Supreme Court

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 73913 January 31, 1989
JERRY T. MOLES, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and MARIANO M. DIOLOSA, respondents.
Zoilo V. De la Cruz, Jr., Kenneth Barredo, Romeo Sabig and Natalio V. Sitjao for petitioners.
Rolando N. Medalla and Jose G. Guinez, Jr., for private respondents.
REGALADO, J.:
This petition for review on certiorari assails the decision of the then Intermediate Appellate
Court 1 dismissing the complaint filed by herein petitioner against the herein private respondent in the
former Court of First Instance of Negros Occidental in Civil Case No. 13821 thereof. 2
The factual backdrop of this controversy, as culled from the records, 3 shows that on May 17, 1978,
petitioner Jerry T. Moles commenced a suit against private respondent Mariano M. Diolosa in the
aforesaid trial court, Branch IV in Bacolod City, for rescission of contract with damages. Private
respondent moved to dismiss on the ground of improper venue, invoking therefor Sales Invoice No.
075A executed between petitioner and private respondent on April 23, 1977 which provides that all
judicial actions arising from this contract shall be instituted in the City of Iloilo. 4 This was opposed by
petitioner who averred that there is no formal document evidencing the sale which is substantially
verbal in character. In an order dated June 23, 1978, the trial court denied the motion to dismiss,
holding that the question of venue could not be resolved at said stage of the case. The subsequent
motion for reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid venue stipulation, preceeded to this Court
on a petition for prohibition with preliminary injunction in G.R. No. 49078, questioning the validity of
the order denying his aforesaid two motions and seeking to enjoin the trial court from further
proceeding with the case. This petition was dismissed for lack of merit in a resolution of the Court,
dated February 7, 1979, and which became final on March 15, 1979. Thereafter, private respondent
filed his answer and proceeded to trial.
The aforecited records establish that sometime in 1977, petitioner needed a linotype printing
machine for his printing business, The LM Press at Bacolod City, and applied for an industrial loan
with the Development Bank of the Philippines. (hereinafter, DBP) for the purchase thereof. An agent
of Smith, Bell and Co. who is a friend of petitioner introduced the latter to private respondent, owner
of the Diolosa Publishing House in Iloilo City, who had two available machines. Thereafter, petitioner
went to Iloilo City to inspect the two machines offered for sale and was informed that the same were
secondhand but functional.
On his second visit to the Diolosa Publishing House, petitioner together with Rogelio Yusay, a letter
press machine operator, decided to buy the linotype machine, Model 14. The transaction was
basically verbal in nature but to facilitate the loan application with the DBP, a pro forma invoice,
dated April 23, 1977 and reflecting the amount of P50,000.00 as the consideration of the sale, was
signed by petitioner with an addendum that payment had not yet been made but that he promised to
pay the full amount upon the release of his loan from the aforementioned bank on or before the end
of the month. 5 Although the agreed selling price was only P40,000.00, the amount on the invoice
was increased by P10,000.00, said increase being intended for the purchase of new matrices for
said machine.
Sometime between April and May, 1977, the machine was delivered to petitioner's publishing house
at Tangub, Bacolod City where it was installed by one Crispino Escurido, an employee of respondent
Diolosa. Another employee of the Diolosa Publishing House, Tomas Plondaya, stayed at petitioners
house for almost a month to train the latter's cousin in operating the machine. 6
Under date of August 29, 1977, private respondent issued a certification wherein he warranted that
the machine sold was in A-1 condition, together with other express warranties. 7
Prior to the release of the loan, a representative from the DBP, Bacolod, supposedly inspected the
machine but he merely looked at it to see that it was there .8 The inspector's recommendation was
favorable and, thereafter, petitioner's loan of P50,000.00 was granted and released. However,
before payment was made to private respondent, petitioner required the former, in a letter dated
September 30, 1977, to accomplish the following, with the explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come back and repair the linotype machine
at seller's account as provided in the contract; after Crispin has put everything in
order when he goes home on Sunday he will return the check of P15,000.00.
2) Official receipt in the amount of P 50,000.00 as full payment of the linotype

machine.
These were immediately complied with by private respondent and on the same day, September
30,1977, he received the DBP check for P50,000.00. 9
It is to be noted that the aforesaid official receipt No. 0451, dated September 30, 1977 and prepared
and signed by private respondent, expressly states that he received from the petitioner the DBP
check for P50,000.00 issued in our favor in full payment of one (1) Unit Model 14 Linotype Machine
as per Pro forma Invoice dated April 23, 1977. 10
On November 29, 1977, petitioner wrote private respondent that the machine was not functioning
properly as it needed a new distributor bar. In the same letter, petitioner unburdened himself of his
grievances and sentiments in this wise.
We bought this machine in good faith because we trusted you very much being our
elder brother in printing and publishing business. We did not hire anybody to look
over the machine, much more ask for a rebate in your price of P40,000.00 and
believed what your trusted two men, Tomas and Crispin, said although they were
hiding the real and actual condition of the machine for your business protection.
Until last week, we found out the worst ever to happen to us. We have been cheated
because the expert of the Linotype machine from Manila says, that the most he will
buy your machine is at P5,000.00 only. ... 11
Private respondent made no reply to said letter, so petitioner engaged the services of other
technicians. Later, after several telephone calls regarding the defects in the machine, private
respondent sent two technicians to make the necessary repairs but they failed to put the machine in
running condition. In fact, since then petitioner was never able to use the machine.12
On February 18, 1978, not having received from private respondent the action requested in his
preceding letter as herein before stated, petitioner again wrote private respondent, this time with the
warning that he would be forced to seek legal remedies to protect his interest. 13
Obviously in response to the foregoing letter, private respondent decided to purchase a new
distributor bar and, on March 16, 1978, private respondent delivered this spare part to petitioner
through one Pedro Candido. However, when thereafter petitioner asked private respondent to pay
for the price of the distributor bar, the latter asked petitioner to share the cost with him. Petitioner
thus finally decided to indorse the matter to his lawyer.
An expert witness for the petitioner, one Gil Legaspina, declared that he inspected the linotype
machine involved in this case at the instance of petitioner. In his inspection thereof, he found the
following defects: (1) the vertical automatic stop lever in the casting division was worn out; (2) the
justification lever had a slight breach (balana in the dialect); (3) the distributor bar was worn out; (4)
the partition at the entrance channel had a tear; (5) there was no "pie stacker" tube entrance; and (6)
the slouch arm lever in the driving division was worn out.
It turned out that the said linotype machine was the same machine that witness Legaspina had
previously inspected for Sy Brothers, a firm which also wanted to buy a linotype machine for their
printing establishment. Having found defects in said machine, the witness informed Sy Brother about
his findings, hence the purchase was aborted. In his opinion, major repairs were needed to put the
machine back in good running condition.14
After trial, the court a quo rendered a decision the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered

as follows:
(1) Decreeing the rescission of the contract of sale involving one linotype machine
No. 14 between the defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the defendant at the latter's place of business in
Iloilo City the linotype machine aforementioned together with all accessories that
originally were delivered to the plaintiff;
(3) Ordering the defendant to return to the plaintiff the sum of Forty Thousand Pesos
(P40,000.00) representing the price of the linotype machine, plus interest at the legal
rate counted from May 17, 1978 when this action was instituted, until fully paid;
(4) Ordering the defendant to indemnify the plaintiff the sum of Four Thousand Five
Hundred Pesos (P4,500.00) representing unearned income or actual damages;
(5) Ordering the defendant to pay the plaintiff the sum of One Thousand Pesos
(Pl,000.00) for attorney's fees.
Costs against the defendant.15
From this decision, private respondent appealed to the Intermediate Appellate Court which reversed
the judgment of the lower court and dismissed petitioner's complaint, hence the present petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the aforementioned Sales Invoice No. 076A
which allegedly requires that the proper venue should be Iloilo City and not Bacolod City. We agree
with petitioner that said document is not the contract evidencing the sale of the linotype machine, it
being merely a preliminary memorandum of a proposal to buy one linotype machine, using for such
purpose a printed form used for printing job orders in private respondent's printing business. As
hereinbefore explained, this issue on venue was brought to Us by private respondent in a special
civil action for prohibition with preliminary injunction in G.R. No. 49078. After considering the
allegations contained, the issues raised and the arguments adduced in said petition, as well as the
comments thereto, the Court dismissed the petition for lack of merit. Respondent court erred in
reopening the same issue on appeal, with a contrary ruling.
Furthermore, it was error for the respondent court, after adopting the factual findings of the lower
court, to reverse the latter's holding that the sales invoice is merely a pro forma memorandum. The
records do not show that this finding is grounded entirely on speculation, surmises or conjectures as
to warrant a reversal thereof. 16 In fact, as hereinbefore stated, private respondent expressly admitted
in his official receipt No. 0451, dated September 30, 1977, that the said sales invoice was merely
a pro forma invoice. Consequently, the printed provisions therein, especially since the printed form
used was for purposes of other types of transactions, could not have been intended by the parties to
govern their transaction on the printing machine. It is obvious that a venue stipulation, in order to
bind the parties, must have been intelligently and deliberately intended by them to exclude their case
from the reglementary rules on venue. Yet, even such intended variance may not necessarily be
given judicial approval, as, for instance, where there are no restrictive or qualifying words in the
agreement indicating that venue cannot be laid in any place other than that agreed upon by the
parties, 17 and in contracts of adhesion. 18
Now, when an article is sold as a secondhand item, a question arises as to whether there is an
implied warranty of its quality or fitness. It is generally held that in the sale of a designated and
specific article sold as secondhand, there is no implied warranty as to its quality or fitness for the
purpose intended, at least where it is subject to inspection at the time of the sale. On the other hand,
there is also authority to the effect that in a sale of a secondhand articles there may be, under some
circumstances, an implied warranty of fitness for the ordinary purpose of the article sold or for the
particular purpose of the buyer. 19
In a line of decisions rendered by the United States Supreme Court, it had theretofore been held that
there is no implied warranty as to the condition, adaptation, fitness, or suitability for the purpose for
which made, or the quality, of an article sold as and for a secondhand article. 20
Thus, in finding for private respondent, the respondent court cited the ruling in Sison vs. Ago, et
al. 21 to the effect that unless goods are sold as to raise an implied warranty, as a general rule there
is no implied warranty in the sale of secondhand articles.22
Said general rule, however, is not without exceptions. Article 1562 of our Civil Code, which was
taken from the Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied warranty or condition as to the

quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the buyer
relies on the seller's skill or judgment (whether he be the grower or manufacturer or
not), there is an implied warranty that the goods shall be reasonably fit for such
purpose;
xxx
In Drumar Mining Co. vs. Morris Ravine Mining Co., 23 the District Court of Appeals, 3rd District,
California, in applying a similar provision of law, ruled:
'There is nothing in the Uniform Sales Act declaring there is no implied warranty in
the sale of secondhand goods. Section 1735 of the Civil Code declares there is no
implied warranty or condition as to the quality or fitness for any particular purpose, of
goods supplied under a contract to sell or a sale, except (this general statement is
followed by an enumeration of several exceptions). It would seem that the legislature
intended this section to apply to all sales of goods, whether new or secondhand. In
subdivision 1 of this section, this language is used: where the buyer ... makes known
to the seller the particular purpose for which the goods are required, and it appears
that the buyer relies on the seller's skill or judgment ... there is an implied warranty
that the goods shall be reasonably fit for such purpose.'
Furthermore, and of a more determinative role in this case, a perusal of past American
decisions 24 likewise reveals a uniform pattern of rulings to the effect that an express warranty can be
made by and also be binding on the seller even in the sale of a secondhand article.
In the aforecited case of Markman vs. Hallbeck, while holding that there was an express warranty in
the sale of a secondhand engine, the court said that it was not error to refuse an instruction that
upon the sale of secondhand goods no warranty was implied, since secondhand goods might be
sold under such circumstances as to raise an implied warranty.
To repeat, in the case before Us, a certification to the effect that the linotype machine bought by
petitioner was in A-1 condition was issued by private respondent in favor of the former. This cannot
but be considered as an express warranty. However, it is private respondent's submission, that the
same is not binding on him, not being a part of the contract of sale between them. This contention is
bereft of substance.
It must be remembered that the certification was a condition sine qua non for the release of
petitioner's loan which was to be used as payment for the purchase price of the machine. Private
respondent failed to refute this material fact. Neither does he explain why he made that express
warranty on the condition of the machine if he had not intended to be bound by it. In fact, the
respondent court, in declaring that petitioner should have availed of the remedy of requiring repairs
as provided for in said certification, thereby considered the same as part and parcel of the verbal
contract between the parties.
On the basis of the foregoing circumstances, the inescapable conclusion is that private respondent
is indeed bound by the express warranty he executed in favor of herein petitioner.
We disagree with respondent court that private respondents express warranty as to the A-1
condition of the machine was merely dealer's talk. Private respondent was not a dealer of printing or
linotype machines to whom could be ascribed the supposed resort to the usual exaggerations of
trade in said items. His certification as to the condition of the machine was not made to induce
petitioner to purchase it but to confirm in writing for purposes of the financing aspect of the
transaction his representations thereon. Ordinarily, what does not appear on the face of the written
instrument should be regarded as dealer's or trader's talk; 25 conversely, what is specifically
represented as true in said document, as in the instant case, cannot be considered as mere dealer's
talk.
On the question as to whether the hidden defects in the machine is sufficient to warrant a rescission
of the contract between the parties, we have to consider the rule on redhibitory defects contemplated
in Article 1561 of the Civil Code. A redhibitory defect must be an imperfection or defect of such
nature as to engender a certain degree of importance. An imperfection or defect of little
consequence does not come within the category of being redhibitory.26
As already narrated, an expert witness for the petitioner categorically established that the machine
required major repairs before it could be used. This, plus the fact that petitioner never made
appropriate use of the machine from the time of purchase until an action was filed, attest to the
major defects in said machine, by reason of which the rescission of the contract of sale is sought.
The factual finding, therefore, of the trial court that the machine is not reasonably fit for the particular
purpose for which it was intended must be upheld, there being ample evidence to sustain the same.
At a belated stage of this appeal, private respondent came up for the first time with the contention
that the action for rescission is barred by prescription. While it is true that Article 1571 of the Civil
Code provides for a prescriptive period of six months for a redhibitory action a cursory reading of the
ten preceding articles to which it refers will reveal that said rule may be applied only in case of
implied warranties. The present case involves one with and express warranty. Consequently, the
general rule on rescission of contract, which is four years 27 shall apply. Considering that the original
case for rescission was filed only one year after the delivery of the subject machine, the same is well
within the prescriptive period. This is aside from the doctrinal rule that the defense of prescription is
waived and cannot be considered on appeal if not raised in the trial court, 28 and this case does not
have the features for an exception to said rule.
WHEREFORE, the judgment of dismissal of the respondent court is hereby REVERSED and SET
ASIDE, and the decision of the court a quo is hereby REINSTATED.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

Footnotes
1 Special Fourth Civil Cases Division; Justice Marcelino R. Veloso. ponente, Justices
Mariano A. Zosa and Abdulwahid A. Bidin, concurring.
2 Judge Segundino G. Chua, presiding.
3 Rollo, 5-10; 19-28.
4 Exhibit A.
5 Exhibit A, ante.
6 TSN., Aug. 11, 1980, 21-23; 36-38.
7 Exhibit C; Rollo, 22.
8 TSN, Oct. 8, 1979, 47.
9 Rollo, 22.
10 Exhibit B.
11 Exhibit E.
12 T.S.N., Oct. 8, 1979, 15-16, 25-27.
13 Exhibit F.
14 TSN, Feb. 28, 1980, 5-8, 11-15.
15 Rollo, 19-20.
16 Legaspi vs. Court of Appeals, et al. 142 SCRA 82 (1986).
17 Polytrade Corporation vs. Blanco, 30 SCRA 187 (1969).
18 Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361 (1978).
19 46 Am. Jur. 545.
20 Fairbanks Steam Shovel Co. vs. Holt and Jeffrey, 79 Wash. 361; Perine
Machinery Co. vs. Buck, 156 Pac. 20; Ramming vs. Caldwell, 43 III. App. 626; and
Hanna-Breckinridge Co. vs. Holey-Matthews Mfg. Co., 140 SW 923, cited in Durbin
vs. Denham, 29 ALR 1227.
21 11 CA Rep. 2d 530.
22 Markman vs. Hallbeck, 206 III. App. 465, cited in Capistrano, Civil Code, Vol. IV,
124.
23 92 P 2d 424, 46 Am. Jur. 545-546.
24 Fairbanks Steam Shovel Co. vs. Holt & Jeffrey, 79 Wash. 361; Yello Jacket Min.
Co. vs. Tegarden, 104 Ark. 573; Hanna Breckinridge Co. vs. Holey-Matthews Mfg.
Co., 160 Mo. Appeal 437; and Markman vs. Hallbeck, 206 11). App. 465, as reported
in 29 ALR 12311236.
25 Puyat & Sons, Inc. vs. Arco Amusement Co., 72 Phil. 402 (1941).
26 10 Manresa, 1950 Ed., 250.
27 Art. 1389, Civil Code.
28 Ramos vs. Osorio, et al., 38 SCRA (1971); Director of Lands vs. Dano, et al., 96
SCRA 161 (1980).
Philippine Supreme Court Jurisprudence > Year 2003 > October 2003 Decisions > G.R. No. 149420 October 8,
2003 - SONNY LO v. KJS ECO-FORMWORK SYSTEM PHIL., INC.:
FIRST DIVISION
[G.R. No. 149420. October 8, 2003.]
SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel
scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style San’s
Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipments from respondent worth P540,425.80. 1 He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments. chanrob1es vi rt ua1 1aw 1i bra ry
Respondent delivered the scaffoldings to petitioner. 2 Petitioner was able to pay the first two
monthly installments. His business, however, encountered financial difficulties and he was unable
to settle his obligation to respondent despite oral and written demands made against him. 3
On October 11, 1990, petitioner and respondent executed a Deed of Assignment, 4 whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero
Realty Corporation. Pertinent portions of the Deed provide: chan rob 1es vi rtual 1aw lib rary
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at
Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased
on account scaffolding equipments from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of
the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand
Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents
part of the ASSIGNOR’s collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns,
transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of
P335,462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power
and authority to demand, collect, receive, compound, compromise and give acquittance for the
same or any part thereof, and in the name and stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and
assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and
that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge
said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the
same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs,
executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts
and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these
presents. . . . 5 (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that petitioner was also
indebted to it. 6 On November 26, 1990, respondent sent a letter 7 to petitioner demanding
payment of his obligation, but petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money
against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed
as Civil Case No. 91-074. 8
During the trial, petitioner argued that his obligation was extinguished with the execution of the
Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee,
Almeda Bañaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that petitioner had an outstanding indebtedness to it. chan rob1e s virtua1 1 aw 1ib rary
On August 25, 1994, the trial court rendered a decision 9 dismissing the complaint on the ground
that the assignment of credit extinguished the obligation. The decretal portion thereof provides:
libra ry
c hanro b1es vi rt ual 1aw
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the
defendant attorney’s fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision, 10 the dispositive portion of which reads: chan rob1es v irt ual 1aw l ibra ry
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters
judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-
Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing
of the Complaint) until fully paid and attorney’s fees equivalent to 10% of the amount due and
costs of the suit.
SO ORDERED. 11
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under
the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void
pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of
Assignment when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles. 12
Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of
Appeals. 13
In this petition for review, petitioner assigns the following errors: c hanrob1es vi rt ual 1aw li bra ry
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF
ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE
HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH.
"4") DID NOT EXTINGUISH PETITIONER’S OBLIGATION ON THE WRONG NOTION THAT
PETITIONER FAILED TO COMPLY WITH HIS WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT
AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEY’S FEES. 14
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against
the debtor. 15 chan rob1e s virt ua1 1aw 1 ibra ry
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. 16 In order that
there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given in substitution (aliud pro alio);
(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due. 17
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor’s
debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the
credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. 18
Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property, 19 produced the effects of a dation in payment which may extinguish the obligation. 20
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628 of the Civil Code provides: chan rob1e s virtual 1aw l ib rary
The vendor in good faith shall be responsible for the existence: and legality of the credit at the
time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge.
From the above provision, Petitioner, as vendor or assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially
meant that its obligation to petitioner has been extinguished by compensation. 21 In other words,
respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid
the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to
wit:
chan rob1e s vi rtual 1aw lib rary
presents. 22 (Emphasis ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured
the performance thereof in case the same is later found to be inexistent. He should be held liable
to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of
Appeals of attorney’s fees is without factual basis. No evidence or testimony was presented to
substantiate this claim. Attorney’s fees, being in the nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in
CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal
interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION.
Upon finality of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the
obligation shall thereafter become equivalent to a forbearance of credit. 23 The award of attorney’s
fees is DELETE for lack of evidentiary basis.chan rob1e s virtua1 1aw 1 ibra ry
SO ORDERED.
Davide, Jr., C.J., Vitug, Carpio and Azcuna, JJ., concur.
Endnotes:
1. Exhibit "A," Records, p. 128.
2. Exhibits "B-B-8," Records, pp. 130-138.
3. Exhibit "C," Records, p. 139.
4. Records, pp. 142-143.
5. Records, p. 142.
6. TSN, April 28, 1993, p. 25.
8. Records, pp. 1-6.
9. Penned by Judge Teofilo L. Guadiz, Jr.
10. Penned by Justice Hilarion L. Aquino with Justices Ma. Alicia Austria-Martinez (now a member
of this Court) and Jose L. Sabio, Jr., concurring.
11. Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14.
12. Rollo, pp. 9-14.
13. Rollo, p. 50.
14. Petition, pp. 6-7, Rollo, pp. 24-25.
15. South City Homes, Inc., Et. Al. v. BA Finance Corporation, G.R. No. 135462, 7 December 2001.
16. Filinvest Credit Corporation v. Philippine Acetylene, Co., Inc., G.R. No. L-50449, January 30,
1982.
17. 3 Castan, Vol. I, 8th Ed., page 283 cited in IV Caguioa Comments and Cases in Civil Law, page
325.
18. Civil Code, Article 1628. The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale unless it should have been sold as doubtful; but not for
the solvency of the debtor, unless it has been so expressly stipulated or unless the solvency was
prior to the sale and of common knowledge. . . .
19. Civil Code, Art. 417. The following are also considered as personal property: chan rob 1es vi rtual 1aw lib rary
(1) Obligations and actions which have for their object movables or demandable sums, and . . ..
20. Civil Code, Art. 1231. Obligations are extinguished: chan ro b1es vi rtual 1aw lib rary
(1) By payment or performance; . . ..
21. Civil Code, Art. 1278. Compensation shall take place when two persons, in their own rights, are
creditors and debtors of each other.
22. Records, p. 143.
23. Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.
Philippine Supreme Court Jurisprudence > Year 2003 > October 2003 Decisions > G.R. No. 149420 October 8,
2003 - SONNY LO v. KJS ECO-FORMWORK SYSTEM PHIL., INC.:
FIRST DIVISION
[G.R. No. 149420. October 8, 2003.]
SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel
scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style San’s
Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipments from respondent worth P540,425.80. 1 He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments. chanrob1es vi rt ua1 1aw 1i bra ry
Respondent delivered the scaffoldings to petitioner. 2 Petitioner was able to pay the first two
monthly installments. His business, however, encountered financial difficulties and he was unable
to settle his obligation to respondent despite oral and written demands made against him. 3
On October 11, 1990, petitioner and respondent executed a Deed of Assignment, 4 whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero
Realty Corporation. Pertinent portions of the Deed provide: chan rob 1es vi rtual 1aw lib rary
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at
Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased
on account scaffolding equipments from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of
the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four
Hundred Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand
Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents
part of the ASSIGNOR’s collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns,
transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of
P335,462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power
and authority to demand, collect, receive, compound, compromise and give acquittance for the
same or any part thereof, and in the name and stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and
assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and
that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge
said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the
same;
presents. . . . 5 (Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that petitioner was also
indebted to it. 6 On November 26, 1990, respondent sent a letter 7 to petitioner demanding
payment of his obligation, but petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money
against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed
as Civil Case No. 91-074. 8
During the trial, petitioner argued that his obligation was extinguished with the execution of the
Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee,
Almeda Bañaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that petitioner had an outstanding indebtedness to it. chan rob1e s virtua1 1 aw 1ib rary
On August 25, 1994, the trial court rendered a decision 9 dismissing the complaint on the ground
that the assignment of credit extinguished the obligation. The decretal portion thereof provides:
libra ry
c hanro b1es vi rt ual 1aw
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the
defendant attorney’s fees in the amount of P25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision, 10 the dispositive portion of which reads: chan rob1es v irt ual 1aw l ibra ry
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters
judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-
Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing
of the Complaint) until fully paid and attorney’s fees equivalent to 10% of the amount due and
costs of the suit.
SO ORDERED. 11
In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under
the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void
pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of
Assignment when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles. 12
Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of
Appeals. 13
In this petition for review, petitioner assigns the following errors: c hanrob1es vi rt ual 1aw li bra ry
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF
ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE
HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH.
"4") DID NOT EXTINGUISH PETITIONER’S OBLIGATION ON THE WRONG NOTION THAT
PETITIONER FAILED TO COMPLY WITH HIS WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT
AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEY’S FEES. 14
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against
the debtor. 15 chan rob1e s virt ua1 1aw 1 ibra ry
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. 16 In order that
there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given in substitution (aliud pro alio);
(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due. 17
The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor’s
debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the
credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. 18
Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property, 19 produced the effects of a dation in payment which may extinguish the obligation. 20
However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628 of the Civil Code provides: chan rob1e s virtual 1aw l ib rary
The vendor in good faith shall be responsible for the existence: and legality of the credit at the
time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge.
From the above provision, Petitioner, as vendor or assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially
meant that its obligation to petitioner has been extinguished by compensation. 21 In other words,
respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid
the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to
wit:
chan rob1e s vi rtual 1aw lib rary
presents. 22 (Emphasis ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured
the performance thereof in case the same is later found to be inexistent. He should be held liable
to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of
Appeals of attorney’s fees is without factual basis. No evidence or testimony was presented to
substantiate this claim. Attorney’s fees, being in the nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in
CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal
interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION.
Upon finality of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the
obligation shall thereafter become equivalent to a forbearance of credit. 23 The award of attorney’s
fees is DELETE for lack of evidentiary basis.chan rob1e s virtua1 1aw 1 ibra ry
SO ORDERED.
Davide, Jr., C.J., Vitug, Carpio and Azcuna, JJ., concur.
Endnotes:
1. Exhibit "A," Records, p. 128.
2. Exhibits "B-B-8," Records, pp. 130-138.
4. Records, pp. 142-143.
5. Records, p. 142.
6. TSN, April 28, 1993, p. 25.
8. Records, pp. 1-6.
9. Penned by Judge Teofilo L. Guadiz, Jr.
10. Penned by Justice Hilarion L. Aquino with Justices Ma. Alicia Austria-Martinez (now a member
of this Court) and Jose L. Sabio, Jr., concurring.
11. Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14.
12. Rollo, pp. 9-14.
13. Rollo, p. 50.
14. Petition, pp. 6-7, Rollo, pp. 24-25.
15. South City Homes, Inc., Et. Al. v. BA Finance Corporation, G.R. No. 135462, 7 December 2001.
16. Filinvest Credit Corporation v. Philippine Acetylene, Co., Inc., G.R. No. L-50449, January 30,
1982.
17. 3 Castan, Vol. I, 8th Ed., page 283 cited in IV Caguioa Comments and Cases in Civil Law, page
325.
18. Civil Code, Article 1628. The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale unless it should have been sold as doubtful; but not for
the solvency of the debtor, unless it has been so expressly stipulated or unless the solvency was
prior to the sale and of common knowledge. . . .
19. Civil Code, Art. 417. The following are also considered as personal property: chan rob 1es vi rtual 1aw lib rary
(1) Obligations and actions which have for their object movables or demandable sums, and . . ..
20. Civil Code, Art. 1231. Obligations are extinguished: chan ro b1es vi rtual 1aw lib rary
(1) By payment or performance; . . ..
21. Civil Code, Art. 1278. Compensation shall take place when two persons, in their own rights, are
creditors and debtors of each other.
22. Records, p. 143.
23. Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146839 March 23, 2011
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA

CATUNGAL-WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court
of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8,
2000 Decision,1 which affirmed the Decision2 dated May 30, 1992 of the Regional Trial Court (RTC),
Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001
Resolution,3 denying herein petitioners’ motion for reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on December 10, 1990 by herein respondent Angel S. Rodriguez
(Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L
against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot
10963) with an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No.
1055 in her name situated in the Barrio of Talamban, Cebu City. The said property was allegedly the
exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to
Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into
a Conditional Deed of Sale7 dated July 26, 1990 between the same parties. Both the Contract to Sell
and the Conditional Deed of Sale were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS
(₱25,000,000.00) payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (₱500,000.00) downpayment upon the signing of

this agreement, receipt of which sum is hereby acknowledged in full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS

(₱24,500,000.00) shall be payable in five separate checks, made to the order of JOSE Ch.
CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED THOUSAND
PESOS (₱4,500,000.00) and the remaining balance to be paid in four checks in the amounts
of FIVE MILLION PESOS (₱5,000,000.00) each after the VENDEE have (sic) successfully
negotiated, 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 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, 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 futile, he shall take steps to rescind or cancel the herein Conditional Deed of
Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall be the 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, be accorded with enough time necessary for the
success of his endeavor, granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL
DEED OF SALE to VENDEE, his heirs, successors and assigns, the real property described in the
Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event the 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 his rights over the property. The VENDEE shall then be reimbursed
by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (₱500,000.00) representing the
downpayment, interest free, payable but contingent upon the event that the VENDOR shall have
been able to sell the property to another party.8
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary
surveys and plans and through his efforts, the property was reclassified from agricultural land into
residential land which he claimed substantially increased the property’s value. He likewise alleged
that he actively negotiated for the road right of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of
₱5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the
ground that the amount was 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 offering the
property for sale to third parties.10
Thereafter, Rodriguez received letters dated October 22, 1990,11 October 24, 199012 and October
29, 1990,13 all signed by Jose Catungal who was a lawyer, essentially demanding that the former
make up his mind about buying the land or exercising his "option" to buy because the spouses
Catungal allegedly received other offers and they needed money to pay for personal obligations and
for investing in other properties/business ventures. Should Rodriguez fail to exercise his option to
buy the land, the Catungals warned that they would consider the contract cancelled and that they
were free to look for other buyers.
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 the Conditional Deed of Sale which allowed
him sufficient time to negotiate a road right of way and granted him, the vendee, the exclusive right
to rescind the contract. Still, on November 15, 1990, Rodriguez purportedly received a letter dated
November 9, 199015 from Atty. Catungal, stating that the contract had been cancelled and
terminated.
Contending that the Catungals’ unilateral rescission of the Conditional Deed of Sale was unjustified,
arbitrary and unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the
spouses Catungal], their employees, agents, representatives or other persons acting in their
behalf from offering the property subject of this case for sale to third persons; from
entertaining offers or proposals by third persons to purchase the said property; and, in
general, from performing acts in furtherance or implementation of defendants’ rescission of
their Conditional Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as
may be fixed by the court enjoining defendants and other persons acting in their behalf from
performing any of the acts mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and solidarily:
Actual damages in the amount of ₱400,000.00 for their unlawful rescission of the Agreement and
their performance of acts in violation or disregard of the said Agreement;
Moral damages in the amount of ₱200,000.00;
Exemplary damages in the amount of ₱200,000.00; Expenses of litigation and attorney’s fees in the
amount of ₱100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining order and set the application
for a writ of preliminary injunction for hearing on 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. The trial court likewise ordered that summons be served on them.17
Thereafter, the spouses Catungal filed their opposition18 to the issuance of a writ of preliminary
injunction and later filed a motion to dismiss19 on the ground of improper venue. According to the
Catungals, the subject property was 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 ground that
his action was a personal action as its subject was breach of a contract, the Conditional Deed of
Sale, and not title to, or possession of real property.20
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 for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary
injunction upon posting by Rodriguez of a bond in the amount of ₱100,000.00 to answer for
damages that the defendants may sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim22 alleging that they
had the right to rescind the contract in view of (1) Rodriguez’s failure to negotiate the road right of
way despite the lapse of several months since the signing of the contract, and (2) his refusal to pay
the additional amount of ₱5,000,000.00 asked by the Catungals, which to them indicated his lack of
funds to purchase the property. The Catungals likewise contended that Rodriguez did not have an
exclusive right to rescind the contract and that the contract, being reciprocal, meant both parties had
the right to rescind.23 The spouses Catungal further claimed that it was Rodriguez who was in breach
of their agreement and guilty of bad faith which justified their rescission of the contract.24 By way of
counterclaim, the spouses Catungal prayed for actual and consequential damages in the form of
unearned interests from the balance (of the purchase price in the amount) of ₱24,500,000.00, moral
and exemplary damages in the amount of ₱2,000,000.00, attorney’s fees in the amount of
₱200,000.00 and costs of suits and litigation expenses in the amount of ₱10,000.00.25 The spouses
Catungal prayed for the dismissal of the complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic allegations but amplifying their
charges of contractual breach and bad faith on the part of Rodriguez and adding the argument that
in view of Article 1191 of the Civil Code, the power to rescind reciprocal obligations is granted by the
law itself to both parties and does not need an express stipulation to grant the same to the injured
party. In the Second Amended Answer with Counterclaim, the spouses Catungal added a prayer for
the trial court to order the Register of Deeds to cancel the annotations of the two contracts at the
back of their OCT.27
On October 24, 1991, Rodriguez filed an Amended Complaint,28 adding allegations to the effect that
the Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy
the property at the price of ₱25,000,000.00. Among others, it was alleged that the spouses Catungal
misrepresented that their Lot 10963 includes a flat portion of land which later turned out to be a
separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned
by Anatolia Tudtud and her daughter Sally who were their relatives and who had already agreed to
sell a portion of the said lots for the road right of way at a price of ₱550.00 per square meter.
However, because of the Catungals’ acts of offering the property to other buyers who offered to buy
the road lots for ₱2,500.00 per square meter, the adjacent lot owners were no longer willing to sell
the road lots to Rodriguez at ₱550.00 per square meter but were asking for a price of ₱3,500.00 per
square meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right
of way, the spouses Catungal allegedly intentionally and maliciously defeated Rodriguez’s
negotiations for a road right of way in order to justify rescission of the said contract and enable them
to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an amended Answer,29 the Catungals
did not file an amended Answer and instead filed an Urgent Motion to Dismiss30 again invoking the
ground of improper venue. In the meantime, for failure to file an amended Answer within the period
allowed, the trial court set the case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals’
Urgent Motion to Dismiss for violation of the rules and for being repetitious and having been
previously denied.31 However, Atty. Catungal refused to enter into pre-trial which prompted the trial
court to declare the defendants in default and to set the presentation of the plaintiff’s evidence on
February 14, 1992.32
On December 23, 1991, the Catungals filed a motion for reconsideration33 of the December 20, 1991
Order denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order
dated February 3, 1992.34 Undeterred, the Catungals subsequently filed a Motion to Lift and to Set
Aside Order of Default35 but it was likewise denied for being in violation of the rules and for being not
meritorious.36 On February 28, 1992, the Catungals filed a Petition for Certiorari and
Prohibition37 with the Court of Appeals, questioning the denial of their motion to dismiss and the
order of default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under
the contract it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguez’s
obligation to pay the balance of the purchase price arises only upon successful negotiation of the
road right of way; (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 efforts to acquire the road
right of way; and (e) the Catungals’ rescission of the contract had no basis and was in bad faith.
Thus, the trial court made the injunction permanent, ordered the Catungals to reduce the purchase
price by the amount of acquisition of Lot 10963 which they misrepresented was part of the property
sold but was in fact owned by a third party and ordered them to pay ₱100,000.00 as damages,
₱30,000.00 as attorney’s fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting the commission of the
following errors by the trial court in their appellants’ brief38 dated February 9, 1994:
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF
IMPROPER VENUE AND LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL
ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A
PERSONAL ACTION, THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN
DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD ALREADY
FILED THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR
LEGAL STANDING IN COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN
DEFAULT AND STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY
AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION
RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURT’S TERRITORIAL JURISDICTION AND INCLUDING
PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM
CONTINUING WITH THE PROCEEDINGS IN THE CASE AND IN RENDERING DECISION
THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS BEING MANDATED AS
DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR
IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI
QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES
FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE
HONORABLE COURT OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND
AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY,
FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF
THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted several extensions, Rodriguez filed his appellee’s
brief,40 essentially arguing the correctness of the trial court’s Decision regarding the foregoing issues
raised by the Catungals. Subsequently, the Catungals filed a Reply Brief41 dated October 16, 1995.
From the filing of the appellants’ brief in 1994 up to the filing of the Reply Brief, 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 2, 1997.42 On the same date, Atty. Borromeo filed a Motion for Leave of
Court to File Citation of Authorities43 and a Citation of Authorities.44 This would be followed by Atty.
Borromeo’s filing of an Additional Citation of Authority and Second Additional Citation of Authority
both on November 17, 1997.45
During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and
thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita’s substitution by her
surviving children.46
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. 27565,47 affirming the trial court’s Decision.
In a Motion for Reconsideration dated August 21, 2000,48 counsel for the Catungals, Atty. Borromeo,
argued for the first time that paragraphs 1(b) and 549 of the Conditional Deed of Sale, whether taken
separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil
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 nullity of the contract and his position that this
issue may be raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution50 was filed by Atty. Borromeo in view of the death of
Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the
deceased Agapita and Jose Catungal by their surviving heirs and denied the motion for
reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the 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 Deed of Sale, violated the principle of mutuality of contracts under Article
1308 of the Civil Code. Thus, said contract was supposedly void ab initio and the Catungals’
rescission thereof was superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new matters that cannot be
passed upon on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and
petitioners cannot be allowed to change theories on appeal; (c) the questioned paragraphs of the
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 having come to court with clean hands.
The Court gave due course to the Petition53 and the parties filed their respective Memoranda.
The issues to be resolved in the case at bar can be summed into two questions:
I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the
first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality
of contracts under Article 1308 of the Civil Code?
On petitioners’ change of theory
Petitioners claimed that the Court of Appeals should have reversed the trial 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 as an error in their appellants’ brief. Citing Catholic
Bishop of Balanga v. Court of Appeals,54 petitioners argued in the Petition that this case falls under
the following exceptions:
(3) Matters not assigned as errors on appeal but consideration of which is 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;
(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to
raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely related to an error assigned; and
(6) Matters not assigned as errors but upon which the determination of a question properly
assigned is dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue as an error in the brief nor
failed to argue a material point on appeal that was raised 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 error properly assigned in his brief. This is a situation where a party completely
changes his theory of the case on appeal and abandons his previous assignment of errors in his
brief, which plainly should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw the lines 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. Court of Appeals,57 we held that "[w]hen a party adopts a
certain theory in the trial court, he will not be permitted to change his theory on appeal, for to permit
him to do so would not only be unfair to the other party but it would also be offensive to the basic
rules of fair play, justice and due process."58
We have also previously ruled 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
something on which the court did not hear the parties, is not only irregular but also extrajudicial and
invalid. The rule rests on the fundamental tenets of fair play."59
During the proceedings before the trial court, the spouses Catungal never claimed that the
provisions in the Conditional Deed of Sale, stipulating that the payment of the balance of the
purchase price was contingent upon the 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 the
fulfillment of the contract dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its
amended versions) that the payment of the purchase price was subject to the will of Rodriguez but
rather they claimed that paragraph 1(b) 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
than sufficient time had already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguez’s refusal/failure to pay the balance of the purchase price, upon demand,
was allegedly indicative of lack of funds and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez’s option to rescind, it was
petitioners’ theory in the court a quo that notwithstanding such provision, they retained the right to
rescind the contract for Rodriguez’s breach of the same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in
view of the questioned provisions was only in their Motion for Reconsideration of the Court of
Appeals’ Decision, affirming the trial court’s judgment. The previous filing of various citations of
authorities by Atty. Borromeo and the Court of Appeals’ resolutions noting such citations were of no
moment. The citations of authorities merely listed cases and their main rulings without even any
mention of their relevance to the present case or any prayer for the Court of Appeals to consider
them. In sum, the Court of Appeals did not err in disregarding the citations of authorities or in
1âwphi 1
denying petitioners’ motion for reconsideration of the assailed August 8, 2000 Decision in view of the
proscription against changing legal theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the procedural misstep of
petitioners, we still cannot uphold their belatedly proffered arguments.
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 Rodriguez agreed to buy Lot 10963 conditioned
on the payment of a certain price but the payment of the purchase price was additionally made
contingent 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 or loss of those already acquired,
shall depend upon the happening of the event which constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed
nullity of the aforementioned provisions. Article 1308 states that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed on the perfection of a contract
and a condition imposed merely on the performance of an obligation. While failure to comply with the
first condition results in the failure of a contract, failure to comply with the second merely gives the
other party the option to either refuse to proceed with the sale or to waive the condition.61 This
principle is evident in Article 1545 of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which
is not performed, such party may refuse to proceed with the contract or he may waive performance
of the condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall 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 contract nor on the validity of the entire contract or its compliance
as contemplated in Article 1308. It is a condition imposed only on respondent’s 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. It is not dependent on the sole will of the debtor but also on the
will of third 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 on chance as there is
no guarantee that respondent and the third party-landowners would come to an agreement
regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182
of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,62 wherein the 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 has successfully ejected the informal settlers occupying the property. In
Romero, we found that such a condition did not affect the perfection of the contract but only imposed
a condition on the fulfillment of the obligation to pay the balance of the purchase price, to wit:
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 consequences which, according to their nature, may
be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated
to evict the squatters on the property. The ejectment of the squatters is a condition the operative act
of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does
not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of
the vendor alone but also of third persons like the squatters and government agencies and
personnel concerned." We must hasten to add, however, that 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 the obligation itself.63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee
(Rodriguez) that had the obligation to successfully negotiate and secure the road right of way.
However, in the decision of the trial court, which was affirmed by the Court of Appeals, it was found
that 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 negotiations for said road right of way. To
quote from the trial court’s decision:
It is therefore apparent that the vendee’s obligations (sic) to pay the balance of 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 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
Code. Accordingly, "an obligation dependent upon a suspensive condition cannot be demanded until
after the condition takes place because it is only after the fulfillment of the condition that the
obligation arises." (Javier v[s] CA 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 the property. The
written offers, proposals and follow-up of his proposals show that plaintiff [Rodriguez] went all out in
his efforts to immediately acquire an access road to the property, even going to the extent of offering
₱3,000.00 per square meter for the road lots (Exh. Q) from the original ₱550.00 per sq. meter. This
Court also notes that defendant (sic) [the Catungals] made misrepresentation in the negotiation they
have entered into with 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 plaintiff’s [Rodriguez’s] effort in acquiring the road-right-of-way to
the property. Defendants [the Catungals] cannot now invoke the non-fulfillment of the condition in the
contract as a ground for rescission when defendants [the Catungals] themselves are guilty of
preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that rescission of the conditional deed of
sale by the defendants is without any legal or factual basis.64 x x x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for
respondent’s obligation to pay the balance of the purchase price to arise) in itself partly involves an
obligation to do, i.e., the undertaking of respondent to negotiate and secure a road right of way at his
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 that said provision should be read in
relation to paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot 10963 shall be the 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, be accorded with enough time necessary for the success of his
endeavor, granting him a free hand in negotiating for the passage.66 (Emphasis supplied.)
The Catungals’ interpretation of the foregoing stipulation was that Rodriguez’s obligation to negotiate
and secure a road right of way was one with a period and that period, i.e., "enough time" to
negotiate, had already lapsed by the time they demanded the payment of ₱5,000,000.00 from
respondent. Even assuming arguendo that the Catungals were correct that the respondent’s
obligation to negotiate a road right of way was one with an uncertain period, their rescission of the
Conditional Deed of Sale would still be unwarranted. Based on their own theory, the Catungals had
a remedy under Article 1197 of the Civil Code, which mandates:
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 the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by
them.
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 negotiation of the road right of way pursuant to the
above quoted provision. Thus, the Catungals’ demand for Rodriguez to make an additional payment
of ₱5,000,000.00 was premature and Rodriguez’s failure to accede to such demand did not justify
the rescission of the contract.
With respect to petitioners’ argument that paragraph 5 of the Conditional Deed 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 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 his rights over the property. The VENDEE shall then be reimbursed
by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (₱500,000.00) representing the
downpayment, interest free, payable but contingent upon the event that the VENDOR shall have
been able to sell the property to another party.67
Petitioners posited that the above stipulation was the "deadliest" provision in 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.
We do not agree.
It is petitioners’ strategy to insist that the Court examine the first sentence of paragraph 5 alone and
resist a correlation of such sentence with other provisions of the contract. Petitioners’ view, however,
ignores a basic rule in the interpretation of contracts – that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them
taken jointly." The same Code further sets down the rule that "[i]f some stipulation of any contract
should admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual."68
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 construction is, if possible, to be adopted as will
give effect to all"69 and "for the proper construction of an instrument, the circumstances under which
it was made, including the situation of the subject thereof and of the parties to it, may be shown, so
that the judge may be placed in the position of those whose language he is to interpret."70
Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph
5 must be taken in relation with the rest of paragraph 5 and with the other provisions of the
Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the contract is not
absolute as it is subject to the requirement that there should be written notice to the vendor and the
vendor shall only return Rodriguez’s downpayment of ₱500,000.00, without interest, when the
vendor shall have been able to sell the property to another party. That what is stipulated to be
returned is only the downpayment of ₱500,000.00 in the event that Rodriguez exercises his option to
rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the installments on
the balance of the purchase price shall only be paid upon successful negotiation and procurement of
a road right of way. It is clear from such provision that the existence of a road right of way is a
material consideration for Rodriguez to purchase the property. Thus, prior to him being able to
procure the road right of way, by express stipulation 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 way cannot be negotiated, 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
futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein Conditional Deed of Sale." The
intention of the parties for providing subsequently in paragraph 5 that Rodriguez has the option to
rescind the sale is undeniably only limited to the contingency that Rodriguez shall not be able to
secure the road right of way. Indeed, if the parties intended to give Rodriguez the absolute option to
rescind the sale at any time, the contract would have provided for the return of all payments made by
Rodriguez and not only the downpayment. To our mind, the reason only the downpayment was
stipulated to be returned is that the vendee’s option to rescind can only be exercised in the event
that no road right of way is secured and, thus, the vendee has not made any additional payments,
other than his downpayment.
In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject to
the same mixed condition as his obligation to pay the 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 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 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 provisions.
In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to
rescind, in the manner provided for in the contract, is tantamount to a potestative condition, not
being a condition affecting the perfection of the contract, only the said condition would be considered
void and the rest of the contract will remain valid. In Romero, the Court observed that "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 the obligation itself."71
It cannot be gainsaid that "contracts have the force of law between the contracting parties and
should be complied with in good faith."72 We have also 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 alternative but to enforce the contractual stipulations in the manner they have been agreed upon
and written."73 We find no merit in petitioners’ contention that their parents were merely "duped" into
accepting the questioned provisions in the Conditional Deed of Sale. We note that although the
contract was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon
to signify his marital consent to the same. We concur with the trial court’s finding that the spouses
Catungals’ claim of being misled into signing the contract was contrary to human experience and
conventional wisdom since it was Jose Catungal who was a practicing lawyer while Rodriquez was a
non-lawyer.74 It can be reasonably presumed that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and accepted its provisions before they affixed their
signatures thereon.
After thorough review of the records of this case, we have come to the conclusion that petitioners
failed to demonstrate that the Court of Appeals committed any reversible error in deciding the
present controversy. However, having made the observation that it was desirable for the Catungals
to file a separate action to fix the period for respondent Rodriguez’s obligation to 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 issue here to obviate further delay and in line with the judicial
policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to
negotiate a road right of way. In the event no road right of way is secured by Rodriquez at the end of
said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of
the Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to
agree on a course of action. Should the discussions of the parties prove futile after the said thirty
(30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may (a)
exercise his option to rescind the contract, subject to the return of his 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 balance of the deducted purchase price as determined in the RTC Decision
dated May 30, 1992.
WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the
Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are
AFFIRMED with the following modification:
If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality
of this Decision to negotiate a road right of way. In the event no road right of way is secured by
respondent at the end of said period, the parties shall reassess and discuss other options as
stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a
period of thirty (30) days to agree on a course of action. Should the discussions of the parties prove
futile after the said thirty (30)-day period, immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his
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 balance of the deducted purchase price as
determined in the RTC Decision dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
PRESBITERO J. VELASCO, JR. MARIANO C. DEL CASTILLO

Associate Justice Associate Justice
JOSE PORTUGAL PEREZ

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.
RENATO C. CORONA
Chief Justice
Footnotes
1Rollo, pp. 12-23; penned by Associate Justice Eloy R. Bello, Jr. with Associate Justices
Delilah Vidallon-Magtolis and Elvi John S. Asuncion, concurring.
2 CA rollo (CA-G.R. CV No. 40627), pp. 72-81.
3 Rollo, pp. 8-9.
4 Records, pp. 1-27.
5 Id. at 12-13.
6 Id. at 14-16.
7 Id. at 17-19.
8
Id. at 17-18.
9 Id. at 3.
10 Id.
11 Id. at 20.
12 Id. at 21.
13 Id. at 22.
14 Id. at 23-26.
15 Id. at 27.
16 Id. at 9-10.
17 Id. at 28.
18 Id. at 33.
19 Id. at 37.
20 Id. at 48-50.
21 Id. at 45.
22 Id. at 55-66.
23 Id. at 57-58; see Paragraphs 6 and 7 of the Answer with Counterclaim.
24 Id. at 64; see Paragraphs 17, 19 and 36 of the Answer with Counterclaim.
25 Id. at 66-67.
26
Id. at 94-111 and 120-139; the first Amended Answer with Counterclaim was dated April 4,
1991, the Second Amended Answer with Counterclaim was dated May 6, 1991.
27 Id. at 139.
28 Id. at 195-217.
29 Id. at 219.
30 Id. at 253.
31 Id. at 254.
32
Id. at 255.
33 Id. at 256-259.
34 Id. at 264.
35 Id. at 267.
36 Id. at 273.
37 CA rollo (CA-G.R. SP No. 27565), pp. 1-46.
38 CA rollo (CA-G.R. CV No. 40627), pp. 26-71 and (CA-G.R. SP No. 27565), pp. 23-114.
39 Id. at 26-27.
40 Id. at 259-296.
41 Id. at 318-336.
42 Id. at 339.
43 Id. at 341.
44 Id. at 342.
45 Id. at 343-346.
46 Id. at 349-350.
47This is the petition for certiorari and prohibition previously filed by the Catungals to
question the trial court’s denial of the motion to dismiss and the order of default.
49In petitioners’ pleadings, they refer to this as paragraph "f" when it should be paragraph 5
of the Conditional Deed of Sale.
51 Rollo, pp. 26-40.
52 Id. at 51-65.
53 Id. at 80-81.
54 332 Phil. 206 (1996).
55 Id. at 217-218.
56Ortega v. Social Security Commission, G.R. No. 176150, June 25, 2008, 555 SCRA 353,
370.
57 505 Phil. 87 (2005).
58 Id. at 102.
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, G.R. No. 159593,

59
October 16, 2006, 504 SCRA 484, 495.

60 Civil Code, Article 1181.
61 Babasa v. Court of Appeals, 352 Phil. 1142, 1154 (1998).
62 320 Phil. 269 (1995).
63 Id. at 281-282.
65 Records, p. 17; paragraph 1(b) and (c) of the Conditional Deed of Sale.
66 Id.
67 Id. at 18.
69 Rules of Court, Rule 130, Section 11.
70 Id., Section 13.
71 Romero v. Court of Appeals, supra note 62 at 282.
73
Raquel-Santos v. Court of Appeals, G.R. Nos. 174986, 175071 and 181415, July 7, 2009,
592 SCRA 169, 194; Felsan Realty & Development Corporation v. Commonwealth of
Australia, G.R. No. 169656, October 11, 2007, 535 SCRA 618, 629; Pryce Corporation v.
Philippine Amusement and Gaming Corporation, 497 Phil. 490, 503 (2005).
74 CA rollo (CA-G.R. CV No. 40627), p. 77.

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Republic of the Philippines

G.R. No. 73913 January 31, 1989

JERRY T. MOLES, petitioner,

Rolando N. Medalla and Jose G. Guinez, Jr., for private respondents.

1.) Crossed check for P15,407.10 representing.

a) P 10,000.00-Overprice in the machine:

b) P203.00-Freight and handling of the machine;

c) P203.00-Share in the electric repair; and

2) Official receipt in the amount of P 50,000.00 as full payment of the linotype

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered

Costs against the defendant.15

We find merit in petitioner's cause.

Art. 1562. In a sale of goods, there is an implied warranty or condition as to the

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

2 Judge Segundino G. Chua, presiding.

3 Rollo, 5-10; 19-28.

6 TSN., Aug. 11, 1980, 21-23; 36-38.

7 Exhibit C; Rollo, 22.

8 TSN, Oct. 8, 1979, 47.

12 T.S.N., Oct. 8, 1979, 15-16, 25-27.

14 TSN, Feb. 28, 1980, 5-8, 11-15.

16 Legaspi vs. Court of Appeals, et al. 142 SCRA 82 (1986).

17 Polytrade Corporation vs. Blanco, 30 SCRA 187 (1969).

18 Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361 (1978).

19 46 Am. Jur. 545.

23 92 P 2d 424, 46 Am. Jur. 545-546.

26 10 Manresa, 1950 Ed., 250.

27 Art. 1389, Civil Code.

[G.R. No. 149420. October 8, 2003.]

SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.

The petition is without merit.

Davide, Jr., C.J., Vitug, Carpio and Azcuna, JJ., concur.

1. Exhibit "A," Records, p. 128.

2. Exhibits "B-B-8," Records, pp. 130-138.

3. Exhibit "C," Records, p. 139.

4. Records, pp. 142-143.

6. TSN, April 28, 1993, p. 25.

7. Exhibit "C," Records, p. 139.

8. Records, pp. 1-6.

9. Penned by Judge Teofilo L. Guadiz, Jr.

11. Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14.

12. Rollo, pp. 9-14.

13. Rollo, p. 50.

14. Petition, pp. 6-7, Rollo, pp. 24-25.

(1) By payment or performance; . . ..

22. Records, p. 143.

[G.R. No. 149420. October 8, 2003.]

SONNY LO, Petitioner, v. KJS ECO-FORMWORK SYSTEM PHIL., INC., Respondent.

The petition is without merit.

Davide, Jr., C.J., Vitug, Carpio and Azcuna, JJ., concur.

1. Exhibit "A," Records, p. 128.

2. Exhibits "B-B-8," Records, pp. 130-138.

3. Exhibit "C," Records, p. 139.

4. Records, pp. 142-143.

6. TSN, April 28, 1993, p. 25.

7. Exhibit "C," Records, p. 139.

8. Records, pp. 1-6.

9. Penned by Judge Teofilo L. Guadiz, Jr.

11. Decision, CA-G.R. CV No. 47713, p. 6; Rollo, p. 14.

12. Rollo, pp. 9-14.

13. Rollo, p. 50.

14. Petition, pp. 6-7, Rollo, pp. 24-25.