[G.R. No. L-7900. January 12, 1956.

] standardized salaries — with the resulting salary differentials naturally — are “to be
carried in all subsequent budgets of the company.” So if Defendant was able to raise
CIRIACO TIGLAO, ET AL., Plaintiffs-Appellees, vs. THE MANILA
or appropriate funds to meet other obligations notwithstanding the fact that it was
RAILROAD COMPANY, Defendant-Appellant.
losing, we think it could have done likewise with respect to its debt to the Plaintiffs,
an obligation which is deserving of preferential attention because it is owed to the
poor.
DECISION
Viewed in this light, that is, that the time to redeem Defendant’s promise to pay
REYES, A., J.:
salary differentials, after the exhaustion of what had already been appropriated for
FACTS: that purpose, really depended upon the judgment of its board of directors — it not
appearing that Defendant was bankrupt — the obligation to pay the said salary
35 retired employees of The Manila Railroad Company were entitled to collect the
differentials may be considered as one with a term whose duration has been left to
salary differentials, or increase in pay, resulting from the standardization of their
the will of the debtor, so that pursuant to article 1128 of the old Civil Code (Art.
salaries; that for salary differentials corresponding to the period from July 1, 1948,
1197 of the new), the duration of the term may be fixed by the courts.
to January 31, 1949, they have already received a total of P9,906.05, but that there
is still due them the total sum of P7,275, which has remained unpaid because of the “(5) To dismiss the present case and order the Plaintiffs to file another suit would
exhaustion of the P400,000 appropriated for the purpose. open the door for dilatory tactics leading to a protracted litigation and in effect deny
the benefits of social justice.” (Lower court)
In refusing to pay the balance still due the Plaintiffs, Defendant does not repudiate
the above agreement, but contends in substance that pursuant to its terms payment We may add that Defendant does not claim that if a separate action were instituted
of salary differentials after the exhaustion of the P400,000 already appropriated is to fix the duration of the term of its obligation, it could present better proofs than
subject to the condition that “funds for the purpose are available” and that no such those already adduced in the present case. Such separate action would, therefore, be
funds are available because Defendant is losing in its business. a mere formality and would serve no purpose other than to delay.
Hence, this action was commenced to recover the sum of P7,275, the aggregate
balance of salary differentials still due them under a memorandum of agreement
signed by the Defendant and the unions representing its employees and laborers.
ISSUE: Whether a company may be excused from payment of salary differentials
when the agreement is subject to condition that it “will be paid when funds for the
purpose are available, if the company is losing its business.
HELD:
A. 1180. When the debtor binds himself to pay when his means permit him to
do so, the obligation shall be deemed to be one with a period, subject to the
provisions of A. 1197.
The memorandum of agreement does not stipulate that the salary differentials shall
be paid only from surplus profits. In fact, the agreement provides that the
G.R. No. L-48194 March 15, 1990
JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners,
 Oca and Sanggaya Logging Company. Under this consolidation agreement, they all
vs.
 agreed to pool together and merge their respective forest concessions into a working
COURT OF APPEALS and LEONARDO TIRO, respondents.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
REGALADO, J.:
Private respondent is a holder of an ordinary timber license issued by the Bureau of
Forestry covering 2,535 hectares in the town of Medina, Misamis Oriental. On
February 15, 1966 he executed a "Deed of Assignment" 4 in favor of herein
petitioners.
At the time the said deed of assignment was executed, private respondent had a
pending application, dated October 21, 1965, for an additional forest concession
covering an area of 2,000 hectares southwest of and adjoining the area of the
concession subject of the deed of assignment. Hence, on February 28, 1966, private
respondent and petitioners entered into another “Agreement”.
On November 18, 1966, the Acting Director of Forestry wrote private respondent
that his forest concession was renewed up to May 12, 1967 under O.T.L. No.
391-51267, but since the concession consisted of only 2,535 hectares, he was
therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are
hereby given until May 12, 1967 to form an organization such as a
cooperative, partnership or corporation with other adjoining
licensees so as to have a total holding area of not less than 20,000
hectares of contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic meters,
otherwise, your license will not be further renewed. 6
Consequently, petitioners, now acting as timber license holders by virtue of the
deed of assignment executed by private respondent in their favor, entered into a
Forest Consolidation Agreement 7 on April 10, 1967 with other ordinary timber
license holders in Misamis Oriental, namely, Vicente L. De Lara, Jr., Salustiano R.
unit, as envisioned by the aforementioned directives. This consolidation agreement
was approved by the Director of Forestry on May 10, 1967. 8 The working unit was
subsequently incorporated as the North Mindanao Timber Corporation, with the
petitioners and the other signatories of the aforesaid Forest Consolidation
Agreement as incorporators. 9
On July 16, 1968, for failure of petitioners to pay the balance due under the two
deeds of assignment, private respondent filed an action against petitioners, based on
the said contracts, for the payment of the amount of P83,138.15 with interest at 6%
per annum from April 10, 1967 until full payment, plus P12,000.00 for attorney's
fees and costs.
On September 23, 1968, petitioners filed their answer admitting the due execution
of the contracts but interposing the special defense of nullity thereof since private
respondent failed to comply with his contractual obligations and, further, that the
conditions for the enforceability of the obligations of the parties failed to
materialize. As a counterclaim, petitioners sought the return of P55,586.00 which
private respondent had received from them pursuant to an alleged management
agreement, plus attorney's fees and costs.
On October 7, 1968, private respondent filed his reply refuting the defense of
nullity of the contracts.
After trial, the lower court rendered judgment dismissing private respondent's
complaint. An appeal was interposed by private respondent to the Court of Appeals
which reversed the decision of the court of a quo.
ISSUE: Whether the Deed of Assignment dated February 15, 1966 and the
Agreement of February 28, 1966 are null and void.
HELD:
We do not agree. As found by the Court of Appeals, the true cause or consideration
of said deed was the transfer of the forest concession of private respondent to
petitioners for P120,000.00.
The aforesaid contemporaneous and subsequent acts of petitioners and private that the thing will come into existence. In this case, since private respondent never
respondent reveal that the cause stated in the questioned deed of assignment is false. acquired any right over the additional area for failure to secure the approval of the
It is settled that the previous and simultaneous and subsequent acts of the parties are Bureau of Forestry, the agreement executed therefor, which had for its object the
properly cognizable indica of their true intention. 22 Where the parties to a contract transfer of said right to petitioners, never became effective or enforceable.
have given it a practical construction by their conduct as by acts in partial
performance, such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual intention of the
parties at the time of contracting. 23 The parties' practical construction of their
contract has been characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant, convincing, persuasive, or
influential factor in determining the proper construction of the agreement. 24
The deed of assignment of February 15, 1966 is a relatively simulated contract
which states a false cause or consideration, or one where the parties conceal their
true agreement. 25 A contract with a false consideration is not null and void per
se. 26 Under Article 1346 of the Civil Code, a relatively simulated contract, when it
does not prejudice a third person and is not intended for any purpose contrary to
law, morals, good customs, public order or public policy binds the parties to their
real agreement.
As to the alleged nullity of the agreement dated February 28, 1966, we agree with
petitioners that they cannot be held liable thereon. The efficacy of said deed of
assignment is subject to the condition that the application of private respondent for
an additional area for forest concession be approved by the Bureau of Forestry.
Since private respondent did not obtain that approval, said deed produces no effect.
When a contract is subject to a suspensive condition, its birth or effectivity can take
place only if and when the event which constitutes the condition happens or is
fulfilled. 28 If the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. 29
The said agreement is a bilateral contract which gave rise to reciprocal obligations.
The demandability of the obligation of one party depends upon the fulfillment of
the obligation of the other. Delivery and payment in a contract of sale, are so
interrelated and intertwined with each other that without delivery of the goods there
is no corresponding obligation to pay. The two complement each other. 30
Moreover, under the second paragraph of Article 1461 of the Civil Code, the
efficacy of the sale of a mere hope or expectancy is deemed subject to the condition
G.R. No. 180665 August 11, 2010
HEIRS OF PAULINO ATIENZA, namely, RUFINA L. ATIENZA, ANICIA A.
IGNACIO, ROBERTO ATIENZA, MAURA A. DOMINGO, AMBROCIO
ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A.
GONZALES, REGALADO ATIENZA and MELITA A. DELA
CRUZ Petitioners,
 installment.
vs.
 On appeal,11 the Court of Appeals (CA) affirmed the decision of the trial court.
DOMINGO P. ESPIDOL, Respondent.
DECISION
ABAD, J.:
FACTS:
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio,
Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito
Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz
(collectively, the Atienzas)1 own a 21,959 square meters of registered agricultural
land at Valle Cruz, Cabanatuan City.2 They acquired the land under an emancipation
patent3 through the government’s land reform program.4
On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a
contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract
to sell land with a down payment) covering the property.5 They agreed on a price of
₱130.00 per square meter or a total of ₱2,854,670.00, payable in three installments:
₱100,000.00 upon the signing of the contract; ₱1,750,000.00 in December 2002,
and the remaining ₱974,670.00 in June 2003. Respondent Espidol paid the Atienzas
₱100,000.00 upon the execution of the contract and paid ₱30,000.00 in commission
to the brokers.
When the Atienzas demanded payment of the second installment of ₱1,750,000.00
in December 2002, however, respondent Espidol could not pay it. He offered to pay
the Atienzas ₱500.000.00 in the meantime,6 which they did not accept. Claiming
that Espidol breached his obligation, on February 21, 2003 the Atienzas filed a
complaint7 for the annulment of their agreement with damages before the Regional
Trial Court (RTC) of Cabanatuan City in Civil Case 4451.
In a decision10 dated January 24, 2005, the RTC ruled that, inasmuch as the non-
payment of the purchase price was not considered a breach in a contract to sell on
installment but only an event that authorized the vendor not to convey title, the
proper issue was whether the Atienzas were justified in refusing to accept
respondent Espidol’s offer of an amount lesser than that agreed upon on the second
12 Not satisfied, the Atienzas moved for reconsideration.13 And, in an apparent shift
of theory, the Atienzas now also impugn the validity of their contract to sell,
claiming that, since the property was covered by an emancipation patent, its sale
was prohibited and void. But the CA denied the motion for reconsideration, hence,
the present petition.14
ISSUES: Whether the Atienzas were entitled to the cancellation of the contract to
sell they entered into with respondent Espidol on the ground of the latter’s failure to
pay the second installment when it fell due.
HELD:
Regarding the right to cancel the contract for non-payment of an installment, there
is need to initially determine if what the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to the property passes to the buyer
upon the delivery of the thing sold. In a contract to sell, on the other hand, the
ownership is, by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the buyer’s non-
payment of the price is a negative resolutory condition; in the contract to sell, the
buyer’s full payment of the price is a positive suspensive condition to the coming
into effect of the agreement. In the first case, the seller has lost and cannot recover
the ownership of the property unless he takes action to set aside the contract of sale.
In the second case, the title simply remains in the seller if the buyer does not
comply with the condition precedent of making payment at the time specified in the
contract.19 Here, it is quite evident that the contract involved was one of a contract
to sell since the Atienzas, as sellers, were to retain title of ownership to the land
until respondent Espidol, the buyer, has paid the agreed price.
Admittedly, Espidol was unable to pay the second installment of ₱1,750,000.00 that
fell due in December 2002. That payment, said both the RTC and the CA, was a
positive suspensive condition failure of which was not regarded a breach in the ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino Atienza and
sense that there can be no rescission of an obligation (to turn over title) that did not respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs’
yet exist since the suspensive condition had not taken place. And this is correct so obligation under it non-existent. The Court directs petitioner Heirs of Atienza to
far. Unfortunately, the RTC and the CA concluded that should Espidol eventually reimburse the ₱130,000.00 down payment to respondent Espidol.
pay the price of the land, though not on time, the Atienzas were bound to comply SO ORDERED.
with their obligation to sell the same to him.
But this is error. In the first place, since Espidol failed to pay the installment on a
day certain fixed in their agreement, the Atienzas can afterwards validly cancel and
ignore the contract to sell because their obligation to sell under it did not arise.
Since the suspensive condition did not arise, the parties stood as if the conditional
obligation had never existed.21
Secondly, it was not a pure suspensive condition in the sense that the Atienzas made
no undertaking while the installments were not yet due. Mr. Justice Edgardo L.
Paras gave a fitting example of suspensive condition: "I’ll buy your land for
₱1,000.00 if you pass the last bar examinations." This he said was suspensive for
the bar examinations results will be awaited. Meantime the buyer is placed under no
immediate obligation to the person who took the examinations.22
Here, however, although the Atienzas had no obligation as yet to turn over title
pending the occurrence of the suspensive condition, it was implicit that they were
under immediate obligation not to sell the land to another in the meantime. When
Espidol failed to pay within the period provided in their agreement, the Atienzas
were relieved of any obligation to hold the property in reserve for him.
Given Espidol’s failure to pay the second installment of ₱1,750,000.00 in December
2002 when it was due, the Atienzas’ obligation to turn over ownership of the
property to him may be regarded as no longer existing.24 The Atienzas had the right
to seek judicial declaration of such non-existent status of that contract to relieve
themselves of any liability should they decide to sell the property to someone else.
Parenthetically, Espidol never offered to settle the full amount of the price in June
2003, when the last installment fell due, or during the whole time the case was
pending before the RTC.
WHEREFORE, the Court GRANTS the petition and REVERSES and SETS
ASIDE the August 31, 2007 decision and November 5, 2007 resolution of the Court
of Appeals in CA-G.R. CV 84953. The Court declares the Kasunduan sa Pagbibili
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
 revocable. Thus, the appellate court rendered its decision reversing the appealed
vs.
 decision and remanding the case to the court of origin for the determination of the
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ,
CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
BELLOSILLO, J.:
FACTS:
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the
Board of Trustees of the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in favor of the latter of a parcel of
land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a
portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A
was issued in the name of the donee CPU with the conditions such that the land
shall be utilized by the CPU for the establishment and use of a medical college.
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr.,
filed an action for annulment of donation, reconveyance and damages against CPU
alleging that since 1939 up to the time the action was filed the latter had not
complied with the conditions of the donation. Private respondents also argued that
petitioner had in fact negotiated with the National Housing Authority (NHA) to
exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action
had prescribed; that it did not violate any of the conditions in the deed of donation
because it never used the donated property for any other purpose than that for which
it was intended; and, that it did not sell, transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the
conditions of the donation and declared it null and void. The court a quo further
directed petitioner to execute a deed of the reconveyance of the property in favor of
the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the
annotations at the back of petitioner's certificate of title were resolutory conditions
breach of which should terminate the rights of the donee thus making the donation
time within which petitioner should comply with the first condition annotated in the
certificate of title.
ISSUE: Whether the annotations onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which would render the
donation revocable.
HELD:
A clear perusal of the conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was
onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent
to the value of the donation. Similarly, where Don Ramon Lopez donated the
subject parcel of land to petitioner but imposed an obligation upon the latter to
establish a medical college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the latter would build upon the
land a school, the condition imposed was not a condition precedent or a suspensive
condition but a resolutory one.4 It is not correct to say that the schoolhouse had to
be constructed before the donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be invading the property rights of
the donor. The donation had to be valid before the fulfillment of the condition.5 If
there was no fulfillment or compliance with the condition, such as what obtains in
the instant case, the donation may now be revoked and all rights which the donee
may have acquired under it shall be deemed lost and extinguished.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the courts may
fix the duration thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for compliance therewith and
such period has arrived.8
This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty
(50) years has already been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to
fix the duration of a term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to delay or lead to an
unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of
the Civil Code, when one of the obligors cannot comply with what is incumbent
upon him, the obligee may seek rescission and the court shall decree the same
unless there is just cause authorizing the fixing of a period. In the absence of any
just cause for the court to determine the period of the compliance, there is no more
obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be
resolved in favor of the least transmission of rights and interests. 10 Records are
clear and facts are undisputed that since the execution of the deed of donation up to
the time of filing of the instant action, petitioner has failed to comply with its
obligation as donee. Petitioner has slept on its obligation for an unreasonable length
of time. Hence, it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor, private respondents
herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May
1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals
of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to
reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144
covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from
the finality of this judgment.
Costs against petitioner.
SO ORDERED.
G.R. No. L-24190 July 13, 1926
GEORGE L. PARKS, plaintiff-appellant,
 This parcel having been donated by Concepcion Cirer and James Hill to the
vs.
 municipality of Tarlac, which donation was accepted by the latter, the title to the
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION
CIRER, and JAMES HILL, her husband, defendants-appellees.
AVANCEÑA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of
land No. 2 referred to in the complaint, donated it perpetually to the municipality of
Tarlac, Province of Tarlac, under certain conditions that one of the parcels donated
to be used absolutely and exclusively for the erection of a central school and the
other for a public park, the work to commence in both cases within the period of six
months from the date of the ratification by the parties of the document evidencing
the donation. The donation was accepted by Mr. Santiago de Jesus in the same
document on behalf of the municipal council of Tarlac of which he was the
municipal president. The parcel thus donated was later registered in the name of the
donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and
James Hill sold this parcel to the herein plaintiff George L. Parks. On August 24,
1923, the municipality of Tarlac transferred the parcel to the Province of Tarlac
which, by reason of this transfer, applied for and obtained the registration thereof in
its name, the corresponding certificate of title having been issued to it.
The plaintiff, George L. Parks, alleging that the conditions of the donation had not
been complied with and invoking the sale of this parcel of land made by
Concepcion Cirer and James Hill in his favor, brought this action against the
Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and
prayed that he be declared the absolute owner entitled to the possession of this
parcel, that the transfer of the same by the municipality of Tarlac to the Province of
Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac
cancelled.
The lower court dismissed the complaint.
ISSUE: Whether petitioner can recover the land from the Municipality of Tarlac
since the condition of the donation was suspense and therefore the said municipality
had never acquired a right thereto as the condition was never performed.
HELD:
The plaintiff has no right of action.
property was transferred to the municipality of Tarlac. Consequently, when the sale
was made Concepcion Cirer and James Hill were no longer the owners of this
parcel and could not have sold it to the plaintiff, nor could the latter have acquired it
from them.
The allegation, however, that it is a condition precedent is erroneous. The
characteristic of a condition precedent is that the acquisition of the right is not
effected while said condition is not complied with or is not deemed complied with.
Meanwhile nothing is acquired and there is only an expectancy of right.
Consequently, when a condition is imposed, the compliance of which cannot be
effected except when the right is deemed acquired, such condition cannot be a
condition precedent. In the present case the condition that a public school be erected
and a public park made of the donated land, work on the same to commence within
six months from the date of the ratification of the donation by the parties, could not
be complied with except after giving effect to the donation. The donee could not do
any work on the donated land if the donation had not really been effected, because
it would be an invasion of another's title, for the land would have continued to
belong to the donor so long as the condition imposed was not complied with.
The appellant also contends that, in any event, the condition not having been
complied with, even supposing that it was not a condition precedent but subsequent,
the non-compliance thereof is sufficient cause for the revocation of the donation.
This is correct. But the period for bringing an action for the revocation of the
donation has prescribed. That this action is prescriptible, there is no doubt. There is
no legal provision which excludes this class of action from the statute of limitations.
And not only this, — the law itself recognizes the prescriptibility of the action for
the revocation of a donation, providing a special period of five years for the
revocation by the subsequent birth of children (art. 646, Civil Code), and one year
for the revocation by reason of ingratitude. If no special period is provided for the
prescription of the action for revocation for noncompliance of the conditions of the
donation (art. 647, Civil Code), it is because in this respect the donation is
considered onerous and is governed by the law of contracts and the general rules of
prescription. Under the law in force (sec. 43, Code of Civ. Proc.) the period of
prescription of this class of action is ten years. The action for the revocation of the
donation for this cause arose on April 19, 1911, that is six months after the
ratification of the instrument of donation of October 18, 1910. The complaint in this
action was presented July 5, 1924, more than ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is affirmed, with the costs
against the appellant. So ordered.
G.R. No. 137909 : December 11, 2003
FIDELA DEL CASTILLO Vda. DE MISTICA, Petitioner,
vs.
Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-
NAGUIAT, Respondents.
DECISION
PANGANIBAN, J.:
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a parcel
of land located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to
Respondent Bernardino Naguiat sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with respondent over
a portion of the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan.
Pursuant to said agreement, respondent gave a downpayment of P2,000.00. He
made another partial payment of P1,000.00 on 7 February 1980. He failed to make
any payments thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, petitioner filed a complaint for rescission alleging inter alia:
that the failure and refusal of respondents to pay the balance of the purchase price
constitutes a violation of the contract which entitles her to rescind the same.
In their answer and amended answer, [respondents] contended that the contract
cannot be rescinded on the ground that it clearly stipulates that in case of failure to
pay the balance as stipulated, a yearly interest of 12% is to be paid. [Respondent
Bernardino Naguiat] likewise alleged that sometime in October 1986, during the
wake of the late Eulalio Mistica, he offered to pay the remaining balance to
[petitioner] but the latter refused and hence, there is no breach or violation
committed by them and no damages could yet be incurred by the late Eulalio
Mistica, his heirs or assigns pursuant to the said document.
ISSUE: Whether there has been no breach of obligation in spite of the lapse of the
stipulated period and the failure of the private respondents to pay.
HELD:
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of
the Civil Code, because respondents committed a substantial breach when they did
not pay the balance of the purchase price within the ten-year period. She further
avers that the proviso on the payment of interest did not extend the period to pay. To
interpret it in that way would make the obligation purely potestative and, thus, void
under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as
evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is
considered absolute in nature when there is neither a stipulation in the deed that title
to the property sold is reserved to the seller until the full payment of the price; nor a
stipulation giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.9
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.10 Under Article 1191 of the Civil Code, the right to rescind an obligation
is predicated on the violation of the reciprocity between parties, brought about by a
breach of faith by one of them.11 Rescission, however, is allowed only where the
breach is substantial and fundamental to the fulfillment of the obligation.12
In the present case, the failure of respondents to pay the balance of the purchase
price within ten years from the execution of the Deed did not amount to a
substantial breach. In the Kasulatan, it was stipulated that payment could be made
even after ten years from the execution of the Contract, provided the vendee paid 12
percent interest. The stipulations of the contract constitute the law between the
parties; thus, courts have no alternative but to enforce them as agreed upon and
written.13
Moreover, it is undisputed that during the ten-year period, petitioner and her
deceased husband never made any demand for the balance of the purchase price.
Petitioner even refused the payment tendered by respondents during her husbands
funeral, thus showing that she was not exactly blameless for the lapse of the ten-
year period. Had she accepted the tender, payment would have been made well
within the agreed period.
If petitioner would like to impress upon this Court that the parties intended
otherwise, she has to show competent proof to support her contention. Instead, she
argues that the period cannot be extended beyond ten years, because to do so would
convert the buyers obligation to a purely potestative obligation that would annul the
contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative,
suspensive, conditional obligations that depend on the whims of the debtor, because
such obligations are usually not meant to be fulfilled.[14 Indeed, to allow the
fulfillment of conditions to depend exclusively on the debtors will would be to
sanction illusory obligations. The Kasulatan does not allow such thing. First,
nowhere is it stated in the Deed that payment of the purchase price is dependent
upon whether respondents want to pay it or not. Second, the fact that they already
made partial payment thereof only shows that the parties intended to be bound by
the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule
that findings of fact by the CA are generally binding upon this Court and will not be
disturbed on appeal, especially when they are the same as those of the trial court.
16 Petitioner has not given us sufficient reasons to depart from this rule.

WHEREFORE, the assailed Decision and Resolution are AFFIRMED with

the MODIFICATION that the payment for the extra 58-square meter lot included in
respondents title is DELETED.
SO ORDERED.
G.R. No. L-5003 June 27, 1953 her own plan of payment, — a relation, in the absence as in the present case of
NAZARIO TRILLANA, administrator-appellee,
 acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo,
vs.
 that had not ripened into an enforceable contract.
QUEZON COLLEGE, INC., claimant-appellant. Indeed, the need for express acceptance on the part of the Quezon College, Inc.
PARAS, J.: becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay
the value of the subscription after she has harvested fish, a condition obviously
Damasa Crisostomo sent a letter to the Board of Trustees of the Quezon College. dependent upon her sole will and, therefore, facultative in nature, rendering the
Therein, he subscribed 200 shares of capital stock with a par value of P100 each. obligation void, under article 1115 of the old Civil Code which provides as follows:
Enclosed with the letter is the sum of money as her initial payment and her
assurance of full payment after she harvested fish. "If the fulfillment of the condition should depend upon the exclusive will of the
debtor, the conditional obligation shall be void. If it should depend upon chance, or
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been upon the will of a third person, the obligation shall produce all its effects in
made on the subscription mentioned in the foregoing letter, the Quezon College, accordance with the provisions of this code."
Inc. presented a claim before the Court of First Instance of Bulacan in her testate
proceeding, for the collection of the sum of P20,000, representing the value of the It cannot be argued that the condition solely is void, because it would have served
subscription to the capital stock of the Quezon College, Inc. This claim was to create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14
opposed by the administrator of the estate, and the Court of First Instance of Phil., 99), wherein only the potestative condition was held void because it referred
Bulacan, after hearing issued an order dismissing the claim of the Quezon College, merely to the fulfillment of an already existing indebtedness.
Inc. on the ground that the subscription in question was neither registered in nor In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court
authorized by the Securities and Exchange Commission. From this order the already held that “a condition, facultative as to the debtor, is obnoxious to the first
Quezon College, Inc. has appealed. sentence contained in article 1115 and renders the whole obligation void.”

ISSUE: Whether there was an enforceable contract.
HELD:
There is nothing in the record to show that the Quezon College, Inc. accepted the
term of payment suggested by Damasa Crisostomo, or that if there was any
acceptance the same came to her knowledge during her lifetime. As the application
of Damasa Crisostomo is obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was absolute necessity on the
part of the College to express its agreement to Damasa's offer in order to bind the
latter. Conversely, said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's promise to pay the
price of the subscription after she had caused fish to be caught. In other words, the
relation between Damasa Crisostomo and the Quezon College, Inc. had only thus
reached the preliminary stage whereby the latter offered its stock for subscription
on the terms stated in the form letter, and Damasa applied for subscription fixing
G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner,
 the perfection of the contract itself, the failure of such condition would prevent the
vs.
 juridical relation itself from coming into existence.13
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE
ONGSIONG, respondents.
VITUG, J.:
Petitioner Virgilio R. Romero, a civil engineer, and his foreign partners decided to
put up a central warehouse in Metro Manila on a land area of approximately 2,000
square meters.
Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land
measuring 1,952 square meters to petitioner. The lot was covered by TCT No.
361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong.
Later, the Flores spouses called on petitioner with a proposal that should he advance
the amount of P50,000.00 which could be used in taking up an ejectment case
against the squatters, private respondent would agree to sell the property for only
P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a
contract, denominated ‘Deed of Conditional Sale,” was executed between petitioner
and private respondent.
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil
Case No. 7579) against Melchor Musa and 29 other squatter families with the
Metropolitan Trial Court of Parañaque. Although successful, private respondents
sought the return of the advance payment they received because they could not get
rid of the squatters.
ISSUE: Whether the condition of the contract is valid.
HELD:
A perfected contract of sale may either be absolute or conditional12 depending on
whether the agreement is devoid of, or subject to, any condition imposed on
the passing of title of the thing to be conveyed or on the obligation of a party
thereto. When ownership is retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to convey title from acquiring
an obligatory force. If the condition is imposed on an obligation of a party which is
not complied with, the other party may either refuse to proceed or waive said
condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon
The term "condition" in the context of a perfected contract of sale pertains, in
reality, to the compliance by one party of an undertaking the fulfillment of which
would beckon, in turn, the demandability of the reciprocal prestation of the other
party. The reciprocal obligations referred to would normally be, in the case of
vendee, the payment of the agreed purchase price and, in the case of the vendor, the
fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly
perfected contract. A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a specified thing
or right to another (the buyer) over which the latter agrees.15
The object of the sale, in the case before us, was specifically identified to be a
1,952-square meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer
Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein
technically described. The purchase price was fixed at P1,561,600.00, of which
P50,000.00 was to be paid upon the execution of the document of sale and the
balance of P1,511,600.00 payable "45 days after the removal of all squatters from
the above described property."
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.16 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
Code17 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."18 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 obligation is avoided, leaving unaffected the obligation itself.19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned,
allows the obligee to choose between proceeding with the agreement or waiving the
performance of the condition. It is this provision which is the pertinent rule in the
case at bench. Here, evidently, petitioner has waived the performance of the
condition imposed on private respondent to free the property from squatters.20
In any case, private respondent's action for rescission is not warranted. She is not
the injured party.21 The right of resolution of a party to an obligation under Article
1191 of the Civil Code is predicated on a breach of faith by the other party that
violates the reciprocity between them.22 It is private respondent who has failed in
her obligation under the contract. Petitioner did not breach the agreement. He has
agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to effect such execution.
In his letter of 23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for rescission, assuming for the
sake of argument that such a demand is proper under Article 159223 of the Civil
Code, would likewise suffice to defeat private respondent's prerogative to rescind
thereunder.
WHEREFORE, the questioned decision of the Court of Appeals is hereby
REVERSED AND SET ASIDE, and another is entered ordering petitioner to pay
private respondent the balance of the purchase price and the latter to execute the
deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
G.R. No. 165272 September 13, 2007
SERGIO R. OSMEÑA III, JUAN M. FLAVIER, RODOLFO G. BIAZON,
ALFREDO S. LIM, JAMBY A.S. MADRIGAL, LUIS F. SISON, AND
PATRICIA C. SISON, Petitioners,
 bidding process.
vs.
 HELD:
SOCIAL SECURITY SYSTEM OF THE PHILIPPINES, SOCIAL
SECURITY COMMISSION, CORAZON S. DELA PAZ, THELMO Y.
CUNANAN, PATRICIA A. STO. TOMAS, FE TIBAYAN-PANLILEO,
DONALD DEE, SERGIO R. ORTIZ-LUIS, JR., EFREN P.
ARANZAMENDEZ, MARIANITA O. MENDOZA, and RAMON J. JABAR,
in their capacities as Members of the Social Security Commission, AND BDO
CAPITAL & INVESTMENT CORPORATION, Respondents.
DECISION
GARCIA, J.:
FACTS:
Sometime in 2003, SSS, a government financial institution (GFI) created pursuant
to Republic Act (RA) No. 11617 and placed under the direction and control of SSC,
took steps to liquefy its long-term investments and diversify them into higher-
yielding and less volatile investment products. Among its assets determined as
needing to be liquefied were its shareholdings in EPCIB. The principal reason
behind the intended disposition, as explained by respondent Dela Paz during the
February 4, 2004 hearing conducted by the Senate Committee on Banks, Financial
Institutions and Currencies, is that the shares in question have substantially declined
in value and the SSS could no longer afford to continue holding on to them at the
present level of EPCIB’s income.
In a purchase agreement, it was agreed that SSS will sell all its EPCIB shares to
BDO. COA approved the agreement.
Bidding was made “subject to the right of BDO Capital to match the highest bid.”
During the bidding process, BDO turned out to be the highest bidder.
Petitioners seek to nullify the following issuances of SSC:
1. Resolution No. 428, dated July 14, 2004 – approved the sale of the entire
equity share of SSS to EPCIB.
2. Resolution No. 485, dated August 11, 2004 – pertains to the timetable and
instruction to bidders.
ISSUE: Whether petitioners can still recover the shares and subject it to a “proper”
The case, with the view we take of it, has indeed become moot and academic for
interrelated reasons.
We start off with the core subject of this case. As may be noted, the Letter-
Agreement,44 the SPA,45 the SSC resolutions assailed in this recourse, and
the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares – the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary consequence of the BDO-
EPCIB merger46 which saw EPCIB being absorbed by the surviving BDO, have
been transferred to BDO and converted into BDO common shares under the
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the
subject Shares are no longer equity security issuances of the now defunct EPCIB,
but those of BDO-EPCI, which, needless to stress, is a totally separate and distinct
entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million
EPCIB common shares are now lost or inexistent. And in this regard, the Court
takes judicial notice of the disappearance of EPCIB stocks from the local bourse
listing. Instead, BDO-EPCI Stocks are presently listed and being traded in the PSE.
Under the law on obligations and contracts, the obligation to give a determinate
thing is extinguished if the object is lost without the fault of the debtor.47 And per
Art. 1192 (2) of the Civil Code, a thing is considered lost when it perishes or
disappears in such a way that it cannot be recovered.48 In a very real sense, the
interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the cancellation
of subject Shares and their replacement by totally new common shares of BDO, has
rendered the erstwhile 187.84 million EPCIB shares of SSS "unrecoverable" in the
contemplation of the adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under any
circumstance, cause the implementation of the assailed resolutions, let alone
proceed with the planned disposition of the Shares, be it via the traditional
competitive bidding or the challenged public bidding with a Swiss
Challenge feature.
Under the theory of rebus sic stantibus,50 the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the contract also
ceases to exist.51 Upon the facts obtaining in this case, it is abundantly clear that the
conditions in which SSS and BDO Capital and/or BDO executed the Letter-
Agreement upon which the pricing component – at ₱43.50 per share – of
the Invitation to Bid was predicated, have ceased to exist. Accordingly, the
implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and
485 cannot plausibly push through, even if the central figures in this case are so
minded.
Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the
issuer52 of what were once the subject Shares. Consequently, should SSS opt to exit
from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue SSS’s
shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase
ought to be via an Issuer Tender Offer -- a phrase which means a publicly
announced intention by an issuer to acquire any of its own class of equity securities
or by an affiliate of such issuer to acquire such securities.53 In that eventuality, BDO
or BDO Capital cannot possibly exercise the "right to match" under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding.
The offeror or buyer in an issue tender offer transaction proposes to buy or acquire,
at the stated price and given terms, its own shares of stocks held by its own
stockholder who in turn simply have to accept the tender to effect the sale. No
bidding is involved in the process.
While the Court ends up dismissing this petition because the facts and legal
situation call for this kind of disposition, petitioners have to be commended for their
efforts in initiating this proceeding. For, in the final analysis, it was their petition
which initially blocked implementation of the assailed SSC resolutions, and, in the
process, enabled the SSS and necessarily their members to realize very much more
for their investments.
WHEREFORE, the instant petition is DISMISSED.
No costs.
SO ORDERED.


G.R. No. 188661: April 11, 2012
 her obligations to the respondent. The petitioner likewise insisted that it was the


ESTELITA VILLAMAR, Petitioner
vs.
BALBINO MANGAOIL, Respondent
 ISSUE: Whether the failure of petitioner-seller to deliver the certificate of title over


DECISION
REYES, J.:
FACTS:
Petitioner Villamar is the registered owner of a 3.6080 hectares parcel of land
(subject property) in San Francisco, Manuel, Isabela.
On March 30, 1998, she entered into an Agreement with Mangaoil for the purchase
and sale of said parcel of land with certain conditions: that the total purchase or
selling price shall be P630,000.00. Respondent paid the amount of P185,000 as a
down payment for the land title to be given him.
On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar
(then Estelita Bernabe) transferred the subject parcel of land to Mangaoil for and in
consideration of [P]150,000.00.



In a letter dated September 18, 1998, Mangaoil informed Villamar that he was
backing out from the sale agreed upon because the area is not yet fully cleared by
incumbrances. There are tenants who are not willing to vacate the land without
giving the amount that they mortgage the land.
Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said
demand in another letter dated April 29, 1999, the same, however, was unheeded.
On January 28, 2002, the respondent filed before the RTC a complaint[8] for
rescission of contract against the petitioner.
In the respondent’s answer to the complaint, she averred that she had complied with
respondent who unceremoniously withdrew from their agreement for reasons only
the latter knew.
the property to respondent-buyer is a breach of obligation in a contract of sale of
real property that would warrant a rescission of contract.
HELD:
The RTC and the CA both found that the petitioner failed to comply with her
obligations to deliver to the respondent both the possession of the subject property
and the certificate of title covering the same.



Article 1458 of the NCC obliges the seller to transfer the ownership of and to
deliver a determinate thing to the buyer, who shall in turn pay therefor a price
certain in money or its equivalent. In addition thereto, Article 1495 of the NCC
binds the seller to warrant the thing which is the object of the sale. On the other
hand, Article 1498 of the same code provides that when the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed, the contrary does not
appear or cannot clearly be inferred.



In the case now under our consideration, item nos. 2 and 3 of the agreement entered
into by the petitioner and the respondent explicitly provide:
2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS
of the total price was already received on March 27, 1998 for payment of
the loan secured by the certificate of title covering the land in favor of the
Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, in order
that the certificate of title thereof be withdrawn and released from the said
bank, and the rest shall be for the payment of the mortgages in favor of
Romeo Lacaden and Florante Parangan;



 3. After the release of the certificate of title covering the land subject-matter
of this agreement, the necessary deed of absolute sale in favor of the
PARTY OF THE SECOND PART shall be executed and the transfer be
immediately effected so that the latter can apply for a loan from any lending
institution using the corresponding certificate of title as collateral therefor,
and the proceeds of the loan, whatever be the amount, be given to the
PARTY OF THE FIRST PART;[24] (underlining supplied)


Article 1191 of the NCC is clear that “the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.” The respondent cannot be deprived of his right to demand
for rescission in view of the petitioner’s failure to abide with item nos. 2 and 3 of
the agreement. This remains true notwithstanding the absence of express
stipulations in the agreement indicating the consequences of breaches which the
parties may commit. To hold otherwise would render Article 1191 of the NCC as
useless.



In the case at bar, the RTC and the CA found that the petitioner failed to deliver to
the respondent the possession of the subject property due to the continued presence
and occupation of Parangan and Lacaden. We find no ample reason to reverse the
said findings. Considered in the light of either the agreement entered into by the
parties or the pertinent provisions of law, the petitioner failed in her undertaking to
deliver the subject property to the respondent.



IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February
20, 2009 Decision and July 8, 2009 Resolution of the Court of Appeals, directing
the rescission of the agreement and absolute deed of sale entered into by Estelita
Villamar and Balbino Mangaoil and the return of the down payment made for the
purchase of the subject property, are AFFIRMED. However, pursuant to our ruling
in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed
on the sum of P185,000.00 to be returned to Mangaoil to be computed from the date
of finality of this Decision until full satisfaction thereof.



SO ORDERED.
G.R. No. L-39378 August 28, 1984
GENEROSA AYSON-SIMON, plaintiff-appellee,
 The appeal is without merit. The Trial Court presided by then Judge, later Court of
vs.
 Appeals Associate Justice Luis B. Reyes, correctly resolved the issues, reiterated in
NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.
MELENCIO-HERRERA, J.:
FACTS:
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-appellants
herein, purchased two lots forming part of the Piedad Estate in Quezon City, with
an area of approximately 56,395 square meters, from Juan Porciuncula. Sometime
thereafter, the successors-in-interest of the latter filed Civil Case No. 174 in the then
Court of First Instance of Quezon City for annulment of the sale and the
cancellation of Transfer Certificate of Title No. 69475, which had been issued to
defendants-appellants by virtue of the disputed sale. On December 18, 1963, the
Court rendered a Decision annulling the sale, cancelling TCT 69475, and
authorizing the issuance of a new title in favor of Porciuncula's successors-in-
interest. The said judgment was affirmed by the Appellate Court and had attained
finality.
In the meantime, on May 29, 1946, during the pendency of the above-mentioned
case, defendants-appellants sold to GENEROSA Ayson Simon, plaintiff-appellee
herein, the two lots in question. Due to the failure of defendants-appellants to
comply with their commitment to have the subdivision plan of the lots approved
and to deliver the titles and possession to GENEROSA, the latter filed suit for
specific performance before the Court of First Instance of Quezon.
However, since execution of the foregoing Order was rendered impossible because
of the judgment in Civil Case No. 174, which earlier declared the sale of the lots in
question by Juan Porciuncula to defendants-appellants to be null and void,
GENEROSA filed, on August 16, 1968, another suit in the Court of First Instance
of Manila (Civil Case No. 73942) for rescission of the sale with damages.
The defendants-appellants contend that Generosa’s action had prescribed,
considering that she had only four years from May 29, 1946 to rescined the
transaction.
ISSUE: Whether the action to rescind the obligation has prescribed.
HELD:
the assignments of error on appeal, as follows:
Defendants contend (1) that the fulfillment and the rescission of the
obligation in reciprocal ones are alternative remedies, and plaintiff
having chosen fulfillment in Civil Case No. Q- 7525, she cannot
now seek rescission; and (2) that even if plaintiff could seek
rescission the action to rescind the obligation has prescribed.
The first contention is without merit. The rule that the injured party
can only choose between fulfillment and rescission of the
obligation, and cannot have both, applies when the obligation is
possible of fulfillment. If, as in this case, the fulfillment has
become impossible, Article 1191 3 allows the injured party to seek
rescission even after he has chosen fulfillment.
True it is that in Civil Case No. 7275 the Court already rendered a
Decision in favor of plaintiff, but since defendants cannot fulfill
their obligation to deliver the titles to and possession of the lots to
plaintiff, the portion of the decision requiring them to fulfill their
obligations is without force and effect. Only that portion relative to
the payment of damages remains in the dispositive part of the
decision, since in either case (fulfillment or rescission) defendants
may be required to pay damages.
The next question to determine is whether the action to rescind the
obligation has prescribed.
Article 1191 of the Civil Code provides that the injured party may
also seek rescission, if the fulfillment should become impossible.
The cause of action to claim rescission arises when the fulfillment
of the obligation became impossible when the Court of First
Instance of Quezon City in Civil Case No. 174 declared the sale of
the land to defendants by Juan Porciuncula a complete nullity and
ordered the cancellation of Transfer Certificate of Title No. 69475
issued to them. Since the two lots sold to plaintiff by defendants
 form part of the land involved in Civil Case No. 174, it became
impossible for defendants to secure and deliver the titles to and the
possession of the lots to plaintiff. But plaintiff had to wait for the
finality of the decision in Civil Case No. 174, According to the
certification of the clerk of the Court of First Instance of Quezon
City (Exhibit "E-2"), the decision in Civil Case No. 174 became
final and executory "as per entry of Judgment dated May 3, 1967 of
the Court of Appeals." The action for rescission must be
commenced within four years from that date, May 3, 1967. Since
the complaint for rescission was filed on August 16, 1968, the four
year period within which the action must be commenced had not
expired.
Defendants have the obligation to return to plaintiff the amount of
P7,600.00 representing the purchase price of the two lots, and the
amount of P800.00 which they received from plaintiff to expedite
the issuance of titles but which they could not secure by reason of
the decision in Civil Case No. 174. Defendant has to pay interest at
the legal rate on the amount of P7,600.00 from May 29, 1946,
when they received the amount upon the execution of the deeds of
sale, and legal interest on the P800.00 from August 1, 1966, when
they received the same from plaintiff. 4
WHEREFORE, the appealed judgment of the former Court of First Instance of
Manila, Branch XX, in Civil Case No. 73942, dated June 7, 1969, is hereby
affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
G.R. NO. 188986 : March 20, 2013
GALILEO A. MAGLASANG, doing business under the name GL
Enterprises, Petitioner,
v.
NORTHWESTERN INC., UNIVERSITY, Respondent.
DECISION
SERENO, C.J.:
FACTS:
On 10 June 2004, respondent Northwestern University (Northwestern), an
educational institution offering maritime-related courses, engaged the services of a
Quezon City-based firm, petitioner GL Enterprises, to install a new IBS in Laoag
City. The installation of an IBS, used as the students' training laboratory, was
required by the Commission on Higher Education (CHED) before a school could
offer maritime transportation programs.4chanroblesvirtualawlibrary
Since its IBS was already obsolete, respondent required petitioner to supply and
install specific components in order to form the most modern IBS that would be
acceptable to CHED and would be compliant with the standards of the International
Maritime Organization (IMO). For this purpose, the parties executed two contracts.
Common to both contracts are the following provisions: (1) the IBS and its
components must be compliant with the IMO and CHED standard and with
manuals for simulators/major equipment; (2) the contracts may be terminated if one
party commits a substantial breach of its undertaking; and (3) any dispute under the
agreement shall first be settled mutually between the parties, and if settlement is not
obtained, resort shall be sought in the courts of law.
Subsequently, Northwestern paid P1 million as down payment to GL Enterprises.
The former then assumed possession of Northwestern's old IBS as trade-in payment
for its service. Thus, the balance of the contract price remained at P1.97 million.
Two months after the execution of the contracts, GL Enterprises technicians
delivered various materials to the project site. However, when they started installing
the components, respondent halted the operations. Northwestern justified the work
stoppage upon its finding that the delivered equipment were substandard.9 It
explained further that GL Enterprises violated the terms and conditions of the
contracts, since the delivered components (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) contained indications of being reconditioned
machines; and (4) did not meet the IMO and CHED standards. Thus, Northwestern
demanded compliance with the agreement.
Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a
Complaint for breach of contract. Petitioner alleged that Northwestern breached the
contracts by ordering the work stoppage and thus preventing the installation of the
materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that since the
equipment delivered were not in accordance with the specifications provided by the
contracts, all succeeding works would be futile and would entail unnecessary
expenses. Hence, it prayed for the rescission of the contracts and made a
compulsory counterclaim for actual, moral, and exemplary damages, and attorney's
fees.
ISSUE: Whether failure of GL Enterprises constituted substantial breach.
HELD:
The power to rescind the obligations of the injured party is implied in reciprocal
obligations, such as in this case. On this score, the CA correctly applied Article
1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
The two contracts require no less than substantial breach before they can be
rescinded. Since the contracts do not provide for a definition of substantial breach
that would terminate the rights and obligations of the parties, we apply the
definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike slight or casual ordinary prudence to avert a possible wastage of time, effort, resources and also of
breaches of contract, are fundamental breaches that defeat the object of the parties the P2.9 million representing the value of the new IBS.
in entering into an agreement, since the law is not concerned with trifles.14 IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in
The question of whether a breach of contract is substantial depends upon the CA-G.R. CV No. 88989 is hereby AFFIRMED.
attending circumstances. SO ORDERED.
In the case at bar, the parties explicitly agreed that the materials to be delivered
must be compliant with the CHED and IMO standards and must be complete with
manuals. Aside from these clear provisions in the contracts, the courts a quo
similarly found that the intent of the parties was to replace the old IBS in order to
obtain CHED accreditation for Northwestern's maritime-related courses.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the
components that would create an IBS that would effectively facilitate the learning
of the students.
However, GL Enterprises miserably failed in meeting its responsibility. As
contained in the findings of the CA and the RTC, petitioner supplied substandard
equipment when it delivered components that (1) were old; (2) did not have
instruction manuals and warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not have met the IMO and CHED
standards.
Given that petitioner, without justification, supplied substandard components for the
new IBS, it is thus clear that its violation was not merely incidental, but directly
related to the essence of the agreement pertaining to the installation of an IBS
compliant with the CHED and IMO standards. Consequently, the CA correctly
found substantial breach on the part of petitioner.
In contrast, Northwestern's breach, if any, was characterized by the appellate court
as slight or casual.21 By way of negative definition, a breach is considered casual if
it does not fundamentally defeat the object of the parties in entering into an
agreement. Furthermore, for there to be a breach to begin with, there must be a
"failure, without legal excuse, to perform any promise which forms the whole or
part of the contract."22c
Here, as discussed, the stoppage of the installation was justified. The action of
Northwestern constituted a legal excuse to prevent the highly possible rejection of
the IBS. Hence, just as the CA concluded, we find that Northwestern exercised
G.R. No. 188064, June 01, 2011
 Respondent countered, among others, that the tripartite agreement erroneously

 designated by the petitioner as a Deed of Conditional Sale of Real Property with
MILA A. REYES , Petitioner, Assumption of Mortgage was actually a pure and absolute contract of sale with a
vs. term period. It could not be considered a conditional sale because the acquisition of
VICTORIA T. TUPARAN, Respondent.
 contractual rights and the performance of the obligation therein did not depend

 upon a future and uncertain event.
DECISION
Respondent further averred that she successfully rescued the properties from a
MENDOZA, J.: definite foreclosure by paying the assumed mortgage in the amount of
P2,278,078.13 plus interest and other finance charges.

FACTS:
 ISSUE: Whether the agreement was a contract to sell and not a contract of sale.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission
of Contract with Damages against Victoria T. Tuparan (respondent) before the
RTC. In her Complaint, petitioner alleged, among others, that she was the
registered owner of a 1,274 square meter residential and commercial lot located in
Karuhatan, Valenzuela City, and covered by TCT No. V-4130.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers
Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan. Petitioner then
decided to sell her real properties for at least P6,500,000.00 so she could liquidate
her bank loan and finance her businesses. As a gesture of friendship, respondent
verbally offered to conditionally buy petitioner's real properties for P4,200,000.00
payable on installment basis without interest and to assume the bank loan. 
 shall execute the corresponding deed of absolute sale in favor of the respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed
of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their
close personal friendship and business relationship, both parties chose not to reduce
into writing the other terms of their agreement mentioned in paragraph 11 of the
complaint.
Respondent, however, defaulted in the payment of her obligations on their due
dates. Instead of paying the amounts due in lump sum on their respective maturity
dates, respondent paid petitioner in small amounts from time to time.
HELD:
The Court agrees with the ruling of the courts below that the subject Deed of
Conditional Sale with Assumption of Mortgage entered into by and among the two
parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract
of sale.
Based on the above provisions, the title and ownership of the subject properties
remains with the petitioner until the respondent fully pays the balance of the
purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall
then issue the corresponding deed of cancellation of mortgage and the petitioner




Accordingly, the petitioner's obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is
the respondent's full payment of the purchase price. Without respondent's full
payment, there can be no breach of contract to speak of because petitioner has no
obligation yet to turn over the title. Respondent's failure to pay in full the purchase
price is not the breach of contract contemplated under Article 1191 of the New Civil
Code but rather just an event that prevents the petitioner from being bound to
convey title to the respondent.
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective seller's obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
Considering that out of the total purchase price of ?4,200,000.00, respondent has
already paid the substantial amount of ?3,400,000.00, more or less, leaving an
unpaid balance of only ?805,000.00, it is right and just to allow her to settle, within
a reasonable period of time, the balance of the unpaid purchase price. The Court
agrees with the courts below that the respondent showed her sincerity and
willingness to comply with her obligation when she offered to pay the petitioner the
amount of ?751,000.00.

In a contract to sell, upon the fulfillment of the suspensive condition which is the WHEREFORE, the petition is DENIED.

full payment of the purchase price, ownership will not automatically transfer to the 

buyer although the property may have been previously delivered to him. The SO ORDERED.
prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.

It is not the title of the contract, but its express terms or stipulations that determine
the kind of contract entered into by the parties. In this case, the contract entitled
"Deed of Conditional Sale" is actually a contract to sell. The contract stipulated
that "as soon as the full consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by the vendor to the vendee for
the portion sold." Where the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price, the contract is only
a contract to sell." The aforecited stipulation shows that the vendors reserved title to
the subject property until full payment of the purchase price.


Thus, the Court fully agrees with the CA when it resolved: "Considering, however,
that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner)
and that out of the total purchase price of the subject property in the amount of ?
4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only ?
805,000.00, a substantial amount of the purchase price has already been paid. It is
only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes."[10]



Granting that a rescission can be permitted under Article 1191, the Court still
cannot allow it for the reason that, considering the circumstances, there was only a
slight or casual breach in the fulfillment of the obligation.
 [G.R. NO. 147695 : September 13, 2007]
MANUEL C. PAGTALUNAN, Petitioner, v. RUFINA DELA CRUZ VDA. DE
MANZANO, Respondent.
DECISION
AZCUNA, J.:
FACTS:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner's stepfather and
predecessor-in-interest, entered into a Contract to Sell with respondent, wife of
Patricio's former mechanic, Teodoro Manzano, whereby the former agreed to sell,
and the latter to buy, a house and lot which formed half of a parcel of with an area
of 236 square meters. The consideration of P17,800 was agreed to be paid in the
following manner: P1,500 as downpayment upon execution of the Contract to Sell,
and the balance to be paid in equal monthly installments of P150 on or before the
last day of each month until fully paid.
Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying
after December 1979 without any justification or explanation. On the other hand,
respondent alleged that she paid her monthly installments religiously, until
sometime in 1980 when Patricio changed his mind and offered to refund all her
payments provided she would surrender the house.
Respondent also averred that on September 14, 1981, she and Patricio signed an
agreement (Exh. 2) whereby he consented to the suspension of respondent's
monthly payments until December 1981. However, even before the lapse of said
period, Patricio resumed demolishing respondent's house, prompting her to lodge a
complaint with the Barangay Captain who advised her that she could continue
suspending payment even beyond December 31, 1981 until Patricio returned all the
materials he took from her house. This Patricio failed to do until his death.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer against
respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan.
ISSUE: Whether the contract to sell was validly cancelled under the Maceda law.
HELD:
The CA correctly ruled that R.A No. 6552, which governs sales of real estate on
installment, is applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent is alleged to be
illegally withholding possession of the subject property after the termination of the
Contract to Sell between Patricio and respondent. It is, therefore, incumbent upon
petitioner to prove that the Contract to Sell had been cancelled in accordance with
R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to tenants under Republic
Act Numbered Thirty-eight hundred forty-four as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total
grace period earned by him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made: Provided, That this right
shall be exercised by the buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty percent of
the total payments made and, after five years of installments, an additional five
percent every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.9
R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act,"
recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of
the vendor to convey title from acquiring binding force.10 The Court agrees with
petitioner that the cancellation of the Contract to Sell may be done outside the court
particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller must be in accordance with
Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the
refund to the buyer of the full payment of the cash surrender value of the payments
on the property. Actual cancellation of the contract takes place after 30 days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the
buyer.
Based on the records of the case, the Contract to Sell was not validly cancelled or
rescinded under Sec. 3 (b) of R.A. No. 6552. First, Patricio, the vendor in the
Contract to Sell, died on September 17, 1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in accordance with law.
Petitioner contends that he has complied with the requirements of cancellation
under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter dated February
24, 1997 should be considered as the notice of cancellation or demand for rescission
by notarial act and that the cash surrender value of the payments on the property has
been applied to rentals for the use of the house and lot after respondent stopped
payment after January 1980.
Clearly, the demand letter is not the same as the notice of cancellation or demand
for rescission by a notarial act required by R.A No. 6552. Petitioner cannot rely
on Layug v. Intermediate Appellate Court12 to support his contention that the
demand letter was sufficient compliance. Layug held that "the additional formality
of a demand on [the seller's] part for rescission by notarial act would appear, in the
premises, to be merely circuitous and consequently superfluous" since the seller
therein filed an action for annulment of contract, which is a kindred concept of
rescission by notarial act.13 Evidently, the case of unlawful detainer filed by
petitioner does not exempt him from complying with the said requirement.
There being no valid cancellation of the Contract to Sell, the CA correctly
recognized respondent's right to continue occupying the property subject of the
Contract to Sell and affirmed the dismissal of the unlawful detainer case by the
RTC.
Considering that the Contract to Sell was not cancelled by the vendor, Patricio,
during his lifetime or by petitioner in accordance with R.A. No. 6552 when
petitioner filed this case of unlawful detainer after 22 years of continuous
possession of the property by respondent who has paid the substantial amount
of P12,300 out of the purchase price of P17,800, the Court agrees with the CA that
it is only right and just to allow respondent to pay her arrears and settle the balance
of the purchase price.
For respondent's delay in the payment of the installments, the Court, in its
discretion, and applying Article 220914 of the Civil Code, may award interest at the
rate of 6% per annum15 on the unpaid balance considering that there is no
stipulation in the Contract to Sell for such interest. For purposes of computing the
legal interest, the reckoning period should be the filing of the complaint for
unlawful detainer on April 8, 1997.
G.R. No. 152346 November 25, 2005
ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS, Petitioners,

vs.

SAN FRANCISCO DEL MONTE, INC., Respondent.
DECISION
Tinga, J.:
FACTS:
On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas
("Spouses Fabrigas" or "petitioners") and respondent San Francisco Del Monte, Inc.
("Del Monte") entered into an agreement, denominated as Contract to Sell No.
2482-V, whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential
land situated in Barrio Almanza, Las Piñas, Manila for and in consideration of the
amount of ₱109,200.00. The agreement stipulated that Spouses Fabrigas shall pay
₱30,000.00 as down payment and the balance within ten (10) years in monthly
successive installments of ₱1,285.69.2 Among the clauses in the contract is an
automatic cancellation clause in case of default.
After paying ₱30,000.00, Spouses Fabrigas took possession of the property but
failed to make any installment payments on the balance of the purchase price. Del
Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy
their contractual obligation.4 In particular, Del Monte’s third letter dated November
9, 1983 demanded the payment of arrears in the amount of ₱8,999.00. Said notice
granted Spouses Fabrigas a fifteen-day grace period within which to settle their
accounts. Petitioners’ failure to heed Del Monte’s demands prompted the latter to
send a final demand letter dated December 7, 1983, granting Spouses Fabrigas
another grace period of fifteen days within which to pay the overdue amount and
warned them that their failure to satisfy their obligation would cause the rescission
of the contract and the forfeiture of the sums of money already paid. Petitioners
received Del Monte’s final demand letter on December 23, 1983. Del Monte
considered Contract to Sell No. 2482-V cancelled fifteen days thereafter, but did not
furnish petitioners any notice regarding its cancellation.5
On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner Marcelina")
remitted the amount of ₱13,000.00 to Del Monte.6 On January 12, 1985, petitioner
Marcelina again remitted the amount of ₱12,000.00.7 A few days thereafter, or on
January 21, 1985, petitioner Marcelina and Del Monte entered into another
agreement denominated as Contract to Sell No. 2491-V, covering the same property
but under restructured terms of payment.
Between March 1985 and January 1986, Spouses Fabrigas made irregular payments
under Contract to Sell No. 2491-V.
No other payments were made by petitioners except the amount of ₱10,000.00
which petitioners tendered sometime in October 1987 but which Del Monte refused
to accept, the latter claiming that the payment was intended for the satisfaction
of Contract to Sell No. 2482-V which had already been previously cancelled. On
March 24, 1988, Del Monte sent a letter demanding the payment of accrued
installments under Contract to Sell No. 2491-V in the amount of ₱165,759.60 less
₱48,128.52, representing the payments made under the restructured contract, or the
net amount of ₱117,631.08. Del Monte allowed petitioners a grace period of thirty
(30) days within which to pay the amount asked to avoid rescission of the contract.
For failure to pay, Del Monte notified petitioners on March 30, 1989 that Contract
to Sell No. 2482-V had been cancelled and demanded that petitioners vacate the
property.12
On September 28, 1990, Del Monte instituted an action for Recovery of Possession
with Damages against Spouses Fabrigas before the RTC, Branch 63 of Makati City.
The complaint alleged that Spouses Fabrigas owed Del Monte the principal amount
of ₱206,223.80 plus interest of 24% per annum. In their answer, Spouses Fabrigas
claimed, among others, that Del Monte unilaterally cancelled the first contract and
forced petitioner Marcelina to execute the second contract, which materially and
unjustly altered the terms and conditions of the original contract.13
ISSUE: Whether San Francisco Del Monte, Inc., has the right to cancel the Contract
to Sell without notifying petitioners.
HELD:
The Court of Appeals erred in ruling that Del Monte was "well within its right to
cancel the contract by express grant of paragraph 7 without the need of notifying
[petitioners],17" instead of applying the pertinent provisions of R.A. 6552.
Petitioners’ contention that none of Del Monte’s demand letters constituted a valid
rescission of Contract to Sell No. 2482-V is correct.
Petitioners defaulted in all monthly installments. They may be credited only with
the amount of ₱30,000.00 paid upon the execution of Contract to Sell No. 2482-V,
which should be deemed equivalent to less than two (2) years’ installments. Given
the nature of the contract between petitioners and Del Monte, the applicable legal
provision on the mode of cancellation of Contract to Sell No. 2482-V is Section 4
and not Section 3 of R.A. 6552. Section 4 is applicable to instances where less than
two years installments were paid. It reads:
SECTION 4. In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a notarial act.
Thus, the cancellation of the contract under Section 4 is a two-step process. First,
the seller should extend the buyer a grace period of at least sixty (60) days from the
due date of the installment. Second, at the end of the grace period, the seller shall
furnish the buyer with a notice of cancellation or demand for rescission through a
notarial act, effective thirty (30) days from the buyer’s receipt thereof. It is worth
mentioning, of course, that a mere notice or letter, short of a notarial act, would not
suffice.
While the Court concedes that Del Monte had allowed petitioners a grace period
longer than the minimum sixty (60)-day requirement under Section 4, it did not
comply, however, with the requirement of notice of cancellation or a demand for
rescission. Instead, Del Monte applied the automatic rescission clause of the
contract. Contrary, however, to Del Monte’s position which the appellate court
sustained, the automatic cancellation clause is void under Section 718 in relation to
Section 4 of R.A. 6552.19
Notwithstanding the improper rescission, the facts of the case show that Contract to
Sell No. 2482-V was subsequently novated by Contract to Sell No. 2491-V. The
execution of Contract to Sell No. 2491-V accompanied an upward change in the
contract price, which constitutes a change in the object or principal conditions of
the contract. In entering into Contract to Sell No. 2491-V, the parties were impelled
by causes different from those obtaining under Contract to Sell No. 2482-V. On the
part of petitioners, they agreed to the terms and conditions of Contract to Sell No.
2491-V not only to acquire ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del Monte’s end, the
upward change in price was the consideration for entering into Contract to Sell No.
2491-V.
In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to
prevent respondent Del Monte from enforcing its contractual stipulations and
pursuing the proper court action to hold petitioners liable for their breach thereof.
WHEREFORE, the instant Petition for Review is DENIED and the September 28,
2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203 is AFFIRMED.
Costs against petitioners. SO ORDERED.

G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL
AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings
Bank, petitioners,
 967 which prohibited Island Savings Bank from doing business in the Philippines
vs.
 and instructed the Acting Superintendent of Banks to take charge of the assets of
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
MAKASIAR, CJ.:
FACTS:
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its
legal department, approved the loan application for P80,000.00 of Sulpicio M.
Tolentino, who, as a security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and
covered by TCT No. T-305, and which mortgage was annotated on the said title the
next day. The approved loan application called for a lump sum P80,000.00 loan,
repayable in semi-annual installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds
solely as an additional capital to develop his other property into a subdivision.
After the agreement, a mere P17,000.00 partial release of the P80,000.00 loan was
made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest, payable within 3 years from
the date of execution of the contract at semi-annual installments of P3,459.00 (p.
64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial release of P17,000.00. But
this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965,
after being informed by the Bank that there was no fund yet available for the release
of the P63,000.00 balance.
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island
Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which
provides the prohibition against the bank from making new loans and investments
(except investments in government securities) excluding extensions or renewals of
already approved loans, provided that such extensions or renewals shall be subject
to review by the Superintendent of Banks, who may impose such limitations as may
be necessary to insure correction of the bank's deficiency as soon as possible.
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank
failed to put up the required capital to restore its solvency, issued Resolution No.
Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00
covered by the promissory note, filed an application for the extra-judicial
foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M.
Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First
Instance of Agusan for injunction, specific performance or rescission and damages
with preliminary injunction.
ISSUE: Whether the action for specific performance can prosper.
HELD:
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00
loan agreement on April 28, 1965, they undertook reciprocal obligations. In
reciprocal obligations, the obligation or promise of each party is the consideration
for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs,
Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and
willing to perform his part of the contract, the other party who has not performed or
is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code).
The promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio
M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in
furnishing the entire loan started on April 28, 1965, and lasted for a period of 3
years or when the Monetary Board of the Central Bank issued Resolution No. 967
on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to
furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary
Board to take over insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of
which is not in question.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under
their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code,
may choose between specific performance or rescission with damages in either
case.
But since Island Savings Bank is now prohibited from doing further business by
Monetary Board Resolution No. 967, WE cannot grant specific performance in
favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is
only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in
default only insofar as such amount is concerned, as there is no doubt that the bank
failed to give the P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank
was deemed to have complied with its reciprocal obligation to furnish a P17,000.00
loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind
the promissory note, it shall belong to the aggrieved party, that is, Island Savings
Bank. If Tolentino had not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to
perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to
furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a
breach of their reciprocal obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability of Island Savings Bank
for damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his
PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties.
Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is
just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be
entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as
that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For
the debtor, the consideration of his obligation to pay is the existence of a debt. Thus,
in the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt
(Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no
consideration was then in existence, as there was no debt yet because Island
Savings Bank had not made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie
vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But
when the consideration is subsequent to the mortgage, the mortgage can take effect
only when the debt secured by it is created as a binding contract to pay (Parks vs,
Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp.
5-6). And, when there is partial failure of consideration, the mortgage becomes
unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p.
82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing
to the holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due (Metropolitan Life
Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage,
Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,
000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of
the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be
divided among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not
ask for the proportionate extinguishment of the pledge or mortgage
as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted
presupposes several heirs of the debtor or creditor which does not obtain in this
case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF
HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00
REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD
FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE
TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO
SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED
RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.