Republic of the Philippines Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28,
SUPREME COURT 1988 in Civil Case No. 87-42719, affirmed the decision of the lower court. 7
Manila
SECOND DIVISION
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM, petitioner,
vs.
COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.
Gener E. Asuncion for petitioner.
Natividad T. Perez for private respondent.
REGALADO, J.:
Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No.
13925, 1 the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 87-
42719, entitled "Francisco Lao Lim vs. Benito Villavicencio Dy," petitioner seeks the reversal
of such affirmance in the instant petition.
The records show that private respondent entered into a contract of lease with petitioner for a
period of three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private
respondent refused to vacate the premises, hence, petitioner filed an ejectment suit against
the former in the City Court of Manila, docketed therein as Civil Case No. 051063-CV. The
case was terminated by a judicially approved compromise agreement of the parties providing
in part:
3. That the term of the lease shall be renewed every three years
retroacting from October 1979 to October 1982; after which the
abovenamed rental shall be raised automatically by 20% every three
years for as long as defendant needed the premises and can meet and
pay the said increases, the defendant to give notice of his intent to renew
sixty (60) days before the expiration of the term; 2
By reason of said compromise agreement the lease continued from 1979 to 1982, then from
1982 to 1985. On April 17, 1985, petitioner advised private respondent that he would no
longer renew the contract effective October, 1985. 3 However, on August 5, 1985, private
respondent informed petitioner in writing of his intention to renew the contract of lease for
another term, commencing November, 1985 to October, 1988. 4 In reply to said letter,
petitioner advised private respondent that he did not agree to a renewal of the lease contract
upon its expiration in October, 1985. 5
On January 15, 1986, because of private respondent's refusal to vacate the premises,
petitioner filed another ejectment suit, this time with the Metropolitan Trial Court of Manila in
Civil Case No. 114659-CV. In its decision of September 24, 1987, said court dismissed the
complaint on the grounds that (1) the lease contract has not expired, being a continuous one
the period whereof depended upon the lessee's need for the premises and his ability to pay
the rents; and (2) the compromise agreement entered into in the aforesaid Civil Case No.
051063-CV constitutes res judicata to the case before it. 6
As stated at the outset, respondent Court of Appeals affirmed in full said decision of the
Regional Trial Court and held that (1) the stipulation in the compromise agreement which, in
its formulation, allows the lessee to stay on the premises as long as he needs it and can pay
rents is valid, being a resolutory condition and, therefore, beyond the ambit of Article 1308 of
the Civil Code; and (2) that a compromise has the effect of res judicata. 8
Petitioner's motion for reconsideration having been denied by respondent Court of Appeals,
this present petition is now before us. We find the same to be meritorious.
Contrary to the ruling of respondent court, the disputed stipulation "for as long as the
defendant needed the premises and can meet and pay said increases" is a purely potestative
condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and
exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the
lease, which gives rise to a new lease, depends upon said condition. It should be noted that a
renewal constitutes a new contract of lease although with the same terms and conditions as
those in the expired lease. It should also not be overlooked that said condition is not
resolutory in nature because it is not a condition that terminates the lease contract. The lease
contract is for a definite period of three (3) years upon the expiration of which the lease
automatically terminates.
The invalidity of a condition in a lease contract similar to the one at bar has been resolved
in Encarnacion vs. Baldomar, et al. 9 where we ruled that in an action for ejectment, the
defense interposed by the lessees that the contract of lease authorized them to continue
occupying the premises as long as they paid the rents is untenable, because it would leave to
the lessees the sole power to determine whether the lease should continue or not. As stated
therein, "(i)f this defense were to be allowed, so long as defendants elected to continue the
lease by continuing the payment of the rentals, the owner would never be able to discontinue
it; conversely, although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid
article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil.
100.)
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease and no equality exists between the
lessor and the lessee since the life of the contract is dictated solely by the lessee.
The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of
the compromise agreement, read and interpreted in its entirety, is actually to the effect that
the last portion thereof, which gives the private respondent sixty (60) days before the
expiration of the term the right to give notice of his intent to renew, is subject to the first
portion of said paragraph that "the term of the lease shall be renewed every three (3) years,"
thereby requiring the mutual agreement of the parties. The use of the word "renew" and the
designation of the period of three (3) years clearly confirm that the contract of lease is limited
to a specific period and that it is not a continuing lease. The stipulation provides for a renewal
of the lease every three (3) years; there could not be a renewal if said lease did not expire,
otherwise there is nothing to renew.
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Resultantly, the contract of lease should be and is hereby construed as providing for a
definite period of three (3) years and that the automatic increase of the rentals by twenty
percent (20%) will take effect only if the parties decide to renew the lease. A contrary
interpretation will result in a situation where the continuation and effectivity of the contract will
depend only upon the will of the lessee, in violation of Article 1308 of the Civil Code and the
aforesaid doctrine in Encarnacion. The compromise agreement should be understood as
bearing that import which is most adequate to render it effectual. 10 Where the instrument is
susceptible of two interpretations, one which will make it invalid and illegal and another which
will make it valid and legal, the latter interpretation should be adopted. 11
Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals
tending to create a perpetuity, and the rule of construction is well settled that a covenant for
renewal or for an additional term should not be held to create a right to repeated grants in
perpetuity, unless by plain and unambiguous terms the parties have expressed such
intention. 12 A lease will not be construed to create a right to perpetual renewals unless the
language employed indicates dearly and unambiguously that it was the intention and purpose
of the parties to do so. 13 A portion in a lease giving the lessee and his assignee the right to
perpetual renewals is not favored by the courts, and a lease will be construed as not making
such a provision unless it does so clearly. 14
As we have further emphasized:
It is also important to bear in mind that in a reciprocal contract like a
lease, the period of the lease must be deemed to have been agreed upon
for the benefit of both parties, absent language showing that the term was
deliberately set for the benefit of the lessee or lessor alone. We are not
aware of any presumption in law that the term of a lease is designed for
the benefit of the lessee alone. Koh and Cruz in effect rested upon such a
presumption. But that presumption cannot reasonably be indulged in
casually in an era of rapid economic change, marked by, among other
things, volatile costs of living and fluctuations in the value of the domestic
currency. The longer the period the more clearly unreasonable such a
presumption would be. In an age like that we live in, very specific
language is necessary to show an intent to grant a unilateral faculty to
extend or renew a contract of lease to the lessee alone, or to the lessor
alone for that matter. We hold that the above-quoted rulings in Koh v.
Ongsiaco and Cruz v. Alberto should be and are overruled. 15
In addition, even assuming that the clause "for as long as the defendant needed the
premises and can meet and pay, said increases" gives private respondent an option to renew
the lease, the same will be construed as providing for but one renewal or extension and,
therefore, was satisfied when the lease was renewed in 1982 for another three (3) years. A
general covenant to renew is satisfied by one renewal and will not be construed to confer the
right to more than one renewal unless provision is clearly and expressly made for further
renewals.16 Leases which may have been intended to be renewable in perpetuity will
nevertheless be construed as importing but one renewal if there is any uncertainty in that
regard. 17
The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding
that respondent lessee can legally stay on the premises for as long as he needs it and can
pay the rents, is not in point. In said case, the lease contract provides for an indefinite period
since it merely stipulates "(t)hat the lease contract shall remain in full force and effect as long
as the land will serve the purpose for which it is intended as a school site of the National
Business Institute, but the rentals now stipulated shall be subject to review every after ten
(10) years by mutual agreement of the parties." This is in clear contrast to the case at bar
wherein, to repeat, the lease is fixed at a period of three (3) years although subject to
renewal upon agreement of the parties, and the clause "for as long as defendant needs the
premises and can meet and pay the rents" is not an independent stipulation but is controlled
by said fixed term and the option for renewal upon agreement of both parties.
On the second issue, we agree with petitioner that respondent court erred in holding that the
action for ejectment is barred by res judicata. While it is true that a compromise agreement
has the effect of res judicata this doctrine does not apply in the present case. It is elementary
that for a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the
court which rendered it had jurisdiction over the subject matter and the parties, (3) it must be
a judgment on the merits, and (4) there must be identity between the two cases as to parties,
subject matter and cause of action. 19
In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is
no identity of subject matter and cause of action. The subject matter in the first ejectment
case is the original lease contract while the subject matter in the case at bar is the lease
created under the terms provided in the subsequent compromise agreement. The lease
executed in 1978 is one thing; the lease constituted in 1982 by the compromise agreement is
another.
There is also no identity, in the causes of action. The test generally applied to determine the
identity of causes of action is to consider the identity of facts essential to their maintenance,
or whether the same evidence would sustain both causes of action. 20 In the case at bar, the
delict or the wrong in the first case is different from that in the second, and the evidence that
will support and establish the cause of action in the former will not suffice to support and
establish that in the latter.
In the first ejectment case, the cause of action was private respondent's refusal to comply
with the lease contract which expired on December 31, 1978. In the present case, the cause
of action is a similar refusal but with respect to the lease which expired in October, 1985
under the compromise agreement. While the compromise agreement may be res judicata as
far as the cause of action and issues in the first ejectment case is concerned, any cause of
action that arises from the application or violation of the compromise agreement cannot be
said to have been settled in said first case. The compromise agreement was meant to settle,
as it did only settle, the first case. It did not, as it could not, cover any cause of action that
might arise thereafter, like the present case which was founded on the expiration of the lease
in 1985, which necessarily requires a different set of evidence. The fact that the compromise
agreement was judicially approved does not foreclose any cause of action arising from a
violation of the terms thereof.
WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE.
Private respondent is hereby ordered to immediately vacate and return the possession of the
leased premises subject of the present action to petitioner and to pay the monthly rentals due
thereon in accordance with the compromise agreement until he shall have actually vacated
the same. This judgment is immediately executory.
SO ORDERED.
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 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146839               March 23, 2011
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL
and ERLINDA CATUNGAL-WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following issuances
of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No.
27565: (a) the August 8, 2000 Decision,1 which affirmed the Decision2 dated May 30,
1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case
No. 2365-L, and (b) the January 30, 2001 Resolution, 3 denying herein petitioners’
motion for reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on December 10, 1990 by herein respondent Angel
S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as
Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses
Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel
of land (Lot 10963) with an area of 65,246 square meters, covered by Original
Certificate of Title (OCT) No. 1055 in her name situated in the Barrio of Talamban, Cebu
City. The said property was allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a
Contract to Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was
purportedly "upgraded" into a Conditional Deed of Sale 7 dated July 26, 1990 between
the same parties. Both the Contract to Sell and the Conditional Deed of Sale were
annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute are
quoted below:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION
PESOS (₱25,000,000.00) payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (₱500,000.00) downpayment upon
the signing of this agreement, receipt of which sum is hereby acknowledged in
full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND
PESOS (₱24,500,000.00) shall be payable in five separate checks, made to
the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION
FIVE HUNDRED THOUSAND PESOS (₱4,500,000.00) and the remaining
balance to be paid in four checks in the amounts of FIVE MILLION PESOS
(₱5,000,000.00) each after the VENDEE have (sic) successfully negotiated,
secured and provided a Road Right of Way consisting of 12 meters in width
cutting across Lot 10884 up to the national road, either by widening the
existing Road Right of Way or by securing a new Road Right of Way of 12
meters in width. If however said Road Right of Way could not be negotiated,
the VENDEE shall give notice to the VENDOR for them to reassess and solve
the problem by taking other options and should the situation ultimately prove
futile, he shall take steps to rescind or cancel the herein Conditional Deed of
Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and any or all cost relative to the
acquisition thereof shall be borne solely by the VENDEE. He shall, however,
be accorded with enough time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein
CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and assigns, the
real property described in the Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE
exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall
notify the VENDOR by way of a written notice relinquishing his rights over the property.
The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall have been able to sell
the property to another party.8
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the
necessary surveys and plans and through his efforts, the property was reclassified from
agricultural land into residential land which he claimed substantially increased the
property’s value. He likewise alleged that he actively negotiated for the road right of way
as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an
advance of ₱5,000,000.00 on the purchase price for personal reasons. Rodriquez
allegedly refused on the ground that the amount was substantial and was not due under
the terms of their agreement. Shortly after his refusal to pay the advance, he
purportedly learned that the Catungals were offering the property for sale to third
parties.10
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Thereafter, Rodriguez received letters dated October 22, 1990, 11 October 24,
199012 and October 29, 1990,13 all signed by Jose Catungal who was a lawyer,
essentially demanding that the former make up his mind about buying the land or
exercising his "option" to buy because the spouses Catungal allegedly received other
offers and they needed money to pay for personal obligations and for investing in other
properties/business ventures. Should Rodriguez fail to exercise his option to buy the
land, the Catungals warned that they would consider the contract cancelled and that
they were free to look for other buyers.
In a letter dated November 4, 1990,14 Rodriguez registered his objections to what he
termed the Catungals’ unwarranted demands in view of the terms of the Conditional
Deed of Sale which allowed him sufficient time to negotiate a road right of way and
granted him, the vendee, the exclusive right to rescind the contract. Still, on November
15, 1990, Rodriguez purportedly received a letter dated November 9, 1990 15 from Atty.
Catungal, stating that the contract had been cancelled and terminated.
Contending that the Catungals’ unilateral rescission of the Conditional Deed of Sale was
unjustified, arbitrary and unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining
defendants [the spouses Catungal], their employees, agents, representatives
or other persons acting in their behalf from offering the property subject of this
case for sale to third persons; from entertaining offers or proposals by third
persons to purchase the said property; and, in general, from performing acts in
furtherance or implementation of defendants’ rescission of their Conditional
Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such
reasonable bond as may be fixed by the court enjoining defendants and other
persons acting in their behalf from performing any of the acts mentioned in the
next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and solidarily:
Actual damages in the amount of ₱400,000.00 for their unlawful rescission of the
Agreement and their performance of acts in violation or disregard of the said
Agreement;
Moral damages in the amount of ₱200,000.00;
Exemplary damages in the amount of ₱200,000.00; Expenses of litigation and
attorney’s fees in the amount of ₱100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining order and set the
application for a writ of preliminary injunction for hearing on December 21, 1990 with a
directive to the spouses Catungal to show cause within five days from notice why
preliminary injunction should not be granted. The trial court likewise ordered that
summons be served on them.17
Thereafter, the spouses Catungal filed their opposition 18 to the issuance of a writ of
preliminary injunction and later filed a motion to dismiss 19 on the ground of improper
venue. According to the Catungals, the subject property was located in Cebu City and
thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez
opposed the motion to dismiss on the ground that his action was a personal action as its
subject was breach of a contract, the Conditional Deed of Sale, and not title to, or
possession of real property.20
In an Order dated January 17, 1991,21 the trial court denied the motion to dismiss and
ruled that the complaint involved a personal action, being merely for damages with a
prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of
preliminary injunction upon posting by Rodriguez of a bond in the amount of
₱100,000.00 to answer for damages that the defendants may sustain by reason of the
injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim22 alleging that they had the right to rescind the contract in view of (1)
Rodriguez’s failure to negotiate the road right of way despite the lapse of several
months since the signing of the contract, and (2) his refusal to pay the additional
amount of ₱5,000,000.00 asked by the Catungals, which to them indicated his lack of
funds to purchase the property. The Catungals likewise contended that Rodriguez did
not have an exclusive right to rescind the contract and that the contract, being
reciprocal, meant both parties had the right to rescind.23 The spouses Catungal further
claimed that it was Rodriguez who was in breach of their agreement and guilty of bad
faith which justified their rescission of the contract.24 By way of counterclaim, the
spouses Catungal prayed for actual and consequential damages in the form of
unearned interests from the balance (of the purchase price in the amount) of
₱24,500,000.00, moral and exemplary damages in the amount of ₱2,000,000.00,
attorney’s fees in the amount of ₱200,000.00 and costs of suits and litigation expenses
in the amount of ₱10,000.00.25 The spouses Catungal prayed for the dismissal of the
complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic allegations but
amplifying their charges of contractual breach and bad faith on the part of Rodriguez
and adding the argument that in view of Article 1191 of the Civil Code, the power to
rescind reciprocal obligations is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the injured party. In the Second
Amended Answer with Counterclaim, the spouses Catungal added a prayer for the trial
court to order the Register of Deeds to cancel the annotations of the two contracts at
the back of their OCT.27
On October 24, 1991, Rodriguez filed an Amended Complaint, 28 adding allegations to
the effect that the Catungals were guilty of several misrepresentations which
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purportedly induced Rodriguez to buy the property at the price of ₱25,000,000.00.
Among others, it was alleged that the spouses Catungal misrepresented that their Lot
10963 includes a flat portion of land which later turned out to be a separate lot (Lot
10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will only traverse two
lots owned by Anatolia Tudtud and her daughter Sally who were their relatives and who
had already agreed to sell a portion of the said lots for the road right of way at a price of
₱550.00 per square meter. However, because of the Catungals’ acts of offering the
property to other buyers who offered to buy the road lots for ₱2,500.00 per square
meter, the adjacent lot owners were no longer willing to sell the road lots to Rodriguez
at ₱550.00 per square meter but were asking for a price of ₱3,500.00 per square meter.
In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of
way, the spouses Catungal allegedly intentionally and maliciously defeated Rodriguez’s
negotiations for a road right of way in order to justify rescission of the said contract and
enable them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an amended
Answer,29 the Catungals did not file an amended Answer and instead filed an Urgent
Motion to Dismiss30 again invoking the ground of improper venue. In the meantime, for
failure to file an amended Answer within the period allowed, the trial court set the case
for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court the
Catungals’ Urgent Motion to Dismiss for violation of the rules and for being repetitious
and having been previously denied.31 However, Atty. Catungal refused to enter into pre-
trial which prompted the trial court to declare the defendants in default and to set the
presentation of the plaintiff’s evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed a motion for reconsideration 33 of the
December 20, 1991 Order denying their Urgent Motion to Dismiss but the trial court
denied reconsideration in an Order dated February 3, 1992.34 Undeterred, the
Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default 35 but it
was likewise denied for being in violation of the rules and for being not meritorious. 36 On
February 28, 1992, the Catungals filed a Petition for Certiorari and Prohibition37 with the
Court of Appeals, questioning the denial of their motion to dismiss and the order of
default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that:
(a) under the contract it was complainant (Rodriguez) that had the option to rescind the
sale; (b) Rodriguez’s obligation to pay the balance of the purchase price arises only
upon successful negotiation of the road right of way; (c) he proved his diligent efforts to
negotiate the road right of way; (d) the spouses Catungal were guilty of
misrepresentation which defeated Rodriguez’s efforts to acquire the road right of way;
and (e) the Catungals’ rescission of the contract had no basis and was in bad faith.
Thus, the trial court made the injunction permanent, ordered the Catungals to reduce
the purchase price by the amount of acquisition of Lot 10963 which they misrepresented
was part of the property sold but was in fact owned by a third party and ordered them to
pay ₱100,000.00 as damages, ₱30,000.00 as attorney’s fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting the commission
of the following errors by the trial court in their appellants’ brief 38 dated February 9,
1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE
GROUNDS OF IMPROPER VENUE AND LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND
NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE
CASE IS A PERSONAL ACTION, THE COURT A QUO ERRED IN DECLARING THE
DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE
DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING
LOST THEIR LEGAL STANDING IN COURT WHEN AT MOST THEY COULD ONLY
BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL
FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION
TO LIFT THE ORDER OF DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY
INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND
OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT’S
TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO
FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE AND IN RENDERING
DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS
BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND
SUNDRY WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A
COPY OF THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND
JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF
COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE
COURT OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
5|Page
 VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE
PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE
WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED
IN DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND,
THEREFORE, THE DECISION IS REVERSIBLE.39
On August 31, 1995, after being granted several extensions, Rodriguez filed his
appellee’s brief,40 essentially arguing the correctness of the trial court’s Decision
regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals
filed a Reply Brief41 dated October 16, 1995.
From the filing of the appellants’ brief in 1994 up to the filing of the Reply Brief, the
spouses Catungal were represented by appellant Jose Catungal himself. However, a
new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo), entered his
appearance before the Court of Appeals on September 2, 1997.42 On the same date,
Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities 43 and a
Citation of Authorities.44 This would be followed by Atty. Borromeo’s filing of an
Additional Citation of Authority and Second Additional Citation of Authority both on
November 17, 1997.45
During the pendency of the case with the Court of Appeals, Agapita Catungal passed
away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita’s
substitution by her surviving children.46
On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases
CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,47 affirming the trial court’s
Decision.
In a Motion for Reconsideration dated August 21, 2000, 48 counsel for the Catungals,
Atty. Borromeo, argued for the first time that paragraphs 1(b) and 549 of the Conditional
Deed of Sale, whether taken separately or jointly, violated the principle of mutuality of
contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio.
He adverted to the cases mentioned in his various citations of authorities to support his
argument of nullity of the contract and his position that this issue may be raised for the
first time on appeal.
Meanwhile, a Second Motion for Substitution50 was filed by Atty. Borromeo in view of
the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of
the deceased Agapita and Jose Catungal by their surviving heirs and denied the motion
for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present
petition for review,51 which essentially argued that the Court of Appeals erred in not
finding that paragraphs 1(b) and/or 5 of the Conditional Deed of Sale, violated the
principle of mutuality of contracts under Article 1308 of the Civil Code. Thus, said
contract was supposedly void ab initio and the Catungals’ rescission thereof was
superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new matters
that cannot be passed upon on appeal; (b) the validity of the Conditional Deed of Sale
was already admitted and petitioners cannot be allowed to change theories on appeal;
(c) the questioned paragraphs of the Conditional Deed of Sale were valid; and (d)
petitioners were the ones who committed fraud and breach of contract and were not
entitled to relief for not having come to court with clean hands.
The Court gave due course to the Petition 53 and the parties filed their respective
Memoranda.
The issues to be resolved in the case at bar can be summed into two questions:
I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed
of Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the
principle of mutuality of contracts under Article 1308 of the Civil Code?
On petitioners’ change of theory
Petitioners claimed that the Court of Appeals should have reversed the trial courts’
Decision on the ground of the alleged nullity of paragraphs 1(b) and 5 of the Conditional
Deed of Sale notwithstanding that the same was not raised as an error in their
appellants’ brief. Citing Catholic Bishop of Balanga v. Court of Appeals, 54 petitioners
argued in the Petition that this case falls under the following exceptions:
(3) Matters not assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete resolution of the case or
to serve the interest of justice or to avoid dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue submitted
which the parties failed to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely related to an error
assigned; and
(6) Matters not assigned as errors but upon which the determination of a
question properly assigned is dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue as an error in the
brief nor failed to argue a material point on appeal that was raised in the trial court and
supported by the record. Neither is this a case where a party raised an error closely
related to, nor dependent on the resolution of, an error properly assigned in his brief.
This is a situation where a party completely changes his theory of the case on appeal
6|Page
and abandons his previous assignment of errors in his brief, which plainly should not be
allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw the lines of battle
between the litigants and to indicate fairly the nature of the claims or defenses of both
parties.56 In Philippine National Construction Corporation v. Court of Appeals,57 we held
that "[w]hen a party adopts a certain theory in the trial court, he will not be permitted to
change his theory on appeal, for to permit him to do so would not only be unfair to the
other party but it would also be offensive to the basic rules of fair play, justice and due
process."58
We have also previously ruled that "courts of justice have no jurisdiction or power to
decide a question not in issue. Thus, a judgment that goes beyond the issues and
purports to adjudicate something on which the court did not hear the parties, is not only
irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of
fair play."59
During the proceedings before the trial court, the spouses Catungal never claimed that
the provisions in the Conditional Deed of Sale, stipulating that the payment of the
balance of the purchase price was contingent upon the successful negotiation of a road
right of way (paragraph 1[b]) and granting Rodriguez the option to rescind (paragraph
5), were void for allegedly making the fulfillment of the contract dependent solely on the
will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the
Answer (and its amended versions) that the payment of the purchase price was subject
to the will of Rodriguez but rather they claimed that paragraph 1(b) in relation to 1(c)
only presupposed a reasonable time be given to Rodriguez to negotiate the road right of
way. However, it was petitioners’ theory that more than sufficient time had already been
given Rodriguez to negotiate the road right of way. Consequently, Rodriguez’s
refusal/failure to pay the balance of the purchase price, upon demand, was allegedly
indicative of lack of funds and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez’s option to
rescind, it was petitioners’ theory in the court a quo that notwithstanding such provision,
they retained the right to rescind the contract for Rodriguez’s breach of the same under
Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed
of Sale in view of the questioned provisions was only in their Motion for Reconsideration
of the Court of Appeals’ Decision, affirming the trial court’s judgment. The previous filing
of various citations of authorities by Atty. Borromeo and the Court of Appeals’
resolutions noting such citations were of no moment. The citations of authorities merely
listed cases and their main rulings without even any mention of their relevance to the
present case or any prayer for the Court of Appeals to consider them.1âwphi1 In sum,
the Court of Appeals did not err in disregarding the citations of authorities or in denying
petitioners’ motion for reconsideration of the assailed August 8, 2000 Decision in view of
the proscription against changing legal theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the procedural
misstep of petitioners, we still cannot uphold their belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is a Conditional Deed
of Sale, whereby the spouses Catungal agreed to sell and Rodriguez agreed to buy Lot
10963 conditioned on the payment of a certain price but the payment of the purchase
price was additionally made contingent on the successful negotiation of a road right of
way. It is elementary that "[i]n conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding
the claimed nullity of the aforementioned provisions. Article 1308 states that "[t]he
contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor,
the conditional obligation shall be void. If it depends upon chance or upon the will of a
third person, the obligation shall take effect in conformity with the provisions of this
Code.
In the past, this Court has distinguished between a condition imposed on the perfection
of a contract and a condition imposed merely on the performance of an obligation. While
failure to comply with the first condition results in the failure of a contract, failure to
comply with the second merely gives the other party the option to either refuse to
proceed with the sale or to waive the condition. 61 This principle is evident in Article 1545
of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or
he may waive performance of the condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the
balance of the purchase price when he has successfully negotiated and secured a road
right of way, is not a condition on the perfection of the contract nor on the validity of the
entire contract or its compliance as contemplated in Article 1308. It is a condition
imposed only on respondent’s obligation to pay the remainder of the purchase price. In
our view and applying Article 1182, such a condition is not purely potestative as
petitioners contend. It is not dependent on the sole will of the debtor but also on the will
of third persons who own the adjacent land and from whom the road right of way shall
be negotiated. In a manner of speaking, such a condition is likewise dependent on
chance as there is no guarantee that respondent and the third party-landowners would
come to an agreement regarding the road right of way. This type of mixed condition is
expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals, 62 wherein the Court
interpreted the legal effect of a condition in a deed of sale that the balance of the
purchase price would be paid by the vendee when the vendor has successfully ejected
7|Page
the informal settlers occupying the property. In Romero, we found that such a condition
did not affect the perfection of the contract but only imposed a condition on the
fulfillment of the obligation to pay the balance of the purchase price, to wit:
From the moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. Under the
agreement, private respondent is obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative act of which sets into motion the
period of compliance by petitioner of his own obligation, i.e., to pay the balance of the
purchase price. Private respondent's failure "to remove the squatters from the property"
within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil Code.
This option clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private
respondent does not constitute a "potestative condition dependent solely on his will"
that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a
"mixed" condition "dependent not on the will of the vendor alone but also of third
persons like the squatters and government agencies and personnel concerned." We
must hasten to add, however, that where the so-called "potestative condition" is
imposed not on the birth of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself.63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of this case, it was
the vendee (Rodriguez) that had the obligation to successfully negotiate and secure the
road right of way. However, in the decision of the trial court, which was affirmed by the
Court of Appeals, it was found that respondent Rodriguez diligently exerted efforts to
secure the road right of way but the spouses Catungal, in bad faith, contributed to the
collapse of the negotiations for said road right of way. To quote from the trial court’s
decision:
It is therefore apparent that the vendee’s obligations (sic) to pay the balance of the
purchase price arises only when the road-right-of-way to the property shall have been
successfully negotiated, secured and provided. In other words, the obligation to pay the
balance is conditioned upon the acquisition of the road-right-of-way, in accordance with
paragraph 2 of Article 1181 of the New Civil Code. Accordingly, "an obligation
dependent upon a suspensive condition cannot be demanded until after the condition
takes place because it is only after the fulfillment of the condition that the obligation
arises." (Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff
[Rodriguez] indeed was diligent in his efforts to negotiate for a road-right-of-way to the
property. The written offers, proposals and follow-up of his proposals show that plaintiff
[Rodriguez] went all out in his efforts to immediately acquire an access road to the
property, even going to the extent of offering ₱3,000.00 per square meter for the road
lots (Exh. Q) from the original ₱550.00 per sq. meter. This Court also notes that
defendant (sic) [the Catungals] made misrepresentation in the negotiation they have
entered into with plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of
defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be part and parcel of the
subject property [(]Lot 10963) contributed in defeating the plaintiff’s [Rodriguez’s] effort
in acquiring the road-right-of-way to the property. Defendants [the Catungals] cannot
now invoke the non-fulfillment of the condition in the contract as a ground for rescission
when defendants [the Catungals] themselves are guilty of preventing the fulfillment of
such condition.
From the foregoing, this Court is of the considered view that rescission of the
conditional deed of sale by the defendants is without any legal or factual basis. 64 x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the condition
precedent (for respondent’s obligation to pay the balance of the purchase price to arise)
in itself partly involves an obligation to do, i.e., the undertaking of respondent to
negotiate and secure a road right of way at his own expense. 65 It does not escape our
notice as well, that far from disclaiming paragraph 1(b) as void, it was the Catungals’
contention before the trial court that said provision should be read in relation to
paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and any or all cost relative to the acquisition
thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis supplied.)
The Catungals’ interpretation of the foregoing stipulation was that Rodriguez’s obligation
to negotiate and secure a road right of way was one with a period and that period, i.e.,
"enough time" to negotiate, had already lapsed by the time they demanded the payment
of ₱5,000,000.00 from respondent. Even assuming arguendo that the Catungals were
correct that the respondent’s obligation to negotiate a road right of way was one with an
uncertain period, their rescission of the Conditional Deed of Sale would still be
unwarranted. Based on their own theory, the Catungals had a remedy under Article
1197 of the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them.
What the Catungals should have done was to first file an action in court to fix the period
within which Rodriguez should accomplish the successful negotiation of the road right of
way pursuant to the above quoted provision. Thus, the Catungals’ demand for
Rodriguez to make an additional payment of ₱5,000,000.00 was premature and
Rodriguez’s failure to accede to such demand did not justify the rescission of the
contract.
8|Page
With respect to petitioners’ argument that paragraph 5 of the Conditional Deed of Sale
likewise rendered the said contract void, we find no merit to this theory. Paragraph 5
provides:
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE
exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall
notify the VENDOR by way of a written notice relinquishing his rights over the property.
The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall have been able to sell
the property to another party.67
Petitioners posited that the above stipulation was the "deadliest" provision in the
Conditional Deed of Sale for violating the principle of mutuality of contracts since it
purportedly rendered the contract subject to the will of respondent.
We do not agree.
It is petitioners’ strategy to insist that the Court examine the first sentence of paragraph
5 alone and resist a correlation of such sentence with other provisions of the contract.
Petitioners’ view, however, ignores a basic rule in the interpretation of contracts – that
the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall
be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly." The same Code further sets down the rule that "[i]f some
stipulation of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual."68
Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an
instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all"69 and "for the proper construction of an
instrument, the circumstances under which it was made, including the situation of the
subject thereof and of the parties to it, may be shown, so that the judge may be placed
in the position of those whose language he is to interpret."70
Bearing in mind the aforementioned interpretative rules, we find that the first sentence
of paragraph 5 must be taken in relation with the rest of paragraph 5 and with the other
provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the
contract is not absolute as it is subject to the requirement that there should be written
notice to the vendor and the vendor shall only return Rodriguez’s downpayment of
₱500,000.00, without interest, when the vendor shall have been able to sell the property
to another party. That what is stipulated to be returned is only the downpayment of
₱500,000.00 in the event that Rodriguez exercises his option to rescind is significant.
To recall, paragraph 1(b) of the contract clearly states that the installments on the
balance of the purchase price shall only be paid upon successful negotiation and
procurement of a road right of way. It is clear from such provision that the existence of a
road right of way is a material consideration for Rodriguez to purchase the property.
Thus, prior to him being able to procure the road right of way, by express stipulation in
the contract, he is not bound to make additional payments to the Catungals. It was
further stipulated in paragraph 1(b) that: "[i]f however said road right of way cannot be
negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and
solve the problem by taking other options and should the situation ultimately prove
futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein Conditional Deed
of Sale." The intention of the parties for providing subsequently in paragraph 5 that
Rodriguez has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if
the parties intended to give Rodriguez the absolute option to rescind the sale at any
time, the contract would have provided for the return of all payments made by
Rodriguez and not only the downpayment. To our mind, the reason only the
downpayment was stipulated to be returned is that the vendee’s option to rescind can
only be exercised in the event that no road right of way is secured and, thus, the vendee
has not made any additional payments, other than his downpayment.
In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather
also subject to the same mixed condition as his obligation to pay the balance of the
purchase price – i.e., the negotiation of a road right of way. In the event the condition is
fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the
purchase price. In the event the condition is not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not proceed with the sale and demand return of
his downpayment or (b) considering that the condition was imposed for his benefit, to
waive the condition and still pay the purchase price despite the lack of road access.
This is the most just interpretation of the parties’ contract that gives effect to all its
provisions.
In any event, even if we assume for the sake of argument that the grant to Rodriguez of
an option to rescind, in the manner provided for in the contract, is tantamount to a
potestative condition, not being a condition affecting the perfection of the contract, only
the said condition would be considered void and the rest of the contract will remain
valid. In Romero, the Court observed that "where the so-called ‘potestative condition’ is
imposed not on the birth of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself."71
It cannot be gainsaid that "contracts have the force of law between the contracting
parties and should be complied with in good faith."72 We have also previously ruled that
"[b]eing the primary law between the parties, the contract governs the adjudication of
their rights and obligations. A court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon and written."73 We find no merit
in petitioners’ contention that their parents were merely "duped" into accepting the
questioned provisions in the Conditional Deed of Sale. We note that although the
contract was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless
signed thereon to signify his marital consent to the same. We concur with the trial
court’s finding that the spouses Catungals’ claim of being misled into signing the
contract was contrary to human experience and conventional wisdom since it was Jose
Catungal who was a practicing lawyer while Rodriquez was a non-lawyer. 74 It can be
reasonably presumed that Atty. Catungal and his wife reviewed the provisions of the
contract, understood and accepted its provisions before they affixed their signatures
thereon.
9|Page
After thorough review of the records of this case, we have come to the conclusion that
petitioners failed to demonstrate that the Court of Appeals committed any reversible
error in deciding the present controversy. However, having made the observation that it
was desirable for the Catungals to file a separate action to fix the period for respondent
Rodriguez’s obligation to negotiate a road right of way, the Court finds it necessary to fix
said period in these proceedings. It is but equitable for us to make a determination of
the issue here to obviate further delay and in line with the judicial policy of avoiding
multiplicity of suits.

If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this
decision to negotiate a road right of way. In the event no road right of way is secured by
Rodriquez at the end of said period, the parties shall reassess and discuss other
options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to agree on a course of action.
Should the discussions of the parties prove futile after the said thirty (30)-day period,
immediately upon the expiration of said period for discussion, Rodriguez may (a)
exercise his option to rescind the contract, subject to the return of his downpayment, in
accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of
Sale or (b) waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January
30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R.
SP No. 27565 are AFFIRMED with the following modification:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days
from the finality of this Decision to negotiate a road right of way. In the event no road
right of way is secured by respondent at the end of said period, the parties shall
reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional
Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree
on a course of action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period for discussion,
Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC Decision dated May 30, 1992.

No pronouncement as to costs.

SO ORDERED.

10 | P a g e
 Republic of the Philippines
SUPREME COURT
SECOND DIVISION
G.R. No. 167615 January 11, 2016
SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and
Style "COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO
SUPPLY", Petitioners,
vs.
KODAK PHILIPPINES, LTD., Respondent.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30,
2005 Decision1 and September 9, 2005 Amended Decision 2 of the Court of Appeals,
which modified the February 26, 1999 Decision3 of the Regional Trial Court by reducing
the amount of damages awarded to petitioners Spouses Alexander and Julie Lam (Lam
Spouses).4 The Lam Spouses argue that respondent Kodak Philippines, Ltd.’s breach of
their contract of sale entitles them to damages more than the amount awarded by the
Court of Appeals.5
I Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Kodak Minilab
System 22XL6 (Minilab Equipment) in the amount of ₱1,796,000.00 per unit, 7 with the
following terms:
This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your proposed
outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor
photo counter in Cotabato City under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise
and delivered in advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate
for the first 12 months; the balance shall be re-amortized for the remaining 36
months and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]8
On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab
Equipment in Tagum, Davao Province.9 The delivered unit was installed by Noritsu
representatives on March 9, 1992.10 The Lam Spouses issued postdated checks
amounting to ₱35,000.00 each for 12 months as payment for the first delivered unit,
with the first check due on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated
March 31, 1992 allegedly due to insufficiency of funds. 12 The same request was made
for the check due on April 30, 1992. However, both checks were negotiated by Kodak
Philippines, Ltd. and were honored by the depository bank.13 The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the depository bank to stop
payment.14
the unit it delivered together with its accessories. 15 The Lam Spouses ignored the
demand but also rescinded the contract through the letter dated November 18, 1992 on
account of Kodak Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab
Equipment units.16
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or
recovery of sum of money. The case was raffled to Branch 61 of the Regional Trial
Court, Makati City.17 The Summons and a copy of Kodak Philippines, Ltd.’s Complaint
was personally served on the Lam Spouses.18
The Lam Spouses failed to appear during the pre-trial conference and submit their pre-
trial brief despite being given extensions.19 Thus, on July 30, 1993, they were declared
in default.20 Kodak Philippines, Ltd. presented evidence ex-parte.21 The trial court issued
the Decision in favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab
Equipment, which included the lone delivered unit, its standard accessories, and a
separate generator set.22 Based on this Decision, Kodak Philippines, Ltd. was able to
obtain a writ of seizure on December 16, 1992 for the Minilab Equipment installed at the
Lam Spouses’ outlet in Tagum, Davao Province.23 The writ was enforced on December
21, 1992, and Kodak Philippines, Ltd. gained possession of the Minilab Equipment unit,
accessories, and the generator set.24
The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the
Orders issued by the trial court dated July 30, 1993 and August 13, 1993. These Orders
11 | P a g e
were subsequently set aside by the Court of Appeals Ninth Division, and the case was
remanded to the trial court for pre-trial.25
On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge
Fernando V. Gorospe, Jr.,26 who had issued the writ of seizure.27 The ground for the
motion for inhibition was not provided. Nevertheless, Judge Fernando V. Gorospe Jr.
inhibited himself, and the case was reassigned to Branch 65 of the Regional Trial Court,
Makati City on October 3, 1995.28
In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak
Philippines, Ltd. defaulted in the performance of its obligation under its Letter
Agreement with the Lam Spouses.29 It held that Kodak Philippines, Ltd.’s failure to
deliver two (2) out of the three (3) units of the Minilab Equipment caused the Lam
Spouses to stop paying for the rest of the installments. 30 The trial court noted that while
the Letter Agreement did not specify a period within which the delivery of all units was to
be made, the Civil Code provides "reasonable time" as the standard period for
compliance:
The second paragraph of Article 1521 of the Civil Code provides:
Where by a contract of sale the seller is bound to send the goods to the buyer, but no
time for sending them is fixed, the seller is bound to send them within a reasonable
time.
What constitutes reasonable time is dependent on the circumstances availing both on
the part of the seller and the buyer. In this case, delivery of the first unit was made five
(5) days after the date of the agreement. Delivery of the other two (2) units, however,
was never made despite the lapse of at least three (3) months.31
Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all
three (3) purchased units within a reasonable time.32
The trial court found:
Kodak would have the court believe that it did not deliver the other two (2) units due to
the failure of defendants to make good the installments subsequent to the second. The
court is not convinced. First of all, there should have been simultaneous delivery on
account of the circumstances surrounding the transaction. . . . Even after the first
delivery . . . no delivery was made despite repeated demands from the defendants and
despite the fact no installments were due. Then in March and in April (three and four
months respectively from the date of the agreement and the first delivery) when the
installments due were both honored, still no delivery was made.
Second, although it might be said that Kodak was testing the waters with just one
delivery - determining first defendants’ capacity to pay - it was not at liberty to do so. It is
implicit in the letter agreement that delivery within a reasonable time was of the essence
and failure to so deliver within a reasonable time and despite demand would render the
vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak refused delivery on
account of defendants’ inability to pay, non-delivery during the two (2) months that
payments were honored is unjustified.33
Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of
the first unit, they became liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of
the Civil Code, in the event the buyer accepts incomplete delivery and uses the goods
so delivered, not then knowing that there would not be any further delivery by the seller,
the buyer shall be liable only for the fair value to him of the goods received. In other
words, the buyer is still liable for the value of the property received. Defendants were
under obligation to pay the amount of the unit. Failure of delivery of the other units did
not thereby give unto them the right to suspend payment on the unit delivered. Indeed,
in incomplete deliveries, the buyer has the remedy of refusing payment unless delivery
is first made. In this case though, payment for the two undelivered units have not even
commenced; the installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34
The Lam Spouses were under obligation to pay for the amount of one unit, and the
failure to deliver the remaining units did not give them the right to suspend payment for
the unit already delivered.35 However, the trial court held that since Kodak Philippines,
Ltd. had elected to cancel the sale and retrieve the delivered unit, it could no longer
seek payment for any deterioration that the unit may have suffered while under the
custody of the Lam Spouses.36
As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to
mislead the court by claiming that it had delivered the generator set with its accessories
to the Lam Spouses, when the evidence showed that the Lam Spouses had purchased
it from Davao Ken Trading, not from Kodak Philippines, Ltd. 37 Thus, the generator set
that Kodak Philippines, Ltd. wrongfully took from the Lam Spouses should be
replaced.38
The dispositive portion of the Regional Trial Court Decision reads:
PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the
following:
1) PHP 130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum,
Davao and Rizal Ave., Manila outlets.
SO ORDERED.39
On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an
issue the Regional Trial Court’s failure to order Kodak Philippines, Ltd. to pay: (1)
₱2,040,000 in actual damages; (2) ₱50,000,000 in moral damages; (3) ₱20,000,000 in
12 | P a g e
exemplary damages; (4) ₱353,000 in attorney’s fees; and (5) ₱300,000 as litigation
expenses.40 The Lam Spouses did not appeal the Regional Trial Court’s award for the
generator set and the renovation expenses.41
Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals42 dismissed
it on December 16, 2002 for Kodak Philippines, Ltd.’s failure to file its appellant’s brief,
without prejudice to the continuation of the Lam Spouses’ appeal.43 The Court of
Appeals’ December 16, 2002 Resolution denying Kodak Philippines, Ltd.’s appeal
became final and executory on January 4, 2003.44
In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth
Division modified the February 26, 1999 Decision of the Regional Trial Court:
WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February
1999 of the Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
1. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED.46 (Emphasis supplied)
The Court of Appeals agreed with the trial court’s Decision, but extensively discussed
the basis for the modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement executed by the parties showed
that their obligations were susceptible of partial performance. Under Article 1225 of the
New Civil Code, their obligations are divisible:
In determining the divisibility of an obligation, the following factors may be considered,
to wit: (1) the will or intention of the parties, which may be expressed or presumed; (2)
the objective or purpose of the stipulated prestation; (3) the nature of the thing; and (4)
provisions of law affecting the prestation.
Applying the foregoing factors to this case, We found that the intention of the parties is
to be bound separately for each Minilab Equipment to be delivered as shown by the
separate purchase price for each of the item, by the acceptance of Sps. Lam of
separate deliveries for the first Minilab Equipment and for those of the remaining two
and the separate payment arrangements for each of the equipment. Under this premise,
Sps. Lam shall be liable for the entire amount of the purchase price of the Minilab
Equipment delivered considering that Kodak had already completely fulfilled its
obligation to deliver the same. . . .
Third, it is also evident that the contract is one that is severable in character as
demonstrated by the separate purchase price for each of the minilab equipment. "If the
part to be performed by one party consists in several distinct and separate items and
the price is apportioned to each of them, the contract will generally be held to be
severable. In such case, each distinct stipulation relating to a separate subject matter
will be treated as a separate contract." Considering this, Kodak's breach of its obligation
to deliver the other two (2) equipment cannot bar its recovery for the full payment of the
equipment already delivered. As far as Kodak is concerned, it had already fully
complied with its separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the
delivered Minilab Equipment unit and its standard accessories are concerned, since
Kodak Philippines, Ltd. had the right to possess it:48
The purchase price of said equipment is P1,796,000.00 which, under the agreement is
payable with forty eight (48) monthly amortization. It is undisputed that Sps. Lam made
payments which amounted to Two Hundred Seventy Thousand Pesos (P270,000.00)
through the following checks: Metrobank Check Nos. 00892620 and 00892621 dated 31
March 1992 and 30 April 1992 respectively in the amount of Thirty Five Thousand
Pesos (P35,000.00) each, and BPI Family Check dated 31 July 1992 amounting to Two
Hundred Thousand Pesos (P200,000.00). This being the case, Sps. Lam are still liable
to Kodak in the amount of One Million Five Hundred Twenty Six Thousand Pesos
(P1,526,000.00), which is payable in several monthly amortization, pursuant to the
Letter Agreement. However, Sps. Lam admitted that sometime in May 1992, they had
already ordered their drawee bank to stop the payment on all the other checks they had
issued to Kodak as payment for the Minilab Equipment delivered to them. Clearly then,
Kodak ha[d] the right to repossess the said equipment, through this replevin suit. Sps.
Lam cannot excuse themselves from paying in full the purchase price of the equipment
delivered to them on account of Kodak’s breach of the contract to deliver the other two
(2) Minilab Equipment, as contemplated in the Letter Agreement.49 (Emphasis supplied)
Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam
Spouses to pay the remaining balance for the first delivered unit is based on the second
sentence of Article 1592 of the New Civil Code. 50 The Lam Spouses’ receipt and use of
the Minilab Equipment before they knew that Kodak Philippines, Ltd. would not deliver
the two (2) remaining units has made them liable for the unpaid portion of the purchase
price.51
The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its
contract with the Lam Spouses in the letter dated October 14, 1992. 52 The rescission
was based on Article 1191 of the New Civil Code, which provides: "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." 53 In its letter, Kodak Philippines, Ltd.
demanded that the Lam Spouses surrender the lone delivered unit of Minilab Equipment
along with its standard accessories.54
The Court of Appeals likewise noted that the Lam Spouses rescinded the contract
through its letter dated November 18, 1992 on account of Kodak Philippines, Inc.’s
breach of the parties’ agreement to deliver the two (2) remaining units.55
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As a result of this rescission under Article 1191, the Court of Appeals ruled that "both
parties must be restored to their original situation, as far as practicable, as if the
contract was never entered into."56 The Court of Appeals ratiocinated that Article 1191
had the effect of extinguishing the obligatory relation as if one was never created:57
To rescind is to declare a contract void in its inception and to put an end to it as though
it never were. It is not merely to terminate it and to release parties from further
obligations to each other but abrogate it from the beginning and restore parties to
relative positions which they would have occupied had no contract been made.58
The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit
and its standard accessories, while Kodak Philippines, Ltd. was ordered to return the
amount of ₱270,000.00, tendered by the Lam Spouses as partial payment.59
As to the actual damages sought by the parties, the Court of Appeals found that the
Lam Spouses were able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract
of lease which made the Sps. Lam liable, by way of advance payment, in the amount of
P40,000.00, the same being intended for the repair of the flooring of the leased
premises; and lastly, the payment of P300,000.00, as compromise agreement for the
pre-termination of the contract of lease with Ruales.60
The total amount is ₱440,000.00. The Court of Appeals found that all other claims made
by the Lam Spouses were not supported by evidence, either through official receipts or
check payments.61
As regards the generator set improperly seized from Kodak Philippines, Ltd. on the
basis of the writ of replevin, the Court of Appeals found that there was no basis for the
Lam Spouses’ claim for reasonable rental of ₱5,000.00. It held that the trial court’s
award of 12% interest, in addition to the cost of the generator set in the amount of
₱130,000.00, is sufficient compensation for whatever damage the Lam Spouses
suffered on account of its improper seizure.62
The Court of Appeals also ruled on the Lam Spouses’ entitlement to moral and
exemplary damages, as well as attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have
manifested bad faith and malevolence because as earlier ruled upon, it was well within
its right to do the same. However, with respect to the seizure of the generator set,
where Kodak misrepresented to the court a quo its alleged right over the said item,
Kodak’s bad faith and abuse of judicial processes become self-evident. Considering the
off-setting circumstances attendant, the amount of P25,000.00 by way of moral
damages is considered sufficient.
In addition, so as to serve as an example to the public that an application for replevin
should not be accompanied by any false claims and misrepresentation, the amount of
P50,000.00 by way of exemplary damages should be pegged against Kodak.
With respect to the attorney’s fees and litigation expenses, We find that there is no
basis to award Sps. Lam the amount sought for.63
Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but
it was denied for lack of merit. 64 However, the Court of Appeals noted that the Lam
Spouses’ Opposition correctly pointed out that the additional award of ₱270,000.00
made by the trial court was not mentioned in the decretal portion of the March 30, 2005
Decision:
Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to
the amount of Two Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant
should return to the defendantsappellants, the Court also ruled that defendants-
appellants should, in turn, relinquish possession of the Minilab Equipment and the
standard accessories to plaintiff-appellant. Inadvertently, these material items were not
mentioned in the decretal portion of the Decision. Hence, the proper correction should
herein be made.65
The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand,
Kodak Philippines, Ltd. filed its Motion for Reconsideration 66 before the Court of Appeals
on April 22, 2005.
While the Petition for Review on Certiorari filed by the Lam Spouses was pending
before this court, the Court of Appeals Special Fourteenth Division, acting on Kodak
Philippines, Ltd.’s Motion for Reconsideration, issued the Amended Decision 67 dated
September 9, 2005. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, this Court resolved that:
A. Plaintiff-appellant’s Motion for Reconsideration is hereby DENIED for lack of
merit.
B. The decretal portion of the 30 March 2005 Decision should now read as
follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February
1999 of the Regional Trial Court, Branch 65 in Civil Cases No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
a. P270,000.00 representing the partial payment made on the Minilab
equipment.
b. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
14 | P a g e
Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-
appellant the Minilab equipment and the standard accessories delivered by plaintiff-
appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd.
filed a Motion for Extension of Time to File an Appeal by Certiorari under Rule 45 of the
1997 Rules of Civil Procedure before this court.69
This was docketed as G.R. No. 169639. In the Motion for Consolidation dated
November 2, 2005, the Lam Spouses moved that G.R. No. 167615 and G.R. No.
169639 be consolidated since both involved the same parties, issues, transactions, and
essential facts and circumstances.70
In the Resolution dated November 16, 2005, this court noted the Lam Spouses’
September 23 and September 30, 2005 Manifestations praying that the Court of
Appeals’ September 9, 2005 Amended Decision be considered in the resolution of the
Petition for Review on Certiorari. 71 It also granted the Lam Spouses’ Motion for
Consolidation.72
In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No.
167615 from G.R. No. 169639 and declared G.R. No. 169639 closed and terminated
since Kodak Philippines, Ltd. failed to file its Petition for Review.
II
We resolve the following issues:
First, whether the contract between petitioners Spouses Alexander and Julie Lam and
respondent Kodak Philippines, Ltd. pertained to obligations that are severable, divisible,
and susceptible of partial performance under Article 1225 of the New Civil Code; and
Second, upon rescission of the contract, what the parties are entitled to under Article
1190 and Article 1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it executed with respondent for three (3)
Minilab Equipment units was not severable, divisible, and susceptible of partial
performance. Respondent’s recovery of the delivered unit was unjustified.74
Petitioners assert that the obligations of the parties were not susceptible of partial
performance since the Letter Agreement was for a package deal consisting of three (3)
units.75 For the delivery of these units, petitioners were obliged to pay 48 monthly
payments, the total of which constituted one debt. 76 Having relied on respondent’s
assurance that the three units would be delivered at the same time, petitioners
simultaneously rented and renovated three stores in anticipation of simultaneous
operations.77 Petitioners argue that the divisibility of the object does not necessarily
determine the divisibility of the obligation since the latter is tested against its
susceptibility to a partial performance.78 They argue that even if the object is susceptible
of separate deliveries, the transaction is indivisible if the parties intended the realization
of all parts of the agreed obligation.79
Petitioners support the claim that it was the parties’ intention to have an indivisible
agreement by asserting that the payments they made to respondent were intended to
be applied to the whole package of three units. 80 The postdated checks were also
intended as initial payment for the whole package.81 The separate purchase price for
each item was merely intended to particularize the unit prices, not to negate the
indivisible nature of their transaction.82 As to the issue of delivery, petitioners claim that
their acceptance of separate deliveries of the units was solely due to the constraints
faced by respondent, who had sole control over delivery matters.83
With the obligation being indivisible, petitioners argue that respondent’s failure to
comply with its obligation to deliver the two (2) remaining Minilab Equipment units
amounted to a breach. Petitioners claim that the breach entitled them to the remedy of
rescission and damages under Article 1191 of the New Civil Code.84
Petitioners also argue that they are entitled to moral damages more than the
₱50,000.00 awarded by the Court of Appeals since respondent’s wrongful act of
accusing them of non-payment of their obligations caused them sleepless nights,
mental anguish, and wounded feelings.85 They further claim that, to serve as an
example for the public good, they are entitled to exemplary damages as respondent, in
making false allegations, acted in evident bad faith and in a wanton, oppressive,
capricious, and malevolent manner.86
Petitioners also assert that they are entitled to attorney’s fees and litigation expenses
under Article 2208 of the New Civil Code since respondent’s act of bringing a suit
against them was baseless and malicious. This prompted them to engage the services
of a lawyer.87
Respondent argues that the parties’ Letter Agreement contained divisible obligations
susceptible of partial performance as defined by Article 1225 of the New Civil Code. 88 In
respondent’s view, it was the intention of the parties to be bound separately for each
individually priced Minilab Equipment unit to be delivered to different outlets:89
The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at
their Tagum, Davao del Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of
these units [is] independent from one another, as many of them may perform its own job
without the other. Clearly the objective or purpose of the prestation, the obligation is
divisible.
The nature of each unit of the three (3) Minilab Equipment is such that one can perform
its own functions, without awaiting for the other units to perform and complete its job. So
much so, the nature of the object of the Letter Agreement is susceptible of partial
performance, thus the obligation is divisible.90
With the contract being severable in character, respondent argues that it performed its
obligation when it delivered one unit of the Minilab Equipment. 91 Since each unit could
perform on its own, there was no need to await the delivery of the other units to
15 | P a g e
complete its job.92 Respondent then is of the view that when petitioners ordered the
depository bank to stop payment of the issued checks covering the first delivered unit,
they violated their obligations under the Letter Agreement since respondent was already
entitled to full payment.93
Respondent also argues that petitioners benefited from the use of the Minilab
Equipment for 10 months—from March to December 1992— despite having paid only
two (2) monthly installments. 94 Respondent avers that the two monthly installments
amounting to ₱70,000.00 should be the subject of an offset against the amount the
Court of Appeals awarded to petitioners.95
Respondent further avers that petitioners have no basis for claiming damages since the
seizure and recovery of the Minilab Equipment was not in bad faith and respondent was
well within its right.96
III
The Letter Agreement contained an indivisible obligation.
Both parties rely on the Letter Agreement 97 as basis of their respective obligations.
Written by respondent’s Jeffrey T. Go and Antonio V. Mines and addressed to petitioner
Alexander Lam, the Letter Agreement contemplated a "package deal" involving three (3)
units of the Kodak Minilab System 22XL, with the following terms and conditions:
This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your proposed
outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor
photo counter in Cotabato City under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise
and delivered in advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate
for the first 12 months; the balance shall be re-amortized for the remaining 36
months and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]98
Based on the foregoing, the intention of the parties is for there to be a single transaction
covering all three (3) units of the Minilab Equipment. Respondent’s obligation was to
deliver all products purchased under a "package," and, in turn, petitioners’ obligation
was to pay for the total purchase price, payable in installments.
The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one
agreement covering all three (3) units of the Minilab Equipment and their accessories.
The Letter Agreement specified only one purpose for the buyer, which was to obtain
these units for three different outlets. If the intention of the parties were to have a
divisible contract, then separate agreements could have been made for each Minilab
Equipment unit instead of covering all three in one package deal. Furthermore, the 19%
multiple order discount as contained in the Letter Agreement was applied to all three
acquired units.99 The "no downpayment" term contained in the Letter Agreement was
also applicable to all the Minilab Equipment units. Lastly, the fourth clause of the Letter
Agreement clearly referred to the object of the contract as "Minilab Equipment
Package."
In ruling that the contract between the parties intended to cover divisible obligations, the
Court of Appeals highlighted: (a) the separate purchase price of each item; (b)
petitioners’ acceptance of separate deliveries of the units; and (c) the separate payment
arrangements for each unit.100 However, through the specified terms and conditions, the
tenor of the Letter Agreement indicated an intention for a single transaction. This intent
must prevail even though the articles involved are physically separable and capable of
being paid for and delivered individually, consistent with the New Civil Code:
Article 1225. For the purposes of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain number of days of work,
the accomplishment of work by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.  (Emphasis supplied)
In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is tested against
whether it can be the subject of partial performance:
An obligation is indivisible when it cannot be validly performed in parts, whatever may
be the nature of the thing which is the object thereof. The indivisibility refers to the
prestation and not to the object thereof.  In the present case, the Deed of Sale of
January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners are therefore
mistaken in basing the indivisibility of a contract on the number of obligors. 102 (Emphasis
supplied, citation omitted)
16 | P a g e
There is no indication in the Letter Agreement that the units petitioners ordered were
covered by three (3) separate transactions. The factors considered by the Court of
Appeals are mere incidents of the execution of the obligation, which is to deliver three
units of the Minilab Equipment on the part of respondent and payment for all three on
the part of petitioners. The intention to create an indivisible contract is apparent from the
benefits that the Letter Agreement afforded to both parties. Petitioners were given the
19% discount on account of a multiple order, with the discount being equally applicable
to all units that they sought to acquire. The provision on "no downpayment" was also
applicable to all units. Respondent, in turn, was entitled to payment of all three Minilab
Equipment units, payable by installments.
IV
With both parties opting for rescission of the contract under Article 1191, the Court of
Appeals correctly ordered for restitution.
The contract between the parties is one of sale, where one party obligates himself or
herself to transfer the ownership and deliver a determinate thing, while the other pays a
certain price in money or its equivalent. 103 A contract of sale is perfected upon the
meeting of minds as to the object and the price, and the parties may reciprocally
demand the performance of their respective obligations from that point on.104
The Court of Appeals correctly noted that respondent had rescinded the parties’ Letter
Agreement through the letter dated October 14, 1992.105 It likewise noted petitioners’
rescission through the letter dated November 18, 1992.106 This rescission from both
parties is founded on Article 1191 of the New Civil Code:
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 fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
Rescission under Article 1191 has the effect of mutual restitution. 107 In Velarde v. Court
of Appeals:108
Rescission abrogates the contract from its inception and requires a mutual restitution of
benefits received.
....
Rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be obliged
to restore. To rescind is to declare a contract void at its inception and to put an end to it
as though it never was. It is not merely to terminate it and release the parties from
further obligations to each other, but to abrogate it from the beginning and restore the
parties to their relative positions as if no contract has been made.109 (Emphasis
supplied, citations omitted)
The Court of Appeals correctly ruled that both parties must be restored to their original
situation as far as practicable, as if the contract was never entered into. Petitioners must
relinquish possession of the delivered Minilab Equipment unit and accessories, while
respondent must return the amount tendered by petitioners as partial payment for the
unit received. Further, respondent cannot claim that the two (2) monthly installments
should be offset against the amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is to bring the parties back to their
original positions before the contract was entered into. Also in Velarde:
As discussed earlier, the breach committed by petitioners was the nonperformance of a
reciprocal obligation, not a violation of the terms and conditions of the mortgage
contract. Therefore, the automatic rescission and forfeiture of payment clauses
stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and
regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil
Code, mutual restitution is required to bring back the parties to their original situation
prior to the inception of the contract. Accordingly, the initial payment of ₱800,000 and
the corresponding mortgage payments in the amounts of ₱27,225, ₱23,000 and
₱23,925 (totaling ₱874,150.00) advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves at the expense of the
former.110 (Emphasis supplied)
When rescission is sought under Article 1191 of the Civil Code, it need not be judicially
invoked because the power to resolve is implied in reciprocal obligations. 111 The right to
resolve allows an injured party to minimize the damages he or she may suffer on
account of the other party’s failure to perform what is incumbent upon him or
her.112 When a party fails to comply with his or her obligation, the other party’s right to
resolve the contract is triggered.113 The resolution immediately produces legal effects if
the non-performing party does not question the resolution.114 Court intervention only
becomes necessary when the party who allegedly failed to comply with his or her
obligation disputes the resolution of the contract.115 Since both parties in this case have
exercised their right to resolve under Article 1191, there is no need for a judicial decree
before the resolution produces effects.
V
The issue of damages is a factual one. A petition for review on certiorari under Rule 45
shall only pertain to questions of law.116 It is not the duty of this court to re-evaluate the
evidence adduced before the lower courts.117 Furthermore, unless the petition clearly
shows that there is grave abuse of discretion, the findings of fact of the trial court as
affirmed by the Court of Appeals are conclusive upon this court. 118 In Lorzano v.
Tabayag, Jr.:119
For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution
of the issue must rest solely on what the law provides on the given set of
17 | P a g e
circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact.
....
For the same reason, we would ordinarily disregard the petitioner’s allegation as to the
propriety of the award of moral damages and attorney’s fees in favor of the respondent
as it is a question of fact. Thus, questions on whether or not there was a preponderance
of evidence to justify the award of damages or whether or not there was a causal
connection between the given set of facts and the damage suffered by the private
complainant or whether or not the act from which civil liability might arise exists are
questions of fact.
Essentially, the petitioner is questioning the award of moral damages and attorney’s
fees in favor of the respondent as the same is supposedly not fully supported by
evidence. However, in the final analysis, the question of whether the said award is fully
supported by evidence is a factual question as it would necessitate whether the
evidence adduced in support of the same has any probative value. For a question to be
one of law, it must involve no examination of the probative value of the evidence
presented by the litigants or any of them.120 (Emphasis supplied, citations omitted)
The damages awarded by the Court of Appeals were supported by documentary
evidence.121 Petitioners failed to show any reason why the factual determination of the
Court of Appeals must be reviewed, especially in light of their failure to produce receipts
or check payments to support their other claim for actual damages.122
Furthermore, the actual damages amounting to ₱2,040,000.00 being sought by
petitioners123 must be tempered on account of their own failure to pay the rest of the
installments for the delivered unit. This failure on their part is a breach of their
obligation, for which the liability of respondent, for its failure to deliver the remaining
units, shall be equitably tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of Appeals:125
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
₱17,000.00 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
₱17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his ₱17,000.00
debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the ₱17,000.00, it is just that he should
account for the interest thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also appears to be sufficient. Moral
damages are granted to alleviate the moral suffering suffered by a party due to an act of
another, but it is not intended to enrich the victim at the defendant’s expense. 127 It is not
meant to punish the culpable party and, therefore, must always be reasonable vis-a-vis
the injury caused.128 Exemplary damages, on the other hand, are awarded when the
injurious act is attended by bad faith.129 In this case, respondent was found to have
misrepresented its right over the generator set that was seized. As such, it is properly
liable for exemplary damages as an example to the public.130
However, the dispositive portion of the Court of Appeals Amended Decision dated
September 9, 2005 must be modified to include the recovery of attorney’s fees and
costs of suit in favor of petitioners. In Sunbanun v. Go:131
Furthermore, we affirm the award of exemplary damages and attorney’s fees.
Exemplary damages may be awarded when a wrongful act is accompanied by bad faith
or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner which would justify an award of exemplary damages under Article
2232 of the Civil Code. Since the award of exemplary damages is proper in this case,
attorney’s fees and cost of the suit may also be recovered as provided under Article
2208 of the Civil Code.132 (Emphasis supplied, citation omitted)
Based on the amount awarded for moral and exemplary damages, it is reasonable to
award petitioners ₱20,000.00 as attorney’s fees.
WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9,
2005 is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is
ordered to pay petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial payment made on the Minilab
Equipment;
(b) P130,000.00, representing the amount of the generator set, plus legal
interest at 12% .per annum from December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
accessories to respondent.
SO ORDERED.
18 | P a g e
 Republic of the Philippines In the meantime, Proton sent NCLPI an undated request to use the premises as a
SUPREME COURT temporary display center for "Audi" brand cars for a period of ten (10) days. In the same
Manila letter, Proton undertook "not to disturb [NCLPI and LMI’s] lease agreement and ensure
that [NCLPI] will not breach the same [by] lending the premises x x x without any
THIRD DIVISION consideration."13 NCLPI acceded to this request.14

G.R. No. 176986 January 13, 2016 On October 11, 1996, NCLPI entered into a Memorandum of Agreement with Proton
whereby the former agreed to allow Proton "to immediately commence renovation work
NISSAN CAR LEASE PHILS., INC., Petitioner, even prior to the execution of the Contract of Sublease x x x." 15 In consideration, Proton
vs. agreed to transmit to NCLPI a check representing three (3) months of rental payments,
LICA MANAGEMENT, INC. and PROTON PILIPINAS, INC., Respondents. to be deposited only upon the due execution of their Contract of Sublease.16

DECISION In a letter dated October 24, 1996, NCLPI, through counsel, replied to LMI’s letter of
October 16, 1996 acknowledging the arrearages incurred by it under their Contract of
Lease. Claiming, however, that it has no intention of abandoning the lease and citing
JARDELEZA, J.:
efforts to negotiate a possible sublease of the property, NCLPI requested LMI to defer
taking court action on the matter.17
This is a Petition for Review on Certiorari1  filed by Nissan Car Lease Philippines, Inc.
(NCLPI) to assail the Decision 2 and Resolution3 dated September 27, 2006 and March
LMI, on November 8, 1996, entered into a Contract of Lease with Proton over the
8, 2007, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 75985. The CA
subject premises.18
affirmed with modification the Decision4 of the Regional Trial Court dated June 7, 2002
and ruled that there was a valid extrajudicial rescission of the lease contract between
NCLPI and Lica Management, Inc. (LMI). It also ordered NCLPI to pay its unpaid rentals On November 12, 1996, LMI filed a Complaint19 for sum of money with damages
and awarded damages in favor of LMI and third-party respondent Proton Pilipinas, Inc. seeking to recover from NCLPI the amount of ₱2,696,639.97, equivalent to the balance
(Proton). of its unpaid rentals, with interest and penalties, as well as exemplary damages,
attorney’s fees, and costs of litigation.20
The Facts
On November 20, 1996, NCLPI demanded Proton to vacate the leased
premises.21 However, Proton replied that it was occupying the property based on a
LMI is the absolute owner of a property located at 2326 Pasong Tamo Extension,
lease contract with LMI.22 In a letter of even date addressed to LMI, NCLPI asserted that
Makati City with a total area of approximately 2,860 square meters. 5 On June 24, 1994,
its failure to pay rent does not automatically result in the termination of the Contract of
it entered into a contract with NCLPI for the latter to lease the property for a term of ten
Lease nor does it give LMI the right to terminate the same. 23 NCLPI also informed LMI
(10) years (or from July 1, 1994 to June 30, 2004) with a monthly rental of ₱308,000.00
that since it was unlawfully ousted from the leased premises and was not deriving any
and an annual escalation rate of ten percent (10%).6 Sometime in September 1994,
benefit therefrom, it decided to stop payment of the checks issued to pay the rent.24
NCLPI, with LMI’s consent, allowed its subsidiary Nissan Smartfix Corporation (NSC) to
use the leased premises.7
In its Answer25 and Third-Party Complaint26 against Proton, NCLPI alleged that LMI and
Proton "schemed" and "colluded" to unlawfully force NCLPI (and its subsidiary NSC)
Subsequently, NCLPI became delinquent in paying the monthly rent, such that its total
from the premises. Since it has not abandoned its leasehold right, NCLPI asserts that
rental arrearages8 amounted to ₱1,741,520.85.9 In May 1996, Nissan and Lica verbally
the lease contract between LMI and Proton is void for lack of a valid cause or
agreed to convert the arrearages into a debt to be covered by a promissory note and
consideration.27 It likewise prayed for the award of: (1) ₱3,000,000.00, an amount it
twelve (12) postdated checks, each amounting to ₱162,541.95 as monthly payments
anticipates to lose on account of LMI and Proton’s deprivation of its right to use and
starting June 1996 until May 1997.10
occupy the premises; (2) ₱1,000,000.00 as exemplary damages; and (3) ₱500,000.00
as attorney’s fees, plus ₱2,000.00 for every court appearance.28
While NCLPI was able to deliver the postdated checks per its verbal agreement with
LMI, it failed to sign the promissory note and pay the checks for June to October 1996.
The trial court admitted29 the third-party complaint over LMI’s opposition.30
Thus, in a letter dated October 16, 1996, which was sent on October 18, 1996 by
registered mail, LMI informed NCLPI that it was terminating their Contract of Lease due
to arrears in the payment of rentals. It also demanded that NCLPI (1) pay the amount of Subsequently, or on April 17, 1998, Proton filed its Answer with Compulsory
₱2,651,570.39 for unpaid rentals11 and (2) vacate the premises within five (5) days from Counterclaim against NCLPI.31 According to Proton, the undated letter-request
receipt of the notice.12 supposedly sent by Proton to NCLPI was actually prepared by the latter so as to keep
from LMI its intention to sublease the premises to Proton until NCLPI is able to secure
LMI’s consent.32 Denying NCLPI’s allegation that its use of the lease premises was

19 | P a g e
made without any consideration, Proton claims that it "actually paid [NCLPI] rental of
₱200,000.00 for the use of subject property for 10 days x x x."33
Proton further asserted that NCLPI had vacated the premises as early as during the
negotiations for the sublease and, in fact, authorized the former to enter the property
and commence renovations.34 When NCLPI ultimately failed to obtain LMI’s consent to
the proposed sublease and its lease contract was terminated, Proton, having already
incurred substantial expenses renovating the premises, was constrained to enter into a
Contract of Lease with LMI. Thus, Proton prayed for the dismissal of the Third-Party
Complaint, and asked, by way of counterclaim, that NCLPI be ordered to pay exemplary
damages, attorney’s fees, and costs of litigation.35
Ruling of the Trial Court
On June 7, 2002, the trial court promulgated its Decision, 36 the decretal portion of which
reads:
WHEREFORE, in view of the foregoing, judgment is rendered in plaintiff LICA
MANAGEMENT INCORPORATED’s favor. As a consequence of this, defendant
NISSAN CAR LEASE PHILIPPINES, INC. is directed to pay plaintiff the following:
1.) [₱]2,696,639.97 representing defendant’s unpaid rentals inclusive of
interest and penalties up to 12 November 1996, plus interest to be charged
against said amount at the rate of twelve percent (12%) beginning said date
until the amount is fully paid.
2.) Exemplary damages and attorney’s fees amounting to Two Hundred
Thousand Pesos ([₱]200,000.00) and litigation expenses amounting to Fifty
Thousand Pesos ([₱]50,000.00).
The third party complaint filed by defendant is DENIED for lack of merit and in addition
to the foregoing and as prayed for, defendant NISSAN is ordered to pay third party
defendant PROTON PILIPINAS INC. the sum of Two Hundred Thousand Pesos
([₱]200,000.00) representing exemplary damages and attorney’s fees due.
SO ORDERED.37
The trial court found that NCLPI purposely violated the terms of its contract with LMI
when it failed to pay the required rentals and contracted to sublease the premises
without the latter’s consent.38 Under Article 1191 of the Civil Code, LMI was therefore
entitled to rescind the contract between the parties and seek payment of the unpaid
rentals and damages.39 In addition, the trial court ruled that LMI’s act of notifying NCLPI
of the termination of their lease contract due to non-payment of rentals is expressly
sanctioned under paragraphs 1640 and 1841 of their contract.42
Contrary to NCLPI’s claim that it was "fooled" into allowing Proton to occupy the
premises for a limited period after which the latter unilaterally usurped the premises for
itself, the trial court found that it was NCLPI "which misrepresented itself to [Proton] as
being a lessee of good standing, so that it could induce the latter to occupy and
renovate the premises when at that time the negotiations were underway the lease
between [LMI] and [NCLPI] had already been terminated."43
Aggrieved, NCLPI filed a Petition for Review with the CA. In its Appellant’s Brief, 44 it
argued that the trial court erred in: (1) holding that there was a valid extrajudicial
rescission of its lease contract with LMI; and (2) dismissing NCLPI’s claim for damages
against LMI and Proton while at the same time holding NCLPI liable to them for
exemplary damages and attorney’s fees.45
Ruling of the Court of Appeals
The CA denied NCLPI’s appeal and affirmed the trial court’s decision with modification.
The decretal portion of the CA’s Decision46 reads:
WHEREFORE, the appealed Decision dated June 7, 2002 of the trial court is affirmed,
subject to modification that:
(1) The award of exemplary damages of ₱100,000.00 each in favor of plaintiff-
appellee and third-party defendant-appellee is reduced to ₱50,000.00 each;
(2) The award of attorney’s fees of ₱100,000.00 each in favor of plaintiff-
appellee and third-party defendantappellee is reduced to ₱50,000.00 each;
(3) The amount of unpaid rentals is reduced from ₱2,696,639.97 to
₱2,365,569.61, exclusive of interest; and,
(4) Plaintiff-appellee is ordered to return the balance of the security deposit
amounting to ₱883,253.72 to defendant-appellant.
The Decision dated June 7, 2002 is affirmed in all other respects.
SO ORDERED.47
NCLPI sought for a reconsideration48 of this decision. LMI, on the other hand, filed a
motion to clarify whether the amount of ₱2,365,569.61 representing unpaid rentals was
inclusive of interest.49 The CA resolved both motions, thus:
WHEREFORE, the motion for reconsideration filed by defendant-appellant Nissan Car
Lease is denied for lack of merit.
With respect to the motion for clarification filed by plaintiff-appellee Lica Management,
Inc., paragraph (3) of the dispositive portion of the Decision is hereby clarified to read as
follows:
(3) The amount of unpaid rentals is reduced from ₱2,696,639.97 to
₱2,365,569.61, inclusive of interest and penalties up to November 12, 1996, plus
interest to be charged against said amount at the rate of twelve per cent (12%)
beginning said date until the amount is fully paid.
20 | P a g e
SO ORDERED.50
Hence, this petition.
The Petition
NCLPI, in its Petition, raises the following questions:
1. May a contract be rescinded extrajudicially despite the absence of a special
contractual stipulation therefor?
2. Do the prevailing facts warrant the dismissal of [LMI]’s claims and the award
of NCLPI’s claims?
3. How much interest should be paid in the delay of the release of a security
deposit in a lease contract?51
The Court’s Ruling
We deny the Petition for lack of merit.
Before going into the substantive merits of the case, however, we shall first resolve the
technical issue raised by LMI in its Comment52 dated August 22, 2007.
According to LMI, NCLPI’s petition must be denied outright on the ground that Luis
Manuel T. Banson (Banson), who caused the preparation of the petition and signed the
Verification and Certification against Forum Shopping, was not duly authorized to do so.
His apparent authority was based, not by virtue of any NCLPI Board Resolution, but on
a Special Power of Attorney (SPA) signed only by NCLPI’s Corporate Secretary Robel
C. Lomibao.53
As a rule, a corporation has a separate and distinct personality from its directors and
officers and can only exercise its corporate powers through its board of directors.
Following this rule, a verification and certification signed by an individual corporate
officer is defective if done without authority from the corporation’s board of directors.54
The requirement of verification being a condition affecting only the form of the
pleading,55 this Court has, in a number of cases, held that:
[T]he following officials or employees of the company can sign the verification
and certification without need of a board resolution: (1) the Chairperson of the
Board of Directors, (2) the President of a corporation, (3) the General Manager or
Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a
labor case.
x x x [T]he determination of the sufficiency of the authority was done on a case to case
basis. The rationale applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign x x x, being "in a
position to verify the truthfulness and correctness of the allegations in the
petition."56 (Emphasis and underscoring supplied)
In this case, Banson was President of NCLPI at the time of the filing of the
petition.57 Thus, and applying the foregoing ruling, he can sign the verification and
certification against forum shopping in the petition without the need of a board
resolution.58
Having settled the technical issue, we shall now proceed to discuss the substantial
issues.
Validity of Extrajudicial Rescission of Lease Contract
It is clear from the records that NCLPI committed substantial breaches of its Contract of
Lease with LMI.
Under Paragraph 2, NCLPI bound itself to pay a monthly rental of ₱308,000.00 not later
than the first day of every month to which the rent corresponds. NCLPI, however,
defaulted on its contractual obligation to timely and properly pay its rent, the arrearages
of which, as of October 16, 1996, amounted to ₱2,651,570.39. 59 This fact was
acknowledged and admitted by NCLPI.60
Aside from non-payment of rentals, it appears that NCLPI also breached its obligations
under Paragraphs 461 and 562 of the Contract of Lease which prohibit it from subleasing
the premises or introducing improvements or alterations thereon without LMI’s prior
written consent. The trial court found:
As revealed from the evidence presented by PROTON however, even before [NCLPI]
represented that it would try to negotiate a possible sub-lease of the premises, it
had, without any semblance of authority from [LMI,] already effectively subleased
the subject premises to PROTON and allowed the latter not only to enter the
premises but to renovate the same.
[NCLPI]’s assertion that they only allowed PROTON to utilize the premises for ten days
as a display center for Audi cars on the occasion of the historic visit of Chancellor
Helmut Kohl of Germany to the Philippines is belied by the evidence offered by
PROTON that by virtue of a Memorandum of Agreement [NCLPI] had already
permitted PROTON "to immediately commence renovation work even prior to the
execution of the Contract of Sublease" and had accepted a check from PROTON
representing the rental deposit under the yet to be executed Contract of Sublease. x x x
xxxx
Besides, the court is not inclined to show [NCLPI] any sympathy x x x because it came
to court with unclean hands when it accused [LMI] and PROTON of being guilty
parties when they supposedly connived with each other to oust [NCLPI] from the
leased premises when in truth and in fact, [NCLPI]’s lease was already terminated
when it pursued negotiations to sub-lease the premises to PROTON then giving
the latter the assurance they would be able to obtain [LMI]’s consent to the sublease
when this was very remote, in light of [NCLPI]’s failure to update its rental
payments.63 (Emphasis and underscoring supplied)
21 | P a g e
This factual finding was affirmed by the CA:
There is no merit in [NCLPI]’s claim for damages allegedly arising from [LMI]’s failure to
maintain it in peaceful possession of the leased premises. It was [NCLPI] who
breached the lease contract by defaulting in the payment of lease rentals, entering
into a sublease contract with [Proton] and allowing [Proton] to introduce
renovations on the leased premises without the consent of [LMI].64 x x x (Emphasis
supplied)
Factual findings of the CA are binding and conclusive on the parties and upon this Court
and will not be reviewed or disturbed on appeal. While the rule admits of certain
exceptions,65 NCLPI failed to prove that any of the exceptions applies in this case.
The crux of the controversy rather revolves around the validity of LMI’s act of
extrajudicially rescinding its Contract of Lease with NCLPI.
NCLPI maintains that while a lessor has a right to eject a delinquent lessee from its
property, such right must be exercised in accordance with law:
6.15. In this case, [LMI] did not comply with the requirement laid down in Section 2 of
Rule 70 of the Rules of Court, in unceremoniously ejecting [NCLPI] from the property.
The said Rule explicitly provides that the lessor shall serve a written notice of the
demand to pay or comply with the conditions of the lease and to vacate or post such
notice on the premises if no person is found thereon, giving the lessee 15 days to
comply with the demand. [LMI]’s demand letter dated 16 October 1996 provides only
a period of five days for [NCLPI] to comply with such demand and, thus,
defective.66 (Emphasis and underscoring supplied)
NCLPI’s reliance on Section 2, Rule 7067 in this case is misplaced.
Rule 70 of the Rules of Court sets forth the procedure in relation to the filing of suits for
forcible entry and unlawful detainer. The action filed by LMI against NCLPI, however,
is one for the recovery of a sum of money. Clearly, Section 2 of Rule 70 is not
applicable.
In fact, it does not appear that it was even necessary for LMI to eject NCLPI from the
leased premises. NCLPI had already vacated the same as early as October 11, 1996
when it surrendered possession of the premises to Proton, by virtue of their
Memorandum of Agreement, so that the latter can commence renovations.68
NCLPI also maintains that LMI cannot unilaterally and extrajudicially rescind their
Contract of Lease in the absence of an express provision in their Contract to that
effect.69 According to NCLPI:
6.1. The power to rescind is judicial in nature x x x
6.2. Nevertheless, the Supreme Court has allowed extrajudicial rescission if such
remedy is specifically provided for in the contract. A provision granting the nondefaulting
party merely a right to rescind would be superfluous because by law, it is inherent in
such contract [see by analogy  Villanueva, PHILIPPINE LAW ON SALES, P. 238
(1998)].
xxxx
6.4. [Paragraph 16],70 however, cannot be construed as an authority for either party to
unilaterally and extrajudicially rescind the Lease Contract  in case of breach by the other
party. All that [Paragraph] 16 affords the aggrieved party is merely the right to rescind
the lease contract, which is the very same right already granted under Article 1191 of
the Civil Code.71 (Emphasis and underscoring in the original)
It is true that NCLPI and LMI’s Contract of Lease does not contain a provision expressly
authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without
prior court approval, pursuant to Art. 1191 of the Civil Code.
Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases
where one of the obligors should fail to comply with what is incumbent upon him.
Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a
contract to protect its interests, even in the absence of any provision expressly providing
for such right.72 The rationale for this rule was explained in the case of University of the
Philippines v. De los Angeles73 wherein this Court held:
[T]he law definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the suit
until the final judgment of rescission is rendered when the law itself requires that
he should exercise due diligence to minimize its own damages (Civil Code, Article
2203). (Emphasis and underscoring supplied)
We are aware of this Court’s previous rulings in Tan v. Court of Appeals,74 Iringan v.
Court of Appeals,75 and EDS Manufacturing, Inc. v. Healthcheck International, Inc.,76 for
example, wherein we held that extrajudicial rescission of a contract is not possible
without an express stipulation to that effect.77
The seeming "conflict" between this and our previous rulings, however, is more
apparent than real.
Whether a contract provides for it or not, the remedy of rescission is always available as
a remedy against a defaulting party. When done without prior judicial imprimatur,
however, it may still be subject to a possible court review. In Golden Valley Exploration,
Inc. v. Pinkian Mining Company,78 we explained:
This notwithstanding, jurisprudence still indicates that an extrajudicial rescission
based on grounds not specified in the contract would not preclude a party to treat
the same as rescinded. The rescinding party, however, by such course of action,
subjects himself to the risk of being held liable for damages when the extrajudicial
rescission is questioned by the opposing party in court. This was made clear in the case
of U.P. v. De los Angeles, wherein the Court held as follows:
22 | P a g e
Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party
must be made known to the other and is always provisional, being ever subject to
scrutiny and review by the proper court. If the other party denies that rescission
is justified, it is free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was
not correct in law. x x x (Emphasis and underscoring in the original)
The only practical effect of a contractual stipulation allowing extrajudicial rescission is
"merely to transfer to the defaulter the initiative of instituting suit, instead of the
rescinder."79
In fact, the rule is the same even if the parties’ contract expressly allows extrajudicial
rescission. The other party denying the rescission may still seek judicial intervention to
determine whether or not the rescission was proper.80
Having established that LMI can extrajudicially rescind its contract with NCLPI even
absent an express contractual stipulation to that effect, the question now to be resolved
is whether this extrajudicial rescission was proper under the circumstances.
As earlier discussed, NCLPI’s non-payment of rentals and unauthorized sublease of the
leased premises were both clearly proven by the records.1avvphi1 We thus confirm
LMI’s rescission of its contract with NCLPI on account of the latter’s breach of its
obligations.
Rental Arrearages and Interest
Having upheld LMI’s extrajudicial rescission of its Contract of Lease, we hold that
NCLPI is required to pay all rental arrearages owing to LMI, computed by the CA as
follows:
In its appellant’s brief, [NCLPI] admitted that it had rental arrears of ₱1,300,335.60 as of
May 1996.1âwphi1 Additionally, the statement of account submitted by [LMI] showed
that from June 1996 to October 1996  the rental arrears of [NCLPI] amounted to
₱1,065,234.01. Hence, the total of said rental arrears not disputed by the parties is
₱2,365,569.61 x x x.81 (Emphasis and underscoring supplied)
The Contract of Lease shows that the parties did not stipulate an applicable interest rate
in case of default in the payment of rentals. Thus, and following this Court’s ruling
in Nacar v. Gallery Frames,82 the foregoing amount of rental arrearages shall earn
interest at the rate of six percent (6%) per annum computed from October 18, 1996, the
date of LMI’s extrajudicial demand,83 until the date of finality of this judgment. The total
amount shall thereafter earn interest at the rate of six percent (6%) per annum from
such finality of judgment until its satisfaction.
Security Deposit
NCLPI also argues that, assuming LMI could validly rescind their Contract of Lease, the
security deposit must be returned, with interest at the rate of twelve percent (12%) per
annum, the obligation to return being in the nature of a forbearance of money.84
NCLPI is partly correct.
Paragraph 385 of the Contract of Lease provides that, in case of termination of the lease,
the balance of the security deposit must be returned to NCLPI within seven (7) days.
Since "there is no question that [LMI] is retaining the security deposit" in the amount of
₱883,253.72 (after deduction of the expenses for water and telephone services), 86 LMI
must return the same to NCLPI, with interest.
Considering, however, that the Contract of Lease does not stipulate an applicable
interest rate, again following our ruling in Nacar, the rate shall be six percent (6%) from
the time of judicial or extrajudicial demand. The records of this case show that the first
time  NCLPI raised the issue on the security deposit was in its Brief dated March 25,
2003 filed with the CA.87 Thus, the interest should be computed starting only on said
date until the finality of this Decision, after which the total amount shall earn interest at
the rate of six percent (6%) from the finality of this Decision until satisfaction by LMI.88
Improvements
In its Petition, NCLPI also prayed for the return of "all the equipment installed and the
other improvements on the property, or their value, pursuant to the mandate of mutual
restitution."89
NCLPI errs.
Under Paragraph 5 of the Contract of Lease, NCLPI is entitled only to the return of
those improvements introduced by it which can be removed without causing damage to
the leased premises.90 Considering, however, that the issue of ownership of the
improvements within the premises appears to be subject of another case initiated by
NCLPI’s subsidiary, NSC,91 this Court will not rule on the same.
Denial of NCLPI’s claim and award of damages in favor of LMI and Proton proper
Both the trial court and CA found that NCLPI breached the Contract of Lease. In
sustaining the denial of NCLPI’s claim for damages, the CA held:
There is no merit in [NCLPI]’s claim for damages allegedly arising from [LMI]’s failure to
maintain it in peaceful possession of the leased premises. It was [NCLPI] who breached
the lease contract x x x Moreover, the lease contract between [LMI] and [Proton] was
entered into only on November 8, 1996 x x x after the lease contract between [LMI] and
[NCLPI] had been terminated. As aptly noted by the trial court:
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xxxx

In other words, while in its responsive pleading [NCLPI] claims [that] it was fooled into
allowing [Proton] to occupy the subject premises for a limited period, after which the
latter, in alleged collusion with [LMI] unilaterally usurped the premises for itself, the
evidence shows that it was [NCLPI] which misrepresented itself to PROTON as
being a lessee of good standing, so that it could induce the latter to occupy and
renovate the premises when at that time the negotiations were underway, the
lease between [LMI] and [NCLPI] had already been terminated. 92 (Emphasis and
underscoring supplied)

Contrary to NCLPl's claims of an unlawful "scheme" devised by LMJ and Proton to force
it out of the leased premises, we find that it was NCLPI who was in bad faith and itself
provided the bases for the cancellation of its Contract of Lease with LMI and its eventual
ejectment from the leased premises. Accordingly, we affirm (1) the award of exemplary
damages and attorney's fees in favor of LMI and Proton and (2) the denial of NCLPI's
claim for damages.93

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated
September 27, 2006 and the Resolution dated March 8, 2007 rendered by the CA in
CA-G.R. CV No. 75985 are, however, MODIFIED as follows:

(1) NCLP I is ordered to pay LMI and Proton exemplary damages of

P50,000.00 and attorney's fees of P50,000.00, each;

(2) NCLPI is ordered to pay the amount of P2,365,569.61 unpaid rentals, with
interest at the rate of six percent ( 6%) per annum computed from October 18,
1996 until the date of finality of this judgment. The total amount shall thereafter
earn interest at the rate of six percent (6%) per annum from the finality of
judgment until its satisfaction;

(3) LMI is ordered to return to NCLPI the balance of the security deposit
amounting to P883,253.72, with interest at the rate of six percent ( 6o/o)
starting March 25, 2003 until the finality of this Decision, after which the total
amount shall earn interest at the rate of six percent (6%) from the finality of this
Decision until satisfaction by LMI.94

SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 178610               November 17, 2010
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN,
Retirement Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
DECISION
CARPIO, J.:
G.R. No. 178610 is a petition for review1 assailing the Decision2 promulgated on 30
March 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 62685. The appellate
court granted the petition filed by Fe Gerong (Gerong) and Spouses Bienvenido and
Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints filed
by Hongkong and Shanghai Banking Corporation, Ltd. - Staff Retirement Plan (HSBCL-
SRP) for recovery of sum of money. The appellate court reversed and set aside the
Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case
No. 00-787 dated 11 December 2000, as well as its Order 4 dated 5 September 2000.
The RTC’s decision affirmed the Decision 5 dated 28 December 1999 of Branch 61 of
the Metropolitan Trial Court (MeTC) of Makati City in Civil Case No. 52400 for Recovery
of a Sum of Money.
The Facts
The appellate court narrated the facts as follows:
Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of
Hongkong and Shanghai Banking Corporation (HSBC). They are also members of
respondent Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by
HSBC through its Board of Trustees for the benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of
Php175,000.00. On December 12, 1991, she again applied and was granted an
appliance loan in the amount of Php24,000.00. On the other hand, petitioner Gerong
applied and was granted an emergency loan in the amount of Php35,780.00 on June 2,
1993. These loans are paid through automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority
of HSBC’s employees were terminated, among whom are petitioners Editha Broqueza
and Fe Gerong. The employees then filed an illegal dismissal case before the National
Labor Relations Commission (NLRC) against HSBC. The legality or illegality of such
termination is now pending before this appellate Court in CA G.R. CV No. 56797,
entitled Hongkong Shanghai Banking Corp. Employees Union, et al. vs. National Labor
Relations Commission, et al.
Because of their dismissal, petitioners were not able to pay the monthly amortizations of
their respective loans. Thus, respondent HSBCL-SRP considered the accounts of
petitioners delinquent. Demands to pay the respective obligations were made upon
petitioners, but they failed to pay.6
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L.
Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On
19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits
were civil actions for recovery and collection of sums of money.
The Metropolitan Trial Court’s Ruling
On 28 December 1999, the MeTC promulgated its Decision 7 in favor of HSBCL-SRP.
The MeTC ruled that the nature of HSBCL-SRP’s demands for payment is civil and has
no connection to the ongoing labor dispute. Gerong and Editha Broqueza’s termination
from employment resulted in the loss of continued benefits under their retirement plans.
Thus, the loans secured by their future retirement benefits to which they are no longer
entitled are reduced to unsecured and pure civil obligations. As unsecured and pure
obligations, the loans are immediately demandable.
The dispositive portion of the MeTC’s decision reads:
WHEREFORE, premises considered and in view of the foregoing, the Court finds that
the plaintiff was able to prove by a preponderance of evidence the existence and
immediate demandability of the defendants’ loan obligations as judgment is hereby
rendered in favor of the plaintiff and against the defendants in both cases, ordering the
latter:
1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent
interest per annum from the time of demand and in Civil Case No. 52911, to
pay the amount of Php25,344.12 at six percent per annum from the time of the
filing of these cases, until the amount is fully paid;
2. To pay the amount of Php20,000.00 each as reasonable attorney’s fees;
3. Cost of suit.
SO ORDERED.8
Gerong and the spouses Broqueza filed a joint appeal of the MeTC’s decision before
the RTC. Gerong’s case was docketed Civil Case No. 00-786, while the spouses
Broqueza’s case was docketed as Civil Case No. 00-787.
The Regional Trial Court’s Ruling
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The RTC initially denied the joint appeal because of the belated filing of Gerong and the II. The Court of Appeals has departed from the accepted and usual course of
spouses Broqueza’s memorandum. The RTC later reconsidered the order of denial and judicial proceedings in reversing the decision of the Regional Trial Court and
resolved the issues in the interest of justice. the Metropolitan Trial Court.14

On 11 December 2000, the RTC affirmed the MeTC’s decision in toto.9 The Court’s Ruling

The RTC ruled that Gerong and Editha Broqueza’s termination from employment The petition is meritorious. We agree with the rulings of the MeTC and the RTC.
disqualified them from availing of benefits under their retirement plans. As a
consequence, there is no longer any security for the loans. HSBCL-SRP has a legal The Promissory Notes uniformly provide:
right to demand immediate settlement of the unpaid balance because of Gerong and
Editha Broqueza’s continued default in payment and their failure to provide new security PROMISSORY NOTE
for their loans. Moreover, the absence of a period within which to pay the loan allows
HSBCL-SRP to demand immediate payment. The loan obligations are considered pure
P_____ Makati, M.M. ____ 19__
obligations, the fulfillment of which are demandable at once.
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE
Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before
HSBC RETIREMENT PLAN (hereinafter called the "PLAN") at its office in the
the CA.
Municipality of Makati, Metro Manila, on or before until fully paid the sum of
PESOS ___ (P___) Philippine Currency without discount, with interest from date hereof
The Ruling of the Court of Appeals at the rate of Six per cent (6%) per annum, payable monthly.

On 30 March 2006, the CA rendered its Decision 10 which reversed the 11 December I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated
2000 Decision of the RTC. The CA ruled that the HSBCL-SRP’s complaints for recovery in this note at any time depending on prevailing conditions.
of sum of money against Gerong and the spouses Broqueza are premature as the loan
obligations have not yet matured. Thus, no cause of action accrued in favor of HSBCL-
I/WE hereby expressly consent to any extensions or renewals hereof for a portion or
SRP. The dispositive portion of the appellate court’s Decision reads as follows:
whole of the principal without notice to the other(s), and in such a case our liability shall
remain joint and several.1avvphi1
WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A
new one is hereby rendered DISMISSING the consolidated complaints for recovery of
In case collection is made by or through an attorney, I/WE jointly and severally agree to
sum of money.
pay ten percent (10%) of the amount due on this note (but in no case less than
P200.00) as and for attorney’s fees in addition to expenses and costs of suit.
SO ORDERED.11
In case of judicial execution, I/WE hereby jointly and severally waive our rights under
HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in the provisions of Rule 39, Section 12 of the Rules of Court.15
its Resolution12 promulgated on 19 June 2007.
In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:
On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against
Gerong because she already settled her obligations. In a Resolution 13 of this Court
Art. 1179. Every obligation whose performance does not depend upon a future or
dated 10 September 2007, this Court treated the manifestation as a motion to withdraw
uncertain event, or upon a past event unknown to the parties, is demandable at once.
the petition against Gerong, granted the motion, and considered the case against
Gerong closed and terminated.
x x x. (Emphasis supplied.)
Issues
We affirm the findings of the MeTC and the RTC that there is no date of payment
indicated in the Promissory Notes. The RTC is correct in ruling that since the
HSBCL-SRP enumerated the following grounds to support its Petition:
Promissory Notes do not contain a period, HSBCL-SRP has the right to demand
immediate payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s
I. The Court of Appeals has decided a question of substance in a way not in obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was
accord with law and applicable decisions of this Honorable Court; and content with the prior monthly check-off from Editha Broqueza’s salary is of no moment.
Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand
to enforce a pure obligation.

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In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s
dismissal from HSBC in December 1993, she "religiously paid the loan amortizations,
which HSBC collected through payroll check-off."16 A definite amount is paid to HSBCL-
SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to make deductions
from her payroll until her loans are fully paid. Editha Broqueza, however, defaulted in
her monthly loan payment due to her dismissal. Despite the spouses Broqueza’s
protestations, the payroll deduction is merely a convenient mode of payment and not
the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will
be paid only through salary deductions. Neither did HSBCL-SRP agree that if Editha
Broqueza ceases to be an employee of HSBC, her obligation to pay the loans will be
suspended. HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses Broqueza have
already incurred in default in paying the monthly installments.

Finally, the enforcement of a loan agreement involves "debtor-creditor relations founded

on contract and does not in any way concern employee relations. As such it should be
enforced through a separate civil action in the regular courts and not before the Labor
Arbiter."17

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-

G.R. SP No. 62685 promulgated on 30 March 2006 is REVERSED and SET ASIDE.
The decision of Branch 139 of the Regional Trial Court of Makati City in Civil Case No.
00-787, as well as the decision of Branch 61 of the Metropolitan Trial Court of Makati
City in Civil Case No. 52400 against the spouses Bienvenido and Editha Broqueza,
are AFFIRMED. Costs against respondents.

SO ORDERED.

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 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29900 June 28, 1974
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased,
GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Florentino B. del Rosario for petitioner-appellant.
Manuel V. San Jose for oppositor-appellee.
FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by petitioner on questions of
law. While several points were raised, the decisive issue is whether a creditor is barred
by prescription in his attempt to collect on a promissory note executed more than fifteen
years earlier with the debtor sued promising to pay either upon receipt by him of his
share from a certain estate or upon demand, the basis for the action being the latter
alternative. The lower court held that the ten-year period of limitation of actions did
apply, the note being immediately due and demandable, the creditor admitting expressly
that he was relying on the wording "upon demand." On the above facts as found, and
with the law being as it is, it cannot be said that its decision is infected with error. We
affirm.
From the appealed decision, the following appears: "The parties in this case agreed to
submit the matter for resolution on the basis of their pleadings and annexes and their
respective memoranda submitted. Petitioner George Pay is a creditor of the Late Justo
Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a
promissory note dated January 30, 1952, whereby the late Justo Palanca and Rosa
Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of
P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now
before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the
late Justo Palanca, he appointed as administratrix of a certain piece of property which is
a residential dwelling located at 2656 Taft Avenue, Manila, covered by Tax Declaration
No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once
said property is brought under administration, George Pay, as creditor, can file his claim
against the administratrix."1 It then stated that the petition could not prosper as there
was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer belonged to the
debtor, the late Justo Palanca; and that the rights of petitioner-creditor had already
prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value
received from time to time since 1947, we [jointly and severally promise to] pay to Mr.
[George Pay] at his office at the China Banking Corporation the sum of [Twenty Six
Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12%
per annum upon receipt by either of the undersigned of cash payment from the Estate
of the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is
signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this
paragraph: "The Court has inquired whether any cash payment has been received by
either of the signers of this promissory note from the Estate of the late Carlos Palanca.
Petitioner informed that he does not insist on this provision but that petitioner is only
claiming on his right under the promissory note ."3 After which, came the ruling that the
wording of the promissory note being "upon demand," the obligation was immediately
due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years
has already transpired from that time until to date. The action, therefore, of the creditor
has definitely prescribed."4 The result, as above noted, was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did
assail the correctness of the rulings of the lower court as to the effect of the refusal of
the surviving spouse of the late Justo Palanca to be appointed as administratrix, as to
the property sought to be administered no longer belonging to the debtor, the late Justo
Palanca, and as to the rights of petitioner-creditor having already prescribed. As noted
at the outset, only the question of prescription need detain us in the disposition of this
appeal. Likewise, as intimated, the decision must be affirmed, considering the clear
tenor of the promissory note.
From the manner in which the promissory note was executed, it would appear that
petitioner was hopeful that the satisfaction of his credit could he realized either through
the debtor sued receiving cash payment from the estate of the late Carlos Palanca
presumptively as one of the heirs, or, as expressed therein, "upon demand." There is
nothing in the record that would indicate whether or not the first alternative was fulfilled.
What is undeniable is that on August 26, 1967, more than fifteen years after the
execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil
Code provides: "Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once."
This used to be Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano
v. Delgado,5 a 1908 decision, it has been applied according to its express language.
The well-known Spanish commentator, Manresa, on this point, states: "Dejando con
acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija,
para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es
consecuencia de aquel: la exigibilidad immediata."6
The obligation being due and demandable, it would appear that the filing of the suit after
fifteen years was much too late. For again, according to the Civil Code, which is based
on Section 43 of Act No. 190, the prescriptive period for a written contract is that of ten
years.7 This is another instance where this Court has consistently adhered to the
express language of the applicable norm.8 There is no necessity therefore of passing
upon the other legal questions as to whether or not it did suffice for the petition to fail
just because the surviving spouse refuses to be made administratrix, or just because
the estate was left with no other property. The decision of the lower court cannot be
overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against
George Pay.
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