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THIRD DIVISION

[G.R. No. 70789. October 19, 1992.]

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R.


TANTOCO, SR., and ROMEO S. VERGARA, petitioners, vs. THE
INTERMEDIATE APPELLATE COURT AND ILIGAN
DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and
ROBERTO G. BORROMEO, respondents.

Napoleon J. Poblador for petitioner.


Pinito W. Mercado and Pablo S. Badong for respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACT; POTESTATIVE CONDITION;


MAY BE OBLITERATED WITHOUT AFFECTING THE REST OF THE
STIPULATIONS. The matter of Tantoco's and Vergara's joint and several
liability as a result of the alleged breach of the contract is dependent, first of all,
on whether Rustan Pulp and Paper Mills may legally exercise the right of
stoppage should there be a glut of raw materials at its plant.
And insofar as the express discretion on the part of petitioners is concerned
regarding the right of stoppage, We feel that there is cogent basis for private
respondents' apprehension on the illusory resumption of deliveries inasmuch as
the prerogative suggests a condition solely dependent upon the will of
petitioners. Petitioners can stop delivery of pulp wood from private respondents if
the supply at the plant is sufficient as ascertained by petitioners, subject to re-
delivery when the need arises as determined likewise by petitioners. This is Our
simple understanding of the literal import of paragraph 7 of the obligation in
question. A purely potestative imposition of this character must be obliterated
from the face of the contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already existing
obligation and not to its inception. It is, a truism in legal jurisprudence that a
condition which is both potestative (or facultative) and resolutory may be valid,
even though the saving clause is left to the will of the obligor.
2. ID.; ID.; ID.; RIGHT OF STOPPAGE GUARANTEED IN THE CONTRACT,
HELD INOPERATIVE; REASON. Petitioners are of the impression that the
letter dated September 30, 1968 sent to private respondents is well within the
right of stoppage guaranteed to them by paragraph 7 of the contract of sale
which was construed by petitioners to be a temporary suspension of deliveries.
There is no doubt that the contract speaks loudly about petitioners' prerogative
but what diminishes the legal efficacy of such right is the condition attached to it
which, as aforesaid, is dependent exclusively on their will for which reason, We
have no alternative but to treat the controversial stipulation as inoperative (Article
1306, New Civil Code). It is for this same reason that We are not inclined to
follow the interpretation of petitioners that the suspension of delivery was merely
temporary since the nature of the suspension itself is again conditioned upon
petitioners' determination of the sufficiency of supplies at the plant.
3. ID.; ID.; FRUSTRATION OF COMMERCIAL OBJECT AS GROUND FOR
TERMINATION OF THE CONTRACT, NOT ACCEPTABLE; REASONS.
Neither are We prepared to accept petitioners' exculpation grounded on
frustration of the commercial object under Article 1267 of the New Civil Code,
because petitioners continued accepting deliveries from the suppliers. This
conduct will estop petitioners from claiming that the breakdown of the machinery
line was an extraordinary obstacle to their compliance to the prestation. It was
indeed incongruous for petitioners to have sent the letters calling for suspension
and yet, they in effect disregarded their own advice by accepting the deliveries
from the suppliers. Knowing fully well that they will encounter difficulty in
producing output because of the defective machinery line, petitioners opted to
open the plant to greater loss, thus compounding the costs by accepting
additional supply to the stockpile. Verily, the Appellate Court emphasized the
absurdity of petitioners' action when they acknowledged that "if the plant could
not be operated on a commercial scale, it would then be illogical for defendant
Rustan to continue accepting deliveries of raw materials."
4. ID.; AGENCY; OFFICERS OF CORPORATIONS NOT LIABLE
INDIVIDUALLY UNDER THE CONTRACT SIGNED BY THEM IN THEIR
OFFICIAL CAPACITY; EXCEPTION. We have to agree with petitioners'
citation of authority to the effect that the President and Manager of a corporation
who entered into and signed a contract in his official capacity, cannot be made
liable thereunder in his individual capacity in the absence of stipulation to that
effect due to the personality of the corporation being separate and distinct from
the persons composing it (Bangue Generale Belge vs. Walter Bull and Co., Inc.,
84 Phil. 164). And because of this precept, Vergara's supposed non-participation
in the contract of sale although he signed the letter dated September 30, 1968 is
completely immaterial. The two exceptions contemplated by Article 1897 of the
New Civil Code where agents are directly responsible are absent and wanting.

DECISION
MELO, J : p

When petitioners informed herein private respondents to stop the delivery of pulp
wood supplied by the latter pursuant to a contract of sale between them, private
respondents sued for breach of their covenant. The court of origin dismissed the
complaint but at the same time enjoined petitioners to respect the contract of sale
if circumstances warrant the full operation in a commercial scale of petitioners'
Baloi plant and to continue accepting and paying for deliveries of pulp wood
products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the
then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who
spoke for the First Civil Cases Division, with Justices Caguioa, Quetulio-Losa,
and Luciano, concurring, modified the judgment by directing herein petitioners to
pay private respondents, jointly and severally, the sum of P30,000.00 as moral
damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).
In the petition at bar, it is argued that the Appellate Court erred:
"A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT
OF SALE PETITIONER TANTOCO WHO SIGNED MERELY AS
REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER
VERGARA WHO DID NOT SIGN AT ALL;
B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO
SUSPEND TAKING DELIVERY OF PULP WOOD FROM
RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND
UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL
EXERCISE OF ITS RIGHT UNDER THE CONTRACT OF SALE; and
C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN
THE ABSENCE OF FRAUD OR BAD FAITH."(page 18, Petition; page
24, Rollo)
The generative facts of the controversy, as gathered from the pleadings, are
fairly simple.
Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi,
Lanao del Norte. On March 20, 1967, respondent Lluch, who is a holder of a
forest products license, transmitted a letter to petitioner Rustan for the supply of
raw materials by the former to the latter. In response thereto, petitioner Rustan
proposed, among other things, in the letter-reply:
"2. That the contract to supply is not exclusive because Rustan shall
have the option to buy from other suppliers who are qualified and holder
of appropriate government authority or license to sell and dispose pulp
wood."
These prefatory business proposals culminated in the execution, during the
month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to
sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30.00
per cubic meter of pulp wood raw materials to be delivered at the buyer's plant in
Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the
following stipulations in the bilateral undertaking:
"3. That BUYER shall have the option to buy from other SELLERS who
are equally qualified and holders of appropriate government authority or
license to sell or dispose, that BUYER shall not buy from any other seller
whose pulp woods being sold shall have been established to have
emanated from the SELLER'S lumber and/or firewood concession. . . ."
And that SELLER has the priority to supply the pulp wood materials
requirement of the BUYER;
xxx xxx xxx
7. That the BUYER shall have the right to stop delivery of the said raw
materials by the seller covered by this contract when supply of the same
shall become sufficient until such time when need for said raw materials
shall have become necessary provided, however, that the SELLER is
given sufficient notice."(pages 8-9, Petition; pages 14-15, Rollo)
In the installation of the plant facilities, the technical staff of Rustan Pulp and
Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers
of the pulp wood materials for which the corresponding deliveries were made.
But during the test run of the pulp mill, the machinery line thereat had major
defects while deliveries of the raw materials piled up, which prompted the
Japanese supplier of the machinery to recommend the stoppage of the
deliveries. The suppliers were informed to stop deliveries and the letter of similar
advice sent by petitioners to private respondents reads:
"September 30, 1968
Iligan Diversified Projects, Inc.
Iligan City
Attention: Mr. Romeo A. Lluch.
Dear Mr. Lluch:
This is to inform you that the supply of raw materials to us has become
sufficient and we will not be needing further delivery from you. As per the
terms of our contract, please stop delivery thirty (30) days from today.
Very truly yours,
RUSTAN PULP AND PAPER
MILLS, INC.
By:
DR. ROMEO S. VERGARA
Resident Manager"
Private respondent Romeo Lluch sought to clarify the tenor of the letter as to
whether stoppage of delivery or termination of the contract of sale was intended,
but the query was not answered by petitioners. This alleged ambiguity
notwithstanding, Lluch and the other suppliers resumed deliveries after the series
of talks between Romeo S. Vergara and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as
earlier noted, was dismissed. In the process of discussing the merits of the
appeal interposed therefrom, respondent Court clarified the eleven errors
assigned below by herein petitioners and it seems that petitioners were quite
satisfied with the Appellate Court's in seriatim response since petitioners trimmed
down their discourse before this Court to three basic matters, relative to the
nature of liability, the propriety of the stoppage, and the feasibility of awarding
moral damages including attorney's fees.
Respondent Court found it ironic that petitioners had to exercise the prerogative
regarding the stoppage of deliveries via the letter addressed to Iligan Diversified
Projects, Inc. on September 30, 1968 because petitioners never really stopped
accepting deliveries from private respondents until December 23, 1968.
Petitioner's paradoxical stance was portrayed in this manner:
". . . We cannot accept the reasons given by appellees as to why they
were stopping deliveries of pulp wood materials. First, We find it
preposterous for a business company like the appellee to accumulate
stockpiles of cut wood even after its letter to appellants dated September
30, 1968 stopping the deliveries because the supply of raw materials has
become sufficient. The fact that appellees were buying and accepting
pulp wood materials from other sources other than the appellants even
after September 30, 1968 belies that they have more than sufficient
supply of pulp wood materials, or that they are unable to go into full
commercial operation or that their machineries are defective or even that
the pulp wood materials coming from appellants are sub-
standard. Second, We likewise find the court a quo's finding that "even
with one predicament in which defendant Rustan found itself wherein
commercial operation was delayed, it accommodated all its suppliers of
raw materials, including plaintiff, Romeo Lluch, by allowing them to
deliver all its stockpiles of cut wood" (Decision, page 202, Record on
Appeal) to be both illogical and inconsistent. Illogical, because as
appellee Rustan itself claimed "if the plant could not be operated on a
commercial scale, it would then be illogical for defendant Rustan to
continue accepting deliveries of raw materials." Inconsistent because
this kind of "concern" or "accommodation" is not usual or consistent with
ordinary business practice considering that this would mean adequate
losses to the company. More so, if We consider that appellee is a new
company and could not therefore afford to absorb more losses than it
already allegedly incurred by the consequent defects in the
machineries. cdrep

Clearly therefore, this is a breach of the contract entered into by and


between appellees and appellants which warrants the intervention of this
Court."
xxx xxx xxx
. . . The letter of September 30, 1968, Exh. "D" shows that defendants
were terminating the contract of sale (Exh. "A"), and refusing any future
or further delivery whether on the ground that they had sufficient
supply of pulp wood materials or that appellants cannot meet the
standard of quality of pulp wood materials that Rustan needs or that
there were defects in appellees' machineries resulting in an inability to
continue full commercial operations.
Furthermore, there is evidence on record that appellees have been
accepting deliveries of pulp wood materials from other sources, i.e.
Salem Usman, Fermin Villanueva and Pacasum even after September
30, 1968.
Lastly, it would be unjust for the court a quo to rule that the contract of
sale be temporarily suspended until Rustan, et al., are ready to accept
deliveries from appellants. This would make the resumption of the
contract purely dependent on the will of one party the appellees, and
they could always claim, as they did in the instant case, that they have
more than sufficient supply of pulp wood when in fact they have been
accepting the same from other sources. Added to this, the court a
quo was imposing a new condition in the contract, one that was not
agreed upon by the parties."(Pages 8-10, Decision; Pages 55-57, Rollo)
The matter of Tantoco's and Vergara's joint and several liability as a result of the
alleged breach of the contract is dependent, first of all, on whether Rustan Pulp
and Paper Mills may legally exercise the right of stoppage should there be a glut
of raw materials at its plant.
And insofar as the express discretion on the part of petitioners is concerned
regarding the right of stoppage, We feel that there is cogent basis for private
respondents' apprehension on the illusory resumption of deliveries inasmuch as
the prerogative suggests a condition solely dependent upon the will of
petitioners. Petitioners can stop delivery of pulp wood from private respondents if
the supply at the plant is sufficient as ascertained by petitioners, subject to re-
delivery when the need arises as determined likewise by petitioners. This is Our
simple understanding of the literal import of paragraph 7 of the obligation in
question. A purely potestative imposition of this character must be obliterated
from the face of the contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already existing
obligation and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition,
Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a
condition which is both potestative (or facultative) and resolutory may be valid,
even though the saving clause is left to the will of the obligor like what this Court,
through Justice Street, said in Taylor vs. Uy Tieng Piao and Tan Liuan (43 Phil.
873; 879; cited in Commentaries and Jurisprudence on the Civil Code,
by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from
the Taylor case, which allowed a condition for unilateral cancellation of the
contract when the machinery to be installed on the factory did not arrive in
Manila, is certainly inappropriate for application to the case at hand because the
factual milieu in the legal tussle dissected by Justice Street conveys that
the proviso relates to the birth of the undertaking and not the fulfillment of an
existing obligation.
LLjur

In support of the second ground for allowance of the petition, petitioners are of
the impression that the letter dated September 30, 1968 sent to private
respondents is well within the right of stoppage guaranteed to them by paragraph
7 of the contract of sale which was construed by petitioners to be a temporary
suspension of deliveries. There is no doubt that the contract speaks loudly about
petitioners' prerogative but what diminishes the legal efficacy of such right is the
condition attached to it which, as aforesaid, is dependent exclusively on their will
for which reason, We have no alternative but to treat the controversial stipulation
as inoperative (Article 1306, New Civil Code). It is for this same reason that We
are not inclined to follow the interpretation of petitioners that the suspension of
delivery was merely temporary since the nature of the suspension itself is again
conditioned upon petitioners' determination of the sufficiency of supplies at the
plant.
Neither are We prepared to accept petitioners' exculpation grounded on
frustration of the commercial object under Article 1267 of the New Civil Code,
because petitioners continued accepting deliveries from the suppliers. This
conduct will estop petitioners from claiming that the breakdown of the machinery
line was an extraordinary obstacle to their compliance to the prestation. It was
indeed incongruous for petitioners to have sent the letters calling for suspension
and yet, they in effect disregarded their own advice by accepting the deliveries
from the suppliers. The demeanor of petitioners along this line was sought to be
justified as an act of generous accommodation, which entailed greater loss to
them and "was not motivated by the usual businessman's obsession with profit"
(Page 34, Petition; Page 40, Rollo). Altruism may be a noble gesture but
petitioners' stance in this respect hardly inspires belief for such an excuse is
inconsistent with a normal business enterprise which takes ordinary care of its
concern in cutting down on expenses (Section 3, (d), Rule 131, Revised Rules of
Court). Knowing fully well that they will encounter difficulty in producing output
because of the defective machinery line, petitioners opted to open the plant to
greater loss, thus compounding the costs by accepting additional supply to the
stockpile. Verily, the Appellate Court emphasized the absurdity of petitioners'
action when they acknowledged that "if the plant could not be operated on a
commercial scale, it would then be illogical for defendant Rustan to continue
accepting deliveries of raw materials." (Page 202, Record on Appeal; Page 8,
Decision; Page 55, Rollo).
Petitioners argue next that Tantoco and Vergara should not have been adjudged
to pay moral damages and attorney's fees because Tantoco merely represented
the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not
privy to the contract of sale. On this score, We have to agree with petitioners'
citation of authority to the effect that the President and Manager of a corporation
who entered into and signed a contract in his official capacity, cannot be made
liable thereunder in his individual capacity in the absence of stipulation to that
effect due to the personality of the corporation being separate and distinct from
the persons composing it (Bangue Generale Belge vs. Walter Bull and Co., Inc.,
84 Phil. 164). And because of this precept, Vergara's supposed non-participation
in the contract of sale although he signed the letter dated September 30, 1968 is
completely immaterial. The two exceptions contemplated by Article 1897 of the
New Civil Code where agents are directly responsible are absent and wanting. LLjur

WHEREFORE, the decision appealed from is hereby MODIFIED in the sense


that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages
and attorney's fees as awarded by respondent Court.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ ., concur.
FIRST DIVISION

[G.R. No. L-44428. September 30, 1977.]

AVELINO BALURAN, petitioner, vs. HON. RICARDO Y.


NAVARRO, Presiding Judge, Court of First Instance of Ilocos
Norte, Branch I and ANTONIO OBEDENCIO, respondents.

Alipio V. Flores for petitioner.


Rafael B. Ruiz for private respondent.

DECISION

MUOZ PALMA, J : p

Spouses Domingo Paraiso and Fidela Q. Paraiso were the owners of a


residential lot of around 480 square meters located in Sarrat, Ilocos Norte. On or
about February 2, 1964, the Paraiso executed an agreement entitled "BARTER"
whereby as party of the first part they agreed to "barter and exchange" with
spouses AVELINO and Benilda Baluran their residential lot with the latter's
unirrigated riceland situated in Sarrat, Ilocos Norte, of approximately 223 square
meters without any permanent improvements, under the following conditions:
"1. That both the Party of the First Part and the Party of the Second Part
shall enjoy the material possession of their respective properties; the
Party of the First Part shall reap the fruits of the unirrigated riceland and
the Party of the Second Part shall have a right to build his own house in
the residential lot.
"2. Nevertheless, in the event any of the children of Natividad P.
Obedencio, daughter of the First Part, shall choose to reside in this
municipality and build his own house in the residential lot, the Party of
the Second Part shall be obliged to return the lot such children with
damages to be incurred.
"3. That neither the Party of the First Part nor the Party of the Second
Part shall encumber, alienate or dispose of in any manner their
respective properties as bartered without the consent of the other.
"4. That inasmuch as the bartered properties are not yet registered in
accordance with Act No. 496 or under the Spanish Mortgage Law, they
finally agreed and covenant that this deed be registered in the Office of
the Register of Deeds of Ilocos Norte pursuant to the provisions of Act
No. 3344 as amended." (P. 28, rollo)
On May 6, 1975 Antonio Obendencio filed with the Court of First Instance of
Ilocos Norte the present complaint to recover the above-mentioned residential lot
from Avelino Baluran claiming that he is the rightful owner of said residential lot
having acquired the same from his mother, Natividad Paraiso Obedencio, and
that he needed the property for purposes of constructing his house thereon
inasmuch as he had taken residence in his native town, Sarrat. Obedencio
accordingly prayed that he be declared owner of the residential lot and that
defendant Baluran be ordered to vacate the same forfeiting his (Obedencio) favor
the improvements defendant Baluran had built in bad faith. 1
Answering the complaint, Avelino Baluran alleged inter alia (1) that the "barter
agreement" transferred to him the ownership of the residential lot in exchange for
the unirrigated riceland conveyed to plaintiff's predecessor-in-interest, Natividad
Obedencio, who in fact is still in possession thereof; and (2) that the plaintiff's
cause of action if any had prescribed. 2
At the pre-trial, the parties agreed to submit the case for decision on the basis of
their stipulation of facts. It was likewise admitted that the aforementioned
residential lot was donated on October 4, 1974 by Natividad Obedencio to her
son Antonio Obedencio, and that since the execution of the agreement of
February 2, 1964 Avelino Baluran was in possession of the residential lot, paid
the taxes of the property, and constructed a house thereon with an assessed
value of P250.00. 3 On November 8, 1975, the trial Judge Ricardo Y. Navarro
rendered a decision the dispositive portion of which reads as follows:
"Consequently, the plaintiff is hereby declared owner of the property in
question, the defendant is hereby ordered to vacate the same. With
costs against defendant."
Avelino Baluran to whom We shall refer as petitioner, now seeks a review of that
decision under the following assignment of errors: cdphil

"I The lower Court erred in holding that the barter agreement did not
transfer ownership of the lot in suit to the petitioner.
"II The lower Court erred in not holding that the right to re-barter or re-
exchange of respondent Antonio Obedencio had been barred by the
statute of limitation." (p. 14, ibid.)
The resolution of this appeal revolves on the nature of the undertaking or
contract of February 2, 1964 which is entitled "Barter Agreement."
It is a settled rule that to determine the nature of a contract courts are not bound
by the name or title given to it by the contracting parties. 4 This Court has held
that contracts are not what the parties may see fit to call them but what they
really are as determined by the principles of law. 5 Thus, in the instant case, the
use of the term "barter" in describing the agreement of February 2, 1964, is not
controlling. The stipulations in said document are clear enough to indicate that
there was no intention at all on the part of the signatories thereto to convey the
ownership of their respective properties; all that was intended, and it was so
provided in the agreement, was to transfer the material possession
thereof. (condition No. 1, see page 1 of this Decision) In fact, under condition No.
3 of the agreement, the parties retained the right to alienate their respective
properties which right is an element of ownership.
With the material possession being the only one transferred, all that the parties
acquired was the right of usufruct which in essence is the right to enjoy the
property of another. 6 Under the document in question, spouses Paraiso would
harvest the crop of the unirrigated riceland while the other party, Avelino Baluran,
could build a house on the residential lot, subject, however, to the condition, that
when any of the children of Natividad Paraiso Obedencio, daughter of spouses
Paraiso, shall choose to reside in the municipality and build his house on the
residential lot, Avelino Baluran shall be obliged to return the lot to said children
"with damages to be incurred." (Condition No. 2 of the Agreement) Thus, the
mutual agreement each party enjoying "material possession" of the other's
property was subject to a resolutory condition the happening of which would
terminate the right of possession and use.
A resolutory condition is one which extinguishes rights and obligations already
existing. 7 The right of "material possession" granted in the agreement of
February 2, 1964, ends if and when any of the children of Natividad Paraiso
Obedencio (daughter of spouses Paraiso, party of the First Part) would reside in
the municipality and build his house on the property. Inasmuch as the condition
imposed is not dependent solely on the will of one of the parties to the contract
the spouses Paraiso but is partly dependent on the will of third persons
Natividad Obedencio and any of her children the same is valid. 8
When there is nothing contrary to law, morals, and good customs or public policy
in the stipulations of a contract, the agreement constitutes the law between the
parties and the latter are bound by the terms thereof. 9
Art. 1306 of the Civil Code states:
"Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or
public policy."
"Contracts which are the private laws of the contracting parties, should
be fulfilled according to the literal sense of their stipulations, if their terms
are clear and leave no room for doubt as to the intention of the
contracting parties, for contracts are obligatory, no matter what their form
may be, whenever the essential requisites for their validity are present."
(Philippine American General Insurance Co., Inc. vs. Mutuc, 61 SCRA
22)
The trial court therefore correctly adjudged that Antonio Obedencio is entitled to
recover the possession of the residential lot pursuant to the agreement of
February 2, 1964. prcd

Petitioner submits under the second assigned error that the cause of action if any
of respondent Obedencio had prescribed after the lapse of four years from the
date of execution of the document of February 2, 1964. It is argued that the
remedy of plaintiff, now respondent, was to ask for re-barter or re exchange of
the properties subject of the agreement which could be exercised only within four
years from the date of the contract under Art. 1606 of the Civil Code.
The submission of petitioner is untenable. Art. 1606 of the Civil Code refers to
conventional redemption which petitioner would want to apply to the present
situation. However, as We stated above, the agreement of the parties of
February 2, 1964, is not one of barter, exchange or even sale with right to
repurchase, but is one of or akin the other is the use or material possession or
enjoyment of each other's real property.
Usufruct may be constituted by the parties for any period of time and under such
conditions as they may deem convenient and beneficial subject to the provisions
of the Civil Code, Book II, Title VI on Usufruct. The manner of terminating or
extinguishing the right of usufruct is primarily determined by the stipulations of
the parties which in this case now before Us is the happening of the event
agreed upon. Necessarily, the plaintiff or respondent Obedencio could not
demand for the recovery of possession of the residential lot in question, not until
he acquired that right from his mother, Natividad Obedencio, and which he did
acquire when his mother donated to him the residential lot on October 4, 974.
Even if We were to go along with petitioner in his argument that the fulfillment of
the condition cannot be left to an indefinite, uncertain period, nonetheless, in the
case at bar, the respondent, in whose favor the resolutory condition was
constituted, took immediate steps to terminate the right of petitioner herein to the
use of the lot. Obedencio's present complaint was filed in May of 1975, barely
several months after the property was donated to him.

One last point raised by petitioner is his alleged right to recover damages under
the agreement of February 2, 1964. In the absence of evidence, considering that
the parties agreed to submit the case for decision on a stipulation of facts, We
have no basis for awarding damages to petitioner.
However, We apply Art. 579 of the Civil Code and hold that petitioner will not
forfeit the improvement he built on the lot but may remove the same without
causing damage to the property.
"Art. 579. The usufructuary may make on the property held in usufruct
such useful improvements or expenses for mere pleasure as he may
deem proper, provided he does not alter its form or substance; but he
shall have no right to be indemnified therefor. He may, however,
removed such improvements, should it be possible to do so without
damage to the property." (emphasis supplied)
Finally, We cannot close this case without touching on the unirrigated riceland
which admittedly is in the possession of Natividad Obedencio.
In view of our ruling that the "barter agreement" of February 2, 1964, did not
transfer the ownership of the respective properties mentioned therein, it follows
that petitioner Baluran remains the owner of the unirrigated riceland and is now
entitled to its possession. With the happening of the resolutory condition provided
for in the agreement, the right of usufruct of the parties is extinguished and each
is entitled to a return of his property. It is true that Natividad Obedencio who is
now in possession of the property and who has been made a party to this case
cannot be ordered in this proceeding to surrender the riceland. But inasmuch as
reciprocal rights and obligations have arisen between the parties to the so called
"barter agreement", We hold that the parties and/or their successors-in-interest
are duty bound to effect a simultaneous transfer of the respective properties if
substantial justice is to be effected.
prLL

WHEREFORE, judgment is hereby rendered: 1) declaring the petitioner Avelino


Baluran and respondent Antonio Obedencio the respective owners of the
unirrigated riceland and residential lot mentioned in the "Barter Agreement" of
February 2, 1964; 2) ordering Avelino Baluran to vacate the residential lot and
remove the improvements built by him thereon, provided, however, that he shall
not be compelled to do so unless the unirrigated riceland shall have been
restored to his possession either on volition of the party concerned or through
judicial proceedings which he may institute for the purpose.
Without pronouncement as to costs.
So Ordered.
Teehankee (Chairman), Makasiar, Martin, Fernandez and Guerrero, JJ., concur.
EN BANC

[G.R. No. 16570. March 9, 1922.]

SMITH, BELL & CO., LTD., plaintiff-appellant, vs. VICENTE


SOTELO MATTI, defendant-appellant.

Ross & Lawrence and Ewald E. Selph for plaintiff-appellant.


Ramon Sotelo for defendant-appellant.

SYLLABUS

1. CONTRACTS; PURCHASE AND SALE OF MERCHANDISE;


UNCERTAINTY OF TIME OF FULFILLMENT OF OBLIGATION. As no
definite date was fixed for the delivery of the goods, which the plaintiff
undertook to deliver, the term which the parties attempted to establish being
so uncertain that one cannot tell whether, as a matter of fact, the aforesaid
goods could, or could not, be imported into Manila, the obligation must be
regarded as conditional and not one with a term.
2. ID.; ID.; WHEN FULFILLMENT OF CONDITION NOT DEPENDENT
ON THE WILL OF OBLIGOR. Where the fulfillment of the condition does
not depend on the will of the obligor, but on that of a third person who can in
no way be compelled to carry it out, the obligor's part of the contract is
complied with, if he does all that is in his power, and it then becomes
incumbent upon the other contracting party to comply with the terms of the
contract.
3. ID.; ID.; WHEN TIME NOT ESSENTIAL. Where no date is fixed in
the contract for the delivery of the thing sold, time is considered unessential,
and delivery must be made within a reasonable time to be determined by the
courts in accordance with the circumstances of the case.
4. PRINCIPAL AND AGENT; THIRD PERSONS. When an agent
acts in his own name, the principal has no right of action against the persons
with whom the agent has contracted, or such persons against the principal. In
such case, the agent is directly liable to the person with whom he has
contracted, as if the transaction were his own. (Art. 1717, Civil Code.)

DECISION
ROMUALDEZ, J : p

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente
Sotelo, entered into contracts whereby the former obligated itself to sell, and
the latter to purchase from it, two steel tanks, for the total price of twenty-one
thousand pesos (21,000), the same to be shipped from New York and
delivered at Manila "within three or four months;" two expellers at the price of
twenty five thousand pesos (25,000) each, which were to be shipped from
San Francisco in the month of September, 1918, or as soon as possible; and
two electric motors at the price of two thousand pesos (2,000) each, as to the
delivery of which stipulation was made, couched in these words: "Approximate
delivery within ninety days. This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919; the expellers on
the 26th of October, 1918; and the motors on the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival
of these goods, but Mr. Sotelo refused to receive them and to pay the prices
stipulated.
The plaintiff brought suit against the defendant, based on four separate
causes of action, alleging, among other facts, that it immediately notified the
defendant of the arrival of the goods, and asked instructions from him as to
the delivery thereof, and that the defendant refused to receive any of them
and to pay their price. The plaintiff, further, alleged that the expellers and the
motors were in good condition. (Amended complaint, pages 16-30, Bill of
Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the
Manila Oil Refining and By-Products Co., Inc., denied the plaintiff's allegations
as to the shipment of these goods and their arrival at Manila, the notification
to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their
price, and the good condition of the expellers and the motors, alleging as
special defense that Mr. Sotelo had made the contracts in question as
Manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc.,
which fact was known to the plaintiff, and that "it was only in May, 1919, that it
notified the intervenor that said tanks had arrived, the motors and the
expellers having arrived incomplete and long after the date stipulated." As a
counterclaim or set-off, they also allege that, as a consequence of the
plaintiff's delay in making delivery of the goods, which the intervenor intended
to use in the manufacture of coconut oil, the intervenor suffered damages in
the sums of one hundred sixteen thousand seven hundred eighty-three pesos
and ninety-one centavos (116,788.91) for the nondelivery of the tanks, and
twenty-one thousand two hundred and fifty pesos (21,250) on account of the
expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants
from the complaint insofar as the tanks and the electric motors were
concerned, but rendered judgment against them, ordering them to "receive
the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos
(50,000), the price of the said goods, with legal interest thereon from July 26,
1919, and costs."
Both parties appeal from this judgment, each assigning several errors in
the findings of the lower court.
The principal point at issue in this case is whether or not, under the
contracts entered into and the circumstances established in the record, the
plaintiff has fulfilled, in due time, its obligation to bring the goods in question to
Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must be
held guilty of delay and liable for the consequences thereof.
To solve this question, it is necessary to determine what period was
fixed for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the
record) are similar, and in both of them we find this clause:
"To be delivered within 3 or 4 months The promise or
indication of shipment carries with it absolutely no obligation on our part
Government regulations, railroad embargoes, lack of vessel space,
the exigencies of the requirements of the United States Government, or
a number of causes may act to entirely vitiate the indication of shipment
as stated. In other words, the order is accepted on the basis of shipment
at Mill's convenience, time of shipment being merely an indication of
what we hope to accomplish."
"The following articles, herein below more particularly described,
to be shipped at San Francisco within the month of September /18, or as
soon as possible. Two Anderson oil expellers . . ."
And in the contract relative to the motors (Exhibit D, page 64, rec.) the
following appears:
"Approximate delivery within ninety days. This is not
guaranteed. This sale is subject to our being able to obtain Priority
Certificate, subject to the United States Government requirements and
also subject to confirmation of manufactures."
In all these contracts, there is a final clause as follows:
"The sellers are not responsible for delays caused by fires, riots
on land or on the sea, strikes or other cause known as 'Force Majeure'
entirely beyond the control of the sellers or their representatives."
Under these stipulations, it cannot be said that any definite date was
fixed for the delivery of the goods. As to the tanks, the agreement was that the
delivery was to be made "within 3 or 4 months," but that period was subject to
the contingencies referred to in a subsequent clause. With regard to the
expellers, the contract says "within the month of September, 1918," but to this
is added "or as soon as possible." And with reference to the motors, the
contract contains this expressions, "Approximate delivery within ninety days,"
but right after this, it is noted that "this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the
time of the world war when there existed rigid restrictions on the export from
the United States of articles like the machinery in question, and maritime, as
well as railroad, transportation was difficult, which fact was known to the
parties; hence clauses were inserted in the contracts, regarding "Government
regulations, railroad embargoes, lack of vessel space, the exigencies of the
requirements of the United States Government," in connection with the tanks
and "Priority Certificate, subject to the United States Government
requirements," with respect to the motors. At the time of the execution of the
contracts, the parties were not unmindful of the contingency of the United
States Government not allowing the export of the goods, nor of the fact that
the other foreseen circumstances therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so uncertain that
one cannot tell just whether, as a matter of fact, those articles could be
brought to Manila or not. If that is the case, as we think it is, the obligation
must be regarded as conditional.
"Obligations for the performance of which a day certain has been
fixed shall be demandable only when the day arrives.
"A day certain is understood to be one which must necessarily
arrive, even though its date be unknown.
"If the uncertainty should consist in the arrival or non arrival of the
day, the obligation is conditional and shall be governed by the rules of
the next preceding section" (referring to pure and conditional
obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in question was as stated in the
contract, contingent upon the sellers obtaining certificate of priority and
permission of the United States Government, subject to the rules and
regulations, as well as to railroad embargoes, then the delivery was subject to
a condition the fulfillment of which depended not only upon the effort of the
herein plaintiff, but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly
provided for, but impliedly covered, by the Civil Code, the obligor will be
deemed to have sufficiently performed his part of the obligation, if he has
done all that was in his power, even if the condition has not been fulfilled in
reality.

"In such cases, the decisions prior to the Civil Code have held
that the obligee having done all that was in his power, was entitled to
enforce performance of the obligation. This performance, which is
fictitious not real is not expressly authorized by the Code, which
limits itself only to declare valid those conditions and the obligation
thereby affected; but it is neither disallowed, and the Code being thus
silent, the old view can be maintained as a doctrine." (Manresa's
commentaries on the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by the
supreme court of Spain on November 19, 1866, and February 23, 1871.
In the former it is held:
"First. That when the fulfillment of the condition does not depend
on the will of the obligor, but on that of a third person who can in no way
be compelled to carry it out, and it is found by the lower court that the
obligor has done all in his power to comply with the obligation, the
judgment of the said court, ordering the other party to comply with his
part of the contract, is not contrary to the law of contracts, or to law 1,
Tit. I, Book 10, of the 'Novisima Recopilacion,' or Law 12, Tit. 11, of
Partida 5, when in the said finding of the lower court, no law or
precedent is alleged to have been violate." (Jurisprudencia
Civil published by the directors of the Revista General de Legislacion y
Jurisprudencia [1866], vol. 14, page 656.)
In the second decision, the following doctrine is laid down:
"Second. That when the fulfillment of the condition does not
depend on the will of the obligor, but on that of a third person, who can in
no way be compelled to carry it out, the obligor's part of the contract is
complied with if he does all that is in his power, and has the right to
demand performance of the contract by the other party, which is the
doctrine laid down also by the supreme court."
(The same publication [1871]. vol. 23, page 492.)
It is sufficiently proven in the record that the plaintiff has made all the
efforts it could possibly by expected to make under the circumstances, to
bring the goods in question to Manila, as soon as possible. And, as a matter
of fact, through such efforts, it succeeded in importing them and placing them
at the disposal of the defendant, Mr. Sotelo, in April, 1919. Under the doctrine
just cited, which, as we have seen is of the same juridical origin as our Civil
Code, it is obvious that the plaintiff has complied with its obligation.
In connection with this obligation to deliver, occurring in a contract of
sale like those in question, the rule in North America is that when the time of
delivery is not fixed in the contract, time is regarded unessential.
"When the time of delivery is not fixed or is stated in general and
indefinite terms, time is not of the essence of the contract." (35 Cyc.,
179. And see Montgomeryvs. Thompson, 152 Cal., 319; 92 Pac., 866;
O'Brien vs. Higley, 162 Ind., 316; 70 N. E., 242; Pratt vs. Lincoln [Me.
1888], 13 Atl., 689; White vs. McMillan, 114 N. c., 349; 19 S. E., 234;
Ballantyne vs. Watson, 30 U. C. C. P., 529.)
In such case, the delivery must be made within a reasonable time.
"The law implies, however, that if no time is fixed, delivery shall
be made within a reasonable time, in the absence of anything to show
that an immediate delivery intended." (35 Cyc., 179, 180.)
"When the contract provides for delivery as soon as possible' the
seller is entitled to a reasonable time, in view of all the circumstances,
such as the necessities of manufacture, or of putting the goods in
condition for delivery. The term does not men immediately or that the
seller must stop all his other work and devote himself to that particular
order. But the seller must nevertheless act with all reasonable diligence
or without unreasonable delay. It has been held that a requirement that
the shipment of goods should be the earliest possible' must be
construed as meaning that the goods should be sent as soon as the
seller could possibly send them, and that it signified rather more than
that the goods should be sent within a reasonable time.
"Delivery 'Shortly.' In a contract for the sale of personal
property to be delivered 'shortly,' it is the duty of the seller to tender
delivery within a reasonable time and if he tenders delivery after such
time the buyer may reject.
xxx xxx xxx
"The question as to what is a reasonable time for the delivery of
the goods by the seller is to be determined by the circumstances
attending the particular transaction, such as the character of the goods,
and the purpose for which they are intended, the ability of the seller to
produce the goods if they are to be manufactured, the facilities available
for transportation, and the distance the goods must be carried, and the
usual course of business in the particular trade." (35 Cyc., 181-184.)
Whether or not the delivery of the machinery in litigation was offered to
the defendant within a reasonable time, is a question to be determined by the
court.
"Applications of rule. A contract for delivery 'about Nov. 1' is
complied with by delivery on November 10 (White vs. McMillan, 114 N.
C., 349; 19 S. E., 234. And see O'Brien vs. Higley, 162 Ind., 316; 70 N.
E., 242); and a contract to deliver 'about the last of May or June' is
complied with by delivery on the last days of June (New Bedford Copper
Co. vs. Southard, 95 Me., 209; 49 Atl., 1062, holding also that if the
goods were to be used for a ship to arrive 'about April' and the vessel
was delayed, the seller might deliver within a reasonable time after her
arrival, although such reasonable time extended beyond the last of
June); so under a contract to deliver goods sold 'about June, 1906,'
delivery may be made during the month of June, or in a reasonable time
thereafter (Loomis vs. Norman Printers' Supply Co., 81 Conn., 343; 71
Atl., 358)." (35 Cyc., 180, note 16.)
The record shows, as we have stated, that the plaintiff did all within its
power to have the machinery arrive at Manila as soon as possible, and
immediately upon its arrival it notified the purchaser of the fact and offered to
deliver it to him. Taking these circumstances into account, we hold that the
said machinery was brought to Manila by the plaintiff within a reasonable time.
Therefore, the plaintiff has not been guilty of any delay in the fulfillment
of its obligation, and, consequently, it could not have incurred any of the
liabilities mentioned by the intervenor in its counterclaim or set-off.
Besides, it does not appear that the intervenor, the Manila Oil Refining
and By-Products Co., Inc., has in any way taken part in these contracts.
These contracts were signed by the defendant, Mr. Vicente Sotelo, in his
individual capacity and own name. If he was then acting as agent of the
intervenor, the latter has no right of action against the herein plaintiff.
"When an agent acts in his own name, the principal shall have no
right of action against the persons with whom the agent has contracted,
or such persons against the principal.
"In such case, the agent is directly liable to the person with whom
he has contracted, as if the transaction were his own. Cases involving
things belonging to the principal are excepted.
"The provisions of this article shall be understood to be without
prejudice to actions between principal and agent." (Civil Code, art.
1717.)
"When the agent transacts business in his own name, it shall not
be necessary for him to state who is the principal and he shall be directly
liable, as if the business were for his own account, to the persons with
whom he transacts the same, said persons not having any right of action
against the principal, nor the latter against the former, the liabilities of the
principal and of the agent to each other always being reserved." (Code
of Com., art, 246.)
"If the agent transacts business in the name of the principal, he
must state that fact; and if the contract is in writing, he must state it
therein or in the subscribing clause, giving the name, surname, and
domicile of said principal.
"In the case prescribed in the foregoing paragraph, the contract
and the actions arising therefrom shall be effective between the principal
and the persons or person who may have transacted business with the
agent; but the latter shall be liable to the persons with whom he
transacted business during the time he does not prove the commission,
if the principal should deny it, without prejudice to the obligation and
proper actions between the principal and agent." (Code of Com., art.
247.)
The foregoing provisions lead us to the conclusion that the plaintiff is
entitled to the relief prayed for in its complaint, and that the intervenor has no
right of action, the damages alleged to have been sustained by it not being
imputable t the plaintiff.
Wherefore, the judgment appealed from is modified, and the defendant,
Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff
the tanks, the expellers and the motors is question, and to pay the plaintiff the
sum of ninety-six thousand pesos (96,000), with legal interest thereon from
July 17, 1919, the date of the filing of the complaint, until fully paid , and the
costs of both instances. So ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor,
Ostrand, and Johns, JJ., concur.
EN BANC

[G.R. No. L-5267. October 27, 1953.]

LUZ HERMOSA, as administratrix of the Intestate Estate of


Fernando Hermosa, R., and FERNANDO HERMOSA,
JR., petitioners, vs. EPIFANIO M. LONGARA, respondent.

Manuel O. Chan for petitioners.


Jacinto R. Bohol for respondents.

SYLLABUS

1. OBLIGATIONS AND CONTRACTS; CONDITIONAL OBLIGATIONS;


A CONDITION THAT DOES NOT DEPEND UPON THE EXCLUSIVE WILL
OF THE DEBTOR; SUSPENSIVE CONDITIONS. The condition of the
obligation was that payment was to be made "as soon as he (obligor) receives
funds derived from the sale of his property in Spain." The will to sell on the
part of the debtor (intestate) was present in fact, or presumed legally to exist,
although the price and other conditions thereof were still within his discretion
and final approval. But in addition to this acceptability of the sale to him
(obligor), there were still other conditions that had to concur to effect the sale,
mainly that of the presence of a buyer, ready, able and willing to purchase the
property under the conditions demanded by the vendor. Without such a buyer
the sale could not be carried out or the proceeds thereof sent to the islands.
Held: The condition does not depend exclusively upon the will of the debtor,
but also upon other circumstances beyond his power or control. If the
condition were "if he decides to sell his house," or "if he likes to pay the sums
advanced," or any other condition of similar import implying that upon him (the
debtor) alone payment would depend, the condition would be potestativa,
dependent upon his will or discretion. The condition, as stated above, implies
that the obligor had already decided to sell his house, or at least that he had
made his creditors believe that he had done so, and that all that was needed
to make his obligation (to pay his indebtedness) demandable is that the sale
be consummated and the price thereof remitted to the islands. The condition
of the obligation was not a purely potestative one, depending exclusively upon
the will of the obligor, but a mixed one, depending partly upon chance, i. e.,
the presence of a buyer of the property for the price and under the conditions
desired by the obligor. The obligation is clearly governed by the second
sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition
is, besides, a suspensive condition, upon the happening of which the
obligation to pay is made dependent. And upon the happening of the
condition, the debt became immediately due and demandable. (Article 1114,
old Civil Code; 8 Manresa, 119.)
2. ID., EVIDENCE, PRESUMPTION OR INFERENCE FROM
PRESERVATION AND POSSESSION OF EVIDENCE OF INDEBTEDNESS.
The sale was not affected in the lifetime of the debter (the intestate), but
after his death and by his administrator, the very wife of the claimant. There
was no evidence to show that the claim was the product of a collusion or
connivance between the administratrix and the claimant. The receipts of the
advances were preserved. Held: That there was really a promise made by the
intestate to pay for the credit advances, may be implied from the fact that the
receipts thereof had been preserved; had the advances been made without
intention of demanding their payment later, said receipts would not have been
preserved. Regularity of the advances and the close relationship between the
intestate and the claimant also support this contention.
3. ID.; SUSPENSIVE CONDITION WHICH TOOK PLACE AFTER
OBLIGOR'S DEATH; STATUTE OF LIMITATIONS. The fact that the
suspensive condition took place after the death of the debtor, and that the
advances were made more than ten years before the sale are immaterial (4
Sanchez Roman, p. 122). The obligation retroacts to the date when the
contract was entered into, and all amounts advanced from the time of the
agreement became due upon the happening of the suspensive condition. As
the obligation to pay became due and demandable only when the house was
sold and the proceeds received in the islands, the action to recover the same
only accrued, within the meaning of the statute of limitations, on the date the
money became available here; hence, the action to recover the advances has
not yet prescribed.
4. ID.; DESCENT AND DISTRIBUTION; GRANDSON'S ALLOWANCE,
A PERSONAL OBLIGATION. Credits furnished the intestate's grandson
after his (intestate's) death should not be allowed. Even if authorization to
furnish necessaries to his grandson may have been given, this authorization
could not be made to extend after his death, for two obvious reasons: (1) The
obligation to furnish support is personal and is extinguished upon the death of
the person obliged to give support (article 150, old Civil Code); and (2) upon
the death of a principal (the intestate), his agent's authority or authorization is
deemed terminated (article 1732, old Civil Code).
5. ID.; STATUTE OF NONCLAIMS; APPEALS; QUESTIONS NOT
RAISED IN LOWER COURTS. The question of whether or not the
appellant's claims are barred by the statute of non-claims cannot be passed
upon on appeal where this question was never raised in any of the courts
below.
DECISION

LABRADOR, J : p

This is an appeal by way of certiorari against a decision of the Court of


Appeals, fourth division, approving certain claims presented by Epifanio M.
Longara against the intestate estate of Fernando Hermosa, Sr. The claims are
of three kinds, namely, P2,341.41 representing credit advances made to the
intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa,
and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947,
after the death of the intestate, which occurred in December, 1944. The
claimant presented evidence and the Court of Appeals found, in accordance
therewith, that the intestate had asked for the said credit advances for himself
and for the members of his family "on condition that their payment should be
made by Fernando Hermosa, Sr. as soon as he receive funds derived from
the sale of his property in Spain." Claimant had testified without opposition
that the credit advances were to be "payable as soon as Fernando Hermosa,
Sr.'s property in Spain was sold and he received money derived from the
sale." The Court of Appeals held that payment of the advances did not
become due until the administratrix received the sum of P20,000 from the
buyer of the property. Upon authorization of the probate court in October,
1947, the administratrix sold the property in November, 1947, and the same
was paid for subsequently. The claim was filed on October 2, 1948.
It is contended on this appeal that the obligation contracted by the
intestate was subject to a condition exclusively dependent upon the will of the
debtor (acondicion potestativa) and therefore null and void, in accordance
with article 1115 of the old Civil Code. The case of Osmea vs. Rama, (14
Phil. 99) is cited to support appellants contention. In this case, this court
seems to have filed that a promise to pay an indebtedness "if a house of
strong materials is sold" is an obligation the performance of which depended
on the will of the debtor. We have examined this case and we find that the
supposed ruling was merely an assumption and the same was not the actual
ruling of the case.
A careful consideration of the condition upon which the payment of the
sums advanced was made to depend, i.e., "as soon as he (intestate) receive
funds derived from the sale of his property in Spain," discloses the fact that
the condition in question does not depend exclusively upon the will of the
debtor, but also upon other circumstances beyond his power or control. If the
condition were "if he decides to sell his house," or "if he likes to pay the sums
advanced," or any other condition of similar important implying that upon him
(the debtor) alone payment would depend, the condition would be potestativa,
dependent exclusively upon his will or discretion. In the form that the condition
was found by the Court of Appeals, however, the condition implies that the
intestate had already decided to sell his house, or at least that he had made
his creditors believe that he had done so, and that all that was needed to
make his obligation (to pay his indebtedness) demandable is that the sale be
consummated and the price thereof remitted to the islands. Note that if the
intestate would prevent or would have prevented the consummation of the
sale voluntarily, the condition would be or would have been deemed or
considered complied with (article 1119, old Civil Code). The will to sell on the
part of the intestate was, therefore, present in fact, or presumed legally to
exist, although the price and other conditions thereof were still within his
discretion and final approval. But in addition to this acceptability of the price
and other conditions of the sale to him (the intestate-vendor), there were still
other conditions that had to concur to effect the sale, mainly that of the
presence of a buyer, ready, able and willing to purchase the property under
the conditions demanded by the intestate. Without such a buyer the sale
could not be carried out or the proceeds thereof sent to the islands. It is
evident, therefore, that the condition of the obligation was not a purely
potestative one, depending exclusively upon the will of the intestate, but a
mixed one, depending partly upon the will of the intestate and partly upon
chance, i.e., the presence of a buyer of the property for the price and under
the conditions desired by the intestate. The obligation is clearly governed by
the second sentence of article 1115 of the old Civil Code (8 Manresa, 126).
The condition is, besides, a suspensive condition, upon the happening of
which the obligation to pay is made dependent. And upon the happening of
the condition, the debt became immediately due and demandable. (Article
1114, old Civil Code; 8 Manresa, 119.)
One other point needs to be considered, and this is the fact that the
sale was not effected in the lifetime of the debtor (the intestate), but after his
death and by his administrator, the very wife of the claimant. On this last
circumstance we must bear in mind that the Court of Appeals found no
evidence to show that the claim was the product of a collusion or connivance
between the administratrix and the claimant. That there was really a promise
made by the intestate to pay for the credit advances may be implied from the
fact that the receipts thereof had been preserved. Had the advances been
made without intention of demanding their payment later, said receipts would
not have been preserved. Regularity of the advances and the close
relationship between the intestate and the claimant also support this
conclusion.

As to the fact that the suspensive condition took place after the death of
the debtor, and that advances were made more than ten years before the
sale, we are supported in our conclusion that the same is immaterial by
Sanchez Roman, who says, among other things, as to conditional obligations:
1. La obligacion contractual afectada por condicion suspensiva,
a

no es exigible hasta que se cumpla la condicion, . . .


2. El cumplimiento de la condicion suspensiva retrotrae los
a

efectos del acto juridico originario de la obligacion a que aquella afecta,


al tiempo de la celebracion de este; . . .
3. La referida retroaccion, no solo tiene lugar cuando el
a

cumplimiento de la condicion se verifica en vida de los contrayentes, si


que tambien se produce cuando aquel se realiza despues de la muerte
de estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.)
As the obligation retroacts to the date when the contract was entered into, all
amounts advanced from the time of the agreement became due, upon the
happening of the suspensive condition. As the obligation to pay became due
and demandable only when the house was sold and the proceeds received in
the islands, the action to recover the same only accrued, within the meaning
of the statute of limitations, on the date the money became available here,
hence the action to recover the advances has not yet prescribed.
The above considerations dispose of the most important question
raised on this appeal. It is also contended that the third group of claims, i.e.,
credits furnished the intestate's grandson after his (intestate's) death in 1944,
should not have been allowed. We find merit in this contention. Even if
authorization to furnish necessaries to his grandson may have been given,
this authorization could not be made to extend after his death, for two obvious
reasons. First because the obligation to furnish support is personal and is
extinguished upon the death of the person obliged to give support (article 150,
old Civil Code), and second because upon the death of a principal (the
intestate in this case), his agent's authority or authorization is deemed
terminated (article 1732, old Civil Code). That part of the decision allowing this
group of claims, amounting to P3,772, should be reversed.
One last contention of the appellant is that the claims are barred by the
stature of non-claims. It does not appear from the record that this question
was ever raised in any of the courts below. We are, therefore, without
authority under our rules to consider this issue at this stage of the
proceedings.
The judgment appealed from is hereby affirmed in so far as it approves
the claims of appellee in the amounts of P2,341 and P12,942.12, and
reversed as to that of P3,772. Without costs.
Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo and Bautista
Angelo, JJ., concur.
Separate Opinions
PARAS, C.J., concurring and dissenting:

I concur in the majority decision insofar as it reverses the appealed


judgment allowing the claim for P3,772, but dissent therefrom insofar as it
affirms the appealed judgment approving appellee's claims.
The principal question is whether the stipulation to pay the advances
"on condition that their payment should be made by Fernando Hermosa, Sr.
as soon as he receives funds derived from the sale of his property in Spain",
and making said advances "payable as soon as Fernando Hermosa, Sr.'s
property in Spain was sold and he received money derived from the sale," is a
condicion potestativa and therefore null and void in accordance with article
1115 of the old Civil Code. My answer is in the affirmative, because it is very
obvious that the matter of the sale of the house rested on the sole will of the
debtor, unaffected by any outside consideration or influence. The majority
admit that if the condition were "if he decides to sell his house" or "if he likes
to pay the sums advanced," the same would be potestative. I think a mere
play of words is invoked, as I cannot see any substantial difference. Under the
condition imposed by Fernando Hermosa, Sr., it is immaterial whether or not
he had already decided to sell his house, since there is no pretence that
acceptable conditions of the sale had been made the subject of an
agreement, such that if such conditions presented themselves the debtor
would be bound to proceed with the sale. In the case at bar, the terms are still
subject to the sole judgment if not whims and caprise of Fernando
Hermosa, Sr. In fact no sale was affected during his lifetime. As the condition
above referred to is null and void, the debt resulting from the advances made
to Fernando Hermosa, Sr. became either immediately demandable or payable
within a term to be fixed by the court. In both cases the action has prescribed
after the lapse of ten years. In the case of Gonzales vs. De Jose (66 Phil.,
369, 371), this court already held as follows:
"We hold that the two promissory notes are governed by article
1128 because under the terms thereof the plaintiff intended to grant the
defendant a period within which to pay his debts. As the promissory
notes do not fix this period, it is for the court to fix the same. (Citing
cases.) The action to ask the court to fix the period has already
prescribed in accordance with section 43 (1) of the Code of Civil
Procedure. This period of prescription is ten years, which has already
elapsed from the execution of the promissory notes until the filing of the
action on June 1, 1934. The action which should be brought in
accordance with article 1128 is different from the action for the recovery
of the amount of the notes, although the effects of both are the same,
being, like other civil actions, subject to the rules of prescription."
The majority also contend that the condition in question depended on
other factors than the sole will of the debtor, and cite the presence of a buyer,
ready, able and willing to purchase the property. This is of no moment,
because, as already stated, in the absence of any contract setting forth the
minimum or maximum terms which would be acceptable to the debtor, nobody
could legally compel Fernando Hermosa, Sr. to make any sale.
EN BANC

[G.R. No. L-5003. June 27, 1953.]

NAZARIO TRILLANA, administrator-appellee, vs. QUEZON


COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap & Blanco for appellant.


Delgado, Flores & Macapagal for appellee.

SYLLABUS

1. OBLIGATIONS AND CONTRACTS STOCK SUBSCRIPTION;


OFFER AND ACCEPTANCE; FACULTATIVE CONDITION. As the
appellant offered its stock for subscription on the terms stated in a form letter,
and D. C. applied for subscription fixing her own plan of payment, the relation,
in the absence of acceptance by the appellant of the counter offer of D. C.,
had not ripened into an enforceable contract. There was imperative need for
express acceptance on appellant's part, because the proposal of D. C. to pay
the value of the subscription after she had harvested fish, was a condition
obviously dependent upon her sole will and, therefore, facultative in nature,
rendering the obligation void under article 1115 of the old Civil Code.

DECISION

PARAS, J :p

Damasa Crisostomo sent the following letter to the Board of Trustees of


the Quezon College:
June 1, 1948
"The BOARD OF TRUSTEES
"Quezon College
"Manila.
"Gentlemen:
"Please enter my subscription to dalawang daan (200) shares of
your capital stock with a par value of P100 each. Enclosed you will find
(Babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda)
pesos as my initial payment and the balance payable in accordance with
law and the rules and regulations of the Quezon College. I hereby agree
to shoulder the expenses connected with said shares of stock. I further
submit myself to all lawful demands, decisions or directives of the Board
of Trustees of the Quezon College and all its duly constituted officers or
authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang
tagalog na aking nalalaman).
"Very respectfully,
"(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
"Nilagdaan sa aming harapan:
"JOSE CRISOSTOMO
"EDUARDO CRISOSTOMO"
Damasa Crisostomo died on October 26, 1948. As no payment appears
to have been made on the subscription mentioned in the foregoing letter, the
Quezon College, Inc. presented a claim before the Court of First Instance of
Bulacan in her testate proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital stock of the Quezon
College, Inc. This claim was opposed by the administrator of the estate, and
the Court of First Instance of Bulacan, after hearing, issued an order
dismissing the claim of the Quezon College, Inc., on the ground that the
subscription in question was neither registered in nor authorized by the
Securities and Exchange Commission. From this order the Quezon College,
Inc. has appealed.
It is not necessary for us to discuss at length appellant's various
assignments of error relating to the propriety of the ground relied upon by the
trial court, since, as pointed out in the brief for the administrator and appellee,
there are other decisive considerations which, though not touched by the
lower court, amply sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the
Quezon College, Inc. was written on a general form indicating that an
applicant will enclose an amount as initial payment and will pay the balance in
accordance with law and the rules or regulations of the College. On the other
hand, in the letter actually sent by Damasa Crisostomo, the latter (who
requested that her subscription for 200 shares be entered) not only did not
enclose any initial payment but stated that "babayaran kong lahat pagkatapos
na ako ay makapagpahuli ng isda." There is nothing in the record to show that
the Quezon College, Inc. accepted the term of payment suggested by
Damasa Crisostomo, or that if there was any acceptance the same came to
her knowledge during her lifetime. As the application of Damasa Crisostomo
is obviously at variance with the terms evidenced in the form letter issued by
the Quezon College, Inc., there was absolute necessity on the part of the
College to express its agreement to Damasa's offer in order to bind the latter.
Conversely, said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's promise to
pay the price of the subscription after she had caused fish to be caught. In
other words, the relation between Damasa Crisostomo and the Quezon
College, Inc. had only thus reached the preliminary stage whereby the latter
offered its stock for subscription on the terms stated in the form letter, and
Damasa applied for subscription fixing her own plan of payment, a relation,
in the absence as in the present case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an
enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon
College, Inc. becomes the more imperative, in view of the proposal of
Damasa Crisostomo to pay the value of the subscription after she had
harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void, under article
1115 of the old Civil Code which provides as follows: "If the fulfillment of the
condition should depend upon the exclusive will of the debtor, the conditional
obligation shall be void. If it should depend upon chance, or upon the will of a
third person, the obligation shall produce all its effects in accordance with the
provisions of this code." It cannot be argued that the condition solely is void,
because it would have served to create the obligation to pay, unlike a case,
exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative
condition was held void because it referred merely to the fulfillment of an
already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao et al. (43 Phil., 873, 879), this
Court already held that "a condition, facultative as to the debtor, is obnoxious
to the first sentence contained in article 1115 and renders the whole obligation
void."
Wherefore, the appealed order is affirmed, and it is so ordered with
costs against the appellant.
Tuason, Montemayor, Jugo, Bautista Angelo and Labrador, JJ., concur.
FIRST DIVISION

[G.R. No. 33580. February 6, 1931.]

MAXIMILIANO SANCHO, plaintiff-appellant, vs. SEVERIANO


LIZARRAGA, defendant-appellee.

Jose Perez Cardenas and Jose M. Casal for appellant.


Celso B. Jamora and Antonio Gonzalez for appellee.

SYLLABUS

1. JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF


ACCOUNTS. In accordance with the doctrine laid down in the case of
Natividad vs. Villarica (31 Phil., 172), it is held that an appeal taken from a
decision ordering the rendition of accounts is deemed premature.
2. PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE
AMOUNT PROMISED; RESPONSIBILITY. Owing to the defendant's failure
to pay to the partnership the whole amount which he bound himself to pay, he
became indebted to it for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby acquire the right to
demand rescission of the partnership contract under article 1124 of the Civil
Code.
3. ID.; ID.; ID.; STATUTORY CONSTRUCTION. Article 1124 of the
Civil Code cannot be applied to the case in question, because it refers to the
resolution of obligations in general, whereas articles 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.

DECISION

ROMUALDEZ, J : p

The plaintiff brought an action for the rescission of a partnership


contract between himself and the defendant, entered into on October 15,
1920, the reimbursement by the latter of his 50,000 peso investment therein,
with interest at 12 per cent per annum from October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of
the complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the dissolution
of the partnership, and the payment to him as its manager and administrator
of P500 monthly from October 15, 1920, until the final dissolution, with
interest, one-half of said amount to be charged to the plaintiff. He also prays
for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the capital he
had bound himself to invest, and that the plaintiff had demanded that the
defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the
defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the accounts
and vouchers within the period of thirty days from receipt of notice of said
judgment, without costs.
The plaintiff appealed from said decision making the following
assignments of error:
"1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article 1124 of
the Civil Code is not applicable to the present case.
"2. In failing to order the defendant to return the sum of P50,000
to the plaintiff with interest from October 15, 1920, until fully paid.
"3. In denying the motion for a new trial."
In the brief filed by counsel for the appellee, a preliminary question is
raised purporting to show that this appeal is premature and therefore will not
lie. The point is based on the contention that inasmuch as the liquidation
ordered by the trial court, and the consequent accounts, have not been made
and submitted, the case cannot be deemed terminated in said court and its
ruling is not yet appealable. In support of this contention counsel cites section
123 of the Code of Civil Procedure, and the decision of this court in the case
of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved or
disapproved, the litigation involved in this action cannot be considered as
completely decided; and, as it was held in said case of Natividad vs. Villarica,
also with reference to an appeal taken from a decision ordering the rendition
of accounts following the dissolution of a partnership, the appeal in the instant
case must be deemed premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's findings
referred to above, which we cannot revise because the parol evidence has not
been forwarded to this court, articles 1681 and 1682 of the Civil Code have
been properly applied. Owing to the defendant's failure to pay to the
partnership the whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any damages occasioned
thereby, but the plaintiff did not thereby acquire the right to demand rescission
of the partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the resolution
of obligations in general, whereas articles 1681 and 1682 specifically refer to
the contract of partnership in particular. And it is a well known principle that
special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of costs.
So ordered.
Avancea, C. J., Johnson, Street, Malcolm, Villamor, Ostrand,
Johns and Villa-Real, JJ., concur.
THIRD DIVISION

[G.R. No. 103577. October 7, 1996.]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.


CORONEL, ANNABELLE C. GONZALES (for herself and on
behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners, vs. THE COURT OF APPEALS,
CONCEPCION D. ALCARAZ and RAMONA PATRICIA
ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.

Leven S. Puno for petitioners.


Perpetuo G. Paner for private respondents.

SYLLABUS

1. CIVIL LAW; SALES; ESSENTIAL ELEMENTS THEREOF. Sale, by its very


nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following: a) consent or meeting
of the minds, that is, consent to transfer ownership in exchange for the price; b)
determinate subject matter; and c) price certain in money or its equivalent. DCScaT

2. ID.; ID.; CONTRACT TO SELL DISTINGUISHED FROM CONDITIONAL


CONTRACT OF SALE. Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first essential element is lacking. In
a contract to sell, the prospective seller explicitly reserves the transfer of title to
the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges himself to do is
to fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. . . . In a contract to sell, upon the fulfillment of
the suspensive condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale. A
contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or
may not occur. If the suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court
of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
3. ID.; ID.; ID.; SALE OF SUBJECT PROPERTY TO A THIRD PERSON;
EFFECTS THEREOF. It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases where the subject property is
sold by the owner not to the party the seller contracted with, but to a third person,
as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the
suspensive condition such as the full payment of the purchase price, for instance,
cannot be deemed a buyer in bad faith and the prospective buyer cannot seek
the relief of reconveyance of the property. There is no double sale in such case.
Title to the property will transfer to the buyer after registration because there is
no defect in the owner-seller's title per se, but the latter, of course, may be sued
for damages by the intending buyer. In a conditional contract of sale, however,
upon the fulfillment of the suspensive condition, the sale becomes absolute and
this will definitely affect the seller's title thereto. In fact, if there had been previous
delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any
title to transfer to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or constructive
knowledge of such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer's title. In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the property subject of the sale.
4. ID.; ID.; CONTRACT OF SALE; INTERPRETATION OF WORDS USED
THEREIN SHOULD BE GIVEN ORDINARY MEANING; CASE AT BENCH. It
is a canon in the interpretation of contracts that the words used therein should be
given their natural and ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, . . . When the
"Receipt of Down Payment" is considered in its entirety, it becomes more
manifest that there was a clear intent on the part of petitioners to transfer title to
the buyer, but since the transfer certificate of title was still in the name of
petitioner's father, they could not fully effect such transfer although the buyer was
then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title
in their names from that of their father, after which, they promised to present said
title, now in their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of
title was not in their names) and not the full payment of the purchase price.
Under the established facts and circumstances of the case, the Court may safely
presume that, had the certificate of title been in the names of petitioners-sellers
at that time, there would have been no reason why an absolute contract of sale
could not have been executed and consummated right there and then.
5. ID.; ID.; ID.; WHEN RECIPROCAL OBLIGATIONS OF SELLER AND BUYER
AROSE IN CASE AT BENCH. On January 19, 1985, as evidenced by the
document denominated as "Receipt of Down Payment" (Exh. "A", Exh. "1"), the
parties entered into a contract of sale subject only to the suspensive condition
that the sellers shall effect the issuance of new certificate of title from that of their
father's name to their names. . . . On February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4"). We therefore, hold that, in accordance with Article 1187 . . .
the rights and obligations of the parties with respect to the perfected contract of
sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and buyer arose, that is, . . . petitioners,
as sellers, were obliged to present the transfer certificate of title already in their
names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to P1,190,000.00.
6. ID.; WILLS AND SUCCESSION; RIGHTS THERETO TRANSMITTED FROM
MOMENT OF DECEDENT'S DEATH; CASE AT BENCH. Petitioners also
argue there could be no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property. We cannot
sustain this argument. Article 774 of the Civil Code defines succession as a
mode of transferring ownership as follows: Art. 774. Succession is a mode of
acquisition by virtue of which the property, rights and obligations to the extent
and value of the inheritance of a person are transmitted through his death to
another or others by his will or by operation of law. Petitioners-sellers in the case
at bar being the sons and daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by operation of law. Thus, at the
point their father drew his last breath, petitioners stepped into his shoes insofar
as the subject property is concerned, such that any rights or obligations
pertaining thereto became binding and enforceable upon them. It is expressly
provided that rights to the succession are transmitted from the moment of death
of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850
[1952]).
7. ID.; SALES; CONTRACT OF SALE; ESTOPPEL; PETITIONERS
PRECLUDED FROM DENYING OWNERSHIP OF SUBJECT PROPERTY AT
TIME OF SALE; CASE AT BENCH. Aside from this, petitioners are precluded
from raising their supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture contrary to that which
they took when they entered into the agreement with private respondent Ramona
P. Alcaraz. . . . Having represented themselves as the true owners of the subject
property at the time of sale, petitioners cannot claim now that they were not yet
the absolute owners thereof at that time.
8. ID.; ID.; ID.; RESCISSION; PHYSICAL ABSENCE OF BUYER NOT A
GROUND THEREFOR IN CASE AT BENCH. Petitioners also contend that
although there was in fact a perfected contract of sale between them and
Ramona P. Alcaraz, the latter breached her reciprocal obligation when she
rendered impossible the consummation thereof by going to the United States of
America, without leaving her address, telephone number, and Special Power of
Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding the contract of sale. We do
not agree with petitioners that there was a valid rescission of the contract of sale
in the instant case. We note that these supposed grounds for petitioners'
rescission, are mere allegations found only in their responsive pleadings, which
by express provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate petitioners'
allegations. We had stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs.
De Vera, 79 Phil. 376 [1947]). Even assuming arguendo that Ramona P. Alcaraz
was in the United States of America on February 6, 1985, we cannot justify
petitioners-sellers' act of unilaterally and extrajudicially rescinding the contract of
sale, there being no express stipulation authorizing the sellers to extrajudicially
rescind the contract of sale. (cf Dignos vs. CA, 158 SCRA 375 [1988]; Taguba
vs. Vda. de Leon, 132 SCRA 722 [1984]). Moreover, petitioners are estopped
from raising the alleged absence of Ramona P. Alcaraz because although the
evidence on record shows that the sale was in the name of Ramona P. Alcaraz
as the buyer, the sellers had been dealing with Concepcion D. Alcaraz,
Ramona's mother, who had acted for and in behalf of her daughter, if not also in
her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz
with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners ever questioned
Concepcion's authority to represent Ramona P. Alcaraz when they accepted her
personal check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned, the
physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of
sale.

9. ID.; ID.; ID.; ID.; ID.; BUYER NOT CONSIDERED IN DEFAULT IN CASE AT
BENCH. Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price is concerned.
Petitioners who are precluded from setting up the defense of the physical
absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever
to show that they actually presented the new transfer certificate of title in their
names and signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramona's corresponding
obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore,
she cannot be deemed to have been in default. Article 1169 of the Civil Code
defines when a party in a contract involving reciprocal obligations may be
considered in default, . . . There is thus neither factual nor legal basis to rescind
the contract of sale between petitioners and respondents.
10. ID.; ID.; DOUBLE SALE; WHEN SECOND BUYER IS ENTITLED TO TITLE
OR OWNERSHIP OF PROPERTY. With the foregoing conclusions, the sale
to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale
where Article 1544 of the Civil Code will apply. . . . The record of the case shows
that the Deed of Absolute Sale dated April 25, 1985 as proof of the second
contract of sale was registered with the Registry of Deeds of Quezon City giving
rise to the issuance of a new certificate of title in the name of Catalina B.
Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall
apply. The above-cited provision on double sale presumes title or ownership to
pass to the first buyer, the exceptions being: (a) when the second buyer, in good
faith, registers the sale ahead of the first buyer, and (b) should there be no
inscription by either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer. Unless, the second
buyer satisfies these requirements, title or ownership will not transfer to him to
the prejudice of the first buyer.
11. ID.; ID.; ID.; ID.; CASE AT BENCH. Petitioners point out that the notice
of lis pendens in the case at bar was annotated on the title of the subject property
only on February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner. Mabanag was supposedly perfected prior thereto or on
February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the
second buyer, bought the property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is a buyer in good faith. We
are not persuaded by such argument. In a case of double sale, what finds
relevance and materiality is not whether or not the second buyer was a buyer in
good faith but whether or not said second buyer registers such second sale in
good faith, that is, without knowledge of any defect in the title of the property
sold. As clearly borne out by the evidence in this case, petitioner Mabanag could
not have in good faith, registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis pendens had been
annotated on the transfer certificate of title in the names of petitioners, whereas
petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had
already been previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in petitioners'
title to the property at the time of the registration of the property.
CAScIH

DECISION

MELO, J :p

The petition before us has its roots in a complaint for specific performance to
compel herein petitioners (except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00
The undisputed facts of the case were summarized by respondent court in this
wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels) executed a document entitled
"Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona
Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced
hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000.00 Down payment

P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon
City, the sum of Fifty Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 119627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in our name, We will
immediately execute the deed of absolute sale of said property and Miss
Ramona Patricia Alcaraz shall immediately pay the balance of the
P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00)
Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of
the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels
will execute the deed of absolute sale in favor of Ramona and the latter
will pay the former the whole balance of One Million One Hundred Ninety
Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh.
"2").
On February 6, 1985, the property originally registered in the name of
the Coronels' father was transferred in their names under TCT No.
327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT
No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter
referred to as Catalina) for One Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has paid Three Hundred
Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A")
with Ramona by depositing the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a notice
of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon
City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over
the subject property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered
their documentary evidence accordingly marked as Exhibits "A" through "J",
inclusive of their corresponding submarkings. Adopting these same exhibits as
their own, then defendants (now petitioners) accordingly offered and marked
them as Exhibits "1" through "10", likewise inclusive of their corresponding
submarkings. Upon motion of the parties, the trial court gave them thirty (30)
days within which to simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding comment or reply
thereto, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC
of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura
from his regular bench at Macabebe, Pampanga for the Quezon City branch,
disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute
sale covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once accomplished,
to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to pay defendants the whole
balance of the purchase price amounting to P1,190,000.00 in cash.
Transfer Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of intervenor is hereby canceled and declared
to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject
property and deliver possession thereof to plaintiffs. Plaintiffs' claim for
damages and attorney's fees, as well as the counterclaims of defendants
and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding
judge of the Quezon City RTC but the same was denied by Judge Estrella T.
Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and
to render anew decision by the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that
they were allowed to file memoranda at some future date did not change
the fact that the hearing of the case was terminated before Judge Roura
and therefore the same should be submitted to him for decision; (2)
When the defendants and intervenor did not object to the authority of
Judge Reynaldo Roura to decide the case prior to the rendition of the
decision, when they met for the first time before the undersigned
Presiding Judge at the hearing of a pending incident in Civil Case No. Q-
46145 on November 11, 1988, they were deemed to have acquiesced
thereto and they are now estopped from questioning said authority of
Judge Roura after they received the decision in question which happens
to be adverse to them; (3) While it is true that Judge Reynaldo Roura
was merely a Judge-on-detail at this Branch of the Court, he was in all
respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose
his authority to decide or resolve such cases submitted to him for
decision or resolution because he continued as Judge of the Regional
Trial Court and is of co-equal rank with the undersigned Presiding
Judge. The standing rule and supported by jurisprudence is that a Judge
to whom a case is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or region of the
same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now
pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she
is convinced that the Decision of March 1, 1989 is supported by
evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or
to Annul Decision and Render Anew Decision by the Incumbent
Presiding Judge" dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the
Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading,
private respondents' Reply Memorandum, was filed on September 15, 1993. The
case was, however, re-raffled to undersigned ponente only on August 28, 1996,
due to the voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of
respondent court in the affirmance of the trial court's decision, we definitely find
the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the
other issues in the case at bar is the precise determination of the legal
significance of the document entitled "Receipt of Down Payment" which was
offered in evidence by both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona Patricia Alcaraz on
the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to
a particular house and lot covered by TCT No. 119627, as defined in Article 1305
of the Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something
or to render some service.
While, it is the position of private respondents that the "Receipt of Down
Payment" embodied a perfected contract of sale, which perforce, they seek to
enforce by means of an action for specific performance, petitioners on their part
insist that what the document signified was a mere executory contract to sell,
subject to certain suspensive conditions, and because of the absence of Ramona
P. Alcaraz, who left for the United States of America, said contract could not
possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by
the way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the time the said document was
executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a contract to
sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges himself to do is
to fulfill his promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer. In Roque
vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is retained
by the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not
a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller's obligation to sell the
subject property by entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or
may not occur. If the suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court
of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, ownership will not automatically transfer to
the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract
of sale specially in cases where the subject property is sold by the owner not to
the party the seller contracted with, but to a third person, as in the case at bench.
In a contract to sell, there being no previous sale of the property, a third person
buying such property despite the fulfillment of the suspensive condition such as
the full payment of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property will transfer
to the buyer after registration because there is no defect in the owner-seller's
title per se, but the latter, of course, may be sued for damages by the intending
buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive


condition, the sale becomes absolute and this will definitely affect the seller's title
thereto. In fact, if there had been previous delivery of the subject property, the
seller's ownership or title to the property is automatically transferred to the buyer
such that, the seller will no longer have any title to transfer to any third person.
Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title,
or at least was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyer's title. In
case a title is issued to the second buyer, the first buyer may seek reconveyance
of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and private
respondents.
It is a canon in the interpretation of contracts that the words used therein should
be given their natural and ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon
City, the sum of Fifty Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price,
the natural and ordinary idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes
more manifest that there was a clear intent on the part of petitioners to transfer
title to the buyer, but since the transfer certificate of title was still in the name of
petitioner's father, they could not fully effect such transfer although the buyer was
then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title
in their names from that of their father, after which, they promised to present said
title, now in their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of
title was not in their names) and not the full payment of the purchase price.
Under the established facts and circumstances of the case, the Court may safely
presume that, had the certificate of title been in the names of petitioners-sellers
at that time, there would have been no reason why an absolute contract of sale
could not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely
promise to sell the property to private respondent upon the fulfillment of the
suspensive condition. On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title changed to their names
and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers,
after compliance by the buyer with certain terms and conditions, promised to sell
the property to the latter. What may be perceived from the respective
undertakings of the parties to the contract is that petitioners had already agreed
to sell the house and lot they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the buyer if the documents
were then in order. It just so happened, however, that the transfer certificate of
title was then still in the name of their father. It was more expedient to first effect
the change in the certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount of P50,000.00. As soon
as the new certificate of title is issued in their names, petitioners were committed
to immediately execute the deed of absolute sale. Only then will the obligation of
the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly
entered into so as to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property until the buyer
effects full payment therefor, in the contract entered into in the case at bar, the
sellers were the ones who were unable to enter into a contract of absolute sale
by reason of the fact that the certificate of title to the property was still in the
name of their father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of a contract of absolute
sale.
What is clearly established by the plain language of the subject document is that
when the said "Receipt of Down Payment" was prepared and signed by
petitioners Romulo A. Coronel, et al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioners' father, Constancio P.
Coronel to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled
on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional
contract of sale between petitioners and private respondent Ramona P. Alcaraz
became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale in
a public instrument, which petitioners unequivocally committed themselves to do
as evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners' names was fulfilled on February 6, 1985, the
respective obligations of the parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent Ramona P.
Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while
the buyer on her part, was obliged to forthwith pay the balance of the purchase
price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition,
petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the
transfer in our names from our deceased father Constancio P. Coronel,
the transfer certificate of title immediately upon receipt of the
downpayment above-stated." The sale was still subject to this
suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the
Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling these mere hypothetical arguments is the fact that the condition herein
referred to was actually and indisputably fulfilled on February 6, 1985, when a
new title was issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the
parties entered into a contract of sale subject only to the suspensive condition
that the sellers shall effect the issuance of new certificate of title from that of their
father's name to their names and that, on February 6, 1985, this condition was
fulfilled (Exh. "D"; Exh "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently
provides
Art. 1187. The effects of conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation . . .
In obligations to do or not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract
of sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point
in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could be no perfected contract on January 19, 1985
because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to the extent and value of the inheritance
of a person are transmitted through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to
succession by operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became binding
and enforceable upon them. It is expressly provided that rights to the succession
are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared
unless the creditors have been paid is rendered moot by the fact that they were
able to effect the transfer of the title to the property from the decedent's name to
their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to
now take a posture contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly
states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject property at
the time of sale, petitioners cannot claim now that they were not yet the
absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of
sale between them and Ramona P. Alcaraz, the latter breached her reciprocal
obligation when she rendered impossible the consummation thereof by going to
the United States of America, without leaving her address, telephone number,
and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally rescinding the contract of
sale.
We do not agree with petitioners that there was a valid rescission of the contract
of sale in the instant case. We note that these supposed grounds for petitioners'
rescission, are mere allegations found only in their responsive pleadings, which
by express provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs.
De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers' act of
unilaterally and extrajudicially rescinding the contract of sale, there being no
express stipulation authorizing the sellers to extrajudicially rescind the contract of
sale. (cf Dignos vs. CA,158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132
SCRA 722 [1984]).
Moreover, petitioners are estopped from raising the alleged absence of Ramona
P. Alcaraz because although the evidence on record shows that the sale was in
the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her
daughter, if not also in her own behalf. Indeed, the down payment was made by
Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and
in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners
ever questioned Concepcion's authority to represent Ramona P. Alcaraz when
they accepted her personal check. Neither did they raise any objection as
regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a
ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar
as her obligation to pay the full purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical absence of Ramona P.
Alcaraz as above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their names and signified
their willingness and readiness to execute the deed of absolute sale in
accordance with their agreement. Ramona's corresponding obligation to pay the
balance of the purchase price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be deemed to have
been in default.
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code
will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first
taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof
to the person who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25,
1985 as proof of the second contract of sale was registered with the Registry of
Deeds of Quezon City giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to
the first buyer, the exceptions being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b) should there be no inscription
by either of the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the
prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now
a distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale cannot
defeat the first buyer's rights except when the second buyer first
registers in good faith the second sale (Olivares vs. Gonzales, 159
SCRA 33). Conversely, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register, since knowledge
taints his registration with bad faith (see also Astorga vs. Court of
Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs.
Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held
that it is essential, to merit the protection of Art. 1544, second paragraph,
that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo
vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was
annotated on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner Mabanag
was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any adverse claim or previous
sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or
not the second buyer was a buyer in good faith but whether or not said second
buyer registers such second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis pendens had been
annotated on the transfer certificate of title in the names of petitioners, whereas
petitioner Mabanag registered the said sale sometime in April, 1985. At the time
of registration, therefore, petitioner Mabanag knew that the same property had
already been previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in petitioners'
title to the property at the time of the registration of the property.

This Court had occasions to rule that:


If a vendee in a double sale registers the sale after he has acquired
knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a previous sale, the
registration will constitute a registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978];
citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs.
Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P.
Alcaraz, perfected on February 6, 1985, prior to that between petitioners and
Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the
courts below.
Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent insofar as
the subject contract of sale is concerned, the issue of whether or not Concepcion
was also acting in her own behalf as a co-buyer is not squarely raised in the
instant petition, nor in such assumption disputed between mother and daughter.
Thus, We will not touch this issue and no longer disturb the lower courts' ruling
on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED
and the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C .J ., Davide, Jr. and Francisco, JJ ., concur.
Panganiban, J ., took no part.
SECOND DIVISION

[G.R. No. 107112. February 24, 1994.]

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M.


MAGGAY, petitioners, vs. THE COURT OF APPEALS AND
CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II), respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATION AND CONTRACTS; RULE WHERE A PERSON BY


HIS CONTRACT CHARGES HIMSELF WITH AN OBLIGATION POSSIBLE TO
BE PERFORMED. The case of Reyes v. Caltex (Philippines), Inc. enunciated
the doctrine that where a person by his contract charges himself with an
obligation possible to be performed, he must perform it, unless its performance is
rendered impossible by the act of God, by the law, or by the other party, it being
the rule that in case the party desires to be excused from performance in the
event of contingencies arising thereto, it is his duty to provide the basis therefor
in his contract. With the enactment of the New Civil Code, a new provision was
included therein namely, Article 1267 which provides: "When the service has
become so difficult as to be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in part." In the report of
the Code Commission, the rationale behind this innovation was explained, thus:
"The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the parties
should govern and if it appears that the service turns out to be so difficult as to
have been beyond their contemplation, it would be doing violence to that
intention to hold the obligor still responsible." In other words, fair and square
consideration underscores the legal precept therein.
2. ID.; ID.; "SERVICE" UNDER ART. 1267 REFERS TO THE PERFORMANCE
OF AN OBLIGATION; CASE AT BAR. Petitioners assert earnestly that Article
1267 of the New Civil Code is not applicable primarily because the contract does
not involve the rendition of service or a personal prestation and it is not for future
service with future unusual change. Instead, the ruling in the case Occea, et al.
v. Jabson, etc, et al., (G.R. No. L-44349, October 29, 1976, 73 SCRA 637) which
interpreted the article, should be followed in resolving this case. Besides, said
article was never raised by the parties in their pleadings and was never the
subject of trial and evidence. Article 1267 speaks of "service" which has become
so difficult. Taking into consideration the rationale behind this provision, the term
"service" should be understood as referring to the "performance" of the
obligation. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a bare reading of this article reveals
that it is not a requirement thereunder that the contract be for future service with
future unusual change. According to Senator Arturo M. Tolentino, Article 1267
states in our law the doctrine of unforeseen events. This is said to be based on
the discredited theory of rebus sic stantibus in public international law; under this
theory, the parties stipulate in the light of certain prevailing conditions, and once
these conditions cease to exist the contract also ceases to exist. Considering
practical needs and the demands of equity and good faith, the disappearance of
the basis of a contract gives rise to a right to relief in favor of the party
prejudiced.
3. ID.; ID.; POTESTATIVE CONDITION; MEANING THEREOF; APPLICATION
IN CASE AT BAR. A potestative condition is a condition, the fulfillment of
which depends upon the sole will of the debtor, in which case, the conditional
obligation is void. Based on this definition, respondent court's finding that the
provision in the contract, to wit: "(a) That the term or period of this contract shall
be as long as the party of the first part (petitioner) has need for the electric light
posts of the party of the second part (private respondent) . . ." is a potestative
condition, is correct. However, it must have overlooked the other conditions in the
same provision, to wit: ". . . it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second part (private
respondent) is forced to stop, abandoned (sic) its operation as a public service
and it becomes necessary to remove the electric light post (sic);" which are
casual conditions since they depend on chance, hazard, or the will of a third
person. In sum, the contract is subject to mixed conditions, that is, they depend
partly on the will of the debtor and partly on chance, hazard or the will of a third
person, which do not invalidate the aforementioned provision.
4. ID.; PRESCRIPTION OF ACTIONS; RULE ON WRITTEN CONTRACT.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a
written contract must be brought within ten (10) years from the time the right of
the action accrues. Clearly, the ten (10) year period is to be reckoned from the
time the right of action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private respondent's right of
action arose "sometime during the latter part of 1982 or in 1983 when according
to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board of
Directors to study said contract as it already appeared disadvantageous to
(private respondent). (Private respondent's) cause of action to ask for reformation
of said contract should thus be considered to have arisen only in 1982 or 1983,
and from 1982 to January 2, 1989 when the complaint in this case was filed, ten
(10) years had not yet elapsed."

DECISION

NOCON, J : p

The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that
where a person by his contract charges himself with an obligation possible to be
performed, he must perform it, unless its performance is rendered impossible by
the act of God, by the law, or by the other party, it being the rule that in case the
party desires to be excused from performance in the event of contingencies
arising thereto, it is his duty to provide the basis therefor in his contract. LibLex

With the enactment of the New Civil Code, a new provision was included therein
namely, Article 1267 which provides:
"When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part."
In the report of the Code Commission, the rationale behind this innovation was
explained, thus:
"The general rule is that impossibility of performance releases the
obligor. However, it is submitted that when the service has become so
difficult as to be manifestly beyond the contemplation of the parties, the
court should be authorized to release the obligor in whole or in part. The
intention of the parties should govern and if it appears that the service
turns out to be so difficult as to have been beyond their contemplation, it
would be doing violence to that intention to hold the obligor still
responsible." 2
In other words, fair and square consideration underscores the legal precept
therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the
Court of Appeals of Article 1267 in favor of Camarines Sur II Electric
Cooperative, Inc. in the case before us. Stated differently, the former insists that
the complaint should have been dismissed for failure to state a cause of action. prLL

The antecedent facts, as narrated by respondent Court of Appeals are, as


follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company
rendering local as well as long distance service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a
private corporation established for the purpose of operating an electric power
service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use
by petitioners in the operation of its telephone service the electric light posts of
private respondent in Naga City. In consideration therefor, petitioners agreed to
install, free of charge, ten (10) telephone connections for the use by private
respondent in the following places:
"(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion
Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General
Manager; &
(f) 2 Units To be determined by the General Manager. 3

Said contract also provided:


"(a) That the term or period of this contract shall be as long as the party
of the first part has need for the electric light posts of the party of the
second part it being understood that this contract shall terminate when
for any reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes
necessary to remove the electric lightpost;" (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano
M. Maggay, then a member of the Board of Directors of private respondent
and at the same time the legal counsel of petitioner.
After the contract had been enforced for over ten (10) years, private respondent
filed on January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C.
No. 89-1642 against petitioners for reformation of the contract with damages, on
the ground that it is too one-sided in favor of petitioners; that it is not in
conformity with the guidelines of the National Electrification Administration (NEA)
which direct that the reasonable compensation for the use of the posts is P10.00
per post, per month; that after eleven (11) years of petitioners' use of the posts,
the telephone cables strung by them thereon have become much heavier with
the increase in the volume of their subscribers, worsened by the fact that their
linemen bore holes through the posts at which points those posts were broken
during typhoons; that a post now costs as much as P2,630.00; so that justice and
equity demand that the contract be reformed to abolish the inequities thereon. prLL
As second cause of action, private respondent alleged that starting with the year
1981, petitioners have used 319 posts in the towns of Pili, Canaman, Magarao
and Milaor, Camarines Sur, all outside Naga City, without any contract with it;
that at the rate of P10.00 per post, petitioners should pay private respondent for
the use thereof the total amount of P267,960.00 from 1981 up to the filing of its
complaint; and that petitioners had refused to pay private respondent said
amount despite demands.
And as third cause of action, private respondent complained about the poor
servicing by petitioners of the ten (10) telephone units which had caused it great
inconvenience and damages to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be
dismissed because (1) it does not sufficiently state a cause of action for
reformation of contract; (2) it is barred by prescription, the same having been
filed more than ten (10) years after the execution of the contract; and (3) it is
barred by estoppel, since private respondent seeks to enforce the contract in the
same action. Petitioners further alleged that their utilization of private
respondent's post could not have caused their deterioration because they have
already been in use for eleven (11) years; and that the value of their expenses
for the ten (10) telephone lines long enjoyed by private respondent free of charge
are far in excess of the amounts claimed by the latter for the use of the posts, so
that if there was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that private
respondent had asked for telephone lines in areas outside Naga City for which its
posts were used by them; and that if petitioners had refused to comply with
private respondent's demands for payment for the use of the posts outside Naga
City, it was probably because what is due to them from private respondent is
more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that
their telephone service had been categorized by the National Telecommunication
Corporation (NTC) as "very high" and of "superior quality."
During the trial, private respondent presented the following witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its
behalf, declared that it was petitioner Maggay who prepared the contract; that the
understanding between private respondent and petitioners was that the latter
would only use the posts in Naga City because at that time, petitioners' capability
was very limited and they had no expectation of expansion because of legal
squabbles within the company; that private respondent agreed to allow
petitioners to use its posts in Naga City because there were many subscribers
therein who could not be served by them because of lack of facilities; and that
while the telephone lines strung to the posts were very light in 1977, said posts
have become heavily loaded in 1989. LLphil

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and
Maintenance Department, declared that the posts being used by petitioners
totalled 1,403 as of April 17, 1989, 192 of which were in the towns of Pili,
Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger than those in
November, 1977; that in 1987, almost 100 posts were destroyed by typhoon
Sisang: around 20 posts were located between Naga City and the town of Pili
while the posts in barangay Concepcion, Naga City were broken at the middle
which had been bored by petitioner's linemen to enable them to string bigger
telephone lines; that while the cost per post in 1977 was only from P700.00 to
P1,000.00, their costs in 1989 went up from P1,500.00 to P2,000.00, depending
on the size; that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building Code, so that there
were cases in 1988 where, because of the low clearance of the cables, passing
trucks would accidentally touch said cables causing the posts to fall and resulting
in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private
respondent and Manager of Region V of NEA, declared that according to NEA
guidelines in 1985 (Exh. "C"), for the use by private telephone systems of electric
cooperatives' posts, they should pay a minimum monthly rental of P4.00 per post,
and considering the escalation of prices since 1985, electric cooperatives have
been charging from P10.00 to P15.00 per post, which is what petitioners should
pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of
private respondent, testified on the poor service rendered by petitioners'
telephone lines, like the telephone in their Complaints Section which was usually
out of order such that they could not respond to the calls of their customers. In
case of disruption of their telephone lines, it would take two to three hours for
petitioners to reactivate them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the
Board of Directors asked him to study the contract sometime during the latter
part of 1982 or in 1983, as it had appeared very disadvantageous to private
respondent. Notwithstanding his recommendation for the filing of a court action to
reform the contract, the former general managers of private respondent wanted
to adopt a soft approach with petitioners about the matter until the term of
General Manager Henry Pascual who, after failing to settle the matter amicably
with petitioners, finally agreed for him to file the present action for reformation of
contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private
respondent and at the same time the lawyer of petitioner when the contract was
executed, but Atty. Gaudioso Tena, who was also a member of the Board of
Directors of private respondent, was the one who saw to it that the contract was
fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use ten (10) telephone
units of petitioners for as long as it wishes without paying anything therefor
except for long distance calls through PLDT out of which the latter get only 10%
of the charges. LLpr

(b) In most cases, only drop wires and not telephone cables have been strung to
the posts, which posts have remained erect up to present;
(c) Petitioners' linemen have strung only small messenger wires to many of the
posts and they need only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in
Naga City are according to standard and comparable to those of PLDT. The
accidents mentioned by private respondent involved trucks that were either
overloaded or had loads that protruded upwards, causing them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they
entered into the contract was that the coverage thereof would include the whole
area serviced by petitioners because at that time, they already had subscribers
outside Naga City. Private respondent, in fact, had asked for telephone
connections outside Naga City for its officers and employees residing there in
addition to the ten (10) telephone units mentioned in the contract. Petitioners
have not been charging private respondent for the installation, transfers and re-
connections of said telephones so that naturally, they use the posts for those
telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners cable
installations to be in accordance with engineering standards and practice and
comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court
found, as regards private respondents first cause of action, that while the
contract appeared to be fair to both parties when it was entered into by them
during the first year of private respondents operation and when its Board of
Directors did not yet have any experience in that business, it had become
disadvantageous and unfair to private respondent because of subsequent events
and conditions, particularly the increase in the volume of the subscribers of
petitioners for more than ten (10) years without the corresponding increase in the
number of telephone connections to private respondent free of charge. The trial
court concluded that while in an action for reformation of contract, it cannot make
another contract for the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities therein. Thus, said
court ruled that the contract should be reformed by ordering petitioners to pay
private respondent compensation for the use of their posts in Naga City, while
private respondent should also be ordered to pay the monthly bills for the use of
the telephones also in Naga City. And taking into consideration the guidelines of
the NEA on the rental of posts by telephone companies and the increase in the
costs of such posts, the trial court opined that a monthly rental of P10.00 for each
post of private respondent used by petitioners is reasonable, which rental it
should pay from the filing of the complaint in this case on January 2, 1989. And in
like manner, private respondent should pay petitioners from the same date its
monthly bills for the use and transfers of its telephones in Naga City at the same
rate that the public are paying. cdll

On private respondent's second cause of action, the trial court found that the
contract does not mention anything about the use by petitioners of private
respondent's posts outside Naga City. Therefore, the trial court held that for
reason of equity, the contract should be reformed by including therein the
provision that for the use of private respondent's posts outside Naga City,
petitioners should pay a monthly rental of P10.00 per post, the payment to start
on the date this case was filed, or on January 2, 1989, and private respondent
should also pay petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court
found the claim not sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20,
1990:
"WHEREFORE, in view of all the foregoing, decision is hereby rendered
ordering the reformation of the agreement (Exh. A); ordering the
defendants to pay plaintiff's electric poles in Naga City and in the towns
of Milaor, Canaman, Maragao and Pili, Camarines Sur and in other
places where defendant NATELCO uses plaintiff's electric poles, the
sum of TEN (P10.00) PESOS per plaintiff's pole, per month beginning
January, 1989 and ordering also the plaintiff to pay defendant NATELCO
the monthly dues of all its telephones including those installed at the
residence of its officers, namely; Engr. Joventino Cruz, Engr. Antonio
Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and Atty. Luis
General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees
and expenses of litigation and defendants' counterclaim are both hereby
ordered dismissed. Without pronouncement as to costs." llcd

Disagreeing with the foregoing judgment, petitioners appealed to respondent


Court of Appeals. In the decision dated May 28, 1992, respondent court
affirmed the decision of the trial court, 5 but based on different grounds to wit:
(1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition
void. The motion for reconsideration was denied in the resolution dated
September 10, 1992. 6 Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the
New Civil Code;
2) in ruling that prescription of the action for reformation of the contract in
this case commenced from the time it became disadvantageous to
private respondent; and
3) in ruling that the contract was subject to a potestative condition in
favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not
applicable primarily because the contract does not involve the rendition of service
or a personal prestation and it is not for future service with future unusual
change. Instead, the ruling in the case Occea, et al. v. Jabson, etc, et
al., 7 which interpreted the article, should be followed in resolving this case.
Besides, said article was never raised by the parties in their pleadings and was
never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
"We agree with appellant that in order that an action for reformation of
contract would lie and may prosper, there must be sufficient allegations
as well as proof that the contract in question failed to express the true
intention of the parties due to error or mistake, accident, or fraud.
Indeed, in embodying the equitable remedy of reformation of instruments
in the New Civil Code, the Code Commission gave its reasons as
follows:
'Equity dictates the reformation of an instrument in order that the
true intention of the contracting parties may be expressed. The
courts by the reformation do not attempt to make a new contract
for the parties, but to make the instrument express their real
agreement. The rationale of the doctrine is that it would be unjust
and inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds of
the parties. The rigor of the legalistic rule that a written instrument
should be the final and inflexible criterion and measure of the
rights and obligations of the contracting parties is thus tempered
to forestall the effects of mistake, fraud, inequitable conduct, or
accident.' (pp. 55-56, Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code
provide in essence that where through mistake or accident on the part of
either or both of the parties or mistake or fraud on the part of the clerk or
typist who prepared the instrument, the true intention of the parties is not
expressed therein, then the instrument may be reformed at the instance
of either party if there was mutual mistake on their part, or by the injured
party if only he was mistaken. cdphil

Here, plaintiff-appellee did not allege in its complaint, nor does its
evidence prove, that there was a mistake on its part or mutual mistake
on the part of both parties when they entered into the agreement Exh.
"A", and that because of this mistake, said agreement failed to express
their true intention. Rather, plaintiff's evidence shows that said
agreement was prepared by Atty. Luciano Maggay, then a member of
plaintiff's Board of Directors and its legal counsel at that time, who was
also the legal counsel for defendant-appellant, so that as legal counsel
for both companies and presumably with the interests of both companies
in mind when he prepared the aforesaid agreement, Atty. Maggay must
have considered the same fair and equitable to both sides, and this was
affirmed by the lower court when it found said contract to have been fair
to both parties at the time of its execution. In fact, there were no
complaints on the part of both sides at the time of and after the
execution of said contract, and according to 73-year old Justino de
Jesus, Vice President and General manager of appellant at the time who
signed the agreement Exh. "A" in its behalf and who was one of the
witnesses for the plaintiff (sic), both parties complied with said contract
'from the very beginning' (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become iniquitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of
appellant and the increase in the volume of its subscribers in Naga City
and environs through the years, necessitating the stringing of more and
bigger telephone cable wires by appellant to plaintiff's electric posts
without a corresponding increase in the ten (10) telephone connections
given by appellant to plaintiff free of charge in the agreement Exh. "A" as
consideration for its use of the latter's electric posts in Naga City,
appear, however, undisputed from the totality of the evidence on record
and the lower court so found. And it was for this reason that in the later
(sic) part of 1982 or 1983 (or five or six years after the subject
agreement was entered into by the parties), plaintiff's Board of Directors
already asked Atty. Luis General who had become their legal counsel in
1982, to study said agreement which they believed had become
disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and thereafter, he
already recommended to the Board the filing of a court action to reform
said contract, but no action was taken on Atty. General's
recommendation because the former general managers of plaintiff
wanted to adopt a soft approach in discussing the matter with appellant,
until, during the term of General Manager Henry Pascual, the latter, after
failing to settle the problem with Atty. Luciano Maggay who had become
the president and general manager of appellant, already agreed for Atty.
General's filing of the present action. The fact that said contract has
become iniquitous or disadvantageous to plaintiff as the years went by
did not, however, give plaintiff a cause of action for reformation of said
contract, for the reasons already pointed out earlier. But this does not
mean that plaintiff is completely without a remedy, for we believe that the
allegations of its complaint herein and the evidence it has presented
sufficiently make out a cause of action under Art. 1267 of the New Civil
Code for its release from the agreement in question. LibLex

xxx xxx xxx


The understanding of the parties when they entered into the Agreement
Exh. "A" on November 1, 1977 and the prevailing circumstances and
conditions at the time, were described by Dioscoro Ragragio, the
President of plaintiff in 1977 and one of its two officials who signed said
agreement in its behalf, as follows:
'Our understanding at that time is that we will allow NATELCO to
utilize the posts of CASURECO II only in the City of Naga
because at that time the capability of NATELCO was very limited,
as a matter of fact we do [sic] not expect to be able to expand
because of the legal squabbles going on in the NATELCO. So,
even at that time there were so many subscribers in Naga City
that cannot be served by the NATELCO, so as a matter of public
service we allowed them to sue (sic) our posts within the Naga
City.' (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the
electric posts of plaintiff were very light and that very few telephone lines
were attached to the posts of CASURECO II in 1977, said posts have
become 'heavily loaded' in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase
in the volume of appellant's subscribers and the corresponding increase
in the telephone cables and wires strung by it to plaintiff's electric posts
in Naga City for the more 10 years that the agreement Exh. "A" of the
parties has been in effect, there has been no corresponding increase in
the ten (10) telephone units connected by appellant free of charge to
plaintiff's offices and other places chosen by plaintiff's general manager
which was the only consideration provided for in said agreement for
appellant's use of plaintiff's electric posts. Not only that, appellant even
started using plaintiff's electric posts outside Naga City although this was
not provided for in the agreement Exh. "A" as it extended and expanded
its telephone services to towns outside said city. Hence, while very few
of plaintiff's electric posts were being used by appellant in 1977 and they
were all in the City of Naga, the number of plaintiff's electric posts that
appellant was using in 1989 had jumped to 1,403,192 of which are
outside Naga City (Exh. "B"). Add to this the destruction of some of
plaintiff's poles during typhoons like the strong typhoon Sisang in 1987
because of the heavy telephone cables attached thereto, and the
escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already
become too one-sided in favor of appellant to the great disadvantage of
plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so
that it should now be released therefrom under Art. 1267 of the New Civil
Code to avoid appellant's unjust enrichment at its (plaintiff's) expense.
As stated by Tolentino in his commentaries on the Civil Code citing
foreign civilist Ruggiero, 'equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit
the unlimited impoverishment of one party for the benefit of the other by
the excessive rigidity of the principle of the obligatory force of
contracts (IV Tolentino, Civil Code of the Philippines, 1986 ed., pp. 247-
248).LexLib

We therefore, find nothing wrong with the ruling of the trial court,
although based on a different and wrong premise (i.e., reformation of
contract), that from the date of the filing of this case, appellant must pay
for the use of plaintiff's electric posts in Naga City at the reasonable
monthly rental of P10.00 per post, while plaintiff should pay appellant for
the telephones in the same City that it was formerly using free of charge
under the terms of the agreement Exh. "A" at the same rate being paid
by the general public. In affirming said ruling, we are not making a new
contract for the parties herein, but we find it necessary to do so in order
not to disrupt the basic and essential services being rendered by both
parties herein to the public and to avoid unjust enrichment by appellant
at the expense of plaintiff, said arrangement to continue only until such
time as said parties can re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said
agreement is reached and executed by the parties, the aforesaid ruling
of the lower court and affirmed by us shall cease to exist and shall be
substituted and superseded by their new agreement. . . ." 8
Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, 9 the term "service" should be
understood as referring to the "performance" of the obligation. In the present
case, the obligation of private respondent consists in allowing petitioners to use
its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement
thereunder that the contract be for future service with future unusual change.
According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law the
doctrine of unforeseen events. This is said to be based on the discredited theory
of rebus sic stantibus in public international law; under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering practical needs and
the demands of equity and good faith, the disappearance of the basis of a
contract gives rise to a right to relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against
petitioner before the trial court praying for modification of the terms and
conditions of the contract that they entered into by fixing the proper shares that
should pertain to them out of the gross proceeds from the sales of subdivided
lots. We ordered the dismissal of the complaint therein for failure to state a
sufficient cause of action. We rationalized that the Court of Appeals misapplied
Article 1267 because:
". . . respondent's complaint seeks not release from the subdivision
contract but that the court 'render judgment modifying the terms and
conditions of the contract . . . by fixing the proper shares that
should pertain to the herein parties out of the gross proceeds from the
sales of subdivided lots of subject subdivision'. The cited article (Article
1267) does not grant the courts (the) authority to remake, modify or
revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as
to substitute its own terms for those covenanted by the parties
themselves. Respondent's complaint for modification of contract
manifestly has no basis in law and therefore states no cause of action.
Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity the relief
sought." 11
The ruling in the Occea case is not applicable because we agree with
respondent court that the allegations in private respondent's complaint and
the evidence it has presented sufficiently made out a cause of action under
Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present
controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their essential service to the public; while private
respondent, in consonance with the contract 12 will return all the telephone
units to petitioners, causing prejudice to its business. We shall not allow such
eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to
pay private respondent for the use of its posts in Naga City and in the towns
of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places
where petitioners use private respondent's posts, the sum of ten (P10.00)
pesos per post, per month, beginning January, 1989; and 2) private
respondent to pay petitioner the monthly dues of all its telephones at the
same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occea
case, necessitates exercise of our equity jurisdiction. 13 By way of emphasis,
we reiterate the rationalization of respondent court that: cdll

". . . In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt
the basic and essential services being rendered by both parties herein to
the public and to avoid unjust enrichment by appellant at the expense of
plaintiff . . . ." 1 4
Petitioners' assertion that Article 1267 was never raised by the parties in their
pleadings and was never the subject of trial and evidence has been passed upon
by respondent court in its well reasoned resolution, which we hereunder quote as
our own:
"First, we do not agree with defendant-appellant that in applying Art.
1267 of the New Civil Code to this case, we have changed its theory and
decided the same on an issue not invoked by plaintiff in the lower court.
For basically, the main and pivotal issue in this case is whether the
continued enforcement of the contract Exh. "A" between the parties has,
through the years (since 1977), become too iniquitous or
disadvantageous to the plaintiff and too one-sided in favor of defendant-
appellant, so that a solution must be found to relieve plaintiff from the
continued operation of said agreement and to prevent defendant-
appellant from further unjustly enriching itself at plaintiff's expense. It is
indeed unfortunate that defendant had turned deaf ears to plaintiff's
requests for renegotiation, constraining the latter to go to court. But
although plaintiff cannot, as we have held, correctly invoke reformation
of contract as a proper remedy (there having been no showing of a
mistake or error in said contract on the part of any of the parties so as to
result in its failure to express their true intent), this does not mean that
plaintiff is absolutely without a remedy in order to relieve itself from a
contract that has gone far beyond its contemplation and has become
highly iniquitous and disadvantageous to it through the years because of
the expansion of defendant-appellant's business and the increase in the
volume of its subscribers. And as it is the duty of the Court to administer
justice, it must do so in this case in the best way and manner it can in
the light of the proven facts and the law or laws applicable thereto. cdphil
It is settled that when the trial court decides a case in favor of a party on
a certain ground, the appellate court may uphold the decision below
upon some other point which was ignored or erroneously decided by the
trial court (Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro, 76
Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the
appellate court has the discretion to consider an unassigned error that is
closely related to an error properly assigned (Paterno v. Jao Yan, 1
SCRA 631; Hernandez v. Andal, 78 Phil. 196). It has also been held that
the Supreme Court (and this Court as well) has the authority to review
matters, even if they are not assigned as errors in the appeal, if it is
found that their consideration is necessary in arriving at a just decision of
the case (Saura Import & Export Co., Inc. v. Phil. International Surety
Co. and PNB, 8 SCRA 143). For it is the material allegations of fact in
the complaint, not the legal conclusion made therein or the prayer, that
determines the relief to which the plaintiff is entitled, and the plaintiff is
entitled to as much relief as the facts warrant although that relief is not
specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza,
25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil.
120). To quote an old but very illuminating decision of our Supreme
Court through the pen of American jurist Adam C. Carson:
'Under our system of pleading it is the duty of the courts to grant
the relief to which the parties are shown to be entitled by the
allegations in their pleadings and the facts proven at the trial, and
the mere fact that they themselves misconstrue the legal effects
of the facts thus alleged and proven will not prevent the court from
placing the just construction thereon and adjudicating the issues
accordingly.' (Alzua v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil. Inc. v. IAC, 176 SCRA 741,
the Honorable Supreme Court also held:
'We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not raised
before the trial court. The presence of strong consideration of
substantial justice has led this Court to relax the well-entrenched
rule that, except questions on jurisdiction, no question will be
entertained on appeal unless it has been raised in the court below
and it is within the issues made by the parties in their pleadings
(Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .'

We believe that the above authorities suffice to show that this Court did
not err in applying Art. 1267 of the New Civil Code to this case.
Defendant-appellant stresses that the applicability of said provision is
a question of fact, and that it should have been given the opportunity to
present evidence on said question. But defendant-appellant cannot
honestly and truthfully claim that it (did) not (have) the opportunity to
present evidence on the issue of whether the continued operation of the
contract Exh. "A" has now become too one-sided in its favor and too
iniquitous, unfair, and disadvantageous to plaintiff. As held in our
decision, the abundant and copious evidence presented by both parties
in this case and summarized in said decision established the following
essential and vital facts which led us to apply Art. 1267 of the New Civil
Code to this case: Cdpr

xxx xxx xxx." 15


On the issue of prescription of private respondent's action for reformation of
contract, petitioners allege that respondent court's ruling that the right of action
"arose only after said contract had already become disadvantageous and unfair
to it due to subsequent events and conditions, which must be sometime during
the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts,
what is reformed is not the contract itself, but the instrument embodying the
contract. It follows that whether the contract is disadvantageous or not irrelevant
to reformation and therefore, cannot be an element in the determination of the
period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a
written contract must be brought within ten (10) years from the time the right of
the action accrues. Clearly, the ten (10) year period is to be reckoned from the
time the right of action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private respondent's right of
action arose "sometime during the latter part of 1982 or in 1983 when according
to Atty. Luis General, Jr. . . ., he was asked by (private respondent's) Board of
Directors to study said contract as it already appeared disadvantageous to
(private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's) cause of
action to ask for reformation of said contract should thus be considered to have
arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the
complaint in this case was filed, ten (10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely
potestative about the prestations of either party because petitioner's permission
for free use of telephones is not made to depend purely on their will, neither is
private respondent's permission for free use of its posts dependent purely on its
will.
llcd

Apart from applying Article 1267, respondent court cited another legal remedy
available to private respondent under the allegations of its complaint and the
preponderant evidence presented by it:
". . . we believe that the provision in said agreement
'(a) That the term or period of this contract shall be as long as the party
of the first part [herein appellant] has need for the electric light posts of
the party of the second part [herein plaintiff] it being understood that this
contract shall terminate when for any reason whatsoever, the party of
the second part is forced to stop, abandoned [sic] its operation as a
public service and it becomes necessary to remove the electric light post
[sic]'; (Emphasis supplied)
is invalid for being purely potestative on the part of appellant as it leaves
the continued effectivity of the aforesaid agreement to the latter's sole
and exclusive will as long as plaintiffs is in operation. A similar provision
in a contract of lease wherein the parties agreed that the lessee could
stay on the leased premises 'for as long as the defendant needed the
premises and can meet and pay said increases' was recently held by the
Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much earlier
case of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being 'a
purely potestative condition because it leaves the effectivity and
enjoyment of leasehold rights to the sole and exclusive will of the
lessee.' Further held the High Court in the Lim case: llcd

'The continuance, effectivity and fulfillment of a contract of lease


cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the payment
of the rentals or not, completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease of
no equality exists between the lessor and the lessee since the life
of the contract is dictated solely by the lessee.'
The above can also be said of the agreement Exh. "A" between the
parties in this case. There is no mutuality and equality between them
under the afore-quoted provision thereof since the life and continuity of
said agreement is made to depend as long as appellant needs plaintiff's
electric posts. And this is precisely why, since 1977 when said
agreement was executed and up to 1989 when this case was finally filed
by plaintiff, it could do nothing to be released from or terminate said
agreement notwithstanding that its continued effectivity has become very
disadvantageous and iniquitous to it due to the expansion and increase
of appellant's telephone services within Naga City and even outside the
same, without a corresponding increase in the ten (10) telephone units
being used by plaintiff free of charge, as well as the bad and inefficient
service of said telephones to the prejudice and inconvenience of plaintiff
and its customers. . . ." 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a
condition, the fulfillment of which depends upon the sole will of the debtor, in
which case, the conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to wit:
"(a) That the term or period of this contract shall be as long as the party
of the first part (petitioner) has need for the electric light posts of the
party of the second part (private respondent) . . ."LLjur

is a potestative condition, is correct. However, it must have overlooked the


other conditions in the same provision, to wit:
". . . it being understood that this contract shall terminate when for any
reason whatsoever, the party of the second part (private respondent) is
forced to stop, abandoned (sic) its operation as a public service and it
becomes necessary to remove the electric light post (sic);"
which are casual conditions since they depend on chance, hazard, or the will
of a third person. 20 In sum, the contract is subject to mixed conditions, that
is, they depend partly on the will of the debtor and partly on chance, hazard or
the will of a third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the first and
second issues raised by petitioners, there is no reason to set aside the
questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of
Appeals dated May 28, 1992 and its resolution dated September 10, 1992 are
AFFIRMED.
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Puno, JJ ., concur.
EN BANC

[G.R. No. L-29155. May 13, 1970.]

UNIVERSAL FOOD CORPORATION, petitioners, vs. THE


COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and
VICTORIANO V. FRANCISCO,respondents.

Wigberto E. Taada for petitioner.


Teofilo Mendoza for respondents.

SYLLABUS

1. TRADEMARKS AND TRADENAMES; LICENSE UNDER PATENT;


ROYALTY, MEANING. The word "royalty," when employed in connection with
a license under a patent, means the compensation paid for the use of patented
invention.
2. REMEDIAL LAW; EVIDENCE; FACTS THAT NEED NOT BE PROVED;
FACTS ALLEGED IN COMPLAINT AND ADMITTED IN ANSWER; INSTANT
CASE. It is alleged in paragraph 3 of the respondents' complaint that what
was ceded and transferred by virtue of the Bill of Assignment is the "use of the
formula" (and not the formula itself). This incontrovertible fact is admitted without
equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not
require proof and cannot be contradicted."
3. CIVIL LAW; PROPERTY; CONVEYANCE; INTERPRETATION; INSTANT
CASE. Our conclusion that what was actually ceded and transferred to
petitioner was only the use of the Mafran sauce formula is fortified by the
admonition in the Civil Code that a conveyance should be interpreted to effect
"the least transmission of rights," and is there a better example of least
transmission of rights than allowing or permitting only the use, without transfer of
ownership, of the formula for Mafran sauce.
4. ID.; OBLIGATIONS AND CONTRACTS; REMEDY WHERE THERE IS
BREACH OF CONTRACT IN RECIPROCAL OBLIGATIONS; RESCISSION.
The power to rescind is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. The injured party may
choose between fulfillment and rescission of the obligation, with payment of
damages in either case.
5. ID.; ID.; ID.; ID.; REQUIREMENT OF SUBSTANTIAL BREACH; HOW
DETERMINED. The general rule is that rescission of a contract will not be
permitted for a slight or casual breach as would defeat the very object of the
parties in making the agreement. The question of whether a breach of a contract
is substantial depends upon the attendant circumstances.
6. ID.; ID.; ID.; ID.; ID.; INSTANT CASE. In this case the dismissal of the
respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist
of the corporation is a fundamental and substantial breach of the Bill of
Assignment. He was dismissed without any fault or negligence on his part. Thus,
apart from the legal principle that the option to demand performance or ask for
rescission of a contract belongs to the injured party, the fact remains that the
respondents appellees had no alternative but to file the present action for
rescission and damages.
7. ID.; ID.; CONSIDERATION FOR TRANSFER OF PROPERTY USE;
EMPLOYMENT OF RESPONDENT-APPELLEE IN INSTANT CASE. One of
the considerations for the transfer of the use of the formula for Mafran sauce to
petitioners was the undertaking on its part to employ respondent patentee as the
second Vice President and Chief Chemist on a permanent status, at a monthly
salary of P300 unless "death or other disabilities" supervened. Under these
circumstances, the petitioner corporation could not escape liability to pay the
private respondent patentee his agreed monthly salary, as long as the use, as
well as the right to use, the formula for Mafran sauce remained with the
corporation.
8. ID.; ID.; REMEDY WHERE THERE IS BREACH OF CONTRACT IN
RECIPROCAL OBLIGATIONS; RESCISSION, OBLIGATION TO RETURN
OBJECT OF CONTRACT. Article 1385 of the New Civil Code provides that
rescission creates the obligation to return the things which are the object of the
contract.
9. ID.; ID.; ID.; ID.; ID.; INSTANT CASE. Both the decision of the appellate
court and that of the lower court state that the corporation is not aware nor is in
possession of the formula for Mafran sauce and the respondent patentee
admittedly never gave the same to the corporation. According to the petitioner
these findings would render it impossible to carry out the order of the Court of
Appeals to return the formula to the respondent patentee. Held: It is a logical
inference from the appellate court's decision that what was meant to be returned
to the respondent patentee is not the formula itself, but only its use and the right
to such use. Thus, the respondents in their complaint for rescission specifically
and particularly pray among others, that the petitioner corporation be adjudged
as "without any right to use said trademark and formula."
REYES, J.B.L., J., concurring:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS, REMEDY WHEN THERE IS
BREACH OF CONTRACT; POSSESSION; ARTICLE 1191 DISTINGUISHED
FROM ARTICLE 1383. Under Article 1191, the rescission on account of
breach of stipulations is not predicated on injury to economic interest of the party
plaintiff but on the breach of faith by the defendant, that violates the reciprocity
between the parties. It is not subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of his obligations by the
defendant. The rescission is a principal action retaliatory in character, it being
unjust that a party be held bound to fulfill his promises when the other violates
his. On the contrary, in the rescission by reason of lesion or economic prejudice,
under Article 1383 the cause of action is subordinated to the existence of that
prejudice, because it is the raison d'etre as well as the measure of the right to
rescind. Hence, where the defendant makes good the damage caused, the
action can not be maintained or continued, as expressly provided in Article 1383
and 1384. But the operation of these two articles is limited to the cases of
rescission for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.

DECISION

CASTRO, J : p

Petition for certiorari by the Universal Food Corporation against the decision of
the Court of Appeals of February 13, 1968 in CA-G.R. 31430-R (Magdalo V.
Francisco, Sr. and Victoriano V. Francisco, plaintiffs-appellants vs. Universal
Food Corporation, defendant-appellee), the dispositive portion of which reads as
follows:
"WHEREFORE the appealed decision is hereby reversed; the BILL OF
ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is
hereby ordered to return to plaintiff Magdalo V. Francisco, Sr., his
Mafran sauce trademark and formula subject-matter of Exhibit A, and to
pay him his monthly salary of P300.00 from December 1, 1960, until the
return to him of said trademark and formula, plus attorney's fees in the
amount of P500.00, with costs against defendant."
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco
filed with the Court of First Instance of Manila, against the Universal Food
Corporation, an action for rescission of a contract entitled "Bill of Assignment."
The plaintiffs prayed the court to adjudge the defendant as without any right to
the use of the Mafran trademark and formula, and order the latter to restore to
them the said right of user; to order the defendant to pay Magdalo V. Francisco,
Sr. his unpaid salary from December 1, 1960, as well as damages in the sum of
P40,000, and to pay the costs of suit. 1
On February 28, the defendant filed its answer containing admissions and
denials. Paragraph 3 thereof "admits the allegations contained in paragraph 3 of
plaintiffs' complaint." The answer further alleged that the defendant had complied
with all the terms and conditions of the Bill of Assignment and, consequently, the
plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V.
Francisco, Sr. was not dismissed from the service as permanent chief chemist of
the corporation as he is still its chief chemist; and, by way of special defenses,
that the aforesaid plaintiff is estopped from questioning 1) the contents and due
execution of the Bill of Assignment, 2) the corporate acts of the petitioner,
particularly the resolution adopted by its board of directors at the special meeting
held on October 14, 1960, to suspend operations to avoid further losses due to
increase in the prices of raw materials, since the same plaintiff was present when
that resolution was adopted and even took part in the consideration thereof, 3)
the actuations of its president and general manager in enforcing and
implementing the said resolution, 4) the fact that the same plaintiff was negligent
in the performance of his duties as chief chemist of the corporation, and 5) the
further fact that the said plaintiff was delinquent in the payment of his subscribed
shares of stock with the corporation. The defendant corporation prayed for the
dismissal of the complaint, add asked for P750 as attorney's fees and P5,000 in
exemplary or corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as
the defendant's claim for damages and attorney's fees, with costs against the
former, who promptly appealed to the Court of Appeals. On February 13, 1969
the appellate court rendered the judgment now the subject of the present
recourse.
The Court of Appeals arrived at the following "Uncontroverted" findings of fact:
"That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered
or invented a formula for the manufacture of a food seasoning (sauce)
derived from banana fruits popularly known as MAFRAN sauce; that the
manufacture of this product was used in commercial scale in 1942, and
in the same year plaintiff registered his trademark in his name as owner
and inventor with the Bureau of Patents; that due to lack of sufficient
capital to finance the expansion of the business, in 1960, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a series of
negotiations, formed with others defendant Universal Food Corporation
eventually leading to the execution on May 11, 1960 of the aforequoted
'Bill of Assignment' (Exhibit A or 1).
"Conformably with the terms and conditions of Exh. A plaintiff Magdalo
V. Francisco, Sr. was appointed Chief Chemist with a salary of P300.00
a month, and plaintiff Victoriano V. Francisco was appointed auditor and
superintendent with a salary of P250.00 a month. Since the start of the
operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr.,
when preparing the secret materials inside the laboratory, never allowed
anyone, not even his own son, or the President and General Manager
Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the
formula secret to himself. However said plaintiff expressed a willingness
to give the formula to defendant provided that the same should be
placed or kept inside a safe to be opened only when he is already
incapacitated to perform his duties as Chief Chemist, but defendant
never acquired a safe for that purpose. On July 26, 1960, President and
General Manager Tirso T. Reyes wrote plaintiff requesting him to permit
one or two members of his family to observe the preparation of the
'Mafran Sauce' (Exhibit C), but said request was denied by plaintiff. In
spite of such denial, Tirso T. Reyes did not compel or face plaintiff to
accede to said request. Thereafter, however, due to the alleged scarcity
and high prices of raw materials, on November 28, 1960, Secretary-
Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum
(Exhibit B), duly approved by the President and General Manger Tirso T.
Reyes, that only Supervisor Ricardo Francisco should be retained in the
factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should
be stopped for the time being until the corporation should resume its
operation. Some five (5) days later, that is, on December 3, 1960,
President and General Manager Tirso T. Reyes, issued a memorandum
to Victoriano Francisco ordering him to report to the factory and produce
'Mafran Sauce' at the rate of not less than 100 cases a day so as to cops
with the orders of the corporation's various distributors and dealers, and
with instructions to take only the necessary daily employees without
employing permanent employees (Exhibit B). Again, on December 6,
1961, another memorandum was issued by the same President and
General Manager instructing the Assistant Chief Chemist Ricardo
Francisco, to recall all daily employees who are connected in the
production of Mafran Sauce and also some additional daily employees
for the production of Porky Pops (Exhibit B-1). On December 29, 1960,
another memorandum was issued by the President and General
Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio
Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky
Pops in full swing starting January 2, 1961 with further instructions to
hire daily laborers in order to cope with the full blast production (Exhibit
S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief
Chemist in the amount of P300.00 a month only until his services were
terminated on November 30, 1960. On January 9 and 16, 1961,
defendant, acting thru its President and General Manager, authorized
Porfirio Zarraga and Paula de Bacula to look for a buyer of the
corporation including its trademarks, formula and assets at a price of not
less than P300,000.00 (Exhibits D and D-1). Due to these successive
memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled
back to work, the latter filed the present action on February 14, 1961.
About a month afterwards, in a letter dated March 20, 1961, defendant,
thru its President and General Manager, requested said plaintiff to report
for duty (Exhibit 3), but the latter declined the request because the
present action was already filed in court (Exhibit J)."
1. The petitioner's first contention is that the respondents are not entitled to
rescission. It is argued that under article 1191 of the new Civil Code, the right to
rescind a reciprocal obligation is not absolute and can be demanded only if one
is ready, willing and able to comply with his own obligation and the other is not;
that under article 1169 of the same Code, in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him; that in this case the trial court found
that the respondents not only have failed to show that the petitioner has been
guilty of default in performing its contractual obligations, "but the record
sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco who had
been remiss in the compliance of his contractual obligation to cede and transfer
to the defendant the formula for Mafran sauce;" that even the respondent Court
of Appeals found that as "observed by the lower court, 'the record is replete with
the various attempts made by the defendant (herein petitioner) to secure the said
formula from Magdalo V. Francisco to no avail; and that upon the foregoing
findings, the respondent Court of Appeals unjustly concluded that the private
respondents are entitled to rescind the Bill of Assignment.
The threshold question is whether by virtue of the terms of the Bill of Assignment
the respondent Magdalo V. Francisco, Sr. ceded and transferred to the petitioner
corporation the formula for Mafran sauce. 2
The Bill of Assignment sets forth the following terms and conditions:
"THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole
and exclusive owner of the MAFRAN trade-mark and the formula for
MAFRAN SAUCE;
"THAT for and in consideration of the royalty of TWO (2%) PER
CENTUM of the net annual profit which the PARTY OF THE Second
Part [Universal Food Corporation] may realize by and/or out of its
production of MAFRAN SAUCE and other food products and from other
business which the Party of the Second Part may engage in as defined
in its Articles of Incorporation, and which its Board of Directors shall
determine and declare, said Party of the First Part hereby assign,
transfer, and convey all its property rights and interest over said Mafran
trademark and formula for MAFRAN SAUCE unto the Party of the
Second Part;
"THAT the payment for the royalty of TWO (2%) PER CENTUM of the
annual net profit which the Party of the Second Part obligates itself to
pay unto the Party of the First Part as founder and as owner of the
MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at
every end of the Fiscal Year after the proper accounting and inventories
has been undertaken by the Party of the Second Part and after a
competent auditor designated by the Board of Directors shall have duly
examined and audited its books of accounts and shall have certified as
to the correctness of its Financial Statement;
"THAT in the operation and management of the Party of the First Part,
the Party of the First Part shall be entitled to the following Participation:
"(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second
Vice-President and Chief Chemist of the Party of the Second Part, which
appointments are permanent in character; and Mr. VICTORIANO V.
FRANCISCO shall be appointed Auditor thereof and in the event that the
Treasurer or any officer may have the custody of the funds, assets and
other properties of the Party of the Second Part comes from the Party of
the First Part, then the Auditor shall not be appointed from the latter;
furthermore should the Auditor be appointed from the Party representing
the majority shares of the Party of the Second Part, then the Treasurer
shall be appointed from the Party of the First Part;
"(b) THAT in case of death or other disabilities they should become
incapacitated to discharge the duties or their respective position, then,
their shares or assigns and who may have necessary qualifications shall
be preferred to succeed them;
"(c) That the Party of the First Part shall always be entitled to at least two
(2) membership in the Board of Directors of the Party of the Second
Part;
"(d) THAT in the manufacture of MAFRAN SAUCE and other food
products by the Party of the Second Part, the Chief Chemist shall have
and shall exercise absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safekeeping of the
Chemicals and other mixtures used in the preparation of said products;
"THAT this assignment, transfer and conveyance is absolute and
irrevocable in no case shall the PARTY OF THE First Part ask, demand
or sue for the surrender of its rights and interest over said MAFRAN
trademark and mafran formula, except when a dissolution of the Party of
the Second Part, voluntary or otherwise, eventually arises, in which case
then the property rights and interests over said trademark and formula
shall automatically revert the Party of the First Part."
Certain provisions of the Bill of Assignment would seem to support the
petitioner's position that the respondent patentee, Magdalo V. Francisco, Sr.
ceded and transferred to the petitioner corporation the formula for Mafran sauce.
Thus, the last part of the second paragraph recites that the respondent patentee
"assign, transfer and convey all its property rights and interest over said Mafran
trademark and formula for MAFRAN SAUCE into the Party of the Second
Party," and the last paragraph states that such "assignment, transfer and
conveyance is absolute and irrevocable (and) in no case shall the PARTY OF
THE First Part ask, demand or sue for the surrender of its rights and interest over
said MAFRAN trademark and mafran formula."
However, a perceptive analysis of the entire instrument and the language
employed therein 3 would lead one to the conclusion that what
was actually ceded and transferred was only the use of the Mafran sauce
formula. This was the precise intention of the parties, 4 as we shall presently
show.
Firstly, one of the principal considerations of the Bill of Assignment is the
payment of "royalty of TWO (2%) PER CENTUM of the net annual profit" which
the petitioner corporation may realize by and/or out of its production of Mafran
sauce and other food products, etc. The word "royalty," when employed in
connection with a license under a patent, means the compensation paid for the
use of a patented invention.

"'Royalty,' when used in connection with a license under a patent, means


the compensation paid by the licensee to the licensor for the use of the
licensor's patented invention." (Hazeltine Corporation vs. Zenith Radio
Corporation, 100 F. 2d 10, 16.) 5
Secondly, in order to preserve the secrecy of the Mafran formula and to prevent
its unauthorized proliferation, it is provided in paragraph 5-(a) of the Bill that the
respondent patentee was to be appointed "chief chemist . . . permanent in
character," and that in case of his "death or other disabilities," then his "heirs or
assigns who may have necessary qualifications shall be preferred to succeed"
him as such chief chemist. It is further provided in paragraph 5-(d) that the same
respondent shall have and shall exercise absolute control and supervision over
the laboratory assistants and personnel and over the purchase and safekeeping
of the chemicals and other mixtures used in the preparation of the said product.
All these provisions of the Bill of Assignment clearly show that the intention of the
respondent patentee at the time of its execution was to part, not with the formula
for Mafran sauce, but only its use, to preserve the monopoly and to effectively
prohibit anyone from availing of the invention. 6
Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the
petitioner corporation eventually take place, "the property rights and interests
over said trademark and formula shall automatically revert" to the respondent
patentee. This must be so, because there could be no reversion of the trademark
and formula in this case, if, as contended by the petitioner, the respondent
patentee assigned, ceded and transferred the trademark and formula and not
merely the right to use it for then such assignment passes the property in such
patent right to the petitioner corporation to which it is ceded, which, on the
corporation becoming insolvent, will become part of the property in the hands of
the receiver thereof. 7
Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was
ceded and transferred by virtue of the Bill of Assignment is the "use of the
formula" (and not the formula itself). This incontrovertible fact is admitted without
equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not
require proof and cannot be contradicted." 8 The last part of paragraph 3 of the
complaint and paragraph 3 of the answer are reproduced below for ready
reference:
"3. . . . and due, to these privileges, the plaintiff in return assigned to
said corporation his interest and rights over the said trademark and
formula, so that the defendant corporation could use the formula in the
preparation and manufacture of the mafran sauce, and the trade name
for the marketing of said project, as appearing in said contract . . . "
3. Defendant admits the allegations contained in paragraph 3 of
plaintiff's complaint."
Fifthly, the facts of the case compellingly demonstrate continued possession of
the Mafran sauce formula by the respondent patentee.
Finally, our conclusion is fortified by the admonition of the Civil Code that a
conveyance should be interpreted to effect "the least transmission of right," 9 and
is there a better example of least transmission of rights than allowing or
permitting only the use, without transfer of ownership, of the formula for Mafran
sauce.
The foregoing reasons support the conclusion of the Court of Appeals 10 that
what was actually ceded and transferred by the respondent patentee Magdalo V.
Francisco, Sr. in favor of the petitioner corporation was only the use of the
formula. Properly speaking, the Bill of Assignment vested in the petitioner
corporation no title to the formula. Without basis, therefore, is the observation of
the lower court that the respondent patentee "had been remiss in the compliance
of his contractual obligation to cede and transfer to the defendant the formula for
Mafran sauce."
2. The next fundamental question for resolution is whether the respondent
Magdalo V. Francisco, Sr. was dismissed from his position as chief chemist of
the corporation without justifiable cause, and in violation of paragraph 5-(a) of the
Bill of Assignment which in part provides that his appointment is "permanent in
character."
The petitioner submits that there is nothing in the successive memoranda issued
by the corporate officers of the petitioner, marked exhibits B, B-1 and B-2, from
which can be implied that the respondent patentee was being dismissed from his
position as chief chemist of the corporation. The fact, continues the petitioner, is
that at a special meeting of the board of directors of the corporation held on
October 14, 1960, when the board decided to suspend operations of the factory
for two to four months and to retain only a skeletal force to avoid further losses,
the two private respondents were present, and the respondent patentee was
even designated as the acting superintendent, and assigned the mission of
explaining to the personnel of the factory why the corporation was stopping
operations temporarily and laying off personnel. The petitioner further submits
that exhibit B indicates that the salary of the respondent patentee would not be
paid only during the time that the petitioner corporation was idle, and that he
could draw his salary as soon as the corporation resumed operations. The clear
import of this exhibit was allegedly entirely disregarded by the respondent Court
of Appeals, which concluded that since the petitioner resumed partial production
of Mafran sauce without notifying the said respondent formally, the latter had
been dismissed as chief chemist, without considering that the petitioner had to
resume partial operations only to fill its pending orders, and that the respondents
were duly notified of that decision, that is, that exhibit B-1 was addressed to
Ricardo Francisco, and this was made known to the respondent Victoriano V.
Francisco. Besides, the records will show that the respondent patentee had
knowledge of the resumption of production by the corporation, but in spite of
such knowledge he did not report for work.
The petitioner further submits that if the respondent patentee really had
unqualified interest in propagating the product he claimed he so dearly loved,
certainly he would not have waited for a formal notification but would have
immediately reported for work, considering that he was then and still is a member
of the corporation's board of directors, and insofar as the petitioner is concerned,
he is still its chief chemist; and because Ricardo Francisco is a son of the
respondent patentee to whom had been entrusted the performance of the duties
of chief chemist, while the respondent Victoriano V. Francisco is his brother, the
respondent patentee could not feign ignorance of the resumption of operations.
The petitioner finally submits that although exhibit B-2 is addressed to Ricardo
Francisco, and is dated December 29, 1960, the records will show that the
petitioner was set to resume full capacity production only sometime in March or
April, 1961, and the respondent patentee cannot deny that in the very same
month when the petitioner was set to resume full production, he received a copy
of the resolution of its board of directors, directing him to report immediately for
duty; that exhibit H, of a later vintage as it is dated February 1, 1961, clearly
shows that Ricardo Francisco was merely the acting chemist, and this was the
situation on February 1, 1961, thirteen days before the filing of the present action
for rescission. The designation of Ricardo Francisco as the chief chemist carried
no weight because the president and general manager of the corporation had no
power to make the designation without the consent of the corporation's board of
directors. The fact of the matter is that although the respondent Magdalo V.
Francisco, Sr. was not mentioned in exhibit H as chief chemist, this same exhibit
clearly indicates that Ricardo Francisco was merely the acting chemist as he was
the one assisting his father.
In our view, the foregoing submissions cannot outweigh the uncontroverted facts.
On November 28, 1960 the secretary-treasurer of the corporation issued a
memorandum (exh. B), duly approved by its president and general manager,
directing that only Ricardo Francisco be retained in the factory and that the salary
of respondent patentee, as chief chemist, be stopped for the time being until the
corporation resumed operations. This measure was taken allegedly because of
the scarcity and high prices of raw materials. Five days later, however, or on
December 3, the president and general manager issued a memorandum (exh B-
1) ordering the respondent Victoria V. Francisco to report to the factory and to
produce Mafran sauce at the rate of no less than 100 cases a day to cope with
the orders of the various distributors and dealers of the corporation, and
instructing him to take only the necessary daily employees without employing
permanent ones. Then on December 6, the same president and general
manager issued yet another memorandum (exh. B-2), instructing Ricardo
Francisco, as assistant chief chemist, to recall all daily employees connected
with the production of Mafran sauce and to hire additional daily employees for the
production of Porky Pops. Twenty-three days afterwards, or on December 29, the
same president and general manager issued still another memorandum (exh. S-
2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as
acting superintendent, to produce Mafran sauce and Porky Pops in full swing,
starting January 2, 1961, with the further instruction to hire daily laborers in order
to cope with the full-blast production. And finally, at the hearing held on October
24, 1961, the same president and general manager admitted that "I consider that
the two months we paid him (referring to respondent Magdalo V. Francisco, Sr.)
is the separation pay."

The facts narrated in the preceding paragraph were the prevailing milieu on
February 1-l, 1961 when the complaint for rescission of the Bill of Assignment
was filed. They clearly prove that the petitioner, acting through its corporate
officers, 11 schemed and maneuvered to ease out, separate and dismiss the said
respondent from the service as permanent chief chemist, in flagrant violation of
paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the
institution of the action for rescission, the petitioner corporation, thru its president
and general manager, requested the respondent patentee to report for duty (exh,
3), is of no consequence. As the Court of Appeals correctly observed, such
request was a "recall to placate said plaintiff."
3. We now come to the question of rescission of the Bill of Assignment. In this
connection, we quote for ready reference the following articles of the new Civil
Code governing rescission of contracts:
"ART. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him. "The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become impossible.
"The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
"This is understood to be without prejudice to the rights of third persona
who have acquired the thing, in accordance with articles 1385 and 1388
of the Mortgage Law."
"ART. 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same."
"ART. 1384. Rescission shall be only to the extent necessary to cover
the damages caused."
At the moment, we shall concern ourselves with the first two paragraphs of article
1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him. The injured
party may choose between fulfillment and rescission of the obligation, with
payment of damages in either case.
In this case before us, there is no controversy that the provisions of the Bill of
Assignment are reciprocal in nature. The petitioner corporation violated the Bill of
Assignment, specifically paragraph 5-(a) and (b), by terminating the services of
the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable
cause.
Upon the factual milieu, is rescission of the Bill of Assignment proper?
The general rule is that rescission of a contrast will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement. 12 The question of
whether a breach of a contract is substantial depends upon the attendant
circumstances. 13The petitioner contends that rescission of the Bill of Assignment
should be denied, because under article 1383, rescission is a subsidiary remedy
which cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. However, in this case the
dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the
permanent chief chemist of the corporation is a fundamental and substantial
breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option to
demand performance or ask for rescission of a contract belongs to the injured
party, 14 the fact remains that the respondents-appellees had no alternative but to
file the present action for rescission and damages. It is to be emphasized that the
respondent patentee would not have agreed to the other terms of the Bill of
Assignment were it not for the basic commitment of the petitioner corporation to
appoint him as its Second Vice President and Chief Chemist on a permanent
basis; that in the manufacture of Mafran sauce and other food products he would
have "absolute control and supervision over the laboratory assistants and
personnel and in the purchase and safeguarding of said products;" and that only
by all these measures could the respondent patentee preserve effectively the
secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the
process afford and secure for himself a lifetime job and steady income. The
salient provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the respondent
patentee as Second Vice-President and chief chemist on a permanent status; the
obligation of the said respondent patentee to continue research on the patent to
improve the quality of the products of the corporation; the need of absolute
control and supervision over the laboratory assistants and personnel and in the
purchase and safekeeping of the chemicals and other mixtures used in the
preparation of said product all these provisions of the Bill of Assignment are
so interdependent that violation of one would result in virtual nullification of the
rest.
4. The petitioner further contends that it was error for the Court of Appeals to
hold that the respondent patentee is entitled to payment of his monthly salary of
P300 from December 1, 1960, until the return to him of the Mafran trademark and
formula, arguing that under articles 1191, the right to specific performance is not
conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot
ask for both remedies; that the appellate court awarded the respondents both
remedies as it held that the respondents are entitled to rescind the Bill of
Assignment and also that the respondent patentee is entitled to his salary
aforesaid; that this is a gross error of law, when it is considered that such holding
would make the petitioner liable to pay respondent patentee's salary from
December 1, 1960 to "kingdom come," as the said holding requires the petitioner
to make payment until it returns the formula which, the appellate court itself
found, the corporation never had; that, moreover, the fact is that the said
respondent patentee refused to go back to work, notwithstanding the call for him
to return which negates his right to be paid his back salaries for services
which he had not rendered; and that if the said respondent is entitled to be paid
any back salary, the same should be computed only from December 1, 1960 to
March 31, 1961, for on March 20, 1961 the petitioner had already formally called
him back to work.
The above contention is without merit. Reading once more the Bill of Assignment
in its entirety and the particular provisions in their proper setting, we hold that the
contract placed the use of the formula for Mafran sauce with the petitioner,
subject to defined limitations. One of the considerations for the transfer of the use
thereof was the undertaking on the part of the petitioner corporation to employ
the respondent patentee as the Second Vice-President and Chief Chemist on a
permanent status, at a monthly salary of P300, unless "death or other disabilities"
supervened. Under these circumstances, the petitioner corporation could not
escape liability to pay the private respondent. patentee his agreed monthly
salary, as long as the use, as well as the right to use, the formula for Mafran
sauce remained with the corporation.
5. The petitioner finally contends that the Court of Appeals erred in ordering the
corporation to return to the respondents the trademark and formula for Mafran
sauce, when both the decision of the appellate court and that of the lower court
state that the corporation is not aware nor is in possession of the formula for
Mafran sauce, and the respondent patentee admittedly never gave the same to
the corporation. According to the petitioner these findings would render it
impossible to carry out the order to return the formula to the respondent
patentee. The petitioner's predicament is understandable. Article 1385 of the new
Civil Code provides that rescission creates the obligation to return the things
which were the object of the contract. But that as it may, it is a logical inference
from the appellate court's decision that what was meant to be returned to the
respondent patentee is not the formula itself, but only its use and the right to
such use. Thus, the respondents in their complaint for rescission specifically and
particularly pray, among others, that the petitioner corporation be adjudged as
"without any right to use said trademark and formula."
ACCORDINGLY, conformably with the observations we have above made, the
judgment of the Court of Appeals is modified to lead as follows: "Wherefore the
appealed decision is reversed. The Bill of Assignment (Exhibit A) is hereby
rescinded, and the defendant corporation is ordered to return and restore to the
plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce
trademark and formula, subject-matter of the Bill of Assignment, and to this end
the defendant corporation and all its assigns and successors are hereby
permanently enjoined, effective immediately, from using in any manner the said
Mafran sauce trademark and formula. The defendant corporation shall also pay
to Magdalo V. Francisco, Sr. his monthly salary of P300 from December 1, 1960,
until the date of finality of this judgment, inclusive, the total amount due to him to
earn legal interest from the date of the finality of this judgment until it shall have
been fully paid, plus attorney's fees in the amount of P600, with costs against the
defendant corporation." As thus modified, the said judgment is affirmed, with
costs against the petitioner corporation.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor,
JJ., concur.

Teehankee J., took no part.

Separate Opinions
REYES, J.B.L., J., concurring:

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, out I would like
to add that the argument of petitioner, that the rescission demanded by the
respondent-appellee, Magdalo Francisco, should be denied because under
Article 1383 of the Civil Code of the Philippines rescission can not be demanded
except when the party suffering damage has no other legal means to obtain
reparation, is predicated on a failure to distinguish between a rescission for
breach of contract under Article 1191 of the Civil Code and a rescission by
reason of lesion or economic prejudice, under Article 1381, et seq. The
rescission on account of breach of stipulations is not predicated on injury to
economic interests of the party plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between the parties. It is not a subsidiary
action, and Article 1191 may be scanned without disclosing anywhere that the
action for rescission thereunder is subordinated to anything other than the
culpable breach of his obligations by the defendant. This rescission is 21
principal action retaliatory in character, it being unjust that a party be held bound
to fulfill his promises when the other violates his. As expressed in the old Latin
aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of
damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic prejudice, the
cause of action is subordinated to the existence of that prejudice, because it is
theraison d' tre as well as the measure of the right to rescind. Hence, where the
defendant makes good the damages caused, the action cannot be maintained or
continued, as expressly provided in Articles 1383 and 1384 But the operation of
these two articles is limited to the cases of rescission for lesion enumerated in
Article 1381 of the Civil Code of the Philippines, and does not apply to cases
under Article 1191.
It is probable that the petitioner's confusion arose from the defective technique of
the new Code that terms both instances as "rescission" without distinctions
between them; unlike the previous Spanish Civil Code of 1889, that differentiated
"resolution" for breach of stipulations from "rescission" by reason of lesion or
damage 1 But the terminological vagueness does not justify confusing one case
with the other, considering the patent difference in causes and results of either
action.
FIRST DIVISION

[G.R. No. 112127. July 17, 1995.]

CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF


APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ,
CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.

Juanito M. Acanto for petitioner.


Santos B. Aguadera for private respondents.

SYLLABUS

1. CIVIL LAW; PROPERTY; MODES OF ACQUIRING OWNERSHIP;


DONATION; CONSIDERED ONEROUS WHEN EXECUTED FOR A VALUABLE
CONSIDERATION WHICH IS CONSIDERED THE EQUIVALENT OF THE
DONATION. A clear perusal of the condition set forth in the deed of donation
executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that
his donation was onerous, one executed for a valuable consideration which is
considered the equivalent of the donation itself, e.g., when a donation imposes a
burden equivalent to the value of the donation. A gift of land to the City of Manila
requiring the latter to erect schools, construct a children's playground and open
streets on the land was considered an onerous donation. Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner but imposed an
obligation upon the latter to establish a medical college thereon, the donation
must be for an onerous consideration.
2. ID.; ID.; ID.; ID.; MAY BE REVOKED FOR NON-FULFILLMENT OR NON-
COMPLIANCE OF THE CONDITIONS SET FORTH THEREIN; CASE AT BAR.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the condition. Thus,
when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition
precedent or a suspensive condition but a resolutory one. It is not correct to say
that the schoolhouse had to be constructed before the donation became
effective, that is, before the donee could become the owner of the land,
otherwise, it would be invading the property rights of the donor. The donation had
to be valid before the fulfillment of the condition. If there was no fulfillment or
compliance with the condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee may have acquired
under it.
3. ID.; ID.; ID.; ID.; DONEE'S ACCEPTANCE AND ACKNOWLEDGMENT OF
ITS OBLIGATION PROVIDED IN THE DEED, SUFFICIENT TO PREVENT THE
STATUTE OF LIMITATION FROM BARRING THE ACTION OF DONOR UPON
THE ORIGINAL CONTRACT. The claim of petitioner that prescription bars the
instant action of private respondents is unavailing. The condition imposed by the
donor, i.e., the building of a medical school upon the land donated, depended
upon the exclusive will of the donee as to when this condition shall be fulfilled.
When petitioner accepted the donation, it bound itself to comply with the
condition thereof. Since the time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has been held that its
absolute acceptance and the acknowledgment of its obligation provided in the
deed of donation were sufficient to prevent the statute of limitations from barring
the action of private respondents upon the original contract which was the deed
of donation.
4. ID.; ID.; ID.; ID.; IN CASE OF REVOCATION, A CAUSE OF ACTION ARISES
WHEN THAT WHICH SHOULD HAVE BEEN DONE IS NOT DONE, OR THAT
WHICH SHOULD NOT HAVE BEEN DONE IS DONE. The time from which
the cause of action accrued for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the instant case. A cause
of action arises when that which should have been done is not done, or that
which should not have been done is done. In cases where there is no special
provision for such computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding action could have
been instituted. It is the legal possibility of bringing the action which determines
the starting point for the computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and opportunity for petitioner to
fulfill what has been charged upon it by the donor.
5. ID.; ID.; ID.; ID.; GENERALLY, WHEN THE OBLIGATION DOES NOT FIX A
PERIOD BUT FROM ITS NATURE AND CIRCUMSTANCES IT CAN BE
INFERRED THAT A PERIOD WAS INTENDED, COURT MAY FIX THE PERIOD
FOR COMPLIANCE. The period of time for the establishment of a medical
college and the necessary buildings and improvements on the property cannot
be quantified in a specific number of years because of the presence of several
factors and circumstances involved in the erection of an educational institution,
such as government laws and regulations pertaining to education, building
requirements and property restrictions which are beyond the control of the
donee. Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts
may fix the duration thereof because the fulfillment of the obligation itself cannot
be demanded until after the court has fixed the period for compliance therewith
and such period has arrived.
6. ID.; ID.; ID.; ID.; WHEN OBLIGOR CANNOT COMPLY WITH WHAT IS
INCUMBENT UPON HIM, THE OBLIGEE MAY SEEK RESCISSION;
EXCEPTION. This general rule however cannot be applied considering the
different set of circumstances existing in the instant case. More than a
reasonable period of fifty (50) years has already been allowed petitioner to avail
of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would serve no
purpose than to delay or lead to an unnecessary and expensive multiplication of
suits. Moreover, under Art. 1191 of the Civil Code, when one of the obligors
cannot comply with what is incumbent upon him, the obligee may seek rescission
and the court shall decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court to determine the
period of the compliance, there is no more obstacle for the court to decree the
rescission claimed.
7. ID.; ID.; ID.; ID.; IN CASE OF GRATUITOUS DONATION DOUBTS SHOULD
BE RESOLVED IN FAVOR OF THE LEAST TRANSMISSION OF RIGHTS AND
INTERESTS. Finally, since the questioned deed of donation herein is basically
a gratuitous one, doubts referring to incidental circumstances of a gratuitous
contract should be resolved in favor of the least transmission of rights and
interests. Records are clear and facts are undisputed that since the execution of
the deed of donation up to the time of filing of the instant action, petitioner has
failed to comply with its obligation as donee. Petitioner has slept on its obligation
for an unreasonable length of time. Hence, it is only just and equitable now to
declare the subject donation already ineffective and, for all purposes, revoked so
that petitioner as donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of reconveyance.
DAVIDE, JR., J, dissenting opinion:
1. CIVIL LAW; PROPERTY, MODES OF ACQUIRING OWNERSHIP;
DONATION; IN LAW OF DONATION, "CONDITIONS" REFERS TO
OBLIGATION OR CHARGES IMPOSED BY THE DONOR ON THE DONEE.
There is no conditional obligation to speak of in this case. It seems that the
"conditions" imposed by the donor and as the word is used in the law of
donations confused with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino,
citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and
Colin & Capitant, states clearly the context within which the term "conditions" is
used in the law of donations, to wit: The word "conditions" in this article does not
refer to uncertain events on which the birth or extinguishment of a juridical
relation depends, but it is used in the vulgar sense of obligations or charges
imposed by the donor on the donee. It is used, not in its technical or strict legal
sense, but in its broadest sense. (Italics supplied) Clearly then, when the law and
the deed of donation speaks of "conditions" of a donation, what are referred to
are actually the obligations, charges or burdens imposed by the donor upon the
donee and which would characterize the donation as onerous. In the present
case, the donation is, quite obviously, onerous, but it is more properly called a
"modal donation." A modal donation is one in which the donor imposes a
prestation upon the donee. The establishment of the medical college as the
condition of the donation in the present case is one such prestation.
2. ID.; ID.; ID.; ID.; WHEN NO FIXED PERIOD IN WHICH THE CONDITION
SHOULD BE FULFILLED, IT IS THE DUTY OF THE COURT TO FIX A
SUITABLE TIME FOR ITS FULFILLMENT. J. Davide, Jr., cannot subscribe to
the view that the provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are subject to a period. I draw
this conclusion/based on our previous ruling which, although made almost 90
years ago, still finds application in the present case. In Barreto vs. City of Manila,
we said that when the contract of donation, as the one involved therein, has no
fixed period in which the condition should be fulfilled, the provisions of what is
now Article 1197 (then Article 1128) are applicable and it is the duty of the court
to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances
of the conditions/obligations of the present donation, it can be inferred that a
period was contemplated by the donor. Don Ramon Lopez could not have
intended his property to remain idle for a long period of time when in fact, he
specifically burdened the donee with the obligation to set up a medical college
therein and thus put his property to good use. There is a need to fix the duration
of the time within which the conditions imposed are to be fulfilled.

3. ID.; ID.; ID.; ID.; MERE FACT THAT THERE IS NO TIME FIXED AS TO
WHEN THE CONDITION THEREOF ARE TO BE FULFILLED DOES NOT IPSO
FACTO MEAN THAT THE STATUTE OF LIMITATION WILL NOT APPLY.
There is misplaced reliance again on a previous decision of this Court
in Osmea vs. Rama. That case does not speak of a deed of donation as
erroneously quoted and cited by the majority opinion. It speaks of a contract for a
sum of money where the debtor herself imposed a condition which will determine
when she will fulfill her obligation to pay the creditor, thus, making the fulfillment
of her obligation dependent upon her will. What we have here, however, is not a
contract for a sum of money but a donation where the donee has not imposed
any conditions on the fulfillment of its obligations. Although it is admitted that the
fulfillment of the conditions/obligations of the present donation may be dependent
on the will of the donee as to when it will comply therewith, this did not arise out
of a condition which the donee itself imposed. It is believed that the donee was
not meant to and does not have absolute control over the time within which it will
perform its obligations. It must still do so within a reasonable time. What that
reasonable time is, under the circumstances, for the courts to determine. Thus,
the mere fact that there is no time fixed as to when the conditions of the donation
are to be fulfilled does not ipso facto mean that the statute of limitations will not
apply anymore and the action to revoke the donation becomes imprescriptible.
4. ID.; ID.; ID.; ID.; ACTION TO REVOKE THEREOF PRESCRIBES IN FOUR
(4) YEARS. More recently, in De Luna vs. Abrigo, this Court reiterated the
ruling in Parks and said that: It is true that under Article 764 of the New Civil
Code, actions for the revocation of a donation must be brought within four (4)
years from the non-compliance of the conditions of the donation. However, it is
Our opinion that said article does not apply to onerous donations in view of the
specific provision of Article 733 providing that onerous donations are governed
by the rules on contracts. In the light of the above, the rules on contracts and the
general rules on prescription and not the rules on donations are applicable in the
case at bar. The law applied in both cases is Article 1144(1). It refers to the
prescription of an action upon a written contract, which is what the deed of an
onerous donation is. The prescriptive period is ten years from the time the cause
of action accrues, and that is, from the expiration of the time within which the
donee must comply with the conditions/obligations of the donation. As to when
this exactly is remains to be determined, and that is for the courts to do as
reposed upon them by Article 1197.

DECISION

BELLOSILLO, J : p

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of


the decision of the Court of Appeals which reversed that of the Regional trial
Court of Iloilo City directing petitioner to reconvey to private respondents the
property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of
the Board of Trustees of the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in favor of the latter of a parcel of
land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a
portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A
was issued in the name of the donee CPU with the following annotations copied
from the deed of donation.
1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as part
of the curriculum:
2. The said college shall not sell, transfer or convey to any third party nor
in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the
said college shall be under obligation to erect a cornerstones bearing
that name. Any net income from the land or any of its parks shall be put
in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be
used for improvements of said campus and erection of a building
thereon. " 1
On 31 May 1989, privates respondents, who are the heirs of Don Ramon Lopez,
Sr., filed an action for annulment of donation, reconveyance and damages
against CPU alleging that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private respondents also
argued that petitioner had in fact negotiated with the National Housing Authority
(NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the
action had prescribe; that it did not violate any of the conditions in the deed of
donation because it never used the donated properly for any other purpose than
that for which it was intended; and, that it did not sell, transfer or convey it to any
third party.
On 31 May 11991, the trial court held that petitioner failed to comply with the
conditions of the donation and declared it null and void. The court a quo further
directed petitioner to execute a deed of reconveyance of the property in favor of
the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993
ruled that the ruled that the annotations at the back of petitioner's certificate of
title were resolutory conditions breach of which should terminate the rights of
the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a medical
school, the donor did not fix a period within which the condition must be
fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part of
the bargain. Thus, the appellate court rendered its decision reversing the
appealed decision and remanding the case to the court of origin for the
determination of the time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleged that the court of Appeals erred: (a) in holding
that the quoted annotations in the certificate of title of petitioner are onerous
obligations and resolutory conditions of the donation which must be fulfilled
non-compliance of which would render the donation revocable; (b) in holding
that the issue of prescription does not deserve "disquisition;" and, (c) in
remanding the case to the trial court for the fixing of the period within which
petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don Ramon Lopez,
Sr., gives us no alternative but to conclude that this donation was onerous,
one executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent to
the value of the donation. A gift of land to the City of Manila requiring the latter
to erect schools, construct a children's playground and open streets on the
land was considered an onerous donation. 3 Similarly, where Don Ramon
Lopez donated the subject parcel of land to petitioner but imposed an
obligation upon the latter to establish a medical college thereon, the donation
must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the
condition. Thus, when a person donates land to another on the condition that
the latter would build upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a resolutory one. 4 It is not
correct to say that the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the owner of the
land, otherwise, it would be invading the property rights of the donor. The
donation had to be valid before the fulfillment of the condition. 5 If there was
no fulfillment or compliance with the condition, such as what obtains in the
instant case, the donation may now be revoked and all rights which the donee
may have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private
respondents is unavailing. The condition imposed by the donor, i.e., the
building of a medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall fulfilled. When
petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended
upon the exclusive will of the petitioner, it has been held that its absolute
acceptance and the acknowledgement of its obligation provided in the deed of
donation were sufficient to prevent the statute of limitations from barring the
action of private respondents upon the original contract which was the deed of
donation. 6
Moreover, the time from which the cause of action accrued for the revocation of
the donation and recovery of the property donated cannot be specifically
determined in the instant case. A cause of action arises when that which should
have been done is not done, or that which should not have been done is
done. 7 In cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted from the day on
which the corresponding action could have been instituted. It is the legal
possibility of bringing the action which determines the starting point for the
computation of the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has
been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary
buildings and improvements on the property cannot be quantified in a specific
number of years because of the presence of several factors and circumstances
involved in the erection of an educational institution, such as government laws
and regulations pertaining to government laws and regulations pertaining to
education, building requirements and property restrictions which are beyond the
control of the donee.LibLex

Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts
may fix the duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period for compliance
therewith and such period has arrived. 8
This general rule however cannot be applied considering the different
set of circumstances existing in the instant case. More than a reasonable
period of fifty (50) years has already been allowed petitioner to avail of the
opportunity to comply with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would serve no
purpose that to delay or lead to an unnecessary and expensive multiplication
of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may
seek rescission and the court shall decree the same unless there is just cause
authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for
the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a gratuitous
contract should be resolved in favor of the least transmission of rights and
interest. 10 Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as donee. Petitioner has slept
on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all
purposes, revoked so that petitioner as donee should now return the donated
property to the heirs of the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May
1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals
of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to
reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-
1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days
from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ ., concur.

Separate Opinions
DAVIDE, JR., J ., dissenting:

I agree with the view in the majority opinion that the donation in question in
onerous considering the conditions imposed by the donor on the donee which
created reciprocal obligations upon both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority opinion's description
of the donation in question. In one part, it says that the donation in question
isonerous. Thus, on page 4 it states: LLpr

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the
deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to
conclude that his donation was onerous, one executed for a valuable consideration
which is considered the equivalent of the donation itself, e.g., when a donation imposes
a burden equivalent to the value of the donation . . . (Italics supplied)
Yet, in the last paragraph of page 8 it states that the donation is basically a
gratuitous one. The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of
a gratuitous contract should be resolved in favor of the least
transmission of rights and interest . . . (Italics supplied)
Second, the discussion on conditional obligations is unnecessary. There is no
conditional obligation to speak of in this case. It seems that the "conditions"
imposed by the donor and as the world is used in the law of donations is
confused with "conditions" as used in the law of obligations. In his annotation of
Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-
known civilists such as Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within the term "conditions" is used in the law
of donations, to wit:
The word "conditions" in this article does not refer to uncertain events on
which the birth or extinguishment of a juridical relation depends, but is
used in the vulgar sense of obligations or charges imposed by the donor
on the donee. It is used, not in its technical or strict legal sense, but in its
broadest sense. 1 (Italics supplied)
Clearly then, when the law and the deed of donation speaks of "conditions" of a
donation, what are referred to are actually the obligations, charges or burdens
imposed by the donor upon the donee and which would characterize the
donation as onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal donation." A modal donation is
one in which the donor imposes a prestation upon the donee. The establishment
of the medical college as the condition of the donation in the present case is one
such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither the
existence nor the extinguishment of the obligations of the donor and the donee
with respect to the donation. In fact, the conditions imposed by Don Ramon
Lopez upon the donee are the very obligations of the donation to build the
medical college and use the property for the purposes specified in the deed of
donation. It is very clear that those obligations are unconditional, the fulfillment,
performance, existence or extinguishment of which is not dependent on any
future or uncertain event or past and unknown event, as the Civil Code would
define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the
majority opinion is erroneous in so far as the latter stated that the condition
in Parks is a resolutory one and applied this on the present case. A more careful
reading of this Court's decision would reveal that nowhere did we say, whether
explicitly or impliedly, that the donation in that case, which also has a condition
imposed to build a school and a public park upon the property donated, is a
resolutory condition. 4It is incorrect to say that the "conditions" of the donation
there or in the present case are resolutory conditions because, applying Article
1181 of the Civil Code, that would mean that upon fulfillment of the conditions,
the rights already acquired will be extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in mind was that the conditions are
resolutory because if they are not complied with, the rights of the donee as such
will be extinguished and the donation will be revoked. To my mind, though, it is
more accurate to state that the conditions here are not resolutory conditions but,
for the reasons stated above, are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be
applied here. The conditions/obligations imposed by the donor herein are subject
to a period. I draw this conclusion based on our previous ruling which, although
made almost 90 years ago, still finds application in the present case. In Barretto
vs. City of Manila, 5 we said that when the contract of donation, as the one
involved therein, has no fixed period in which the condition should be fulfilled, the
provisions of what is now Article 1197 (then Articles 1128) are applicable and it is
the duty of the court to fix a suitable time for its fulfillment. Indeed, from the
nature and circumstances of the conditions/obligations of the present donation, it
can be inferred that a period was contemplated by the donor. Don Ramon Lopez
could not have intended his property to remain idle for a long period of time when
in fact, he specifically burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There is a need to fix the
duration of the time within which the conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim that
prescription has already barred the present action. I disagree once more with the
ruling of the majority that the action of the petitioners is not barred by the statute
of limitations. There is misplaced reliance again on a previous decision on this
Court in Osmea vs. Rama. 6 That case does not speak of a deed of donation as
erroneously quoted and cited by the majority opinion. It speaks of a contract for a
sum of money where the debtor herself imposed a condition which will determine
when she will fulfill her obligation to pay the creditor, thus, making the fulfillment
of her obligation dependent upon her will. What we have here, however, is not a
contract for a sum of money but a donation where the donee has not imposed
any conditions on the fulfillment of its obligations. Although it is admitted that the
fulfillment of the conditions/obligations of the present donation may be dependent
on the will of the donee as to when it will comply therewith, this did not arise out
of a condition which the donee itself imposed. It is believed that the donee was
not meant to and does not have absolute control over the time within which it will
perform its obligations. It must still do so within a reasonable time. What that
reasonable time is, under the circumstances, for the courts to determine. Thus,
the mere fact that there is no time fixed as to when the conditions of the donation
are to be fulfilled does not ipso facto mean that the statute of limitations will not
apply anymore and the action to revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is


governed by the law on contracts (Article 733) and the case of Osmea, being
one involving a contract, may apply. But we must not lose sight of the fact that
it is still a donation for which this Court itself applied the pertinent law to
resolve situations such as this. That the action to revoke the donation can still
prescribe has been the pronouncement of this Court as early as 1962 in the
case of Parks which, on this point, finds relevance in this case. There, this
Court said,
[that] this action [for the revocation of the donation] is prescriptible, there
is no doubt. There is no legal provision which excludes this class of
action from the statute of limitations. And not only this, the law itself
recognizes the prescriptibility of the action for the revocation of a
donation, providing a special period of [four] years for the revocation by
the subsequent birth of children [Art. 646, now Art. 763], and . . . by
reason of ingratitude. If no special period is provided for the prescription
of the action for revocation for noncompliance of the conditions of the
donation [Art. 647, now Art. 764], it is because in this respect the
donation is considered onerous and is governed by the law of contracts
and the general rules of prescription. 7
More recently, in De Lune v. Abrigo, 8 this Court reiterated the ruling
in Parks and said that:
It is true that under Article 764 of the New Civil Code, actions for the
revocation of a donation must be brought within four (4) years from the
noncompliance of the conditions of the donation. However, it is Our
opinion that said article does not apply to onerous donations in view of
the specific provisions of Article 733 providing that onerous donations
are governed by the rules on contracts.
In the light of the above, the rules on contracts and the general rules on
prescription and not the rules on donations are applicable in the case at
bar.
The law applied in both cases Article 1144(1). It refers to the prescription of an
action upon a written contract, which is what the deed of an onerous donation is.
The prescriptive period is ten years from the time the cause of action accrues,
and that is, from the expiration of the time within which the donee must comply
with the conditions/obligations of the donation. As to when this exactly is remains
to be determined, and that is for the courts to do as reposed upon them by Article
1197.
For the reasons expressed above, I register my dissent. According, the decision
of the Court of Appeals must be upheld, except its ruling that the conditions of
the donation are resolutory.
Padilla, J ., concurs.
SECOND DIVISION

[G.R. No. 120820. August 1, 2000.]

SPS. FORTUNATO SANTOS and ROSALINDA R.


SANTOS, petitioners, vs. COURT OF APPEALS, SPS. MARIANO
R. CASEDA and CARMEN CASEDA,respondents.

P.C. Jose & Associates for petitioners.


Felix D. Gragasin for private respondents.

SYNOPSIS

Spouses Fortunato and Rosalinda Santos owned a house and lot located at the
Better Living Subdivision, Paraaque, Metro Manila. The said house and lot was
mortgaged with the Rural Bank of Salinas, Inc. to mature on June 16, 1987. On
June 16, 1984, the bank sent to Rosalinda Santos a letter demanding payment of
P16,915.84 as an unpaid interest and other charges. Rosalinda then offered to
sell the said house and lot to Carmen Caseda. Carmen and her husband agreed
to buy the said property. In that same month, Carmen gave a partial payment of
P54,100.00 out of the total purchase price of P350,000.00. The parties also
agreed that the Caseda spouses must have to pay the balance of the mortgage
loan, the real estate taxes, the electric and water bills and the balance of the
cash price must have to be paid not later than June 16, 1987. Immediately, the
Casedas took possession of the property and rented it to third persons. They
also paid in installments P81,696.84 of the mortgage loan. However, they
suffered bankruptcy in 1987. Nonetheless, Carmen paid in March 1990 the real
estate taxes on the property for 1981-1984 and the electric bills from December
12, 1988 to July 12, 1989. All the payments were still in the name of Rosalinda.
In January 1989, seeing that the Casedas lacked the means to pay the
amortization of the loan, the Santoses repossessed the property and collected
rentals from the tenants. In February 1989, Carmen sold her fishpond in
Batangas. She approached the Santoses and offered to pay the balance of the
purchase price, but the Santoses wanted a higher price. Hence, the Casedas
instituted an action for specific performance and damages. After trial, the trial
court dismissed the complaint. On appeal, the Court of Appeals reversed the
lower court.
The Court ruled that notwithstanding the fact that the Casedas first took then lost
possession of the disputed house and lot, the title to the property, TCT No.
28005 (S-11029) issued by the Register of Deeds of Paraaque, has remained
always in the name of Rosalinda Santos. The bank's cancellation and discharge
of mortgage dated January 20, 1990, was made in favor of Rosalinda Santos.
The foregoing circumstances categorically and clearly showed that no valid
transfer of ownership was made by the Santoses to the Casedas. Absent this
essential element, their agreement cannot be deemed a contract of sale. The
Court agreed with petitioners' averment that the agreement between Rosalinda
Santos and Carmen Caseda is a contract to sell. In a contract to sell, the vendor
remains the owner for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor should eject the vendee for
failure to meet the condition precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case repossessed the disputed
house and lot for failure of private respondents to pay the purchase price in a full,
they were merely enforcing the contract and not rescinding it. As petitioners
correctly pointed out, the Court of Appeals erred when it ruled that petitioners
should have judicially rescinded the contract pursuant to Articles 1592 and 1191
of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a
resolutory condition. It does not apply to a contract to sell.
Petition was GRANTED.

SYLLABUS

1. REMEDIAL LAW; APPEAL; QUESTION OF LAW AND QUESTION OF FACT;


DIFFERENTIATED. There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain set of facts, and there is a
question of fact when the doubt or difference arises as to the truth or falsehood of
the alleged facts.
2. ID.; COURT OF APPEALS; JURISDICTION; WHEN QUESTION OF FACT IS
INVOLVED, COURT OF APPEALS HAS JURISDICTION. But we note that
the first assignment of error submitted by respondents for consideration by the
appellate court dealt with the trial court's finding that herein petitioners got back
the property in question because respondents did not have the means to pay the
installments and/or amortization of the loan. The resolution of this question
involved an evaluation of proof, and not only a consideration of the applicable
statutory and case laws. Clearly, CA-G.R. CV No. 30955 did not involve pure
questions of law, hence the Court of Appeals had jurisdiction and there was no
violation of our Circular No. 2-90.CAaDSI

3. ID.; APPEAL; ISSUE OF JURISDICTION MUST BE RAISED AT THE


EARLIEST OPPORTUNITY. [W]e find that petitioners took an active part in
the proceedings before the Court of Appeals, yet they did not raise there the
issue of jurisdiction. They should have raised this issue at the earliest opportunity
before the Court of Appeals. A party taking part in the proceedings before the
appellate court and submitting his case for its decision ought not to later on
attack the court's decision for want of jurisdiction because the decision turns out
to be adverse to him.
4. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF SALE;
OBLIGES THE VENDOR TO TRANSFER OWNERSHIP OF THE THING SOLD.
It must be emphasized from the outset that a contract is what the law defines
it to be, taking into consideration its essential elements, and not what the
contracting parties call it. Article 1458 of the Civil Code defines a contract of sale.
Note that the said article expressly obliges the vendor to transfer ownership of
the thing sold as an essential element of a contract of sale. This is because the
transfer of ownership in exchange for a price paid or promised is the very
essence of a contract sale.
5. ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. We have carefully
examined the contents of the unofficial receipt, Exh. D, with the terms and
conditions informally agreed upon by the parties, as well as the proofs submitted
to support their respective contentions. We are far from persuaded that there was
a transfer of ownership simultaneously with the delivery of the property
purportedly sold. The records clearly show that, notwithstanding the fact that the
Casedas first took then lost possession of the disputed house and lot, the title to
the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of
Paraaque, has remained always in the name of Rosalinda Santos. Note further
that although the parties had agreed that the Casedas would assume the
mortgage, all amortization payments made by Carmen Caseda to the bank were
in the name of Rosalinda Santos. We likewise find that the bank's cancellation
and discharge of mortgage dated January 20, 1990, was made in favor of
Rosalinda Santos. The foregoing circumstances categorically and clearly show
that no valid transfer of ownership was made by the Santoses to Casedas.
Absent this essential element, their agreement cannot be deemed a contract of
sale. We agree with petitioners' averment that the agreement between Rosalinda
Santos and Carmen Caseda is a contract to sell.
6. ID.; ID.; CONTRACT TO SELL; JUDICIAL RESCISSION IS NOT
APPLICABLE. In contracts to sell, ownership is reserved by the vendor and is
not to pass until full payment of the purchase price. This we find fully applicable
and understandable in this case, given that the property involved is a titled realty
under mortgage to a bank and would require notarial and other formalities of law
before transfer thereof could be validly effected. In view of our findings in the
present case that the agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed that a judicial rescission of
said agreement was necessary. This is because there was no rescission to
speak of in the first place. . . . When the petitioners in the instant case
repossessed the disputed house and lot for failure of private respondents to pay
the purchase price in full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out, the Court of Appeals erred when it
ruled that petitioners should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of
the purchase price as a resolutory condition. It does not apply to a contract to
sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when
applied to sales of immovable property. Neither provision is applicable in the
present case.
7. ID.; ID.; CONTRACT TO SELL AND CONTRACT OF SALE;
DIFFERENTIATED. [I]n a contract to sell, title remains with the vendor and
does not pass on to the vendee until the purchase price is paid in full. Thus, in a
contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force. This is entirely different from the situation in a
contract of sale, where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the vendor
has lost ownership of the thing sold and cannot recover it, unless the contract of
sale is rescinded and set aside. In a contract to sell, however, the vendor
remains the owner for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor should eject the vendee for
failure to meet the condition precedent, he is enforcing the contract and not
rescinding it.

DECISION

QUISUMBING, J : p

For review on certiorari is the decision of the Court of Appeals, dated March 28,
1995, in CA-G.R. CV No. 30955, which reversed and set aside the judgment of
the Regional Trial Court of Makati, Branch 133, in Civil Case No. 89-4759.
Petitioners (the Santoses) were the owners of a house and lot informally sold,
with conditions, to herein private respondents (the Casedas). In the trial court,
the Casedas had complained that the Santoses refused to deliver said house
and lot despite repeated demands. The trial court dismissed the complaint for
specific performance and damages, but in the Court of Appeals, the dismissal
was reversed, as follows:
"WHEREFORE, in view of the foregoing, the decision appealed from is
hereby REVERSED and SET ASIDE and a new one entered:
"1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from
the date of the finality of judgment within which to pay the balance of the
obligation in accordance with their agreement;
"2. Ordering appellees to restore possession of the subject house and lot
to the appellants upon receipt of the full amount of the balance due on
the purchase price; and
"3. No pronouncement as to costs.
"SO ORDERED." 1
The undisputed facts of this case are as follows:
The spouses Fortunato and Rosalinda Santos owned the house and lot
consisting of 350 square meters located at Lot 7, Block 8, Better Living
Subdivision, Paraaque, Metro Manila, as evidenced by TCT (S-11029) 28005 of
the Register of Deeds of Paraaque. The land together with the house, was
mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00
maturing on June 16, 1987.
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market
vendor of hers in Pasay City and soon became very good friends with her. The
duo even became kumadres when Carmen stood as a wedding sponsor of
Rosalinda's nephew.
On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment
of P16,915.84 in unpaid interest and other charges. Since the Santos couple had
no funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting
the real property, Carmen and her husband agreed.
Sometime that month of June, Carmen and Rosalinda signed a document, which
reads:
"Received the amount of P54,100.00 as a partial payment of Mrs.
Carmen Caseda to the (total) amount of P350,000.00 (house and lot)
that is own (sic) by Mrs. Rosalinda R. Santos.
(Mrs.) (Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
"(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Paraaque, Metro Manila
Section V Don Bosco St." 2
The other terms and conditions that the parties agreed upon were for the Caseda
spouses to pay: (1) the balance of the mortgage loan with the Rural bank
amounting to P135,385.18; (2) the real estate taxes; (3) the electric and water
bills; and (4) the balance of the cash price to be paid not later than June 16,
1987, which was the maturity date of the loan. 3
The Casedas gave an initial payment of P54,100.00 and immediately took
possession of the property, which they then leased out. They also paid in
installments, P81,696.84 of the mortgage loan. The Casedas, however, failed to
pay the remaining balance of the loan because they suffered bankruptcy in 1987.
Notwithstanding the state of their finances, Carmen nonetheless paid in March
1990, the real estate taxes on the property for 1981-1984. She also settled the
electric bills from December 12, 1988 to July 12, 1989. All these payments were
made in the name of Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas lacked the means to
pay the remaining installments and/or amortization of the loan, repossessed the
property. The Santoses then collected the rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in Batangas. She then
approached petitioners and offered to pay the balance of the purchase price for
the house and lot. The parties, however, could not agree, and the deal could not
push through because the Santoses wanted a higher price. For understandably,
the real estate boom in Metro Manila at this time, had considerably jacked up
realty values.
On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of
Makati, to have the Santoses execute the final deed of conveyance over the
property, or in default thereof, to reimburse the amount of P180,000.00 paid in
cash and P249,900.00 paid to the rural bank, plus interest, as well as rentals for
eight months amounting to P32,000.00, plus damages and costs of suit.
After trial on the merits, the lower court disposed of the case as follows:
"WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiff's (Casedas') complaint; and
(b) declaring the agreement marked as Annex "C" of the
complaint rescinded. Costs against plaintiffs.
"SO ORDERED." 4
Said judgment of dismissal is mainly based on the trial court's finding that:
"Admittedly, the purchase price of the house and lot was
P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18,
assumption of mortgage. Of it plaintiffs [Casedas] paid the following: (1)
P54,100.00 down payment; and (2) P81,694.64 installment payments to
the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus,
plaintiffs were short of the purchase price. They cannot, therefore,
demand specific performance." 5
The trial court further held that the Casedas were not entitled to reimbursement
of payments already made, reasoning that:
"As earlier mentioned, plaintiffs made a total payment of P135,794.64
out of the purchase price of P485,385.18. The property was in plaintiffs'
possession from June 1984 to January 1989 or a period of fifty-five
months. During that time, plaintiffs leased the property. Carmen said the
property was rented for P25.00 a day or P750.00 a month at the start
and in 1987 it was increased to P2,000.00 and P4,000.00 a month. But
the evidence is not precise when the different amounts of rental took
place. Be that as it may, fairness demands that plaintiffs must pay
defendants for the exercise of dominical rights over the property by
renting it to others. The amount of P2,000.00 a month would be
reasonable based on the average of P750.00, P2,000.00, P4,000.00
lease-rentals charged. Multiply P2,000 by 55 months, the plaintiffs must
pay defendants P110,000.00 for the use of the property. Deducting this
amount from the P135,794.64 payment of the plaintiffs on the property,
the difference is P25,794.64. Should the plaintiffs be entitled to a
reimbursement of this amount? The answer is in the negative. Because
of failure of plaintiffs to liquidated the mortgage loan on time, it had
ballooned from its original figure of P135,384.18 as of June 1984 to
P337,280.78 as of December 31, 1988. Defendants [Santoses] had to
pay the last amount to the bank to save the property from foreclosure.
Logically, plaintiffs must share in the burden arising from their failure to
liquidate the loan per their contractual commitment. Hence, the amount
of P25,794.64 as their share in the defendants' damages in the form of
increased loan-amount, is reasonable." 6
On appeal, the appellate court, as earlier noted, reversed the lower court. The
appellate court held that rescission was not justified under the circumstances and
allowed the Caseda spouses a period of ninety days within which to pay the
balance of the agreed purchase price.
Hence, this instant petition for review on certiorari filed by the Santoses.
Petitioners now submit the following issues for our consideration:
WHETHER OR NOT THE COURT OF APPEALS HAS JURISDICTION
TO DECIDE PRIVATE RESPONDENT'S APPEAL INTERPOSING
PURELY QUESTIONS OF LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF
ABSOLUTE SALE BUT A MERE ORAL CONTRACT TO SELL IN
WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART.
1592, 7 CIVIL CODE) IS NOT APPLICABLE.
ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR
RESCISSION IS REQUIRED, WHETHER PETITIONERS' DEMAND
AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER
FILED BEFORE THE TRIAL SATISFIED THE SAID REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF
THE ENTIRE PURCHASE PRICE INCLUDING THE NON-
COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE
MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE AND
PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL
BREACH TO JUSTIFY RESCISSION OF A CONTRACT TO SELL
UNDER ARTICLE 1191 8 (CIVIL CODE).
On the first issue, petitioners argue that, since both the parties and the appellate
court adopted the findings of trial court, 9 no questions of fact were raised before
the Court of Appeals. According to petitioners, CA-G.R. CV No. 30955, involved
only pure questions of law. They aver that the court a quo had no jurisdiction to
hear, much less decide, CA-G.R. CV No. 30955, without running afoul of
Supreme Court Circular No. 290 (4) [c]. 10
There is a question of law in a given case when the doubt or difference arises as
to how the law is on a certain set of facts, and there is a question of fact when
the doubt or difference arises as to the truth or falsehood of the alleged
facts. 11 But we note that the first assignment of error submitted by respondents
for consideration by the appellate court dealt with the trial court's finding that
herein petitioners got back the property in question because respondents did not
have the means to pay the installments and/or amortization of the loan. 12 The
resolution of this question involved an evaluation of proof, and not only a
consideration of the applicable statutory and case laws. Clearly, C.A.-G.R. CV
No. 30955 did not involve pure questions of law, hence the Court of Appeals had
jurisdiction and there was no violation of our Circular No. 2-90.
Moreover, we find that petitioners took an active part in the proceedings before
the Court of Appeals, yet they did not raise there the issue of jurisdiction. They
should have raised this issue at the earliest opportunity before the Court of
Appeals. A party taking part in the proceedings before the appellate court and
submitting his case for its decision ought not to later on attack the court's
decision for want of jurisdiction because the decision turns out to be adverse to
him. 13
The second and third issues deal with the question: Did the Court of Appeals err
in holding that a judicial rescission of the agreement was necessary? In resolving
both issues, we must first make a preliminary determination of the nature of the
contract in question: Was it a contract of sale, as insisted by respondents or a
mere contract to sell, as contended by petitioners?

Petitioners argue that the transaction between them and respondents was a
mere contract to sell, and not a contract of sale, since the sole documentary
evidence (Exh. D, receipt) referring to their agreement clearly showed that they
did not transfer ownership of the property in question simultaneous with its
delivery and hence remained its owners, pending fulfillment of the other
suspensive conditions, i.e. full payment of the balance of the purchase price and
the loan amortizations. Petitioners point to Manuel v. Rodriguez, 109 Phil. 1
(1960) and Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93
(1972), where we held that Article 1592 of the Civil Code is inapplicable to a
contract to sell. They charge the court a quo with reversible error in holding that
petitioners should have judicially rescinded the agreement with respondents
when the latter failed to pay the amortizations on the bank loan.
Respondents insist that there was a perfected contract of sale, since upon their
partial payment of the purchase price, they immediately took possession of the
property as vendees, and subsequently leased it, thus exercising all the rights of
ownership over the property. This showed that transfer of ownership was
simultaneous with the delivery of the realty sold, according to respondents.
It must be emphasized from the outset that a contract is what the law defines it to
be, taking into consideration its essential elements, and not what the contracting
parties call it. 14 Article 1458 15 of the Civil Code defines a contract of sale. Note
that the said article expressly obliges the vendor to transfer ownership of the
thing sold as an essential element of a contract of sale. This is because the
transfer of ownership in exchange for a price paid or promised is the very
essence of a contract of sale. 16 We have carefully examined the contents of the
unofficial receipt, Exh. D, with the terms and conditions informally agreed upon
by the parties, as well as the proofs submitted to support their respective
contentions. We are far from persuaded that there was a transfer of ownership
simultaneously with the delivery of the property purportedly sold. The records
clearly show that, notwithstanding the fact that the Casedas first took then lost
possession of the disputed house and lot, the title to the property, TCT No.
28005 (S-11029) issued by the Register of Deeds of Paraaque, has remained
always in the name of Rosalinda Santos. 17 Note further that although the parties
agreed that the Casedas would assume the mortgage, all amortization payments
made by Carmen Caseda to the bank were in the name of Rosalinda
Santos. 18 We likewise find that the bank's cancellation and discharge of
mortgage dated January 20, 1990, was made in favor of Rosalinda
Santos. 19 The foregoing circumstances categorically and clearly show that no
valid transfer of ownership was made by the Santoses to the Casedas. Absent
this essential element, their agreement cannot be deemed a contract of sale. We
agree with petitioner's averment that the agreement between Rosalinda Santos
and Carmen Caseda is a contract to sell. In contracts to sell, ownership is
reserved the by the vendor and is not to pass until full payment of the purchase
price. This we find fully applicable and understandable in this case, given that the
property involved is a titled realty under mortgage to a bank and would require
notarial and other formalities of law before transfer thereof could be validly
effected.
In view of our finding in the present case that the agreement between the parties
is a contract to sell, it follows that the appellate court erred when it decreed that a
judicial rescission of said agreement was necessary. This is because there was
no rescission to speak of in the first place. As we earlier pointed out, in a contract
to sell, title remains with the vendor and does not pass on to the vendee until the
purchase price is paid in full. Thus, in a contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the price agreed
upon is not a mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. 20 This
is entirely different from the situation in a contract of sale, where non-payment of
the price is a negative resolutory condition. The effects in law are not identical. In
a contract of sale, the vendor has lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside. 21 In a contract
to sell, however, the vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he
is enforcing the contract and not rescinding it. When the petitioners in the instant
case repossessed the disputed house and lot for failure of private respondents to
pay the purchase price in full, they were merely enforcing the contract and not
rescinding it. As petitioners correctly point out, the Court of Appeals erred when it
ruled that petitioners should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of
the purchase price as a resolutory condition. It does not apply to a contract to
sell. 22 As to Article 1191, it is subordinated to the provisions of Article 1592 when
applied to sales of immovable property. 23 Neither provision is applicable in the
present case.
As to the last issue, we need not tarry to make a determination of whether the
breach of contract by private respondents is so substantial as to defeat the
purpose of the parties in entering into the agreement and thus entitle petitioners
to rescission. Having ruled that there is no rescission to speak of in this case, the
question is moot.
WHEREFORE, the instant petition is GRANTED and the assailed decision of the
Court of Appeals in CA-G.R. CV No. 30955 is REVERSED and SET ASIDE. The
judgment of the Regional Trial Court of Makati, Branch 133, with respect to the
DISMISSAL of the complaint in Civil Case No. 89-4759, is hereby REINSTATED.
No pronouncement as to costs.
SO ORDERED.
Mendoza, Buena and De Leon, Jr., JJ., concur.
Bellosillo, J., is on official leave.