were still unpaid and the R.A. No. 6552, otherwise known as the "Realty
applicable grace periods under the Maceda Law on Installment Buyer Protection Act," recognizes in
the unpaid installments have long lapsed. conditional sales of all kinds of real estate (industrial,
Respondent cannot be allowed to hide behind the commercial, residential) the right of the seller to
Maceda Law. She acted with bad faith and must bear cancel the contract upon non-payment of an
the consequences of her deliberate withholding of installment by the buyer, which is simply an event
and refusal to make the monthly payments. that prevents the obligation of the vendor to convey
title from acquiring binding force.10 The Court agrees
Petitioner also contends that the applicability of the with petitioner that the cancellation of the Contract to
Maceda Law was never raised in the proceedings Sell may be done outside the court particularly when
below; hence, it should not have been applied by the the buyer agrees to such cancellation.
CA in resolving the case.
However, the cancellation of the contract by the
The Court is not persuaded. seller must be in accordance with Sec. 3 (b) of R.A.
No. 6552, which requires a notarial act of rescission
The CA correctly ruled that R.A No. 6552, which and the refund to the buyer of the full payment of the
governs sales of real estate on installment, is cash surrender value of the payments on the
property. Actual cancellation of the contract takes
applicable in the resolution of this case.
place after 30 days from receipt by the buyer of the
notice of cancellation or the demand for rescission of
This case originated as an action for unlawful the contract by a notarial act and upon full payment
detainer. Respondent is alleged to be illegally of the cash surrender value to the buyer.
withholding possession of the subject property after
the termination of the Contract to Sell between
Based on the records of the case, the Contract to
Patricio and respondent. It is, therefore, incumbent
Sell was not validly cancelled or rescinded under
upon petitioner to prove that the Contract to Sell had
been cancelled in accordance with R.A. No. 6552. Sec. 3 (b) of R.A. No. 6552.

First, Patricio, the vendor in the Contract to Sell, died

The pertinent provision of R.A. No. 6552 reads:
on September 17, 1992 without canceling the
Contract to Sell.
Sec. 3. In all transactions or contracts
involving the sale or financing of real estate
Second, petitioner also failed to cancel the Contract
on installment payments, including
to Sell in accordance with law.
residential condominium apartments but
excluding industrial lots, commercial
buildings and sales to tenants under Petitioner contends that he has complied with the
Republic Act Numbered Thirty-eight hundred requirements of cancellation under Sec. 3 (b) of R.A.
forty-four as amended by Republic Act No. 6552. He asserts that his demand letter dated
Numbered Sixty-three hundred eighty-nine, February 24, 1997 should be considered as the
where the buyer has paid at least two years notice of cancellation or demand for rescission by
of installments, the buyer is entitled to the notarial act and that the cash surrender value of the
payments on the property has been applied to rentals
Obligations & Contracts

for the use of the house and lot after respondent to Sell for such interest. For purposes of computing
stopped payment after January 1980. the legal interest, the reckoning period should be the
filing of the complaint for unlawful detainer on April 8,
The Court, however, finds that the letter11 dated 1997.
February 24, 1997, which was written by petitioners
counsel, merely made formal demand upon Based on respondents evidence16 of payments
respondent to vacate the premises in question within made, the MTC found that respondent paid a total
five days from receipt thereof since she had "long of P12,300 out of the purchase price of P17,800.
ceased to have any right to possess the premises x x Hence, respondent still has a balance of P5,500, plus
x due to [her] failure to pay without justifiable cause legal interest at the rate of 6% per annum on the
the installment payments x x x." unpaid balance starting April 8, 1997.

Clearly, the demand letter is not the same as the The third issue is disregarded since petitioner assails
notice of cancellation or demand for rescission by a an inexistent ruling of the RTC on the lack of
notarial actrequired by R.A No. 6552. Petitioner jurisdiction of the MTC over a rescission case when
cannot rely on Layug v. Intermediate Appellate the instant case he filed is for unlawful detainer.
Court12 to support his contention that the demand
letter was sufficient compliance. Layug held that "the WHEREFORE, the Decision of the Court of Appeals
additional formality of a demand on [the sellers] part dated October 30, 2000 sustaining the dismissal of
for rescission by notarial act would appear, in the the unlawful detainer case by the RTC
premises, to be merely circuitous and consequently is AFFIRMED with the following MODIFICATIONS:
superfluous" since the seller therein filed an action
for annulment of contract, which is a kindred
1. Respondent Rufina Dela Cruz Vda. de
concept of rescission by notarial act.13 Evidently, the Manzano shall pay petitioner Manuel C.
case of unlawful detainer filed by petitioner does not Pagtalunan the balance of the purchase
exempt him from complying with the said
price in the amount of Five Thousand Five
Hundred Pesos (P5,500) plus interest at 6%
per annum from April 8, 1997 up to the
In addition, Sec. 3 (b) of R.A. No. 6552 requires finality of this judgment, and thereafter, at the
refund of the cash surrender value of the payments rate of 12% per annum;
on the property to the buyer before cancellation of
the contract. The provision does not provide a
2. Upon payment, petitioner Manuel C.
different requirement for contracts to sell which allow
Pagtalunan shall execute a Deed of Absolute
possession of the property by the buyer upon Sale of the subject property and deliver the
execution of the contract like the instant case. Hence, certificate of title in favor of respondent
petitioner cannot insist on compliance with the
Rufina Dela Cruz Vda. de Manzano; and
requirement by assuming that the cash surrender
value payable to the buyer had been applied to
rentals of the property after respondent failed to pay 3. In case of failure to pay within 60 days
the installments due. from finality of this Decision, respondent
Rufina Dela Cruz Vda. de Manzano shall
immediately vacate the premises without
There being no valid cancellation of the Contract to
need of further demand, and the
Sell, the CA correctly recognized respondents right
downpayment and installment payments
to continue occupying the property subject of the
of P12,300 paid by her shall constitute rental
Contract to Sell and affirmed the dismissal of the for the subject property.
unlawful detainer case by the RTC.
No costs.
The Court notes that this case has been pending for
more than ten years. Both parties prayed for other
reliefs that are just and equitable under the premises. SO ORDERED.
Hence, the rights of the parties over the subject
property shall be resolved to finally dispose of that Puno, C.J., Chairperson, Sandoval-Gutierrez,
issue in this case. Corona, Garcia, JJ., concur.

Considering that the Contract to Sell was not Footnotes

The MTC Decision stated that plaintiff (petitioner) never
cancelled by the vendor, Patricio, during his lifetime submitted a copy of the Kasunduan in evidence.
or by petitioner in accordance with R.A. No. 6552 2
Rollo, p. 122.
when petitioner filed this case of unlawful detainer 3
Id. at 145.
after 22 years of continuous possession of the
Id. at 37.
Id. at 8.
property by respondent who has paid the substantial 6
No. L-25885, November 16, 1978, 86 SCRA 305, 327.
amount of P12,300 out of the purchase price 7
R.A. No. 6552, Sec. 3. In all transactions or contracts involving
of P17,800, the Court agrees with the CA that it is the sale or financing of real estate on installment payments,
only right and just to allow respondent to pay her including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under
arrears and settle the balance of the purchase price. [R.A No. 3844], as amended by [R.A No. 6389], where the buyer
has paid at least two years of installments, the buyer is entitled to
For respondents delay in the payment of the the following rights in case he defaults in the payment of
succeeding installments:
installments, the Court, in its discretion, and applying (a) To pay, without additional interest, the unpaid installments due
Article 220914of the Civil Code, may award interest at within the total grace period earned by him, which is hereby fixed
the rate of 6% per annum 15 on the unpaid balance at the rate of one month grace period for every one year of
considering that there is no stipulation in the Contract installment payments made: Provided, That this right shall be
Obligations & Contracts

exercised by the buyer only once in every five years of the life of Meanwhile, the building was leased out to third
the contract and its extensions, if any.
No. L-75364, November 23, 1988, 167 SCRA 627, 635.
parties, but Nicolass share in the rents were not
Emphasis supplied. remitted to him by herein respondent Eduardo,
Leao v. Court of Appeals, G.R. No. 129018, November 15, another brother of Nicolas and designated
2001, 369 SCRA 36, 45. administrator of the Diego Building. Instead, Eduardo
Rollo, p. 48.
gave Nicolass monthly share in the rents to Rodolfo.
Supra, note 8.
Olympia Housing. Inc. v. Panasiatic Travel Corpporation, G.R. Despite demands and protestations by Nicolas,
No. 140468, January 16, 2003, 395 SCRA 298. Rodolfo and Eduardo failed to render an accounting
Art. 2209. If the obligation consists in the payment of a sum of and remit his share in the rents and fruits of the
money, and the debtor incurs in delay, the indemnity for damages,
building, and Eduardo continued to hand them over
there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the to Rodolfo.
legal interest which is six percent per annum.
Ramos v. Heruela, G.R. No. 145330, October 14, 2005, 473
SCRA 79.
Thus, on May 17, 1999, Nicolas filed a
Exhibits 9 to 71, Records, pp. 141-202. Complaint6 against Rodolfo and Eduardo before the
RTC of Dagupan City and docketed as Civil Case
No. 99-02971-D. Nicolas prayed that Eduardo be
SECOND DIVISION ordered to render an accounting of all the
transactions over the Diego Building; that Eduardo
G.R. No. 179965 February 20, 2013 and Rodolfo be ordered to deliver to Nicolas his
share in the rents; and that Eduardo and Rodolfo be
NICOLAS P. DIEGO, Petitioner, held solidarily liable for attorneys fees and litigation
vs. expenses.
DIEGO, Respondents. Rodolfo and Eduardo filed their Answer with
Counterclaim7 for damages and attorneys fees. They
DECISION argued that Nicolas had no more claim in the rents in
the Diego Building since he had already sold his
DEL CASTILLO, J.: share to Rodolfo. Rodolfo admitted having remitted
only P250,000.00 to Nicolas. He asserted that he
would pay the balance of the purchase price to
It is settled jurisprudence, to the point of being
Nicolas only after the latter shall have executed a
elementary, that an agreement which stipulates that
deed of absolute sale.
the seller shall execute a deed of sale only upon or
after tl1ll payment of the purchase price is a contract
to sell, not a contract of sale. In Reyes v. Ruling of the Regional Trial Court
Tuparan, 1 this Court declared in categorical terms
that "[w]here the vendor promises to execute a After trial on the merits, or on April 19, 2005, the trial
deed of absolute sale upon the completion by the court rendered its Decision8 dismissing Civil Case
vendee of the payment of the price, the contract No. 99-02971-D for lack of merit and ordering Nicolas
is only a contract to sell. The aforecited to execute a deed of absolute sale in favor of Rodolfo
stipulation shows that the vendors reserved title upon payment by the latter of the P250,000.00
to the subject property until full payment of the balance of the agreed purchase price. It made the
purchase price." following interesting pronouncement:

In this case, it is not disputed as in tact both parties It is undisputed that plaintiff (Nicolas) is one of the
agreed that the deed of sale shall only be executed co-owners of the Diego Building, x x x. As a co-
upon payment of the remaining balance of the owner, he is entitled to [his] share in the rentals of the
purchase price. Thus, pursuant to the above stated said building. However, plaintiff [had] already sold his
jurisprudence, we similarly declare that the share to defendant Rodolfo Diego in the amount
transaction entered into by the parties is a contract to of P500,000.00 and in fact, [had] already received a
sell. partial payment in the purchase price in the amount
of P250,000.00. Defendant Eduardo Diego
Before us is a Petition for Review testified that as per agreement, verbal, of the
on Certiorari2 questioning the June 29, 2007 plaintiff and defendant Rodolfo Diego, the
Decision3 and the October 3, 2007 Resolution4 of the remaining balance of P250,000.00 will be paid
Court of Appeals (CA) in CA-G.R. CV No. 86512, upon the execution of the Deed of Absolute
which affirmed the April 19, 2005 Decision5 of the Sale. It was in the year 1997 when plaintiff was being
Regional Trial Court (RTC), Branch 40, of Dagupan required by defendant Eduardo Diego to sign the
City in Civil Case No. 99-02971-D. Deed of Absolute Sale. Clearly, defendant Rodolfo
Diego was not yet in default as the plaintiff claims
which cause [sic] him to refuse to sign [sic]
Factual Antecedents
document. The contract of sale was already
perfected as early as the year 1993 when plaintiff
In 1993, petitioner Nicolas P. Diego (Nicolas) and his received the partial payment, hence, he cannot
brother Rodolfo, respondent herein, entered into an unilaterally revoke or rescind the same. From then
oral contract to sell covering Nicolass share, fixed on, plaintiff has, therefore, ceased to be a co-owner
at P500,000.00, as co-owner of the familys Diego of the building and is no longer entitled to the fruits of
Building situated in Dagupan City. Rodolfo made a the Diego Building.
downpayment of P250,000.00. It was agreed that the
deed of sale shall be executed upon payment of the
Equity and fairness dictate that defendant [sic] has to
remaining balance of P250,000.00. However,
execute the necessary document regarding the sale
Rodolfo failed to pay the remaining balance.
Obligations & Contracts

of his share to defendant Rodolfo Diego. THE SUSPENSIVE CONDITION HAS NOT YET
Correspondingly, defendant Rodolfo Diego has to BEEN FULFILLED.
perform his obligation as per their verbal agreement
by paying the remaining balance of P250,000.00.9 II

To summarize, the trial court ruled that as early as THE HONORABLE COURT OF APPEALS ERRED
1993, Nicolas was no longer entitled to the fruits of IN HOLDING THAT THE CONTRACT OF SALE
his aliquot share in the Diego Building because he BETWEEN PETITIONER AND RESPONDENT
had "ceased to be a co-owner" thereof. The trial court RODOLFO DIEGO REMAINS LEGALLY BINDING
held that when Nicolas received the P250,000.00 AND IS NOT RESCINDED GIVING MISPLACED
downpayment, a "contract of sale" was perfected. RELIANCE ON PETITIONER NICOLAS
Consequently, Nicolas is obligated to convey such STATEMENT THAT THE SALE HAS NOT YET
share to Rodolfo, without right of rescission. Finally, BEEN REVOKED.
the trial court held that theP250,000.00 balance from
Rodolfo will only be due and demandable when
Nicolas executes an absolute deed of sale.
Nicolas appealed to the CA which sustained the trial WHEN HE UNILATERALLY RESCINDED AND
courts Decision in toto. The CA held that since there REVOKED HIS AGREEMENT OF SALE WITH
was a perfected contract of sale between Nicolas and RESPONDENT RODOLFO DIEGO CONSIDERING
Rodolfo, the latter may compel the former to execute RODOLFOS MATERIAL, SUBSTANTIAL BREACH
the proper sale document. Besides, Nicolass OF THE CONTRACT.
insistence that he has since rescinded their
agreement in 1997 proved the existence of a
perfected sale. It added that Nicolas could not validly
rescind the contract because: "1) Rodolfo ha[d]
already made a partial payment; 2) Nicolas ha[d] THE HONORABLE COURT OF APPEALS ERRED
already partially performed his part regarding the IN HOLDING THAT PETITIONER HAS NO MORE
contract; and 3) Rodolfo opposes the rescission."10 RIGHTS OVER HIS SHARE IN THE BUILDING,
The CA then proceeded to rule that since no period PETITIONER NICOLAS DIEGO AND RODOLFO
was stipulated within which Rodolfo shall deliver the DIEGO AND THERE WAS YET NO TRANSFER OF
balance of the purchase price, it was incumbent upon
Nicolas to have filed a civil case to fix the same. But
because he failed to do so, Rodolfo cannot be
considered to be in delay or default.

Finally, the CA made another interesting

pronouncement, that by virtue of the agreement
Nicolas entered into with Rodolfo, he had already
transferred his ownership over the subject property THE HONORABLE COURT OF APPEALS ERRED
and as a consequence, Rodolfo is legally entitled to IN NOT HOLDING THAT RESPONDENT RODOLFO
collect the fruits thereof in the form of rentals. HAS UNJUSTLY ENRICHED HIMSELF AT THE
Nicolas remaining right is to demand payment of the EXPENSE OF PETITIONER BECAUSE DESPITE
balance of the purchase price, provided that he first NOT HAVING PAID THE BALANCE OF THE
executes a deed of absolute sale in favor of Rodolfo. PURCHASE PRICE OF THE SALE, THAT
Nicolas moved for reconsideration but the same was NICOLAS, HE HAS ALREADY BEEN
denied by the CA in its Resolution dated October 3,
The Petition raises the following errors that must be
NICOLASS SHARE OF THE BUILDING BECAUSE In his Petition, the Supplement12 thereon, and
Reply,13 Nicolas argues that, contrary to what the CA
Obligations & Contracts

found, there was no perfected contract of sale even This stipulation, i.e., to execute a deed of absolute
though Rodolfo had partially paid the price; that in the sale upon full payment of the purchase price, is a
absence of the third element in a sale contract the unique and distinguishing characteristic of a contract
price there could be no perfected sale; that failing to sell. In Reyes v. Tuparan,15 this Court ruled that a
to pay the required price in full, Nicolas had the right stipulation in the contract, "[w]here the vendor
to rescind the agreement as an unpaid seller. promises to execute a deed of absolute sale upon
the completion by the vendee of the payment of
Nicolas likewise takes exception to the CA finding the price," indicates that the parties entered into
that Rodolfo was not in default or delay in the a contract to sell. According to this Court, this
payment of the agreed balance for his (Nicolass) particular provision is tantamount to a reservation of
failure to file a case to fix the period within which ownership on the part of the vendor. Explicitly stated,
payment of the balance should be made. He believes the Court ruled that the agreement to execute a deed
that Rodolfos failure to pay within a reasonable time of sale upon full payment of the purchase
was a substantial and material breach of the price"shows that the vendors reserved title to the
agreement which gave him the right to unilaterally subject property until full payment of the
and extrajudicially rescind the agreement and be purchase price."16
discharged of his obligations as seller; and that his
repeated written demands upon Rodolfo to pay the In Tan v. Benolirao,17 this Court, speaking
balance granted him such rights. through Justice Brion, ruled that the parties entered
into a contract to sell as revealed by the following
Nicolas further claims that based on his agreement stipulation:
with Rodolfo, there was to be no transfer of title over
his share in the building until Rodolfo has effected full d) That in case, BUYER has complied with the terms
payment of the purchase price, thus, giving no right and conditions of this contract, then the SELLERS
to the latter to collect his share in the rentals. shall execute and deliver to the BUYER the
appropriate Deed of Absolute Sale;18
Finally, Nicolas bewails the CAs failure to award
damages, attorneys fees and litigation expenses for The Court further held that "[j]urisprudence has
what he believes is a case of unjust enrichment at his established that where the seller promises to
expense. execute a deed of absolute sale upon the
completion by the buyer of the payment of the
Respondents Arguments price, the contract is only a contract to sell."19

Apart from echoing the RTC and CA b) The acknowledgement receipt signed by
pronouncements, respondents accuse the petitioner Nicolas as well as the contemporaneous acts of
of "cheating" them, claiming that after the latter the parties show that they agreed on a contract to
received the P250,000.00 downpayment, he sell, not of sale. The absence of a formal deed of
"vanished like thin air and hibernated in the USA, he conveyance is indicative of a contract to sell.
being an American citizen,"14 only to come back
claiming that the said amount was a mere loan. In San Lorenzo Development Corporation v. Court of
Appeals,20 the facts show that spouses Miguel and
They add that the Petition is a mere rehash and Pacita Lu (Lu) sold a certain parcel of land to Pablo
reiteration of the petitioners arguments below, which Babasanta (Pablo). After several payments, Pablo
are deemed to have been sufficiently passed upon wrote Lu demanding "the execution of a final deed of
and debunked by the appellate court. sale in his favor so that he could effect full payment
of the purchase price."21 To prove his allegation that
Our Ruling there was a perfected contract of sale between him
and Lu, Pablo presented a receipt signed by Lu
acknowledging receipt of P50,000.00 as partial
The Court finds merit in the Petition. payment.22

The contract entered into by Nicolas and Rodolfo However, when the case reached this Court, it was
was a contract to sell. ruled that the transaction entered into by Pablo and
Lu was only a contract to sell, not a contract of sale.
a) The stipulation to execute a deed of sale upon The Court held thus:
full payment of the purchase price is a unique
and distinguishing characteristic of a contract to The receipt signed by Pacita Lu merely states that
sell. It also shows that the vendor reserved title she accepted the sum of fifty thousand pesos
to the property until full payment. (P50,000.00) from Babasanta as partial payment of
3.6 hectares of farm lot situated in Sta. Rosa,
There is no dispute that in 1993, Rodolfo agreed to Laguna. While there is no stipulation that the seller
buy Nicolass share in the Diego Building for the price reserves the ownership of the property until full
ofP500,000.00. There is also no dispute that of the payment of the price which is a distinguishing feature
total purchase price, Rodolfo paid, and Nicolas of a contract to sell, the subsequent acts of the
received,P250,000.00. Significantly, it is also not parties convince us that the Spouses Lu never
disputed that the parties agreed that the remaining intended to transfer ownership to Babasanta
amount ofP250,000.00 would be paid after Nicolas except upon full payment of the purchase price.
shall have executed a deed of sale.
Babasantas letter dated 22 May 1989 was quite
telling. He stated therein that despite his repeated
Obligations & Contracts

requests for the execution of the final deed of sale in formal deed of conveyance is a strong indication
his favor so that he could effect full payment of the that the parties did not intend immediate transfer
price, Pacita Lu allegedly refused to do so. In effect, of ownership, but only a transfer after full
Babasanta himself recognized that ownership of payment of the purchase price."33 Thus, the "true
the property would not be transferred to him until agreement between the parties was a contract to
such time as he shall have effected full payment sell."34
of the price. Moreover, had the sellers intended to
transfer title, they could have easily executed the In the instant case, the parties were similarly
document of sale in its required form embroiled in an impasse. The parties agreement
simultaneously with their acceptance of the was likewise embodied only in a receipt. Also,
partial payment, but they did not. Doubtlessly, Nicolas did not want to sign the deed of sale unless
the receipt signed by Pacita Lu should legally be he is fully paid. On the other hand, Rodolfo did not
considered as a perfected contract to sell.23 want to pay unless a deed of sale is duly executed in
his favor. We thus say, pursuant to our ruling in Chua
In the instant case, records show that Nicolas signed v. Court of Appeals35 that the agreement between
a mere receipt24 acknowledging partial payment Nicolas and Rodolfo is a contract to sell.
ofP250,000.00 from Rodolfo. It states:
This Court cannot subscribe to the appellate courts
July 8, 1993 view that Nicolas should first execute a deed of
absolute sale in favor of Rodolfo, before the latter
Received the amount of [P250,000.00] for 1 share of can be compelled to pay the balance of the price.
Diego Building as partial payment for Nicolas Diego. This is patently ridiculous, and goes against every
rule in the book. This pronouncement virtually places
(signed) the prospective seller in a contract to sell at the
Nicolas Diego25 mercy of the prospective buyer, and sustaining this
point of view would place all contracts to sell in
jeopardy of being rendered ineffective by the act of
As we ruled in San Lorenzo Development the prospective buyers, who naturally would demand
Corporation v. Court of Appeals,26 the parties could that the deeds of absolute sale be first executed
have executed a document of sale upon receipt of before they pay the balance of the price. Surely, no
the partial payment but they did not. This is thus an prospective seller would accommodate.
indication that Nicolas did not intend to immediately
transfer title over his share but only upon full
In fine, "the need to execute a deed of absolute
payment of the purchase price. Having thus reserved
sale upon completion of payment of the price
title over the property, the contract entered into by
generally indicates that it is a contract to sell, as
Nicolas is a contract to sell. In addition, Eduardo
it implies the reservation of title in the vendor
admitted that he and Rodolfo repeatedly asked
until the vendee has completed the payment of
Nicolas to sign the deed of sale27 but the latter
the price."36 In addition, "[a] stipulation reserving
refused because he was not yet paid the full amount.
As we have ruled in San Lorenzo Development ownership in the vendor until full payment of the price
Corporation v. Court of Appeals,28 the fact that is x x x typical in a contract to sell."37 Thus, contrary
Eduardo and Rodolfo asked Nicolas to execute a to the pronouncements of the trial and appellate
courts, the parties to this case only entered into a
deed of sale is a clear recognition on their part that
contract to sell; as such title cannot legally pass to
the ownership over the property still remains with
Rodolfo until he makes full payment of the agreed
Nicolas. In fine, the totality of the parties acts
purchase price.
convinces us that Nicolas never intended to transfer
the ownership over his share in the Diego Building
until the full payment of the purchase price. Without c) Nicolas did not surrender or deliver title or
doubt, the transaction agreed upon by the parties possession to Rodolfo.
was a contract to sell, not of sale.
Moreover, there could not even be a surrender or
In Chua v. Court of Appeals,29 the parties reached an delivery of title or possession to the prospective
impasse when the seller wanted to be first paid the buyer Rodolfo. This was made clear by the nature of
consideration before a new transfer certificate of title the agreement, by Nicolass repeated demands for
(TCT) is issued in the name of the buyer. Contrarily, the return of all rents unlawfully and unjustly remitted
the buyer wanted to secure a new TCT in his name to Rodolfo by Eduardo, and by Rodolfo and
before paying the full amount. Their agreement was Eduardos repeated demands for Nicolas to execute
embodied in a receipt containing the following terms: a deed of sale which, as we said before, is a
"(1) the balance of P10,215,000.00 is payable on or recognition on their part that ownership over the
before 15 July 1989; (2) the capital gains tax is for subject property still remains with Nicolas.
the account of x x x; and (3) if [the buyer] fails to pay
the balance x x x the [seller] has the right to forfeit Significantly, when Eduardo testified, he claimed to
the earnest money x x x."30 The case eventually be knowledgeable about the terms and conditions of
reached this Court. In resolving the impasse, the the transaction between Nicolas and Rodolfo.
Court, speaking through Justice Carpio, held that However, aside from stating that out of the total
"[a] perusal of the Receipt shows that the true consideration ofP500,000.00, the amount
agreement between the parties was a contract to of P250,000.00 had already been paid while the
sell."31 The Court noted that "the agreement x x x was remaining P250,000.00 would be paid after the
embodied in a receipt rather than in a deed of sale, execution of the Deed of Sale, he never testified that
ownership not having passed between them."32 The there was a stipulation as regards delivery of title or
Court thus concluded that "[t]he absence of a possession.38
Obligations & Contracts

It is also quite understandable why Nicolas belatedly resolutory condition. The effects in law are not
demanded the payment of the rentals. Records show identical. In a contract of sale, the vendor has lost
that the structural integrity of the Diego Building was ownership of the thing sold and cannot recover it,
severely compromised when an earthquake struck unless the contract of sale is rescinded and set
Dagupan City in 1990.39 In order to rehabilitate the aside. In a contract to sell, however, the vendor
building, the co-owners obtained a loan from a remains the owner for as long as the vendee has not
bank.40 Starting May 1994, the property was leased to complied fully with the condition of paying the
third parties and the rentals received were used to purchase price. If the vendor should eject the vendee
pay off the loan.41 It was only in 1996, or after for failure to meet the condition precedent, he
payment of the loan that the co-owners started is enforcing the contract and not rescinding it. When
receiving their share in the rentals.42 During this time, the petitioners in the instant case repossessed the
Nicolas was in the USA but immediately upon his disputed house and lot for failure of private
return, he demanded for the payment of his share in respondents to pay the purchase price in full, they
the rentals which Eduardo remitted to Rodolfo. were merely enforcing the contract and not
Failing which, he filed the instant Complaint. To us, rescinding it. As petitioners correctly point out, the
this bolsters our findings that Nicolas did not intend to Court of Appeals erred when it ruled that petitioners
immediately transfer title over the property. should have judicially rescinded the contract
pursuant to Articles 1592 and 1191 of the Civil Code.
It must be stressed that it is anathema in a contract Article 1592 speaks of non-payment of the purchase
to sell that the prospective seller should deliver title to price as a resolutory condition. It does not apply to a
the property to the prospective buyer pending the contract to sell. As to Article 1191, it is subordinated
latters payment of the price in full. It certainly is to the provisions of Article 1592 when applied to
absurd to assume that in the absence of stipulation, a sales of immovable property. Neither provision is
buyer under a contract to sell is granted ownership of applicable in the present case.46
the property even when he has not paid the seller in
full. If this were the case, then prospective sellers in a Similarly, we held in Chua v. Court of Appeals47 that
contract to sell would in all likelihood not be paid the "Article 1592 of the Civil Code permits the buyer to
balance of the price. pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been
This ponente has had occasion to rule that "[a] made upon him either judicially or by notarial act.
contract to sell is one where the prospective seller However, Article 1592 does not apply to a contract to
reserves the transfer of title to the prospective buyer sell where the seller reserves the ownership until full
until the happening of an event, such as full payment payment of the price,"48 as in this case.1wphi 1

of the purchase price. What the seller obliges himself

to do is to sell the subject property only when the Applying the above jurisprudence, we hold that when
entire amount of the purchase price has already been Rodolfo failed to fully pay the purchase price, the
delivered to him. In other words, the full payment of contract to sell was deemed terminated or
the purchase price partakes of a suspensive cancelled.49 As we have held in Chua v. Court of
condition, the nonfulfillment of which prevents the Appeals,50 "[s]ince the agreement x x x is a mere
obligation to sell from arising and thus, ownership is contract to sell, the full payment of the purchase price
retained by the prospective seller without further partakes of a suspensive condition. The non-
remedies by the prospective buyer. It does not, by fulfillment of the condition prevents the
itself, transfer ownership to the buyer."43 obligation to sell from arising and ownership is
retained by the seller without further remedies by
The contract to sell is terminated or cancelled. the buyer." Similarly, we held in Reyes v.
Tuparan51 that "petitioners obligation to sell the
Having established that the transaction was a subject properties becomes demandable only upon
contract to sell, what happens now to the parties the happening of the positive suspensive condition,
which is the respondents full payment of the
purchase price. Without respondents full
payment, there can be no breach of contract to
The remedy of rescission is not available in contracts speak of because petitioner has no obligation yet
to sell.44 As explained in Spouses Santos v. Court of to turn over the title. Respondents failure to pay in
Appeals:45 full the purchase price in full is not the breach of
contract contemplated under Article 1191 of the New
In view of our finding in the present case that the Civil Code but rather just an event that prevents the
agreement between the parties is a contract to sell, it petitioner from being bound to convey title to
follows that the appellate court erred when it decreed respondent." Otherwise stated, Rodolfo has no right
that a judicial rescission of said agreement was to compel Nicolas to transfer ownership to him
necessary. This is because there was no rescission because he failed to pay in full the purchase price.
to speak of in the first place. As we earlier pointed Correlatively, Nicolas has no obligation to transfer his
out, in a contract to sell, title remains with the vendor ownership over his share in the Diego Building to
and does not pass on to the vendee until the Rodolfo.52
purchase price is paid in full. Thus, in a contract to
sell, the payment of the purchase price is a positive Thus, it was erroneous for the CA to rule that Nicolas
suspensive condition. Failure to pay the price agreed should have filed a case to fix the period for
upon is not a mere breach, casual or serious, but a Rodolfos payment of the balance of the purchase
situation that prevents the obligation of the vendor to price. It was not Nicolass obligation to compel
convey title from acquiring an obligatory force. This is Rodolfo to pay the balance; it was Rodolfos duty to
entirely different from the situation in a contract of remit it.
sale, where non-payment of the price is a negative
Obligations & Contracts

It would appear that after Nicolas refused to sign the Attorneys fees and other costs.
deed as there was yet no full payment, Rodolfo and
Eduardo hired the services of the Daroya Accounting "Although attorneys fees are not allowed in the
Office "for the purpose of estimating the amount to absence of stipulation, the court can award the same
which [Nicolas] still owes [Rodolfo] as a consequence when the defendants act or omission has compelled
of the unconsummated verbal agreement regarding the plaintiff to incur expenses to protect his interest or
the formers share in the co-ownership of [Diego where the defendant acted in gross and evident bad
Building] in favor of the latter."53 According to the faith in refusing to satisfy the plaintiffs plainly valid,
accountants report, after Nicolas revoked his just and demandable claim."59 In the instant case, it is
agreement with Rodolfo due to non-payment, the beyond cavil that petitioner was constrained to file
downpayment of P250,000.00 was considered a loan the instant case to protect his interest because of
of Nicolas from Rodolfo.54 The accountant opined that respondents unreasonable and unjustified refusal to
the P250,000.00 should earn interest at render an accounting and to remit to the petitioner his
18%.55Nicolas however objected as regards the rightful share in rents and fruits in the Diego Building.
imposition of interest as it was not previously agreed Thus, we deem it proper to award to petitioner
upon. Notably, the contents of the accountants attorneys fees in the amount of P50,000.00,60 as well
report were not disputed or rebutted by the as litigation expenses in the amount ofP20,000.00
respondents. In fact, it was stated therein that "[a]ll and the sum of P1,000.00 for each court appearance
the bases and assumptions made particularly in the by his lawyer or lawyers, as prayed for.
fixing of the applicable rate of interest have been
discussed with [Eduardo]."56 WHEREFORE, premises considered, the Petition
is GRANTED. The June 29, 2007 Decision and
We find it irrelevant and immaterial that Nicolas October 3, 2007 Resolution of the Court of Appeals
described the termination or cancellation of his in CA-G.R. CV No. 86512, and the April 19, 2005
agreement with Rodolfo as one of rescission. Being a Decision of the Dagupan City Regional Trial Court,
layman, he is understandably not adept in legal terms Branch 40 in Civil Case No. 99-02971-D, are
and their implications. Besides, this Court should not hereby ANNULLED and SET ASIDE.
be held captive or bound by the conclusion reached
by the parties. The proper characterization of an
The Court further decrees the following:
action should be based on what the law says it to be,
not by what a party believed it to be. "A contract is
what the law defines it to be x x x and not what the 1. The oral contract to sell between petitioner
contracting parties call it."57 Nicolas P. Diego and respondent Rodolfo P.
Diego isDECLARED terminated/cancelled;
On the other hand, the respondents additional
submission that Nicolas cheated them by 2. Respondents Rodolfo P. Diego and
"vanishing and hibernating" in the USA after Eduardo P. Diego are ORDERED to
receiving Rodolfos P250,000.00 downpayment, only surrender possession and control, as the
to come back later and claim that the amount he case may be, of Nicolas P. Diegos share in
received was a mere loan cannot be believed. How the Diego Building. Respondents are further
the respondents could have been cheated or commanded to return or surrender to the
disadvantaged by Nicolass leaving is beyond petitioner the documents of title, receipts,
comprehension. If there was anybody who benefited papers, contracts, and all other documents in
from Nicolass perceived "hibernation", it was the any form or manner pertaining to the latters
respondents, for they certainly had free rein over share in the building, which are deemed to
Nicolass interest in the Diego Building. Rodolfo put be in their unauthorized and illegal
off payment of the balance of the price, yet, with the possession;
aid of Eduardo, collected and appropriated for
himself the rents which belonged to Nicolas. 3. Respondents Rodolfo P. Diego and
Eduardo P. Diego are ORDERED to
Eduardo is solidarily liable with Rodolfo as immediately render an accounting of all the
regards the share of Nicolas in the rents. transactions, from the period beginning 1993
up to the present, pertaining to Nicolas P.
Diegos share in the Diego Building, and
For his complicity, bad faith and abuse of authority as
thereafter commanded to jointly and
the Diego Building administrator, Eduardo must be
severally remit to the petitioner all rents,
held solidarily liable with Rodolfo for all that Nicolas monies, payments and benefits of whatever
should be entitled to from 1993 up to the present, or kind or nature pertaining thereto, which are
in respect of actual damages suffered in relation to
hereby deemed received by them during the
his interest in the Diego Building. Eduardo was the
said period, and made to them or are due,
primary cause of Nicolass loss, being directly
demandable and forthcoming during the said
responsible for making and causing the wrongful
period and from the date of this Decision,
payments to Rodolfo, who received them under with legal interest from the filing of the
obligation to return them to Nicolas, the true Complaint;
recipient. As such, Eduardo should be principally
1w phi1

responsible to Nicolas as well. Suffice it to state that

every person must, in the exercise of his rights and in 4. Respondents Rodolfo P. Diego and
the performance of his duties, act with justice, give Eduardo P. Diego are ORDERED,
everyone his due, and observe honesty and good immediately and without further delay upon
faith; and every person who, contrary to law, wilfully receipt of this Decision, to solidarily pay the
or negligently causes damage to another, shall petitioner attorneys fees in the amount
indemnify the latter for the same.58 ofP50,000.00; litigation expenses in the
Obligations & Contracts

amount of P20,000.00 and the sum 51

Supra note 1 at 296.
See Chua v. Court of Appeals, supra note 29 at 51-52.
of P1,000.00 per counsel for each court 53
See Report of the Daroya Accounting Office, p. 1, records, p. 76.
appearance by his lawyer or lawyers; 54
Id. at 2; id. at 77,
Id.; id.
Id.; id.
5. The payment of P250,000.00 made by 57
Tan v. Benolirao, supra note 17 at 48.
respondent Rodolfo P. Diego, with legal 58
CIVIL CODE, Articles 19 and 20.
interest from the filing of the Complaint, shall 59
Alcatel Philippines, Inc. v. I. M. Bongar & Co., Inc., G.R. No.
be APPLIED, by way of compensation, to his 182946, October 5, 2011, 658 SCRA 741, 743-744.
Estores v. Supangan, G.R. No. 175139, April 18, 2012, 670
liabilities to the petitioner and to answer for SCRA 95, 108-109.
all damages and other awards and interests
which are owing to the latter under this

6. Respondents counterclaim G.R. No. 201167 February 27, 2013

GO, and VICENTE GO, Petitioners,
FAJARDO, Respondents.
Per raffle dated October 17, 2012. DECISION
G.R. No. 188064, June 1, 2011, 650 SCRA 283, 299. Citation
omitted. Emphasis supplied.
Rollo, pp. 8-5. PERLAS-BERNABE, J.:
Id. at 46-62; penned by Presiding Justice Ruben T. Reyes and
concurred in by Associate Justices Regalado E. Maambong and
Celia C. Librea-Leagogo. Assailed in this Petition for Review
Id. at 63-64; penned by Associate Justice Celia C. Librea- on Certiorari under Rule 45 of the Rules of Court is
Leagogo and concurred in by Associate Justices Regalado E. the July 22, 2011 Decision1and February 29, 2012
Maambong and Estela M. Perlas-Bernabe (now a member of this Resolution2 of the Court of Appeals (CA) in CA-G.R.
Id. at 73-78; penned by Acting Presiding Judge Emma M. Torio. SP No. 112981, which affirmed with modification the
Records, pp. 1-4. August 27, 2009 Decision3 of the Office of the
Id. at 22-25. President (OP).
Rollo, pp. 73-78.
Id. at 77. Emphasis supplied.
Id. at 56. The Facts
Id. at 19-21.
Id. at 204-224.
Id. at 237-262. On January 24, 1995, respondent-spouses Eugenio
Id. at 226. and Angelina Fajardo (Sps. Fajardo) entered into a
Supra note 1. Contract to Sell4 (contract) with petitioner-corporation
Id. Emphasis supplied. Gotesco Properties, Inc. (GPI) for the purchase of a
G.R. No. 153820, October 16, 2009, 604 SCRA 36.
Id. at 49. 100-square meter lot identified as Lot No. 13, Block
Id. Emphasis supplied. No.6, Phase No. IV of Evergreen Executive Village, a
490 Phil. 7 (2005). subdivision project owned and developed by GPI
Id. at 11. located at Deparo Road, Novaliches, Caloocan City.
Id. at 18.
Id. at 19. Emphases supplied. The subject lot is a portion of a bigger lot covered by
Records, p. 90. Transfer Certificate of Title (TCT) No.
Id. 2442205 (mother title).
Supra note 20.
See TSN, March 21, 2001, p. 22.
Supra note 20. Under the contract, Sps. Fajardo undertook to pay
449 Phil. 25 (2003). the purchase price of P126,000.00 within a 10-year
Id. at 40. period, including interest at the rate of nine percent
Id. at 42.
Id. (9%) per annum. GPI, on the other hand, agreed to
Id. Emphasis supplied. execute a final deed of sale (deed) in favor of Sps.
Id. Emphasis supplied. Fajardo upon full payment of the stipulated
Supra note 29. consideration. However, despite its full payment of
Heirs of Cayetano Pangan and Consuelo Pangan v. Perreras,
G.R. No. 157374, August 27, 2009, 597 SCRA 253, 262. the purchase price on January 17, 20006 and
Emphasis supplied. subsequent demands,7 GPI failed to execute the
Id. deed and to deliver the title and physical possession
See TSN, March 21, 2001, pp. 12-21. of the subject lot. Thus, on May 3, 2006, Sps.
See Memorandum for Defendants, p. 3, records, p. 40.
Id. at 5; id. at 149. Fajardo filed before the Housing and Land Use
See Report of Daroya Accounting Office, pp. 1-2; id. at 76-77. Regulatory Board-Expanded National Capital Region
Id. at 2; id. at 77. Field Office (HLURBENCRFO) a complaint8 for
Luzon Development Bank v. Enriquez, G.R. Nos. 168646 & specific performance or rescission of contract with
168666, January 12, 2011, 639 SCRA 332, 351.
See Tan v. Benolirao, supra note 17 at 53; Chua v. Court of damages against GPI and the members of its Board
Appeals, supra note 29 at 43-44. of Directors namely, Jose C. Go, Evelyn Go, Lourdes
391 Phil. 739 (2000). G. Ortiga, George Go, and Vicente Go (individual
Id. at 751-752. Italics in the original. petitioners), docketed as HLURB Case No. REM-
Supra note 29.
Id. at 43-44. 050306-13319.
See Tan v. Benolirao, supra note 17 at 54.
Supra note 29 at 43. Emphasis supplied.
Obligations & Contracts

Sps. Fajardo averred that GPI violated Section 209 of and to deliver the title to Sps. Fajardo amounted to a
Presidential Decree No. 95710 (PD 957) due to its violation of Section 25 of PD 957 which therefore,
failure to construct and provide water facilities, warranted the refund of payments in favor of Sps.
improvements, infrastructures and other forms of Fajardo.
development including water supply and lighting
facilities for the subdivision project. They also alleged The Ruling of the OP
that GPI failed to provide boundary marks for each lot
and that the mother title including the subject lot had On further appeal, the OP affirmed the HLURB
no technical description and was even levied upon by rulings in its August 27, 2009 Decision.17 In so doing,
the Bangko Sentral ng Pilipinas (BSP) without their
it emphasized the mandatory tenor of Section 25 of
knowledge. They thus prayed that GPI be ordered to
PD 957 which requires the delivery of title to the
execute the deed, to deliver the corresponding
buyer upon full payment and found that GPI
certificate of title and the physical possession of the
unjustifiably failed to comply with the same.
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 The Ruling of the CA
total payments made plus legal interest starting
January 2000. On petition for review, the CA affirmed the above
rulings with modification, fixing the amount to be
For their part, petitioners maintained that at the time refunded to Sps. Fajardo at the prevailing market
of the execution of the contract, Sps. Fajardo were value of the property18 pursuant to the ruling in Solid
actually aware that GPI's certificate of title had no Homes v. Tan (Solid Homes).19
technical description inscribed on it. Nonetheless, the
title to the subject lot was free from any liens or The Petition
encumbrances.11 Petitioners claimed that the failure
to deliver the title to Sps. Fajardo was beyond their Petitioners insist that Sps. Fajardo have no right to
control12 because while GPI's petition for inscription of rescind the contract considering that GPI's inability to
technical description (LRC Case No. 4211) was comply therewith was due to reasons beyond its
favorably granted13 by the Regional Trial Court of control and thus, should not be held liable to refund
Caloocan City, Branch 131 (RTC-Caloocan), the the payments they had received. Further, since the
same was reversed14 by the CA; this caused the individual petitioners never participated in the acts
delay in the subdivision of the property into individual complained of nor found to have acted in bad faith,
lots with individual titles. Given the foregoing they should not be held liable to pay damages and
incidents, petitioners thus argued that Article 1191 of attorney's fees.
the Civil Code (Code) the provision on which Sps.
Fajardo anchor their right of rescission remained The Court's Ruling
inapplicable since they were actually willing to
comply with their obligation but were only prevented
The petition is partly meritorious.
from doing so due to circumstances beyond their
control. Separately, petitioners pointed out that BSP's
adverse claim/levy which was annotated long after A. Sps. Fajardos right to rescind
the execution of the contract had already been
settled. It is settled that in a contract to sell, the seller's
obligation to deliver the corresponding certificates of
The Ruling of the HLURB-ENCRFO title is simultaneous and reciprocal to the buyer's full
payment of the purchase price.20 In this relation,
Section 25 of PD 957, which regulates the subject
On February 9, 2007, the HLURB-ENCRFO issued a
transaction, imposes on the subdivision owner or
Decision15 in favor of Sps. Fajardo, holding that GPIs
developer the obligation to cause the transfer of the
obligation to execute the corresponding deed and to
corresponding certificate of title to the buyer upon full
deliver the transfer certificate of title and possession
payment, to wit:
of the subject lot arose and thus became due and
demandable at the time Sps. Fajardo had fully paid
the purchase price for the subject lot. Consequently, Sec. 25. Issuance of Title. The owner or developer
GPIs failure to meet the said obligation constituted a shall deliver the title of the lot or unit to the buyer
substantial breach of the contract which perforce upon full payment of the lot or unit. No fee, except
warranted its rescission. In this regard, Sps. Fajardo those required for the registration of the deed of sale
were given the option to recover the money they paid in the Registry of Deeds, shall be collected for the
to GPI in the amount of P168,728.83, plus legal issuance of such title. In the event a mortgage over
interest reckoned from date of extra-judicial demand the lot or unit is outstanding at the time of the
in September 2002 until fully paid. Petitioners were issuance of the title to the buyer, the owner or
likewise held jointly and solidarily liable for the developer shall redeem the mortgage or the
payment of moral and exemplary damages, corresponding portion thereof within six months from
attorney's fees and the costs of suit. such issuance in order that the title over any fully
paid lot or unit may be secured and delivered to the
buyer in accordance herewith. (Emphasis supplied.)
The Ruling of the HLURB Board of
In the present case, Sps. Fajardo claim that GPI
breached the contract due to its failure to execute the
On appeal, the HLURB Board of Commissioners
deed of sale and to deliver the title and possession
affirmed the above ruling in its August 3, 2007
over the subject lot, notwithstanding the full payment
Decision,16finding that the failure to execute the deed
of the purchase price made by Sps. Fajardo on
Obligations & Contracts

January 17, 200021 as well as the latters demand for The court shall decree the rescission claimed, unless
GPI to comply with the aforementioned obligations there be just cause authorizing the fixing of a period.
per the letter22 dated September 16, 2002. For its
part, petitioners proffer that GPI could not have This is understood to be without prejudice to the
committed any breach of contract considering that its rights of third persons who have acquired the thing,
purported non-compliance was largely impelled by in accordance with articles 1385 and 1388 and the
circumstances beyond its control i.e., the legal Mortgage Law.
proceedings concerning the subdivision of the
property into individual lots. Hence, absent any B. Effects of rescission
substantial breach, Sps. Fajardo had no right to
rescind the contract.
At this juncture, it is noteworthy to point out that
rescission does not merely terminate the contract
The Court does not find merit in petitioners and release the parties from further obligations to
contention. each other, but abrogates the contract from its
inception and restores the parties to their original
A perusal of the records shows that GPI acquired the positions as if no contract has been
subject property on March 10, 1992 through a Deed made.31 Consequently, mutual restitution, which
of Partition and Exchange23 executed between it and entails the return of the benefits that each party may
Andres Pacheco (Andres), the former registered have received as a result of the contract, is thus
owner of the property. GPI was issued TCT No. required.32To be sure, it has been settled that the
244220 on March 16, 1992 but the same did not bear effects of rescission as provided for in Article 1385 of
any technical description.24 However, no plausible the Code are equally applicable to cases under
explanation was advanced by the petitioners as to Article 1191, to wit:
why the petition for inscription (docketed as LRC
Case No. 4211) dated January 6, 2000,25 was filed xxxx
only after almost eight (8) years from the acquisition
of the subject property.
Mutual restitution is required in cases involving
rescission under Article 1191. This means
1w phi1

Neither did petitioners sufficiently explain why GPI bringing the parties back to their original status prior
took no positive action to cause the immediate filing
to the inception of the contract. Article 1385 of the
of a new petition for inscription within a reasonable
Civil Code provides, thus:
time from notice of the July 15, 2003 CA Decision
which dismissed GPIs earlier petition based on
technical defects, this notwithstanding Sps. Fajardo's ART. 1385. Rescission creates the obligation to
full payment of the purchase price and prior demand return the things which were the object of the
for delivery of title. GPI filed the petition before the contract, together with their fruits, and the price
RTC-Caloocan, Branch 122 (docketed as LRC Case with its interest; consequently, it can be carried
No. C-5026) only on November 23, 2006,26 following out only when he who demands rescission can
receipt of the letter27 dated February 10, 2006 and the return whatever he may be obligated to restore.
filing of the complaint on May 3, 2006, alternatively
seeking refund of payments. While the court a Neither shall rescission take place when the things
quo decided the latter petition for inscription in its which are the object of the contract are legally in the
favor,28 there is no showing that the same had possession of third persons who did not act in bad
attained finality or that the approved technical faith.
description had in fact been annotated on TCT No.
244220, or even that the subdivision plan had In this case, indemnity for damages may be
already been approved. demanded from the person causing the loss.

Moreover, despite petitioners allegation29 that the This Court has consistently ruled that this
claim of BSP had been settled, there appears to be provision applies to rescission under Article
no cancellation of the annotations30 in GPIs favor. 1191:
Clearly, the long delay in the performance of GPI's
obligation from date of demand on September 16, Since Article 1385 of the Civil Code expressly and
2002 was unreasonable and unjustified. It cannot clearly states that "rescission creates the obligation
therefore be denied that GPI substantially breached to return the things which were the object of the
its contract to sell with Sps. Fajardo which thereby contract, together with their fruits, and the price with
accords the latter the right to rescind the same its interest," the Court finds no justification to sustain
pursuant to Article 1191 of the Code, viz: petitioners position that said Article 1385 does not
apply to rescission under Article 1191. x x
ART. 1191. The power to rescind obligations is x33 (Emphasis supplied; citations omitted.)
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. In this light, it cannot be denied that only GPI
benefited from the contract, having received full
The injured party may choose between the fulfillment payment of the contract price plus interests as early
and the rescission of the obligation, with the payment as January 17, 2000, while Sps. Fajardo remained
of damages in either case. He may also seek prejudiced by the persisting non-delivery of the
rescission, even after he has chosen fulfillment, if the subject lot despite full payment. As a necessary
latter should become impossible. 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
Obligations & Contracts

prevailing market value consistent with the Courts SO ORDERED.

pronouncement in Solid Homes,34 viz:
Indeed, there would be unjust enrichment if Associate Justice
respondents Solid Homes, Inc. & Purita Soliven are
made to pay only the purchase price plus interest. It Footnotes
is definite that the value of the subject property
already escalated after almost two decades from the *
Designated Acting Member per Special Order No. 1421 dated
time the petitioner paid for it. Equity and justice February 20, 2013.
dictate that the injured party should be paid the Rollo, pp. 42-50. Penned by Associate Justice Magdangal M. De
Leon, with Associate Justices Mario V. Lopez and Socorro B.
market value of the lot, otherwise, respondents Inting, concurring.
Solid Homes, Inc. & Purita Soliven would enrich 2
Id. at 53-54.
themselves at the expense of herein lot owners Id. at 195-198. Penned by Deputy Executive Secretary for Legal
when they sell the same lot at the present market Affairs Natividad G. Dizon, by authority ofthe Executive Secretary.
Id. at 101-104.
value. Surely, such a situation should not be 5
Id. at 56-57.
countenanced for to do so would be contrary to 6
Id. at 105. Certificate of Full Payment.
reason and therefore, unconscionable. Over time, Id. at 108-112. Letters dated September 16, 2002 and February
courts have recognized with almost pedantic 10, 2006.
Id. at 94-100.
adherence that what is inconvenient or contrary to 9
Sec. 20. Time of Completion. Every owner or developer shall
reason is not allowed in law. (Emphasis supplied.) construct and provide the facilities, improvements, infrastructures
and other forms of development, including water supply and
lighting facilities, which are offered and indicated in the approved
On this score, it is apt to mention that it is the intent subdivision or condominium plans, brochures, prospectus, printed
of PD 957 to protect the buyer against unscrupulous matters, letters or in any form of advertisement, within one year
developers, operators and/or sellers who reneged on from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as may be fixed
their obligations.35 Thus, in order to achieve this
by the Authority.
purpose, equity and justice dictate that the injured 10
Otherwise known as "The Subdivision and Condominium
party should be afforded full recompense and as Buyers Protective Decree."
such, be allowed to recover the prevailing market Rollo, p. 114. Answer.
Id. at 131. Position Paper.
value of the undelivered lot which had been fully paid 13
Id. at 61-63. Amended Decision dated October 8, 2001.
1wphi1 14
Id. at 64-72. Decision dated July 15, 2003 in CA-G.R. CV No.
72187. The petition for inscription was dismissed for GPI's failure:
(a) to implead the adverse claimant, Andres Rustia (representative
C. Moral and exemplary damages, attorneys fees
of BSP); (b) to notify the adjoining owners; and (c) to show why the
and costs of suit technical description was in the name of one Andres Pacheco, the
averred predecessor-in-interest, whose ownership was not
sufficiently established.
Furthermore, the Court finds that there is proper legal 15
Id. at 147-151. Penned by Housing and Land Use Arbiter Atty.
basis to accord moral and exemplary damages and Ma. Lorina J. Rigor.
attorney's fees, including costs of suit. Verily, GPIs 16
Id. at 153-154. Signed by Commissioner Romulo Q. Fabul, with
unjustified failure to comply with its obligations as Presiding Commissioner Jesus Yap Pang and Ex-Officio
Commissioner Joel I. Jacob.
above-discussed caused Sps. Fajardo serious 17
Id. at 195-198
anxiety, mental anguish and sleepless nights, 18
Id. at 42-50.
thereby justifying the award of moral damages. In the 19
G.R. Nos. 145156-57, July 29, 2005, 465 SCRA 137.
same vein, the payment of exemplary damages Cantemprate v. CRS Realty Development Corporation, G.R. No.
171399, May 8, 2009, 587 SCRA 492, 513.
remains in order so as to prevent similarly minded 21
Rollo, p. 105.
subdivision developers to commit the same 22
Id. at 108-110.
transgression. And finally, considering that Sps. 23
Id. at 58-60.
Fajardo were constrained to engage the services of Id. at 56-57.
Id. at 61.
counsel to file this suit, the award of attorneys fees 26
Id. at 73.
must be likewise sustained. 27
Id. at 111-112.
Id. at 160-162. Decision dated June 7, 2007.
Id. at 130.
D. Liability of individual Petitioners 30
Id. at 57.
Unlad Resources Development Corporation v. Dragon, G.R. No.
However, the Court finds no basis to hold individual 149338, July 28, 2008, 560 SCRA 63, 79.
Goldloop Properties Inc. v. Government Service Insurance
petitioners solidarily liable with petitioner GPI for the System, G.R. No. 171076, August 1, 2012.
payment of damages in favor of Sps. Fajardo since it 33
Supra note 31, citing Laperal v. Solid Homes, Inc., G.R. No.
was not shown that they acted maliciously or dealt 130913, June 21, 2005, 460 SCRA 375, 385-387.
with the latter in bad faith. Settled 1s the rule that in Supra note 19.
PD 957 states: WHEREAS, numerous reports reveal that many
the absence of malice and bad faith, as in this case, real estate subdivision owners, developers, operators, and/or
officers of the corporation cannot be made personally sellers have reneged on their representations and obligations to
liable for liabilities of the corporation which, by legal provide and maintain properly subdivision roads, drainage,
fiction, has a personality separate and distinct from sewerage, water systems, lighting systems, and other similar basic
requirements, thus endangering the health and safety of home and
its officers, stockholders, and members.36 lot buyers.
See Alert Security and Investigation Agency, Inc. v.
WHEREFORE, the assailed July 22, 2011 Decision Pasawilan, G.R. No. 182397, September 14, 2011, 657 SCRA
655, 670-671.
and February 29, 2012 Resolution of the Court of
Appeals in CA-G.R. SP No. 112981 are
MODIFICATION, absolving individual petitioners
Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George
Go, and Vicente Go from personal liability towards
respondent-spouses Eugenio and Angelina Fajardo.
Obligations & Contracts


G.R. No. 188986 March 20, 2013 G. STEERING WHEEL SYSTEM


the name GL Enterprises, Petitioner,

SERENO, CJ.: IN VALUE 1,000,000.00

Before this Court is a Rule 45 Petition, seeking a DISCOUNT 100,000.00

review of the 27 July 2009 Court of Appeals (CA) PROJECT COST
Decision in CA-G.R. CV No. 88989,1 which modified (MATERIALS &
the Regional Trial Court (RTC) Decision of 8 January INSTALLATION) PhP 2,700,000.00
2007 in Civil Case No. Q-04-53660.2 The CA held
that petitioner substantially breached its contracts (Emphasis in the
with respondent for the installation of an integrated original)
bridge system (IBS).

The antecedent .facts are as follows:3 The second contract essentially contains the same
terms and conditions as follows:6
On 10 June 2004, respondent Northwestern
University (Northwestern), an educational institution That in consideration of the payment herein
offering maritime-related courses, engaged the mentioned to be made by the First Party (defendant),
services of a Quezon City-based firm, petitioner GL the Second Party agrees to furnish, supply, install &
Enterprises, to install a new IBS in Laoag City. The integrate the most modern INTEGRATED BRIDGE
installation of an IBS, used as the students training SYSTEM located at Northwestern University MOCK
laboratory, was required by the Commission on BOAT in accordance with the general conditions,
Higher Education (CHED) before a school could offer plans and specifications of this contract.
maritime transportation programs.4
Since its IBS was already obsolete, respondent FOLLOWING:
required petitioner to supply and install specific
components in order to form the most modern IBS 1. ARPA RADAR SIMULATION ROOM
that would be acceptable to CHED and would be
compliant with the standards of the International xxxx
Maritime Organization (IMO). For this purpose, the
parties executed two contracts. 2. GMDSS SIMULATION ROOM

The first contract partly reads:5 xxxx

That in consideration of the payment herein TOTAL COST: PhP 270,000.00

mentioned to be made by the First Party (defendant), (Emphasis in the original)
the Second Party agrees to furnish, supply, install
and integrate the most modern INTEGRATED
Common to both contracts are the following
BRIDGE SYSTEM located at Northwestern
provisions: (1) the IBS and its components must be
University MOCK BOAT in accordance with the
compliant with the IMO and CHED standard and with
general conditions, plans and specifications of this
manuals for simulators/major equipment; (2) the
contracts may be terminated if one party commits a
substantial breach of its undertaking; and (3) any
SUPPLY & INSTALLATION OF THE FOLLOWING: dispute under the agreement shall first be settled
mutually between the parties, and if settlement is not
INTEGRATED BRIDGE SYSTEM obtained, resort shall be sought in the courts of law.

A. 2-RADAR SYSTEM Subsequently, Northwestern paid P1 million as down

payment to GL Enterprises. The former then
B. OVERHEAD CONSOLE MONITORING assumed possession of Northwesterns old IBS as
SYSTEM trade-in payment for its service. Thus, the balance of
the contract price remained at P1.97 million.7
Two months after the execution of the contracts, GL
D. ENGINE CONTROL SYSTEM Enterprises technicians delivered various materials to
the project site. However, when they started installing
the components, respondent halted the operations.
E. WEATHER CONTROL SYSTEM GL Enterprises then asked for an explanation.8
Obligations & Contracts

Northwestern justified the work stoppage upon its Moreover, plaintiff is likewise ordered to restore and
finding that the delivered equipment were return all the equipment obtained by reason of the
substandard.9 It explained further that GL Enterprises Second Contract, or if restoration or return is not
violated the terms and conditions of the contracts, possible, plaintiff is ordered to pay the value thereof
since the delivered components (1) were old; (2) did to the defendant.
not have instruction manuals and warranty
certificates; (3) contained indications of being SO ORDERED.
reconditioned machines; and (4) did not meet the
IMO and CHED standards. Thus, Northwestern Aggrieved, both parties appealed to the CA. With
demanded compliance with the agreement and
each of them pointing a finger at the other party as
suggested that GL Enterprises meet with the formers
the violator of the contracts, the appellate court
representatives to iron out the situation.
ultimately determined that GL Enterprises was the
one guilty of substantial breach and liable for
Instead of heeding this suggestion, GL Enterprises attorneys fees.
filed on 8 September 2004 a Complaint10 for breach
of contract and prayed for the following sums: P1.97
The CA appreciated that since the parties essentially
million, representing the amount that it would have
sought to have an IBS compliant with the CHED and
earned, had Northwestern not stopped it from
IMO standards, it was GL Enterprises delivery of
performing its tasks under the two contracts; at defective equipment that materially and substantially
least P100,000 as moral damages; at least P100,000 breached the contracts. Although the contracts
by way of exemplary damages; at least P100,000 as
contemplated a completed project to be evaluated by
attorneys fees and litigation expenses; and cost of
CHED, Northwestern could not just sit idly by when it
suit. Petitioner alleged that Northwestern breached
was apparent that the components delivered were
the contracts by ordering the work stoppage and thus
preventing the installation of the materials for the
The CA held that Northwestern only exercised
ordinary prudence to prevent the inevitable rejection
Northwestern denied the allegation. In its defense, it
of the IBS delivered by GL Enterprises. Likewise, the
asserted that since the equipment delivered were not
appellate court disregarded petitioners excuse that
in accordance with the specifications provided by the the equipment delivered might not have been the
contracts, all succeeding works would be futile and
components intended to be installed, for it would be
would entail unnecessary expenses. Hence, it prayed
contrary to human experience to deliver equipment
for the rescission of the contracts and made a
from Quezon City to Laoag City with no intention to
compulsory counterclaim for actual, moral, and
use it.
exemplary damages, and attorneys fees.
This time, applying Article 1191 of the Civil Code, the
The RTC held both parties at fault. It found that
CA declared the rescission of the contracts. It then
Northwestern unduly halted the operations, even if
proceeded to affirm the RTCs order of mutual
the contracts called for a completed project to be
restitution. Additionally, the appellate court
evaluated by the CHED. In turn, the breach granted P50,000 to Northwestern by way of
committed by GL Enterprises consisted of the attorneys fees.
delivery of substandard equipment that were not
compliant with IMO and CHED standards as required
by the agreement. Before this Court, petitioner rehashes all the
arguments he had raised in the courts a quo.12 He
maintains his prayer for actual damages equivalent to
Invoking the equitable principle that "each party must the amount that he would have earned, had
bear its own loss," the trial court treated the contracts
respondent not stopped him from performing his
as impossible of performance without the fault of
tasks under the two contracts; moral and exemplary
either party or as having been dissolved by mutual
damages; attorneys fees; litigation expenses; and
consent. Consequently, it ordered mutual restitution,
cost of suit.
which would thereby restore the parties to their
original positions as follows:11
Hence, the pertinent issue to be resolved in the
instant appeal is whether the CA gravely erred in (1)
Accordingly, plaintiff is hereby ordered to restore to
finding substantial breach on the part of GL
the defendant all the equipment obtained by reason Enterprises; (2) refusing petitioners claims for
of the First Contract and refund the downpayment damages, and (3) awarding attorneys fees to
of P1,000,000.00 to the defendant; and for the
defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-
continuance of the installation and integration project. RULING OF THE COURT
In the event that restoration of the old equipment
taken from defendant's premises is no longer Substantial Breaches of the Contracts
possible, plaintiff is hereby ordered to pay the
appraised value of defendant's old equipment Although the RTC and the CA concurred in ordering
atP1,000,000.00. Likewise, in the event that restitution, the courts a quo, however, differed on the
restoration of the equipment and materials delivered basis thereof. The RTC applied the equitable
by the plaintiff to the defendant is no longer possible, principle of mutual fault, while the CA applied Article
defendant is hereby ordered to pay its appraised 1191 on rescission.
value at P1,027,480.00.
Obligations & Contracts

The power to rescind the obligations of the injured the defects of the delivered materials, the CA quoted
party is implied in reciprocal obligations, such as in respondents testimonial evidence as follows:16
this case. On this score, the CA correctly applied
Article 1191, which provides thus: Q: In particular which of these equipment of CHED
requirements were not complied with?
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should A: The Radar Ma'am, because they delivered only
not comply with what is incumbent upon him. 10-inch PPI, that is the monitor of the Radar. That is
16-inch and the gyrocompass with two (2) repeaters
The injured party may choose between the fulfillment and the history card. The gyrocompass - there is no
and the rescission of the obligation, with the payment marker, there is no model, there is no serial number,
of damages in either case. He may also seek no gimbal, no gyroscope and a bulb to work it
rescission, even after he has chosen fulfillment, if the properly to point the true North because it is very
latter should become impossible. important to the Cadets to learn where is the true
North being indicated by the Master Gyrocompass.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period. xxxx

The two contracts require no less than substantial Q: Mr. Witness, one of the defects you noted down in
breach before they can be rescinded. Since the this history card is that the master gyrocompass had
contracts do not provide for a definition of substantial no gimbals, gyroscope and balls and was replaced
breach that would terminate the rights and with an ordinary electric motor. So what is the
obligations of the parties, we apply the definition Implication of this?
found in our jurisprudence.
A: Because those gimbals, balls and the gyroscope it
This Court defined in Cannu v. Galang13 that let the gyrocompass to work so it will point the true
substantial, unlike slight or casual breaches of North but they being replaced with the ordinary motor
contract, are fundamental breaches that defeat the used for toys so it will not indicate the true North.
object of the parties in entering into an agreement,
since the law is not concerned with trifles.14 Q: So what happens if it will not indicate the true
The question of whether a breach of contract is
substantial depends upon the attending A: It is very big problem for my cadets because they
circumstances.15 must, to learn into school where is the true North and
what is that equipment to be used on board.
In the case at bar, the parties explicitly agreed that
the materials to be delivered must be compliant with Q: One of the defects is that the steering wheel was
the CHED and IMO standards and must be complete that of an ordinary automobile. And what is the
with manuals. Aside from these clear provisions in implication of this?
the contracts, the courts a quo similarly found that
the intent of the parties was to replace the old IBS in
A: Because. on board Maam, we are using the real
order to obtain CHED accreditation for steering wheel and the cadets will be implicated if
Northwesterns maritime-related courses. they will notice that the ship have the same steering
wheel as the car so it is not advisable for them.
According to CHED Memorandum Order (CMO) No.
10, Series of 1999, as amended by CMO No. 13,
Q:. And another one is that the gyrocompass
Series of 2005, any simulator used for simulator- repeater was only refurbished and it has no serial
based training shall be capable of simulating the number. What is wrong with that?
operating capabilities of the shipboard equipment
concerned. The simulation must be achieved at a
level of physical realism appropriate for training A: It should be original Maam because this gyro
objectives; include the capabilities, limitations and repeater, it must to repeat also the true North being
possible errors of such equipment; and provide an indicated by the Master Gyro Compass so it will not
interface through which a trainee can interact with the work properly, I dont know it will work properly.
equipment, and the simulated environment. (Underscoring supplied)

Given these conditions, it was thus incumbent upon Evidently, the materials delivered were less likely to
GL Enterprises to supply the components that would pass the CHED standards, because the navigation
create an IBS that would effectively facilitate the system to be installed might not accurately point to
learning of the students. the true north; and the steering wheel delivered was
one that came from an automobile, instead of one
used in ships. Logically, by no stretch of the
However, GL Enterprises miserably failed in meeting imagination could these form part of the most modern
its responsibility. As contained in the findings of the IBS compliant with the IMO and CHED standards.
CA and the RTC, petitioner supplied substandard
equipment when it delivered components that (1)
were old; (2) did not have instruction manuals and Even in the instant appeal, GL Enterprises does not
warranty certificates; (3) bore indications of being refute that the equipment it delivered was
reconditioned machines; and, all told, (4) might not substandard. However, it reiterates its rejected
have met the IMO and CHED standards. Highlighting excuse that Northwestern should have made an
assessment only after the completion of the
Obligations & Contracts

IBS.17 Thus, petitioner stresses that it was reason of an unjustified act or omission on the part of
Northwestern that breached the agreement when the the party from whom the award is sought.23
latter halted the installation of the materials for the
IBS, even if the parties had contemplated a Since we affirm the CA's finding that it was not
completed project to be evaluated by CHED. Northwestern but GL Enterprises that breached the
However, as aptly considered by the CA, respondent contracts without justification, it follows that the
could not just "sit still and wait for such day that its appellate court correctly awarded attorneys fees to
accreditation may not be granted by CHED due to respondent. Notably, this litigation could have
the apparent substandard equipment installed in the altogether been avoided if petitioner heeded
bridge system."18 The appellate court correctly respondent's suggestion to amicably settle; or, better
emphasized that, by that time, both parties would yet, if in the first place petitioner delivered the right
have incurred more costs for nothing. materials as required by the contracts.

Additionally, GL Enterprises reasons that, based on IN VIEW THEREOF, the assailed 27 July 2009
the contracts, the materials that were hauled all the Decision of the Court of Appeals in CA-G.R. CV No.
way from Quezon City to Laoag City under the 88989 is hereby AFFIRMED.
custody of the four designated installers might not
have been the components to be used.19 Without
belaboring the point, we affirm the conclusion of the
CA and the RTC that the excuse is untenable for
being contrary to human experience.20 MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus *
Additional member in lieu of Associate Justice Bienvenido L.
clear that its violation was not merely incidental, but Reyes due to his prior action in the Court of Appeals.
directly related to the essence of the agreement 1
CA Decision, penned by Associate Justice lsaias P. Dicdican,
pertaining to the installation of an IBS compliant with with Associate Justices Bienvenido L. Reyes (now a member of
this Court) and Marlene B. Gonzales-Sison concurring.
the CHED and IMO standards. 2
RTC Decision penned by Judge Hilario L. Laqui.
Rollo, pp. 21-38:
Consequently, the CA correctly found substantial
Id. at 13; Petition for Review dated 13 September 2009.
Id. at 43-44.
breach on the part of petitioner. 6
Id. at 45-46.
Id. at 85.
Id. at 47; petitioners letter dated 23 August 2004.
In contrast, Northwesterns breach, if any, was 9
Id. at 48; respondents letter dated 30 August 2004.
characterized by the appellate court as slight or 10
Id. at 39-42.
casual.21 By way of negative definition, a breach is 11
Id. at 92.
considered casual if it does not fundamentally defeat 12
Id. at 12-16.
the object of the parties in entering into an
498 Phil. 128 (2005).
234 Phil. 523 (1987).
agreement. Furthermore, for there to be a breach to 15
G.G. Sportswear Mfg. Corp. v. World Class Properties, Inc., G.R.
begin with, there must be a "failure, without legal No. 182720, 2 March 2010, 614 SCRA 75.
excuse, to perform any promise which forms the 16
TSN dated 7 April 2006, pp. 9-12.
whole or part of the contract."22
Rollo, p. 13; Petition for Review dated 13 September 2009.
Id. at 37; CA Decision dated 27 July 2009.
Id. at 12-13; Petition for Review dated 13 September 2009.
Here, as discussed, the stoppage of the installation 20
Id. at 91, RTC Decision dated 8 January 2007; id. at 36, CA
Decision dated 27 July 2009.
was justified. The action of Northwestern constituted 21
a legal excuse to prevent the highly possible rejection 22
Omengan v. Philippine National Bank, G.R. No. 161319, 23
of the IBS. Hence, just as the CA concluded, we find January 2007,512 SCRA 305.
that Northwestern exercised ordinary prudence to 23
Asian Center for Career and Employment System end Services,
Inc. v. NLRC, 358 Phil. 380 (1998).
avert a possible wastage of time, effort, resources
and also of theP2.9 million representing the value of

Actual Damages, Moral and Exemplary Damages, G.R. No. 189145 December 4, 2013
and Attorney's Fees
As between the parties, substantial breach can vs.
clearly be attributed to GL SPOUSES BENIGNO V. JOVELLANOS and
Enterprises. Consequently, it is not the injured party
1w phi 1
who can claim damages under Article 1170 of the
Civil Code. For this reason, we concur in the result of DECISION
the CA's Decision denying petitioner actual damages
in the form of lost earnings, as well as moral and PERLAS-BERNABE, J.:
exemplary damages.
Assailed in this petition for review on certiorari1 are
With respect to attorney's fees, Article 2208 of the the Decision2 dated May 29, 2009 and
Civil Code allows the grant thereof when the court Resolution 3 dated August 10, 2009 of the Court of
deems it just and equitable that attorney's fees Appeals (CA) in CA-G.R. SP No. 104487 which
should be recovered. An award of attorney's fees is reversed the Decision4 dated December 27, 2007 of
proper if one was forced to litigate and incur the Regional Trial Court of Caloocan City, Branch
expenses to protect one's rights and interest by 128 (RTC) in Civil Case No. C-21867 that, in turn,
Obligations & Contracts

affirmed the Decision5 dated June 8, 2007 of the that a compromise agreement was being prepared,
Metropolitan Trial Court, Branch 53 of that same city thus their decision not to engage the services of
(MeTC) in Civil Case No. 06-28830 ordering counsel and their concomitant failure to file an
respondents-spouses Benigno and Lourdes answer.17
Jovellanos (Sps. Jovellanos) to, inter alia, vacate the
premises of the property subject of this case. They also assailed the jurisdiction of the MeTC,
claiming that the case did not merely involve the
The Facts issue of physical possession but rather, questions
arising from their rights under a contract to sell which
On April 26, 2005, Sps. Jovellanos entered into a is a matter that is incapable of pecuniary estimation
Contract to Sell6 with Palmera Homes, Inc. (Palmera and, therefore, within the jurisdiction of the RTC.18
Homes) for the purchase of a residential house and
lot situated in Block 3, Lot 14, Villa Alegria The RTC Ruling
Subdivision, Caloocan City (subject property) for a
total consideration of P1,015,000.00. Pursuant to the In a Decision19 dated December 27, 2007, the RTC
contract, Sps. Jovellanos took possession of the affirmed the MeTCs judgment, holding that the latter
subject property upon a down payment did not err in refusing to admit Sps. Jovellanos s
of P91,500.00, undertaking to pay the remaining belatedly filed answer considering the mandatory
balance of the contract price in equal monthly period for its filing. It also affirmed the MeTCs finding
installments of P13,107.00 for a period of 10 years that the action does not involve the rights of the
starting June 12, 2005.7 respective parties under the contract but merely the
recovery of possession by Optimum of the subject
On August 22, 2006, Palmera Homes assigned all its property after the spouses default.20
rights, title and interest in the Contract to Sell in favor
of petitioner Optimum Development Bank (Optimum) Aggrieved, Sps. Jovellanos moved for
through a Deed of Assignment of even date.8 reconsideration which was, however, denied in a
Resolution21 dated June 27, 2008. Hence, the petition
On April 10, 2006, Optimum issued a Notice of before the CA reiterating that the RTC erred in
Delinquency and Cancellation of Contract to Sell9 for affirming the decision of the MeTC with respect to:
Sps. Jovellanoss failure to pay their monthly
installments despite several written and verbal (a) the non-admission of their answer to the
notices.10 complaint; and

In a final Demand Letter dated May 25, (b) the jurisdiction of the MeTC over the
2006,11 Optimum required Sps. Jovellanos to vacate complaint for unlawful detainer.22
and deliver possession of the subject property within
seven (7) days which, however, remained unheeded.
The CA Ruling
Hence, Optimum filed, on November 3, 2006, a
complaint for unlawful detainer12 before the MeTC,
docketed as Civil Case No. 06-28830. Despite having In an Amended Decision23 dated May 29, 2009, the
been served with summons, together with a copy of CA reversed and set aside the RTCs decision, ruling
the complaint,13 Sps. Jovellanos failed to file their to dismiss the complaint for lack of jurisdiction. It
answer within the prescribed reglementary period, found that the controversy does not only involve the
thus prompting Optimum to move for the rendition of issue of possession but also the validity of the
judgment.14 cancellation of the Contract to Sell and the
determination of the rights of the parties thereunder
as well as the governing law, among others, Republic
Thereafter, Sps. Jovellanos filed their opposition with
Act No. (RA) 6552.24
motion to admit answer, questioning the jurisdiction
of the court, among others. Further, they filed a
Motion to Reopen and Set the Case for Preliminary Accordingly, it concluded that the subject matter is
Conference, which the MeTC denied. one which is incapable of pecuniary estimation and
thus, within the jurisdiction of the RTC.25
The MeTC Ruling
Undaunted, Optimum moved for reconsideration
which was denied in a Resolution26 dated August 10,
In a Decision15 dated June 8, 2007, the MeTC
2009. Hence, the instant petition, submitting that the
ordered Sps. Jovellanos to vacate the subject
case is one for unlawful detainer, which falls within
property and pay Optimum reasonable compensation
the exclusive original jurisdiction of the municipal trial
in the amount of P5,000.00 for its use and occupation courts, and not a case incapable of pecuniary
until possession has been surrendered. It held that estimation cognizable solely by the regional trial
Sps. Jovellanoss possession of the said property
was by virtue of a Contract to Sell which had already
been cancelled for non-payment of the stipulated
monthly installment payments. As such, their "rights The Courts Ruling
of possession over the subject property necessarily
terminated or expired and hence, their continued The petition is meritorious. What is determinative of
possession thereof constitute[d] unlawful detainer."16 the nature of the action and the court with jurisdiction
over it are the allegations in the complaint and the
Dissatisfied, Sps. Jovellanos appealed to the RTC, character of the relief sought, not the defenses set up
claiming that Optimum counsel made them believe in an answer.27
Obligations & Contracts

A complaint sufficiently alleges a cause of action for Assumption of Mortgage."32Also, in Union Bank of the
unlawful detainer if it recites that: Philippines v. Maunlad Homes, Inc.33 (Union Bank),
citing Sps. Refugia v. CA,34 the Court declared that
(a) initially, possession of the property by the MeTCs have authority to interpret contracts in
defendant was by contract with or by unlawful detainer cases, viz.:35
tolerance of the plaintiff;
The authority granted to the MeTC to preliminarily
(b) eventually, such possession became resolve the issue of ownership to determine the issue
illegal upon notice by plaintiff to defendant of of possession ultimately allows it to interpret and
the termination of the latter's right of enforce the contract or agreement between the
possession; plaintiff and the defendant. To deny the MeTC
jurisdiction over a complaint merely because the
(c) thereafter, defendant remained in issue of possession requires the interpretation of a
possession of the property and deprived contract will effectively rule out unlawful detainer as a
remedy. As stated, in an action for unlawful detainer,
plaintiff of the enjoyment thereof; and
the defendants right to possess the property may be
by virtue of a contract, express or implied;
(d) within one year from the last demand on
defendant to vacate the property, plaintiff
instituted the complaint for ejectment.28 corollarily, the termination of the defendants right to
possess would be governed by the terms of the same
Corollarily, the only issue to be resolved in an
unlawful detainer case is physical or material
possession of the property involved, independent of Interpretation of the contract between the plaintiff and
any claim of ownership by any of the parties the defendant is inevitable because it is the contract
that initially granted the defendant the right to
possess the property; it is this same contract that the
plaintiff subsequently claims was violated or
In its complaint, Optimum alleged that it was by virtue extinguished, terminating the defendants right to
of the April 26, 2005 Contract to Sell that Sps. possess. We ruled in Sps. Refugia v. CA that
Jovellanos were allowed to take possession of the where the resolution of the issue of possession
subject property. However, since the latter failed to hinges on a determination of the validity and
pay the stipulated monthly installments, interpretation of the document of title or any other
notwithstanding several written and verbal notices contract on which the claim of possession is
made upon them, it cancelled the said contract as premised, the inferior court may likewise pass upon
per the Notice of Delinquency and Cancellation dated these issues.
April 10, 2006. When Sps. Jovellanos refused to
vacate the subject property despite repeated
The MeTCs ruling on the rights of the parties based
demands, Optimum instituted the present action for
on its interpretation of their contract is, of course, not
unlawful detainer on November 3, 2006, or within one
year from the final demand made on May 25, 2006. conclusive, but is merely provisional and is binding
only with respect to the issue of possession.
(Emphases supplied; citations omitted)
While the RTC upheld the MeTCs ruling in favor of
Optimum, the CA, on the other hand, declared that
In the case at bar, the unlawful detainer suit filed by
the MeTC had no jurisdiction over the complaint for
unlawful detainer, reasoning that the case involves a Optimum against Sps. Jovellanos for illegally
matter which is incapable of pecuniary estimation withholding possession of the subject property is
similarly premised upon the cancellation or
i.e., the validity of the cancellation of the Contract to
termination of the Contract to Sell between them.
Sell and the determination of the rights of the parties
Indeed, it was well within the jurisdiction of the MeTC
under the contract and law and hence, within the
to consider the terms of the parties agreement in
jurisdiction of the RTC. The Court disagrees.
Metropolitan Trial Courts are conditionally vested order to ultimately determine the factual bases of
with authority to resolve the question of ownership Optimums possessory claims over the subject
property. Proceeding accordingly, the MeTC held that
raised as an incident in an ejectment case where the
Sps. Jovellanoss non-payment of the installments
determination is essential to a complete adjudication
due had rendered the Contract to Sell without force
of the issue of possession.30 Concomitant to the
ejectment courts authority to look into the claim of and effect, thus depriving the latter of their right to
ownership for purposes of resolving the issue of possess the property subject of said contract.36 The
foregoing disposition aptly squares with existing
possession is its authority to interpret the contract or
jurisprudence. As the Court similarly held in the
agreement upon which the claim is premised. Thus,
Union Bank case, the sellers cancellation of the
in the case of Oronce v. CA,31 wherein the litigants
contract to sell necessarily extinguished the buyers
opposing claims for possession was hinged on
whether their written agreement reflected the right of possession over the property that was the
intention to enter into a sale or merely an equitable subject of the terminated agreement.37
mortgage, the Court affirmed the propriety of the
ejectment courts examination of the terms of the Verily, in a contract to sell, the prospective seller
agreement in question by holding that, "because binds himself to sell the property subject of the
metropolitan trial courts are authorized to look into agreement exclusively to the prospective buyer upon
the ownership of the property in controversy in fulfillment of the condition agreed upon which is the
ejectment cases, it behooved MTC Branch 41 to full payment of the purchase price but reserving to
examine the bases for petitioners claim of ownership himself the ownership of the subject property despite
that entailed interpretation of the Deed of Sale with delivery thereof to the prospective buyer.38
Obligations & Contracts

The full payment of the purchase price in a contract Pertinently, since Sps. Jovellanos failed to pay their
to sell is a suspensive condition, the non-fulfillment of stipulated monthly installments as found by the
which prevents the prospective sellers obligation to MeTC, the Court examines Optimums compliance
convey title from becoming effective,39 as in this case. with Section 4 of RA 6552, as above-quoted and
Further, it is significant to note that given that the highlighted, which is the provision applicable to
Contract to Sell in this case is one which has for its buyers who have paid less than two (2) years-worth
object real property to be sold on an installment of installments. Essentially, the said provision
basis, the said contract is especially governed by provides for three (3) requisites before the seller may
and thus, must be examined under the provisions of actually cancel the subject contract: first, the seller
RA 6552, or the "Realty Installment Buyer shall give the buyer a 60-day grace period to be
Protection Act", which provides for the rights of the reckoned from the date the installment became
buyer in case of his default in the payment of due; second, the seller must give the buyer a notice
succeeding installments. Breaking down the of cancellation/demand for rescission by notarial
provisions of the law, the Court, in the case of Rillo v. act if the buyer fails to pay the installments due at the
CA,40 explained the mechanics of cancellation under expiration of the said grace period; and third, the
RA 6552 which are based mainly on the amount of seller may actually cancel the contract only after
installments already paid by the buyer under the thirty (30) days from the buyers receipt of the said
subject contract, to wit:41 notice of cancellation/demand for rescission by
notarial act. In the present case, the 60-day grace
Given the nature of the contract of the parties, the period automatically operated42 in favor of the buyers,
respondent court correctly applied Republic Act No. Sps. Jovellanos, and took effect from the time that
6552. Known as the Maceda Law, R.A. No. 6552 the maturity dates of the installment payments
recognizes in conditional sales of all kinds of real lapsed. With the said grace period having expired
estate (industrial, commercial, residential) the right of bereft of any installment payment on the part of Sps.
the seller to cancel the contract upon non-payment of Jovellanos,43 Optimum then issued a notarized Notice
an installment by the buyer, which is simply an event of Delinquency and Cancellation of Contract on April
that prevents the obligation of the vendor to convey 10, 2006. Finally, in proceeding with the actual
title from acquiring binding force. It also provides the cancellation of the contract to sell, Optimum gave
right of the buyer on installments in case he defaults Sps. Jovellanos an additional thirty (30) days within
in the payment of succeeding installments, viz.: which to settle their arrears and reinstate the
contract, or sell or assign their rights to another.44
(1) Where he has paid at least two years of
installments, It was only after the expiration of the thirty day (30)
period did Optimum treat the contract to sell as
effectively cancelled making as it did a final
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned demand upon Sps. Jovellanos to vacate the subject
by him, which is hereby fixed at the rate of one month property only on May 25, 2006. Thus, based on the
foregoing, the Court finds that there was a valid and
grace period for every one year of installment
effective cancellation of the Contract to Sell in
payments made:
accordance with Section 4 of RA 6552 and since
Sps. Jovellanos had already lost their right to retain
Provided, That this right shall be exercised by the possession of the subject property as a consequence
buyer only once in every five years of the life of the of such cancellation, their refusal to vacate and turn
contract and its extensions, if any. (b) If the contract over possession to Optimum makes out a valid case
is cancelled, the seller shall refund to the buyer the for unlawful detainer as properly adjudged by the
cash surrender value of the payments on the MeTC.
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 WHEREFORE, the petition is GRANTED. The
Decision dated May 29, 2009 and Resolution dated
exceed ninety per cent of the total payments made:
August 10, 2009 of the Court of Appeals in CA-G.R.
SP No. 104487 are SET ASIDE. The Decision dated
Provided, That the actual cancellation of the contract June 8, 2007 of Metropolitan Trial Court, Branch 53,
shall take place after cancellation or the demand for Caloocan City in Civil Case No. 06-28830 is hereby
rescission of the contract by a notarial act and upon REINSTATED.
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 installments made.
Associate Justice
(2) Where he has paid less than two years in Footnotes
installments, Sec. 4. x x x the seller shall give the 1
Rollo, pp. 24-40.
buyer a grace period of not less than sixty days from 2
Id. at 171-177. Penned by Associate Justice Juan Q. Enriquez,
the date the installment became due. If the buyer Jr., with Associate Justices Celia C. Librea-Leagogo and Antonio
L. Villamor, concurring.
fails to pay the installments due at the expiration of 3
Id. at 205-206.
the grace period, the seller may cancel the contract 4
Id. at 107-111. Penned by Presiding Judge Eleonor R. Kwong.
after thirty days from receipt by the buyer of the 5
Id. at 73-74. Penned by Judge Marian G. Bien.
notice of cancellation or the demand for rescission of 6
Id. at 45-50.
Id. at 45, 108, and 172.
the contract by a notarial act. (Emphasis and 8
Id. at 26 and 51-54.
underscoring supplied) 9
Id. at 55.
Id. at 58.
Obligations & Contracts

Id. at 56. G.R. No. 185798 January 13, 2014
Id. at 57-60. Dated October 11, 2006.
Id. at 62.
Id. at 73-74. NETWORK INC., Petitioners,
Id. at 74.
Id. at 80-81.
Id. at 107-111. RONQUILLO, Respondents.
Id. at 111.
Id. at 140-141.
Id. at 142-157. See Memorandum for the Petitioners dated DECISION
December 21, 2008.
Id. at 171-177.
Id. at 175. RA 6552 is entitled "AN ACT TO PROVIDE
PAYMENTS." Before the Court is a petition for review on certiorari
Id. at 176.
Id. at 205-206.
under Rule 45 of the 1997 Rules .of Civil Procedure
Fernando v. Spouses Lim, 585 Phil. 141, 155 (2008). assailing the Decision of the Court of Appeals in CA-

Id. at 155-156. G.R. SP No. 100450 which affirmed the Decision of
Manila Electric Company v. Heirs of Spouses Dionisio Deloy and the Office of the President in O.P. Case No. 06-F-
Praxedes Martonito, G.R. No. 192893, June 5, 2013.
Section 33 of Batas Pambansa Blg. 129, as amended by RA
7691, provides: Sec. 33. Jurisdiction of Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts in Civil As culled from the records, the facts are as follow:
Cases. Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise: x x x x (2) Exclusive
original jurisdiction over cases of forcible entry and unlawful Petitioner Fil-Estate Properties, Inc. is the owner and
detainer: Provided, That when, in such cases, the defendant raises developer of the Central Park Place Tower while co-
the questions of ownership in his pleadings and the question of
possession cannot be resolved without deciding the issue of petitioner Fil-Estate Network, Inc. is its authorized
ownership, the issue of ownership shall be resolved only to marketing agent. Respondent Spouses Conrado and
determine the issue of possession; x x x x x x x Maria Victoria Ronquillo purchased from petitioners
358 Phil. 616 (1998). an 82-square meter condominium unit at Central
Id. at 636.
G.R. No. 190071, August 15, 2012, 678 SCRA 539. Park Place Tower in Mandaluyong City for a pre-
327 Phil. 982, 1006 (1996). selling contract price of FIVE MILLION ONE
Union Bank of the Philippines v. Maunlad Homes, Inc., supra HUNDRED SEVENTY-FOUR THOUSAND ONLY
note 33, at 547-548. (P5,174,000.00). On 29 August 1997, respondents
See Pagtalunan v. Dela Cruz Vda. de Manzano, 559 Phil. 658,
668 (2007). executed and signed a Reservation Application
See Union Bank of the Philippines v. Maunlad Homes, Inc., Agreement wherein they deposited P200,000.00 as
supra note 33, at 548-549. reservation fee. As agreed upon, respondents paid
See Coronel v. CA, 331 Phil. 294, 309 (1996). the full downpayment of P1,552,200.00 and had
See Montecalvo v. Heirs of Eugenia T. Primero, G.R. No.
165168, July 9, 2010, 624 SCRA 575, 587. been paying the P63,363.33 monthly amortizations
G.R. No. 125347, June 19, 1997, 274 SCRA 461. until September 1998.
Id. at 467-468.
The automatic operation of the aforesaid grace period in favor of
Sps. Jovellanos is in accord withBricktown Devt. Corp. v. Amor Upon learning that construction works had stopped,
Tierra Devt. Corp. (G.R. No. 112182, December 12, 1994, 239 respondents likewise stopped paying their monthly
SCRA 126, 131-132) wherein the Court held that: A grace period is amortization. Claiming to have paid a total
a right, not an obligation, of the debtor. of P2,198,949.96 to petitioners, respondents through
When unconditionally conferred, such as in this case, the grace
period is effective without further need of demand either calling for two (2) successive letters, demanded a full refund of
the payment of the obligation or for honoring the right. The grace their payment with interest. When their demands
period must not be likened to an obligation, the non-payment of went unheeded, respondents were constrained to file
which, under Article 1169 of the Civil Code, would generally still a Complaint for Refund and Damages before the
require judicial or extrajudicial demand before "default" can be said
to arise. Verily, in the case at bench, the sixty-day grace period Housing and Land Use Regulatory Board (HLURB).
under the terms of the contracts to sell became ipso Respondents prayed for reimbursement/refund
facto operative from the moment the due payments were not met of P2,198,949.96 representing the total amortization
at their stated maturities. On this score, the provisions of Article payments, P200,000.00 as and by way of moral
1169 of the Civil Code would find no relevance whatsoever.
(Emphases supplied; citations omitted) damages, attorneys fees and other litigation
Records disclose that Sps. Jovellanos had only paid expenses.
the P91,500.00 down-payment and not the equal monthly
installments due on the Contract to Sell for the remaining balance,
the first of which started on June 12, 2005. (See Contract to Sell, On 21 October 2000, the HLURB issued an Order of
rollo, p. 45; see CA Decision, id. at 172; see RTC Decision, id. at Default against petitioners for failing to file their
108; see MeTC Decision, id. at 73-74.) Records also disclose that Answer within the reglementary period despite
Sps. Jovellanos did not, in any of its pleadings attached thereto, service of summons. 2

claim that they have paid any monthly installment due on the
Contract to Sell outside from the P91,500.00 down-payment. (See
Defendants-Appellants Appeal Memorandum dated August 1, Petitioners filed a motion to lift order of default and
2007, id. at 77-78; Memorandum for Petitioners dated December attached their position paper attributing the delay in
21, 2008, id. at 151-152.)
Section 5 of RA 6552 states: Sec. 5. Under Sections 3 and 4, the construction to the 1997 Asian financial crisis.
buyer shall have the right to sell his rights or assign the same to Petitioners denied committing fraud or
another person or to reinstate the contract by updating the account misrepresentation which could entitle respondents to
during the grace period and before actual cancellation of the an award of moral damages.
contract. The deed of sale or assignment shall be done by notarial
On 13 June 2002, the HLURB, through Arbiter Atty.
Joselito F. Melchor, rendered judgment ordering
petitioners to jointly and severally pay respondents
SECOND DIVISION the following amount:
Obligations & Contracts

96/100 (P2,198,949.96) with interest thereon APPELLANTS TO PAY RESPONDENTS-
at twelve percent (12%) per annum to be APPELLEES THE SUM OF P100,000.00 AS MORAL
computed from the time of the complainants DAMAGES AND P50,000.00 AS ATTORNEYS
demand for refund on October 08, 1998 until FEES CONSIDERING THE ABSENCE OF ANY


(P100,000.00) as moral damages,
d) The costs of suit, and PAY P10,000.00 AS ADMINISTRATIVE FINE IN
e) An administrative fine of TEN THOUSAND BASIS TO SUPPORT SUCH FINDING. 8

PESOS (P10,000.00) payable to this Office

fifteen (15) days upon receipt of this On 30 July 2008, the Court of Appeals denied the
decision, for violation of Section 20 in relation petition for review for lack of merit. The appellate
to Section 38 of PD 957. 3 court echoed the HLURB Arbiters ruling that "a buyer
for a condominium/subdivision unit/lot unit which has
The Arbiter considered petitioners failure to develop not been developed in accordance with the approved
condominium/subdivision plan within the time limit for
the condominium project as a substantial breach of
complying with said developmental requirement may
their obligation which entitles respondents to seek for
opt for reimbursement under Section 20 in relation to
rescission with payment of damages. The Arbiter
Section 23 of Presidential Decree (P.D.) 957 x x
also stated that mere economic hardship is not an
excuse for contractual and legal delay. x." The appellate court supported the HLURB

Arbiters conclusion, which was affirmed by the

HLURB Board of Commission and the Office of the
Petitioners appealed the Arbiters Decision through a President, that petitioners failure to develop the
petition for review pursuant to Rule XII of the 1996 condominium project is tantamount to a substantial
Rules of Procedure of HLURB. On 17 February 2005, breach which warrants a refund of the total amount
the Board of Commissioners of the HLURB paid, including interest. The appellate court pointed
denied the petition and affirmed the Arbiters
out that petitioners failed to prove that the Asian
Decision. The HLURB reiterated that the depreciation financial crisis constitutes a fortuitous event which
of the peso as a result of the Asian financial crisis is could excuse them from the performance of their
not a fortuitous event which will exempt petitioners contractual and statutory obligations. The appellate
from the performance of their contractual obligation. court also affirmed the award of moral damages in
light of petitioners unjustified refusal to satisfy
Petitioners filed a motion for reconsideration but it respondents claim and the legality of the
was denied on 8 May 2006. Thereafter, petitioners
administrative fine, as provided in Section 20 of
filed a Notice of Appeal with the Office of the Presidential Decree No. 957.
President. On 18 April 2007, petitioners appeal was
dismissed by the Office of the President for lack of
Petitioners sought reconsideration but it was denied
merit. Petitioners moved for a reconsideration but in a Resolution dated 11 December 2008 by the

their motion was denied on 26 July 2007.

Court of Appeals.

Petitioners sought relief from the Court of Appeals Aggrieved, petitioners filed the instant petition
through a petition for review under Rule 43 advancing substantially the same grounds for review:
containing the same arguments they raised before
the HLURB and the Office of the President:
OF P2,198,949.96 WITH 12% INTEREST FROM 8
Obligations & Contracts

C. This petition did not present any justification for us to

deviate from the rulings of the HLURB, the Office of
THE HONORABLE COURT OF APPEALS the President and the Court of Appeals.
THE DECISION OF THE OFFICE OF THE Indeed, the non-performance of petitioners obligation
PRESIDENT INCLUDING THE PAYMENT entitles respondents to rescission under Article 1191
OF P100,000.00 AS MORAL of the New Civil Code which states:
AND P10,000.00 AS ADMINISTRATIVE FINE IN Article 1191. The power to rescind obligations is
THE ABSENCE OF ANY FACTUAL OR LEGAL implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

Petitioners insist that the complaint states no cause The injured party may choose between the fulfillment
of action because they allegedly have not committed and the rescission of the obligation, with payment of
any act of misrepresentation amounting to bad faith damages in either case. He may also seek
which could entitle respondents to a refund. rescission, even after he has chosen fulfillment, if the
Petitioners claim that there was a mere delay in the latter should become impossible.
completion of the project and that they only resorted
to "suspension and reformatting as a testament to More in point is Section 23 of Presidential Decree
their commitment to their buyers." Petitioners
No. 957, the rule governing the sale of
attribute the delay to the 1997 Asian financial crisis
condominiums, which provides:
that befell the real estate industry. Invoking Article
1174 of the New Civil Code, petitioners maintain that
they cannot be held liable for a fortuitous event. Section 23. Non-Forfeiture of Payments. No 1wphi1

installment payment made by a buyer in a

subdivision or condominium project for the lot or unit
Petitioners contest the payment of a huge amount of
he contracted to buy shall be forfeited in favor of the
interest on account of suspension of development on
owner or developer when the buyer, after due notice
a project. They liken their situation to a bank which
to the owner or developer, desists from further
this Court, in Overseas Bank v. Court of payment due to the failure of the owner or developer
Appeals, adjudged as not liable to pay interest on
to develop the subdivision or condominium project
deposits during the period that its operations are
according to the approved plans and within the time
ordered suspended by the Monetary Board of the
limit for complying with the same. Such buyer may, at
Central Bank.
his option, be reimbursed the total amount paid
including amortization interests but excluding
Lastly, petitioners aver that they should not be delinquency interests, with interest thereon at the
ordered to pay moral damages because they never legal rate. (Emphasis supplied).
intended to cause delay, and again blamed the Asian
economic crisis as the direct, proximate and only
Conformably with these provisions of law,
cause of their failure to complete the project. respondents are entitled to rescind the contract and
Petitioners submit that moral damages should not be demand reimbursement for the payments they had
awarded unless so stipulated except under the
made to petitioners.
instances enumerated in Article 2208 of the New Civil
Code. Lastly, petitioners refuse to pay the
administrative fine because the delay in the project Notably, the issues had already been settled by the
was caused not by their own deceptive intent to Court in the case of Fil-Estate Properties, Inc. v.
defraud their buyers, but due to unforeseen Spouses Go promulgated on 17 August 2007,

circumstances beyond their control. where the Court stated that the Asian financial crisis
is not an instance of caso fortuito. Bearing the same
factual milieu as the instant case, G.R. No. 165164
Three issues are presented for our resolution: 1)
involves the same company, Fil-Estate, albeit about a
whether or not the Asian financial crisis constitute a different condominium property. The company
fortuitous event which would justify delay by likewise reneged on its obligation to respondents
petitioners in the performance of their contractual
therein by failing to develop the condominium project
obligation; 2) assuming that petitioners are liable,
despite substantial payment of the contract price. Fil-
whether or not 12% interest was correctly imposed
Estate advanced the same argument that the 1997
on the judgment award, and 3) whether the award of Asian financial crisis is a fortuitous event which
moral damages, attorneys fees and administrative justifies the delay of the construction project. First off,
fine was proper.
the Court classified the issue as a question of fact
which may not be raised in a petition for review
It is apparent that these issues were repeatedly considering that there was no variance in the factual
raised by petitioners in all the legal fora. The rulings findings of the HLURB, the Office of the President
were consistent that first, the Asian financial crisis is and the Court of Appeals. Second, the Court cited
not a fortuitous event that would excuse petitioners the previous rulings of Asian Construction and
from performing their contractual obligation; second, Development Corporation v. Philippine Commercial
as a result of the breach committed by petitioners, International Bank and Mondragon Leisure and

respondents are entitled to rescind the contract and Resorts Corporation v. Court of Appeals holding that

to be refunded the amount of amortizations paid the 1997 Asian financial crisis did not constitute a
including interest and damages; and third, petitioners valid justification to renege on obligations. The Court
are likewise obligated to pay attorneys fees and the expounded:
administrative fine.
Obligations & Contracts

Also, we cannot generalize that the Asian financial from the time of respondents' demand for refund on 8
crisis in 1997 was unforeseeable and beyond the October 1998.
control of a business corporation. It is unfortunate
that petitioner apparently met with considerable SO ORDERED.
difficulty e.g. increase cost of materials and labor,
even before the scheduled commencement of its real JOSE PORTUGAL PEREZ
estate project as early as 1995. However, a real
Associate Justice
estate enterprise engaged in the pre-selling of
condominium units is concededly a master in
projections on commodities and currency movements 1
Penned by Associate Justice Arturo G. Tayag with Associate
and business risks. The fluctuating movement of the Justices Martin S. Villarama, Jr. (now Supreme Court Associate
Philippine peso in the foreign exchange market is an Justice) and Noel G. Tijam, concurring. Rollo, pp. 34-46.
everyday occurrence, and fluctuations in currency
Id. at 68.
Id. at 92.
exchange rates happen everyday, thus, not an 4
Id. at 113-115.
instance of caso fortuito.16 5
Id. at 129-130.
Id. at 178-180.
Id. at 191.
The aforementioned decision becomes a precedent 8
See Petition for Review filed with the Court of Appeals. Id. at 198-
to future cases in which the facts are substantially the 199.
same, as in this case. The principle of stare decisis, 9
Id. at 42.
which means adherence to judicial precedents,
Id. at 48-49.
Id. at 16-17.
applies. 12
192 Phil. 355 (1981).
557 Phil. 377 (2007).
522 Phil. 168, 180-181 (2006).
In said case, the Court ordered the refund of the total 15
499 Phil. 268, 279 (2005).
amortizations paid by respondents plus 6% legal 16
Fil-Estate Properties, Inc. v. Spouses Go, supra note 13 at 384.
interest computed from the date of demand. The 17
G.R. No. 189871, 13 August 2013.
Court also awarded attorneys fees. We follow that 18
Maglasang v. Northwestern University, Inc., G.R. No. 188986, 20
ruling in the case before us. March 2013, 694 SCRA 128, 140.
Almeda Development and Equipment Corp. v. Metro Motor
Sales, Inc., 534 Phil. 672, 675 (2006).
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.

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:

Section 38. Administrative Fines. The Authority may

prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this
Decree or of any rule or regulation thereunder. Fines
shall be payable to the Authority and enforceable
through writs of execution in accordance with the
provisions of the Rules of Court.

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.


The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is
SIX PERCENT (6%) on the amount due computed