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G.R. No.

112127 July 17, 1995 - CENTRAL PHILIPPINE Petitioner now alleges that the Court of Appeals erred: (a) in holding that
UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS the quoted annotations in the certificate of title of petitioner are onerous
FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, obligations and resolutory conditions of the donation which must be
REDAN LOPEZ AND REMARENE LOPEZ, respondents. fulfilled non-compliance of which would render the donation revocable; (b)
in holding that the issue of prescription does not deserve "disquisition;"
BELLOSILLO, J.: and, (c) in remanding the case to the trial court for the fixing of the period
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review within which petitioner would establish a medical college.2
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 We find it difficult to sustain the petition. A clear perusal of the conditions
private respondents the property donated to it by their predecessor-in- set forth in the deed of donation executed by Don Ramon Lopez, Sr.,
interest. gives us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a of the donation itself, e.g., when a donation imposes a burden equivalent
member of the Board of Trustees of the Central Philippine College (now to the value of the donation. A gift of land to the City of Manila requiring
Central Philippine University [CPU]), executed a deed of donation in favor the latter to erect schools, construct a children's playground and open
of the latter of a parcel of land identified as Lot No. 3174-B-1 of the streets on the land was considered an onerous donation.3 Similarly, where
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Don Ramon Lopez donated the subject parcel of land to petitioner but
Transfer Certificate of Title No. T-3910-A was issued in the name of the imposed an obligation upon the latter to establish a medical college
donee CPU with the following annotations copied from the deed of thereon, the donation must be for an onerous consideration.
donation —
Under Art. 1181 of the Civil Code, on conditional obligations, the
1. The land described shall be utilized by the CPU exclusively acquisition of rights, as well as the extinguishment or loss of those already
for the establishment and use of a medical college with all its acquired, shall depend upon the happening of the event which constitutes
buildings as part of the curriculum; 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
2. The said college shall not sell, transfer or convey to any third resolutory one.4 It is not correct to say that the schoolhouse had to be
party nor in any way encumber said land; constructed before the donation became effective, that is, before the
donee could become the owner of the land, otherwise, it would be
3. The said land shall be called "RAMON LOPEZ CAMPUS", invading the property rights of the donor. The donation had to be valid
and the said college shall be under obligation to erect a before the fulfillment of the condition.5 If there was no fulfillment or
cornerstone bearing that name. Any net income from the land compliance with the condition, such as what obtains in the instant case,
or any of its parks shall be put in a fund to be known as the the donation may now be revoked and all rights which the donee may
"RAMON LOPEZ CAMPUS FUND" to be used for have acquired under it shall be deemed lost and extinguished.
improvements of said campus and erection of a building
thereon.1 The claim of petitioner that prescription bars the instant action of private
respondents is unavailing.
On 31 May 1989, private respondents, who are the heirs of Don Ramon
Lopez, Sr., filed an action for annulment of donation, reconveyance and The condition imposed by the donor, i.e., the building of a
damages against CPU alleging that since 1939 up to the time the action medical school upon the land donated, depended upon the
was filed the latter had not complied with the conditions of the donation. exclusive will of the donee as to when this condition shall be
Private respondents also argued that petitioner had in fact negotiated with fulfilled. When petitioner accepted the donation, it bound itself
the National Housing Authority (NHA) to exchange the donated property to comply with the condition thereof. Since the time within
with another land owned by the latter. which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute
In its answer petitioner alleged that the right of private respondents to file acceptance and the acknowledgment of its obligation provided
the action had prescribed; that it did not violate any of the conditions in the in the deed of donation were sufficient to prevent the statute of
deed of donation because it never used the donated property for any other limitations from barring the action of private respondents upon
purpose than that for which it was intended; and, that it did not sell, the original contract which was the deed of donation.6
transfer or convey it to any third party.
Moreover, the time from which the cause of action accrued for the
On 31 May 1991, the trial court held that petitioner failed to comply with revocation of the donation and recovery of the property donated cannot be
the conditions of the donation and declared it null and void. The court a specifically determined in the instant case. A cause of action arises when
quo further directed petitioner to execute a deed of the reconveyance of that which should have been done is not done, or that which should not
the property in favor of the heirs of the donor, namely, private respondents have been done is done.7 In cases where there is no special provision for
herein. 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
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled been instituted. It is the legal possibility of bringing the action which
that the annotations at the back of petitioner's certificate of title were determines the starting point for the computation of the period. In this
resolutory conditions breach of which should terminate the rights of the case, the starting point begins with the expiration of a reasonable period
donee thus making the donation revocable. and opportunity for petitioner to fulfill what has been charged upon it by
the donor.

The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a medical The period of time for the establishment of a medical college and the
school, the donor did not fix a period within which the condition must be necessary buildings and improvements on the property cannot be
fulfilled, hence, until a period was fixed for the fulfillment of the condition, quantified in a specific number of years because of the presence of
petitioner could not be considered as having failed to comply with its part several factors and circumstances involved in the erection of an
of the bargain. Thus, the appellate court rendered its decision reversing educational institution, such as government laws and regulations
the appealed decision and remanding the case to the court of origin for the pertaining to education, building requirements and property restrictions
determination of the time within which petitioner should comply with the which are beyond the control of the donee.
first condition annotated in the certificate of title.
Thus, when the obligation does not fix a period but from its nature and Finally, since the questioned deed of donation herein is
circumstances it can be inferred that a period was intended, the general basically a gratuitous one, doubts referring to incidental
rule provided in Art. 1197 of the Civil Code applies, which provides that the circumstances of a gratuitous contract should be resolved in
courts may fix the duration thereof because the fulfillment of the obligation favor of the least transmission of rights and interest . . .
itself cannot be demanded until after the court has fixed the period for (emphasis supplied)
compliance therewith and such period has arrived.8
Second, the discussion on conditional obligations is unnecessary. There is
This general rule however cannot be applied considering the different set no conditional obligation to speak of in this case. It seems that the
of circumstances existing in the instant case. More than a reasonable "conditions" imposed by the donor and as the word is used in the law of
period of fifty (50) years has already been allowed petitioner to avail of the donations is confused with "conditions" as used in the law of obligations.
opportunity to comply with the condition even if it be burdensome, to make In his annotation of Article 764 of the Civil Code on Donations, Arturo M.
the donation in its favor forever valid. But, unfortunately, it failed to do so. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez
Hence, there is no more need to fix the duration of a term of the obligation and Alguer, and Colin & Capitant, states clearly the context within which
when such procedure would be a mere technicality and formality and the term "conditions" is used in the law of donations, to wit:
would serve no purpose than to delay or lead to an unnecessary and
expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil The word "conditions" in this article does not refer to uncertain
Code, when one of the obligors cannot comply with what is incumbent events on which the birth or extinguishment of a juridical
upon him, the obligee may seek rescission and the court shall decree the relation depends, but is used in the vulgar sense of obligations
same unless there is just cause authorizing the fixing of a period. In the or chargesimposed by the donor on the donee. It is used, not in
absence of any just cause for the court to determine the period of the its technical or strict legal sense, but in its broadest
compliance, there is no more obstacle for the court to decree the sense.1 (emphasis supplied)
rescission claimed.
Clearly then, when the law and the deed of donation speaks of
Finally, since the questioned deed of donation herein is basically a "conditions" of a donation, what are referred to are actually the obligations,
gratuitous one, doubts referring to incidental circumstances of a gratuitous charges or burdens imposed by the donor upon the donee and which
contract should be resolved in favor of the least transmission of rights and would characterize the donation as onerous. In the present case, the
interests. 10Records are clear and facts are undisputed that since the donation is, quite obviously, onerous, but it is more properly called a
execution of the deed of donation up to the time of filing of the instant "modal donation." A modal donation is one in which the donor imposes a
action, petitioner has failed to comply with its obligation as donee. prestation upon the donee. The establishment of the medical college as
Petitioner has slept on its obligation for an unreasonable length of time. the condition of the donation in the present case is one such prestation.
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, The conditions imposed by the donor Don Ramon Lopez determines
private respondents herein, by means of reconveyance. 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
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of the donation — to build the medical college and use the property for the
31 May 1991 is REINSTATED and AFFIRMED, and the decision of the purposes specified in the deed of donation. It is very clear that those
Court of Appeals of 18 June 1993 is accordingly MODIFIED. obligations are unconditional, the fulfillment, performance, existence or
Consequently, petitioner is directed to reconvey to private respondents Lot extinguishment of which is not dependent on any future or uncertain event
No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer or past and unknown event, as the Civil Code would define a conditional
Certificate of Title No. T-3910-A within thirty (30) days from the finality of obligation.2
this judgment.

Reliance on the case of Parks vs. Province of Tarlac3 as cited on page 5


Costs against petitioner. of the majority opinion is erroneous in so far as the latter stated that the
SO ORDERED. condition in Parks is a resolutory one and applied this to the present case.
Quiason and Kapunan, JJ., concur. 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,
Separate Opinions - DAVIDE, JR., J., dissenting: which also has a condition imposed to build a school and a public park
upon the property donated, is a resolutory condition.4 It is incorrect to say
I agree with the view in the majority opinion that the donation in question is that the "conditions" of the donation there or in the present case are
onerous considering the conditions imposed by the donor on the donee resolutory conditions because, applying Article 1181 of the Civil Code, that
which created reciprocal obligations upon both parties. Beyond that, I beg would mean that upon fulfillment of the conditions, the rights already
to disagree. acquired will be extinguished. Obviously, that could not have been the
intention of the parties.
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 What the majority opinion probably had in mind was that the conditions are
donation in question is onerous. Thus, on page 4 it states: resolutory because if they are notcomplied 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
We find it difficult to sustain the petition. A clear perusal of the resolutory conditions but, for the reasons stated above,
conditions set forth in the deed of donation executed by Don are the obligations imposed by the donor.
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 Third, I cannot subscribe to the view that the provisions of Article 1197
donation itself, e.g., when a donation imposes a burden cannot be applied here. The conditions/obligations imposed by the donor
equivalent to the value of the donation . . . . (emphasis herein are subject to a period. I draw this conclusion based on our
supplied) 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
Yet, in the last paragraph of page 8 it states that the donation is basically a period in which the condition should be fulfilled, the provisions of what is
gratuitous one. The pertinent portion thereof reads: 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 an onerous donation is. The prescriptive period is ten years from the time
Lopez could not have intended his property to remain idle for a long period the cause of action accrues, and that is, from the expiration of the time
of time when in fact, he specifically burdened the donee with the obligation within which the donee must comply with the conditions/obligations of the
to set up a medical college therein and thus put his property to good use. donation. As to when this exactly is remains to be determined, and that is
There is a need to fix the duration of the time within which the conditions for the courts to do as reposed upon them by Article 1197.
imposed are to be fulfilled.
For the reasons expressed above, I register my dissent. Accordingly, the
It is also important to fix the duration or period for the performance of the decision of the Court of Appeals must be upheld, except its ruling that the
conditions/obligations in the donation in resolving the petitioner's claim conditions of the donation are resolutory.
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 Padilla, J., dissents
barred by the statute of limitations. There is misplaced reliance again on a
previous decision of this Court in Osmeña vs. Rama.6 That case does not
speak of a deed of donation as erroneously quoted and cited by the Separate Opinions - DAVIDE, JR., J., dissenting:
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 I agree with the view in the majority opinion that the donation in question is
her obligation to pay the creditor, thus, making the fulfillment of her onerous considering the conditions imposed by the donor on the donee
obligation dependent upon her will. What we have here, however, is not a which created reciprocal obligations upon both parties. Beyond that, I beg
contract for a sum of money but a donation where the donee has not to disagree.
imposed any conditions on the fulfillment of its obligations. Although it is
admitted that the fulfillment of the conditions/obligations of the present First of all, may I point out an inconsistency in the majority opinion's
donation may be dependent on the will of the donee as to when it will description of the donation in question. In one part, it says that the
comply therewith, this did not arise out of a condition which the donee donation in question is onerous. Thus, on page 4 it states:
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 We find it difficult to sustain the petition. A clear perusal of the
reasonable time is, under the circumstances, for the courts to determine. conditions set forth in the deed of donation executed by Don
Thus, the mere fact that there is no time fixed as to when the conditions of Ramon Lopez, Sr., give us no alternative but to conclude
the donation are to be fulfilled does not ipso facto mean that the statute of that his donation was onerous, one executed for a valuable
limitations will not apply anymore and the action to revoke the donation consideration which is considered the equivalent of the
becomes imprescriptible. donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation . . . . (emphasis
supplied)
Admittedly, the donation now in question is an onerous donation and is
governed by the law on contracts (Article 733) and the case of Osmeña,
being one involving a contract, may apply. But we must not lose sight of Yet, in the last paragraph of page 8 it states that the donation is basically a
the fact that it is still a donation for which this Court itself applied the gratuitous one. The pertinent portion thereof reads:
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 Finally, since the questioned deed of donation herein is
as early as 1926 in the case of Parks which, on this point, finds relevance basically a gratuitous one, doubts referring to incidental
in this case. There, this Court said, circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and interest . . .
[that] this action [for the revocation of the donation] is (emphasis supplied)
prescriptible, there is no doubt. There is no legal provision
which excludes this class of action from the statute of Second, the discussion on conditional obligations is unnecessary. There is
limitations. And not only this, the law itself recognizes the no conditional obligation to speak of in this case. It seems that the
prescriptibility of the action for the revocation of a donation, "conditions" imposed by the donor and as the word is used in the law of
providing a special period of [four] years for the revocation by donations is confused with "conditions" as used in the law of obligations.
the subsequent birth of children [Art. 646, now Art. 763], and . . In his annotation of Article 764 of the Civil Code on Donations, Arturo M.
. by reason of ingratitude. If no special period is provided for Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez
the prescription of the action for revocation for noncompliance and Alguer, and Colin & Capitant, states clearly the context within which
of the conditions of the donation [Art. 647, now Art. 764], it is the term "conditions" is used in the law of donations, to wit:
because in this respect the donation is considered onerous and
is governed by the law of contracts and the general rules of
The word "conditions" in this article does not refer to uncertain
prescription.7
events on which the birth or extinguishment of a juridical
relation depends, but is used in the vulgar sense of obligations
More recently, in De Luna v. Abrigo,8 this Court reiterated the ruling or chargesimposed by the donor on the donee. It is used, not in
in Parks and said that: its technical or strict legal sense, but in its broadest
sense.1 (emphasis supplied)
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) Clearly then, when the law and the deed of donation speaks of
years from the non-compliance of the conditions of the "conditions" of a donation, what are referred to are actually the obligations,
donation. However, it is Our opinion that said article does not charges or burdens imposed by the donor upon the donee and which
apply to onerous donations in view of the specific provision of would characterize the donation as onerous. In the present case, the
Article 733 providing that onerous donations are governed by donation is, quite obviously, onerous, but it is more properly called a
the rules on contracts. "modal donation." A modal donation is one in which the donor imposes a
prestation upon the donee. The establishment of the medical college as
In the light of the above, the rules on contracts and the general the condition of the donation in the present case is one such prestation.
rules on prescription and not the rules on donations are
applicable in the case at bar. The conditions imposed by the donor Don Ramon Lopez determines
neither the existence nor the extinguishment of the obligations of the
The law applied in both cases is Article 1144(1). It refers to the donor and the donee with respect to the donation. In fact, the conditions
prescription of an action upon a written contract, which is what the deed of 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 the fact that it is still a donation for which this Court itself applied the
purposes specified in the deed of donation. It is very clear that those pertinent law to resolve situations such as this. That the action to revoke
obligations are unconditional, the fulfillment, performance, existence or the donation can still prescribe has been the pronouncement of this Court
extinguishment of which is not dependent on any future or uncertain event as early as 1926 in the case of Parks which, on this point, finds relevance
or past and unknown event, as the Civil Code would define a conditional in this case. There, this Court said,
obligation.2
[that] this action [for the revocation of the donation] is
Reliance on the case of Parks vs. Province of Tarlac3 as cited on page 5 prescriptible, there is no doubt. There is no legal provision
of the majority opinion is erroneous in so far as the latter stated that the which excludes this class of action from the statute of
condition in Parks is a resolutory one and applied this to the present case. limitations. And not only this, the law itself recognizes the
A more careful reading of this Court's decision would reveal that nowhere prescriptibility of the action for the revocation of a donation,
did we say, whether explicitly or impliedly, that the donation in that case, providing a special period of [four] years for the revocation by
which also has a condition imposed to build a school and a public park the subsequent birth of children [Art. 646, now Art. 763], and . .
upon the property donated, is a resolutory condition.4 It is incorrect to say . by reason of ingratitude. If no special period is provided for
that the "conditions" of the donation there or in the present case are the prescription of the action for revocation for noncompliance
resolutory conditions because, applying Article 1181 of the Civil Code, that of the conditions of the donation [Art. 647, now Art. 764], it is
would mean that upon fulfillment of the conditions, the rights already because in this respect the donation is considered onerous and
acquired will be extinguished. Obviously, that could not have been the is governed by the law of contracts and the general rules of
intention of the parties. prescription.7

What the majority opinion probably had in mind was that the conditions are More recently, in De Luna v. Abrigo,8 this Court reiterated the ruling
resolutory because if they are notcomplied with, the rights of the donee as in Parks and said that:
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 It is true that under Article 764 of the New Civil Code, actions
resolutory conditions but, for the reasons stated above, for the revocation of a donation must be brought within four (4)
are the obligations imposed by the donor. years from the non-compliance of the conditions of the
donation. However, it is Our opinion that said article does not
Third, I cannot subscribe to the view that the provisions of Article 1197 apply to onerous donations in view of the specific provision of
cannot be applied here. The conditions/obligations imposed by the donor Article 733 providing that onerous donations are governed by
herein are subject to a period. I draw this conclusion based on our the rules on contracts.
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 In the light of the above, the rules on contracts and the general
when the contract of donation, as the one involved therein, has no fixed rules on prescription and not the rules on donations are
period in which the condition should be fulfilled, the provisions of what is applicable in the case at bar.
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 The law applied in both cases is Article 1144(1). It refers to the
be inferred that a period was contemplated by the donor. Don Ramon prescription of an action upon a written contract, which is what the deed of
Lopez could not have intended his property to remain idle for a long period an onerous donation is. The prescriptive period is ten years from the time
of time when in fact, he specifically burdened the donee with the obligation the cause of action accrues, and that is, from the expiration of the time
to set up a medical college therein and thus put his property to good use. within which the donee must comply with the conditions/obligations of the
There is a need to fix the duration of the time within which the conditions donation. As to when this exactly is remains to be determined, and that is
imposed are to be fulfilled. for the courts to do as reposed upon them by Article 1197.

It is also important to fix the duration or period for the performance of the For the reasons expressed above, I register my dissent. Accordingly, the
conditions/obligations in the donation in resolving the petitioner's claim decision of the Court of Appeals must be upheld, except its ruling that the
that prescription has already barred the present action. I disagree once conditions of the donation are resolutory.
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 Padilla, J., dissents
previous decision of this Court in Osmeña 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 Osmeña,
being one involving a contract, may apply. But we must not lose sight of
[G.R. No. 146839, March 23 : 2011] ROLANDO T. CATUNGAL, JOSE T. VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00)
CATUNGAL, JR., CAROLYN T. CATUNGAL AND ERLINDA CATUNGAL- representing the downpayment, interest free, payable but contingent upon the
WESSEL, PETITIONERS, VS. ANGEL S. RODRIGUEZ, RESPONDENT. event that the VENDOR shall have been able to sell the property to another
party.[8]
DECISION
In accordance with the Conditional Deed of Sale, Rodriguez purportedly
LEONARDO-DE CASTRO, J.: secured the necessary surveys and plans and through his efforts, the properly
was reclassified from agricultural land into residential land which he claimed
Before the Court is a Petition for Review on Certiorari, assailing the following substantially increased the property's value. He likewise alleged that he
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with actively negotiated for the road right of way as stipulated in the contract.[9]
CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Rodriguez further claimed that on August 31, 1990 the spouses Catungal
Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001 requested an advance of P5,000,000.00 on the purchase price for personal
Resolution,[3] denying herein petitioners' motion for reconsideration of the reasons. Rodriquez allegedly refused on the ground that the amount was
August 8, 2000 Decision. substantial and was not due under the terms of their agreement. Shortly after
his refusal to pay the advance, he purportedly learned that the Catungals were
The relevant factual and procedural antecedents of this case are as follows: offering the property for sale to third parties.[10]

This controversy arose from a Complaint for Damages and Injunction with Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24,
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by 1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a
herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, lawyer, essentially demanding that the former make up his mind about buying
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses the land or exercising his "option" to buy because the spouses Catungal
Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners. allegedly received other offers and they needed money to pay for personal
obligations and for investing in other properties/business ventures. Should
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned Rodriguez fail to exercise his option to buy the land, the Catungals warned that
a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by they would consider the contract cancelled and that they were free to look for
Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio other buyers.
of Talamban, Cebu City. The said property was allegedly the exclusive
paraphernal property of Agapita. In a letter dated November 4, 1990,[14] Rodriguez registered his objections to
what he termed the Catungals' unwarranted demands in view of the terms of
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into the Conditional Deed of Sale which allowed him sufficient time to negotiate a
a Contract to Sell[6] with respondent Rodriguez. Subsequently, the Contract to road right of way and granted him, the vendee, the exclusive right to rescind
Sell was purportedly "upgraded" into a Conditional Deed of Sale dated July 26, the contract. Still, on November 15, 1990, Rodriguez purportedly received a
1990 between the same parties. Both the Contract to Sell and the Conditional letter dated November 9, 1990[15] from Atty. Catungal, stating that the contract
Deed of Sale were annotated on the title. had been cancelled and terminated.

The provisions of the Conditional Deed of Sale pertinent to the present dispute Contending that the Catungals' unilateral rescission of the Conditional Deed of
are quoted below: Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his
Complaint, that:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE
MILLION PESOS (£25,000,000.00) payable as follows: 1. Upon the filing of this complaint, a restraining order be issued enjoining
defendants [the spouses Catungal], their employees, agents, representatives
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon or other persons acting in their behalf from offering the property subject of this
the signing of this agreement, receipt of which sum is hereby acknowledged in case for sale to third persons; from entertaining offers or proposals by third
full from the VENDEE. persons to purchase the said property; and, in general, from performing acts in
furtherance or implementation of defendants' rescission of their Conditional
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND Deed of Sale with plaintiff [Rodriguez].
PESO'S (P24,500,000.00) shall be payable in five separate checks, made to
the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION 2. After hearing, a writ of preliminary injunction be issued upon such
FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the remaining reasonable bond as may be fixed by the court enjoining defendants and other
balance to be paid in four checks in the amounts of FIVE MILLION PESOS persons acting in their behalf from performing any of the acts mentioned in the
(P5,000,000.00) each after the VENDEE have (sic)' successfully negotiated, next preceding paragraph.
secured and provided a Road Right of Way consisting of 12 meters in width
cutting across Lot 10884 up to the national road, either by widening the 3. After trial, a Decision be rendered:
existing Road Right of Way or by securing a new Road Right of Way of 12
meters in width. If however said Road Right of Way could not be negotiated, a) Making the injunction permanent;
the VENDEE shall give notice to the VENDOR for them to reassess and solve
the problem by taking other options and should the situation ultimately prove b) Condemning defendants to pay to plaintiff, jointly and solidarily:
futile, he shall take steps to rescind or cancel the herein Conditional Deed of
Sale. Actual damages in the amount of P400,000.00 for their unlawful rescission of
the Agreement and their performance of acts in violation or disregard of the
c. That the access road or Road Right of Way leading to Lot 10963 shall be the said Agreement;
responsibility of the VENDEE to secure and any or all cost relative to the
acquisition thereof shall be borne solely by the VENDEE. He shall, however, Moral damages in the amount of P200,000.00;
be accorded with enough time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage. Exemplary damages in the amount of P200,000.00; Expenses of litigation and
attorney's fees in the amount of P100,000.00; and Costs of suit.[16]
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of
herein CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and On December 12, 1990, the trial court issued a temporary restraining order
assigns, the real property described in the Original Certificate of Title No. 105 x and set the application for a writ of preliminary injunction for hearing on
x x. December 21, 1990 with a directive to the spouses Catungal to show cause
within five days from notice why preliminary injunction should not be granted.
xxxx The trial court likewise ordered that summons be served on them.[17]

5. That the VENDEE has the option to rescind the sale. In the event the Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a
VENDEE exercises his option to rescind the herein Conditional Deed of Sale, writ of preliminary injunction and later filed a motion to dismiss[19] on the ground
the VENDEE shall notify the VENDOR by way of a written notice relinquishing of improper venue. According to the Catungals, the subject property was
his rights over the property. The VENDEE shall then be reimbursed by the located in Cebu City and thus, the complaint should have been filed in Cebu
City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the Set Aside Order of Default[35] but it was likewise denied for being in violation of
ground that his action was a personal action as its subject was breach of a the rules and for being not meritorious.[36] On February 28, 1992, the
contract, the Conditional Deed of Sale, and not title to, or possession of real Catungals filed a Petition for Certiorari and Prohibition[37]with the Court of
property.[20] Appeals, questioning the denial of their motion to dismiss and the order of
default. This was docketed as CA-G.R. SP No. 27565.
In an Order dated January 17, 1991,[21] the trial court denied the motion to
dismiss and ruled that the complaint involved a personal action, being merely Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
for damages with a prayer for injunction.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
Subsequently, on January 30, 1991, the trial court ordered the issuance of a finding that: (a) under the contract it was complainant (Rodriguez) that had the
writ of preliminary injunction upon posting by Rodriguez of a bond in the option to rescind the sale; (b) Rodriguez's obligation to pay the balance of the
amount of P100,000.00 to answer for damages that the defendants may purchase price arises only upon successful negotiation of the road right of way;
sustain by reason of the injunction. (c) he proved his diligent efforts to negotiate the road right of way; (d) the
spouses Catungal were guilty of misrepresentation which defeated Rodriguez's
On February 1, 1991, the spouses Catungal filed their Answer with efforts to acquire the road right of way; and (e) the Catungals' rescission of the
Counterclaim[22] alleging that they had the right to rescind the contract in view contract had no basis and was in bad faith. Thus, the trial court made the
of (1) Rodriguez's failure to negotiate the road right of way despite the lapse of injunction permanent, ordered the Catungals to reduce the purchase price by
several months since the signing of the contract, and (2) his refusal to pay the the amount of acquisition of Lot 10963 which they misrepresented was part of
additional amount of P5,000,000.00 asked by the Catungals, which to them the property sold but was in fact owned by a third party and ordered them to
indicated his lack of funds to purchase the property. The Catungals likewise pay P100,000.00 as damages, P30,000.00 as attorney's fees and costs.
contended that Rodriguez did not have an exclusive right to rescind the
contract and that the contract, being reciprocal, meant both parties had the The Catungals appealed the decision to the Court of Appeals, asserting the
right to rescind.[23] The spouses Catungal further claimed that it was Rodriguez commission of the following errors by the trial court in their appellants' brief8
who was in breach of their agreement and guilty of bad faith which justified dated February 9, 1994:
their rescission of the contract.[24] By way of counterclaim, the spouses
Catungal prayed for actual and consequential damages in the form of I
unearned interests from the balance (of the purchase price in the amount) of THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON
P24,500,000.00, moral and exemplary damages in the amount of THE GROUNDS OF IMPROPER VENUE AND LACK OF JURISDICTION.
P2,000,000.00, attorney's fees in the amount of P200,000.00 and costs of suits II
and litigation expenses in the amount of P10,000.00.[25] The spouses Catungal THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
prayed for the dismissal of the complaint and the grant of their counterclaim. PERSONAL AND NOT A REAL ACTION.
III
The Catungals amended their Answer twice,[26] retaining their basic allegations GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID
but amplifying their charges of contractual breach and bad faith on the part of AND THE CASE IS A PERSONAL ACTION, THE COURT A QUO ERRED IN
Rodriguez and adding the argument that in view of Article 1191 of the Civil DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL
Code, the power to rescind reciprocal obligations is granted by the law itself to WHEN AT THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR
both parties and does not need an express stipulation to grant the same to the ANSWER TO THE COMPLAINT.
injured party. In the Second Amended Answer with Counterclaim, the spouses IV
Catungal added a prayer for the trial court to order the Register of Deeds to THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS
cancel the annotations of the two contracts at the back of their OCT. HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT MOST
THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY
allegations to the effect that the Catungals were guilty of several AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF
misrepresentations which purportedly induced Rodriguez to buy the property at DEFAULT.
the price of P25,000,000.00. Among others, it was alleged that the spouses V
Catungal misrepresented that their Lot 10963 includes a flat portion of land THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY
which later turned out to be a separate lot (Lot 10986) owned by Teodora INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP
Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE
misrepresented that the road right of way will only traverse two lots owned by COURT'S TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO
Anatolia Tudtud and her daughter Sally who were their relatives and who had WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY
already agreed to sell a portion of the said lots for the road right of way at a OF THE WRIT.
price of P550.00 per square meter. However, because of the Catungals' acts VI
of offering the property to other buyers who offered to buy the road lots for THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU
P2,500.00 per square meter, the adjacent lot owners were no longer willing to PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE
sell the road lots to Rodriguez at P550.00 per square meter but were asking for AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF
a price of P3,500.00 per square meter. In other words, instead of assisting COURTESY AND FAIRNESS BEING MANDATED AS DISPENSER OF FAIR
Rodriguez in his efforts to negotiate the road right of way, the spouses AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR
Catungal allegedly intentionally and maliciously defeated Rodriguez's IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION
negotiations for a road right of way in order to justify rescission of the said FOR CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-
contract and enable them to offer the property to other buyers. G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT
THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT
Despite requesting the trial court for an extension of time to file an amended OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
Answer,[29] the Catungals did not file an amended Answer and instead filed an FURNISHED WITH COPY OF SAID NOTICE.
Urgent Motion to Dismiss[30] again invoking the ground of improper venue. In VII
the meantime, for failure to file an amended Answer within the period allowed, THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE
the trial court set the case for pre-trial on December 20, 1991. PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS OF
EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF
During the pre-trial held on December 20, 1991, the trial court denied in open TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF THIS
court the Catungals' Urgent Motion to Dismiss for violation of the rules and for PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS
being repetitious and having been previously denied. However, Atty. Catungal REVERSIBLE.[39]
refused to enter into pre-trial which prompted the trial court to declare the
defendants in default and to set the presentation of the plaintiffs evidence on On August 31, 1995, after being granted several extensions, Rodriguez filed
February 14, 1992;[32] his appellee's brief,[40]essentially arguing the correctness of the trial court's
Decision regarding the foregoing issues raised by the Catungals.
On December 23, 1991, the Catungals filed a motion for reconsideration[33] of Subsequently, the Catungals filed a Reply Brief[41] dated October 16, 1995.
the December 20, 1991 Order denying their Urgent Motion to Dismiss but the
trial court denied reconsideration in an Order dated February 3, From the filing of the appellants' brief in 1994 up to the filing of the Reply Brief,
1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to the spouses Catungal were represented by appellant Jose Catungal himself.
However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty.
Borromeo), entered his appearance before the Court of Appeals on September We are not persuaded.
2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for Leave of Court
to File Citation of Authorities[43] and a Citation of Authorities.[44] This would be This is not an instance where a party merely failed to assign an issue as an
followed by Atty. Borromeo's filing of an Additional Citation of Authority and error in the brief nor failed to argue a material point on appeal that was raised
Second Additional Citation of Authority both on November 17, 1997.[45] in the trial court and supported by the record. Neither is this a case where a
party raised an error closely related to, nor dependent on the resolution of, an
During the pendency of the case with the Court of Appeals, Agapita Catungal error properly assigned in his brief. This is a situation where a party completely
passed away and thus, her husband, Jose, filed on February 17, 1999 a changes his theory of the case on appeal and abandons his previous
motion for Agapita's substitution by her surviving children[46] assignment of errors in his brief, which plainly should not be allowed as
anathema to due process.
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No. Petitioners should be reminded that the object of pleadings is to draw the lines
27565,[47] affirming the trial court's Decision. of battle between the litigants and to indicate fairly the nature of the claims or
defenses of both parties.[56] In Philippine National Construction Corporation v.
In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the Court of Appeals,[57] we held that "[w]hen a party adopts a certain theory in the
Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b) and trial court, he will not be permitted to change his theory on appeal, for to permit
5[49] of the Conditional Deed of Sale, whether taken separately or jointly, him to do so would not only be unfair to the other party but it would also be
violated the principle of mutuality of contracts under Article 1308 of the Civil offensive' to the basic rules of fair play, justice and due process."
Code and thus, said contract was void ab initio. He adverted to the cases
mentioned in his various citations of authorities to support his argument of We have also previously ruled that "courts of justice have no jurisdiction or
nullity of the contract and his position that this issue may be raised for the first power to decide a question not in issue. Thus, a judgment that goes beyond
time on appeal. the issues and purports to adjudicate something on which the court did not
hear the parties, is not only irregular but also extrajudicial and invalid. The rule
Meanwhile, a Second Motion for Substitution[50] was filed by Atty. Borromeo in rests on the fundamental tenets of fair play."[59]
view of the death of Jose Catungal.
During the proceedings before the trial court, the spouses Catungal never
In a Resolution dated January 30, 2001, the Court of Appeals allowed the claimed that the provisions in the Conditional Deed of Sale, stipulating that the
substitution of the deceased Agapita and Jose Catungal by their surviving heirs payment of the balance of the purchase price was contingent upon the
and denied the motion for reconsideration for lack of merit successful negotiation of a road right of way (paragraph 1[b]) and granting
Rodriguez the option to rescind (paragraph 5), were void for allegedly making
Hence, the heirs of Agapita and Jose Catungal filed on March 2001 the the fulfillment of the contract dependent solely on the will of Rodriguez.
present petition for review,[51]which essentially argued that the Court of
Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional On the contrary, with respect to paragraph 1(b), the Catungals did not aver in
Deed of Sale, violated the principle of mutuality of contracts under Article 1308 the Answer (and its amended versions) that the payment of the purchase price
of the Civil Code. Thus, said contract was supposedly void ab initio and the was subject to the will of Rodriguez but rather they claimed that paragraph 1(b)
Catungals' rescission thereof was superfluous. in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to
negotiate the road right of way. However, it was petitioners' theory that more
In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new than sufficient time had already been given Rodriguez to negotiate the road
matters that cannot be passed upon on appeal; (b) the validity of the right of way. Consequently, Rodriguez's refusal/failure to pay the balance of
Conditional Deed of Sale was already admitted and petitioners cannot be the purchase price, upon demand, was allegedly indicative of lack of funds and
allowed to change theories on appeal; (c) the questioned paragraphs of the a breach of the contract on the part of Rodriguez.
Conditional Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for not Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez's
having come to court with clean hands. option to rescind, it was petitioners' theory in the court a quo that
notwithstanding such provision, they retained the right to rescind the contract
The Court gave due course to the Petition[53] and the parties filed their for Rodriguez's breach of the same under Article 1191 of the Civil Code.
respective Memoranda.
Verily, the first time petitioners raised their theory of the nullity of the
The issues to be resolved in, the case at bar can be summed into two Conditional Deed of Sale in view of the questioned provisions was only in their
questions: Motion for Reconsideration of the Court of Appeals' Decision, affirming the trial
I. Are petitioners allowed to raise their theory of nullity of the court's judgment. The previous filing of various citations of authorities by Atty.
Conditional Deed of Sale for the first time on appeal? Borromeo and the Court of Appeals' resolutions noting such citations were of
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate no moment. The citations of authorities merely listed cases and their main
the principle of mutuality of contracts under Article 1308 of the Civil rulings without even any mention of their relevance to the present case or any
Code? prayer for the Court of Appeals to consider them. In sum, the Court of Appeals
On petitioners' change of theory did not err in disregarding the citations of authorities or in denying petitioners'
motion for reconsideration of the assailed August 8, 2000 Decision in view of
Petitioners claimed that the Court of Appeals should have reversed the trial the proscription against changing legal theories on appeal.
courts' Decision on the ground of the alleged nullity of paragraphs 1(b) and 5
of the Conditional Deed of Sale notwithstanding that the same was not raised Ruling on the questioned provisions of the
as an error in their appellants' brief. Citing Catholic Bishop of Balanga v. Court Conditional Deed of Sale
of Appeals,[54] petitioners argued in the Petition that this case falls under the
following exceptions: Even assuming for the sake of argument that this Court may overlook the
procedural misstep of petitioners, we still cannot uphold their belatedly
(3) Matters not assigned as errors on appeal but consideration of which is proffered arguments.
necessary in arriving at a just decision and complete resolution of the case or
to serve the interest of justice or to avoid dispensing piecemeal justice; At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and
(4) Matters not specifically assigned as errors on appeal but raised in the trial Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain
court and are matters of record having some bearing on the issue submitted price but the payment of the purchase price was additionally made contingent
which the parties failed to raise or which the lower court ignored; on the successful negotiation of a road right of way. It is elementary that "[i]n
conditional obligations, the acquisition of rights, as well as the extinguishment
(5) Matters not assigned as errors on appeal but closely related to an error or loss of those already acquired, shall depend upon the happening of the
assigned; and event which constitutes the condition."[60]

(6) Matters not assigned as errors but upon which the determination of a Petitioners rely on Article 1308 of the Civil Code to support their conclusion
question properly assigned is dependent. regarding the claimed nullity of the aforementioned provisions. Article 1308
states that "[t]he contract must bind both contracting parties; its validity or It is therefore apparent that the vendee's obligations (sic) to pay the balance of
compliance cannot be left to the will of one of them." the purchase price arises only when the road-right-of-way to the property shall
have been successfully negotiated, secured and provided. In other words, the
Article 1182 of the Civil Code, in turn, provides: obligation to pay the balance is conditioned upon the acquisition of the road-
right-of-way, in accordance with paragraph 2 of Article 1181 of the New Civil
Art. 1182. When the fulfillment of the condition depends upon the sole will of Code. Accordingly, "an obligation dependent upon a suspensive condition
the debtor, the conditional obligation shall be void. If it depends upon chance cannot be demanded until after the condition takes place because it is only
or upon the will of a third person, the obligation shall take effect in conformity after the fulfillment of the condition that the obligation arises." (Javier v[s] CA
with the provisions of this Code. 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez]
indeed was diligent in his efforts to negotiate for a road-right-of-way to
In the past, this Court has distinguished between a condition imposed on the the property. The written offers, proposals and follow-up of his proposals show
perfection of a contract and a condition imposed merely on the performance of that plaintiff [Rodriguez] went all out in his efforts to immediately acquire an
an obligation. While failure to comply with the first condition results in the access road to the property, even going to the extent of offering P3,000.00 per
failure of a contract, failure to comply with the second merely gives the other square meter for the road lots (Exh. Q) from the original P550.00 per sq.
party the option to either refuse to proceed with the sale or to waive the meter. This Court also notes that defendant (sic) [the Catungals] made
condition.[61] This principle is evident in Article 1545 of the Civil Code on sales, misrepresentation in the negotiation they have entered into with
which provides in part: plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic)
[the Catungals] as to the third lot (Lot 10986) to be part and parcel of the
subject property [(]Lot 10963) contributed in defeating the plaintiffs
Art. 1545. Where the obligation of either party to a contract of sale is subject to
[Rodriguez's] effort in acquiring the road-right-of-way to the property.
any condition which is not performed, such party may refuse to proceed with
Defendants [the Catungals] cannot now invoke the non-fulfillment of the
the contract or he may waive performance of the condition x x x.
condition in the contract as a ground for rescission when defendants
[the Catungals] themselves are guilty of preventing the fulfillment of
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall
such condition.
pay the balance of the purchase price when he has successfully negotiated
and secured a road right of way, is not a condition on the perfection of the
From the foregoing, this Court is of the considered view that rescission of the
contract nor on the validity of the entire contract or its compliance as
conditional deed of sale by the defendants is without any legal or factual
contemplated in Article 1308. It is a condition imposed only on respondent's
basis.[64] x x x. (Emphases supplied.)
obligation to pay the remainder of the purchase price. In our view and applying
Article 1182, such a condition is not purely potestative as petitioners contend.
In all, we see no cogent reason to disturb the foregoing factual findings of the
It is not dependent on the sole will of the debtor but also on the will of third
trial court.
persons who own the adjacent land and from whom the road right of way shall
be negotiated. In a manner of speaking, such a condition is likewise dependent
Furthermore, it is evident from the language of paragraph 1(b) that the
on chance as there is no guarantee that respondent and the third party-
condition precedent (for respondent's obligation to pay the balance of the
landowners would come to an agreement regarding the road right of way. This
purchase price to arise) in itself partly involves an obligation to do, i.e., the
type of mixed condition is expressly allowed under Article 1182 of the Civil
undertaking of respondent to negotiate and secure a road right of way at his
Code.
own expense.[65] It does not escape our notice as well, that far from disclaiming
paragraph 1(b) as void, it was the Catungals' contention before the trial court
Analogous to the present case is Romero v. Court of Appeals,[62] wherein the
that said provision should be read in relation to paragraph 1(c) which stated:
Court interpreted the legal effect of a condition in a deed of sale that the
balance of the purchase price would be paid by the vendee when the vendor
c. That the access road or Road Right of Way leading to Lot 10963 shall be the
has successfully ejected the informal settlers occupying the property.
responsibility of the VENDEE to secure and any or all cost relative to the
In Romero, we found that such a condition did not affect the perfection of the
acquisition thereof shall be borne solely by the VENDEE. He shall, however,
contract but only imposed a condition on the fulfillment of the obligation to pay
be accorded with enough time necessary for the success of his
the balance of the purchase price, to wit:
endeavor; granting him a free hand in negotiating for the
passage.[66] (Emphasis supplied.)
From the moment the contract is perfected, the parties are bound not only to
the fulfillment of what has been expressly stipulated but also to all the The Catungals' interpretation of the foregoing stipulation was that Rodriguez's
consequences which, according to their nature, may be in keeping with good obligation to negotiate and secure a road right of way was one with a period
faith, usage and law. Under the agreement, private respondent is obligated to and that period, i.e., "enough time" to negotiate, had already lapsed by the
evict the squatters on the property. The ejectment of the squatters is a time they demanded the payment of P5,000,000.00 from respondent. Even
condition the operative act of which sets into motion the period of assuming arguendo that the Catungals were correct that the respondent's
compliance by petitioner of his own obligation, i.e., to pay the balance of obligation to negotiate a road right of way was one with an uncertain period,
the purchase price. Private respondent's failure "to remove the squatters their rescission of the Conditional Deed of Sale would still be unwarranted.
from the property" within the stipulated period gives petitioner the right Based on their own theory, the Catungals had a remedy under Article 1197 of
to either refuse to proceed! with the agreement or waive that condition in the Civil Code, which mandates:
consonance with Article 1545 of the Civil Code. This option clearly belongs
to petitioner and not to private respondent.
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix
We share the opinion of the appellate court that the undertaking required
the duration thereof.
of private respondent does not constitute a "potestative condition
dependent solely on his will" that might, otherwise, be void in
The courts shall also fix the duration of the period when it depends upon the
accordance with Article 1182 of the Civil Code but a "mixed" condition
will of the debtor.
"dependent not on the will of the vendor alone but also of third persons
like the squatters and government agencies and personnel
In every case, the courts shall determine such period as may under the
concerned." We must hasten to add, however, that where the so-called
circumstances have been probably contemplated by the parties. Once fixed by
"potestative condition" is imposed not on the birth of the obligation but on its
the courts, the period cannot be changed by them.
fulfillment, only the condition is avoided, leaving unaffected the obligation
itself.[63] (Emphases supplied.)
What the Catungals should have done was to first file an action in court to fix
the period within which Rodriguez should accomplish the successful
From the provisions of the Conditional Deed of Sale subject matter of this
negotiation of the road fight of way pursuant to the above quoted provision.
case, it was the vendee (Rodriguez) that had the obligation to successfully
Thus, the Catungals' demand for Rodriguez to make an additional payment of
negotiate and secure the road right of way. However, in the decision of the trial
P5,000,000.00 was premature and Rodriguez's failure to accede to such
court, which was affirmed by the Court of Appeals, it was found that
demand did not justify the rescission of the contract.
respondent Rodriguez diligently exerted efforts to secure the road right of way
but the spouses Catungal, in bad faith, contributed to the collapse of the
With respect to petitioners' argument that paragraph 5 of the Conditional Deed
negotiations for said road right of way. To quote from the trial court's decision:
of Sale likewise rendered the said contract void, we find no merit to this theory.
Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event the provisions.
VENDEE exercises his option to rescind the herein Conditional Deed of Sale,
the VENDEE shall notify the VENDOR by way of a written notice relinquishing In any event, even if we assume for the sake of argument that the grant to
his rights over the property. The VENDEE shall then be reimbursed by the Rodriguez of an option to rescind, in the manner provided for in the contract, is
VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (£500,000,00) tantamount to a potestative condition, not being a condition affecting the
representing the downpayment, interest free, payable but contingent upon the perfection of the contract, only the said condition would be considered void and
event that the VENDOR shall have been able to sell the property to another the rest of the contract will remain valid. In Romero, the Court observed that
party.[67] "where the so-called 'potestative condition' is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided, leaving unaffected
Petitioners posited that the above stipulation was the "deadliest" provision in the obligation itself."[71]
the Conditional Deed of Sale for violating the principle of mutuality of contracts
since it purportedly rendered the contract subject to the will of respondent. It cannot be gainsaid that "contracts have the force of law between the
contracting parties and should be complied with in good faith.'" We have also
We do not agree. previously ruled that "[b]eing the primary law between the parties, the contract
governs the adjudication of their rights and obligations. A court has no
It is petitioners' strategy to insist that the Court examine the first sentence of alternative but to enforce the contractual stipulations in the manner they have
paragraph 5 alone and, resist a correlation of such sentence with other been agreed upon and written.'" We find no merit in petitioners' contention that
provisions of the contract. Petitioners' view, however, ignores a basic rule in their parents were merely "duped" into accepting the questioned provisions in
the interpretation of contracts - that the contract should be taken as a whole. the Conditional Deed of Sale. We note that although the contract was between
Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon
Article 1374 of the Civil Code provides that "[t]he various stipulations of a to signify his marital consent to the same. We concur with the trial court's
contract shall be interpreted together, attributing to the doubtful ones that finding that the spouses Catungals' claim of being misled into signing the
sense which may result from all of them taken jointly." The same Code further contract was contrary to human experience and conventional wisdom since it
sets down the rule that "[i]f some stipulation of any contract should admit of was Jose Catungal who was a practicing lawyer while Rodriquez was a non-
several meanings, it shall be understood as bearing that import which is most lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife
adequate to render it effectual."[68] reviewed the provisions of the contract, understood and accepted its provisions
before they affixed their signatures thereon.
Similarly, under the Rules of Court it is prescribed that "[i]n the construction of
an instrument where there are several provisions or particulars, such a After thorough review of the records of this case, we have come to the
construction is, if possible, to be adopted as will give effect to all"[69] and "for conclusion that petitioners failed to demonstrate that the Court of Appeals
the proper construction of an instrument, the circumstances under which it was committed any reversible error in deciding the present controversy. However,
made, including the situation of the subject thereof and of the parties to it, may having made the observation that it was desirable for the Catungals to file a
be shown, so that the judge may be placed in the position of those whose separate action to fix the period for respondent Rodriguez's obligation to
language he is to interpret."[70] negotiate a road right of way, the Court finds it necessary to fix said period in
these proceedings. It is but equitable for us to make a determination of the
Bearing in mind the aforementioned interpretative rules, we find that the first issue here to obviate further delay and in line with the judicial policy of avoiding
sentence of paragraph 5 must be taken in relation with the rest of paragraph 5 multiplicity of suits.
and with the other provisions of the Conditional Deed of Sale.
If still warranted, Rodriguez is given a period of thirty (30) days from the finality
Reading paragraph 5 in its entirety will show that Rodriguez's option to rescind of this decision to negotiate a road right of way. In the event no road right of
the contract is not absolute as it is subject to the requirement that there should way is secured by Rodriquez at the end of said period, the parties shall
be written notice to the vendor and the vendor shall only return Rodriguez's reassess and discuss other options as stipulated in paragraph 1(b) of the
downpayment of P500,000.00, without interest, when the vendor shall have Conditional Deed of Sale and, for this purpose, they are given a period of thirty
been able to sell the property to another party. That what is stipulated to be (30) days to agree on a course of action. Should the discussions of the parties
returned is oniy the downpayment of P500,000.00 in the event that Rodriguez prove futile after the said thirty (30)-day period, immediately upon the
exercises his option to rescind is significant. To recall, paragraph 1(b) of the expiration of said period for discussion, Rodriguez may (a) exercise his option
contract clearly states that the installments on the balance of the purchase to rescind the contract, subject to the return of his downpayment, in
price shall only be paid upon successful negotiation and procurement of a road accordance with the provisions of paragraphs 1(b) and 5 of the Conditional
right of way. It is clear from such provision that the existence of a road right of Deed of Sale or (b) waive the road right of way and pay the balance of the
way is a material consideration for Rodriguez to purchase the property. Thus, deducted purchase price as determined in the RTC Decision dated May 30,
prior to him being able to procure the road right of way, by express stipulation 1992.
in the contract, he is not bound to make additional payments to the Catungals.
It was further stipulated in paragraph 1(b) that: "[i]f however said road right of WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated
way cannot be negotiated, the VENDEE shall give notice to the VENDOR for January 30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627
them to reassess and solve the problem by taking other options and should consolidated with CA-G.R. SP No. 27565 are AFFIRMED withthe
the situation ultimately prove futile, he [Rodriguez] shall take steps to following MODIFICATION:
rescind or [cancel] the herein Conditional Deed of Sale." The intention of
the parties for providing subsequently in paragraph 5 that Rodriguez has the If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30)
option to rescind the sale is undeniably only limited to the contingency that days from the finality of this Decision to negotiate a road right of way. In the
Rodriguez shall not be able to secure the road right of way. Indeed, if the event no road right of way is secured by respondent at the end of said period,
parties intended to give Rodriguez the absolute option to rescind the sale at the parties shall reassess and discuss other options as stipulated in paragraph
any time, the contract would have provided for the return of all payments made 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a
by Rodriguez and not only the downpayment. To our mind, the reason only the period of thirty (30) days to agree on a course of action. Should the
downpayment was stipulated to be returned is that the vendee's option to discussions of the parties prove futile after the said thirty (30)-day period,
rescind can only be exercised in the event that no road right of way is secured immediately upon the expiration of said period for discussion, Rodriguez may
and, thus, the vendee has not made any additional payments, other than his (a) exercise his option to rescind the contract, subject to the return of his
downpayment. downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of
the Conditional Deed of Sale or (b) waive the road right of way and pay the
In sum, Rodriguez's option to rescind the contract is not purely potestative but balance of the deducted purchase price as determined in the RTC Decision
rather also subject to the same mixed condition as his obligation to pay the dated May 30, 1992.
balance of the purchase price - i.e., the negotiation of a road right of way. In
the event the condition is fulfilled (or the negotiation is successful), Rodriguez No pronouncement as to costs.
must pay the balance of the purchase price. In the event the condition is not
fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not SO ORDERED.
proceed with the sale and demand return of his downpayment or (b)
considering that the condition was imposed for his benefit, to waive the
condition and still pay the purchase price despite the lack of road access. This
is the most just interpretation of the parties' contract that gives effect to all its
G.R. No. 117009 October 11, 1995 SECURITY BANK & TRUST COMPANY and Court had to review the entire records of this case to evaluate the merits of the issues
ROSITO C. MANHIT, petitioners, vs. COURT OF APPEALS and YSMAEL raised by the contending parties.
C.FERRER, respondents.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo
PADILLA, J.: In this petition for review under Rule 45 of the Rules of Court, petitioners debet lecupletari (no man ought to be made rich out of another's injury) states:
seek a review and reversal of the decision * of respondent Court of Appeals in CA-G.R.
CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, et. al."
dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court, Branch Art. 22. Every person who through an act of performance by another, or any
63, Makati in Civil Case No. 42712, a complaint for breach of contract with damages. other means, acquires or comes into possession of something at the
expense of the latter without just or legal ground, shall return the same to
him.
Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank
and Trust Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in
Davao City for the price of P1,760,000.00. The contract dated 4 February 1980 provided The above-quoted article is part of the chapter of the Civil Code on Human Relations, the
that Ferrer would finish the construction in two hundred (200) working days. Respondent provisions of which were formulated as "basic principles to be observed for the rightful
Ferrer was able to complete the construction of the building on 15 August 1980 (within relationship between human beings and for the stability of the social order, . . . designed
the contracted period) but he was compelled by a drastic increase in the cost of to indicate certain norms that spring from the fountain of good conscience, . . . guides for
construction materials to incur expenses of about P300,000.00 on top of the original cost. human conduct [that] should run as golden threads through society to the end that law
The additional expenses were made known to petitioner SBTC thru its Vice-President may approach its supreme ideal which is the sway and dominance of justice." 2
Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1980.
Respondent Ferrer made timely demands for payment of the increased cost. Said In the present case, petitioners' arguments to support absence of liability for the cost of
demands were supported by receipts, invoices, payrolls and other documents proving the construction beyond the original contract price are not persuasive.
additional expenses.

Under the previously quoted Article IX of the construction contract, petitioners would
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative make the appropriate adjustment to the contract price in case the cost of the project
of an architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A increases through no fault of the contractor (private respondent). Private respondent
recommendation was then made to settle Ferrer's claim but only for P200,000.00. SBTC, informed petitioners of the drastic increase in construction cost as early as March 1980.
instead of paying the recommended additional amount, denied ever authorizing payment
of any amount beyond the original contract price. SBTC likewise denied any liability for
the additional cost based on Article IX of the building contract which states: Petitioners in turn had the increased cost evaluated and audited. When private
respondent demanded payment of P259,417.23, petitioner bank's Vice-President Rosito
C. Manhit and the bank's architectural consultant were directed by the bank to verify and
If at any time prior to the completion of the work to be performed hereunder, compute private respondent's claims of increased cost. A recommendation was then
increase in prices of construction materials and/or labor shall supervene made to settle private respondent's claim for P200,000.00. Despite this recommendation
through no fault on the part of the contractor whatsoever or any act of the and several demands from private respondent, SBTC failed to make payment. It denied
government and its instrumentalities which directly or indirectly affects the authorizing anyone to make a settlement of private respondent's claim and likewise
increase of the cost of the project, OWNER shall equitably make the denied any liability, contending that the absence of a mutual agreement made private
appropriate adjustment on mutual agreement of both parties. respondent's demand premature and baseless.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial Petitioners' arguments are specious.
court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:

It is not denied that private respondent incurred additional expenses in constructing


a) P259,417.23 for the increase in price of labor and materials plus 12% petitioner bank's building due to a drastic and unexpected increase in construction cost.
interest thereon per annumfrom 15 August 1980 until fully paid; In fact, petitioner bank admitted liability for increased cost when a recommendation was
b) P24,000.00 as actual damages; made to settle private respondent's claim for P200,000.00. Private respondent's claim for
c) P20,000.00 as moral damages; the increased amount was adequately proven during the trial by receipts, invoices and
d) P20,000.00 as exemplary damages; other supporting documents.
e) attorney's fees equivalent to 25% of the principal amount due; and
f) costs of suit.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment
depends upon the sole will of the debtor. In the present case, the mutual agreement, the
On appeal, the Court of Appeals affirmed the trial court decision. absence of which petitioner bank relies upon to support its non-liability for the increased
construction cost, is in effect a condition dependent on petitioner bank's sole will, since
In the present petition for review, petitioners assign the following errors to the appellate private respondent would naturally and logically give consent to such an agreement
court: which would allow him recovery of the increased cost.

. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY Further, it cannot be denied that petitioner bank derived benefits when private respondent
PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM completed the construction even at an increased cost.
AGAINST THE DEFENDANTS-APPELLANTS.
Hence, to allow petitioner bank to acquire the constructed building at a price far below its
. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS actual construction cost would undoubtedly constitute unjust enrichment for the bank to
PROVISION OF THE CONSTRUCTION CONTRACT. the prejudice of private respondent. Such unjust enrichment, as previously discussed, is
not allowed by law.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE
CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON Finally, with respect to the award of attorney's fees to respondent, the Court has
IMPAIRMENT OF THE OBLIGATION OF CONTRACT.1 previously held that, "even with the presence of an agreement between the parties, the
court may nevertheless reduce attorney's fees though fixed in the contract when the
amount thereof appears to be unconscionable or unreasonable."3 As previously noted,
Petitioners argue that under the aforequoted Article IX of the building contract, any the diligence and legal know-how exhibited by counsel for private respondent hardly
increase in the price of labor and/or materials resulting in an increase in construction cost justify an award of 25% of the principal amount due, which would be at least P60,000.00.
above the stipulated contract price will not automatically make petitioners liable to pay for Besides, the issues in this case are far from complex and intricate. The award of
such increased cost, as any payment above the stipulated contract price has been made attorney's fees is thus reduced to P10,000.00.
subject to the condition that the "appropriate adjustment" will be made "upon mutual
agreement of both parties". It is contended that since there was no mutual agreement
between the parties, petitioners' obligation to pay amounts above the original contract WHEREFORE, with the above modification in respect of the amount of attorney's fees,
price never materialized. the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the SO ORDERED.
arguments raised by petitioners. It is of note however that the pleadings filed with this
Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the
contents of said pleadings are mostly quoted portions of the decision of the Court of
Appeals, devoid of adequate discussion of the merits of respondent's case. The Court, to
be sure, expects more diligence and legal know-how from lawyers than what has been
exhibited by counsel for respondent in the present case. Under these circumstances, the
G.R. No. L-16109 October 2, 1922 - M. D. TAYLOR, plaintiff-appellant, vs. UY TIENG PIAO The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially
and TAN LIUAN, doing business under the firm name and style of Tan Liuan & somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to
Company,defendants. Uy TIENG PIAO, defendant-appellant. render competent and efficient service as manager of a corporation, to which position it was
understood he was to be appointed. In the same contract it was stipulated that if "for any
Cohn, Fisher and DeWitt and William C. Brady for plaintiff-appellant. reason" Hardaker should not be given that position, or if he should not be permitted to act in
Gabriel La O for defendant-appellant Uy Tieng Piao. that capacity for a stated period, certain things would be done by Hall. Upon being installed in
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co. the position aforesaid, Hardaker failed to render efficient service and was discharged. It was
held that Hall was released from the obligation to do the things that he had agreed to perform.
STREET, J.: This case comes by appeal from the Court of First Instance of the city of Manila, in Some of the judges appear to have thought that the case turned on the meaning of the phrase
a case where the court awarded to the plaintiff the sum of P300, as damages for breach of "for any reason," and the familiar maxim was cited that no man shall take advantage of his own
contract. The plaintiff appeals on the ground that the amount of damages awarded is wrong. The result of the case must have been the same from whatever point of view, as there
inadequate; while the defendant Uy Tieng Piao appeals on the ground that he is not liable at all. was an admitted failure on the part of Hardaker to render competent service. In the present
The judgment having been heretofore affirmed by us in a brief opinion, we now avail ourselves case there was no breach of contract by the defendants; and the argument to the contrary
of the occasion of the filing of a motion to rehear by the attorneys for the plaintiff to modify the apparently suffers from the logical defect of assuming the very point at issue.
judgment in a slight measure and to state more fully the reasons underlying our decision.

But it will be said that the question is not so much one concerning the legality of the clause
It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and referred to as one concerning the interpretation of the resolutory clause as written, the idea
Co., as superintendent of an oil factory which the latter contemplated establishing in this city. being that the court should adjust its interpretation of said clause to the supposed precepts of
The period of the contract extended over two years from the date mentioned; and the salary article 1256, by restricting its operation exclusively to cases where the nonarrival of the
was to be at the rate of P600 per month during the first year and P700 per month during the machinery may be due to extraneous causes not referable to the will or act of the defendants.
second, with electric light and water for domestic consumption, and a residence to live in, or in But even when the question is viewed in this aspect their result is the same, because the
lieu thereof P60 per month. argument for the restrictive interpretation evidently proceeds on the assumption that the clause
in question is illegal in so far as it purports to concede to the defendants the broad right to
cancel the contract upon nonarrival of the machinery due to any cause; and the debate returns
At the time this agreement was made the machinery for the contemplated factory had not been again to the point whether in a contract for the prestation of service it is lawful for the parties to
acquired, though ten expellers had been ordered from the United States; and among the insert a provision giving to the employer the power to cancel the contract in a contingency which
stipulations inserted in the contract with the plaintiff was a provision to the following effect: may be dominated by himself. Upon this point what has already been said must suffice.

It is understood and agreed that should the machinery to be installed in the said As we view the case, there is nothing in article 1256 which makes it necessary for us to warp
factory fail, for any reason, to arrive in the city of Manila within a period of six the language used by the parties from its natural meaning and thereby in legal effect to restrict
months from date hereof, this contract may be cancelled by the party of the the words "for any reason," as used in the contract, to mean "for any reason not having its origin
second part at its option, such cancellation, however, not to occur before the in the will or acts of the defendants." To impose this interpretation upon those words would in
expiration of such six months. our opinion constitute an unjustifiable invasion of the power of the parties to establish the terms
which they deem advisable, a right which is expressed in article 1255 of the Civil Code and
constitutes one of the most fundamental conceptions of contract right enshrined in the Code.
The machinery above referred to did not arrive in the city of Manila within the six months
succeeding the making of the contract; nor was other equipment necessary for the
establishment of the factory at any time provided by the defendants. The reason for this does The view already expressed with regard to the legality and interpretation of the clause under
not appear with certainty, but a preponderance of the evidence is to the effect that the consideration disposes in a great measure of the argument of the appellant in so far as the
defendants, in the first months of 1919, seeing that the oil business no longer promised large same is based on article 1119 of the Civil Code. This provision supposes a case where the
returns, either cancelled the order for the machinery from choice or were unable to supply the obligor intentionally impedes the fulfillment of a condition which would entitle the obligee to
capital necessary to finance the project. At any rate on June 28, 1919, availing themselves in exact performance from the obligor; and an assumption underlying the provision is that the
part of the option given in the clause above quoted, the defendants communicated in writing to obligor prevents the obligee from performing some act which the obligee is entitled to perform
the plaintiff the fact that they had decided to rescind the contract, effective June 30th then as a condition precedent to the exaction of what is due to him. Such an act must be considered
current, upon which date he was discharged. The plaintiff thereupon instituted this action to unwarranted and unlawful, involving per se a breach of the implied terms of the contract. The
recover damages in the amount of P13,000, covering salary and perquisites due and to become article can have no application to an external contingency which, like that involved in this case,
due under the contract. is lawfully within the control of the obligor.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a
defendants the right to cancel the contract upon the contingency of the nonarrival of the facultative condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and 1119
machinery in Manila within six months, must be understood as applicable only in those cases of the Civil Code that a condition, facultative as to the debtor, is obnoxious to the first sentence
where such nonarrival is due to causes not having their origin in the will or act of the contained in article 1115 and renders the whole obligation void (vol. 8, p. 131). That statement
defendants, as delays caused by strikes or unfavorable conditions of transporting by land or is no doubt correct in the sense intended by the learned author, but it must be remembered that
sea; and it is urged that the right to cancel cannot be admitted unless the defendants he evidently has in mind the suspensive condition, such as is contemplated in article 1115. Said
affirmatively show that the failure of the machinery to arrive was due to causes of that character, article can have no application to the resolutory condition, the validity of which is recognized in
and that it did not have its origin in their own act or volition. In this connection the plaintiff relies article 1113 of the Civil Code. In other words, a condition at once facultative and resolutory may
on article 1256 of the Civil Code, which is to the effect that the validity and fulfillment of be valid even though the condition is made to depend upon the will of the obligor.
contracts cannot be left to the will of one of the contracting parties, and to article 1119, which
says that a condition shall be deemed fulfilled if the obligor intentially impedes its fulfillment.
If it were apparent, or could be demonstrated, that the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in the
It will be noted that the language conferring the right of cancellation upon the defendants is absence of affirmative proof showing that the nonarrival of the machinery was due to some
broad enough to cover any case of the nonarrival of the machinery, due to whatever cause; and cause not having its origin in their own act or will. The contract, however, expresses no such
the stress in the expression "for any reason" should evidently fall upon the word "any." It must positive obligation, and its existence cannot be implied in the fact of stipulation, defining the
follow of necessity that the defendants had the right to cancel the contract in the contingency conditions under which the defendants can cancel the contract.
that occurred, unless some clear and sufficient reason can be adduced for limiting the operation
of the words conferring the right of cancellation. Upon this point it is our opinion that the
language used in the stipulation should be given effect in its ordinary sense, without technicality Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's
or circumvention; and in this sense it is believed that the parties to the contract must have claim in so far as damages are sought for the period subsequent to the expiration of the first six
understood it. months, but in assessing the damages due for the six-month period, the trial judge evidently
overlooked the item of P60, specified in the plaintiff's fourth assignment of error, which
represents commutation of house rent for the month of June, 1919. This amount the plaintiff is
Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract clearly entitled to recover, in addition to the P300 awarded in the court below.
for personal service of a resolutory condition permitting the cancellation of the contract by one
of the parties. Such a stipulation, as can be readily seen, does not make either the validity or
the fulfillment of the contract dependent upon the will of the party to whom is conceded the We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the
privilege of cancellation; for where the contracting parties have agreed that such option shall judgment holding him liable as a member of the firm of Tan Liuan and Co.; and it is insisted in
exist, the exercise of the option is as much in the fulfillment of the contract as any other act his behalf that he was not bound by the act of Tan Liuan as manager of Tan Liuan and Co. in
which may have been the subject of agreement. Indeed, the cancellation of a contract in employing the plaintiff. Upon this we will merely say that the conclusion stated by the trial court
accordance with conditions agreed upon beforehands is fulfillment. in the next to the last paragraph of the decision with respect to the liability of this appellant in
our opinion in conformity with the law and facts.
In this connection, we note that the commentator Manresa has the following observation with
respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will The judgment appealed from will be modified by declaring that the defendants shall pay to the
of either of the parties in the negative form of rescission, a case frequent in certain contracts plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified
(the letting of service for hire, the supplying of electrical energy, etc.), for in such supposed case the judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of
neither is the article infringed, nor is there any lack of equality between the persons contracting, the Code of Civil Procedure, and with costs. So ordered.
since they remain with the same faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p.
610.) 1awph!l.net
Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ.,
concur.
Undoubtedly one of the consequences of this stipulation was that the employers were left in a
position where they could dominate the contingency, and the result was about the same as if
they had been given an unqualified option to dispense with the services of the plaintiff at the
end of six months. But this circumstance does not make the stipulation illegal.
G.R. No. 107112 February 24, 1994 NAGA TELEPHONE CO., INC. service and it becomes necessary to remove the electric lightpost;
(NATELCO) AND LUCIANO M. MAGGAY, petitioners, vs. THE COURT OF (sic)4
APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II), respondents.
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
NOCON, J.: The case of Reyes v. Caltex (Philippines), Inc.1 enunciated the
at the same time the legal counsel of petitioner.
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 After the contract had been enforced for over ten (10) years, private
being the rule that in case the party desires to be excused from performance in respondent filed on January 2, 1989 with the Regional Trial Court of Naga City
the event of contingencies arising thereto, it is his duty to provide the basis (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the contract
therefor in his 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
With the enactment of the New Civil Code, a new provision was included
use of the posts is P10.00 per post, per month; that after eleven (11) years of
therein, namely, Article 1267 which provides: 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,
When the service has become so difficult as to be manifestly worsened by the fact that their linemen bore holes through the posts at which
beyond the contemplation of the parties, the obligor may also be points those posts were broken during typhoons; that a post now costs as
released therefrom, in whole or in part. much as P2,630.00; so that justice and equity demand that the contract be
reformed to abolish the inequities thereon.
In the report of the Code Commission, the rationale behind this innovation was
explained, thus: 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,
The general rule is that impossibility of performance releases the 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
obligor. However, it is submitted that when the service has become
private respondent for the use thereof the total amount of P267,960.00 from
so difficult as to be manifestly beyond the contemplation of the
parties, the court should be authorized to release the obligor in 1981 up to the filing of its complaint; and that petitioners had refused to pay
private respondent said amount despite demands.
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 And as third cause of action, private respondent complained about the poor
intention to hold their contemplation, it would be doing violence to servicing by petitioners of the ten (10) telephone units which had caused it
that intention to hold the obligor still responsible.2 great inconvenience and damages to the tune of not less than P100,000.00

In other words, fair and square consideration underscores the legal precept In petitioners' answer to the first cause of action, they averred that it should be
therein. 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
Naga Telephone Co., Inc. remonstrates mainly against the application by the
barred by estoppel, since private respondent seeks to enforce the contract in
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 the same action. Petitioners further alleged that their utilization of private
respondent's posts could not have caused their deterioration because they
that the complaint should have been dismissed for failure to state a cause of
have already been in use for eleven (11) years; and that the value of their
action.
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
The antecedent facts, as narrated by respondent Court of Appeals are, as of the posts, so that if there was any inequity, it was suffered by them.
follows:
Regarding the second cause of action, petitioners claimed that private
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company respondent had asked for telephone lines in areas outside Naga City for which
rendering local as well as long distance telephone service in Naga City while its posts were used by them; and that if petitioners had refused to comply with
private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) private respondent's demands for payment for the use of the posts outside
is a private corporation established for the purpose of operating an electric Naga City, it was probably because what is due to them from private
power service in the same city. respondent is more than its claim against them.

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use And with respect to the third cause of action, petitioners claimed, inter alia, that
by petitioners in the operation of its telephone service the electric light posts of their telephone service had been categorized by the National
private respondent in Naga City. In consideration therefor, petitioners agreed Telecommunication Corporation (NTC) as "very high" and of "superior quality."
to install, free of charge, ten (10) telephone connections for the use by private
respondent in the following places:
During the trial, private respondent presented the following witnesses:

(a) 3 units — The Main Office of (private respondent);


(1) Dioscoro Ragragio, one of the two officials who signed the contract in its
(b) 2 Units — The Warehouse of (private respondent);
behalf, declared that it was petitioner Maggay who prepared the contract; that
(c) 1 Unit — The Sub-Station of (private respondent) at
Concepcion Pequeña; the understanding between private respondent and petitioners was that the
latter would only use the posts in Naga City because at that time, petitioners'
(d) 1 Unit — The Residence of (private respondent's) President;
capability was very limited and they had no expectation of expansion because
(e) 1 Unit — The Residence of (private respondent's) Acting
General Manager; & 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
(f) 2 Units — To be determined by the General Manager.3
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
Said contract also provided: have become heavily loaded in 1989.

(a) That the term or period of this contract shall be as long as the (2) Engr. Antonio Borja, Chief of private respondent's Line Operation and
party of the first part has need for the electric light posts of the Maintenance Department, declared that the posts being used by petitioners
party of the second part it being understood that this contract shall totalled 1,403 as of April 17, 1989, 192 of which were in the towns of Pili,
terminate when for any reason whatsoever, the party of the second Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
part is forced to stop, abandoned [sic] its operation as a public 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 (4) With respect to the third cause of action, the NTC has found petitioners'
Sisang: around 20 posts were located between Naga City and the town of Pili cable installations to be in accordance with engineering standards and practice
while the posts in barangay Concepcion, Naga City were broken at the middle and comparable to the best in the country.
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 On the basis of the foregoing countervailing evidence of the parties, the trial
P1,000.00, their costs in 1989 went up from P1,500.00 to P2,000.00,
court found, as regards private respondent's first cause of action, that while the
depending on the size; that some lines that were strung to the posts did not
contract appeared to be fair to both parties when it was entered into by them
follow the minimum vertical clearance required by the National Building Code,
during the first year of private respondent's operation and when its Board of
so that there were cases in 1988 where, because of the low clearance of the
Directors did not yet have any experience in that business, it had become
cables, passing trucks would accidentally touch said cables causing the posts disadvantageous and unfair to private respondent because of subsequent
to fall and resulting in brown-outs until the electric lines were repaired.
events and conditions, particularly the increase in the volume of the
subscribers of petitioners for more than ten (10) years without the
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private corresponding increase in the number of telephone connections to private
respondent and Manager of Region V of NEA, declared that according to NEA respondent free of charge. The trial court concluded that while in an action for
guidelines in 1985 (Exh. "C"), for the use by private telephone systems of reformation of contract, it cannot make another contract for the parties, it can,
electric cooperatives' posts, they should pay a minimum monthly rental of however, for reasons of justice and equity, order that the contract be reformed
P4.00 per post, and considering the escalation of prices since 1985, electric to abolish the inequities therein. Thus, said court ruled that the contract should
cooperatives have been charging from P10.00 to P15.00 per post, which is be reformed by ordering petitioners to pay private respondent compensation
what petitioners should pay for the use of the posts. 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
(4) Engineer Antonio Macandog, Department Head of the Office of Services of
by telephone companies and the increase in the costs of such posts, the trial
private respondent, testified on the poor service rendered by petitioner's
telephone lines, like the telephone in their Complaints Section which was 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
usually out of order such that they could not respond to the calls of their
the filing of the complaint in this case on January 2, 1989. And in like manner,
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 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
emergency line.
the public are paying.

(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that
On private respondent's second cause of action, the trial court found that the
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 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
private respondent. Notwithstanding his recommendation for the filing of a
reason of equity, the contract should be reformed by including therein the
court action to reform the contract, the former general managers of private
provision that for the use of private respondent's posts outside Naga City,
respondent wanted to adopt a soft approach with petitioners about the matter
petitioners should pay a monthly rental of P10.00 per post, the payment to start
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 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
for reformation of contract.
located outside Naga City beginning January, 1989.

On the other hand, petitioner Maggay testified to the following effect:


And with respect to private respondent's third cause of action, the trial court
found the claim not sufficiently proved.
(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 Thus, the following decretal portion of the trial court's decision dated July 20,
1990:
of Directors of private respondent, was the one who saw to it that the contract
was fair to both parties.
WHEREFORE, in view of all the foregoing, decision is hereby
rendered ordering the reformation of the agreement (Exh. A);
(2) With regard to the first cause of action:
ordering the defendants to pay plaintiff's electric poles in Naga City
and in the towns of Milaor, Canaman, Magarao and Pili, Camarines
(a) Private respondent has the right under the contract to use ten (10) Sur and in other places where defendant NATELCO uses plaintiff's
telephone units of petitioners for as long as it wishes without paying anything electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole,
therefor except for long distance calls through PLDT out of which the latter get per month beginning January, 1989 and ordering also the plaintiff
only 10% of the charges. to pay defendant NATELCO the monthly dues of all its telephones
including those installed at the residence of its officers, namely;
(b) In most cases, only drop wires and not telephone cables have been strung Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio
to the posts, which posts have remained erect up to the present; 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
(c) Petitioner's linemen have strung only small messenger wires to many of the dismissed. Without pronouncement as to costs.
posts and they need only small holes to pass through; and
Disagreeing with the foregoing judgment, petitioners appealed to respondent
(d) Documents existing in the NTC show that the stringing of petitioners' cables Court of Appeals. In the decision dated May 28, 1992, respondent court
in Naga City are according to standard and comparable to those of PLDT. The affirmed the decision of the trial court,5 but based on different grounds to wit:
accidents mentioned by private respondent involved trucks that were either (1) that Article 1267 of the New Civil Code is applicable and (2) that the
overloaded or had loads that protruded upwards, causing them to hit the contract was subject to a potestative condition which rendered said condition
cables. void. The motion for reconsideration was denied in the resolution dated
September 10, 1992.6 Hence, the present petition.
(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 Petitioners assign the following pertinent errors committed by respondent
whole area serviced by petitioners because at that time, they already had court:
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 1) in making a contract for the parties by invoking Article 1267 of
contract. Petitioners have not been charging private respondent for the the New Civil Code;
installation, transfers and re-connections of said telephones so that naturally,
they use the posts for those telephone lines.
2) in ruling that prescription of the action for reformation of the necessitating the stringing of more and bigger telephone cable
contract in this case commenced from the time it became wires by appellant to plaintiff's electric posts without a
disadvantageous to private respondent; and corresponding increase in the ten (10) telephone connections given
3) in ruling that the contract was subject to a potestative condition by appellant to plaintiff free of charge in the agreement Exh. "A" as
in favor of petitioners. consideration for its use of the latter's electric posts in Naga City,
appear, however, undisputed from the totality of the evidence on
Petitioners assert earnestly that Article 1267 of the New Civil Code is not 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
applicable primarily because the contract does not involve the rendition of
subject agreement was entered into by the parties), plaintiff's Board
service or a personal prestation and it is not for future service with future
unusual change. Instead, the ruling in the case of Occeña, et al. v. Jabson, of Directors already asked Atty. Luis General who had become
their legal counsel in 1982, to study said agreement which they
etc., et al.,7 which interpreted the article, should be followed in resolving this
believed had become disadvantageous to their company and to
case. Besides, said article was never raised by the parties in their pleadings
and was never the subject of trial and evidence. 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
In applying Article 1267, respondent court rationalized: Atty. General's recommendation because the former general
managers of plaintiff wanted to adopt a soft approach in discussing
We agree with appellant that in order that an action for reformation the matter with appellant, until, during the term of General Manager
of contract would lie and may prosper, there must be sufficient Henry Pascual, the latter, after failing to settle the problem with
allegations as well as proof that the contract in question failed to Atty. Luciano Maggay who had become the president and general
express the true intention of the parties due to error or mistake, manager of appellant, already agreed for Atty. General's filing of
accident, or fraud. Indeed, in embodying the equitable remedy of the present action. The fact that said contract has become
reformation of instruments in the New Civil Code, the Code inequitous or disadvantageous to plaintiff as the years went by did
Commission gave its reasons as follows: 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
Equity dictates the reformation of an instrument in order believe that the allegations of its complaint herein and the evidence
that the true intention of the contracting parties may be it has presented sufficiently make out a cause of action under Art.
expressed. The courts by the reformation do not 1267 of the New Civil Code for its release from the agreement in
attempt to make a new contract for the parties, but to question.
make the instrument express their real agreement. The xxx xxx xxx
rationale of the doctrine is that it would be unjust and
inequitable to allow the enforcement of a written The understanding of the parties when they entered into the
instrument which does not reflect or disclose the real Agreement Exh. "A" on November 1, 1977 and the prevailing
meeting of the minds of the parties. The rigor of the circumstances and conditions at the time, were described by
legalistic rule that a written instrument should be the Dioscoro Ragragio, the President of plaintiff in 1977 and one of its
final and inflexible criterion and measure of the rights two officials who signed said agreement in its behalf, as follows:
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 Our understanding at that time is that we will allow
Code Commission) 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
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil [sic] not expect to be able to expand because of the
Code provide in essence that where through mistake or accident legal squabbles going on in the NATELCO. So, even at
on the part of either or both of the parties or mistake or fraud on the that time there were so many subscribers in Naga City
part of the clerk or typist who prepared the instrument, the true that cannot be served by the NATELCO, so as a mater
intention of the parties is not expressed therein, then the of public service we allowed them to sue (sic) our posts
instrument may be reformed at the instance of either party if there within the Naga City. (p. 8, tsn April 3, 1989)
was mutual mistake on their part, or by the injured party if only he
was mistaken.
Ragragio also declared that while the telephone wires strung to the
electric posts of plaintiff were very light and that very few telephone
Here, plaintiff-appellee did not allege in its complaint, nor does its lines were attached to the posts of CASURECO II in 1977, said
evidence prove, that there was a mistake on its part or mutual posts have become "heavily loaded" in 1989 (tsn, id.).
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 In truth, as also correctly found by the lower court, despite the
evidence shows that said agreement was prepared by Atty. increase in the volume of appellant's subscribers and the
Luciano Maggay, then a member of plaintiff's Board of Directors corresponding increase in the telephone cables and wires strung
and its legal counsel at that time, who was also the legal counsel by it to plaintiff's electric posts in Naga City for the more 10 years
for defendant-appellant, so that as legal counsel for both that the agreement Exh. "A" of the parties has been in effect, there
companies and presumably with the interests of both companies in has been no corresponding increase in the ten (10) telephone units
mind when he prepared the aforesaid agreement, Atty. Maggay connected by appellant free of charge to plaintiff's offices and other
must have considered the same fair and equitable to both sides, places chosen by plaintiff's general manager which was the only
and this was affirmed by the lower court when it found said contract consideration provided for in said agreement for appellant's use of
to have been fair to both parties at the time of its execution. In fact, plaintiffs electric posts. Not only that, appellant even started using
there were no complaints on the part of both sides at the time of plaintiff's electric posts outside Naga City although this was not
and after the execution of said contract, and according to 73-year provided for in the agreement Exh. "A" as it extended and
old Justino de Jesus, Vice President and General manager of expanded its telephone services to towns outside said city. Hence,
appellant at the time who signed the agreement Exh. "A" in its while very few of plaintiff's electric posts were being used by
behalf and who was one of the witnesses for the plaintiff (sic), both appellant in 1977 and they were all in the City of Naga, the number
parties complied with said contract "from the very beginning" (p. 5, of plaintiff's electric posts that appellant was using in 1989 had
tsn, April 17, 1989). 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
That the aforesaid contract has become inequitous or unfavorable heavy telephone cables attached thereto, and the escalation of the
or disadvantageous to the plaintiff with the expansion of the costs of electric poles from 1977 to 1989, and the conclusion is
business of appellant and the increase in the volume of its indeed ineluctable that the agreement Exh. "A" has already
subscribers in Naga City and environs through the years, become too one-sided in favor of appellant to the great
disadvantage of plaintiff, in short, the continued enforcement of the contract. However, our disposition of the present controversy does not end
said contract has manifestly gone far beyond the contemplation of here. We have to take into account the possible consequences of merely
plaintiff, so much so that it should now be released therefrom under releasing the parties therefrom: petitioners will remove the telephone
Art. 1267 of the New Civil Code to avoid appellant's unjust wires/cables in the posts of private respondent, resulting in disruption of their
enrichment at its (plaintiff's) expense. As stated by Tolentino in his service to the public; while private respondent, in consonance with the
commentaries on the Civil Code citing foreign civilist contract12 will return all the telephone units to petitioners, causing prejudice to
Ruggiero, "equity demands a certain economic equilibrium its business. We shall not allow such eventuality. Rather, we require, as
between the prestation and the counter-prestation, and does not ordered by the trial court: 1) petitioners to pay private respondent for the use of
permit the unlimited impoverishment of one party for the benefit of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
the other by the excessive rigidity of the principle of the obligatory Camarines Sur and in other places where petitioners use private respondent's
force of contracts (IV Tolentino, Civil Code of the Philippines, 1986 posts, the sum of ten (P10.00) pesos per post, per month, beginning January,
ed., 1989; and 2) private respondent to pay petitioner the monthly dues of all its
pp. 247-248). 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 Occeña case, necessitates exercise of our equity jurisdiction.13 By way of
We therefore, find nothing wrong with the ruling of the trial court,
although based on a different and wrong premise (i.e., reformation emphasis, we reiterate the rationalization of respondent court that:
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 . . . In affirming said ruling, we are not making a new contract for
reasonable monthly rental of P10.00 per post, while plaintiff should the parties herein, but we find it necessary to do so in order not to
pay appellant for the telephones in the same City that it was disrupt the basic and essential services being rendered by both
formerly using free of charge under the terms of the agreement parties herein to the public and to avoid unjust enrichment by
Exh. "A" at the same rate being paid by the general public. In appellant at the expense of plaintiff . . . .14
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
Petitioners' assertion that Article 1267 was never raised by the parties in their
disrupt the basic and essential services being rendered by both
pleadings and was never the subject of trial and evidence has been passed
parties herein to the public and to avoid unjust enrichment by upon by respondent court in its well reasoned resolution, which we hereunder
appellant at the expense of plaintiff, said arrangement to continue
quote as our own:
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 First, we do not agree with defendant-appellant that in applying Art.
agreement is reached and executed by the parties, the aforesaid 1267 of the New Civil Code to this case, we have changed its
ruling of the lower court and affirmed by us shall cease to exist and theory and decided the same on an issue not invoked by plaintiff in
shall be substituted and superseded by their new agreement. . . ..8 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
Article 1267 speaks of "service" which has become so difficult. Taking into
too inequitous or disadvantageous to the plaintiff and too one-sided
consideration the rationale behind this provision,9 the term "service" should be in favor of defendant-appellant, so that a solution must be found to
understood as referring to the "performance" of the obligation. In the present
relieve plaintiff from the continued operation of said agreement and
case, the obligation of private respondent consists in allowing petitioners to
to prevent defendant-appellant from further unjustly enriching itself
use its posts in Naga City, which is the service contemplated in said article. at plaintiff's expense. It is indeed unfortunate that defendant had
Furthermore, a bare reading of this article reveals that it is not a requirement
turned deaf ears to plaintiffs requests for renegotiation,
thereunder that the contract be for future service with future unusual change.
constraining the latter to go to court. But although plaintiff cannot,
According to Senator Arturo M. Tolentino,10 Article 1267 states in our law the as we have held, correctly invoke reformation of contract as a
doctrine of unforseen events. This is said to be based on the discredited theory
proper remedy (there having been no showing of a mistake or error
of rebus sic stantibus in public international law; under this theory, the parties
in said contract on the part of any of the parties so as to result in its
stipulate in the light of certain prevailing conditions, and once these conditions failure to express their true intent), this does not mean that plaintiff
cease to exist the contract also ceases to exist. Considering practical needs
is absolutely without a remedy in order to relieve itself from a
and the demands of equity and good faith, the disappearance of the basis of a contract that has gone far beyond its contemplation and has
contract gives rise to a right to relief in favor of the party prejudiced.
become so highly inequitous and disadvantageous to it through the
years because of the expansion of defendant-appellant's business
In a nutshell, private respondent in the Occeña case filed a complaint against and the increase in the volume of its subscribers. And as it is the
petitioner before the trial court praying for modification of the terms and duty of the Court to administer justice, it must do so in this case in
conditions of the contract that they entered into by fixing the proper shares that the best way and manner it can in the light of the proven facts and
should pertain to them out of the gross proceeds from the sales of subdivided the law or laws applicable thereto.
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 It is settled that when the trial court decides a case in favor of a
Article 1267 because:
party on a certain ground, the appellant court may uphold the
decision below upon some other point which was ignored or
. . . respondent's complaint seeks not release from the subdivision erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40
contract but that the court "render judgment modifying the terms Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz,
and conditions of the contract . . . by fixing the proper shares that 18 SCRA 467). Furthermore, the appellate court has the discretion
should pertain to the herein parties out of the gross proceeds from to consider an unassigned error that is closely related to an error
the sales of subdivided lots of subject subdivision". The cited article properly assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v.
(Article 1267) does not grant the courts (the) authority to remake, Andal, 78 Phil. 196). It has also been held that the Supreme Court
modify or revise the contract or to fix the division of shares (and this Court as well) has the authority to review matters, even if
between the parties as contractually stipulated with the force of law they are not assigned as errors in the appeal, if it is found that their
between the parties, so as to substitute its own terms for those consideration is necessary in arriving at a just decision of the case
covenanted by the parties themselves. Respondent's complaint for (Saura Import & Export Co., Inc. v. Phil. International Surety Co.
modification of contract manifestly has no basis in law and and PNB, 8 SCRA 143). For it is the material allegations of fact in
therefore states no cause of action. Under the particular allegations the complaint, not the legal conclusion made therein or the prayer,
of respondent's complaint and the circumstances therein averred, that determines the relief to which the plaintiff is entitled, and the
the courts cannot even in equity grant the relief sought.11 plaintiff is entitled to as much relief as the facts warrant although
that relief is not specifically prayed for in the complaint (Rosales v.
The ruling in the Occeña case is not applicable because we agree with Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844;
Baguioro v. Barrios, 77 Phil. 120). To quote an old but very
respondent court that the allegations in private respondent's complaint and the
illuminating decision of our Supreme Court through the pen of
evidence it has presented sufficiently made out a cause of action under Article
1267. We, therefore, release the parties from their correlative obligations under American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the (a) That the term or period of this contract shall be as
courts to grant the relief to which the parties are shown long as the party of the first part [herein appellant] has
to be entitled by the allegations in their pleadings and need for the electric light posts of the party of the
the facts proven at the trial, and the mere fact that they second part [herein plaintiff] it being understood that
themselves misconstrue the legal effect of the facts this contract shall terminate when for any reason
thus alleged and proven will not prevent the court from whatsoever, the party of the second part is forced to
placing the just construction thereon and adjudicating stop, abandoned [sic] its operation as a public service
the issues accordingly." (Alzua v. Johnson, 21 Phil. and it becomes necessary to remove the electric light
308) post [sic]"; (Emphasis supplied)

is invalid for being purely potestative on the part of appellant as it


And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA
leaves the continued effectivity of the aforesaid agreement to the
741, the Honorable Supreme Court also held:
latter's sole and exclusive will as long as plaintiff is in operation. A
similar provision in a contract of lease wherein the parties agreed
We rule that the respondent court did not commit any that the lessee could stay on the leased premises "for as long as
error in taking cognizance of the aforesaid issues, the defendant needed the premises and can meet and pay said
although not raised before the trial court. The presence increases" was recently held by the Supreme Court in Lim v. C.A.,
of strong consideration of substantial justice has led 191 SCRA 150, citing the much earlier case of Encarnacion v.
this Court to relax the well-entrenched rule that, except Baldomar, 77 Phil. 470, as invalid for being "a purely potestative
questions on jurisdiction, no question will be condition because it leaves the effectivity and enjoyment of
entertained on appeal unless it has been raised in the leasehold rights to the sole and exclusive will of the lessee."
court below and it is within the issues made by the Further held the High Court in the Lim case:
parties in their pleadings (Cordero v. Cabral, L-36789,
July 25, 1983, 123 SCRA 532). . . . The continuance, effectivity and fulfillment of a contract
of lease cannot be made to depend exclusively upon
We believe that the above authorities suffice to show that this the free and uncontrolled choice of the lessee between
Court did not err in applying Art. 1267 of the New Civil Code to this continuing the payment of the rentals or not, completely
case. Defendant-appellant stresses that the applicability of said depriving the owner of any say in the matter. Mutuality
provision is a question of fact, and that it should have been given does not obtain in such a contract of lease of no
the opportunity to present evidence on said question. But equality exists between the lessor and the lessee since
defendant-appellant cannot honestly and truthfully claim that it (did) the life of the contract is dictated solely by the lessee.
not (have) the opportunity to present evidence on the issue of
whether the continued operation of the contract Exh. "A" has now The above can also be said of the agreement Exh. "A" between the
become too one-sided in its favor and too inequitous, unfair, and parties in this case. There is no mutuality and equality between
disadvantageous to plaintiff. As held in our decision, the abundant them under the afore-quoted provision thereof since the life and
and copious evidence presented by both parties in this case and continuity of said agreement is made to depend as long as
summarized in said decision established the following essential appellant needs plaintiff's electric posts. And this is precisely why,
and vital facts which led us to apply Art. 1267 of the New Civil since 1977 when said agreement was executed and up to 1989
Code to this case: 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
xxx xxx xxx 15 inequitous to it due to the expansion and increase of appellant's
telephone services within Naga City and even outside the same,
On the issue of prescription of private respondent's action for reformation of without a corresponding increase in the ten (10) telephone units
contract, petitioners allege that respondent court's ruling that the right of action being used by plaintiff free of charge, as well as the bad and
"arose only after said contract had already become disadvantageous and inefficient service of said telephones to the prejudice and
unfair to it due to subsequent events and conditions, which must be sometime inconvenience of plaintiff and its customers. . . . 18
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 Petitioners' allegations must be upheld in this regard. A potestative condition is
embodying the contract. It follows that whether the contract is disadvantageous a condition, the fulfillment of which depends upon the sole will of the debtor, in
or not is irrelevant to reformation and therefore, cannot be an element in the which case, the conditional obligation is void. 19 Based on this definition,
determination of the period for prescription of the action to reform. 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
Article 1144 of the New Civil Code provides, inter alia, that an action upon a party of the first part (petitioner) has need for the electric light posts
written contract must be brought within ten (10) years from the time the right of of the party of the second part (private respondent) . . ..
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 is a potestative condition, is correct. However, it must have overlooked the
of the contract. As correctly ruled by respondent court, private respondent's other conditions in the same provision, to wit:
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) . . . it being understood that this contract shall terminate when for
Board of Directors to study said contract as it already appeared any reason whatsoever, the party of the second part (private
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent) is forced to stop, abandoned (sic) its operation as a
respondent's) cause of action to ask for reformation of said contract should public service and it becomes necessary to remove the electric
thus be considered to have arisen only in 1982 or 1983, and from 1982 to light post (sic);
January 2, 1989 when the complaint in this case was filed, ten (10) years had
not yet elapsed." 17 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,
Regarding the last issue, petitioners allege that there is nothing purely they depend partly on the will of the debtor and partly on chance, hazard or the
potestative about the prestations of either party because petitioner's will of a third person, which do not invalidate the aforementioned
permission for free use of telephones is not made to depend purely on their provision. 21 Nevertheless, in view of our discussions under the first and
will, neither is private respondent's permission for free use of its posts second issues raised by petitioners, there is no reason to set aside the
dependent purely on its will. questioned decision and resolution of respondent court.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of


Apart from applying Article 1267, respondent court cited another legal remedy
Appeals dated May 28, 1992 and its resolution dated September 10, 1992 are
available to private respondent under the allegations of its complaint and the
AFFIRMED.
preponderant evidence presented by it:
SO ORDERED.
. . . we believe that the provision in said agreement —
G.R. NO. 158361 : April 10, 2013 - INTERNATIONAL HOTEL result, DBP cancelled its previous guaranty through a letter dated December 6,
CORPORATION, Petitioner, v. FRANCISCO B. JOAQUIN, JR. and RAFAEL 1971.13chanroblesvirtualawlibrary
SUAREZ, Respondents.
On December 13, 1971, IHC entered into an agreement with Weston, and
DECISION communicated this development to DBP on June 26, 1972. However, DBP
denied the application for guaranty for failure to comply with the conditions
BERSAMIN, J.: To avoid unjust enrichment to a party from resulting out of a contained in its November 12, 1971 letter.14chanroblesvirtualawlibrary
substantially performed contract, the principle of quantum meruit may be used
to determine his compensation in the absence of a written agreement for that Due to Joaquin's failure to secure the needed loan, IHC, through its President
purpose. The principle of quantum meruit justifies the payment of the Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and
reasonable value of the services rendered by him. Suarez as payment for their services. The latter requested a reconsideration of
the cancellation, but their request was rejected.
The Case
Consequently, Joaquin and Suarez commenced this action for specific
performance, annulment, damages and injunction by a complaint dated
Under review is the decision the Court of Appeals (CA) promulgated on
November 8, 2002,1disposing:chanroblesvirtualawlibrary December 6, 1973 in the Regional Trial Court in Manila (RTC), impleading IHC
and the members of its Board of Directors, namely, Felix Angelo Bautista,
Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J.
WHEREFORE, premises considered, the decision dated August 26, 1993 of Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R.
the Regional Trial Court, Branch 13, Manila in Civil Case No. R-82-2434 is Reyes.15 The complaint alleged that the cancellation of the shares had been
AFFIRMED with Modification as to the amounts awarded as follows: illegal, and had deprived them of their right to participate in the meetings and
defendant-appellant IHC is ordered to pay plaintiff-appellant elections held by IHC; that Barnes had been recommended by IHC President
Joaquin P700,000.00 and plaintiff-appellant Suarez P200,000.00, both to be Bautista, not by Joaquin; that they had failed to meet their obligation because
paid in cash. President Bautista and his son had intervened and negotiated with Barnes
instead of Weston; that DBP had canceled the guaranty because Barnes had
SO ORDERED. failed to release the loan; and that IHC had agreed to compensate their
services with 17,000 shares of the common stock plus cash
of P1,000,000.00.16chanroblesvirtualawlibrary
Antecedents
IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a Benjamin J. Bautista, filed an answer claiming that the shares issued to
proposal to the Board of Directors of the International Hotel Corporation (IHC) Joaquin and Suarez as compensation for their "past and future services" had
for him to render technical assistance in securing a foreign loan for the been issued in violation of Section 16 of the Corporation Code; that Joaquin
construction of a hotel, to be guaranteed by the Development Bank of the and Suarez had not provided a foreign financier acceptable to DBP; and that
Philippines (DBP).2The proposal encompassed nine phases, namely: (1) the they had already received P96,350.00 as payment for their
preparation of a new project study; (2) the settlement of the unregistered services.17chanroblesvirtualawlibrary
mortgage prior to the submission of the application for guaranty for processing
by DBP; (3) the preparation of papers necessary to the application for
guaranty; (4) the securing of a foreign financier for the project; (5) the securing On their part, Lirag and Lacerna denied any knowledge of or participation in
of the approval of the DBP Board of Governors; (6) the actual follow up of the the cancellation of the shares.18chanroblesvirtualawlibrary
application with DBP3; (7) the overall coordination in implementing the
projections of the project study; (8) the preparation of the staff for actual hotel Similarly, Gochangco and Reyes denied any knowledge of or participation in
operations; and (9) the actual hotel operations.4chanroblesvirtualawlibrary the cancellation of the shares, and clarified that they were not directors of
IHC.19 In the course of the proceedings, Reyes died and was substituted by
The IHC Board of Directors approved phase one to phase six of the proposal Consorcia P. Reyes, the administratrix of his
during the special board meeting on February 11, 1969, and estate.20chanroblesvirtualawlibrary
earmarked P2,000,000.00 for the project.5 Anent the financing, IHC applied
with DBP for a foreign loan guaranty. DBP processed the application,6 and Ruling of the RTC
approved it on October 24, 1969 subject to several
conditions.7chanroblesvirtualawlibrary
Under its decision rendered on August 26, 1993, the RTC held IHC liable
pursuant to the second paragraph of Article 1284 of the Civil Code, disposing
On July 11, 1969, shortly after submitting the application to DBP, Joaquin thusly:chanroblesvirtualawlibrary
wrote to IHC to request the payment of his fees in the amount of P500,000.00
for the services that he had provided and would be providing to IHC in relation
WHEREFORE, in the light of the above facts, law and jurisprudence, the Court
to the hotel project that were outside the scope of the technical proposal.
hereby orders the defendant International Hotel Corporation to pay plaintiff
Joaquin intimated his amenability to receive shares of stock instead of cash in
view of IHC's financial situation.8chanroblesvirtualawlibrary Francisco B. Joaquin, the amount of Two Hundred Thousand Pesos
(P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand
Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs,
On July 11, 1969, the stockholders of IHC met and granted Joaquin's request, attorney's fees of P20,000.00, and costs of suit.
allowing the payment for both Joaquin and Rafael Suarez for their services in
implementing the proposal.9chanroblesvirtualawlibrary
IT IS SO ORDERED.21chanroblesvirtualawlibrary

On June 20, 1970, Joaquin presented to the IHC Board of Directors the results
of his negotiations with potential foreign financiers. He narrowed the financiers The RTC found that Joaquin and Suarez had failed to meet their obligations
when IHC had chosen to negotiate with Barnes rather than with Weston, the
to Roger Dunn & Company and Materials Handling Corporation. He
financier that Joaquin had recommended; and that the cancellation of the
recommended that the Board of Directors consider Materials Handling
Corporation based on the more beneficial terms it had offered. His shares of stock had been proper under Section 68 of the Corporation Code,
which allowed such transfer of shares to compensate only past services, not
recommendation was accepted.10chanroblesvirtualawlibrary
future ones.

Negotiations with Materials Handling Corporation and, later on, with its
principal, Barnes International (Barnes), ensued. While the negotiations with Ruling of the CA
Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC,
met with another financier, the Weston International Corporation (Weston), to Both parties appealed.22chanroblesvirtualawlibrary
explore possible financing.11 When Barnes failed to deliver the needed loan,
IHC informed DBP that it would submit Weston for DBP's consideration.12 As a
Joaquin and Suarez assigned the following errors, to appellant IHC also authorized its president to pay-appellant
wit:chanroblesvirtualawlibrary Joaquin P500,000.00 either in cash or in stock or both.

DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS- The amount awarded by the lower court was therefore less than what
APPELLANTS FULLY PERFORMED ALL THAT WAS INCUMBENT UPON defendant-appellant IHC agreed to pay plaintiffs-appellants. While this Court
THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING cannot decree that the cancelled shares be restored, for they are without a
THAT:chanroblesvirtualawlibrary doubt null and void, still and all, defendant-appellant IHC cannot now put up its
own ultra vires act as an excuse to escape obligation to plaintiffs-appellants.
Instead of shares of stock, defendant-appellant IHC is ordered to pay plaintiff-
A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF
appellant Joaquin a total of P700,000.00 and plaintiff-appellant
STOCK PREVIOUSLY ISSUED TO PLAINTIFFS-APPELLANTS; AND
Suarez P200,000.00, both to be paid in cash.

B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN


Although the lower court failed to explain why it was granting the attorney's
HUNDRED PESOS (sic) (P2,700,000.00), INCLUDING INTEREST THEREON
FROM 1973, REPRESENTING THE TOTAL OBLIGATION DUE PLAINTIFFS- fees, this Court nonetheless finds its award proper given defendant-appellant
IHC's actions.25chanroblesvirtualawlibrary
APPELLANTS.23chanroblesvirtualawlibrary

Issues
On the other hand, IHC attributed errors to the RTC, as
follows:chanroblesvirtualawlibrary
In this appeal, the IHC raises as issues for our consideration and resolution the
following:chanroblesvirtualawlibrary
I.

I
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-
APPELLANTS HAVE NOTBEEN COMPLETELY PAID FOR THEIR
SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN
TWO HUNDRED THOUSAND PESOS (P200,000.00) AND FIFTY AWARDING COMPENSATION AND EVEN MODIFYING THE PAYMENT TO
THOUSAND PESOS (P50,000.00) TO PLAINTIFFS-APPELLANTS HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR
FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ, RESPECTIVELY. OBLIGATION TO HEREIN PETITIONER

II. II

THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN
ATTORNEY'S FEES AND COSTS OF SUIT.24chanroblesvirtualawlibrary AWARDING ATTORNEY'S FEES TO
RESPONDENTS26chanroblesvirtualawlibrary
In its questioned decision promulgated on November 8, 2002, the CA
concurred with the RTC, upholding IHC's liability under Article 1186 of the Civil IHC maintains that Article 1186 of the Civil Code was erroneously applied; that
Code. It ruled that in the context of Article 1234 of the Civil Code, Joaquin had it had no intention of preventing Joaquin from complying with his obligations
substantially performed his obligations and had become entitled to be paid for when it adopted his recommendation to negotiate with Barnes; that Article
his services; and that the issuance of the shares of stock was ultra vires for 1234 of the Civil Code applied only if there was a merely slight deviation from
having been issued as consideration for future services. the obligation, and the omission or defect was technical and unimportant; that
substantial compliance was unacceptable because the foreign loan was
material and was, in fact, the ultimate goal of its contract with Joaquin and
Anent how much was due to Joaquin and Suarez, the CA explained
Suarez; that because the obligation was indivisible and subject to a suspensive
thusly:chanroblesvirtualawlibrary
condition, Article 1181 of the Civil Code27 applied, under which a partial
performance was equivalent to non-performance; and that the award of
This Court does not subscribe to plaintiffs-appellants' view that defendant- attorney's fees should be deleted for lack of legal and factual bases.
appellant IHC agreed to pay them P2,000,000.00. Plaintiff-appellant Joaquin's
letter to defendant-appellee F.A. Bautista, quoting defendant-appellant IHC's
On the part of respondents, only Joaquin filed a comment,28 arguing that the
board resolutions which supposedly authorized the payment of such amount
petition was fatally defective for raising questions of fact; that the obligation
cannot be sustained. The resolutions are quite clear and when taken together
show that said amount was only the "estimated maximum expenses" which was divisible and capable of partial performance; and that the suspensive
condition was deemed fulfilled through IHC's own
defendant-appellant IHC expected to incur in accomplishing phases 1 to 6, not
actions.29chanroblesvirtualawlibrary
exclusively to plaintiffs-appellants' compensation.This conclusion finds support
in an unnumbered board resolution of defendant-appellant IHC dated July 11,
1969:chanroblesvirtualawlibrary Ruling

"Incidentally, it was also taken up the necessity of giving the Technical Group a We deny the petition for review on certiorari subject to the ensuing
portion of the compensation that was authorized by this corporation in its disquisitions.
Resolution of February 11, 1969 considering that the assistance so far given
the corporation by said Technical Group in continuing our project with the DBP 1. IHC raises questions of law
and its request for guaranty for a foreign loan is 70% completed leaving only
some details which are now being processed. It is estimated that P400,000.00
worth of Common Stock would be reasonable for the present accomplishments We first consider and resolve whether IHC's petition improperly raised
and to this effect, the President is authorized to issue the same in the name of questions of fact.
the Technical Group, as follows:chanroblesvirtualawlibrary
A question of law exists when there is doubt as to what the law is on a certain
P200,000.00 in common stock to Rafael Suarez, as associate in the Technical state of facts, but, in contrast, a question of fact exists when the doubt arises
Group, and P200,000.00 in common stock to Francisco G. Joaquin, Jr., also a as to the truth or falsity of the facts alleged. A question of law does not involve
member of the Technical Group. an examination of the probative value of the evidence presented by the
litigants or by any of them; the resolution of the issue must rest solely on what
the law provides on the given set of circumstances.30 When there is no dispute
It is apparent that not all of the P2,000,000.00 was allocated exclusively to
as to the facts, the question of whether or not the conclusion drawn from the
compensate plaintiffs-appellants. Rather, it was intended to fund the whole
facts is correct is a question of law.31chanroblesvirtualawlibrary
undertaking including their compensation. On the same date, defendant-
Considering that what IHC seeks to review is the CA's application of the law on present approved unanimously the recommendation of Mr. Joaquin to entertain
the facts presented therein, there is no doubt that IHC raises questions of law. the offer of Materials Handling Corporation.34chanroblesvirtualawlibrary
The basic issue posed here is whether the conclusions drawn by the CA were
correct under the pertinent laws.
Evidently, IHC only relied on the opinion of its consultant in deciding to transact
with Materials Handling and, later on, with Barnes. In negotiating with Barnes,
2. Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from
obligation to pay respondents IHC argues that it should not be held liable meeting their undertaking. Such absence of any intention negated the basis for
because: (a) it was Joaquin who had recommended Barnes; and (b) IHC's the CA's reliance on Article 1186 of the Civil Code.
negotiation with Barnes had been neither intentional nor willfully intended to
prevent Joaquin from complying with his obligations.
Nor do we agree with the CA's upholding of IHC's liability by virtue of Joaquin
and Suarez's substantial performance. In so ruling, the CA applied Article 1234
IHC's argument is meritorious. of the Civil Code, which states:chanroblesvirtualawlibrary

Article 1186 of the Civil Code reads:chanroblesvirtualawlibrary Article 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete
Article 1186. The condition shall be deemed fulfilled when the obligor fulfillment, less damages suffered by the obligee.
voluntarily prevents its fulfillment.
It is well to note that Article 1234 applies only when an obligor admits
breaching the contract35 after honestly and faithfully performing all the material
This provision refers to the constructive fulfillment of a suspensive
elements thereof except for some technical aspects that cause no serious
condition,32 whose application calls for two requisites, namely: (a) the intent of
the obligor to prevent the fulfillment of the condition, and (b) the actual harm to the obligee.36 IHC correctly submits that the provision refers to an
omission or deviation that is slight, or technical and unimportant, and does not
prevention of the fulfillment. Mere intention of the debtor to prevent the
affect the real purpose of the contract.
happening of the condition, or to place ineffective obstacles to its compliance,
without actually preventing the fulfillment, is
insufficient.33chanroblesvirtualawlibrary Tolentino explains the character of the obligor's breach under Article 1234 in
the following manner, to wit:chanroblesvirtualawlibrary
The error lies in the CA's failure to determine IHC's intent to pre-empt Joaquin
from meeting his obligations. The June 20, 1970 minutes of IHC's special In order that there may be substantial performance of an obligation, there must
board meeting discloses that Joaquin impressed upon the members of the have been an attempt in good faith to perform, without any willful or intentional
Board that Materials Handling was offering more favorable terms for IHC, to departure therefrom. The deviation from the obligation must be slight, and the
wit:chanroblesvirtualawlibrary omission or defect must be technical and unimportant, and must not pervade
the whole or be so material that the object which the parties intended to
xxx accomplish in a particular manner is not attained. The non-performance of a
material part of a contract will prevent the performance from amounting to a
substantial compliance.
At the meeting all the members of the Board of Directors of the International
Hotel Corporation were present with the exception of Directors Benjamin J.
The party claiming substantial performance must show that he has attempted
Bautista and Sergio O. Rustia who asked to be excused because of previous
engagements. In that meeting, the President called on Mr. Francisco G. in good faith to perform his contract, but has through oversight,
misunderstanding or any excusable neglect failed to completely perform in
Joaquin, Jr. to explain the different negotiations he had conducted relative to
obtaining the needed financing for the hotel project in keeping with the certain negligible respects, for which the other party may be adequately
indemnified by an allowance and deduction from the contract price or by an
authority given to him in a resolution approved by the Board of Directors.
award of damages. But a party who knowingly and wilfully fails to perform his
contract in any respect, or omits to perform a material part of it, cannot be
Mr. Joaquin presently explained that he contacted several local and foreign permitted, under the protection of this rule, to compel the other party, and the
financiers through different brokers and after examining the different offers he trend of the more recent decisions is to hold that the percentage of omitted or
narrowed down his choice to two (2), to wit: the foreign financier recommended irregular performance may in and of itself be sufficient to show that there had
by George Wright of the Roger Dunn & Company and the offer made by the not been a substantial performance.37chanroblesvirtualawlibrary
Materials Handling Corporation.
By reason of the inconsequential nature of the breach or omission, the law
After explaining the advantages and disadvantages to our corporation of the deems the performance as substantial, making it the obligee's duty to
two (2) offers specifically with regard to the terms and repayment of the loan pay.38 The compulsion of payment is predicated on the substantial benefit
and the rate of interest requested by them, he concluded that the offer made derived by the obligee from the partial performance. Although compelled to
by the Materials Handling Corporation is much more advantageous because pay, the obligee is nonetheless entitled to an allowance for the sum required to
the terms and conditions of payment as well as the rate of interest are much remedy omissions or defects and to complete the work agreed
more reasonable and would be much less onerous to our corporation. upon.39chanroblesvirtualawlibrary
However, he explained that the corporation accepted, in principle, the offer of
Roger Dunn, per the corporation's telegrams to Mr. Rudolph Meir of the Private
Conversely, the principle of substantial performance is inappropriate when the
Bank of Zurich, Switzerland, and until such time as the corporation's
negotiations with Roger Dunn is terminated, we are committed, on one way or incomplete performance constitutes a material breach of the contract. A
contractual breach is material if it will adversely affect the nature of the
the other, to their financing.
obligation that the obligor promised to deliver, the benefits that the obligee
expects to receive after full compliance, and the extent that the non-
It was decided by the Directors that, should the negotiations with Roger Dunn performance defeated the purposes of the contract.40 Accordingly, for the
materialize, at the same time as the offer of Materials Handling Corporation, principle embodied in Article 1234 to apply, the failure of Joaquin and Suarez
that the funds committed by Roger Dunn may be diverted to other borrowers of to comply with their commitment should not defeat the ultimate purpose of the
the Development Bank of the Philippines. With this condition, Director Joaquin contract.
showed the advantages of the offer of Materials Handling Corporation. Mr.
Joaquin also informed the corporation that, as of this date, the bank
The primary objective of the parties in entering into the services agreement
confirmation of Roger Dunn & Company has not been received. In view of the
fact that the corporation is racing against time in securing its financing, he was to obtain a foreign loan to finance the construction of IHC's hotel project.
This objective could be inferred from IHC's approval of phase 1 to phase 6 of
recommended that the corporation entertain other offers.
the proposal. Phase 1 and phase 2, respectively the preparation of a new
project study and the settlement of the unregistered mortgage, would pave the
After a brief exchange of views on the part of the Directors present and after way for Joaquin and Suarez to render assistance to IHC in applying for the
hearing the clarification and explanation made by Mr. C. M. Javier who was DBP guaranty and thereafter to look for an able and willing foreign financial
present and who represented the Materials Handling Corporation, the Directors institution acceptable to DBP. All the steps that Joaquin and Suarez undertook
to accomplish had a single objective to secure a loan to fund the construction xxx
and eventual operations of the hotel of IHC. In that regard, Joaquin himself
admitted that his assistance was specifically sought to seek financing for IHC's
II
hotel project.41chanroblesvirtualawlibrary

The preparation of the necessary papers for the DBP including the preparation
Needless to say, finding the foreign financier that DBP would guarantee was
of the application, the presentation of the mechanics of financing, the actual
the essence of the parties' contract, so that the failure to completely satisfy follow up with the different departments of the DBP which includes the
such obligation could not be characterized as slight and unimportant as to
explanation of the feasibility studies up to the approval of the loan, conditioned
have resulted in Joaquin and Suarez's substantial performance that
on the DBP's acceptance of the project as feasible. The estimated expenses
consequentially benefitted IHC. Whatever benefits IHC gained from their
for this particular phase would be contingent, i.e. upon DBP's approval of the
services could only be minimal, and were even probably outweighed by
plan now being studied and prepared, is somewhere around P2,000,000.00.
whatever losses IHC suffered from the delayed construction of its hotel.
Consequently, Article 1234 did not apply.
After a brief discussion on the matter, the Board on motion duly made and
seconded, unanimously adopted a resolution of the following
3. IHC is nonetheless liable to pay under the rule on constructive
tenor:chanroblesvirtualawlibrary
fulfillment of a mixed conditional obligation

RESOLUTION NO. ______


Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil
(Series of 1969)
Code, IHC was liable based on the nature of the obligation.

"RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation


Considering that the agreement between the parties was not circumscribed by and the plan being negotiated with the DBP is realized the estimated maximum
a definite period, its termination was subject to a condition the happening of a
expenses of P2,000,000.00 for this phase is hereby authorized subject to the
future and uncertain event.42 The prevailing rule in conditional obligations is
sound discretion of the committee composed of Justice Felix Angelo Bautista,
that the acquisition of rights, as well as the extinguishment or loss of those
Jose N. Valero and Ephraim G. Gochangco."47 (Emphasis supplied)
already acquired, shall depend upon the happening of the event that
constitutes the condition.43chanroblesvirtualawlibrary
Joaquin's claim for the additional sum of P500,000.00 was similarly without
factual and legal bases. He had requested the payment of that amount to
To recall, both the RTC and the CA held that Joaquin and Suarez's obligation cover services rendered and still to be rendered to IHC separately from those
was subject to the suspensive condition of successfully securing a foreign loan
covered by the first six phases of the scope of work. However, there is no
guaranteed by DBP. IHC agrees with both lower courts, and even argues that
reason to hold IHC liable for that amount due to his failure to present sufficient
the obligation with a suspensive condition did not arise when the event or proof of the services rendered towards that end. Furthermore, his July 11,
occurrence did not happen. In that instance, partial performance of the contract
1969 letter revealed that the additional services that he had supposedly
subject to the suspensive condition was tantamount to no performance at all.
rendered were identical to those enumerated in the technical proposal,
As such, the respondents were not entitled to any compensation. thus:chanroblesvirtualawlibrary

We have to disagree with IHC's argument. The Board of Directors

To secure a DBP-guaranteed foreign loan did not solely depend on the International Hotel Corporation
diligence or the sole will of the respondents because it required the action and
discretion of third persons an able and willing foreign financial institution to
provide the needed funds, and the DBP Board of Governors to guarantee the Thru: Justice Felix Angelo Bautista
loan. Such third persons could not be legally compelled to act in a manner President & Chairman of the Board
favorable to IHC. There is no question that when the fulfillment of a condition is
dependent partly on the will of one of the contracting parties,44 or of the obligor, Gentlemen:chanroblesvirtualawlibrary
and partly on chance, hazard or the will of a third person, the obligation is
mixed.45 The existing rule in a mixed conditional obligation is that when the
condition was not fulfilled but the obligor did all in his power to comply with the I have the honor to request this Body for its deliberation and action on the fees
obligation, the condition should be deemed for my services rendered and to be rendered to the hotel project and to the
satisfied.46chanroblesvirtualawlibrary corporation. These fees are separate from the fees you have approved in your
previous Board Resolution, since my fees are separate. I realize the position of
the corporation at present, in that it is not in a financial position to pay my
Considering that the respondents were able to secure an agreement with services in cash, therefore, I am requesting this Body to consider payment of
Weston, and subsequently tried to reverse the prior cancellation of the my fees even in the form of shares of stock, as you have done to the other
guaranty by DBP, we rule that they thereby constructively fulfilled their technical men and for other services rendered to the corporation by other
obligation. people.

4. Quantum meruit should apply in the absence of an express agreement on Inasmuch as my fees are contingent on the successful implementation of this
the fees project, I request that my fees be based on a percentage of the total project
cost. The fees which I consider reasonable for the services that I have
The next issue to resolve is the amount of the fees that IHC should pay to rendered to the project up to the completion of its construction is P500,000.00.
Joaquin and Suarez. I believe said amount is reasonable since this is approximately only of 1% of
the total project cost.
Joaquin claimed that aside from the approved P2,000,000.00 fee to implement
phase 1 to phase 6, the IHC Board of Directors had approved an So far, I have accomplished Phases 1-5 of my report dated February 1, 1969
additional P500,000.00 as payment for his services. The RTC declared that he and which you authorized us to do under Board Resolution of February 11,
and Suarez were entitled to P200,000.00 each, but the CA revised the 1969. It is only Phase 6 which now remains to be implemented. For my
amounts to P700,000.00 for Joaquin and P200,000.00 for Suarez. appointment as Consultant dated May 12, 1969 and the Board Resolution
dated June 23, 1969 wherein I was appointed to the Technical Committee, it
now follows that I have been also authorized to implement part of Phases 7 &
Anent the P2,000,000.00, the CA rightly concluded that the full amount
8.
of P2,000,000.00 could not be awarded to respondents because such amount
was not allocated exclusively to compensate respondents, but was intended to
be the estimated maximum to fund the expenses in undertaking phase 6 of the A brief summary of my accomplished work has been as
scope of services. Its conclusion was unquestionably borne out by the minutes follows:chanroblesvirtualawlibrary
of the February 11, 1969 meeting, viz:chanroblesvirtualawlibrary
1. I have revised and made the new Project Study of your hotel project, making After a brief discussion that ensued, upon motion duly made and seconded,
it bankable and feasible. the stockholders unanimously approved a resolution of the following
tenor:chanroblesvirtualawlibrary
2. I have reduced the total cost of your project by
approximately P24,735,000.00. RESOLUTION NO. ___
(Series of 1969)
3. I have seen to it that a registered mortgage with the Reparations
Commission did not affect the application with the IBP for approval to "RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in
processing. the amount of Five Hundred Thousand (P500,000.00) Pesos for his past
services and services still to be rendered in the future to the corporation up to
4. I have prepared the application papers acceptable to the DBP by means of the completion of the Project. The President is given full discretion to discuss
with Mr. Joaquin the manner of payment of said compensation, authorizing him
an advance analysis and the presentation of the financial mechanics, which
to pay part in stock and part in cash."
was accepted by the DBP.

Incidentally, it was also taken up the necessity of giving the Technical Group a
5. I have presented the financial mechanics of the loan wherein the
requirement of the DBP for an additional P19,000,000.00 in equity from the portion of the compensation that was authorized by this corporation in its
Resolution of February 11, 1969 considering that the assistance so far given
corporation became unnecessary.
the corporation by said Technical Group in continuing our project with the DBP
and its request for guaranty for a foreign loan is 70% completed leaving only
6. The explanation of the financial mechanics and the justification of this some details which are now being processed. It is estimated that P400,000.00
project was instrumental in changing the original recommendation of the worth of Common Stock would be reasonable for the present accomplishments
Investment Banking Department of the DBP, which recommended disapproval and to this effect, the President is authorized to issue the same in the name of
of this application, to the present recommendation of the Real Estate the Technical Group, as follows:chanroblesvirtualawlibrary
Department which is for the approval of this project for proceeding.
P200,000.00 in Common Stock to Rafael Suarez, an associate in the
7. I have submitted to you several offers already of foreign financiers which are Technical Group, and P200,000.00 in Common stock to Francisco G. Joaquin,
in your files. We are presently arranging the said financiers to confirm their Jr., also a member of the Technical Group.49chanroblesvirtualawlibrary
funds to the DBP for our project,
Lastly, the amount purportedly included services still to be rendered that
8. We have secured the approval of the DBP to process the loan application of supposedly extended until the completion of the construction of the hotel. It is
this corporation as per its letter July 2, 1969. basic, however, that in obligations to do, there can be no payment unless the
obligation has been completely rendered.50chanroblesvirtualawlibrary
9. We have performed other services for the corporation which led to the
cooperation and understanding of the different factions of this corporation. It is notable that the confusion on the amounts of compensation arose from the
parties' inability to agree on the fees that respondents should receive.
I have rendered services to your corporation for the past 6 months with no Considering the absence of an agreement, and in view of respondents'
clear understanding as to the compensation of my services. All I have drawn constructive fulfillment of their obligation, the Court has to apply the principle of
from the corporation is the amount of P500.00 dated May 12, 1969 and quantum meruit in determining how much was still due and owing to
personal payment advanced by Justice Felix Angelo Bautista in the amount respondents. Under the principle of quantum meruit, a contractor is allowed to
of P1,000.00. recover the reasonable value of the services rendered despite the lack of a
written contract.51 The measure of recovery under the principle should relate to
the reasonable value of the services performed.52 The principle prevents
I am, therefore, requesting this Body for their approval of my fees. I have undue enrichment based on the equitable postulate that it is unjust for a
shown my good faith and willingness to render services to your corporation person to retain any benefit without paying for it. Being predicated on equity,
which is evidenced by my continued services in the past 6 months as well as the principle should only be applied if no express contract was entered into,
the accomplishments above mentioned. I believe that the final completion of and no specific statutory provision was applicable.53chanroblesvirtualawlibrary
this hotel, at least for the processing of the DBP up to the completion of the
construction, will take approximately another 2 years. In view of the above, I
again reiterate my request for your approval of my fees. When the corporation Under the established circumstances, we deem the total amount
is in a better financial position, I will request for a withdrawal of a monthly of P200,000.00 to be reasonable compensation for respondents' services
allowance, said amount to be determined by this Body. under the principle of quantum meruit.

Very truly yours, Finally, we sustain IHC's position that the grant of attorney's fees lacked
factual or legal basis. Attorney's fees are not awarded every time a party
prevails in a suit because of the policy that no premium should be placed on
(Sgd.) the right to litigate. There should be factual or legal support in the records
Francisco G., Joaquin, Jr.48 before the award of such fees is sustained. It is not enough justification for the
(Emphasis supplied) award simply because respondents were compelled to protect their
rights.54chanroblesvirtualawlibrary
Joaquin could not even rest his claim on the approval by IHC's Board of
Directors. The approval apparently arose from the confusion between the ACCORDINGLY, the Court DENIES the petition for review on certiorari; and
supposedly separate services that Joaquin had rendered and those to be done AFFIRMS the decision of the Court of Appeals promulgated on November 8,
under the technical proposal. The minutes of the July 11, 1969 board meeting 2002 in C.A.-G.R. NO. 47094 subject to the MODIFICATIONS that: (a)
(when the Board of Directors allowed the payment for Joaquin's past services International Hotel Corporation is ordered to. pay Francisco G. Joaquin, Jr. and
and for the 70% project completion by the technical group) showed as Rafael Suarez P100,000.00 each as compensation for their services, and (b)
follows:chanroblesvirtualawlibrary the award of P20,000.00 as attorney's fees is deleted.

III No costs of suit.

The Third order of business is the compensation of Mr. Francisco G. Joaquin, SO ORDERED.
Jr. for his services in the corporation.
G.R. No. 192108 : November 21, 2012 - SPOUSES SOCRATES SY AND CELY The appellate court held that the trial court correctly allowed the presentation of evidence
SY, Petitioner, v. ANDOK'S LITSON CORPORATION,Respondent. ex-parte as there was no valid reason for the urgent motion for postponement of the pre-
trial filed by Sy. The appellate court found that Sy repeatedly failed to comply with her
obligation under the lease contract despite repeated demands. The appellate court
DECISION awarded damages for breach of contract.

PEREZ, J.: Assailed in this Petition for Review on Certiorari is the Decision1ςrνll of the After the denial of Sys motion for reconsideration, she filed the instant petition raising the
Court of Appeals dated 20 January 2010 in CA-G.R. CV No. 91942, as well as the following grounds:
Resolution2ςrνll dated 29 April 2010, denying the motion for reconsideration.

-A-
This is a case for rescission of contract filed by the lessee, now respondent, against the WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS IN AFFIRMING
lessors, now the petitioners. THE TRIAL COURTS JUDGMENT FAILED TO NOTICE THAT THE DEFAULT
JUDGMENT STRAYED FROM JUDICIAL PRECEDENT AND POLICY, AND
Petitioner Cely Sy (Sy) is the registered owner of a 316 square-meter lot located at 1940 AMOUNTED TO AN INFRINGEMENT OF THE RIGHT TO DUE PROCESS OF THE
Felix Huertas Street, Sta. Cruz, Manila. Respondent Andoks Litson Corporation (Andoks) SPOUSES SY.
is engaged in the business of selling grilled chicken and pork with outlets all over the -B-
Philippines. On 5 July 2005, Sy and Andoks entered into a 5-year lease contract covering WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS IN AFFIRMING
the parcel of land owned by Sy. Monthly rental was fixed at P60,000.00, exclusive of THE TRIAL COURTS DEFAULT JUDGMENT FAILED TO APPRECIATE THAT THE
taxes, for the first 2 years and P66,000.00 for the third, fourth and fifth year with 10% RESPONDENT ITSELF CONTRACTUALLY ASSUMED THE RISK OF DELAY, AND
escalation every year beginning on the fourth year.3ςrνll THUS ANY DELAY COULD NOT BE A GROUND FOR THE RESOLUTION OR
ANNULMENT OF THE CONTRACT OF LEASE.
-C-
Per contract, the lessee shall, upon signing the contract, pay four (4) months of advance WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS ALLOWED A
deposit amounting to P240,000.00 and a security deposit equivalent to four (4) months of DEPARTURE FROM JUDICIAL PRECEDENT WHEN IT SUSTAINED THE TRIAL
rental in the amount of P240,000.00. Accordingly, Andoks issued a check to Sy for COURTS IMPOSITION OF LEGAL INTEREST ON THE MONETARY AWARD IN
P480,000.00. RESPONDENTS FAVOR.7ςrνll

Andoks alleged that while in the process of applying for electrical connection on the The affirmance by the Court of Appeals of the judgment of the trial court is correct.
improvements to be constructed on Sys land, it was discovered that Sy has an unpaid
Manila Electric Company (MERALCO) bill amounting to P400,000.00. Andoks presented
a system-generated statement from MERALCO.4ςrνllAndoks further complained that Section 4, Rule 18 of the Rules of Court requires the parties and their counsel to appear
construction for the improvement it intended for the leased premises could not proceed at pre-trial, thus:chanroblesvirtuallawlibrary
because another tenant, Mediapool, Inc. incurred delay in the construction of a billboard
structure also within the leased premises. In its letter dated 25 August 2005, Andoks first Section 4. Appearance of parties. It shall be the duty of the parties and their counsel to
informed Sy about the delay in the construction of the billboard structure on a portion of appear at the pre-trial. The non-appearance of a party may be excused only if a valid
its leased property. Three more letters of the same tenor were sent to Sy but the cause is shown therefor or if a representative shall appear in his behalf fully authorized in
demands fell on deaf ears. Consequently, Andoks suffered damages in the total amount writing to enter into an amicable settlement, to submit to alternative modes of dispute
of P627,000.00 which comprises the advance rental and deposit, cost of money, resolution, and to enter into stipulations or admissions of facts and of documents.
mobilization cost for the construction of improvement over leased premises, and
unrealized income. The complaint for rescission was filed on 13 February 2008, three
years after continued inaction on the request to have the billboard construction expedited. Section 5 of the same rule states the consequences of failure to appear during pre-trial,
thus:chanroblesvirtuallawlibrary
In her Answer, Sy stated that she has faithfully complied with all the terms and conditions
of the lease contract and denied incurring an outstanding electricity bill.5ςrνll Section 5. Effect of failure to appear. The failure of the plaintiff to appear when so
required pursuant to the next preceding section shall be cause for dismissal of the action.
The dismissal shall be with prejudice, unless otherwise ordered by the court. A similar
On 14 April 2008, Andoks filed a motion to set the case for pre-trial. failure on the part of the defendant shall be cause to allow the plaintiff to present his
evidence ex-parte and the court to render judgment on the basis thereof.
The Regional Trial Court of Manila (RTC) sent a Notice of Pre-trial Conference to the
parties on 28 April 2008 informing them that a pre-trial conference is set on 26 May 2008. What constitutes a valid ground to excuse litigants and their counsels from appearing at
the pre-trial under Section 4, Rule 18 of the Rules of Court is subject to the sound
On 23 May 2008, an Urgent Motion to Reset Pre-Trial Conference was filed by Sys discretion of a judge.8ςrνll Such discretion was shown by the trial court, which was
counsel on the allegation that on the pre-trial date, he has to attend a hearing on another correct in putting into effect the consequence of petitioners non-appearance at the pre-
branch of the RTC in Manila. trial. While Sy filed an Urgent Motion to Reset Pre-trial, she cannot assume that her
motion would be automatically granted. As found by the Court of Appeals, the denial of
petitioners motion for postponement is dictated by the motion
During the pre-trial conference, Sy and her counsel failed to appear. Sys urgent motion itself:chanroblesvirtuallawlibrary
was denied, and the RTC allowed Andoks to present its evidence ex-parte.
A perusal of the Urgent Motion to Reset Pre-Trial Conference discloses that other than
No motion for reconsideration was filed on the trial courts order allowing ex-parte the allegation that counsel will attend a hearing in another branch of the same court in
presentation of evidence. Thus, on the 2 June 2008 hearing, Andoks presented ex-parte Manila, yet, it failed to substantiate its claim. It did not state the case number nor attach
the testimony of its General Manager, Teodoro Calaunan, detailing the breach of contract the Calendar of Hearing or such other pertinent proof to appraise the court that indeed
committed by Sy. counsel was predisposed.9ςrνll

On 24 July 2008, the trial court rendered a decision favoring Andoks, to We cannot allow petitioners to argue that their right to due process has been
wit:chanroblesvirtuallawlibrary infringed.

WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules of Civil Procedure, In The Philippine American Life & General Insurance Company v. Enario,10ςrνll we
judgment is hereby rendered in favor of the plaintiff, ordering the defendants to pay to the reiterated that the essence of due process is to be found in the reasonable
plaintiff (1) P480,000.00 with legal rate of interest from March 11, 2006, (2) P1,350.00 for
opportunity to be heard and to submit any evidence one may have in support of
the comprehensive insurance on the leased portion of the realty, and (3) P4,873.00 as
ones defense. Where the opportunity to be heard, either through verbal arguments
contractors tax.
or pleadings, is accorded, and the party can present its side or defend its interest in
due course, there is no denial of procedural due process.
For lack of merit, defendants counterclaim is hereby dismissed.6ςrνll
We next deal with the central issue of rescission.
On appeal, Sy decried deprivation of her right to present evidence resulting in a default
judgment against her. Sy denied that there was a breach on the lease contract.
Article 1191 of the Civil Code provides that the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what
On 20 January 2010, the Court of Appeals dismissed the appeal and affirmed the ruling is incumbent upon him.
of the RTC.
A lease contract is a reciprocal contract. By signing the lease agreement, the lessor LESSEE AND LESSOR from the billboard LESSEE to avoid disruption of business
grants possession over his/her property to the lessee for a period of time in operations of Andoks Litson Corporation and its affiliates.14ςrνll
exchange for rental payment.
True, Andoks agreed to allow MediaPool, Inc. to construct a billboard structure but it
Indeed, rescission is statutorily recognized in a contract of lease. Article 1659 of the was conditioned on Andoks and the lessors approval to avoid disruption of its
Civil Code provides:chanroblesvirtuallawlibrary business operation. Sy is thus cognizant of the fact that the said billboard structure
construction might disrupt, as it already did, the intended construction of
respondents outlet. It is thereby understood that the construction of a billboard
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth
should be done within a period of time that is reasonable and sufficient so as not to
in articles 1654 and 1657, the aggrieved party may ask for the rescission of the
disrupt the business operations of respondent. In this case, Andoks had agreed to
contract and indemnification for damages, or only the latter, allowing the contract to
several extensions for MediaPool, Inc. to finish its billboard construction. It had sent
remain in force.
a total of four (4) letters in a span of 8 months, all of which were merely ignored.
Indeed, the indifference demonstrated by Sy leaves no doubt that she has reneged
Article 1659 outlines the remedies for non-compliance with the reciprocal on her obligation.
obligations in a lease contract, which obligations are cited in Articles 1654 and
1657:
Sys disregard of Andoks repeated demands for the billboard lessee to finish the
construction is a violation of her obligation to maintain the lessee in peaceful and
Article 1654. The lessor is obliged: adequate enjoyment of the lease. The delay in the construction had obviously
caused disruption in respondents business as it could not immediately commence
its business operations despite prompt payment of rent.
(1) To deliver the thing which is the object of the contract in such a conditions as to
render it fit for the use intended;
The attendant circumstances show substantial breach. The delay in the
construction prevented Andoks from using the leased premises for its business
(2) To make on the same during the lease all the necessary repairs in order to keep outlet. On top of the failure of Sy to address the delay in the billboard construction,
it suitable for the use to which it has been devoted, unless there is a stipulation to she also failed to resolve or explain the unpaid electricity bills. Sy resorted to a
the contrary; blanket denial without however producing any proof that the said bill had been
settled. These incidents refer to the fundamentals of the contract for the lease of
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for Sys premises. She failed to comply with the obligations that have arisen upon
the entire duration of the contract. Andoks payment of the amount equivalent to eight months of the monthly rentals.

Article 1657. The lessee is obliged: Anent the imposition of legal interest, the Court of Appeals is correct in stating that
the award of damages was warranted under the facts of the case and the imposition
of legal interest was necessary consequence thereof. We find applicable the
(1) To pay the price of the lease according to the terms stipulated; pertinent guidelines provided in Eastern Shipping Lines, Inc. v. Court of
Appeals,15ςrνll thus:
(2) To use the thing leased as a diligent father of a family, devoting it to the use
stipulated; and in the absence of stipulation, to that which may be inferred from the 2. When an obligation, not constituting a loan or forbearance of money, is breached,
nature of the thing leased, according to the custom of the place; an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
(3) To pay the expenses for the deed of lease. (Boldfacing supplied). unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
The aggrieved party is given the option to the aggrieved party to ask for: (1) the the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
rescission of the contract; (2) rescission and indemnification for damages; or (3) certainty cannot be so reasonably established at the time the demand is made, the
only indemnification for damages, allowing the contract to remain in force.11ςrνll interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
While Andoks had complied with all its obligations as a lessee, the lessor failed to ascertained). The actual base for the computation of legal interest shall, in any
render the premises fit for the use intended and to maintain the lessee in the case, be on the amount finally adjudged.
peaceful and adequate enjoyment of the lease.
3. When the judgment of the court awarding a sum of money becomes final and
The case of CMS Investments and Management Corporation v. Intermediate executory, the rate of legal interest, whatever the case falls under paragraph 1 or
Appellate Court12ςrνll quoted Manresas comment on the lessors obligation to paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
maintain the lessee in the peaceful and adequate enjoyment of the lease for the this interim period being deemed to be by then an equivalent to a forbearance of
entire duration of the contract, in this wise:chanroblesvirtuallawlibrary credit.16ςrνll

The lessor must see that the enjoyment is not interrupted or disturbed, either by Accordingly, legal interest at the rate of 6% per annum on the amounts awarded
others' acts x x x or by his own. By his own acts, because, being the person starts to run from 24 July 2008, when the trial court rendered judgment. From the
principally obligated by the contract, he would openly violate it if, in going back on time this judgment becomes final and executory, the interest rate shall be 12% per
his agreement, he should attempt to render ineffective in practice the right in the annum on the judgment amount and the interest earned up to that date, until the
thing he had granted to the lessee; and by others' acts, because he must guarantee judgment is wholly satisfied.ςηαοblενιrυαllαωlιbrαr
the right he created, for he is obliged to give warranty in the manner we have set
forth in our commentary on article 1553, and, in this sense, it is incumbent upon him WHEREFORE, the petition is DENIED. The 20 January 2010 Decision of the Court
to protect the lessee in the latters peaceful enjoyment.13ςrνll of Appeals in CA-G.R. CV No. 91942, affirming the 24 July 2008 Decision of the
RTC, Branch 17, Manila, is hereby AFFIRMED.ςrαlαωlιbrαr
Andoks paid a total of P480,000.00 as advance deposit for four (4) months and
security deposit equivalent to four (4) months. However, the construction of its SO ORDERED.
outlet store was hindered by two incidents the unpaid MERALCO bills and the
unfinished construction of a billboard structure directly above the leased property.

Sy argues that per contract, Andoks had assumed the risk of delay by allowing
MediaPool, Inc. to construct a billboard structure on a portion of the leased
premises. We reproduce the pertinent provision for
brevity:chanroblesvirtuallawlibrary

10. That the LESSEE shall allow persons who will construct, inspect, maintain and
repair all billboard structures to be set up and constructed on the portion of the
parcel of land excluded from this contract, only upon approval of written request to
ESTELITA VILLAMAR, Petitioner, - versus - BALBINO MANGAOIL, received as above-mentioned, the
Respondent. G.R. No. 188661 Promulgated: April 11, 2012 PARTY OF THE SECOND PART
DECISION shall pay unto the PARTY OF THE
REYES, J.: The Case FIRST PART not later than June
30, 1998 and thereafter the parties
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court shall be released of any
filed by Estelita Villamar (Villamar) to assail the Decision[2] rendered by the Court of obligations for and against each
Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the dispositive portion other; xxx
of which reads:
On April 1, 1998, the parties executed a Deed of Absolute
WHEREFORE, the instant appeal Sale whereby Villamar (then Estelita Bernabe) transferred
is DISMISSED. The assailed decision is AFFIRMED in toto. the subject parcel of land to Mangaoil for and in
SO ORDERED.[3] consideration of [P]150,000.00.

The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's In a letter dated September 18, 1998, Mangaoil informed
motion for reconsideration to the foregoing. Villamar that he was backing out from the sale agreed upon
giving as one of the reasons therefor:
The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela,
which was affirmed by the CA in the herein assailed decision and resolution, ordered 3. That the area is not yet fully
the (1) rescission of the contract of sale of real property entered into by Villamar and cleared by incumbrances as there
Balbino Mangaoil (Mangaoil); and (2) return of the down payment made relative to are tenants who are not willing to
the said contract. vacate the land without giving
them back the amount that they
Antecedents Facts mortgaged the land.

The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil demanded refund of his [P]185,000.00 down
Mangaoil of the complaint[6] for rescission of contract before the RTC: payment. Reiterating said demand in another letter dated
April 29, 1999, the same, however, was unheeded.[7] x x x
Villamar is the registered owner of a 3.6080 hectares parcel (Citations omitted)
of land [hereinafter referred as the subject property] in San On January 28, 2002, the respondent filed before the RTC a
Francisco, Manuel, Isabela covered by Transfer Certificate complaint[8] for rescission of contract against the petitioner. In the said complaint, the
of Title (TCT) No. T-92958-A. On March 30, 1998, she respondent sought the return of P185,000.00 which he paid to the petitioner, payment
entered into an Agreement with Mangaoil for the purchase of interests thereon to be computed from March 27, 1998 until the suit's termination,
and sale of said parcel of land, under the following terms and the award of damages, costs and P20,000.00 attorney's fees. The respondent's
and conditions: factual allegations were as follows:

1. The price of the land is ONE 5. That as could be gleaned the Agreement
HUNDRED AND EIGHTY (Annex A), the plaintiff [Mangaoil] handed to the defendant
THOUSAND (180,000.00) PESOS [Villamar] the sum of [P]185,000.00 to be applied as
per hectare but only the 3.5000 follows; [P]80,000 was for the redemption of the land which
hec. shall be paid and the rest shall was mortgaged to the Rural Bank of Cauayan, San Manuel
be given free, so that the total Branch, San Manuel, Isabela, to enable the plaintiff to get
purchase or selling price shall be hold of the title and register the sale x x x and [P]105,000.00
[P]630,000.00 only; was for the redemption of the said land from private
mortgages to enable plaintiff to posses[s] and cultivate the
2. ONE HUNDRED EIGHTY FIVE same;
THOUSAND (185,000.00) 6. That although the defendant had already
PESOS of the total price was long redeemed the said land from the said bank and
already received on March 27, withdrawn TCT No. T-92958-A, she has failed and refused,
1998 for payment of the loan despite repeated demands, to hand over the said title to the
secured by the certificate of title plaintiff and still refuses and fails to do so;
covering the land in favor of the
Rural Bank of Cauayan, San 7. That, also, the plaintiff could not physically,
Manuel Branch, San Manuel, actually and materially posses[s] and cultivate the said land
Isabela [Rural Bank of Cauayan], because the private mortgage[e]s and/or present
in order that the certificate of title possessors refuse to vacate the same;
thereof be withdrawn and released
from the said bank, and the rest xxxx
shall be for the payment of the
mortgag[e]s in favor of Romeo 11. That on September 18, 1998, the plaintiff
Lacaden and Florante sent a letter to the defendant demanding a return of the
Parangan; amount so advanced by him, but the latter ignored the
3. After the release of the same, x x x;
certificate of title covering the land 12. That, again, on April 29, 1999, the plaintiff
subject-matter of this agreement, sent to the defendant another demand letter but the latter
the necessary deed of absolute likewise ignored the same, x x x;
sale in favor of the PARTY OF
THE SECOND PART shall be 13. That, finally, the plaintiff notified the
executed and the transfer be defendant by a notarial act of his desire and intention to
immediately effected so that the rescind the said contract of sale, xxx;
latter can apply for a loan from any
lending institution using the x x x x.[9] (Citations omitted)
corresponding certificate of title as
collateral therefor, and the In the respondents answer to the complaint, she averred that she had complied with
proceeds of the loan, whatever be her obligations to the respondent. Specifically, she claimed having caused the
the amount, be given to the release of TCT No. T-92958-A by the Rural Bank of Cauayan and its delivery to a
PARTY OF THE FIRST PART; certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that Atty. Antonio
was commissioned to facilitate the transfer of the said title in the respondent's name.
4. Whatever balance left from the The petitioner likewise insisted that it was the respondent who unceremoniously
agreed purchase price of the land withdrew from their agreement for reasons only the latter knew.
subject matter hereof after
deducting the proceed of the loan The Ruling of the RTC
and the [P]185,000.00 already
On September 9, 2005, the RTC ordered the rescission of the agreement and the Yet, a careful perusal of the record shows that the
deed of absolute sale executed between the respondent and the petitioner. The defendant-appellant failed to sufficiently prove said
petitioner was, thus directed to return to the respondent the sum of P185,000.00 affirmative defense. She failed to prove that in the first
which the latter tendered as initial payment for the purchase of the subject property. place, Atty. Antonio existed to receive the title for and in
The RTC ratiocinated that: behalf of plaintiff-appellee. Worse, the defendant-
appellant failed to prove that Atty. Antonio received said
There is no dispute that the defendant sold the LAND to the title as allegedly agreed upon.
plaintiff for [P]630,000.00 with down payment
of [P]185,000.00. There is no evidence presented if there We likewise sustain the RTC's finding that defendant-
were any other partial payments made after the perfection appellant V[i]llamar failed to deliver possession of the
of the contract of sale. subject property to plaintiff-appellee Mangaoil. As correctly
observed by the RTC - [t]he claim of the plaintiff that the land
Article 1458 of the Civil Code provides: has not been delivered to him was not refuted by the
defendant. Not only that. On cross-examination, the
Art. 1458. By the contract of defendant-appellant gave Us insight on why no such
sale[,] one of the contracting delivery could be made, viz.:
parties obligates himself to
transfer the ownership of and to xxxx
deliver a determinate thing, and
the other to pay therefore a price Q: So, you were not able to
certain in money or its deliver this property to Mr. Mangaoil just
equivalent. after you redeem the property because of
the presence of these two (2) persons, is it
As such, in a contract of sale, the obligation of the vendee not?
to pay the price is correlative of the obligation of the vendor
to deliver the thing sold. It created or established at the xxx
same time, out of the same course, and which result in
mutual relations of creditor and debtor between the parties. A: Yes, sir.

The claim of the plaintiff that the LAND has not been Q: Forcing you to file the case against them and
delivered to him was not refuted by the defendant. which according to you, you have won, is it not?
Considering that defendant failed to deliver to him the
certificate of title and of the possession over the LAND to A: Yes, sir.
the plaintiff, the contract must be rescinded pursuant to
Article 1191 of the Civil Code which, in part, provides: Q: And now at present[,] you are in actual
possession of the land?
Art. 1191. The power of rescind
obligations is implied in A: Yes, sir. x x x
reciprocal ones in case one of
the obligors should not comply With the foregoing judicial admission, the RTC could not
with what is incumbent upon have erred in finding that defendant-[appellant] failed to
him.[10] deliver the possession of the property sold, to plaintiff-
appellee.
The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed
error on the part of the RTC when the latter ruled that the agreement and deed of Neither can We agree with defendant-appellant in her
sale executed by and between the parties can be rescinded as she failed to deliver argument that the execution of the Deed of Absolute Sale
to the respondent both the subject property and the certificate of title covering the by the parties is already equivalent to a valid and
same. constructive delivery of the property to plaintiff-appellee.
Not only is it doctrinally settled that in a contract of sale,
The Ruling of the CA the vendor is bound to transfer the ownership of, and to
deliver the thing that is the object of the sale, the way
On February 20, 2009, the CA rendered the now assailed decision dismissing the Article 1547 of the Civil Code is worded, viz.:
petitioners appeal based on the following grounds:
Art. 1547. In a contract of sale,
Burden of proof is the duty of a party to prove the truth of unless a contrary intention
his claim or defense, or any fact in issue necessary to appears, there is:
establish his claim or defense by the amount of evidence
required by law. In civil cases, the burden of proof is on (1) An implied warranty on the
the defendant if he alleges, in his answer, an affirmative part of the seller that he has a
defense, which is not a denial of an essential ingredient in right to sell the thing at the time
the plaintiff's cause of action, but is one which, if when the ownership is to pass,
established, will be a good defense i.e., an avoidance of the and that the buyer shall from
claim, which prima facie, the plaintiff already has because that time have and enjoy the
of the defendant's own admissions in the pleadings. legal and peaceful possession
of the thing;
Defendant-appellant Villamar's defense in this case was
an affirmative defense. She did not deny plaintiff-appellees (2) An implied warranty that the
allegation that she had an agreement with plaintiff-appellee thing shall be free from any hidden
for the sale of the subject parcel of land. Neither did she defaults or defects, or any change
deny that she was obliged under the contract to deliver the or encumbrance not declared or
certificate of title to plaintiff-appellee immediately after said known to the buyer.
title/property was redeemed from the bank. What she
rather claims is that she already complied with her x x x.
obligation to deliver the title to plaintiff-appellee when
she delivered the same to Atty. Antonio as it was plaintiff- shows that actual, and not mere constructive delivery is
appellee himself who engaged the services of said lawyer warrantied by the seller to the buyer. (P)eaceful
to precisely work for the immediate transfer of said title in possession of the thing sold can hardly be enjoyed in a
his name. Since, however, this affirmative defense as mere constructive delivery.
alleged in defendant-appellant's answer was not admitted
by plaintiff-appellee, it then follows that it behooved The obligation of defendant-appellant Villamar to transfer
the defendant-appellant to prove her averments by ownership and deliver possession of the subject parcel of
preponderance of evidence. land was her correlative obligation to plaintiff-appellee in
exchange for the latter's purchase price thereof. Thus, if she
fails to comply with what is incumbent upon her, a the property sold and it already authorizes the buyer to use the instrument as proof
correlative right to rescind such contract from plaintiff- of ownership.[18]
appellee arises, pursuant to Article 1191 of the Civil
Code.[11] x x x (Citations omitted) The petitioner argues that in the case at bar, the agreement and the absolute deed
of sale contains no stipulation that she was obliged to actually and physically deliver
The Issues the subject property to the respondent. The respondent fully knew Lacaden's and
Parangan's possession of the subject property. When they agreed on the sale of the
Aggrieved, the petitioner filed before us the instant petition and submits the following property, the respondent consciously assumed the risk of not being able to take
issues for resolution: immediate physical possession on account of Lacaden's and Parangan's presence
therein.
I. The petitioner likewise laments that the CA allegedly misappreciated the evidence
WHETHER THE FAILURE OF PETITIONER-SELLER TO offered before it when it declared that she failed to prove the existence of Atty.
DELIVER THE CERTIFICATE OF TITLE OVER THE Antonio. For the record, she emphasizes that the said lawyer prepared and notarized
PROPERTY TO RESPONDENT-BUYER IS A BREACH OF the agreement and deed of absolute sale which were executed between the parties.
OBLIGATION IN A CONTRACT OF SALE OF REAL He was also the petitioners counsel in the proceedings before the RTC. Atty. Antonio
PROPERTY THAT WOULD WARRANT RESCISSION OF was also the one asked by the respondent to cease the transfer of the title over the
THE CONTRACT; subject property in the latter's name and to return the money he paid in advance.
II. The Respondent's Contentions
WHETHER PETITIONER IS LIABLE FOR BREACH OF
OBLIGATION IN A CONTRACT OF SALE FOR FAILURE In the respondent's comment,[19] he seeks the dismissal of the instant petition. He
OF RESPONDENT[-]BUYER TO IMMEDIATELY TAKE invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the
ACTUAL POSSESSION OF THE PROPERTY ownership and possession of a property sold, the buyer is entitled to rescind the
NOTWITHSTANDING THE ABSENCE OF ANY contract of sale. Further, he contends that the execution of a deed of absolute sale
STIPULATION IN THE CONTRACT PROVIDING FOR THE does not necessarily amount to a valid and constructive delivery. In Masallo v.
SAME; Cesar,[20] it was ruled that a person who does not have actual possession of real
III. property cannot transfer constructive possession by the execution and delivery of a
WHETHER THE EXECUTION OF A DEED OF SALE OF public document by which the title to the land is transferred. In Addison v. Felix and
REAL PROPERTY IN THE PRESENT CASE IS ALREADY Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a public
EQUIVALENT TO A VALID AND CONSTRUCTIVE instrument is equivalent to actual delivery only when the thing sold is subject to the
DELIVERY OF THE PROPERTY TO THE BUYER; control of the vendor.
IV.
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT Our Ruling
MATTER OF THIS CASE SHOULD BE RESCINDED ON
SLIGHT OR CASUAL BREACH; The instant petition is bereft of merit.
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED There is only a single issue for resolution in the instant petition, to wit, whether or not
IN AFFIRMING THE DECISION OF THE RTC ORDERING the failure of the petitioner to deliver to the respondent both the physical possession
THE RESCISSION OF THE CONTRACT OF SALE[.][12] of the subject property and the certificate of title covering the same amount to a
substantial breach of the former's obligations to the latter constituting a valid cause
The Petitioner's Arguments to rescind the agreement and deed of sale entered into by the parties.

The petitioner avers that the CA, in ordering the rescission of the agreement and We rule in the affirmative.
deed of sale, which she entered into with the respondent, on the basis of her alleged
failure to deliver the certificate of title, effectively imposed upon her an extra duty The RTC and the CA both found that the petitioner failed to comply with her
which was neither stipulated in the contract nor required by law. She argues that obligations to deliver to the respondent both the possession of the subject property
under Articles 1495[13] and 1496[14] of the New Civil Code (NCC), the obligation to and the certificate of title covering the same.
deliver the thing sold is complied with by a seller who executes in favor of a buyer an
instrument of sale in a public document. Citing Chua v. Court of Appeals,[15] she Although Articles 1458, 1495 and 1498 of the NCC and case law do
claims that there is a distinction between transferring a certificate of title in the buyer's not generally require the seller to deliver to the buyer the physical
name, on one hand, and transferring ownership over the property sold, on the possession of the property subject of a contract of sale and the
other. The latter can be accomplished by the seller's execution of an instrument of certificate of title covering the same, the agreement entered into by
sale in a public document. The recording of the sale with the Registry of Deeds and the petitioner and the respondent provides otherwise. However, the
the transfer of the certificate of title in the buyer's name are necessary only to bind terms of the agreement cannot be considered as violative of law,
third parties to the transfer of ownership.[16] morals, good customs, public order, or public policy, hence, valid.

The petitioner contends that in her case, she had already complied with her Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver
obligations under the agreement and the law when she had caused the release of a determinate thing to the buyer, who shall in turn pay therefor a price certain in
TCT No. T-92958-A from the Rural Bank of Cauayan, paid individual mortgagees money or its equivalent. In addition thereto, Article 1495 of the NCC binds the seller
Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an to warrant the thing which is the object of the sale. On the other hand, Article 1498 of
absolute deed of sale in the respondent's favor. She adds that before T-92958-A can the same code provides that when the sale is made through a public instrument, the
be cancelled and a new one be issued in the respondent's favor, the latter decided to execution thereof shall be equivalent to the delivery of the thing which is the object of
withdraw from their agreement. She also points out that in the letters seeking for an the contract, if from the deed, the contrary does not appear or cannot clearly be
outright rescission of their agreement sent to her by the respondent, not once did he inferred.
demand for the delivery of TCT.
In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was
The petitioner insists that the respondent's change of heart was due to (1) the latter's ruled that when the deed of absolute sale is signed by the parties and notarized, then
realization of the difficulty in determining the subject property's perimeter boundary; delivery of the real property is deemed made by the seller to the buyer.[23] The transfer
(2) his doubt that the property he purchased would yield harvests in the amount he of the certificate of title in the name of the buyer is not necessary to confer ownership
expected; and (3) the presence of mortgagees who were not willing to give up upon him.
possession without first being paid the amounts due to them. The petitioner contends
that the actual reasons for the respondent's intent to rescind their agreement did not In the case now under our consideration, item nos. 2 and 3 of the agreement entered
at all constitute a substantial breach of her obligations. into by the petitioner and the respondent explicitly provide:

The petitioner stresses that under Article 1498 of the NCC, when a sale is made 2. ONE HUNDRED EIGHTY FIVE THOUSAND
through a public instrument, its execution is equivalent to the delivery of the thing (P185,000.00) PESOS of the total price was already
which is the contract's object, unless in the deed, the contrary appears or can be received on March 27, 1998 for payment of the loan secured
inferred. Further, in Power Commercial and Industrial Corporation v. CA,[17] it was by the certificate of title covering the land in favor of the
ruled that the failure of a seller to eject lessees from the property he sold and to Rural Bank of Cauayan, San Manuel Branch, San Manuel,
deliver actual and physical possession, cannot be considered a substantial breach, Isabela, in order that the certificate of title thereof be
when such failure was not stipulated as a resolutory or suspensive condition in the withdrawn and released from the said bank, and the rest
contract and when the effects and consequences of the said failure were not specified shall be for the payment of the mortgages in favor of Romeo
as well. The execution of a deed of sale operates as a formal or symbolic delivery of Lacaden and Florante Parangan;
3. After the release of the certificate of title covering the land We note that the agreement entered into by the petitioner and the respondent
subject-matter of this agreement, the necessary deed of only contains three items specifying the parties' undertakings. In item no. 5, the
absolute sale in favor of the PARTY OF THE SECOND parties consented to abide with all the terms and conditions set forth in this agreement
PART shall be executed and the transfer be immediately and never violate the same.[28]
effected so that the latter can apply for a loan from any
lending institution using the corresponding certificate of title Article 1191 of the NCC is clear that the power to rescind obligations is implied in
as collateral therefor, and the proceeds of the loan, reciprocal ones, in case one of the obligors should not comply with what is incumbent
whatever be the amount, be given to the PARTY OF THE upon him. The respondent cannot be deprived of his right to demand for rescission
FIRST PART;[24] (underlining supplied) in view of the petitioners failure to abide with item nos. 2 and 3 of the agreement. This
remains true notwithstanding the absence of express stipulations in the agreement
As can be gleaned from the agreement of the contending parties, the respondent indicating the consequences of breaches which the parties may commit. To hold
initially paid the petitioner P185,000.00 for the latter to pay the loan obtained from the otherwise would render Article 1191 of the NCC as useless.
Rural Bank of Cauayan and to cause the release from the said bank of the certificate
of title covering the subject property. The rest of the amount shall be used to pay the Article 1498 of the NCC generally considers the execution of a
mortgages over the subject property which was executed in favor of Lacaden and public instrument as constructive delivery by the seller to the buyer
Parangan. After the release of the TCT, a deed of sale shall be executed and transfer of the property subject of a contract of sale. The case at bar,
shall be immediately effected so that the title covering the subject property can be however, falls among the exceptions to the foregoing rule since a
used as a collateral for a loan the respondent will apply for, the proceeds of which mere presumptive and not conclusive delivery is created as the
shall be given to the petitioner. respondent failed to take material possession of the subject
property.
Under Article 1306 of the NCC, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided Further, even if we were to assume for argument's sake that the agreement entered
they are not contrary to law, morals, good customs, public order or public policy. into by the contending parties does not require the delivery of the physical possession
of the subject property from the mortgagors to the respondent, still, the petitioner's
While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case claim that her execution of an absolute deed of sale was already sufficient as it
of Chua do not impose upon the petitioner the obligation to physically deliver to the already amounted to a constructive delivery of the thing sold which Article 1498 of
respondent the certificate of title covering the subject property or cause the transfer the NCC allows, cannot stand.
in the latter's name of the said title, a stipulation requiring otherwise is not prohibited
by law and cannot be regarded as violative of morals, good customs, public order or In Philippine Suburban Development Corporation v. The Auditor General,[29] we held:
public policy. Item no. 3 of the agreement executed by the parties expressly states
that transfer [shall] be immediately effected so that the latter can apply for a loan from When the sale of real property is made in a public
any lending institution using the corresponding certificate of title as collateral instrument, the execution thereof is equivalent to the
therefore. Item no. 3 is literal enough to mean that there should be physical delivery delivery of the thing object of the contract, if from the deed
of the TCT for how else can the respondent use it as a collateral to obtain a loan if the contrary does not appear or cannot clearly be inferred.
the title remains in the petitioners possession. We agree with the RTC and the CA
that the petitioner failed to prove that she delivered the TCT covering the subject In other words, there is symbolic delivery of the property
property to the respondent. What the petitioner attempted to establish was that she subject of the sale by the execution of the public instrument,
gave the TCT to Atty. Antonio whom she alleged was commissioned to effect the unless from the express terms of the instrument, or by clear
transfer of the title in the respondent's name. Although Atty. Antonio's existence is inference therefrom, this was not the intention of the parties.
certain as he was the petitioners counsel in the proceedings before the RTC, there Such would be the case, for instance, x x x where the vendor
was no proof that the former indeed received the TCT or that he was commissioned has no control over the thing sold at the moment of the sale,
to process the transfer of the title in the respondent's name. and, therefore, its material delivery could not have been
made.[30] (Underlining supplied and citations omitted)
It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she
had already complied with her obligation to deliver the subject property upon her Stated differently, as a general rule, the execution of a public instrument amounts to
execution of an absolute deed of sale in the respondents favor. The petitioner avers a constructive delivery of the thing subject of a contract of sale. However, exceptions
that she did not undertake to eject the mortgagors Parangan and Lacaden, whose exist, among which is when mere presumptive and not conclusive delivery is created
presence in the premises of the subject property was known to the respondent. in cases where the buyer fails to take material possession of the subject of sale. A
person who does not have actual possession of the thing sold cannot transfer
We are not persuaded. constructive possession by the execution and delivery of a public instrument.

In the case of Power Commercial and Industrial Corporation[25] cited by the petitioner, In the case at bar, the RTC and the CA found that the petitioner failed to deliver to
the Court ruled that the failure of the seller to eject the squatters from the property the respondent the possession of the subject property due to the continued presence
sold cannot be made a ground for rescission if the said ejectment was not stipulated and occupation of Parangan and Lacaden. We find no ample reason to reverse the
as a condition in the contract of sale, and when in the negotiation stage, the buyer's said findings. Considered in the light of either the agreement entered into by the
counsel himself undertook to eject the illegal settlers. parties or the pertinent provisions of law, the petitioner failed in her undertaking to
deliver the subject property to the respondent.
The circumstances surrounding the case now under our consideration are different.
In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20,
to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While 2009 Decision and July 8, 2009 Resolution of the Court of Appeals, directing the
the provision does not expressly impose upon the petitioner the obligation to eject the rescission of the agreement and absolute deed of sale entered into by Estelita
said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of Villamar and Balbino Mangaoil and the return of the down payment made for the
the subject property is logically expected from the mortgagors upon payment by the purchase of the subject property, are AFFIRMED. However, pursuant to our ruling
petitioner of the amounts due to them. in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed
on the sum of P185,000.00 to be returned to Mangaoil to be computed from the date
We note that in the demand letter[26] dated September 18, 1998, which was sent by of finality of this Decision until full satisfaction thereof.
the respondent to the petitioner, the former lamented that the area is not yet fully
cleared of incumbrances as there are tenants who are not willing to vacate the land SO ORDERED.
without giving them back the amount that they mortgaged the land. Further, in the
proceedings before the RTC conducted after the complaint for rescission was filed,
the petitioner herself testified that she won the ejectment suit against the mortgagors
only last year.[27] The complaint was filed on September 8, 2002 or more than four
years from the execution of the parties' agreement. This means that after the lapse
of a considerable period of time from the agreement's execution, the mortgagors
remained in possession of the subject property.

Notwithstanding the absence of stipulations in the agreement and absolute


deed of sale entered into by Villamar and Mangaoil expressly indicating the
consequences of the former's failure to deliver the physical possession of the
subject property and the certificate of title covering the same, the latter is
entitled to demand for the rescission of their contract pursuant to Article 1191
of the NCC.
G.R. No. L-45349 August 15, 1988 court, the Court of Appeals on November 4, 1976 affirmed the former's
NEWTON JISON and SALVACION I. JOSUE petitioners, vs. decision.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS,
INC., respondents.
Thus, the instant petition for review.
Ledesma, Saludo & Associates for petitioners.
Domicador L. Reyes and Magtanggol C. Gunigundo for respondents.
In assailing the decision of the Court of Appeals, petitioners attributed the
CORTES, J.: following errors:

The instant petition for review of the decision of the Court of Appeals I
poses the issue of the validity of the rescission of a contract to sell a THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
subdivision lot due to the failure of the lot buyer to pay monthly THAT PETITIONERS HAVE SUBSTANTIALLY, COMPLIED WITH THE
installments on their due dates and the forfeiture of the amounts already TERMS OF THEIR AGREEMENT WITH PRIVATE RESPONDENTS.
paid. II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE CONTRACT TO SELL MAY BE AUTOMATICALLY RESCINDED
The case is not one of first impression, and neither is it exceptional. On
AND PRIVATE RESPONDENT MAY UNILATERALLY RESCINDED SAID
the contrary, it unambiguous. the common plight of countless subdivision
CONTRACT AND REJECT THE CONSIGNATION OF PAYMENTS MADE
lot buyers.
BY PETITIONERS, WHICH ACTIONS OF PRIVATE RESPONDENT ARE
HIGHLY INIQUITOUS AND UNCONSCIONABLE.
Petitioners, the spouses Newton and Salvacion Jison, entered into a III
Contract to Sell with private respondent, Robert O. Phillips & Sons, Inc., THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING
whereby the latter agreed to sell to the former a lot at the Victoria Valley THAT PRIVATE RESPONDENT'S ACT OF FORFEITING ALL PREVIOUS
Subdivision in Antipolo, Rizal for the agreed price of P55,000.00, with PAYMENTS MADE BY PETITIONERS IS CONTRARY TO LAW, HIGHLY
interest at 8,1965 per annum, payable on an installment basis. INIQUITOUS AND UNCONSCIONABLE. [Petitioners' Brief, pp. 13-27.]

Pursuant to the contract, petitioners paid private respondents a down As stated at the outset, the principal issue in this case is the legality of the
payment of P11,000.00 on October 20, 1961 and from October 27, 1961; rescission of the contract and the forfeiture of the payments already made
to May 8, 1965 a monthly installment of P533.85. by petitioners.

Thereafter, due to the failure of petitioners to build a house as provided in To support the rescission and forfeiture private respondent falls back on
the contract, the stipulated penalty of P5.00 per square meter was paragraph 3 of the contract which reads:
imposed to the effect that the monthly amortization was increased to
P707.24.
This contract shall be considered automatically rescinded and
cancelled and of no further force and effect, upon the failure of
On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners the Vendee to pay when due Three (3) or more consecutive
failed to pay the monthly installments due on said dates although monthly installments mentioned in Paragraph 2 of this Contract,
petitioners subsequently paid the amounts due and these were accepted or to comply with any of the terms and conditions hereof, in
by private respondent. which case the Vendor shall have the right to resell the said
parcel of land to any Vendee and any amount derived from the
Again on October 1, 1966, November 1, 1966, December 1, 1966 and sale on account hereof shall be forfeited in favor of the Vendor
January 1, 1967, petitioners failed to pay. On January 11, 1967, private as liquidated damages for the breach of the Contract by the
respondent sent a letter (Exh. "3") to petitioners calling their attention to Vendee, the latter hereby renouncing and reconveying
the fact that their account was four months overdue. This letter was absolutely and forever in favor of the Vendor all rights and
followed up by another letter dated February 27, 1967 (Exh. "3") where claims to and for all the amount paid by the Vendee on account
private respondent reminded petitioner of the automatic rescission clause of the Contract, as well as to and for all compensation of any
of the contract. Petitioners eventually paid on March 1, 1967. kind, hereby also agreeing in this connection, to forthwith
vacate the said property or properties peacefully without further
advise of any kind.
Petitioners again failed to pay the monthly installments due on February 1,
1967, March 1, 1967 and April 1, 1967. Thus, in a letter dated April 6,
1967 (Exh. "D"), private respondent returned petitioners' check and Since the contract was executed and cancelled prior to the effectivity of
informed them that the contract was cancelled when on April 1, 1987 Republic Act No. 65856, (the Realty Installment Buyers', Protection Act)
petitioners failed to pay the monthly installment due, thereby making their and Presidential Decree No. 957 (the Subdivision and Condominium
account delinquent for three months. Buyers' Protective Decree), it becomes necessary to resort to
jurisprudence and the general provisions of law to resolve the controversy.
On April 19, 1967, petitioners tendered payment for all the installments
already due but the tender was refused. Thus, petitioners countered by The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076,
filing a complaint for specific performance with the Court of First Instance September 21, 1983, 124 SCRA 7,1969, factions the resolution of the
of Rizal on May 4, 1967 and consigning the monthly installments due with controversy. In deciding whether the rescission of the contract to sell a
the court. subdivision lot after the lot buyer has failed to pay several installments was
valid, the Court said:
Following the hearing of the case, wherein the parties entered into a
stipulation of facts, the trial court on January 9, 1969 rendered judgment in Well settled is the rule, as held in previous k.- [Torralba v. De
favor of private respondent, dismissing the complaint and declaring the los Angeles, 96 SCRA 69, Luzon Brokerage Co., Inc. v.
contract cancelled and all payments already made by petitioner franchise. Maritime Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez
ordering petitioners to pay P1,000.00 as and for attorney's fees; and v. Commissioner of Customs, 37 SCRA 327; U.P. v. De los
declaring the consignation and tender of payment made by petitioners as Angeles, 35 SCRA 102; Ponce Enrile v. CA, 29 SCRA 504;
not amounting to payment of the corresponding monthly installments. Froilan v. Pan Oriental Shipping Co., 12 SCRA 276; Taylor v.
Uy Tieng Piao; 43 Phil. 896, that judicial action for the
rescission of a contract is not necessary where the contract
Not satisfied with the decision of the trial court, petitioners appealed to the provides that it may be cancelled for violation of any of its terms
Court of Appeals. Agreeing with the findings and conclusions of the trial and conditions. However, even in the cited cases, there was at
least a written notice sent to the degeneration, informing him of to another party. Also, had R.A. No. 65856, been applicable to the instant
the rescission. As stressed in University of the Philippines v. case, the same percentage of the amount already paid would have been
Walfrido de los Angeles [35 SCRA 102] the act of a party in forfeited [Torralba 3(b).]
treating a contract as cancelled should be made known to the
other.... The Court's decision to reduce the amount forfeited finds support in the
Civil Code. As stated in paragraph 3 of the contract, in case the contract is
xxx xxx xxx cancelled, the amounts already paid shall be forfeited in favor of the
vendor as liquidated damages. The Code provides that liquidated
In other words, resolution of reciprocal contracts may be made damages, whether intended as an indemnity or a penalty, shall be
extrajudicially unless successfully impugned in Court. If the equitably reduced if they are iniquitous or unconscionable [Art. 2227.]
debtor impugns the declaration it shall be subject to judicial
determination. Further, in obligations with a penal clause, the judge shall equitably reduce
the penalty when the principal obligation has been partly or irregularly
In this case, private respondent has denied that rescission is complied with by the debtor [Art. 1229; Hodges v. Javellana, G.R. No. L-
justified and has resorted to judicial action. It is now for the 17247, April 28, 1962, 4 SCRA 1228]. In this connection, the Court said:
Court to determine whether resolution of the contract by
petitioner was warranted. It follows that, in any case wherein there has been a partial or
irregular compliance with the provisions in a contract for special
We hold that resolution by petitioners of the contract was indemnification in the event of failure to comply with its terms,
ineffective and inoperative against private respondent for lack courts will rigidly apply the doctrine of strict construction and
of notice of resolution, as held in the U.P. v. against the enforcement in its entirety of the industry.' where it
Angeles case, supra. is clear from the terms of the contract that the amount or
character of the indemnity is fixed without regard to the
probable damages which might be anticipated as a result of a
xxx xxx xxx breach of the terms of the contract; or, in other words, where
the indemnity provided for is essentially a mere penalty having
The indispensability of notice of cancellation to the buyer was for its principal object the enforcement of compliance with the
to be later underscored in Republic Act No. 65856, entitled "An corporations; (Laureano v. Kilayco, 32 Phil. 194 (1943).
Act to Provide Protection to Buyers of Real Estate on
Installment Payments." which took effect on September 14-15). This principle was reiterated in Makati Development Corp. v. Empire
when it specifically provided: Insurance Co. [G.R. No. L-21780, June 30, 1967, 20 SCRA 557] where
the Court affirmed the judgment of the Court of First Instance reducing the
Sec. 3 (b) ... the actual cataract, of the contract shall take place subdivision lot buyer's liability from the stipulated P12,000.00 to Plaintiffs
thirty days from receipt by the buyer of the notice of after finding that he had partially performed his obligation to complete at
cancellation or the demand for rescission of the contract by a least fifty percent (50%) of his house within two (2) years from March 31,
notarial act and upon full payment of the cash surrender value 1961, fifty percent (50%) of the house having been completed by the end
to the buyer. of April 1961.

There is no denying that in the instant case the resolution or rescission of WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED
the Contract to Sell was valid. Neither can it be said that the cancellation as to the amount forfeited which is reduced to fifty percent (50%) of the
of the contract was ineffective for failure of private respondents to give amount already paid or P23,656.32 and AFFIRMED as to all other
petitioners notice thereof as petitioners were informed cancelled private respects.
respondent that the contract was cancelled in the letter dated April 6, 1967
(Exh. "D"). As R.A. No. 65856, was not yet effective, the notice of Private respondent is ordered to refund to petitioners the excess of
cancellation need not be by notarial act, private respondent's letter being P23,656.32 within thirty (30) days from the date of finality of this judgment.
sufficient compliance with the legal requirement.
SO ORDERED.
The facts of 'fee instant case should be distinguished from those in
the Palay Inc. case, as such distinction will explain why the Court in said
case invalidated the resolution of the contract. In said case, the
subdivision developer, without informing the buyer of the cancellation of
the contract, resold the lot to another person. The lot buyer in said case
was only informed of the resolution of the contract some six years later
after the developer, rejected his request for authority to assign his rights
under the contract. Such a situation does not obtain illness: the instant
case. In fact, petitioners were informed of the cancellation of their contract
in April 1967, when private respondent wrote them the letter dated April 6,
1967 (Exh. "D"), and within a month they were able to file a complaint
against Private respondent.

While the resolution of the contract and the forfeiture of the amounts
already paid are valid and binding upon petitioners, the Court is convinced
that the forfeiture of the amount of P5.00 although it includes the
accumulated fines for petitioners' failure to construct a house as required
by the contract, is clearly iniquitous considering that the contract price is
only P6,173.15 The forfeiture of fifty percent (50%) of the amount already
paid, or P3,283.75 appears to be a fair settlement. In arriving at this
amount the Court gives weight to the fact that although petitioners have
been delinquent in paying their amortizations several times to the
prejudice of private respondent, with the cancellation of the contract the
possession of the lot review.... to private respondent who is free to resell it
GR No. 210215, Dec 09, 2015 - ROGELIO S. NOLASCO v. CELERINO S. CUERPO +
The injured party may choose between the fulfillment and the rescission of the obligation,
PERLAS-BERNABE, J.: Assailed in this petition for review on certiorari[1] are the with the payment of damages in either case. He may also seek rescission, even after he
Decision[2] dated June 17, 2013 and the Resolution[3]dated November 19, 2013 of the Court of has chosen fulfillment, if the latter should become impossible.
Appeals (CA) in CA-G.R. CV No. 95353, which affirmed in toto the Decision[4] dated March 1,
2010 of the Regional Trial Court of Quezon City, Branch 81 (RTC) in Civil Case No. Q-08-63860 The court shall decree the rescission claimed, unless there be just cause authorizing the
ordering the rescission of the Contract to Sell executed by herein parties and the return of the fixing of a period.
amounts already paid by respondents Celerino S. Cuerpo, Joselito Encabo, Joseph Ascutia,
and Domilo Lucenario (respondents) to petitioners Rogelio S. Nolasco, Nicanora N. Guevara,
This is understood to be without prejudice to the rights of third persons who have
Leonarda N. Elpedes, Heirs of Arnulfo S. Nolasco, and Remedios M. Nolasco, represented by
Elenita M. Nolasco (petitioners), as well as the remaining post-dated checks issued by
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
respondent Celerino S. Cuerpo representing the remaining monthly amortizations, all in "More accurately referred to as resolution, the right of rescission under Article 1191 is
connection with the said contract. predicated on a breach of faith that violates the reciprocity between the parties to the
contract. This retaliatory remedy is given to the contracting party who suffers the injurious
The Facts breach on the premise that it is 'unjust that a party be held bound to fulfill his promises
when the other violates his.'"[25] Note that the rescission (or resolution) of a contract will
On July 22, 2008, petitioners and respondents entered into a Contract to Sell[5] (subject not be permitted for a slight or casual breach, but only for such substantial and
contract) over a 165,775-square meter parcel of land located in Barangay San Isidro, fundamental violations as would defeat the very object of the parties in making the
Rodriguez, Rizal covered by Original Certificate of Title No. 152 (subject land).[6] The subject agreement.[26] Ultimately, the question of whether a breach of contract is substantial
contract provides, inter alia, that: (a) the consideration for the sale is P33,155,000.00 payable depends upon the attending circumstances.[27]
as follows: down payment in the amount of P11,604,250.00 inclusive of the amount of
P2,000,000.00 previously paid by respondents as earnest money/reservation fee, and the In the instant case, both the RTC and the CA held that petitioners were in substantial
remaining balance of P21,550,750.00 payable in 36 monthly installments, each in the amount of breach of paragraph 7 of the subject contract as they did not cause the transfer of the
P598,632.00 through post-dated checks; (b) in case any of the checks is dishonored, the
property to their names from one Edilberta N. Santos within 90 days from the execution of
amounts already paid shall be forfeited in petitioners' favor, and the latter shall be entitled to
cancel the subject contract without judicial recourse in addition to other appropriate legal action;
said contract.[28]
(c) respondents are not entitled to possess the subject land until full payment of the purchase
price; (d) petitioners shall transfer the title over the subject land from a certain Edilberta N. The courts a quo are mistaken.
Santos to petitioners' names, and, should they fail to do so, respondents may cause the said
transfer and charge the costs incurred against the monthly amortizations; and (e) upon full Paragraph 7 of the subject contract state in full:
payment of the purchase price, petitioners shall transfer title over the subject land to
respondents.[7] However, respondents sent petitioners a letter[8] dated November 7, 2008 7. [Petitioners] shall, within ninety (90) days from the signing of [the subject contract],
seeking to rescind the subject contract on the ground of financial difficulties in complying with cause the completion of the transfer of registration of title of the property subject of [the
the same. They also sought the return of the amount of P12,202,882.00 they had paid to subject contract], from Edilberta N. Santos to their names, at [petitioners'] own
petitioners.[9] As their letter went unheeded, respondents filed the instant complaint[10] for expense. Failure on the part of [petitioners] to undertake the foregoing within the
rescission before the RTC.[11] prescribed period shall automatically authorize [respondents] to undertake the
same in behalf of [petitioners] and charge the costs incidental to the monthly
In their defense,[12] petitioners countered that respondents' act is a unilateral cancellation of the amortizations upon due date. (Emphasis and underscoring supplied)
subject contract as the former did not consent to it. Moreover, the ground of financial difficulties
A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the
is not among the grounds provided by law to effect a valid rescission.[13]
CA were indeed correct in finding that petitioners failed to perform their obligation to
In view of petitioners' failure to file the required pre-trial brief, they were declared "as in default" effect the transfer of the title to the subject land from one Edilberta N. Santos to their
and, consequently, respondents were allowed to present their evidence ex-parte.[14] names within the prescribed period, said courts erred in concluding that such failure
constituted a substantial breach that would entitle respondents to rescind (or resolve) the
The RTC Ruling subject contract. To reiterate, for a contracting party to be entitled to rescission (or
resolution) in accordance with Article 1191 of the Civil Code, the other contracting party
In a Decision[15] dated March 1, 2010, the RTC ruled in favor of respondents and, must be in substantial breach of the terms and conditions of their contract. A substantial
accordingly, ordered: (a) the rescission of the subject contract; and (b) the return of the breach of a contract, unlike slight and casual breaches thereof, is a fundamental breach
amounts already paid by respondents to petitioners, as well as the remaining post-dated that defeats the object of the parties in entering into an agreement.[29] Here, it cannot be
checks issued by respondent Celerino S. Cuerpo representing the remaining monthly said that petitioners' failure to undertake their obligation under paragraph 7 defeats the
amortizations.[16] object of the parties in entering into the subject contract, considering that the same
paragraph provides respondents contractual recourse in the event of petitioners' non-
It found petitioners to have substantially breached paragraph 7 of the subject contract performance of the aforesaid obligation, that is, to cause such transfer themselves in
which states that "[t]he [petitioners] shall, within ninety (90) days from the signing of [the behalf and at the expense of petitioners.
subject contract] cause the completion of the transfer of registration of title of the property
subject of [the said contract], from Edilberta N. Santos to their names, at [petitioners'] Indubitably, there is no substantial breach of paragraph 7 on the part of petitioners that
own expense."[17] As such, respondents were entitled to rescission under Article 1191 of would necessitate a rescission (or resolution) of the subject contract. As such, a reversal
the Civil Code.[18] of the rulings of the RTC and the CA is in order.

Dissatisfied, petitioners appealed[19] to the CA. The foregoing notwithstanding, the Court cannot grant petitioners' prayer in the instant
petition to order the cancellation of the subject contract and the forfeiture of the amounts
The CA Ruling already paid by respondents on account of the latter's failure to pay its monthly
amortizations,[30] simply because in their Answer with Compulsory Counterclaim and
In a Decision[20]dated June 17, 2013, the CA affirmed the RTC ruling. It agreed with the Motion for Summary Judgment[31] filed before the RTC, petitioners neither prayed for this
RTC that petitioners substantially breached paragraph 7 of the subject contract when specific relief nor argued that they were entitled to the same. Worse, petitioners were
they did not effect the transfer of the subject land from Edilberta N. Santos to petitioners' declared "as in default" for failure to file the required pre-trial brief and, thus, failed to
names within ninety (90) days from the execution of said contract, thus, entitling present any evidence in support of their defense.[32]It is settled that "[w]hen a party
respondents to rescind the same. In this relation, the CA held that under the present deliberately adopts a certain theory and the case is decided upon that theory in the court
circumstances, the forfeiture of the payments already made by respondents to petitioners below, he will not be permitted to change the same on appeal, because to permit him to
is clearly improper and unwarranted.[21] do so would be unfair to the adverse party."[33] The Court's pronouncement in Peña v.
Spouses Tolentino[34] is instructive on this matter, to wit:
Aggrieved, petitioners moved for reconsideration,[22] which was denied in a
Resolution[23] dated November 19, 2013; hence, this petition. Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals, is that a
party cannot change his theory of the case or his cause of action on appeal. This rule
The Issue Before the Court affirms that "courts of justice have no jurisdiction or power to decide a question not in
issue." Thus, a judgment that goes beyond the issues and purports to adjudicate
The core issue for the Court's resolution is whether or not the CA correctly affirmed the something on which the court did not hear the parties is not only irregular but also
rescission of the subject contract and the return of the amounts already paid by extrajudicial and invalid. The legal theory under which the controversy
respondents to petitioners, as well as the remaining post-dated checks issued by was heard and decided in the trial court should be the same theory under which
respondent Celerino S. Cuerpo representing the remaining monthly amortizations. the review on appeal is conducted. Otherwise, prejudice will result to the adverse
party. We stress that points of law, theories, issues, and arguments not adequately
The Court's Ruling brought to the attention of the lower court will not be ordinarily considered by a
reviewing court, inasmuch as they cannot be raised for the first time on appeal.
The petition is partially meritorious. This would be offensive to the basic rules of fair play, justice, and due
process.[35] (Emphasis and underscoring supplied)
In reciprocal obligations, either party may rescind - or more appropriately, resolve - the WHEREFORE, the petition is PARTIALLY GRANTED. Accordingly, the Decision dated
contract upon the other party's substantial breach of the obligation/s he had assumed June 17, 2013 and the Resolution dated November 19, 2013 of the Court of Appeals in
thereunder.[24] This is expressly provided for in Article 1191 of the Civil Code which CA-G.R. CV No. 95353 are hereby REVERSEDand SET ASIDE. The Contract to Sell
states: executed by the parties on July 22, 2008 remains VALID and SUBSISTING.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of SO ORDERED.
the obligors should not comply with what is incumbent upon him.
G.R. No. 188986 GALILEO A. MAGLASANG v. NORTHWESTERN UNIVERSITY + Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a
Complaint[10] for breach of contract and prayed for the following sums: P1.97 million,
SERENO, C.J.: Before this Court is a Rule 45 Petition, seeking a review of the 27 July representing the amount that it would have earned, had Northwestern not stopped it from
2009 Court of Appeals (CA) Decision in CA-G.R. CV No. 88989,[1] which modified the performing its tasks under the two contracts; at least P100,000 as moral damages; at
Regional Trial Court (RTC) Decision of 8 January 2007 in Civil Case No. Q-04- least P100,000 by way of exemplary damages; at least P100,000 as attorney's fees and
53660.[2] The CA held that petitioner substantially breached its contracts with respondent litigation expenses; and cost of suit. Petitioner alleged that Northwestern breached the
for the installation of an integrated bridge system (IBS). contracts by ordering the work stoppage and thus preventing the installation of the
materials for the IBS.
The antecedent facts are as follows:[3]
Northwestern denied the allegation. In its defense, it asserted that since the equipment
On 10 June 2004, respondent Northwestern University (Northwestern), an educational delivered were not in accordance with the specifications provided by the contracts, all
institution offering maritime-related courses, engaged the services of a Quezon City- succeeding works would be futile and would entail unnecessary expenses. Hence, it
based firm, petitioner GL Enterprises, to install a new IBS in Laoag City. The installation prayed for the rescission of the contracts and made a compulsory counterclaim for actual,
of an IBS, used as the students' training laboratory, was required by the Commission on moral, and exemplary damages, and attorney's fees.
Higher Education (CHED) before a school could offer maritime transportation programs.[4]
The RTC held both parties at fault. It found that Northwestern unduly halted the
Since its IBS was already obsolete, respondent required petitioner to supply and install operations, even if the contracts called for a completed project to be evaluated by the
specific components in order to form the most modern IBS that would be acceptable to CHED. In turn, the breach committed by GL Enterprises consisted of the delivery of
CHED and would be compliant with the standards of the International Maritime substandard equipment that were not compliant with IMO and CHED standards as
Organization (IMO). For this purpose, the parties executed two contracts. required by the agreement.

The first contract partly reads:[5] Invoking the equitable principle that "each party must bear its own loss," the trial court
treated the contracts as impossible of performance without the fault of either party or as
That in consideration of the payment herein mentioned to be made by the First Party having been dissolved by mutual consent. Consequently, it ordered mutual restitution,
(defendant), the Second Party agrees to furnish, supply, install and integrate the most which would thereby restore the parties to their original positions as follows:[11]
modern INTEGRATED BRIDGE SYSTEM located at Northwestern University Mock Boat
in accordance with the general conditions, plans and specifications of this contract. Accordingly, plaintiff is hereby ordered to restore to the defendant all the equipment
obtained by reason of the First Contract and refund the downpayment of P1,000,000.00
SUPPLY & INSTALLATION OF THE FOLLOWING: to the defendant; and for the defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-continuance of the installation and integration
INTEGRATED BRIDGE SYSTEM project. In the event that restoration of the old equipment taken from defendant's
premises is no longer possible, plaintiff is hereby ordered to pay the appraised value of
A. 2-RADAR SYSTEM defendant's old equipment at P1,000,000.00. Likewise, in the event that restoration of the
B. OVERHEAD CONSOLE MONITORING SYSTEM equipment and materials delivered by the plaintiff to the defendant is no longer possible,
C. ENGINE TELEGRAPH SYSTEM defendant is hereby ordered to pay its appraised value at P1,027,480.00.
D. ENGINE CONTROL SYSTEM
E. WEATHER CONTROL SYSTEM Moreover, plaintiff is likewise ordered to restore and return all the equipment obtained by
F. ECDIS SYSTEM reason of the Second Contract, or if restoration or return is not possible, plaintiff is
G. STEERING WHEEL SYSTEM ordered to pay the value thereof to the defendant.
H. BRIDGE CONSOLE
SO ORDERED.
TOTAL COST: PhP 3,800,000.00
LESS: OLD MARITIME Aggrieved, both parties appealed to the CA. With each of them pointing a finger at the
EQUIPMENT TRADE-IN VALUE 1,000,000.00 other party as the violator of the contracts, the appellate court ultimately determined that
DISCOUNT 100,000.00 GL Enterprises was the one guilty of substantial breach and liable for attorney's fees.
PROJECT COST (MATERIALS & INSTALLATION) PhP 2,700,000.00
(Emphasis in the original) The CA appreciated that since the parties essentially sought to have an IBS compliant
with the CHED and IMO standards, it was GL Enterprises' delivery of defective
The second contract essentially contains the same terms and conditions as follows:[6] equipment that materially and substantially breached the contracts. Although the
contracts contemplated a completed project to be evaluated by CHED, Northwestern
That in consideration of the payment herein mentioned to be made by the First Party could not just sit idly by when it was apparent that the components delivered were
(defendant), the Second Party agrees to furnish, supply, install & integrate the most substandard.
modern INTEGRATED BRIDGE SYSTEM located at Northwestern University MOCK
BOAT in accordance with the general conditions, plans and specifications of this The CA held that Northwestern only exercised ordinary prudence to prevent the inevitable
contract. rejection of the IBS delivered by GL Enterprises. Likewise, the appellate court
disregarded petitioner's excuse that the equipment delivered might not have been the
SUPPLY & INSTALLATION OF THE FOLLOWING: components intended to be installed, for it would be contrary to human experience to
deliver equipment from Quezon City to Laoag City with no intention to use it.
1. ARPA RADAR SIMULATION ROOM
xxxx This time, applying Article 1191 of the Civil Code, the CA declared the rescission of the
2. GMDSS SIMULATION ROOM contracts. It then proceeded to affirm the RTC's order of mutual restitution. Additionally,
xxxx the appellate court granted P50,000 to Northwestern by way of attorney's fees.
TOTAL COST: PhP 270,000.00
(Emphasis in the original) Before this Court, petitioner rehashes all the arguments he had raised in the courts a
quo.[12] He maintains his prayer for actual damages equivalent to the amount that he
Common to both contracts are the following provisions: (1) the IBS and its components would have earned, had respondent not stopped him from performing his tasks under the
must be compliant with the IMO and CHED standard and with manuals for two contracts; moral and exemplary damages; attorney's fees; litigation expenses; and
simulators/major equipment; (2) the contracts may be terminated if one party commits a cost of suit.
substantial breach of its undertaking; and (3) any dispute under the agreement shall first
be settled mutually between the parties, and if settlement is not obtained, resort shall be Hence, the pertinent issue to be resolved in the instant appeal is whether the CA gravely
sought in the courts of law. erred in (1) finding substantial breach on the part of GL Enterprises; (2) refusing
petitioner's claims for damages, and (3) awarding attorney's fees to Northwestern.
Subsequently, Northwestern paid P1 million as down payment to GL Enterprises. The
former then assumed possession of Northwestern's old IBS as trade-in payment for its RULING OF THE COURT
service. Thus, the balance of the contract price remained at P1.97 million.[7]
Substantial Breaches of the Contracts
Two months after the execution of the contracts, GL Enterprises technicians delivered
various materials to the project site. However, when they started installing the
Although the RTC and the CA concurred in ordering restitution, the courts a quo,
components, respondent halted the operations. GL Enterprises then asked for an
explanation.[8]
however, differed on the basis thereof. The RTC applied the equitable principle of
mutual fault, while the CA applied Article 1191 on rescission.
Northwestern justified the work stoppage upon its finding that the delivered equipment
were substandard.[9] It explained further that GL Enterprises violated the terms and The power to rescind the obligations of the injured party is implied in reciprocal
conditions of the contracts, since the delivered components (1) were old; (2) did not have obligations, such as in this case. On this score, the CA correctly applied Article
instruction manuals and warranty certificates; (3) contained indications of being 1191, which provides thus:
reconditioned machines; and (4) did not meet the IMO and CHED standards. Thus,
Northwestern demanded compliance with the agreement and suggested that GL
Enterprises meet with the former's representatives to iron out the situation. 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.
instead of one used in ships. Logically, by no stretch of the imagination could these
The injured party may choose between the fulfillment and the rescission of the form part of the most modern IBS compliant with the IMO and CHED standards.
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 Even in the instant appeal, GL Enterprises does not refute that the equipment it
impossible. delivered was substandard. However, it reiterates its rejected excuse that
Northwestern should have made an assessment only after the completion of the
The court shall decree the rescission claimed, unless there be just cause IBS.[17] Thus, petitioner stresses that it was Northwestern that breached the
authorizing the fixing of a period. agreement when the latter halted the installation of the materials for the IBS, even if
the parties had contemplated a completed project to be evaluated by CHED.
The two contracts require no less than substantial breach before they can be However, as aptly considered by the CA, respondent could not just "sit still and wait
rescinded. Since the contracts do not provide for a definition of substantial breach for such day that its accreditation may not be granted by CHED due to the apparent
that would terminate the rights and obligations of the parties, we apply the definition substandard equipment installed in the bridge system."[18] The appellate court
found in our jurisprudence. correctly emphasized that, by that time, both parties would have incurred more
costs for nothing.
This Court defined in Cannu v. Galang[13] that substantial, unlike slight or casual
breaches of contract, are fundamental breaches that defeat the object of the parties Additionally, GL Enterprises reasons that, based on the contracts, the materials that
in entering into an agreement, since the law is not concerned with trifles.[14] were hauled all the way from Quezon City to Laoag City under the custody of the
four designated installers might not have been the components to be
The question of whether a breach of contract is substantial depends upon the used.[19] Without belaboring the point, we affirm the conclusion of the CA and the
attending circumstances.[15] RTC that the excuse is untenable for being contrary to human experience.[20]

In the case at bar, the parties explicitly agreed that the materials to be delivered Given that petitioner, without justification, supplied substandard components for the
must be compliant with the CHED and IMO standards and must be complete with new IBS, it is thus clear that its violation was not merely incidental, but directly
manuals. Aside from these clear provisions in the contracts, the courts a related to the essence of the agreement pertaining to the installation of an IBS
quo similarly found that the intent of the parties was to replace the old IBS in order compliant with the CHED and IMO standards. Consequently, the CA correctly found
to obtain CHED accreditation for Northwestern's maritime-related courses. substantial breach on the part of petitioner.

According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as In contrast, Northwestern's breach, if any, was characterized by the appellate court
amended by CMO No. 13, Series of 2005, any simulator used for simulator-based as slight or casual.[21] By way of negative definition, a breach is considered casual if
training shall be capable of simulating the operating capabilities of the shipboard it does not fundamentally defeat the object of the parties in entering into an
equipment concerned. The simulation must be achieved at a level of physical agreement. Furthermore, for there to be a breach to begin with, there must be a
realism appropriate for training objectives; include the capabilities, limitations and "failure, without legal excuse, to perform any promise which forms the whole or part
possible errors of such equipment; and provide an interface through which a trainee of the contract."[22]
can interact with the equipment, and the simulated environment.
Here, as discussed, the stoppage of the installation was justified. The action of
Given these conditions, it was thus incumbent upon GL Enterprises to supply the Northwestern constituted a legal excuse to prevent the highly possible rejection of
components that would create an IBS that would effectively facilitate the learning of the IBS. Hence, just as the CA concluded, we find that Northwestern exercised
the students. ordinary prudence to avert a possible wastage of time, effort, resources and also of
the ?2.9 million representing the value of the new IBS.
However, GL Enterprises miserably failed in meeting its responsibility. As contained
in the findings of the CA and the RTC, petitioner supplied substandard equipment Actual Damages, Moral and Exemplary
when it delivered components that (1) were old; (2) did not have instruction manuals Damages, and Attorney's Fees
and warranty certificates; (3) bore indications of being reconditioned machines; and,
all told, (4) might not have met the IMO and CHED standards. Highlighting the As between the parties, substantial breach can clearly be attributed to GL
defects of the delivered materials, the CA quoted respondent's testimonial evidence Enterprises. Consequently, it is not the injured party who can claim damages under
as follows:[16] Article 1170 of the Civil Code. For this reason, we concur in the result of the CA's
Decision denying petitioner actual damages in the form of lost earnings, as well as
moral and exemplary damages.
Q: In particular which of these equipment of CHED requirements were not complied
with? With respect to attorney's fees, Article 2208 of the Civil Code allows the grant
thereof when the court deems it just and equitable that attorney's fees should be
A: The Radar Ma'am, because they delivered only 10-inch PPI, that is the monitor recovered. An award of attorney's fees is proper if one was forced to litigate and
of the Radar. That is 16-inch and the gyrocompass with two (2) repeaters and the incur expenses to protect one's rights and interest by reason of an unjustified act or
history card. The gyrocompass - there is no marker, there is no model, there is no omission on the part of the party from whom the award is sought.[23]
serial number, no gimbal, no gyroscope and a bulb to work it properly to point the
true North because it is very important to the Cadets to learn where is the true North Since we affirm the CA's finding that it was not Northwestern but GL Enterprises
being indicated by the Master Gyrocompass. that breached the contracts without justification, it follows that the appellate court
correctly awarded attorney's fees to respondent. Notably, this litigation could have
xxxx altogether been avoided if petitioner heeded respondent's suggestion to amicably
settle; or, better yet, if in the first place petitioner delivered the right materials as
Q: Mr. Witness, one of the defects you noted down in this history card is that the required by the contracts.
master gyrocompass had no gimbals, gyroscope and balls and was replaced with
an ordinary electric motor. So what is the Implication of this? IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in
A: Because those gimbals, balls and the gyroscope it let the gyrocompass to work CA-G.R. CV No. 88989 is hereby AFFIRMED.
so it will point the true North but they being replaced with the ordinary motor used
for toys so it will not indicate the true North. SO ORDERED.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must[,] to learn into school
where is the true North and what is that equipment to be used on board.
Q: One of the defects is that the steering wheel was that of an ordinary automobile.
And what is the implication of this?
A: Because. on board Ma'am, we are using the real steering wheel and the cadets
will be implicated if they will notice that the ship have the same steering wheel as
the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater was only refurbished and it
has no serial number. What is wrong with that?
A: It should be original Ma'am because this gyro repeater, it must to repeat also the
true [N]orth being indicated by the Master Gyro Compass so it will not work
properly, I don't know it will work properly. (Underscoring supplied)

Evidently, the materials delivered were less likely to pass the CHED standards,
because the navigation system to be installed might not accurately point to the true
north; and the steering wheel delivered was one that came from an automobile,
G.R. No. 185440 VICELET LALICON and VICELEN LALICON, Petitioners, constituted on it. Indeed, the prohibition against resale remained even after the land
- versus - NATIONAL HOUSING AUTHORITY, Respondent. July 13, 2011 had been released from the mortgage. The five-year restriction against resale,
counted from the release of the property from the NHA mortgage, measures out the
DECISION desired hold that the government felt it needed to ensure that its objective of providing
cheap housing for the homeless is not defeated by wily entrepreneurs.
ABAD, J.: This case is about (a) the right of the National Housing Authority to seek
annulment of sales made by housing beneficiaries of lands they bought from it within the
The Lalicons claim that the NHA unreasonably ignored their letters that asked for
prohibited period and (b) the distinction between actions for rescission instituted under
Article 1191 of the Civil Code and those instituted under Article 1381 of the same code.
consent to the resale of the subject property. They also claim that their failure to get
NHAs prior written consent was not such a substantial breach that warranted
The Facts and the Case rescission.

On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale But the NHA had no obligation to grant the Lalicons request for exemption from the
with Mortgage over a Quezon City lot[1] in favor of the spouses Isidro and Flaviana Alfaro five-year restriction as to warrant their proceeding with the sale when such consent
(the Alfaros). In due time, the Quezon City Registry of Deeds issued Transfer Certificate of was not immediately forthcoming. And the resale without the NHAs consent is a
Title (TCT) 277321 in the name of the Alfaros. The deed of sale provided, among others, substantial breach. The essence of the governments socialized housing program is
that the Alfaros could sell the land within five years from the date of its release from to preserve the beneficiarys ownerships for a reasonable length of time, here at least
mortgage without NHAs prior written consent. Thus: within five years from the time he acquired it free from any encumbrance.

x x x. 5. Except by hereditary succession, the lot herein sold and Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the
conveyed, or any part thereof, cannot be alienated, transferred Civil Code the action to claim rescission must be commenced within four years from
or encumbered within five (5) years from the date of release the time of the commission of the cause for it.
of herein mortgage without the prior written consent and
authority from the VENDOR-MORTGAGEE (NHA). x x
But an action for rescission can proceed from either Article 1191 or Article 1381. It
x.[2] (Emphasis supplied)
has been held that Article 1191 speaks of rescission in reciprocal obligations within
The mortgage and the restriction on sale were annotated on the Alfaros title on April 14, the context of Article 1124 of the Old Civil Code which uses the term
1981. resolution. Resolution applies only to reciprocal obligations such that a breach on the
part of one party constitutes an implied resolutory condition which entitles the other
About nine years later or on November 30, 1990, while the mortgage on the land subsisted, party to rescission. Resolution grants the injured party the option to pursue, as
the Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, principal actions, either a rescission or specific performance of the obligation, with
Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the payment of damages in either case.
Lalicons). Cecilia, who had the means, had a house built on the property and paid for the
amortizations. After full payment of the loan or on March 21, 1991 the NHA released the Rescission under Article 1381, on the other hand, was taken from Article 1291 of the
mortgage. Six days later or on March 27 Victor transferred ownership of the land to his Old Civil Code, which is a subsidiary action, not based on a partys breach of
illegitimate daughters. obligation.[4] The four-year prescriptive period provided in Article 1389 applies to
rescissions under Article 1381.
About four and a half years after the release of the mortgage or on October 4, 1995, Victor .
registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation
Here, the NHA sought annulment of the Alfaros sale to Victor because they violated
of his parents title. The register of deeds issued TCT 140646 in Victors name. On
December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo
the five-year restriction against such sale provided in their contract. Thus, the CA
Ong, and Ida See. Subsequently, on February 14, 1997 Victor sold the property to Chua, correctly ruled that such violation comes under Article 1191 where the applicable
one of the mortgagees, resulting in the cancellation of his TCT 140646 and the issuance prescriptive period is that provided in Article 1144 which is 10 years from the time the
of TCT N-172342 in Chuas name. right of action accrues. The NHAs right of action accrued on February 18, 1992 when
it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed
A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional its action for annulment of sale on April 10, 1998, it did so well within the 10-year
Trial Court (RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the prescriptive period.
latters 1990 sale of the land to their son Victor, and the subsequent sale of the same to
Chua, made in violation of NHA rules and regulations. Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers
in good faith. Since the five-year prohibition against alienation without the NHAs
On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the written consent was annotated on the propertys title, the Lalicons very well knew that
Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its sale the Alfaros sale of the property to their father, Victor, even before the release of the
to them since its right to do so had already prescribed, applying Article 1389 of the New mortgage violated that prohibition.
Civil Code. The NHA and the Lalicons, who intervened, filed their respective appeals to the
Court of Appeals (CA).
As regards Chua, she and a few others with her took the property by way of mortgage
On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to
from Victor in 1995, well within the prohibited period. Chua knew, therefore, based
rescission. The CA declared TCT 277321 in the name of the Alfaros and all subsequent on the annotated restriction on the property, that Victor had no right to mortgage the
titles and deeds of sale null and void. It ordered Chua to reconvey the subject land to the property to her group considering that the Alfaros could not yet sell the same to him
NHA but the latter must pay the Lalicons the full amount of their amortization, plus interest, without the NHAs consent. Consequently, although Victor later sold the property to
and the value of the improvements they constructed on the property. Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness
of the illegality of Victors acquisition of the property from the Alfaros.
The Issues Presented
Lastly, since mutual restitution is required in cases involving rescission under Article
The issues in this case are: 1191,[5] the NHA must return the full amount of the amortizations it received for the
property, plus the value of the improvements introduced on the same, with 6%
1. Whether or not the CA erred in holding that the Alfaros violated their contract with interest per annum from the time of the finality of this judgment. The Court will no
the NHA; longer dwell on the matter as to who has a better right to receive the amount from
2. Whether or not the NHAs right to rescind has prescribed; and the NHA: the Lalicons, who paid the amortizations and occupied the property, or
3. Whether or not the subsequent buyers of the land acted in good faith and their Chua, who bought the subject lot from Victor and obtained for herself a title to the
rights, therefore, cannot be affected by the rescission. same, as this matter was not raised as one of the issues in this case. Chuas appeal
to the Court in a separate case[6] having been denied due course and NHA failing to
The Rulings of the Court file its own petition for review, the CA decision ordering the restitution in favor of the
Lalicons has now become final and binding against them.
First. The contract between the NHA and the Alfaros forbade the latter from selling
the land within five years from the date of the release of the mortgage in their WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals in CA-G.R.
favor.[3] But the Alfaros sold the property to Victor on November 30, 1990 even before CV 82298 dated August 1, 2008.
the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the SO ORDERED.
Alfaros violated the five-year restriction, thus entitling the NHA to rescind the contract.

The Lalicons contend, however, that the Alfaros did not violate the five-year
restriction against resale since what the contract between the parties barred was a
transfer of the property within five years from the release of the mortgage, not a
transfer of the same prior to such release.

But the Lalicons are trying to be clever. The restriction clause is more of a condition
on the sale of the property to the Alfaros rather than a condition on the mortgage
[G.R. No. 159823, February 18, 2013] TEODORO A. request, Advanced Foundation’s lawyers had threatened him with legal action.
REYES, Petitioner, v. ETTORE ROSSI, Respondents.
DECISION At the same time, Reyes assailed the jurisdiction of the Office of the City Prosecutor
of Makati over the criminal charges against him on the ground that he had issued
BERSAMIN, J.: The rescission of a contract of sale is not a prejudicial question that the checks in Quezon City; as well as argued that the Office of the City Prosecutor
will warrant the suspension of the criminal proceedings commenced to prosecute of Makati should suspend the proceedings because of the pendency in the RTC of
the buyer for violations of the Bouncing Checks Law (Batas Pambansa Blg. 22) the civil action for rescission of contract that posed a prejudicial question as to the
arising from the dishonor of the checks the buyer issued in connection with the sale. criminal proceedings.8
Antecedents
On November 20, 1998, the Assistant City Prosecutor handling the preliminary
On October 31, 1997, petitioner Teodoro A. Reyes (Reyes) and Advanced investigation recommended the dismissal of the charges of estafa and the
Foundation Construction Systems Corporation (Advanced Foundation), represented suspension of the proceedings relating to the violation of Batas Pambansa Blg. 22
by its Executive Project Director, respondent Ettore Rossi (Rossi), executed a deed based on a prejudicial question.9
of conditional sale involving the purchase by Reyes of equipment consisting of a
Warman Dredging Pump HY 300A worth P10,000,000.00. The parties agreed On January 5, 1999, the City Prosecutor of Makati approved the recommendation of
therein that Reyes would pay the sum of P3,000,000.00 as downpayment, and the the handling Assistant City Prosecutor,10 stating:
balance of P7,000,000.00 through four post-dated checks. Reyes complied, but in
January 1998, he requested the restructuring of his obligation under the deed of WHEREFORE, premises considered, the complaint for Estafa is respectfully
conditional sale by replacing the four post-dated checks with nine post-dated recommended to be dismissed, as upon approval, it is hereby dismissed.
checks that would include interest at the rate of P25,000.00/month accruing on the
unpaid portion of the obligation on April 30, 1998, June 30, 1998, July 31, 1998, Further, it is respectfully recommended that the proceedings in the charge for
September 30, 1998 and October 31, 1998.1 Violation of Batas Pambansa Bilang 22 against the respondent be suspended until
the prejudicial question raised in Civil Case Q-98-35109 for Rescission of Contract
Advanced Foundation assented to Reyes’ request, and returned the four checks. In and Damages which is now pending with the RTC of Quezon City, Branch 224, has
turn, Reyes issued and delivered the following nine post-dated checks in the been duly resolved.
aggregate sum of P7,125,000.00 drawn against the United Coconut Planters
Bank,2 to wit: Rossi appealed the resolution of the City Prosecutor to the Department of Justice,
but the Secretary of Justice, by resolution of July 24, 2001, denied Rossi’s petition
Check No. Date Amount for review.
72807 April 30, 1998 P 25,000.00
79125 May 1, 1998 1,000,000.00 After the denial of his motion for reconsideration on April 29, 2002, Rossi
72802 May 30, 1998 2,000,000.00 challenged the resolutions of the Secretary of Justice by petition for certiorari in the
72808 June 30, 1998 25,000.00 CA.
72809 July 31, 1998 25,000.00 Ruling of the CA
72801 August 31, 1998 2,000,000.00
72810 September 30, 1998 25,000.00 In the petition for certiorari, Rossi insisted that the Secretary of Justice had
72811 October 31, 1998 25,000.00 committed grave abuse of discretion amounting to lack or excess of jurisdiction in
72903 November 30, 1998 2,000,000.00 upholding the suspension of the criminal proceedings by the City Prosecutor of
Makati on account of the existence of a prejudicial question, and in sustaining the
Rossi deposited three of the post-dated checks (i.e., No. 72807, No. 79125 and No. dismissal of the complaints for estafa.
72808) on their maturity dates in Advanced Foundation’s bank account at the PCI
Bank in Makati. Two of the checks were denied payment ostensibly upon Reyes’ On May 30, 2003, the CA promulgated its assailed decision,11 to wit:
instructions to stop their payment, while the third (i.e., No. 72802) was dishonored WHEREFORE, the foregoing considered, the assailed resolution is
for insufficiency of funds.3 hereby MODIFIED and the instant petition is GRANTED in so far as the issue of the
existence of prejudicial question is concerned. Accordingly, the order suspending
Rossi likewise deposited two more checks (i.e., No. 72809 and No. 72801) in the preliminary investigation in I.S. No. 98-40024-29 is REVERSED and SET
Advanced Foundation’s account at the PCI Bank in Makati, but the checks were ASIDE, and the dismissal of the complaint for estafa is AFFIRMED.
returned with the notation Account Closedstamped on them. He did not anymore
deposit the three remaining checks on the assumption that they would be similarly SO ORDERED.
dishonored.4 Issues

In the meanwhile, on July 29, 1998, Reyes commenced an action for rescission of Hence, this appeal by Reyes.
contract and damages in the Regional Trial Court in Quezon City (RTC). His
complaint, docketed as Civil Case No. Q98-35109 and entitled Teodoro A. Reyes v. Reyes asserts that the CA erred in ruling that there was no prejudicial question that
Advanced Foundation Construction Systems Corporation, sought judgment warranted the suspension of the criminal proceedings against him; that the petition
declaring the deed of conditional sale “rescinded and of no further force and effect,” suffered fatal defects that merited its immediate dismissal; that the CA was wrong in
and ordering Advanced Foundation to return the P3,000,000.00 downpayment with relying on the pronouncements in Balgos, Jr. v. Sandiganbayan12 and Umali v.
legal interest from June 4, 1998 until fully paid; and to pay to him attorney’s fees, Intermediate Appellate Court13 because the factual backgrounds thereat were not
and various kinds and amounts of damages.5 similar to that obtaining here; and that the Secretary of Justice did not commit any
grave abuse of discretion amounting to lack or excess of jurisdiction.
On September 8, 1998, Rossi charged Reyes with five counts of estafa and five
counts of violation of Batas Pambansa Blg. 22 in the Office of the City Prosecutor of In his comment,14 Rossi counters that the petition for review should be outrightly
Makati for the dishonor of Checks No. 72807, No. 72808, No. 72801, No. 72809 dismissed because of its fatal defect; that the CA did not err in ruling that the action
and No. 79125. Another criminal charge for violation of Batas Pambansa Blg. 22 for rescission of contract did not pose a prejudicial question that would suspend the
was lodged against Reyes in the Office of the City Prosecutor of Quezon City for criminal proceedings.
the dishonor of Check No. 72802.6
Reyes submitted a reply,15 declaring that the defect in the affidavit of service
On September 29, 1998, Reyes submitted his counter-affidavit in the Office of the attached to his petition for review had been due to oversight; that he had
City Prosecutor of Makati,7 claiming that the checks had not been issued for any substantially complied with the rules; that there existed a prejudicial question that
valuable consideration; that he had discovered from the start of using the dredging could affect the extent of his liability in light of Supreme Court Administrative
pump involved in the conditional sale that the Caterpillar diesel engine powering the Circular No. 12-2000; and that the CA erred in finding that the Secretary of Justice
pump had been rated at only 560 horsepower instead of the 1200 horsepower committed grave abuse of discretion.
Advanced Foundation had represented to him; that welding works on the pump had
neatly concealed several cracks; that on May 6, 1998 he had written to Advanced To be resolved is whether or not the civil action for rescission of the contract of sale
Foundation complaining about the misrepresentations on the specifications of the raised a prejudicial question that required the suspension of the criminal
pump and demanding documentary proof of Advanced Foundation’s ownership of prosecution for violation of Batas Pambansa Blg.22.
the pump; that he had caused the order to stop the payment of three checks (i.e.,
No. 72806, No. 72807 and No. 79125); that Advanced Foundation had replied to his Ruling
letter on May 8, 1998 by saying that the pump had been sold to him on an as is,
where is basis; that he had then sent another letter to Advanced Foundation on May The petition for review is without merit.
18, 1998 to reiterate his complaints and the request for proper documentation of
ownership; that he had subsequently discovered other hidden defects, prompting A prejudicial question generally comes into play in a situation where a civil action
him to write another letter; and that instead of attending to his complaints and and a criminal action are both pending, and there exists in the former an issue that
must first be determined before the latter may proceed, because howsoever the the criminal actions, reference is made to the elements of the crimes charged. The
issue raised in the civil action is resolved would be determinative juris et de jure of violation of Batas Pambansa Blg. 22 requires the concurrence of the following
the guilt or innocence of the accused in the criminal case.16 The rationale for the elements, namely: (1) the making, drawing, and issuance of any check to apply for
suspension on the ground of a prejudicial question is to avoid conflicting account or for value; (2) the knowledge of the maker, drawer, or issuer that at the
decisions.17 time of issue he does not have sufficient funds in or credit with the drawee bank for
the payment of the check in full upon its presentment; and (3) the subsequent
Two elements that must concur in order for a civil case to be considered a dishonor of the check by the drawee bank for insufficiency of funds or credit or
prejudicial question are expressly stated in Section 7, Rule 111 of the 2000 Rules of dishonor for the same reason had not the drawer, without any valid cause, ordered
Criminal Procedure, to wit: the bank to stop payment.21 The issue in the criminal actions upon the violations
of Batas Pambansa Blg. 22 is, therefore, whether or not Reyes issued the
Section 7. Elements of prejudicial question. – The elements of a prejudicial question dishonoured checks knowing them to be without funds upon presentment. On the
are: (a) the previously instituted civil action involves an issue similar or intimately other hand, the issue in the civil action for rescission is whether or not the breach in
related to the issue raised in the subsequent criminal action, and (b) the resolution the fulfilment of Advanced Foundation’s obligation warranted the rescission of the
of such issue determines whether or not the criminal action may proceed. conditional sale. If, after trial on the merits in the civil action, Advanced Foundation
would be found to have committed material breach as to warrant the rescission of
In Sabandal v. Tongco,18 the concept of prejudicial question is explained in this the contract, such result would not necessarily mean that Reyes would be absolved
wise: of the criminal responsibility for issuing the dishonored checks because, as the
aforementioned elements show, he already committed the violations upon the
dishonor of the checks that he had issued at a time when the conditional sale was
For a civil action to be considered prejudicial to a criminal case as to cause the still fully binding upon the parties. His obligation to fund the checks or to make
suspension of the criminal proceedings until the final resolution of the civil, the arrangements for them with the drawee bank should not be tied up to the future
following requisites must be present: (1) the civil case involves facts intimately event of extinguishment of the obligation under the contract of sale through
related to those upon which the criminal prosecution would be based; (2) in the rescission. Indeed, under Batas Pambansa Blg. 22, the mere issuance of a
resolution of the issue or issues raised in the civil action, the guilt or innocence of worthless check was already the offense in itself. Under such circumstances, the
the accused would necessarily be determined; and (3) jurisdiction to try said criminal proceedings for the violation of Batas Pambansa Blg. 22 could proceed
question must be lodged in another tribunal. despite the pendency of the civil action for rescission of the conditional sale.
If both civil and criminal cases have similar issues or the issue in one is intimately Accordingly, we agree with the holding of the CA that the civil action for the
related to the issues raised in the other, then a prejudicial question would likely rescission of contract was not determinative of the guilt or innocence of Reyes. We
exist, provided the other element or characteristic is satisfied. It must appear not consider the exposition by the CA of its reasons to be appropriate enough, to wit:
only that the civil case involves the same facts upon which the criminal prosecution
would be based, but also that the resolution of the issues raised in the civil action
would be necessarily determinative of the guilt or innocence of the accused. If the xxxx
resolution of the issue in the civil action will not determine the criminal responsibility
of the accused in the criminal action based on the same facts, or there is no We find merit in the petition.
necessity “that the civil case be determined first before taking up the criminal case,”
therefore, the civil case does not involve a prejudicial question. Neither is there a A careful perusal of the complaint for rescission of contract and damages reveals
prejudicial question if the civil and the criminal action can, according to law, proceed that the causes of action advanced by respondent Reyes are the alleged
independently of each other. misrepresentation committed by the petitioner and AFCSC and their alleged failure
to comply with his demand for proofs of ownership. On one hand, he posits that his
Contending that the rescission of the contract of sale constitutes a prejudicial consent to the contract was vitiated by the fraudulent act of the company in
question, Reyes posits that the resolution of the civil action will be determinative of misrepresenting the condition and quality of the dredging pump. Alternatively, he
whether or not he was criminally liable for the violations of Batas Pambansa Blg. claims that the company committed a breach of contract which is a ground for the
22. He states that if the contract would be rescinded, his obligation to pay under rescission thereof. Either way, he in effect admits the validity and the binding effect
the conditional deed of sale would be extinguished, and such outcome would of the deed pending any adjudication which nullifies the same.
necessarily result in the dismissal of the criminal proceedings for the violations
of Batas Pambansa Blg. 22. Indeed, under the law on contracts, vitiated consent does not make a contract
unenforceable but merely voidable, the remedy of which would be to annul the
The action for the rescission of the deed of sale on the ground that Advanced contract since voidable contracts produce legal effects until they are annulled. On
Foundation did not comply with its obligation actually seeks one of the alternative the other hand, rescission of contracts in case of breach pursuant to Article 1191 of
remedies available to a contracting party under Article 1191 of the Civil Code, to wit: the Civil Code of the Philippines also presupposes a valid contract unless rescinded
or annulled.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case As defined, a prejudicial question is one that arises in a case, the resolution of
one of the obligors should not comply with what is incumbent upon him. which is a logical antecedent of the issue involved therein, and the cognizance of
which pertains to another tribunal. The prejudicial question must be determinative
The injured party may choose between the fulfilment and the rescission of the of the case before the court but the jurisdiction to try and resolve the question must
obligation, with the payment of damages in either case. He may also seek be lodged in another court or tribunal.
rescission, even after he has chosen fulfilment, if the latter should become
impossible. It is a question based on a fact distinct and separate from the crime but so
intimately connected with it that it determines the guilt or innocence of the accused,
The court shall decree the rescission claimed, unless there be just cause and for it to suspend the criminal action, it must appear not only that said case
authorizing the fixing of a period. involves facts intimately related to those upon which the criminal prosecution would
be based but also that in the resolution of the issue or issues raised in the civil
This is understood to be without prejudice to the rights of third persons who have case, the guilt or innocence of the accused would necessarily be determined. It
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage comes into play generally in a situation where a civil action and a criminal action are
Law. both pending and there exists in the former an issue which must be preemptively
resolved before the criminal action may proceed, because howsoever the issue
Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition in raised in the civil action is resolved would be determinative juris et de jure of the
reciprocal obligations. The condition is imposed by law, and applies even if there is guilt or innocence of the accused in the criminal case.
no corresponding agreement thereon between the parties. The explanation for this
is that in reciprocal obligations a party incurs in delay once the other party has In this light, it is clear that the pendency of the civil case does not bar the
performed his part of the contract; hence, the party who has performed or is ready continuation of the proceedings in the preliminary investigation on the ground that it
and willing to perform may rescind the obligation if the other does not perform, or is poses a prejudicial question. Considering that the contracts are deemed to be
not ready and willing to perform.19 valid until rescinded, the consideration and obligatory effect thereof are also
deemed to have been validly made, thus demandable. Consequently, there
It is true that the rescission of a contract results in the extinguishment of the was no failure of consideration at the time when the subject checks were
obligatory relation as if it was never created, the extinguishment having a dishonored. (Emphasis supplied)
retroactive effect. The rescission is equivalent to invalidating and unmaking the xxxx
juridical tie, leaving things in their status before the celebration of the WHEREFORE, the Court DENIES the petition for review; AFFIRMS the decision
contract.20 However, until the contract is rescinded, the juridical tie and the the Court of Appeals promulgated on May 30, 2003; and DIRECTS the petitioner to
concomitant obligations subsist. pay the costs of suit.
To properly appreciate if there is a prejudicial question to warrant the suspension of SO ORDERED.
[G.R. No. 139523. May 26, 2005] SPS. FELIPE AND LETICIA Petitioners immediately took possession and occupied the house
CANNU, petitioners, vs. SPS. GIL AND FERNANDINA GALANG and lot.
AND NATIONAL HOME MORTGAGE FINANCE
CORPORATION, respondents. Petitioners made the following payments to the NHMFC:
DECISION Date Amount Receipt No.
CHICO-NAZARIO, J.:
July 9, 1990 P 14,312.47 D-503986[11]
Before Us is a Petition for Review on Certiorari which seeks to set March 12, 1991 8,000.00 D-729478[12]
aside the decision[1] of the Court of Appeals dated 30 September 1998 February 4, 1992 10,000.00 D-999127[13]
which affirmed with modification the decision of Branch 135 of the Regional March 31, 1993 6,000.00 E-563749[14]
Trial Court (RTC) of Makati City, dismissing the complaint for Specific April 19, 1993 10,000.00 E-582432[15]
Performance and Damages filed by petitioners, and its Resolution[2] dated
22 July 1999 denying petitioners motion for reconsideration. April 27, 1993 7,000.00 E-618326[16]
P 55,312.47
A complaint[3] for Specific Performance and Damages was filed by
petitioners-spouses Felipe and Leticia Cannu against respondents-spouses Petitioners paid the equity or second mortgage to CERF
Gil and Fernandina Galang and the National Home Mortgage Finance Realty.[17]
Corporation (NHMFC) before Branch 135 of the RTC of Makati, on 24 June
1993. The case was docketed as Civil Case No. 93-2069. Despite requests from Adelina R. Timbang and Fernandina
Galang to pay the balance of P45,000.00 or in the alternative to vacate
The facts that gave rise to the aforesaid complaint are as follows: the property in question, petitioners refused to do so.
Respondents-spouses Gil and Fernandina Galang obtained a loan In a letter[18] dated 29 March 1993, petitioner Leticia Cannu
from Fortune Savings & Loan Association for P173,800.00 to purchase a informed Mr. Fermin T. Arzaga, Vice President, Fund Management
house and lot located at Pulang Lupa, Las Pias, with an area of 150 square Group of the NHMFC, that the ownership rights over the land covered
meters covered by Transfer Certificate of Title (TCT) No. T-8505 in the by TCT No. T-8505 in the names of respondents-spouses had been
names of respondents-spouses. To secure payment, a real estate mortgage ceded and transferred to her and her husband per Deed of Sale with
was constituted on the said house and lot in favor of Fortune Savings &
Assumption of Mortgage, and that they were obligated to assume the
Loan Association. In early 1990, NHMFC purchased the mortgage loan of
mortgage and pay the remaining unpaid loan balance. Petitioners
respondents-spouses from Fortune Savings & Loan Association
for P173,800.00.
formal assumption of mortgage was not approved by the NHMFC.[19]

Respondent Fernandina Galang authorized[4] her attorney-in-fact, Because the Cannus failed to fully comply with their obligations,
Adelina R. Timbang, to sell the subject house and lot. respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as
full payment of her remaining mortgage loan with NHMFC.[20]
Petitioner Leticia Cannu agreed to buy the property for P120,000.00
and to assume the balance of the mortgage obligations with the NHMFC Petitioners opposed the release of TCT No. T-8505 in favor of
and with CERF Realty[5] (the Developer of the property). respondents-spouses insisting that the subject property had already
been sold to them. Consequently, the NHMFC held in abeyance the
Of the P120,000.00, the following payments were made by release of said TCT.
petitioners:
Thereupon, a Complaint for Specific Performance and Damages
Date Amount Paid was filed asking, among other things, that petitioners (plaintiffs therein)
July 19, 1990 P40,000.00[6] be declared the owners of the property involved subject to
March 13, 1991 15,000.00[7]
reimbursements of the amount made by respondents-spouses
April 6, 1991 15,000.00[8]
(defendants therein) in preterminating the mortgage loan with NHMFC.
November 28, 1991 5,000.00[9]
Total P75,000.00 Respondent NHMFC filed its Answer.[21] It claimed that petitioners
Thus, leaving a balance of P45,000.00. have no cause of action against it because they have not submitted the
A Deed of Sale with Assumption of Mortgage Obligation[10] dated 20 formal requirements to be considered assignees and successors-in-
August 1990 was made and entered into by and between spouses interest of the property under litigation.
Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe
In their Answer,[22] respondents-spouses alleged that because of
Cannu (vendees) over the house and lot in question which contains, inter
alia, the following:
petitioners-spouses failure to fully pay the consideration and to update
the monthly amortizations with the NHMFC, they paid in full the existing
obligations with NHMFC as an initial step in the rescission and
NOW, THEREFORE, for and in consideration of the sum of TWO annulment of the Deed of Sale with Assumption of Mortgage. In their
HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine counterclaim, they maintain that the acts of petitioners in not fully
Currency, receipt of which is hereby acknowledged by the Vendors complying with their obligations give rise to rescission of the Deed of
and the assumption of the mortgage obligation, the Vendors hereby Sale with Assumption of Mortgage with the corresponding damages.
sell, cede and transfer unto the Vendees, their heirs, assigns and
successor in interest the above-described property together with the After trial, the lower court rendered its decision ratiocinating:
existing improvement thereon.
On the basis of the evidence on record, testimonial and documentary,
It is a special condition of this contract that the Vendees shall assume this Court is of the view that plaintiffs have no cause of action either
and continue with the payment of the amortization with the National against the spouses Galang or the NHMFC. Plaintiffs have admitted
Home Mortgage Finance Corporation Inc. in the outstanding balance on record they failed to pay the amount of P45,000.00 the balance due
of P_______________, as of __________ and shall comply with and to the Galangs in consideration of the Deed of Sale With Assumption
abide by the terms and conditions of the mortgage document dated of Mortgage Obligation (Exhs. C and 3). Consequently, this is a breach
Feb. 27, 1989 and identified as Doc. No. 82, Page 18, Book VII, S. of of contract and evidently a failure to comply with obligation arising
1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo, as from contracts. . . In this case, NHMFC has not been duly informed
if the Vendees are the original signatories. due to lack of formal requirements to acknowledge plaintiffs as legal
assignees, or legitimate tranferees and, therefore, successors-in-
interest to the property, plaintiffs should have no legal personality to
claim any right to the same property.[23]
The decretal portion of the decision reads: essential in order to extinguish plaintiffs-appellants obligation to pay
the balance of the purchase price.
Premises considered, the foregoing complaint has not been proven
even by preponderance of evidence, and, as such, plaintiffs have no In addition, plaintiffs-appellants failed to comply with their obligation to
cause of action against the defendants herein. The above-entitled pay the monthly amortizations due on the mortgage.
case is ordered dismissed for lack of merit.
In the span of three (3) years from 1990 to 1993, plaintiffs-appellants
Judgment is hereby rendered by way of counterclaim, in favor of made only six payments. The payments made by plaintiffs-appellants
defendants and against plaintiffs, to wit: are not even sufficient to answer for the arrearages, interests and
penalty charges.
1. Ordering the Deed of Sale With Assumption of Mortgage Obligation
(Exhs. C and 3) rescinded and hereby declared the same as nullified On account of these circumstances, the rescission of the Contract of
without prejudice for defendants-spouses Galang to return the partial Sale is warranted and justified.
payments made by plaintiffs; and the plaintiffs are ordered, on the
other hand, to return the physical and legal possession of the subject
property to spouses Galang by way of mutual restitution; ...
2. To pay defendants spouses Galang and NHMFC, each the amount
of P10,000.00 as litigation expenses, jointly and severally; WHEREFORE, foregoing considered, the appealed decision is hereby
3. To pay attorneys fees to defendants in the amount of P20,000.00, AFFIRMED with modification. Defendants-appellees spouses Galang
jointly and severally; and are hereby ordered to return the partial payments made by plaintiff-
4. The costs of suit. appellants in the amount of P135,000.00.
5. No moral and exemplary damages awarded.[24]
No pronouncement as to cost.[26]
A Motion for Reconsideration[25] was filed, but same was denied.
Petitioners appealed the decision of the RTC to the Court of Appeals.
On 30 September 1998, the Court of Appeals disposed of the appeal as The motion for reconsideration[27] filed by petitioners was denied
follows: by the Court of Appeals in a Resolution[28] dated 22 July 1999.
Hence, this Petition for Certiorari.
Obligations arising from contract have the force of law between the
contracting parties and should be complied in good faith. The terms of Petitioners raise the following assignment of errors:
a written contract are binding on the parties thereto.
1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
Plaintiffs-appellants therefore are under obligation to pay defendants- THAT PETITIONERS BREACH OF THE OBLIGATION WAS
appellees spouses Galang the sum of P250,000.00, and to assume SUBSTANTIAL.
the mortgage.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN
Records show that upon the execution of the Contract of Sale or on EFFECT IT HELD THAT THERE WAS NO SUBSTANTIAL
July 19, 1990 plaintiffs-appellants paid defendants-appellees spouses COMPLIANCE WITH THE OBLIGATION TO PAY THE MONTHLY
Galang the amount of only P40,000.00. AMORTIZATION WITH NHMFC.

The next payment was made by plaintiffs-appellants on March 13, 3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
1991 or eight (8) months after the execution of the contract. Plaintiffs- FAILED TO CONSIDER THE OTHER FACTS AND
appellants paid the amount of P5,000.00. CIRCUMSTANCES THAT MILITATE AGAINST RESCISSION.

The next payment was made on April 6, 1991 for P15,000.00 and on 4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
November 28, 1991, for another P15,000.00. FAILED TO CONSIDER THAT THE ACTION FOR RESCISSION IS
SUBSIDIARY.[29]
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang. Before discussing the errors allegedly committed by the Court of
Appeals, it must be stated a priori that the latter made a misappreciation
of evidence regarding the consideration of the property in litigation when
Out of the P250,000.00 purchase price which was supposed to be
it relied solely on the Deed of Sale with Assumption of Mortgage
paid on the day of the execution of contract in July, 1990 plaintiffs-
executed by the respondents-spouses Galang and petitioners-spouses
appellants have paid, in the span of eight (8) years, from 1990 to
Cannu.
present, the amount of only P75,000.00. Plaintiffs-appellants should
have paid the P250,000.00 at the time of the execution of contract in As above-quoted, the consideration for the house and lot stated
1990. Eight (8) years have already lapsed and plaintiffs-appellants in the Deed of Sale with Assumption of Mortgage is P250,000.00, plus
have not yet complied with their obligation. the assumption of the balance of the mortgage loan with NHMFC.
However, after going over the record of the case, more particularly the
We consider this breach to be substantial. Answer of respondents-spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the outstanding loan
The tender made by plaintiffs-appellants after the filing of this case, of mortgage with NHMFC, and of the equity or second mortgage with
the Managerial Check in the amount of P278,957.00 dated January CERF Realty (Developer of the property).[30]
24, 1994 cannot be considered as an effective mode of payment. Nowhere in the complaint and answer of the petitioners-spouses
Cannu and respondents-spouses Galang shows that the consideration
Performance or payment may be effected not by tender of payment is P250,000.00. In fact, what is clear is that of the P120,000.00 to be
alone but by both tender and consignation. It is consignation which is paid to the latter, only P75,000.00 was paid to Adelina Timbang, the
spouses Galangs attorney-in-fact. This debunks the provision in the
Deed of Sale with Assumption of Mortgage that the amount failed to comply. Despite demands for them to pay the balance, no
of P250,000.00 has been received by petitioners. payments were made.[39]
Inasmuch as the Deed of Sale with Assumption of Mortgage The fact that petitioners tendered a Managers Check to
failed to express the true intent and agreement of the parties regarding respondents-spouses Galang in the amount of P278,957.00 seven
its consideration, the same should not be fully relied upon. The months after the filing of this case is of no moment. Tender of payment
foregoing facts lead us to hold that the case on hand falls within one of does not by itself produce legal payment, unless it is completed by
the recognized exceptions to the parole evidence rule. Under the Rules consignation.[40] Their failure to fulfill their obligation gave the
of Court, a party may present evidence to modify, explain or add to the respondents-spouses Galang the right to rescission.
terms of the written agreement if he puts in issue in his pleading, among
others, its failure to express the true intent and agreement of the parties Anent the second assigned error, we find that petitioners were
thereto.[31] not religious in paying the amortization with the NHMFC. As admitted
by them, in the span of three years from 1990 to 1993, their payments
In the case at bar, when respondents-spouses enumerated in covered only thirty months.[41] This, indeed, constitutes another breach
their Answer the terms and conditions for the sale of the property under or violation of the Deed of Sale with Assumption of Mortgage. On top of
litigation, which is different from that stated in the Deed of Sale with this, there was no formal assumption of the mortgage obligation with
Assumption with Mortgage, they already put in issue the matter of NHMFC because of the lack of approval by the NHMFC[42] on account
consideration. Since there is a difference as to what the true of petitioners non-submission of requirements in order to be considered
consideration is, this Court has admitted evidence aliunde to explain as assignees/successors-in-interest over the property covered by the
such inconsistency. Thus, the Court has looked into the pleadings and mortgage obligation.[43]
testimonies of the parties to thresh out the discrepancy and to clarify the
intent of the parties. On the third assigned error, petitioners claim there was no clear
evidence to show that respondents-spouses Galang demanded from
As regards the computation[32] of petitioners as to the breakdown them a strict and/or faithful compliance of the Deed of Sale with
of the P250,000.00 consideration, we find the same to be self-serving Assumption of Mortgage.
and unsupported by evidence.
We do not agree.
On the first assigned error, petitioners argue that the Court erred
when it ruled that their breach of the obligation was substantial. There is sufficient evidence showing that demands were made
from petitioners to comply with their obligation. Adelina R. Timbang,
Settled is the rule that rescission or, more accurately, attorney-in-fact of respondents-spouses, per instruction of respondent
resolution,[33] of a party to an obligation under Article 1191[34] is Fernandina Galang, made constant follow-ups after the last payment
predicated on a breach of faith by the other party that violates the made on 28 November 1991, but petitioners did not pay.[44] Respondent
reciprocity between them.[35] Article 1191 reads: Fernandina Galang stated in her Answer[45] that upon her arrival from
America in October 1992, she demanded from petitioners the complete
Art. 1191. The power to rescind obligations is implied in reciprocal compliance of their obligation by paying the full amount of the
ones, in case one of the obligors should not comply with what is consideration (P120,000.00) or in the alternative to vacate the property
incumbent upon him. in question, but still, petitioners refused to fulfill their obligations under
the Deed of Sale with Assumption of Mortgage. Sometime in March
1993, due to the fact that full payment has not been paid and that the
The injured party may choose between the fulfillment and the
monthly amortizations with the NHMFC have not been fully updated,
rescission of the obligation, with the payment of damages in either she made her intentions clear with petitioner Leticia Cannu that she will
case. He may also seek rescission, even after he has chosen
rescind or annul the Deed of Sale with Assumption of Mortgage.
fulfillment, if the latter should become impossible.
We likewise rule that there was no waiver on the part of
The court shall decree the rescission claimed, unless there be just petitioners to demand the rescission of the Deed of Sale with
cause authorizing the fixing of a period. Assumption of Mortgage. The fact that respondents-spouses accepted,
through their attorney-in-fact, payments in installments does not
constitute waiver on their part to exercise their right to rescind the Deed
Rescission will not be permitted for a slight or casual breach of
of Sale with Assumption of Mortgage. Adelina Timbang merely
the contract. Rescission may be had only for such breaches that are
accepted the installment payments as an accommodation to petitioners
substantial and fundamental as to defeat the object of the parties in
since they kept on promising they would pay. However, after the lapse
making the agreement.[36] The question of whether a breach of contract
of considerable time (18 months from last payment) and the purchase
is substantial depends upon the attending circumstances[37] and not
price was not yet fully paid, respondents-spouses exercised their right
merely on the percentage of the amount not paid.
of rescission when they paid the outstanding balance of the mortgage
In the case at bar, we find petitioners failure to pay the remaining loan with NHMFC. It was only after petitioners stopped paying that
balance of P45,000.00 to be substantial. Even assuming arguendo that respondents-spouses moved to exercise their right of rescission.
only said amount was left out of the supposed consideration
Petitioners cite the case of Angeles v. Calasanz[46] to support their
of P250,000.00, or eighteen (18%) percent thereof, this percentage is
claim that respondents-spouses waived their right to rescind. We cannot
still substantial. Taken together with the fact that the last payment made
apply this case since it is not on all fours with the case before us. First,
was on 28 November 1991, eighteen months before the respondent
in Angeles, the breach was only slight and casual which is not true in
Fernandina Galang paid the outstanding balance of the mortgage loan
the case before us. Second, in Angeles, the buyer had already paid
with NHMFC, the intention of petitioners to renege on their obligation is
more than the principal obligation, while in the instant case, the buyers
utterly clear.
(petitioners) did not pay P45,000.00 of the P120,000.00 they were
Citing Massive Construction, Inc. v. Intermediate Appellate obligated to pay.
Court,[38] petitioners ask that they be granted additional time to complete
We find petitioners statement that there is no evidence of
their obligation. Under the facts of the case, to give petitioners additional
prejudice or damage to justify rescission in favor of respondents-
time to comply with their obligation will be putting premium on their
spouses to be unfounded. The damage suffered by respondents-
blatant non-compliance of their obligation. They had all the time to do
spouses is the effect of petitioners failure to fully comply with their
what was required of them (i.e., pay the P45,000.00 balance and to
obligation, that is, their failure to pay the remaining P45,000.00 and to
properly assume the mortgage loan with the NHMFC), but still they
update the amortizations on the mortgage loan with the NHMFC.
Petitioners have in their possession the property under litigation. Having by the other party that violates the reciprocity between the parties, while
parted with their house and lot, respondents-spouses should be fully the latter is not.
compensated for it, not only monetarily, but also as to the terms and
conditions agreed upon by the parties. This did not happen in the case In the case at bar, the reciprocity between the parties was violated
before us. when petitioners failed to fully pay the balance of P45,000.00 to
respondents-spouses and their failure to update their amortizations with
Citing Seva v. Berwin & Co., Inc.,[47] petitioners argue that no the NHMFC.
rescission should be decreed because there is no evidence on record
that respondent Fernandina Galang is ready, willing and able to comply Petitioners maintain that inasmuch as respondents-spouses
with her own obligation to restore to them the total payments they made. Galang were not granted the right to unilaterally rescind the sale under
They added that no allegation to that effect is contained in respondents- the Deed of Sale with Assumption of Mortgage, they should have first
spouses Answer. asked the court for the rescission thereof before they fully paid the
outstanding balance of the mortgage loan with the NHMFC. They claim
We find this argument to be misleading. that such payment is a unilateral act of rescission which violates existing
jurisprudence.
First, the facts obtaining in Seva case do not fall squarely with the
case on hand. In the former, the failure of one party to perform his In Tan v. Court of Appeals,[50] this court said:
obligation was the fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their obligation was due to . . . [T]he power to rescind obligations is implied in reciprocal ones in
their own fault. case one of the obligors should not comply with what is incumbent
Second, what is stated in the book of Justice Edgardo L. Paras is upon him is clear from a reading of the Civil Code provisions.
[i]t (referring to the right to rescind or resolve) can be demanded only if However, it is equally settled that, in the absence of a stipulation to the
the plaintiff is ready, willing and able to comply with his own obligation, contrary, this power must be invoked judicially; it cannot be exercised
and the other is not. In other words, if one party has complied or fulfilled solely on a partys own judgment that the other has committed a
his obligation, and the other has not, then the former can exercise his breach of the obligation. Where there is nothing in the contract
right to rescind. In this case, respondents-spouses complied with their empowering the petitioner to rescind it without resort to the courts, the
obligation when they gave the possession of the property in question to petitioners action in unilaterally terminating the contract in this case is
petitioners. Thus, they have the right to ask for the rescission of the unjustified.
Deed of Sale with Assumption of Mortgage.
It is evident that the contract under consideration does not contain
On the fourth assigned error, petitioners, relying on Article 1383 a provision authorizing its extrajudicial rescission in case one of the
of the Civil Code, maintain that the Court of Appeals erred when it failed parties fails to comply with what is incumbent upon him. This being the
to consider that the action for rescission is subsidiary. case, respondents-spouses should have asked for judicial intervention
Their reliance on Article 1383 is misplaced. to obtain a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses Answer (with affirmative
The subsidiary character of the action for rescission applies to defenses) with Counterclaim seeks for the rescission of the Deed of
contracts enumerated in Articles 1381[48] of the Civil Code. The contract Sale with Assumption of Mortgage, it behooves the court to settle the
involved in the case before us is not one of those mentioned therein. matter once and for all than to have the case re-litigated again on an
The provision that applies in the case at bar is Article 1191. issue already heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached the
In the concurring opinion of Justice Jose B.L. Reyes in Universal contract, we, therefore, declare the same is rescinded in favor of
Food Corp. v. Court of Appeals,[49] rescission under Article 1191 was respondents-spouses.
distinguished from rescission under Article 1381. Justice J.B.L. Reyes
said: As a consequence of the rescission or, more accurately,
resolution of the Deed of Sale with Assumption of Mortgage, it is the
. . . The rescission on account of breach of stipulations is not duty of the court to require the parties to surrender whatever they may
predicated on injury to economic interests of the party plaintiff but on have received from the other. The parties should be restored to their
the breach of faith by the defendant, that violates the reciprocity original situation.[51]
between the parties. It is not a subsidiary action, and Article 1191 may The record shows petitioners paid respondents-spouses the
be scanned without disclosing anywhere that the action for rescission amount of P75,000.00 out of the P120,000.00 agreed upon. They also
thereunder is subordinated to anything other than the culpable breach made payments to NHMFC amounting to P55,312.47. As to the
of his obligations by the defendant. This rescission is a principal action petitioners alleged payment to CERF Realty of P46,616.70, except for
retaliatory in character, it being unjust that a party be held bound to petitioner Leticia Cannus bare allegation, we find the same not to be
fulfill his promises when the other violates his. As expressed in the old supported by competent evidence. As a general rule, one who pleads
Latin aphorism: Non servanti fidem, non est fides servanda. Hence, payment has the burden of proving it.[52]However, since it has been
the reparation of damages for the breach is purely secondary. admitted in respondents-spouses Answer that petitioners shall assume
the second mortgage with CERF Realty in the amount of P35,000.00,
On the contrary, in the rescission by reason of lesion or economic and that Adelina Timbang, respondents-spouses very own witness,
prejudice, the cause of action is subordinated to the existence of that testified[53] that same has been paid, it is but proper to return this amount
prejudice, because it is the raison dtre as well as the measure of the to petitioners. The three amounts total P165,312.47 -- the sum to be
right to rescind. Hence, where the defendant makes good the returned to petitioners.
damages caused, the action cannot be maintained or continued, as
expressly provided in Articles 1383 and 1384. But the operation of WHEREFORE, premises considered, the decision of the Court of
these two articles is limited to the cases of rescission Appeals is hereby AFFIRMED with MODIFICATION. Spouses Gil and
for lesion enumerated in Article 1381 of the Civil Code of the Fernandina Galang are hereby ordered to return the partial payments
Philippines, and does not apply to cases under Article 1191. made by petitioners in the amount of P165,312.47. With costs.
SO ORDERED.
From the foregoing, it is clear that rescission (resolution in the Old
Civil Code) under Article 1191 is a principal action, while rescission
under Article 1383 is a subsidiary action. The former is based on breach
[ GR No. 202947, Dec 09, 2015 ] ASB REALTY CORPORATION v. ORTIGAS +
DECISION On July 7, 2000, Ortigas filed its complaint for specific performance against the
petitioner,[12] which was docketed as Civil Case No. 67978 of the Regional Trial
BERSAMIN, J.: Court (RTC) in Pasig City.[13] Ortigas amended the complaint, and alleged,[14] among
others, that:
This appeal seeks the review and reversal of the amended decision promulgated on
January 9, 2012,[1] whereby the Court of Appeals (CA) disposed thusly: 5. Defendant has violated the terms of the Deed of Absolute Sale (Annex "A") in the
following manner:
WHEREFORE, premises considered, judgment is rendered:
a. While the lot may be used only "for office and residential purposes", defendant
1. Granting the appeal of plaintiff-appellant and herein movant Ortigas and introduced constructions on the property which are commercial in nature, like
Company Limited Partnership, and reversing the Decision of the court a quo dated restaurants, retail stores and the like (see par. A, Deed of Absolute Sale, Annex
December 14, 2009; "A").
2. Rescinding the June 24, 1994 Deed of Sale between Ortigas and Company
Limited Partnership and Amethyst Pearl Corporation in view of the material b. The commercial structures constructed by defendant on the property extend up
breached (sic) thereof by AMETHYST; to the boundary lines of the lot in question violating the setbacks established in the
3. Ordering ASB Realty Corporation, by way of mutual restitution, the contract (see par. B.A., ibid).
RECONVEYANCE to ORTIGAS of the subject property covered by TCT No. PT-
105797 upon payment by ORTIGAS to ASB of the amount of Two Million Twenty c. Defendant likewise failed to submit the final plans and specifications of its
Four Thousand Pesos (PhP 2,024,000.00) plus legal interest at the rate of 6% per proposed building not later than six (6) months from June 29, 1994 and to complete
annum from the time of the finality of this judgment until the same shall have been construction of the same within four (4) years from December 31, 1991. (see pars. L
fully paid; and and M, ibid).
4. Ordering the Register of Deeds of Pasig City to cancel TCT No. PT-105797 and
issue a new title over the subject property under the name of ORTIGAS & d. Being situated in a first-class office building area, it was agreed that no
COMPANY LIMITED PARTNERSHIP. advertisements or any kind of commercial signs shall be allowed on the lot or the
improvements therein but this was violated by defendant when it put up commercial
No pronouncement as to cost. signs and advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by the defendant empower the
SO ORDERED.[2] plaintiff to sue under parangraph "N. Unilateral Cancellation", plaintiff may have the
Deed of Absolute Sale (Annex "A") cancelled and the property reverted to it by
The petitioner also assails the resolution promulgated on July 26, 2012,[3] whereby paying the defendant the amount it has paid less the items indicated therein.[15]
the CA denied its Motion for Reconsideration. For reliefs, Ortigas prayed for the reconveyance of the subject property, or,
alternatively, for the demolition of the structures and improvements thereon, plus
Antecedents the payment of penalties, attorney's fees and costs of suit.[16]

On June 29, 1994, respondent Ortigas & Company Limited Partnership (Ortigas) During the pendency of the proceedings in the RTC, the petitioner amended its
entered into a Deed of Sale with Amethyst Pearl Corporation (Amethyst) involving Articles of Incorporation to change its name to St. Francis Square Realty
the parcel of land with an area of 1,012 square meters situated in Barrio Oranbo, Corporation.[17]
Pasig City and registered under Transfer Certificate of Title (TCT) No. 65118 of the
Register of Deeds of Rizal[4] for the consideration of P2,024,000.00. The Deed of After trial on the merits, the RTC rendered its decision on December 14,
Sale[5] contained the following stipulations, among others: 2009,[18] and dismissed the complaint, pertinently holding as follows:

COVENANTS, CONDITIONS AND RESTRICTIONS Ortigas sold the property [to] Amethyst on 29 June 1994. Amethyst was supposed
to finish construction on 31 December 1995. Yet, up to the time the property was
This lot has been segregated by ORTIGAS from its subdivisions to form part of a transferred to ASB on 28 December 1996, Ortigas never initiated any
zonified BUILDING AREA pursuant to its controlled real estate development project action against Amethyst to enforce said provision. Ortigas is therefore guilty of
and subdivision scheme, and is subject to the following covenants which form part laches or negligence or omission to assert a right within a reasonable time,
of the consideration of ORTIGAS' sale to VENDEE and its assigns, namely: warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it. (Tijam v. Sibonghanoy, L-21450, 15 April 1968, 23 SCRA
xxxx 29).

B. BUILDING WORKS AND ARCHITECTURE: It is worth mentioning that the restrictions annotated in TCT No. 94175 (in the name
of Amethyst Pearl Corporation) and TCT No. PT-105797 (in the name of ASB)
1. The building to be constructed on the lot shall be of reinforced concrete, cement repeatedly and consistently refer to the VENDEE. The term VENDEE in the said
hollow blocks and other high-quality materials and shall be of the following height of restrictions obviously refer to Amethyst Pearls Corporation considering the fact that
not more than: fourteen (14) storeys plus one penthouse. the date referred to in Paragraph N thereof (Construction and Completion of
Building), which is four (4) years from December 31, 1991, obviously refer to the
xxxx plaintiffs VENDEE Amethyst Pearl Corporation. Definitely, it cannot refer to the
defendant ASB which is not a vendee of the plaintiff. Therefore, all references to
L. SUBMISSION OF PLANS: VENDEE in the restrictions evidently refer to Amethyst Pearl Corporation, the
VENDEE in the sale from the plaintiff. Such explanation is more consistent with
The final plans and specifications of the said building shall be submitted to logic than the plaintiffs convoluted assertions that the said restrictions apply to the
ORTIGAS for approval not later than six (6) months from date hereof. Should defendant ASB.
ORTIGAS object to the same, it shall notify and specify to the VENDEE in writing
the amendments required to conform with its building restrictions and VENDEE Reconveyance of the property to Ortigas necessarily implies rescission of the sale
shall submit the amended plans within sixty (60) days from receipt of said notice. or transfer from Amethyst to ASB and from Ortigas to Amethyst. But Amethyst was
not made a party to the case. Reconveyance of the property to the original seller
M. CONSTRUCTION AND COMPLETION OF BUILDING: (Ortigas) applies only on the sale to the original vendee (Amethyst) and not to
subsequent vendees to whom the property was sold (Ayala Corp. v. Rosa Diana
The VENDEE shall finish construction of its building within four (4) years from Realty and Dev. Corp., G.R. No. 134284, Dec. 1, 2000, 346 SCRA 663).
December 31, 1991.[6]
As a result, the Register of Deeds of Rizal cancelled TCT No. 65118 and issued The non-compliance by the plaintiff with the requisites of its own restrictions further
TCT No. PT-94175 in the name of Amethyst.[7] The conditions contained in proves that it had no intention whatsoever to enforce or implement the same. If at
the Deed of Sale were also annotated on TCT No. PT-94175 as encumbrances.[8] all, this evinces an afterthought of the plaintiff to belatedly and unjustifiably single
out the defendant for alleged non compliance of the said restrictions which are not
On December 28, 1996, Amethyst assigned the subject property to its sole applicable to it anyway.
stockholder, petitioner ASB Realty Corporation (the petitioner), under a so-
called Deed of Assignment in Liquidation in consideration of 10,000 shares of the WHEREFORE, foregoing premises considered, the present complaint is
petitioner's outstanding capital stock.[9] Thus, the property was transferred to the hereby dismissed for lack of basis.
petitioner free from any liens or encumbrances except those duly annotated on TCT
No. PT-94175.[10] The Register of Deeds of Rizal cancelled TCT No. PT-94175 and SO ORDERED.[19]
issued TCT No. PT-105797 in the name of the petitioner with the same
encumbrances annotated on TCT No. PT-94175.[11]
Ortigas appealed to the CA, which initially affirmed the RTC under the decision Acting on Ortigas' Motion for Reconsideration, however, the CA promulgated its
promulgated on September 6, 2011,[20] ruling thusly: assailed amended decision on January 9, 2012,[22] whereby it reversed the decision
promulgated on September 6, 2011. It observed and ruled as follows:
x x x x ORTIGAS can no longer enforce the said restrictions as against ASB.
It is not disputed that AMETHYST failed to finish construction within the period
The "Covenants, Conditions and Restrictions" of ORTIGAS with respect to the stated in the 1994 Deed of Sale. As correctly pointed out by ORTIGAS, in
property clearly states the following purpose: accordance with Article 1144 of the Civil Code, the prescriptive period within which
to enforce remedies under the 1994 Deed of sale is ten (10) years from the time the
"This lot has been segregated by ORTIGAS from its subdivisions to form part of a right of action accrues.
zonified BUILDING AREA pursuant to its controlled real estate development project
and subdivision scheme. x x x" ORTIGAS, therefore, had ten (10) years from 31 December 1995 or until 31
However, it appears from the circumstances obtaining in this case that ORTIGAS December 2005 within which to file suit to enforce the restriction. ORTIGAS filed
failed to pursue the aforequoted purpose. It never filed a complaint against its the present complaint on 07 July 2000 well within the prescriptive period for
vendee, AMETHYST, notwithstanding that it required the latter to complete filing the same.
construction of the building within four (4) years from the execution of the Deed of
Sale. Neither did it make a demand to enforce the subject restriction. Moreover, ASB contends that it could not have complied with the particular restriction to finish
while it imposed a restriction on the registration and issuance of title in the name of construction of the building as the period to finish the same had already lapsed by
the vendee under Paragraph "P" on "Registration of Sale", to wit: the time ASB acquired the property by way of a Deed of Assignment in Liquidation
between AMETHYST and ASB on 28 December 1996. We hold, however, that the
"P. REGISTRATION OF SALE: mere assignment or transfer of the subject property from AMETHYST to ASB
does not serve to defeat the vested right of ORTIGAS to avail of remedies to
The VENDEE hereby agrees that, for the time being, this Deed will not be enforce the subject restriction within the applicable prescriptive period.
registered and that its title shall not be issued until the satisfactory construction of
the contemplated Office Building and VENDEE's compliance with all conditions xxxx
therein. x x x"
As to the argument that the inaction of ORTIGAS with respect to other non-
AMETHYST was nonetheless able to procure the title to the property in its name, compliant properties in the Ortigas area is tantamount to consenting to such non-
and subsequently, assigned the same to ASB. compliance, it must be mentioned that it is the sole prerogative and discretion of
Ortigas to initiate any action against the violators of the deed restrictions. This Court
Besides, records show that there are registered owner-corporations of several cannot interfere with the exercise of such prerogative/discretion. Furthermore, We
properties within the Ortigas area, where the subject property is located, that have cannot sustain estoppel in doubtful inference. Absent the conclusive proof that its
likewise failed to comply with the restriction on building construction notwithstanding essential elements are present, estoppel must fail. Estoppel, when misapplied,
the fact of its annotation on the titles covering their properties. In fact, the tax becomes an effective weapon to accomplish an injustice, inasmuch as it shuts a
declarations covering these properties in the respective names of UNIMART INC., man's mouth from speaking the truth.[23]
CHAILEASE DEVELOPMENT CO. INC., CANOGA PARK DEVELOPMENT By its resolution promulgated on July 26, 2012, the CA denied the
CORPORATION, and MAKATI SUPERMARKET CORPORATION reveal that no petitioner's Motion for Reconsideration[24] for being filed out of time.[25]
improvements or buildings have been erected thereon.
Issues
Notwithstanding such blatant non-compliance, however, records are bereft of
evidence to prove that ORTIGAS took steps to demand observance of the said Hence, this appeal in which ASB submits: (1) that its Motion for
restriction from these corporations, or that it opted to institute any case against Reconsideration vis-a-vis the CA's amended decision was filed on time; and (2) that
them in order to enforce its rights as seller. Thus, while ORTIGAS effectively the amended decision promulgated on January 9, 2012 by CA be reversed and set
tolerated the non-compliance of these other corporations, it nonetheless proceeded aside, and the decision promulgated on September 6, 2011 be reinstated.[26]
with the filing of the Complaint a quo against ASB, seeking the rescission of the
original Deed of Sale on the ground of non-compliance of the very same The petitioner essentially seeks the resolution of the issue of whether or not Ortigas
restriction being violated by other property owners similarly situated. validly rescinded the Deed of Sale due to the failure of Amethyst and its assignee,
the petitioner, to fulfil the covenants under the Deed of Sale.
On the basis of the foregoing acts or omissions of ORTIGAS, and the factual milieu
of the present case, it cannot be pretended that it failed to actively pursue the Ruling of the Court
attainment of its objective of having a "controlled real estate development project
and subdivision scheme". The Court thus concurs with the ratiocinations of the RTC The petition for review is meritorious.
when it posited that the restrictions imposed by ORTIGAS on ASB have been 1.
"rendered obsolete and inexistent" for failure of ORTIGAS to enforce the
same uniformly and indiscriminately against all non-complying property owners. If Petitioner's motion for reconsideration vis-a-vis the amended decision of the
the purpose of ORTIGAS for imposing the restrictions was for its "controlled real CA was timely filed
estate development project and subdivision scheme", then it should have sought
compliance from all property owners that have violated the restriction on building In denying the petitioner's Motion for Reconsideration, the CA concluded as follows:
completion. As things stand, ASB would appear to have been singled out by
ORTIGAS, rendering the present action highly suspect and a mere afterthought. Per allegation of material dates, the Motion for Reconsideration filed by Balgos
Gumara & Jalandoni, co-counsel with Jose, Mendoza & Associates, on January 30,
Consequently, while it may be true that ASB was bound by the restrictions 2012 appears to have been filed on time. However, per registry return attached at
annotated on its title, specifically the restriction on building completion, ORTIGAS is the back of p. 212 of the Rollo, the Motion for Reconsideration was filed three (3)
now effectively estopped from enforcing the same by virtue of its inaction and days late considering that the Amended Decision was received by defendant
silence. appellee's counsel of record, Jose, Mendoza & Associates, on January 12, 2012.[27]
The conclusion of the CA was unwarranted because the petitioner established that
xxxx its filing of the Motion for Reconsideration was timely.

In this case, ORTIGAS acquiesced to the conveyance of the property from It is basic that the party who asserts a fact or the affirmative of an issue has the
AMETHYST to ASB with nary a demand, reservation or complaint for the burden of proving it.[28] Here, that party was the petitioner. To comply with its
enforcement of the restriction on building construction. It allowed the four-year burden, it attached to its petition for review on certiorari: (1) the affidavit executed
period within which to construct a building to lapse before it decided that it wanted, by Noel S.R. Rose, Senior Partner of Jose, Mendoza & Associates attesting that he
after all, to enforce the restriction, which cannot be allowed lest the property rights had requested the postmaster of the Mandaluyong City Post Office to certify the
of the registered owner, ASB, be transgressed. Such a silence or inaction, which in date when Jose, Mendoza & Associates had received the copy of the amended
effect led ASB to believe that ORTIGAS no longer sought the enforcement of the decision of the CA;[29] and (2) the certification issued on August 15, 2012 by
restrictions on the contract, therefore bars ORTIGAS from enforcing the restriction it Postmaster Rufino C. Robles, and Letter Carrier, Jojo Salvador, both of the
imposed on the subject property. Mandaluyong Central Post Office, certifying that Registered Letter No. MVC 457
containing the copy of the amended decision had been delivered to and received on
xxxx January 18, 2012 by Jose, Mendoza & Associates, through Ric Ancheta.[30] It
thereby sought to prove that it had received the copy of the amended decision only
WHEREFORE, premises considered, the instant appeal is DENIED. The assailed on January 18, 2012, not January 12, 2012 as stated in the registry return card on
Decision is hereby AFFIRMED. record. Thus, it had until February 2, 2012, or 15 days from January 18, 2012,
within which to file the same. In contrast, Ortigas relied only on the copy of the
SO ORDERED.[21] registry return to refute the petitioner's assertion.[31] Under the circumstances, the
filing on January 30, 2012 of the Motion for Reconsideration was timely.
The application of estoppel was appropriate. The doctrine of estoppel was based on
2. public policy, fair dealing, good faith and justice, and its purpose was to forbid a
party to speak against his own act or omission, representation, or commitment to
Ortigas' action for rescission could not prosper the injury of another to whom the act, omission, representation, or commitment was
directed and who reasonably relied thereon. The doctrine sprang from equitable
The petitioner reiterates that although the restrictions and covenants imposed by principles and the equities in the case, and was designed to aid the law in the
Ortigas under the Deed of Salewith Amethyst, particularly with regard to the administration of justice where without its aid injustice would result. Estoppel has
construction of the building, were similarly imposed on Ortigas' other buyers and been applied by the Court wherever and whenever special circumstances of the
annotated on the latter's respective certificates of title,[32] Ortigas never took to task case so demanded.[43]
such other buyers and Amethyst for failing to construct the buildings within the
periods contractually imposed.[33] It maintains, therefore, that Ortigas slept on its Yet, the query that persists is whether or not the covenants annotated on TCT No.
rights because it did not take any action against Amethyst during the period PT-10597 bound the petitioner to the performance of the obligations assumed by
prescribed in the Deed of Sale.[34] It argues that even assuming that it was bound by Amethyst under the Deed of Sale.
the terms of the Deed of Sale, certain circumstances occurred in the interim that
rendered it impossible for the petitioner to comply with the covenants embodied in We agree with Ortigas that the annotations on TCT No. PT-10597 bound the
the Deed of Sale, namely: (1) the delay in the petitioner's possession of the property petitioner but not to the extent that rendered the petitioner liable for the non-
resulted from the complaint for forcible entry it had filed in the Metropolitan Trial performance of the covenants stipulated in the Deed of Sale.
Court in Pasig City; (2) at the time the property was transferred to the petitioner, the
period within which to construct the building had already expired without Ortigas Section 39 of Act No. 496 (The Land Registration Act) requires that every person
enforcing the obligation against Amethyst; and (3) the petitioner was placed under receiving a certificate of title in pursuance of a decree of registration, and every
corporate rehabilitation by the Securities and Exchange Commission (SEC) by subsequent purchaser of registered land who takes a certificate of title for value in
virtue of which a stay order was issued on May 4, 2000.[35] good faith shall hold the same free of all encumbrances except those noted on said
certificate. An encumbrance in the context of the provision is "anything that impairs
In contrast, Ortigas contends that it had the sole discretion whether or not to the use or transfer of property; anything which constitutes a burden on the title; a
commence any action against a party who violated a restriction in the Deed of burden or charge upon property; a claim or lien upon property."[44] It denotes "any
Sale;[36] and that it could not be estopped because the Deed of Sale with Amethyst right to, or interest in, land which may subsist in another to the diminution of its
and the deeds of sale with its other buyers contained a uniform provision to the value, but consistent with the passing of the fee by conveyance."[45] An annotation,
effect that "any inaction, delay or tolerance by OCLP (Ortigas) in respect to violation on the other hand, is "a remark, note, case summary, or commentary on some
of any of the covenants and restrictions committed by these buyers shall not bar or passage of a book, statutory provision, court decision, of the like, intended to
estop the institution of an action to enforce them."[37] illustrate or explain its meaning."[46] The purpose of the annotation is to charge the
purchaser or title holder with notice of such burden and claims.[47] Being aware of
In asserting its right to rescind, Ortigas insists that the petitioner was bound by the the annotation, the purchaser must face the possibility that the title or the real
covenants of the Deed of Saleannotated on TCT No. PT-10597 in the name of the property could be subject to the rights of third parties.[48]
petitioner;[38] and that the petitioner's privity to the Deed of Sale was by virtue of its
being the successor-in-interest or assignee of Amethyst.[39] By acquiring the parcel of land with notice of the covenants contained in the Deed
of Sale between the vendor (Ortigas) and the vendee (Amethyst), the petitioner
After evaluating the parties' arguments and the records of the case, the Court holds bound itself to acknowledge and respect the encumbrance. Even so, the petitioner
that Ortigas could not validly demand the reconveyance of the property, or the did not step into the shoes of Amethyst as a party in the Deed of Sale. Thus, the
demolition of the structures thereon through rescission. annotation of the covenants contained in the Deed of Sale did not give rise to a
liability on the part of the petitioner as the purchaser/successor-in-interest without
The Deed of Assignment in Liquidation executed between Amethyst and the its express assumption of the duties or obligations subject of the annotation. As
petitioner expressly stated, in part, that: stated, the annotation was only the notice to the purchaser/successor-in-interest of
the burden, claim or lien subject of the annotation. In that respect, the Court has
x x x x [T]he ASSIGNOR hereby assigns, transfers and conveys unto the observed in Garcia v. Villar:[49]
ASSIGNEE, its successors and assigns, free from any lien or encumbrance except
those that are duly annotated on the Transfer Certificate of Title (TCT), one parcel The sale or transfer of the mortgaged property cannot affect or release the
of real property (with improvements). x x x. mortgage; thus the purchaser or transferee is necessarily bound to acknowledge
and respect the encumbrance.
xxxx
xxxx
The ASSIGNEE in turn in consideration of the foregoing assignment of assets to
it, hereby surrenders to ASSIGNOR, Amethyst Pearl Corporation, Stock Certificate x x x However, Villar, in buying the subject property with notice that it was
Nos. (006, 007, 008, 009, 010, 011), covering a total of TEN THOUSAND SHARES mortgaged, only undertook to pay such mortgage or allow the subject property to be
(10,000) registered in the name of the ASSIGNEE and its nominees in the books of sold upon failure of the mortgage creditor to obtain payment from the principal
ASSIGNOR, receipt of which is hereby acknowledged, and in addition hereby debtor once the debt matures. Villar did not obligate herself to replace the debtor in
releases ASSIGNOR from any and all claims.[40] the principal obligation, and could not do so in law without the creditors consent.
The express terms of the Deed of Assignment in Liquidation, supra, indicate that Article 1293 of the Civil Code provides:
Amethyst transferred to the petitioner only the tangible asset consisting of the
parcel of land covered by TCT No. PT-94175 registered in the name of Amethyst. Art. 1293. Novation which consists in substituting a new debtor in the place of the
By no means did Amethyst assign the rights or duties it had assumed under original one, may be made even without the knowledge or against the will of the
the Deed of Sale. The petitioner thus became vested with the ownership of the latter, but not without the consent of the creditor. Payment by the new debtor gives
parcel of land "free from any lien or encumbrance except those that are duly him the rights mentioned in articles 1236 and 1237.
annotated on the [title]" from the time Amethyst executed the Deed of Assignment in Therefore, the obligation to pay the mortgage indebtedness remains with the
Liquidation. original debtors Galas and Pingol. x x x
To be clear, contractual obligations, unlike contractual rights or benefits, are
Although the Deed of Sale stipulated that: generally not assignable. But there are recognized means by which obligations may
be transferred, such as by sub-contract and novation. In this case, the substitution
3. The lot, together with any improvements thereon, or any rights thereto, shall not of the petitioner in the place of Amethyst did not result in the novation of the Deed
be transferred, sold or encumbered before the final completion of the building as of Sale. To start with, it does not appear from the records that the consent of
herein provided unless it is with the prior express written approval of ORTIGAS.[41] Ortigas to the substitution had been obtained despite its essentiality to the novation.
Secondly, the petitioner did not expressly assume Amethyst's obligations under
xxxx the Deed of Sale, whether through the Deed of Assignment in Liquidation or
another document. And, thirdly, the consent of the new obligor (i.e., the petitioner),
The VENDEE hereby agrees that, for the time being, this Deed will not be which was as essential to the novation as that of the obligee (i.e., Ortigas), was not
registered and that its title shall not be issued until the satisfactory construction of obtained.[50]
the contemplated Office Building and VENDEE's compliance with all conditions
herein. x x x[42] Even if we would regard the petitioner as the assignee of Amethyst as far as
Ortigas apparently recognized without any reservation the issuance of the new the Deed of Sale was concerned, instead of being the buyer only of the subject
certificate of title in the name of Amethyst and the subsequent transfer by property, there would still be no express or implied indication that the petitioner had
assignment from Amethyst to the petitioner that resulted in the issuance of the new assumed Amethyst's obligations. In short, the burden to perform the covenants
certificate of title under the name of the petitioner. As such, Ortigas was estopped under the Deed of Sale, or the liability for the non-performance thereof, remained
from assailing the petitioner's acquisition and ownership of the property.
with Amethyst. As held in an American case: favor of the plaintiff by whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the defendant not to violate such right; and
The mere assignment of a bilateral executory contract may not be interpreted as a (3) an act or omission on the part of the defendant in violation of the right of the
promise by the assignee to the assignor to assume the performance of the plaintiff or constituting a breach of the obligation of the defendant to the plaintiff for
assignor's duties, so as to have the effect of creating a new liability on the part of which the latter may maintain an action for recovery of damages or other relief. It is
the assignee to the other party to the contract assigned. The assignee of the only upon the occurrence of the last element that the cause of action arises, giving
vendee is under no personal engagement to the vendor where there is no privity the plaintiff the right to file an action in court for the recovery of damages or other
between them. (Champion v. Brown, 6 Johns. Ch. 398; Anderson v. N. Y. & H. R. relief.[54]
R. Co., 132 App. Div. 183, 187, 188; Hugel v. Habel, 132 App. Div. 327, 328.) The
assignee may, however, expressly or impliedly, bind himself to perform the The second and third elements were absent herein. The petitioner was not privy to
assignor's duties. This he may do by contract with the assignor or with the other the Deed of Sale because it was not the party obliged thereon. Not having come
party to the contract. It has been held (Epstein v. Gluckin, 233 N. Y. 490) that where under the duty not to violate any covenant in the Deed of Salewhen it purchased the
the assignee of the vendee invokes the aid of a court of equity in an action for subject property despite the annotation on the title, its failure to comply with the
specific performance, he impliedly binds himself to perform on his part and subjects covenants in the Deed of Sale did not constitute a breach of contract that gave rise
himself to the conditions of the judgment appropriate thereto. "He who seeks equity to Ortigas' right of rescission. It was rather Amethyst that defaulted on the
must do equity." The converse of the proposition, that the assignee of the vendee covenants under the Deed of Sale; hence, the action to enforce the provisions of
would be bound when the vendor began the action, did not follow from the decision the contract or to rescind the contract should be against Amethyst. In other words,
in that case. On the contrary, the question was wholly one of remedy rather than rescission could not anymore take place against the petitioner once the subject
right and it was held that mutuality of remedy is important only so far as its property legally came into the juridical possession of the petitioner, who was a third
presence is essential to the attainment of the ends of justice. This holding was party to the Deed of Sale.[55]
necessary to sustain the decision. No change was made in the law of contracts nor
in the rule for the interpretation of an assignment of a contract. In view of the outcome, we consider to be superfluous any discussion of the other
matters raised in the petition, like the effects of the petitioner's corporate
A judgment requiring the assignee of the vendee to perform at the suit of the vendor rehabilitation and whether Ortigas was guilty of laches.
would operate as the imposition of a new liability on the assignee which would be
an act of oppression and injustice, unless the assignee had, expressly or by WHEREFORE, the Court GRANTS the petition for review
implication, entered into a personal and binding contract with the assignor or with on certiorari; ANNULS and REVERSES the amended decision promulgated on
the vendor to assume the obligations of the assignor.[51] January 9, 2012 and the resolution promulgated on July 26, 2012 by the Court of
Is rescission the proper remedy for Ortigas to recover the subject property from the Appeals in C.A.-G.R. CV No. 94997; DISMISSES Civil Case No. 67978 for lack of
petitioner? cause of action; and ORDERS respondent ORTIGAS & COMPANY LIMITED
PARTNERSHIP to pay the costs of suit.
The Civil Code uses rescission in two different contexts, namely: (1) rescission on
account of breach of contract under Article 1191; and (2) rescission by reason of SO ORDERED.
lesion or economic prejudice under Article 1381. Cogently explaining the
differences between the contexts of rescission in his concurring opinion in Universal
Food Corp. v. Court of Appeals,[52] the eminent Justice J.B.L. Reyes observed:

x x x 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 in 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
the raison d'etre 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.
Based on the foregoing, Ortigas' complaint was predicated on Article 1191 of
the Civil Code, which provides:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage
Law.
Rescission under Article 1191 of the Civil Code is proper if one of the parties to the
contract commits a substantial breach of its provisions. It abrogates the contract
from its inception and requires the mutual restitution of the benefits
received;[53] hence, it can be carried out only when the party who demands
rescission can return whatever he may be obliged to restore.

Considering the foregoing, Ortigas did not have a cause of action against the
petitioner for the rescission of the Deed of Sale. Under Section 2, Rule 2 of
the Rules of Court, a cause of action is the act or omission by which a party violates
a right of another. The essential elements of a cause of action are: (1) a right in
G.R. No. 163075 - AYALA LIFE ASSURANCE, INC., Petitioner, - versus - Upon full payment of the aforementioned
RAY BURTON DEVELOPMENT CORPORATION, Respondent. January 23, amounts by defendant, plaintiff shall, as it is hereby
2006 ordered, execute the appropriate deed of absolute sale
conveying and transferring full title and ownership of the
DECISION parcel of land subject of the sale to and in favor of
defendant.
SANDOVAL-GUTIERREZ, J.:
On appeal, the Court of Appeals rendered a Decision dated January
Before us for resolution is the petition for review on 21, 2004 in CA-G.R. CV No. 74635, reversing the trial courts Decision, thus:
certiorari[1] assailing the Decision[2] dated January 21, 2004 of the Court of WHEREFORE, the decision appealed from
Appeals in CA-G.R. CV No. 74635,[3] as well as its Resolution dated April 2, is hereby REVERSED and SET ASIDE. Ayala Life is
2004 denying petitioners motion for reconsideration. hereby ordered to refund all sums paid under the
The facts are: Contract to Sell, with interest of twelve percent (12%) per
On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and annum from 12 August 1998 until fully paid, less the
Ray Burton Development Corporation, respondent, entered into a contract amount equivalent to 25% of the total amount paid as
denominated as a Contract to Sell, with a Side Agreement of even date. In liquidated damages.
these contracts, petitioner agreed to sell to respondent a parcel of land, with an SO ORDERED.
area of 1,691 square meters, situated
at Madrigal Business Park, Ayala Alabang Village, Muntinlupa City, covered by The Court of Appeals ruled that the parties transaction in question is
Transfer Certificate of Title No. 186485 of the Registry of Deeds in the nature of a contract to sell, as distinguished from a contract of sale. Under
of Makati City. The purchase price of the land is P55,000.00 per square meter their contract, ownership of the land is retained by petitioner until respondent
or a total of P93,005,000.00, payable as follows: shall have fully paid the purchase price. Its failure to pay the price in full is not
(a) On contract date P24,181,300.00 representing 26 a breach of contract but merely an event that prevents petitioner from conveying
percent of the purchase price, inclusive of the title to respondent. Under such a situation, a cause of action for specific
the P1,000,000.00 option money; performance does not arise. What should govern the parties relation are the
(b) Not later than January 6, provisions of their contract on the Event of Default stated earlier.
1996 P3,720,200.00 representing 4 percent of the Hence, the instant petition for review on certiorari.
purchase price to complete 30 percent down payment; Petitioner contends that the Court of Appeals committed a reversible
and error in holding that: (a) the remedy of specific performance is not available in a
(c) In consecutive quarterly installments for a period of 5 contract to sell, such as the one at bar; and (b) petitioner is liable to refund
years from December 22, respondent all the sums the latter paid under the contract to sell, with interest at
1995 P65,103,500.00 representing the 70 percent 12% per annum from August 12, 1998 until fully paid, less the amount equivalent
balance of the purchase price. to 25% of the total amount paid as liquidated damages.

The contract contains a stipulation in paragraphs 3 and 3.1 for an Petitioner argues that by virtue of the contract to sell, it has the right
Event of Default. It provides that in case the purchaser (respondent) fails to pay to choose between fulfillment and rescission of the contract, with damages in
any installment for any reason not attributable to the seller (petitioner), the latter either case. Thus, it is immaterial to determine whether the parties subject
has the right to assess the purchaser a late penalty interest on the unpaid agreement is a contract to sell or a contract of sale.
installment at two (2%) percent per month, computed from the date the amount
became due until full payment thereof. And if such default continues for a period In its comment, respondent disputed petitioners allegations and
of six (6) months, the seller has the right to cancel the contract without need of prayed that the petition be denied for lack of merit.
court declaration by giving the purchaser a written notice of cancellation. In
case of such cancellation, the seller shall return to the purchaser the amount he The issues are:
received, less penalties, unpaid charges and dues on the property. 1. Whether respondents non-payment of
Respondent paid thirty (30%) down payment and the quarterly the balance of the purchase price gave rise to a cause
amortization, including the one that fell due on June 22, 1998. of action on the part of petitioner to demand full payment
However, on August 12, 1998, respondent notified petitioner in of the purchase price; and
writing that it will no longer continue to pay due to the adverse effects of the 2. Whether petitioner should refund
economic crisis to its business. Respondent then asked for the immediate respondent the amount the latter paid under the contract
cancellation of the contract and for a refund of its previous payments as provided to sell.
in the contract.
Petitioner refused to cancel the contract to sell. Instead, on At the outset, it is significant to note that petitioner does not dispute that
November 25, 1999, it filed with the Regional Trial Court, Branch 66, MakatiCity, its December 22, 1995 transaction with respondent is a contract to sell. It
a complaint for specific performance against respondent, docketed as Civil Case bears stressing that the exact nature of the parties contract determines whether
No. 99-2014, demanding from the latter the payment of the remaining unpaid petitioner has the remedy of specific performance.
quarterly installments beginning September 21, 1999 in the total sum
of P33,242,382.43, inclusive of interest and penalties. It is thus imperative that we first determine the nature of the parties
Respondent, in its answer, denied any further obligation to contract.
petitioner, asserting that on August 12, 1998, it (respondent) notified the latter
of its inability to pay the remaining installments. Respondent invoked the The real nature of a contract may be determined from the express
provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund terms of the written agreement and from the contemporaneous and subsequent
to it of the amounts paid, less interest and the sum of 25% of all sums paid as acts of the contracting parties.[4] In the construction or interpretation of an
liquidated damages. instrument, the intention of the parties is primordial and is to be pursued.[5] If
After pre-trial, petitioner moved for a summary judgment on the the terms of the contract are clear and leave no doubt upon the intention of the
ground that respondents answer failed to tender any genuine issue as to any contracting parties, the literal meaning of its stipulations shall control.[6] If the
material fact, except as to the amount of damages. The trial court granted the words appear to be contrary to the evident intention of the parties, the latter shall
motion and ordered the parties to submit their memoranda. prevail over the former.[7] The denomination or title given by the parties in their
On December 10, 2001, the trial court rendered a Decision holding contract is not conclusive of the nature of its contents.[8]
that respondent transgressed the law in obvious bad
faith. The dispositive portion reads: Here, the questioned agreement clearly indicates that it is a contract
WHEREFORE, defendant (now respondent) to sell, not a contract of sale. Paragraph 4 of the contract provides:
is hereby sentenced and ordered to pay plaintiff (now
petitioner) the sum of P33,242,383.43, representing the 4. TITLE AND OWNERSHIP OF THE
unpaid balance of the principal amount owing under the PROPERTY. The title to the property shall transfer to the
contract, interest agreed upon, and PURCHASER upon payment of the balance of the
penalties. Defendant is further ordered to pay plaintiff Purchase Price and all expenses, penalties and other
the sum of P200,000.00 as attorneys fees and the costs costs which shall be due and payable hereunder or
of suit. which may have accrued thereto. Thereupon, the
SELLER shall execute a Deed of Absolute Sale in favor 3. EVENT OF DEFAULT. The
of the PURCHASER conveying all the SELLERS rights, following event shall constitute an Event of Default
title and interest in and to the Property to the under this contract: the PURCHASER fails to pay any
PURCHASER.[9] installment on the balance, for any reason not
attributable to the SELLER, on the date it is due,
As correctly stated by the Court of Appeals in its assailed Decision, The provided, however, that the SELLER shall have the right
ruling of the Supreme Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is to charge the PURCHASER a late penalty interest on the
most illuminating. In the said case, a contract to sell and a contract of sale were said unpaid interest at the rate of 2% per month
clearly and thoroughly distinguished from each other, with the High Tribunal computed from the date the amount became due and
stressing that in a contract of sale, the title passes to the buyer upon the delivery payable until full payment thereof.
of the thing sold. In a contract to sell, the ownership is reserved in the seller 3.1. If the Event of Default shall have
and is not to pass until the full payment of the purchase price is made. In the occurred, then at any time thereafter, if any such event
first case, non-payment of the price is a negative resolutory condition; in the shall then be continuing for a period of six (6) months,
second case, full payment is a positive suspensive condition. In the first case, the SELLER shall have the right to cancel this Contract
the vendor has lost and cannot recover the ownership of the property until and without need of court declaration to that effect by giving
unless the contract of sale is itself resolved and set aside. In the second case, the PURCHASER a written notice of cancellation sent to
the title remains in the vendor if the vendee does not comply with the condition the address of the PURCHASER as specified herein by
precedent of making payment at the time specified in the contract.[10] registered mail or personal delivery. Thereafter, the
Considering that the parties transaction is a contract to sell, can SELLER shall return to the PURCHASER the aggregate
petitioner, as seller, demand specific performance from respondent, as buyer? amount that the SELLER shall have received as of the
Blacks Law Dictionary defined specific performance as (t)he remedy cancellation of this Contract, less: (i) penalties accrued
of requiring exact performance of a contract in the specific form in which it was as of the date of such cancellation, (ii) an amount
made, or according to the precise terms agreed upon. The actual equivalent to twenty five percent (25%) of the total
accomplishment of a contract by a party bound to fulfill it.[11] amount paid as liquidated damages, and (iii) any unpaid
Evidently, before the remedy of specific performance may be availed charges and dues on the Property. Any amount to be
of, there must be a breach of the contract. refunded to the PURCHASER shall be collected by the
Under a contract to sell, the title of the thing to be sold is retained by PURCHASER at the office of the SELLER. Upon notice
the seller until the purchaser makes full payment of the agreed purchase to the PURCHASER of such cancellation, the SELLER
price. Such payment is a positive suspensive condition, the non-fulfillment of shall be free to dispose of the Property covered hereby
which is not a breach of contract but merely an eventthat prevents the seller as if this Contract had not been executed. Notice to the
from conveying title to the purchaser. The non-payment of the purchase price PURCHASER sent by registered mail or by personal
renders the contract to sell ineffective and without force and effect. Thus, a delivery to its address stated in this Contract shall be
cause of action for specific performance does not arise. considered as sufficient compliance with all
requirements of notice for purposes of this Contract.[14]
In Rayos v. Court of Appeals,[12] we held:
Therefore, in the event of respondents default in payment, petitioner,
x x x. Under the two contracts, the petitioners under the above provisions of the contract, has the right to retain an amount
bound and obliged themselves to execute a deed of equivalent to 25% of the total payments. As stated by the Court of Appeals,
absolute sale over the property and transfer title thereon petitioner having been informed in writing by respondent of its intention not to
to the respondents after the payment of the full purchase proceed with the contract on August 12, 1998, or prior to incurring delay in
price of the property, inclusive of the quarterly payment of succeeding installments,[15] the provisions in the contract relative to
installments due on the petitioners loan with the PSB: penalties and interest find no application.
xxx The Court of Appeals further held that with respect to the award of
interest, petitioner is liable to pay interest of 12% per annum upon the net
Construing the contracts together, it is evident refundable amount due from the time respondent made the extrajudicial demand
that the parties executed a contract to sell and not a upon it on August 12, 1998 to refund payment under the Contract to
contract of sale. The petitioners retained ownership Sell,[16] pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of
without further remedies by the respondents until the Appeals.[17]
payment of the purchase price of the property in In sum, we find that the Court of Appeals, in rendering the assailed
full. Such payment is a Decision and Resolution, did not commit any reversible error.
positive suspensive condition, failure of which is not
really a breach, serious or otherwise, but an event
that prevents the obligation of the petitioners to WHEREFORE, the petition is DENIED. The assailed Decision and
convey title from arising, in accordance with Article Resolution of the Court of Appeals are AFFIRMED. Costs against petitioner.
1184 of the Civil Code (Leano v. Court of Appeals, 369 SO ORDERED.
SCRA 36 [2001]; Lacanilao v. Court of Appeals, 262
SCRA 486 [1996]).

The non-fulfillment by the respondent of his


obligation to pay, which is a suspensive condition to
the obligation of the petitioners to sell and deliver
the title to the property, rendered the contract to sell
ineffective and without force and effect (Agustin v.
Court of Appeals, 186 SCRA 375 [1990]). The parties
stand as if the conditional obligation had never
existed. Article 1191[13] of the New Civil Code will not
apply because it presupposes an obligation already
extant (Padilla v. Posadas, 328 SCRA 434
[2001]. There can be no rescission of an obligation that
is still non-existing, the suspensive condition not having
happened (Rillo v. Court of Appeals, 274 SCRA 461
[1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that


respondents default in the payment of the purchase price is considered merely
as an event, the happening of which gives rise to the respective obligations of
the parties mentioned therein, thus:
THE HEIRS OF GEORGE Y. POE, Petitioners, - versus - MALAYAN INSURANCE
COMPANY, INC., Respondent. G.R. No. 156302 , April 7, 2009 Rhoda and respondent MICI made the following admissions in their Joint Answer[9]:

DECISION That [Rhoda and herein respondent MICI] admit the


allegations in paragraphs 2, 3 and 4 of the complaint;
CHICO-NAZARIO, J.:
That [Rhoda and respondent MICI] admit the allegations in
paragraph 5 of the complaint that the cargo truck is insured
The instant Petition for Review under Rule 45[1]of the Rules of Court assails the with [respondent] Malayan Insurance Company, Inc. [(MICI)]
Decision[2] dated 26 June 2002 of the Court of Appeals in CA-G.R. SP No. 67297, which however, the liability of the insured company attached only if
granted the Petition for Certiorari of respondent Malayan Insurance Company, Inc. (MICI) there is a judicial pronouncement that the insured and her
and recalled and set aside the Order[3] dated 6 September 2001 of the Regional Trial Court driver are liable and moreover, the liability of the insurance
(RTC), Branch 73, of Antipolo City, in Civil Case No. 93-2705. The RTC, in its recalled company is subject to the limitations set forth in the insurance
Order, denied the Notice of Appeal of MICI and granted the Motion for the Issuance of a policy.[10]
Writ of Execution filed by petitioners Heirs of George Y. Poe. The present Petition also
challenges the Resolution[4] dated 29 November 2002 of the appellate court denying
petitioners Motion for Reconsideration. Rhoda and respondent MICI denied liability for Georges death averring, among other
defenses, that: a) the accident was caused by the negligent act of the victim George, who
Records show that on 26 January 1996 at about 4:45 a.m., George Y. Poe (George) while surreptitiously and unexpectedly crossed the road, catching the driver Willie by surprise,
waiting for a ride to work in front of Capital Garments Corporation, Ortigas Avenue and despite the latters effort to swerve the truck to the right, the said vehicle still came into
Extension, Barangay Dolores, Taytay, Rizal, was run over by a ten-wheeler Isuzu hauler contact with the victim; b) the liability of respondent MICI, if any, would attach only upon a
truck with Plate No. PMH-858 owned by Rhoda Santos (Rhoda), and then being driven by judicial pronouncement that the insured Rhoda and her driver Willie are liable; c) the liability
Willie Labrador (Willie).[5] The said truck was insured with respondent MICI under Policy of MICI should be based on the extent of the insurance coverage as embodied in Rhodas
No. CV-293-007446-8. policy; and d) Rhoda had always exercised the diligence of a good father of a family in the
selection and supervision of her driver Willie.
To seek redress for Georges untimely death, his heirs and herein petitioners, namely, his
widow Emercelinda, and their children Flerida and Fernando, filed with the RTC a After the termination of the pre-trial proceedings, trial on the merits ensued.
Complaint for damages against Rhoda and respondent MICI, docketed as Civil Case No.
93-2705.[6] Petitioners identified Rhoda and respondent MICI, as follows: Petitioners introduced and offered evidence in support of their claims for damages against
MICI, and then rested their case. Thereafter, the hearings for the reception of the evidence
Defendant RHODA SANTOS is likewise of legal age, Filipino of Rhoda and respondent MICI were scheduled, but they failed to adduce their evidence
and a resident of Real Street, Pamplona, Las Pias, Metro Manila despite several postponements granted by the trial court. Thus, during the hearing on 9
where she may be served with summons and other court June 1995, the RTC, upon motion of petitioners counsel, issued an Order[11] declaring that
processes. Rhoda and respondent MICI had waived their right to present evidence, and ordering the
parties to already submit their respective Memorandum within 15 days, after which, the
[Herein respondent] MALAYAN INSURANCE COMPANY, INC. case would be deemed submitted for decision.
(hereinafter [MICI] for brevity) is a corporation duly organized
and existing under Philippine law with address at Yuchengco Rhoda and respondent MICI filed a Motion for Reconsideration[12] of the Order dated 9
Bldg., 484 Q. Paredes Street, Binondo, Manila where it may be June 1995, but it was denied by the RTC in another Order dated 11 August 1995.[13]
served with summons and other processes of this Honorable
Court; Consequently, Rhoda and respondent MICI filed a Petition
for Certiorari, Mandamus,[14] Prohibition and Injunction with Prayer for a Temporary
Defendant Rhoda Santos, who is engaged in the business, Restraining Order and Writ of Preliminary Injunction, assailing the Orders dated 9 June
among others, of selling gravel and sand is the registered owner 1995 and 11 August 1995 of the RTC foreclosing their right to adduce evidence in support
of one Isuzu Truck, with Plate No. PMH-858 and is the employer of their defense. The Petition was docketed as CA-G.R. SP No. 38948.
of Willie Labrador the authorized driver of the aforesaid truck.
The Court of Appeals, through its Third Division, promulgated a Decision[15] on 29 April
[Respondent MICI] on the other hand is the insurer of Rhoda 1996, denying due course to the Petition in CA-G.R. SP No. 38948. Rhoda and respondent
Santos under a valid and existing insurance policy duly issued MICI elevated the matter to the Supreme Court via a Petition for Certiorari,[16] docketed as
by said [MICI], Policy No. CV-293-007446-8 over the subject G.R. No. 126244. This Court likewise dismissed the Petition in G.R. No. 126244 in a
vehicle owned by Rhoda Santos, Truck-Hauler Isuzu 10 wheeler Resolution dated 30 September 1996.[17] Entry of Judgment was made in G.R. No. 126244
with plate no. PMH-858, serial no. SRZ451-1928340 and motor on 8 November 1996.[18]
no. 10PA1-403803. Under said insurance policy, [MICI] binds
itself, among others, to be liable for damages as well as any On 28 February 2000, the RTC rendered a Decision in Civil Case No. 93-2705, the
bodily injury to third persons which may be caused by the dispositive portion of which reads:
operation of the insured vehicle.[7]
Wherefore, [Rhoda and herein respondent MICI] are hereby
ordered to pay jointly and solidarily to the [herein petitioners] the
And prayed that: following:

[J]udgment issue in favor of [herein petitioners] ordering [Rhoda 1. Moral damages amounting to P100,000.00;
and herein respondent MICI] jointly and solidarily to pay the
[petitioners] the following: 2. Actual damages for loss of earning capacity amounting
to P805,984.00;
1. Actual damages in the total amount of THIRTY SIX
THOUSAND (P36,000.00) PESOS for funeral and burial 3. P36,000.00 for funeral expenses;
expenses;
4. P50,000.00 as exemplary damages;
2. Actual damages in the amount of EIGHT HUNDRED FIVE
THOUSAND NINE HUNDRED EIGHTY FOUR (P805,984.00) 5. P50,000.00 for attorneys fees plus P1,500 per court
PESOS as loss of earnings and financial support given by the appearance; and
deceased by reason of his income and employment;
6. Cost of suit.[19]
3. Moral damages in the amount of FIFTY THOUSAND
(P50,000.00) PESOS;
Rhoda and respondent MICI received their copy of the foregoing RTC Decision on 14
4. Exemplary damages in the amount of FIFTY THOUSAND March 2000.[20] On 22 March 2000, respondent MICI and Rhoda filed a Motion for
(P50,000.00) PESOS; Reconsideration[21] of said Decision, averring therein that the RTC erred in ruling that the
obligation of Rhoda and respondent MICI to petitioners was solidary or joint and several;
5. Attorneys fees in the amount of FIFTY THOUSAND in computing Georges loss of earning capacity not in accord with established jurisprudence;
(P50,000.00) PESOS and litigation expense in the amount of and in awarding moral damages although it was not buttressed by evidence.
ONE THOUSAND FIVE HUNDRED (P1,500.00) PESOS for
each court appearance; Resolving the Motion of respondent MICI and Rhoda, the RTC issued an Order[22] on 24
January 2001 modifying and amending its Decision dated 28 February 2000, and
6. The costs of suit. dismissing the case against respondent MICI.

Other reliefs just and equitable in the premises are likewise The RTC held that:
prayed for.[8]
After a careful evaluation of the issues at hand, the contention The records disclosed that on February 28, 2000 this Court
of the [herein respondent MICI] as far as the solidary liability of rendered a Decision in favor of the [herein petitioners] and
the insurance company with the other defendant [Rhoda] is against [Rhoda and herein respondent MICI]. The Decision was
meritorious. However, the assailed Decision can be modified said to have been received by MICI on March 14, 2000. Eight
or amended to correct the same honest inadvertence without days after or on March 22, 2000, MICI mailed its Motion for
necessarily reversing it and set aside to conform with the Reconsideration to this Court and granted the same in the Order
evidence on hand. dated January 24, 2001. From this Order, [petitioners] filed a
Motion for Reconsideration on February 21, 2001 to which MICI
filed a vigorous opposition. On June 15, 2001 this Court granted
The RTC also re-computed Georges loss of earning capacity, as follows: [petitioners] motion reinstating the Decision dated February 28,
2000. According to MICI, the June 15, 2001 order was received
The computation of actual damages for loss of earning by it on June 27, 2001. MICI filed a Notice of Appeal on July 9,
capacity was determined by applying the formula adopted in 2001 or twelve (12) days from receipt of said Order.
the American Expectancy Table of Mortality or the actuarial of
Combined Experience Table of Mortality applied in x x x Villa [Petitioners] contend that the Notice of Appeal was filed out of
Rey Transit, Inc. v. Court of Appeals (31 SCRA 521). Moral time while [respondent] MICI opposes, arguing otherwise. The
damages is awarded in accordance with Article 2206 of the latter interposed that the Order dated June 15, 2001 is in reality
New Civil Code of the Philippines. While death indemnity in the a new Decision thereby giving it a fresh fifteen (15) days within
amount of P50,000.00 is automatically awarded in cases which to file notice of appeal.
where the victim had died (People v. Sison, September 14,
1990 [189 SCRA 643]).[23] [Respondent] MICIs contention is not meritorious. The fifteen
(15) day period within which to file a notice of appeal should be
reckoned from the date it received the Decision on March 14,
In the end, the RTC decreed: 2000. So that when MICI mailed its Motion for Reconsideration
on March 22, 2000, eight (8) days had already lapsed, MICI has
WHEREFORE, in view of the foregoing consideration, the remaining seven (7) days to file a notice of appeal. However,
Decision of this Court dated 28 February 2000 is hereby when it received the last Order of this Court it took [respondent]
amended or modified. Said Decision should read as follows: MICI twelve (12) days to file the same. Needless to say, MICIs
Notice of Appeal was filed out of time. The Court cannot
Wherefore, defendant Rhoda Santos countenance the argument of MICI that a resolution to a motion
is hereby ordered to pay to the for a final order or judgment will have the effect of giving a fresh
[herein petitioners] the following: reglementary period. This would be contrary to what was
provided in the rules of procedure.[31]
1. Moral damages amounting
to P100,000.00;
Accordingly, the RTC adjudged:
2. Actual damages for loss of earning
capacity amounting WHEREFORE, premises considered, [herein respondent]
to P102,106.00; MICIs Notice of Appeal is hereby Denied for having filed out of
time making the Decision of this Court dated February 28, 2000
3. P36,000.00 for funeral expenses; as final and executory. Accordingly, the Motion for Issuance of
Writ of Execution filed by [herein petitioners] is hereby Granted.
4. P50,000.00 as death indemnity;
Notify parties herein.[32]
5. P50,000.00 for attorneys fees
plus P1,500.00 per
court appearance; Respondent MICI filed a Petition for Certiorari[33] under Rule 65 of the Rules of Court before
the Court of Appeals, which was docketed as CA-G.R. SP No. 67297. The Petition
6. Costs of the suit. assailed, for having been rendered by the RTC with grave abuse of discretion amounting
to lack or excess of jurisdiction, the following: (1) the Order dated 6 September 2001,
The case against Malayan Insurance denying the Notice of Appeal of respondent MICI and granting petitioners Motion for the
Company, Inc. is hereby Issuance of Writ of Execution; (2) the Decision dated 28 February 2000, holding Rhoda
dismissed.[24] and respondent MICI jointly and severally liable for Georges death; and (3) the Order dated
15 June 2001, reinstating the Decision dated 28 February 2000.

It was petitioners turn to file a Motion for Reconsideration[25] of the 24 January 2001 Order, The Court of Appeals granted the Petition for Certiorari of respondent MICI in a Decision
to which respondent MICI filed a Vigorous Opposition to the Plaintiffs Motion for dated 26 June 2000, ratiocinating thus:
Reconsideration.[26]
Prescinding therefrom, we hold that the fifteen (15) day
On 15 June 2001, the RTC issued an Order reinstating its Decision dated 28 February period to appeal must be reckoned from the time the [herein
2000, relevant portions of which state: respondent] Malayan received the order dated 15 June 2001
reversing in toto the order of 24 January 2000 and
Finding the arguments raised by the [herein petitioners] in their reinstating in full the Decision dated 28 February
Motion for Reconsideration of the Order of this Court dated 2000.Thus, [respondent] Malayan had until 12 July
January 24, 2001 to be more meritorious to [herein respondents] 2001 within which to file its notice of appeal. Therefore,
Malayan Insurance Co., Inc. (sic) arguments in its vigorous when [respondent] Malayan filed its notice of appeal on 09
opposition thereto, said motion is hereby granted. July 2001, it was well within the reglementary period and
should have been given due course by the public
Accordingly, the Order under consideration is hereby respondent court.
reconsidered and set aside. The decision of this Court
dated February 28, 2000 is hereby reinstated. It was therefore, an excess of jurisdiction on the part of the
public respondent court when it reckoned the [respondent]
Notify parties herein.[27] Malayans period to appeal on the date it received on 14 March
2000 the formers decision dated 28 February 2000. As earlier
expostulated, the said decision was completely vacated insofar
Respondent MICI received a copy of the 15 June 2001 Order of the RTC on 27 June 2001. as the [respondent] Malayan is concerned when the public
respondent court in its order dated 24 January 2001 dismissed
Aggrieved by the latest turn of events, respondent MICI filed on 9 July 2001 a the case against the former. Thus, to reckon the fifteen (15) days
Notice of Appeal[28] of the 28 February 2000 Decision of the RTC, reinstated by the 15 June to appeal from the day the [respondent] Malayan received the
2001 Resolution of the same court. Rhoda did not join respondent MICI in its Notice of said decision on 14 March 2000, is the height of absurdity
Appeal.[29] because there was nothing for the [respondent] Malayan to
appeal inasmuch as the public respondent court vacated the
Petitioners filed their Opposition[30] to the Notice of Appeal of respondent MICI, with a said decision in favor of the former.
Motion for the Issuance of Writ of Execution.
The aforesaid conclusion finds support in Sta. Romana vs.
After considering the recent pleadings of the parties, the RTC, in its Order dated 6 Lacson (104 SCRA 93), where the court, relying on the case of
September 2001, denied the Notice of Appeal of respondent MICI and granted petitioners Magdalena Estate, Inc. vs. Caluag, 11 SCRA 334, held that
Motion for the Issuance of Writ of Execution. The RTC reasoned in its Order: where the court of origin made a thoroughly (sic) restudy of the
original judgment and rendered the amended and clarified
judgment only after considering all the factual and legal issues, Courts to the Regional Trial Courts; Rule 42 on petitions for
the amended and clarified decision was an entirely new decision review from the Regional Trial Courts to the Court of
which superseded (sic).For all intents and purposes, the court Appeals; Rule 43 on appeals from quasi-judicial agencies to the
concluded the trial court rendered a new judgment from which Court of Appeals and Rule 45 governing appeals by certiorari to
the time to appeal must be reckoned. the Supreme Court. The new rule aims to regiment or make the
appeal period uniform, to be counted from receipt of the order
In the instant case, what is involved is not merely a substantial denying the motion for new trial, motion for reconsideration
amendment or modification of the original decision, but the total (whether full or partial) or any final order or resolution.
reversal thereof in the order dated 24 January 2000. Given the (Emphases ours.)
rationale in the aforecited cases, it is only logical that the period
of appeal be counted from 27 June 2001, the date that
[respondent] Malayan received the order dated 15 June The fresh period of 15 days becomes significant when a party opts to file a
2001 reversing in toto the order of 24 January 2000 and motion for new trial or motion for reconsideration. In this manner, the trial court which
reinstating the Decision dated 28 February 2000.[34] (Emphasis rendered the assailed decision is given another opportunity to review the case and, in the
supplied.) process, minimize and/or rectify any error of judgment.[40] With the advent of the fresh
period rule, parties who availed themselves of the remedy of motion for reconsideration are
now allowed to file a notice of appeal within fifteen days from the denial of that motion.[41]
The fallo of the Decision of the Court of Appeals reads:
The Court has accentuated that the fresh period rule is not inconsistent with
WHEREFORE, in consideration of the foregoing premises, the Rule 41, Section 3 of the Rules of Court which states that the appeal shall be taken within
petition for certiorari is partially GRANTED. Accordingly, the fifteen (15) days from notice of judgment or final order appealed from. The use of the
public respondent courts order dated 06 September 2001 is disjunctive word or signifies disassociation and independence of one thing from another. It
hereby RECALLED and SET ASIDE. should, as a rule, be construed in the sense which it ordinarily implies.[42] Hence, the use
of or in the above provision supposes that the notice of appeal may be filed within 15 days
Public respondent court is hereby directed to approve the from the notice of judgment or within 15 days from notice of the final order in the case.
petitioner Malayans notice of appeal and to refrain from
executing the writ of execution granted on 06 September Applying the fresh period rule, the Court agrees with the Court of Appeals and
2001.[35] holds that respondent MICI seasonably filed its Notice of Appeal with the RTC on 9 July
2001, just 12 days from 27 June 2001, when it received the denial of its Motion for
Reconsideration of the 15 June 2001 Resolution reinstating the 28 February 2000 Decision
The Court of Appeals denied petitioners Motion for Reconsideration in a of the RTC.
Resolution dated 29 November 2002.
The fresh period rule may be applied to the case of respondent MICI, although
Understandably distraught, petitioners come before this Court in this Petition for Review, the events which transpired concerning its Notice of Appeal took place in June and July
which raise the following issues: 2001, inasmuch as rules of procedure may be given retroactive effect on actions pending
and undetermined at the time of their passage. The Court notes that Neypes was
I. promulgated on 14 September 2005, while the instant Petition was still pending before this
Court.
Whether or not the respondent Court of Appeals committed
grave abuse of discretion when it ruled that private respondent Reference may be made to Republic v. Court of Appeals,[43] involving the
could file a Petition for Certiorari even though its Motion for retroactive application of A.M. No. 00-2-03-SC which provided that the 60-day period within
Reconsideration was still pending resolution with the lower which to file a petition for certiorari shall be reckoned from receipt of the order denying the
court. motion for reconsideration. In said case, the Court declared that rules of procedure may be
given retroactive effect to actions pending and undetermined at the time of their passage
II. and this will not violate any right of a person who may feel that he is adversely affected,
inasmuch as there is no vested rights in rules of procedure.
Whether or not the respondent Court of Appeals committed
grave abuse of discretion when it ruled that the private Hence, the fresh period rule laid down in Neypes was applied by the Court in
respondent had filed its Notice of Appeal with the trial court resolving the subsequent cases of Sumaway v. Urban Bank, Inc.,[44] Elbia v. Ceniza,[45] First
within the reglementary period.[36] Aqua Sugar Traders, Inc. v. Bank of the Philippine Islands,[46] even though the antecedent
facts giving rise to said cases transpired before the promulgation of Neypes.

The Court first turns its attention to the primary issue for its resolution: whether In De los Santos v. Vda de Mangubat,[47] particularly, the Court applied the
the Notice of Appeal filed by respondent MICI before the RTC was filed out of time. fresh period rule, elucidating that procedural law refers to the adjective law which
prescribes rules and forms of procedure in order that courts may be able to administer
The period for filing a Notice of Appeal is set by Rule 41, Section 3 of the justice. Procedural laws do not come within the legal conception of a retroactive law, or the
1997 Rules of Court: general rule against the retroactive operation of statutes. The fresh period rule is
SEC. 3. Period of ordinary appeal. The appeal irrefragably procedural, prescribing the manner in which the appropriate period for appeal
shall be taken within fifteen (15) days from notice of the is to be computed or determined and, therefore, can be made applicable to actions pending
judgment or final order appealed from. Where a record on upon its effectivity without danger of violating anyone elses rights.
appeal is required, the appellants shall file a notice of appeal
and a record on appeal within thirty (30) days from notice of the Since the Court affirms the ruling of the Court of Appeals that respondent MICI filed its
judgment or final order. x x x. Notice of Appeal with the RTC within the reglementary period, the appropriate action, under
ordinary circumstances, would be for the Court to remand the case to the RTC so that the
The period of appeal shall be interrupted by a RTC could approve the Notice of Appeal of respondent MICI and respondent MICI could
timely motion for new trial or reconsideration. No motion for already file its appeal with the Court of Appeals.
extension of time to file a motion for new trial or reconsideration
shall be allowed. However, considering that the case at bar has been pending for almost sixteen
years,[48] and the records of the same are already before this Court, remand is no longer
necessary.
It is clear under the Rules that an appeal should be taken within 15 days from
the notice of judgment or final order appealed from.[37] A final judgment or order is one that Jurisprudence dictates that remand of a case to a lower court does not follow if, in the
finally disposes of a case, leaving nothing more for the court to do with respect to it. It is interest of justice, the Supreme Court itself can resolve the dispute based on the records
an adjudication on the merits which, considering the evidence presented at the trial, before it. As a rule, remand is avoided in the following instances: (a) where the ends of
declares categorically what the rights and obligations of the parties are; or it may be an justice would not be subserved by a remand; or (b) where public interest demands an early
order or judgment that dismisses an action.[38] disposition of the case; or (c) where the trial court has already received all the evidence
presented by both parties, and the Supreme Court is in a position, based upon said
Propitious to petitioners is Neypes v. Court of Appeals,[39] which the Court evidence, to decide the case on its merits.[49] In Lao v. People,[50] the Supreme Court, in
promulgated on 14 September 2005, and wherein it laid down the fresh period rule: consideration of the years that it had taken for the controversy therein to reach it, concluded
that remand of the case to a lower court was no longer the more expeditious and practical
To standardize the appeal periods provided in the route to follow, and it then decided the said case based on the evidentiary record before it.
Rules and to afford litigants fair opportunity to appeal their
cases, the Court deems it practical to allow a fresh period of The consistent stand of the Court has always been that a case should be decided in its
15 days within which to file the notice of appeal in the totality, resolving all interlocking issues in order to render justice to all concerned and to
Regional Trial Court, counted from receipt of the order end the litigation once and for all. Verily, courts should always strive to settle the entire
dismissing a motion for a new trial or motion for reconsideration. controversy in a single proceeding, leaving no root or branch to bear the seed of future
litigation.[51] Where the public interest so demands, the court will broaden its inquiry into a
Henceforth, this fresh period rule shall also case and decide the same on the merits rather than merely resolve the procedural question
apply to Rule 40 governing appeals from the Municipal Trial raised.[52] Such rule obtains in this case.
prejudice its case, or that the uncontroverted evidence of petitioners indeed speaks of the
The Court is convinced that the non-remanding of the case at bar is truth. And such adverse inference, recognized and adhered to by courts in judging the
absolutely justified. Petitioners have already suffered from the tragic loss of a loved one, weight of evidence in all kinds of proceedings, surely is not without basis its rationale and
and must not be made to endure more pain and uncertainty brought about by the continued effect rest on sound, logical and practical considerations, viz:
pendency of their claims against those liable. The case has been dragging on for almost
16 years now without the petitioners having been fully compensated for their loss. The The presumption that a man will do that which tends to his
Court cannot countenance such a glaring indifference to petitioners cry for justice. To be obvious advantage, if he possesses the means, supplies a most
sure, they deserve nothing less than full compensation to give effect to their substantive important test for judging of the comparative weight of evidence
rights.[53] x x x If, on the supposition that a charge or claim is unfounded,
the party against whom it is made has evidence within his reach
The complete records of the present case have been elevated to this Court, by which he may repel that which is offered to his prejudice, his
and the pleadings and evidence therein could fully support its factual adjudication. Indeed, omission to do so supplies a strong presumption that the charge
after painstakingly going over the records, the Court finds that the material and decisive or claim is well founded; it would be contrary to every principle
facts are beyond dispute: George was killed when he was hit by the truck driven by Willie, of reason, and to all experience of human conduct, to form any
an employee of Rhoda; and the truck is insured with respondent MICI. The only issue left other conclusion. (Starkie on Evidence, p. 846, Moore on
for the Court to resolve is the extent of the liability of Rhoda and respondent MICI for Facts, Vol. I, p. 544)
Georges death and the appropriate amount of the damages to be awarded to petitioners.
xxxx
The Court now turns to the issue of who is liable for damages for the death of
George. The ordinary rule is that one who has knowledge peculiarly
within his own control, and refuses to divulge it, cannot complain
Respondent MICI does not deny that it is the insurer of the truck. Nevertheless, it asserts if the court puts the most unfavorable construction upon his
that its liability is limited, and it should not be held solidarily liable with Rhoda for all the silence, and infers that a disclosure would have shown the fact
damages awarded to petitioners. to be as claimed by the opposing party." (Societe, etc., v. Allen,
90 Fed. Rep. 815, 817, 33 C.C.A. 282, per Taft, C.J., Moore on
A solidary or joint and several obligation is one in which each debtor is liable Facts, Vol. I, p. 561).[63]
for the entire obligation, and each creditor is entitled to demand the whole obligation. In a
joint obligation, each obligor answers only for a part of the whole liability and to each
obligee belongs only a part of the correlative rights. Well-entrenched is the rule that solidary The inference still holds even if it be assumed, for argument's sake, that the solidary liability
obligation cannot lightly be inferred. There is solidary liability only when the obligation of respondent MICI with Rhoda is improbable, for it has likewise been said that:
expressly so states, when the law so provides or when the nature of the obligation so
requires.[54] Weak evidence becomes strong by the neglect of the party
against whom it is put in, in not showing by means within the
It is settled that where the insurance contract provides for indemnity against liability to third easy control of that party that the conclusion drawn from such
persons, the liability of the insurer is direct and such third persons can directly sue the evidence is untrue. (Pittsburgh, etc., R. Co. v. Callaghan, 50 III.
insurer. The direct liability of the insurer under indemnity contracts against third party App. 676, 681, Moore on Facts, Vol. I, p. 572).[64]
liability does not mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being held liable under
different obligations. The liability of the insured carrier or vehicle owner is based on tort, in Given the admission of respondent MICI that it is the insurer of the truck
accordance with the provisions of the Civil Code;[55]while that of the insurer arises from involved in the accident that killed George, and in the utter absence of proof to establish
contract, particularly, the insurance policy. The third-party liability of the insurer is only up both the existence and the extent/amount of the alleged limited liability of respondent MICI
to the extent of the insurance policy and that required by law; and it cannot be held solidarily as insurer, the Court could only conclude that respondent MICI had agreed to fully
liable for anything beyond that amount.[56] Any award beyond the insurance coverage indemnify third-party liabilities. Consequently, there is no more difference in the amounts
would already be the sole liability of the insured and/or the other parties at fault.[57] of damages which petitioners can recover from Rhoda or respondent MICI; petitioners can
recover the said amounts in full from either of them, thus, making their liabilities solidary or
In Vda. de Maglana v. Consolacion,[58] it was ruled that an insurer in an indemnity contract joint and several.
for third-party liability is directly liable to the injured party up to the extent specified in the The Court now comes to the issue of the amounts of the damages awarded.
agreement, but it cannot be held solidarily liable beyond that amount. According to
respondent MICI, its liability as insurer of Rhodas truck is limited. Following Vda. de In its Decision dated 22 February 2000, the RTC awarded petitioners moral and actual
Maglana, petitioners would have had the option either (1) to claim the amount awarded to damages, as well as funeral expenses and attorneys fees.Subsequently, in its Order
them from respondent MICI, up to the extent of the insurance coverage, and the balance dated 24 January 2001, the RTC reduced the amount of actual damages from P805,984.00
from Rhoda; or (2) to enforce the entire judgment against Rhoda, subject to reimbursement to P102,106.00, but additionally awarded death indemnity in the amount of P50,000.00. Its
from respondent MICI to the extent of the insurance coverage. The Court, though, is award of moral damages and funeral expenses as well as attorneys fees remained
precluded from applying its ruling in Vda. de Maglana by the difference in one vital detail constant in its 28 February 2000 decision and was carried over to its 24 January
between the said case and the one at bar. The insurer was able to sufficiently establish its 2001 Order.
limited liability in Vda. de Maglana, while the same cannot be said for respondent MICI
herein. The Court shall now proceed to scrutinize said award of damages.

The Court highlights that in this case, the insurance policy between Rhoda and respondent As regards the award of actual damages, Article 2199 of the Civil Code provides that
MICI, covering the truck involved in the accident which killed George, was never [e]xcept as provided by law or by stipulation one is entitled to an adequate compensation
presented. There is no means, therefore, for this Court to ascertain the supposed limited only for such pecuniary loss suffered by him as he has duly proved x x x.
liability of respondent MICI under said policy. Without the presentation of the insurance
policy, the Court cannot determine the existence of any limitation on the liability of The RTC awarded P36,000.00 for burial expenses. The award of P36,000.00 for burial
respondent MICI under said policy, and the extent or amount of such limitation. expenses is duly supported by receipts evidencing that petitioners did incur this
expense. The petitioners held a wake for two days at their residence and another two days
It should be remembered that respondent MICI readily admits that it is the insurer of the at the Loyola Memorial Park.[65] The amount covered the expenses by petitioners for the
truck that hit and killed George, except that it insists that its liability under the insurance wake, funeral and burial of George.[66]
policy is limited. As the party asserting its limited liability, respondent MICI then has the
burden of evidence to establish its claim. In civil cases, the party that alleges a fact has the As to compensation for loss of earning capacity, the RTC initially awarded P805,984.00 in
burden of proving it. Burden of proof is the duty of a party to present evidence on the facts its 28 February 2000 Decision, which it later reduced to P102,106.00 on 24 January 2001.
in issue necessary to prove its claim or defense by the amount of evidence required by
law.[59] Regrettably, respondent MICI failed to discharge this burden.[60] The Court cannot Article 2206 of the Civil Code provides that in addition to the indemnity for death caused
rely on mere allegations of limited liability sans proof. by a crime or quasi-delict, the defendant shall be liable for the loss of the earning capacity
of the deceased, and the indemnity shall be paid to the heirs of the latter, x x
The failure of respondent MICI to present the insurance policy which, x. Compensation of this nature is awarded not for loss of earnings but for loss of capacity
understandably, is not in petitioners possession, but in the custody and absolute control of to earn money. Hence, it is proper that compensation for loss of earning capacity should
respondent MICI as the insurer and/or Rhoda as the insured gives rise to the presumption be awarded to the petitioners in accordance with the formula established in decided cases
that its presentation is prejudicial to the cause of respondent MICI.[61] When the evidence for computing net earning capacity, to wit:
tends to prove a material fact which imposes a liability on a party, and he has it in his power
to produce evidence which, from its very nature, must overthrow the case made against The formula for the computation of unearned income is:
him if it is not founded on fact, and he refuses to produce such evidence, the presumption
arises that the evidence, if produced, would operate to his prejudice and support the case Net Earning Capacity = life expectancy x (gross annual income
of his adversary.[62] -reasonable and necessary living expenses).

Respondent MICI had all the opportunity to prove before the RTC that its Life expectancy is determined in accordance with the formula:
liability under the insurance policy it issued to Rhoda, was limited; yet, respondent MICI
failed to do so. The failure of respondent MICI to rebut that which would have naturally 2 / 3 x [80 - age of deceased at the time of death][67]
invited an immediate, pervasive, and stiff opposition from it created an adverse inference
that either the controverting evidence to be presented by respondent MICI would only
Jurisprudence provides that the first factor, i.e., life expectancy, shall be computed by the award bears no relation whatsoever with the wealth or
applying the formula (2/3 x [80 - age at death]) adopted in the American Expectancy Table means of the offender.
of Mortality or the Actuarial of Combined Experience Table of Mortality.

The second factor is computed by multiplying the life expectancy by the net earnings of In the instant case, petitioners testimonies reveal the intense suffering which
the deceased, i.e., the total earnings less expenses necessary in the creation of such they continue to experience as a result of Georges death.[73] It is not difficult to comprehend
earnings or income and less living and other incidental expenses. The loss is not equivalent that the sudden and unexpected loss of a husband and father would cause mental anguish
to the entire earnings of the deceased, but only such portion that he would have used to and serious anxiety in the wife and children he left behind. Moral damages in the amount
support his dependents or heirs. Hence, the Court deducts from his gross earnings the of P100,000.00 are proper for Georges death.[74]
necessary expenses supposed to be used by the deceased for his own needs. The Court
explained in Villa Rey Transit v. Court of Appeals[68]: The RTC also awarded P50,000.00 as death indemnity which the Court shall not
disturb. The award of P50,000.00 as death indemnity is in accordance with current rulings
[The award of damages for loss of of the Court.[75]
earning capacity is] concerned with
the determination of the losses or Finally, the RTC awarded attorneys fees to petitioners. Petitioners are entitled to attorneys
damages sustained by the private fees. Under Article 2008 of the Civil Code, attorneys fees may be granted when a party is
respondents, as dependents and compelled to litigate or incur expenses to protect his interest by reason of an unjustified
intestate heirs of the deceased, and act of the other party.[76] In Metro Manila Transit Corporation v. Court of Appeals,[77] the
that said damages consist, not of Court held that an award of P50,000.00 as attorneys fees was reasonable.Hence,
the full amount of his earnings, but petitioners are entitled to attorneys fees in that amount.[78]
of the support they received or
would have received from him had WHEREFORE, premises considered, the instant Petition is PARTIALLY GRANTED. While
he not died in consequence of the the Court AFFIRMS the Decision, dated 26 June 2002, and Resolution, dated 29
negligence of petitioner's agent. In November 2002, of the Court of Appeals in CA-G.R. SP No. 67297, granting the Petition
fixing the amount of that support, we for Certiorari of respondent Malayan Insurance Company, Inc., the Court,
must reckon with the necessary nonetheless, RESOLVES, in consideration of the speedy administration of justice, and the
expenses of his own living, which peculiar circumstances of the case, to give DUE COURSE to the present Petition and
should be deducted from his decide the same on its merits.
earnings. Thus, it has been
consistently held that earning Rhoda Santos and respondent Malayan Insurance Company, Inc. are hereby ordered to
capacity, as an element of damages pay jointly and severally the petitioners Heirs of George Y. Poe the following:
to one's estate for his death by
wrongful act is necessarily his net (1) Funeral expenses P36,000.00;
earning capacity or his capacity to (2) Actual damages for loss of earning capacity P611,386.92;
acquire money, less necessary (3) Moral damages amounting to P100,000.00;
expense for his own living. Stated (4) Death indemnity P50,000.00; and
otherwise, the amount recoverable (5) Attorneys fees P50,000.00 plus P1,500.00 per court appearance.
is not the loss of the entire earning,
but rather the loss of that portion of No costs.
the earnings which the beneficiary
would have received. In other
words, only net earnings, and not SO ORDERED.
gross earnings are to be considered
that is, the total of the earnings less
expenses necessary in the creation
of such earnings or income and less
living and other incidental
expenses.

Applying the aforestated jurisprudential guidelines in the computation of the amount of


award for damages set out in Villa Rey, the Court computes the award for the loss of
Georges earning capacity as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of


death]
2/3 x [80 56]
2/3 x [24]

FORMULA NET EARNING CAPACITY (NEC)

If:

Age at time of death of George Poe = 58[69]


Monthly Income at time of death = P6,946[70]
Gross Annual Income (GAI) = [(6,946) (12)] = P83,352
Reasonable/Necessary Living Expenses (R/NLE) = 50%[71] of
GAI = P41,676

NEC = [2/3 (80-58)] [83,352-41,676]


= [2/3 (22)] [41,676]
= [14.67] [41,676]
= P611,386.92

Therefore, Georges lost net earning capacity is equivalent to P611,386.92

The RTC awarded moral damages[72] in the amount of P100,000.00. With respect to moral
damages, the same are awarded under the following circumstances:

The award of moral damages is aimed at a restoration, within


the limits of the possible, of the spiritual status quo ante. Moral
damages are designed to compensate and alleviate in some
way the physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury unjustly caused a
person. Although incapable of pecuniary computation, they
must be proportionate to the suffering inflicted. The amount of
FILINVEST LAND, INC., Petitioner - versus - HON. COURT OF APPEALS, by both parties as there was no proper procedure followed
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, and PACIFIC in terminating the contract, lack of inventory of work
EQUIPMENT CORPORATION, Respondents accomplished, absence of appropriate record of work
G.R. No.138980 September 20, 2005 progress (logbook) and inadequate documentation and
system of construction management.
DECISION
Based on the billings of defendant Pacific and
CHICO-NAZARIO, J.: This is a petition for review on certiorari of the Decision[1] of the payments made by plaintiff, the work accomplished by
the Court of Appeals dated 27 May 1999 affirming the dismissal by the Regional the former amounted to P11,788,282.40 with the exception
Trial Court of Makati, Branch 65,[2] of the complaint for damages filed by Filinvest of the last billing (which was not acted upon or processed
Land, Inc. (Filinvest) against herein private respondents Pacific Equipment by plaintiff) in the amount of P844,396.42. The total amount
Corporation (Pecorp) and Philippine American General Insurance Company. of work left to be accomplished by plaintiff was based on the
original contract amount less value of work accomplished by
The essential facts of the case, as recounted by the trial court, are as defendant Pacific in the amount of P681,717.58
follows: (12,470,000-11,788,282.42).
On 26 April 1978, Filinvest Land, Inc. As regards the alleged repairs made by plaintiff
(FILINVEST, for brevity), a corporation engaged in the on the construction deficiencies, the Court Commissioner
development and sale of residential subdivisions, awarded found no sufficient basis to justify the same. On the other
to defendant Pacific Equipment Corporation (PACIFIC, for hand, he found the additional work done by defendant
brevity) the development of its residential subdivisions Pacific in the amount of P477,000.00 to be in order.
consisting of two (2) parcels of land located at Payatas,
Quezon City, the terms and conditions of which are On 01 April 1985, plaintiff filed its objections to
contained in an Agreement. (Annex A, Complaint). To the Commissioners Resolution on the following grounds:
guarantee its faithful compliance and pursuant to the
agreement, defendant Pacific posted two (2) Surety Bonds a) Failure of the commissioner to
in favor of plaintiff which were issued by defendant conduct a joint survey which according to the latter is
Philippine American General Insurance (PHILAMGEN, for indispensable to arrive at an equitable and fair resolution of
brevity). (Annexes B and C, Complaint). the issues between the parties;
Notwithstanding three extensions granted by b) The cost estimates of the
plaintiff to defendant Pacific, the latter failed to finish the commissioner were based on pure conjectures and contrary
contracted works. (Annexes G, I and K, Complaint). On 16 to the evidence; and,
October 1979, plaintiff wrote defendant Pacific advising the
latter of its intention to takeover the project and to hold said c) The commissioner made conclusions
defendant liable for all damages which it had incurred and of law which were beyond his assignment or capabilities.
will incur to finish the project. (Annex L, Complaint).
In its comment, defendant Pacific alleged that
On 26 October 1979, plaintiff submitted its the failure to conduct joint survey was due to plaintiffs
claim against defendant Philamgen under its performance refusal to cooperate. In fact, it was defendant Pacific who
and guarantee bond (Annex M, Complaint) but Philamgen initiated the idea of conducting a joint survey and inventory
refused to acknowledge its liability for the simple reason that dating back 27 November 1983. And even assuming that a
its principal, defendant Pacific, refused to acknowledge joint survey were conducted, it would have been an exercise
liability therefore. Hence, this action. in futility because all physical traces of the actual conditions
then obtaining at the time relevant to the case had already
In defense, defendant Pacific claims that its been obliterated by plaintiff.
failure to finish the contracted work was due to inclement
weather and the fact that several items of finished work and On 15 August 1990, a Motion for Judgment
change order which plaintiff refused to accept and pay for Based on the Commissioners Resolution was filed by
caused the disruption of work. Since the contractual relation defendant Pacific.
between plaintiff and defendant Pacific created a reciprocal
obligation, the failure of the plaintiff to pay its progressing On 11 October 1990, plaintiff filed its opposition
bills estops it from demanding fulfillment of what is thereto which was but a rehash of objections to the
incumbent upon defendant Pacific. The acquiescence by commissioners report earlier filed by said plaintiff.[3]
plaintiff in granting three extensions to defendant Pacific is
likewise a waiver of the formers right to claim any damages
for the delay. Further, the unilateral and voluntary action of
plaintiff in preventing defendant Pacific from completing the On the basis of the commissioners report, the trial court dismissed
work has relieved the latter from the obligation of completing Filinvests complaint as well as Pecorps counterclaim. It held:
the same.
In resolving this case, the court observes that
On the other hand, Philamgen contends that the appointment of a Commissioner was a joint undertaking
the various amendments made on the principal contract and among the parties. The findings of facts of the
the deviations in the implementation thereof which were Commissioner should therefore not only be conclusive but
resorted to by plaintiff and co-defendant Pacific without its final among the parties. The court therefore agrees with the
(defendant Philamgens) written consent thereto, have commissioners findings with respect to
automatically released the latter from any or all liability
within the purview and contemplation of the coverage of the 1. Cost to repair deficiency or
surety bonds it has issued. Upon agreement of the parties defect P532,324.02
to appoint a commissioner to assist the court in resolving the 2. Unpaid balance of work done by defendant
issues confronting the parties, on 7 July 1981, an order was - P1,939,191.67
issued by then Presiding Judge Segundo M. Zosa naming 3. Additional work/change order (due to
Architect Antonio Dimalanta as Court Commissioner from defendant) P475,000.00
among the nominees submitted by the parties to conduct an
ocular inspection and to determine the amount of work The unpaid balance due defendant therefore
accomplished by the defendant Pacific and the amount of is P1,939,191.67. To this amount should be added
work done by plaintiff to complete the project. additional work performed by defendant at plaintiffs instance
in the sum of P475,000.00. And from this total
On 28 November 1984, the Court received the of P2,414,191.67 should be deducted the sum
findings made by the Court Commissioner. In arriving at his of P532,324.01 which is the cost to repair the deficiency or
findings, the Commissioner used the construction defect in the work done by defendant. The commissioner
documents pertaining to the project as basis. According to arrived at the figure of P532,324.01 by getting the average
him, no better basis in the work done or undone could be between plaintiffs claim of P758,080.37 and defendants
made other than the contract billings and payments made
allegation of P306,567.67. The amount due to defendant per to P681,717.58 representing 5.47% of the
the commissioners report is therefore P1,881,867.66. contract work. This means to say that Pecorp,
at the time of the termination of its contract,
Although the said amount of P1,881,867.66 accomplished 94.53% of the contract work;
would be owing to defendant Pacific, the fact remains that
said defendant was in delay since April 25, 1979. The third (b) The unpaid balance of work done by Pecorp amounts
extension agreement of September 15, 1979 is very clear in to P1,939,191.67;
this regard. The pertinent paragraphs read:
(c) The additional work/change order due Pecorp amounts
a) You will complete all the to P475,000.00;
unfinished works not later
than Oct. 15, 1979. It is (d) The cost to repair deficiency or defect, which is for the
agreed and understood that account of Pecorp, is P532,324.02; and
this date shall DEFINITELY
be the LAST and FINAL (e) The total amount due Pecorp is P1,881,867.66.
extension & there will be no
further extension for any Coming now to the main matter, Filinvest argues that the penalty in its entirety should
cause whatsoever. be respected as it was a product of mutual agreement and it represents only 32% of
the P12,470,000.00 contract price, thus, not shocking and unconscionable under the
b) We are willing to waive all circumstances. Moreover, the penalty was fixed to provide for actual or anticipated
penalties for delay which liquidated damages and not simply to ensure compliance with the terms of the
have accrued since April 25, contract; hence, pursuant to Laureano v. Kilayco,[9] courts should be slow in
1979 provided that you are exercising the authority conferred by Art. 1229 of the Civil Code.
able to finish all the items of
the contracted works as per We are not swayed.
revised CPM; otherwise you
shall continue to be liable to There is no question that the penalty of P15,000.00 per day of delay was
pay the penalty up to the mutually agreed upon by the parties and that the same is sanctioned by law. A penal
time that all the contracted clause is an accessory undertaking to assume greater liability in case of breach.[10] It
works shall have been is attached to an obligation in order to insure performance[11] and has a double
actually finished, in addition function: (1) to provide for liquidated damages, and (2) to strengthen the coercive
to other damages which we force of the obligation by the threat of greater responsibility in the event of
may suffer by reason of the breach.[12] Article 1226 of the Civil Code states:
delays incurred.
Art. 1226. In obligations with a penal clause, the
Defendant Pacific therefore became liable for delay when it penalty shall substitute the indemnity for damages and the
did not finish the project on the date agreed on October 15, payment of interests in case of noncompliance, if there is no
1979. The court however, finds the claim of P3,990,000.00 stipulation to the contrary. Nevertheless, damages shall be
in the form of penalty by reason of delay (P15,000.00/day paid if the obligor refuses to pay the penalty or is guilty of
from April 25, 1979 to Jan. 15, 1980) to be excessive. A fraud in the fulfillment of the obligation.
forfeiture of the amount due defendant from plaintiff appears
to be a reasonable penalty for the delay in finishing the The penalty may be enforced only when it is
project considering the amount of work already performed demandable in accordance with the provisions of this Code.
and the fact that plaintiff consented to three prior extensions.
As a general rule, courts are not at liberty to ignore the freedom of the
The foregoing considered, this case is dismissed. The parties to agree on such terms and conditions as they see fit as long as they are not
counterclaim is likewise dismissed. contrary to law, morals, good customs, public order or public policy.[13] Nevertheless,
courts may equitably reduce a stipulated penalty in the contract in two instances: (1)
No Costs.[4] if the principal obligation has been partly or irregularly complied; and (2) even if there
has been no compliance if the penalty is iniquitous or unconscionable in accordance
The Court of Appeals, finding no reversible error in the appealed with Article 1229 of the Civil Code which provides:
decision, affirmed the same.
Art. 1229. The judge shall equitably reduce the
Hence, the instant petition grounded solely on the issue of whether or penalty when the principal obligation has been partly or
not the liquidated damages agreed upon by the parties should be reduced irregularly complied with by the debtor. Even if there has
considering that: (a) time is of the essence of the contract; (b) the liquidated damages been no performance, the penalty may also be reduced by
was fixed by the parties to serve not only as penalty in case Pecorp fails to fulfill its the courts if it is iniquitous or unconscionable.
obligation on time, but also as indemnity for actual and anticipated damages which
Filinvest may suffer by reason of such failure; and (c) the total liquidated damages In herein case, the trial court ruled that the penalty charge for delay
sought is only 32% of the total contract price, and the same was freely and voluntarily pegged at P15,000.00 per day of delay in the aggregate amount of P3,990,000.00 -
agreed upon by the parties. - was excessive and accordingly reduced it to P1,881,867.66 considering the amount
of work already performed and the fact that [Filinvest] consented to three (3) prior
At the outset, it should be stressed that as only the issue of liquidated extensions. The Court of Appeals affirmed the ruling but added as well that the
damages has been elevated to this Court, petitioner Filinvest is deemed to have penalty was unconscionable as the construction was already not far from completion.
acquiesced to the other matters taken up by the courts below. Section 1, Rule 45 of Said the Court of Appeals:
the 1997 Rules of Court states in no uncertain terms that this Courts jurisdiction in
petitions for review on certiorari is limited to questions of law which must be distinctly Turning now to plaintiffs appeal, We likewise
set forth.[5] By assigning only one legal issue, Filinvest has effectively cordoned off agree with the trial court that a penalty interest
any discussion into the factual issue raised before the Court of Appeals.[6] In effect, of P15,000.00 per day of delay as liquidated damages
Filinvest has yielded to the decision of the Court of Appeals, affirming that of the trial or P3,990,000.00 (representing 32% penalty of
court, in deferring to the factual findings of the commissioner assigned to the parties the P12,470,000.00 contract price) is unconscionable
case. Besides, as a general rule, factual matters cannot be raised in a petition for considering that the construction was already not far from
review on certiorari. This Court at this stage is limited to reviewing errors of law that completion. Penalty interests are in the nature of liquidated
may have been committed by the lower courts.[7] We do not perceive here any of the damages and may be equitably reduced by the courts if they
exceptions to this rule; hence, we are restrained from conducting further scrutiny of are iniquitous or unconscionable (Garcia v. Court of
the findings of fact made by the trial court which have been affirmed by the Court of Appeals, 167 SCRA 815, Lambert v. Fox, 26 Phil. 588). The
Appeals. Verily, factual findings of the trial court, especially when affirmed by the judge shall equitably reduce the penalty when the principal
Court of Appeals, are binding and conclusive on the Supreme Court.[8] Thus, it is obligation has been partly or irregularly complied with by the
settled that: debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
(a) Based on Pecorps billings and the payments made by unconscionable (Art. 1229, New Civil Code). Moreover,
Filinvest, the balance of work to be plaintiffs right to indemnity due to defendants delay has
accomplished by Pecorp amounts
been cancelled by its obligations to the latter consisting of Thus, we lamented in one case that (t)here is no justification for the Civil Code to
unpaid works. make an apparent distinction between a penalty and liquidated damages because
the settled rule is that there is no difference between penalty and liquidated damages
This Court finds no fault in the cost estimates of insofar as legal results are concerned and that either may be recovered without the
the court-appointed commissioner as to the cost to repair necessity of proving actual damages and both may be reduced when proper.[19]
deficiency or defect in the works which was based on the
average between plaintiffs claim of P758,080.37 and Finally, Filinvest advances the argument that while it may be true that courts may
defendants P306,567.67 considering the following factors: mitigate the amount of liquidated damages agreed upon by the parties on the basis
that plaintiff did not follow the standard practice of joint of the extent of the work done, this contemplates a situation where the full amount of
survey upon take over to establish work already damages is payable in case of total breach of contract. In the instant case, as the
accomplished, balance of work per contract still to be done, penalty clause was agreed upon to answer for delay in the completion of the project
and estimate and inventory of repair (Exhibit H). As for the considering that time is of the essence, the parties thus clearly contemplated the
cost to finish the remaining works, plaintiffs estimates were payment of accumulated liquidated damages despite, and precisely because of,
brushed aside by the commissioner on the reasoned partial performance.[20] In effect, it is Filinvests position that the first part of Article
observation that plaintiffs cost estimate for work (to be) done 1229 on partial performance should not apply precisely because, in all likelihood, the
by the plaintiff to complete the project is based on a contract penalty clause would kick in in situations where Pecorp had already begun work but
awarded to another contractor (JPT), the nature and could not finish it on time, thus, it is being penalized for delay in its completion.
magnitude of which appears to be inconsistent with the
basic contract between defendant PECORP and plaintiff The above argument, albeit sound,[21] is insufficient to reverse the ruling of the Court
FILINVEST.[14] of Appeals. It must be remembered that the Court of Appeals not only held that the
penalty should be reduced because there was partial compliance but categorically
We are hamstrung to reverse the Court of Appeals as it is rudimentary stated as well that the penalty was unconscionable. Otherwise stated, the Court of
that the application of Article 1229 is essentially addressed to the sound discretion of Appeals affirmed the reduction of the penalty not simply because there was partial
the court.[15] As it is settled that the project was already 94.53% complete and that compliance per se on the part of Pecorp with what was incumbent upon it but, more
Filinvest did agree to extend the period for completion of the project, which extensions fundamentally, because it deemed the penalty unconscionable in the light of
Filinvest included in computing the amount of the penalty, the reduction thereof is Pecorps 94.53% completion rate.
clearly warranted. In Ligutan v. Court of Appeals,[22] we pointed out that the question of
Filinvest, however, hammers on the case of Laureano v. whether a penalty is reasonable or iniquitous can be partly subjective and partly
Kilayco,[16] decided in 1915, which cautions courts to distinguish between two kinds objective as its resolution would depend on such factors as, but not necessarily
of penalty clauses in order to better apply their authority in reducing the amount confined to, the type, extent and purpose of the penalty, the nature of the obligation,
recoverable. We held therein that: the mode of breach and its consequences, the supervening realities, the standing
and relationship of the parties, and the like, the application of which, by and large, is
. . . [I]n any case wherein there has been a addressed to the sound discretion of the court.[23]
partial or irregular compliance with the provisions in a
contract for special indemnification in the event of failure to In herein case, there has been substantial compliance in good faith on the part of
comply with its terms, courts will rigidly apply the Pecorp which renders unconscionable the application of the full force of the penalty
doctrine of strict construction against the enforcement especially if we consider that in 1979 the amount of P15,000.00 as penalty for delay
in its entirety of the indemnification, where it is clear per day was quite steep indeed. Nothing in the records suggests that Pecorps delay
from the terms of the contract that the amount or in the performance of 5.47% of the contract was due to it having acted negligently or
character of the indemnity is fixed without regard to the in bad faith. Finally, we factor in the fact that Filinvest is not free of blame either as it
probable damages which might be anticipated as a result of likewise failed to do that which was incumbent upon it, i.e., it failed to pay Pecorp for
a breach of the terms of the contract; or, in other words, work actually performed by the latter in the total amount of P1,881,867.66. Thus, all
where the indemnity provided for is essentially a mere things considered, we find no reversible error in the Court of Appeals exercise of
penalty having for its principal object the enforcement of discretion in the instant case.
compliance with the contract. But the courts will be slow
in exercising the jurisdiction conferred upon them in Before we write finis to this legal contest that had spanned across two
article 1154[17] so as to modify the terms of an agreed upon and a half decades, we take note of Pecorps own grievance. From its Comment and
indemnification where it appears that in fixing such Memorandum, Pecorp, likewise, seeks affirmative relief from this Court by praying
indemnification the parties had in mind a fair and reasonable that not only should the instant case be dismissed for lack of merit, but that Filinvest
compensation for actual damages anticipated as a result of should likewise be made to pay what the Court Commissioner found was due
a breach of the contract, or, in other words, where the defendant in the total amount of P2,976,663.65 plus 12% interest from 1979 until full
principal purpose of the indemnification agreed upon payment thereof plus attorneys fees.[24] Pecorp, however, cannot recover that which
appears to have been to provide for the payment of actual it seeks as we had already denied, in a Resolution dated 21 June 2000, its own
anticipated and liquidated damages rather than the petition for review of the 27 May 1999 decision of the Court of Appeals. Thus, as far
penalization of a breach of the contract. (Emphases as Pecorp is concerned, the ruling of the Court of Appeals has already attained finality
supplied) and can no longer be disturbed.

Filinvest contends that the subject penalty clause falls under the second WHEREFORE, premises considered, the Decision of the Court of
type, i.e., the principal purpose for its inclusion was to provide for payment of actual Appeals dated 27 May 1999 is AFFIRMED. No pronouncement as to costs.
anticipated and liquidated damages rather than the penalization of a breach of the SO ORDERED.
contract. Thus, Filinvest argues that had Pecorp completed the project on time, it
(Filinvest) could have sold the lots sooner and earned its projected income that would
have been used for its other projects.

Unfortunately for Filinvest, the above-quoted doctrine is inapplicable to herein case.


The Supreme Court in Laureano instructed that a distinction between a penalty
clause imposed essentially as penalty in case of breach and a penalty clause
imposed as indemnity for damages should be made in cases where there has been
neither partial nor irregular compliance with the terms of the contract. In cases where
there has been partial or irregular compliance, as in this case, there will be no
substantial difference between a penalty and liquidated damages insofar as legal
results are concerned.[18] The distinction is thus more apparent than real especially in
the light of certain provisions of the Civil Code of the Philippineswhich provides in
Articles 2226 and Article 2227 thereof:

Art. 2226. Liquidated damages are those


agreed upon by the parties to a contract to be paid in case
of breach thereof.

Art. 2227. Liquidated damages, whether


intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.