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G.R. No.

L-11827

July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee, vs. ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants. Alejo Mabanag for plaintiff-appellee. Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendantsappellants. REYES, J.B.L., J.: This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00. Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte. By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests. To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier)

as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof. On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94). Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees. All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages. At the trial of the case, the parties agreed to limit the presentation of evidence to two issues: (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A." On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil Code. As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A." Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court. During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we have reached in this case, which we shall hereafter discuss. The main issues presented by appellants in this appeal are: (1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955; and (2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. The first issue involves an interpretation of the following provision in the contract Exhibit "A": 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows: a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest. We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.00. 3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing. 4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides: If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date)

postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for making the payment. We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: "ART. 1198. The debtor shall lose every right to make use of the period: (1) . . . (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendantsappellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.". All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump price. But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-delivery in this case? We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter. Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7. In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164). There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct. WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants.

WHEREFORE, premises considered, this Court hereby renders judgment in favor of the defendant, Felix Gonzales, and against the plaintiffs, as follows: (1) Ordering the dismissal of the case; (2) Sentencing the plaintiffs, jointly and severally, the sum of P20,000.00 as moral damages and the other sum of P10,000.00 as and for attorneys fees; and (3) To pay the costs.[6 The Facts We hereby reproduce, unedited, the Court of Appeals summary of the facts of this case as follows: On December 1, 1983, Paula Ao Cruz together with the plaintiffs heirs of Thomas and Paula Cruz, namely Ricardo A. Cruz, Carmelita M. Cruz, Salome A. Cruz, Irenea C. Victoria, Leticia C. Salvador and Elena C. Talens, entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, the sole proprietor and manager of Felgon Farms, of a half-portion of a parcel of land containing an area of 12 hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province of Rizal and covered by Transfer Certificate of Title No. 12111 (Exhibit A, p. 157, Records). The contract of Lease/Purchase contains the following provisions: 1. The terms of this Contract is for a period of one year upon the signing thereof. After the period of this Contract, the LESSEE shall purchase the property on the agreeable price of One Million Pesos (P1,000,000.00) payable within Two (2) Years period with an interest of 12% per annum subject to the devalued amount of the Philippine Peso, according to the following schedule of payment: Upon the execution of the Deed of Sale 50% - and thereafter 25% every six (6) months thereafter, payable within the first ten (10) days of the beginning of each period of six (6) months. 2. The LESSEE shall pay by way of annual rental an amount equivalent to Two Thousand Five Hundred (P2,500.00) Pesos per hectare, upon the signing of this contract on Dec. 1, 1983. xxx 9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned. xxx

THIRD DIVISION [G.R. No. 131784. September 16, 1999] FELIX L. GONZALES,Petitioner, vs. THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by ELENA C. TALENS, Respondents. DECISION PANGANIBAN, J.: If a stipulation in a contract admits of several meanings, it shall be understood as bearing that import most adequate to render it effectual. An obligation cannot be enforced unless the plaintiff has fulfilled the condition upon which it is premised. Hence, an obligation to purchase cannot be implemented unless and until the sellers have shown their title to the specific portion of the property being sold. The Case Before us is a Petition for Review on Certiorari assailing the August 13, 1997 Decision[1 of the Court of Appeals[2 in CA-GR CV No. 303754, which disposed as follows: WHEREFORE, the decision of the trial court dated November 16, 1990 is hereby REVERSED. The appellee FELIX GONZALES is hereby ordered to surrender possession of the property covered by the Contract of Lease/Purchase to the appellants, Heirs of Thomas and Paula Cruz, and to pay to the appellants the following amounts: 1. P15,000.00 per annum as rentals counted from December 1, 1984 until the appellants shall have recovered possession of the property subject of the Contract of Lease/Purchase; 2. P15,000.00 as attorneys fees; and 3. Costs of suit.[3 On the other hand, the trial court[4 Decision,[5 which was reversed by the CA, ruled as follows:

(Exhibits A, A-1; pp. 157-158. Records) The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00 annual rental on the half-portion of the property covered by Transfer Certificate of Title No. 12111 in accordance with the second provision of the Contract of Lease/Purchase (p. 12, TSN, September 14, 1989) and thereafter took possession of the property, installing thereon the defendant Jesus Sambrano as his caretaker (pp. 16-17, 27, TSN, December 12, 1989). The defendant Gonzales did not, however, exercise his option to purchase the property immediately after the expiration of the one-year lease on November 30, 1984 (pp. 19-20, TSN, September 14, 1989). He remained in possession of the property without paying

the purchase price provided for in the Contract of Lease/Purchase (Ibid.) and without paying any further rentals thereon (p. 36, TSN, November 7, 1989). A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales informing him of the lessors decision to rescind the Contract of Lease/Purchase due to a breach thereof committed by the defendant (Exhibit C; p. 162, Records). The letter also served as a demand on the defendant to vacate the premises within 10 days from receipt of said letter (Ibid.). The defendant Gonzales refused to vacate the property and continued possession thereof (p. 2, Record). The matter was therefore brought before the barangay captain of San Isidro, but owing to the defendants refusal to appear before the barangay, a certification allowing the case to be brought to Court was issued on March 18, 1987 (Exhibit E; p. 165, Records). The lessor, Paula Ao Cruz died the following day, March 19, 1987 (p. 9, TSN, September 14, 1989). A final demand letter to vacate the premises was sent by the remaining lessors who are also the heirs of the deceased lessor Paula Ao Cruz, through their counsel on August 24, 1987 which the defendant Gonzales received but did not heed (Exhibits D and D-1; pp. 163-164, Records). The property subject of the Contract of Lease/Purchase is currently the subject of an Extra-Judicial Partition (Exhibits G and G-1; pp. 168-169, Records). Title to the property remains in the name of the plaintiffs predecessors-in-interest, Bernardina Calixto and Severo Cruz (Exhibit B; p. 160, Records). Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint for recovery of possession of the property - subject of the contract with damages, both moral and compensatory and attorneys fees and litigation expenses (p. 3, Records). Alleging breach of paragraph nine of the Contract of Lease/Purchase, and payment of only P50,000.00 of the P500,000.00 agreed down payment on the purchase price of P1,000,000.00, the defendant Gonzales filed his answer on November 23, 1987 praying for a dismissal of the complaint filed against him and an award of moral, exemplary and actual damages, as well as litigation expenses (pp. 19-22, Records). The defendant Sambrano was, upon motion, declared in default for failure to file an answer despite valid service of summons (p. 30, Records). The parties limited the issues to be resolved to: (1) Whether or not paragraph 9 of the contract is a condition precedent before the defendant is to pay the down payment; (2) Whether or not plaintiffs can rescind the Contract of Lease/Purchase; and (3) Whether or not plaintiffs can terminate the Contract of Lease. (p. 4, Decision; p. 262, Records) After the termination of the pre-trial conference, the trial court proceeded to hear the case on the merits and arrived at its appealed decision based on the following findings and conclusions: Paragraph 9 of the contract clearly indicates that the lessors-plaintiffs shall obtain a Transfer Certificate of Title in the name of the lessee within 4 years before a new contract is to be entered into under the same terms and conditions as the original Contract of Lease/Purchase. Thus, before a deed of Sale can be

entered into between the plaintiffs and the defendant, the plaintiffs have to obtain the Transfer Certificate of Title in favor of the defendant. Article 1181 of the New Civil Code states that: In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. When the obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot be enforced against him unless the condition is complied with (Wise & Co. vs. Kelly, 37 Phil. 695; PNB vs. Philippine Trust Co., 68 Phil. 48). The failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in the contract, does not entitle them to rescind the contract[.] Article 1191 of the New Civil Code states that: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment of the obligation, with the payment of damages in either case. He may seek rescission, even after he has chosen fulfillment, if the latter should become impossible x x x. The power to rescind is given to the injured party. Where the plaintiff is the party who did not perform, he is not entitled to insist upon the performance of the contract by the defendant or recover damages by reason of his own breach (Mateos vs. Lopez, 6 Phil. 206; Borque vs. Yu Chipco, 14 Phil. 95). An action for specific performance of a contract is an equitable proceeding, and he who seeks to enforce it must himself be fair and reasonable, and do equity (Seva vs. Berwin, 48 Phil. 581). In this case, plaintiffs failed to comply with the conditions precedent after 2-1/2 years from the execution of the contract so as to entitle them to rescind the contract. Although the contract stated that the same be done within 4 years from execution, still, the defendant has to be assured that the land subject of the case will be transferred in his name without any encumbrances, as the Extra-Judicial Partition dated July 17, 1989 was being processed, and continues to be in process to this date. The failure to secure the Transfer Certificate of Title in favor of the defendant entitles not the plaintiffs but, rather, the defendant to either rescind or to ask for specific performances. Are the plaintiffs entitled to terminate the Contract of Lease? Article 1670 of the New Civil Code states that: If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquies[c]ence of the lessor and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived. Article 1682 of the New Civil Code states that: The lease of a piece of rural land, when its duration has not been fixed, is understood to have been made for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years may have to elapse for the purpose. The plaintiffs filed the complaint on October 12, 1987 after making an extrajudicial demand on July 2, 1986. The contract was entered into on December 1, 1983. The demand was thus made more than a year and a half from the expiry date of the original lease considering that there was no payment made for the second year of the lease. If one has to consider the fact that the defendant was given the option to purchase the property after two years, then, the lease would presumably run for at least two years. If that is so, then, the demand was made seven months after the expiration of the two-year lease. Still, this demand by the plaintiffs will come under the implied new lease of Articles 1682 and 1670 so that the plaintiffs are not entitled to terminate the Contract of Lease.

In sum, the plaintiffs cannot terminate the Contract of Lease due to their failure to notify the defendant in due time of their intention to that effect. Nor can they rescind the Contract of Purchase in view of the fact that there is a condition precedent which the plaintiffs have not fulfilled. It is the defendant now who has the option to either rescind or demand the performance of the contract. Moreover, according to Article 1654 of the New Civil Code, the lessor is obliged to deliver the thing which is the object of the contract in such condition as to render it fit for the use intended. Considering that the lessors-plaintiffs have not delivered the property in whole over the protest of the defendant, the latter suffered damages therefor. (p. 4-6, Decision; pp. 262-264, Records) Their complaint thus dismissed, the plaintiffs, now appellants, assign the trial court of having committed the following errors: I THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS COULD NOT VALIDLY RESCIND AND TERMINATE THE LEASE/PURCHASE CONTRACT (EXHIBIT A) AND THEREAFTER TO TAKE POSSESSION OF THE LAND IN QUESTION AND EJECT THEREFROM DEFENDANTS-APPELLEES. II THE TRIAL COURT EQUALLY ERRED IN NOT GRANTING THE RELIEFS PLEADED AND PRAYED FOR BY PLAINTIFFS-APPELLANTS IN THEIR COMPLAINT. (p. 42, Rollo) The case was submitted for decision without the appellees brief as per the Courts resolution dated July 8, 1992 (p. 71, Rollo). Ruling of the Court of Appeals The Court of Appeals reversed the trial court in this wise: The trial court, in its decision interpreted the ninth provision of the Contract of Lease/Purchase to mean that before the appellee exercises his option to purchase the property by paying the 50% plus interest on the P1,000,000.00 purchase price, the appellants must first transfer the title to the property in the appellees name. The Court finds this interpretation of the provision strained if not altogether absurd. The transfer of title to the property in the appellees name cannot be interpreted as a condition precedent to the payment of the agreed purchase price because such interpretation not only runs counter [to] the explicit provisions of the contract but also is contrary to the normal course of things anent the sale of real properties. The terms of the contract [are] explicit and require no interpretation. Upon the expiration of the lease, the lessee shall purchase the property. Besides, the normal course of things anent the sale of real properties dictates that there must first be payment of the agreed purchase price before transfer of title to the vendees name can be made. This was precisely what the appellants and Paula Ao Cruz had in mind when they had the ninth provision incorporated in the Contract of Lease/Purchase. They had asked for a period of 4 years from the time they receive the downpayment of 50% within which to have [the] title to the property transferred in the name of the appellee. The reason for this four (4) year period is [that] title to the property still remains in the name of the original owners, the predecessors-in-interest of the herein appellants and [transferring] the title to their names and eventually to the lessee-purchaser, appellee herein, would take quite some time. The appellee wanted to have the title to the property transferred in his name first before he exercises his option to purchase allegedly in accordance with the ninth provision of the contract. But the ninth provision does not give him this right. A reading of the contract in its entirety shows that the 4 year period asked

for by the appellants within which to have title to the property transferred in the appellees name will only start to run when the appellee exercises his option to purchase. Since the appellee never exercised his option to purchase, then appellee is not entitled to have the title to the property transferred in his name. Attributing reversible errors to the appellate court, petitioner elevated the case to this Court.[7 The Issues In his Memorandum,[8 petitioner submits the following main issues: I. Whether or not the Court of Appeals has gravely erred and committed grave abuse of discretion in the interpretation of [the] law between the parties. II. Whether or not the Court of Appeals committed serious mistakes in the finding of facts which resulted [in] departing from the usual course of judicial proceedings. For these issues to be resolved, petitioner asks this Court to answer the following questions: 1. Is there a conflict between the statement in paragraph 1 of the Lease/Purchase Contract and that [in] paragraph No. 9 thereof? 2. Is paragraph 9 of the Lease/Purchase Contract a condition precedent before petitioner could exercise his option to buy the property? 3. Can plaintiff rescind or terminate the Contract of Lease after the one-year period? In fine, the resolution of this case depends upon the proper interpretation of paragraph nine of the Contract. The Courts Ruling The Petition is meritorious. Main Issue: Interpretation of Paragraph Nine In its first paragraph, the disputed agreement provides that petitioner shall lease the property for one year, after which he shall purchase it. Paragraph nine, on the other hand, requires herein respondents to obtain a separate and distinct Transfer Certificate of Title (TCT) over the property, viz.: 9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T. over the lease portion to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned. Alleging that petitioner has not purchased the property after the lapse of one year, respondents seek to rescind the Contract and to recover the property. Petitioner, on the other hand, argues that he could not be compelled to purchase the property, because respondents have not complied with paragraph nine, which obligates them to obtain a separate and distinct title in their names. He contends that paragraph nine was a condition precedent to the purchase of the property.

To be sure, this paragraph and the entire agreement, for that matter -- is not a model of how a contract should be worded. It is an invitation to a litigation, as in fact the parties had to go all to way up to this Court to plead for a resolution of their conflict which is rooted in their failure to express themselves clearly. Small wonder, even the two lower courts gave contradictory understanding of this provision, thereby necessitating the intervention of the highest court of the land. Both the trial court and the Court of Appeals (CA) interpreted this provision to mean that the respondents had obliged themselves to obtain a TCT in the name of petitioner-lessee. The trial court held that this obligation was a condition precedent to petitioners purchase of the property. Since respondents had not performed their obligation, they could not compel petitioner to buy the parcel of land. The CA took the opposite view, holding that the property should be purchased first before respondents may be obliged to obtain a TCT in the name of petitioner-lessee-buyer. As earlier noted, petitioner disagrees with the interpretation of the two courts and maintains that respondents were obligated to procure a TCT in their names before he could be obliged to purchase the property in question. Basic is the rule in the interpretation of contracts that if some stipulation therein should admit of several meanings, it shall be understood as bearing that import most adequate to render it effectual.[9 Considering the antecedents of the ownership of the disputed lot, it appears that petitioners interpretation renders clause nine most effectual. The record shows that at the time the contract was executed, the land in question was still registered in the name of Bernardina Calixto and Severo Cruz, respondents predecessors-in-interest. There is no showing whether respondents were the only heirs of Severo Cruz or whether the other half of the land in the name of Bernardina Calixto was adjudicated to them by any means. In fact, they admit that extrajudicial proceedings were still ongoing. Hence, when the Contract of Lease/Purchase was executed, there was no assurance that the respondents were indeed the owners of the specific portion of the lot that petitioner wanted to buy, and if so, in what concept and to what extent. Thus, the clear intent of the ninth paragraph was for respondents to obtain a separate and distinct TCT in their names. This was necessary to enable them to show their ownership of the stipulated portion of the land and their concomitant right to dispose of it. Absent any title in their names, they could not have sold the disputed parcel of land. It is a well-settled principle in law that no one can give what one does not have -nemo dat quod non habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.[10 Because the property remained registered in the names of their predecessors-ininterest, private respondents could validly sell only their undivided interest in the estate of Severo Cruz, the extent of which was however not shown in the records. There being no partition of the estate thus far, there was no guarantee as to how much and which portion would be adjudicated to Respondents. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold.[11 In this case, the respondent could not deliver ownership or title to a specific portion of the yet undivided property. True, they could have intended to sell their hereditary interest, but in the context of the Contract of Lease/Purchase, the parties under paragraph nine wanted the specific portion of the land to be segregated, identified and specifically titled. Hence, by the said Contract, the respondents as sellers were given a maximum of four years within which to acquire a separate TCT in their names, preparatory to

the execution of the deed of sale and the payment of the agreed price in the manner described in paragraph nine. This interpretation is bolstered by the P50,000 petitioner advanced to respondents in order to help them expedite the transfer of the TCT to their names. Ineluctably, the intention of the parties was to have the title transferred first to respondents names as a condition for the completion of the purchase. In holding that clause nine was not a condition precedent to the purchase of the property, the CA relied on a literal interpretation to the effect that the TCT should be obtained in the name of the petitioner-vendee. It reasoned that the title could be transferred to the name of the buyer only after the completion of the purchase. Thus, petitioner should first purchase the property before respondents could be obliged to transfer the TCT to his name. We disagree. The literal interpretation not only ignores the factual backdrop of the case; it also utilizes a faulty parsing of paragraph nine, which should purportedly read as follows: The lessors x x x shall undertake to obtain a separate and distinct TCT xxx to the LESSEE within a reasonable period of time which shall not in any case exceed four (4) years x x x. Read in its entirety, however, paragraph nine does not say that the TCT should be obtained in the name of the lessee. In fact, paragraph nine requires respondents to obtain a TCT over the herein leased portion to the LESSEE, thereby showing that the crucial phrase to the LESSEE adverts to the leased portion and not to the name which should appear in the new TCT. Furthermore, the CA interpretation ignores the other part of paragraph nine, stating that after a separate TCT had been obtained, a new contract shall be executed by the herein parties which shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned. If, as the CA held, petitioner should purchase the property first before the title can be transferred to his name, why should there be a waiting period of four years before the parties can execute the new contract evidencing the sale? Why should the petitioner still be required to pay rentals after it purchases and pays for the property? The Contract could not have envisioned this absurd scenario. Clearly, the appellate courts literal interpretation of the first portion of paragraph nine renders the latter portion thereof ineffectual. In other words, that portion can only mean that the respondents should first obtain a TCT in their names, after which petitioner is given time to purchase and pay for the property. Respondents insist that the obligation of petitioner to buy the disputed land immediately after the termination of the one year lease period is explicit.[12 However, it is more reasonable to state that the first paragraph was effectively modified by the ninth. To repeat, petitioner can be compelled to perform his obligation under the first paragraph, only after respondents have complied with the ninth. Unless and until respondents have done so, the first paragraph cannot be enforced against petitioner. In sum, we hold that the ninth provision was intended to ensure that respondents would have a valid title over the specific portion they were selling to petitioner. Only after the title is assured may the obligation to buy the land and to pay the sums stated in the Contract be enforced within the period stipulated. Verily, the petitioners obligation to purchase has not yet ripened and cannot be enforced until and unless respondents can prove their title to the property subject of the Contract. Secondary Issues Ninth Clause Was a Condition Precedent

Because the ninth clause required respondents to obtain a separate and distinct TCT in their names and not in the name of petitioner, it logically follows that such undertaking was a condition precedent to the latters obligation to purchase and pay for the land. Put differently, petitioners obligation to purchase the land is a conditional one and is governed by Article 1181 of the Civil Code.[13 Condition has been defined as every future and uncertain event upon which an obligation or provision is made to depend. It is a future and uncertain event upon which the acquisition or resolution of rights is made to depend by those who execute the juridical act.[14 Without it, the sale of the property under the Contract cannot be perfected, and petitioner cannot be obliged to purchase the property. When the consent of a party to a contract is given subject to the fulfillment of a suspensive condition, the contract is not perfected unless that condition is first complied with.[15 The Court has held that [w]hen the obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot be enforced against him unless the condition is complied with.[16 Furthermore, [t]he obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event, so that if that event does not take place, the parties would stand as if the conditional obligation had never existed.[17 In this case, the obligation of the petitioner to buy the land cannot be enforced unless respondents comply with the suspensive condition that they acquire first a separate and distinct TCT in their names. The suspensive condition not having been fulfilled, then the obligation of the petitioner to purchase the land has not arisen. Respondents Cannot Rescind the Contract In the same vein, respondents cannot rescind the contract, because they have not caused the transfer of the TCT to their names, which is a condition precedent to petitioners obligation. This Court has held that there can be no rescission (or more properly, resolution) of an obligation as yet non-existent, because the suspensive condition has not happened.[18 Since the reversal of the CA Decision is inevitable, the trial courts judgment should be reinstated. However, we find no sufficient factual or legal justifications for the award of moral damages and attorneys fees. WHEREFORE, the petition is GRANTED and the appealed Decision is REVERSED and SET ASIDE. The Decision of the trial court is REINSTATED, but the award of moral damages and attorneys fees is DELETED for lack of basis. No costs. SO ORDERED.

petitioners Vicente and Michael Lim for P3,547,600.00. As prepared by petitioners broker, Atty. Rustico Zapata of the Zapata Realty Company, the receipt embodying the agreement 1 read as follows: RECEIPT RECEIVED from ZAPATA REALTY CO. INC., through Mr. Edmundo Kaimo of 101 Kaimo Building, Metrobank Cashiers Check No. 020583, Dasmarias branch, in the sum of TWO HUNDRED THOUSAND (P200,000.00) PESOS, as earnest money for the purchase of a parcel of land at the corner of G. Araneta Avenue and Quezon Avenue, Quezon City, with an area of 1,013.6 sq. m. covered by TCT 193230, Registry of Deeds for Quezon City, at the price of P3,547,600.00, subject to the following conditions: 1. This sum of P200,000.00 shall form part of the purchase price; 2. The balance of P3,347,600.00 shall be paid in full after the squatters/occupants have totally vacated the premises; 3. The seller assumes full responsibility to eject the squatters/occupants within a period of sixty (60) days from the date of receipt of the earnest money; and in case the seller shall fail in her commitment to eject the squatters/occupants within said period, the seller shall refund to the buyer this sum of P200,000.00 [plus another sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as liquidated damages]; however, if the buyer shall fail to pay the balance after the seller has ejected the squatters/occupants, this sum of P200,000.00 shall be forfeited by the seller; 4. Capital gains tax, documentary stamps tax and brokers commission shall be for sellers account while transfer and registration fees shall be for buyers account. 5. That Zapata Realty Co. Inc. and Edmundo F. Kaimo are the exclusive brokers of the buyers Vicente & Michael Lim. 6. Buyer assumes responsibility of the premises immediately upon eviction of the squatters. Quezon City, September 2, 1988. (SGD.) LIBERTY H. LUNA (Seller) WITNESSED BY: (SGD.) EDMUNDO KAIMO

SECOND DIVISION [ G.R. No. 118347. October 24, 1996 VICENTE LIM and MICHAEL LIM, Petitioners, vs. COURT OF APPEALS and LIBERTY H. LUNA, Respondents. DECISION MENDOZA, J.: Private respondent Liberty Luna is the owner of a piece of land located at the corner of G. Araneta Avenue and Quezon Avenue in Quezon City. The land, consisting of 1,013.6 square meters, is covered by TCT No. 193230 of Registry of Deeds of Quezon City. On September 2, 1988 private respondent sold the land to However, when private respondent signed the receipt, she crossed out the bracketed portion in paragraph 3 providing for the payment by private respondent of the amount of P100,000.00 as liquidated damages in the event she failed to eject the squatters sixty (60) days after the signing of the agreement. Thereafter, a check for P200,000.00 was given to private respondent as earnest money, leaving a balance of P3,347,600.00 to be paid in full after the squatters are ejected. Private respondent Luna failed to eject the squatters from the land despite her alleged efforts to do so. It appears that private respondent asked the help of a building official and a city engineers to effect ejectment. 2 Nonetheless, petitioners did not demand the return of their earnest money.

On January 17, 1989, the parties met at the office of Edmundo Kaimo to negotiate a price increase to facilitate the ejectment of the squatters. The parties agreed to an increase of P500.00 per square meter, by rounding off the total purchase price to P4,000,000.00, with the remaining 13.6 square meters of the 1.013.6 square meters given as a discount. Less the P200,000.00 given as earnest money, the balance to be paid by petitioners was P3,800,000.00. After a few days, private respondent tried to return the earnest money alleging her failure to eject the squatters. She claimed that as a result of her failure to remove the squatters from the land, the contract of sale ceased to exist and she no longer had the obligation to sell and deliver her property to petitioners. As petitioners had refused to accept the refund of the earnest money, private respondent wrote them on February 22, 1989 that the amount would be deposited in court by consignation. On March 10, 1989, private respondent filed a complaint for consignation against petitioners. Private respondent alleged that it was her obligation to return the earnest money under paragraph 3 of the receipt since the condition of ejecting the squatters had not been fulfilled but petitioners unjustly refused to accept the refund. She claimed that although she tried her best to eject the squatters, she failed in her efforts. Petitioners, on the other hand, argued in their answer that the legal requisites for a valid consignation were not present and, therefore the consignation was improper. They claimed that private respondent never really intended to eject the squatters, as evidence by the absence of a case for ejectment. Petitioners charged that private respondent has used her own failure as an excuse to get out of her contract. Private respondent testified that she had wanted to return the earnest money after realizing that she could not successfully eject the squatters but that she was not able to do so because petitioners broker, Zapata Realty Company, refused to give her petitioners address. 3 In her cross examination, she claimed that the primary reason for the January 17, 1989 meeting was for her to return the money and to withdraw from the sale and that the idea of increasing the price came from petitioners to convince her to continue with the sale. 4 She later admitted, however, that the price increase and decision to proceed with the sale were mutually agreed upon by her and petitioner Vicente Lim. 5 Her admission was confirmed by her broker, Edmundo Kaimo, who testified 6 that the purpose of the meeting was to discuss ways of carrying out the sale, considering that private respondent was having difficulty ejecting the squatters and that what he private respondent proposed to petitioners was to increase the purchase price to facilitate the ejectment. Testifying in their turn, petitioner Vicente Lim denied that the January 17, 1989 meeting was held at their instance. 7 He said that he was reluctant to agree to the price increase but was prevailed upon to do so by his broker, Zapata Realty Company, and by Edmundo Kaimo. This testimony was corroborated by Atty. Rustico Zapata and Francisco Zapata of the Zapata Realty Company. On December 28, 1992 the trial court rendered a decision holding that there was a perfected contract of sale between the parties and that pursuant to Art. 1545 of the Civil Code, although the failure of private respondent to eject the squatters was a breach of warranty, the performance of warranty could be waived by the buyer, as petitioners did in this case. It found private respondent to have acted in bad faith by not exerting earnest efforts to eject the squatters, in order to get out of the contract. The dispositive portion of its decision reads: WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of the defendants and against plaintiff:

1. The complaint is dismissed. 2. Perforce, plaintiff is ordered to comply with the Receipt Agreement dated September 02, 1988 regarding the sale to the defendants of the property covered by Transfer Certificate of Title No. T-193230 of the Registry of Deeds of Quezon City, upon payment by the defendants of the balance of P3,800,000.00. 3. Plaintiff is ordered to pay the defendants the sum of P500,000.00 as moral damages. 4. Plaintiff to pay defendants the sum of P50,000.00 by way of attorneys fees. 5. Plaintiff to pay the cost. SO ORDERED. The private respondent appealed to the Court of Appeals, which reversed 9 the trial court and allowed the complaint for consignation. It held that as a result of the nun-fulfillment of the condition of ejecting the squatters, petitioners lost the right to demand from the private respondent the sale of the land to them. The appellate court described the sale in this case as a "contract with a conditional obligation" whereby the private respondents obligation to sell and deliver and the petitioners obligation to pay the balance of the purchase price depended on the fulfillment of the condition that the squatters be removed within 60 days. The Court of Appeals held: Under such conditions, upon the ejectment of the squatters plaintiff would acquire the right to demand that defendants proceed with the sale and pay the balance of the purchase price; and, on the other hand, should the event not happen, defendants would lose the right they had acquired by giving the earnest money to plaintiff to demand that the latter sell said land to them. It also ruled that consignation was proper as the obligation to refund earnest money was a clear debt and that contrary to the finding of the trial court, the facts show that private respondent exerted earnest efforts to eject the squatters and was, therefore, not in bad faith. The petitioners filed this petition for review on the following grounds. I. THE RULING OF THE COURT OF APPEALS THAT "THE NON-FULFILLMENT OF THE CONDITION OF EJECTING THE SQUATTERS RESULTED IN DEFENDANTS LOSING THE RIGHT (ACQUIRED BY VIRTUE OF THE EARNEST MONEY) TO DEMAND THAT PLAINTIFF SELL THE LAND TO THEM" IS PATENTLY AGAINST THE SPECIFIC LAW ON SALES, AND IS A DISTORTED AND CLEARLY ERRONEOUS APPLICATION OF THE GENERAL PROVISIONS OF THE LAW ON OBLIGATIONS AND CONTRACTS. II. THE RULING OF THE COURT OF APPEALS IS A DISTORTION OF THE CONTRACT BETWEEN THE PARTIES, WAY OF JUSTICE ITSELF BECAUSE IT REWARDS RATHER THAN SANCTIONS THE NON-PERFORMANCE OF A CONTRACTED OBLIGATION. III. THE QUESTION OF WHETHER OR NOT RESPONDENT LUNA EXERTED EARNEST EFFORTS TO EJECT THE SQUATTERS DOES NOT PERTAIN TO THE ISSUE OF THE PROPRIETY OF CONSIGNATION BUT REFERS TO THE MATTER OF WHETHER OR NOT RESPONDENT LUNA WAS IN BAD FAITH AND IS THEREFORE LIABLE FOR DAMAGES INFLICTED UPON THE PETITIONERS; AND THE RULING THAT SUCH EARNEST EFFORTS WAS PRESENT IS CONTRARY TO UNCONTRADICTED EVIDENCE. The petition is well taken. The first question is whether as a result of private respondents failure to eject the squatters from the land, petitioners, as the Court of Appeals ruled, lost the right to demand that the land be sold to them. We hold

that they did not and that the appellate court erred in holding otherwise. The agreement, as quoted, shows a perfected contract of sale. Under Art. 1475 of the Civil Code, there is a perfected contract of sale if there is a meeting of the minds on the subject and the price. A sale is a consensual contract requiring only the consent of the parties on these two points. In this case, the parties agreed on the subject, the 1,013.6 square meter lot and on the purchase price of P4,000,000.00. No particular form is required for the validity of their contract and, therefore, upon its perfection. The parties can reciprocally demand performance of their respective obligations. 10 Indeed, the earnest money given is proof of the perfection of the contract. As Art. 1482 of the Civil Code states, "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." This perfected contract imposed reciprocal obligations on the parties. Petitioners obligation was to pay the balance of the price, while private respondents obligation was to deliver the property to petitioners upon payment of the price. It is true that private respondent undertook to eject the squatters before the delivery of the property within a certain period and that for her failure to carry out her obligation she could be ordered to refund the P200,000.00 earnest money. But whether she would be obliged to do so depends on petitioners who can waive the condition and opt to proceed with the sale instead. Private respondent Luna contends that as the condition of ejecting the squatters was not met, she no longer has an obligation to proceed with the sale of her lot. This contention is erroneous. Private respondent fails to distinguish between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states: 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. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. (Emphasis added) In this case, there is already a perfected contract. The condition was imposed only on the performance of the obligation. Hence, petitioners have the right to choose whether to demand the return of P200,000.00 which they have paid as earnest money or to proceed with the sale. They have chosen to proceed with the sale and private respondent cannot refuse to do so. Indeed, private respondent is not the injured party. She cannot rescind the contract without violating the principle of mutuality of contracts, which prohibits allowing the validity and performance of contracts to be left to the will of one of the parties. 11 Thus in a case 12 on all fours with this case, this Court held: 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 respondents 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. [13 .... In any case, private respondents action for rescission is not warranted. She is not the injured party. The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. It is private respondent who has failed in her obligation under the contract. 14 The second question is whether private respondent is liable for damages to petitioners. The trial court correctly found private respondent guilty of breach of contract and awarding moral damages and attorneys fees to petitioners. The court held: The failure of the plaintiff (Luna) to eject the squatters which is her "full responsibility" and "commitment" under the contract of sale, aggravated by her persistence in evading the obligation to deliver the property on the basis of her very own failure, the persistence culminating in the instant case for consignation, show not just a breach of contract but a breach in bad faith. . . . The Court finds that the defendant may be awarded moral damages in the amount they prayed for, which is P500,000.00 considering that it was the same amount which the parties have determined as the cost of the removal of the squatters. The clear absence of merit of plaintiffs position, which at [the] bottom is an attempt to profit from ones own breach, compels this court to award attorneys fees, defendants having been unnecessary dragged into a litigation. Indeed, the evidence shows that private respondent made little more than token effort to seek the ejectment of squatters from the land, revealing her real intention to be finding a way of getting out of her contract. Her failure to eject the squatters despite sufficient time and funds given to her by petitioners, her offer to return the earnest money only a month after their meeting on January 17, 1989 in which she agreed to proceed with the sale in consideration of which the purchase price was increased by almost P500,000.00 and her consignation of the earnest money despite petitioners insistence that the sale should go on even if she had failed to eject the squatters all these betray private respondents failure to comply with her obligation. Private respondents lack of intention to really comply with her obligation under the contract is underscored by her failure to seek the assistance of courts in ejecting the squatters. It might be granted that, at first, she thought going to the city engineers office was the expedient way of ejecting the squatters. However, having seen the futility of such recourse and having been given money, private respondent had no excuse for filing the action below. Her failure to make use of her resources and her insistence on rescinding the sale shows quite clearly that she was indeed just looking for away to get out of her contractual obligation by pointing to her own abject failure to rid the land of squatters. The Court of Appeals erred in holding that private respondent had made earnest efforts in discharging her obligation, relying for this purpose on the testimony of Domingo Tapay, Building Official of Quezon City. Edgardo C. Julian, Civil Engineer in charge of demolition in the Office of the Building Official of Quezon City, testified that though a request for demolition had been made by private respondent Luna, no demolition actually took place and that the attempt to do so was made only sometime in mid-1989. 15 This confirms the letter dated April 24, 1989 of the City Engineers Office of Quezon City to petitioner that as of that date there was no record in that office of any request for the ejectment of squatters from the land. 16 The trial court awarded P500,000.00 to petitioners as moral damages for suffering, delay and inconvenience they experienced as a result of private

respondents failure in bad faith to proceed under the contract. This amount corresponds to the price increase agreed to be paid to private respondent to facilitate the ejectment of the squatters. The award of moral damages is in accordance with Art. 2220 of the Civil Code which provides that moral damages may be awarded in case of a breach of contract where the defendant acted fraudulently or in bad faith. However, the amount awarded is in our opinion excessive. To be sure the amount to be awarded depends upon the discretion of the court based on the circumstances of each case but, having regard for the purposes for awarding such damages, we think that fixing the amount equivalent to the increase given to private respondent would be contrary to the rule that moral damages are not intended to enrich the complainant at the expense of the defendant 17 or to penalize the defendant. 18 Under the circumstance an award of P100,000.00 would be fair and reasonable. This Court also agrees with the award of attorneys fees by the trial court. As found by the trial court, there was clear absence of merit in private respondents position thus unnecessarily forcing petitioners to litigate. Under Art. 2208(4)(5) of the Civil Code, attorneys fees may be recovered when the civil action or proceeding against the plaintiff is clearly unfounded and where defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs claim. WHEREFORE,the decision of the Court of Appeals is REVERSED and that of the Regional Trial Court is REINSTATED, with the MODIFICATION that private respondent is ordered to pay the sum of P100,000.00 as moral damages and P50,000.00 as attorneys fees to petitioners. SO ORDERED. G.R. No. L-24190 July 13, 1926 GEORGE L. PARKS, plaintiff-appellant, vs. PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her husband, defendants-appellees. Jos. N. Wolfson for appellant. Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac. No appearance for the other appellees. AVANCEA, C. J.: On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred to in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions specified in the public document in which they made this donation. The donation was accepted by Mr. Santiago de Jesus in the same document on behalf of the municipal council of Tarlac of which he was the municipal president. The parcel thus donated was later registered in the name of the donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac transferred the parcel to the Province of Tarlac which, by reason of this transfer, applied for and obtained the registration thereof in its name, the corresponding certificate of title having been issued to it. The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied with and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his favor, brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be declared the absolute owner entitled to the possession of this parcel, that the transfer of the same by the municipality of Tarlac to the Province

of Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac cancelled. The lower court dismissed the complaint. The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot have any effect. This parcel having been donated by Concepcion Cirer and James Hill to the municipality of Tarlac, which donation was accepted by the latter, the title to the property was transferred to the municipality of Tarlac. It is true that the donation might have been revoked for the causes, if any, provided by the law, but the fact is that it was not revoked when Concepcion Cirer and James Hill made the sale of this parcel to the plaintiff. Even supposing that causes existed for the revocation of this donation, still, it was necessary, in order to consider it revoked, either that the revocation had been consented to by the donee, the municipality of Tarlac, or that it had been judicially decreed. None of these circumstances existed when Concepcion Cirer and James Hill sold this parcel to the plaintiff. Consequently, when the sale was made Concepcion Cirer and James Hill were no longer the owners of this parcel and could not have sold it to the plaintiff, nor could the latter have acquired it from them. But the appellant contends that a condition precedent having been imposed in the donation and the same not having been complied with, the donation never became effective. We find no merit in this contention. The appellant refers to the condition imposed that one of the parcels donated was to be used absolutely and exclusively for the erection of a central school and the other for a public park, the work to commence in both cases within the period of six months from the date of the ratification by the partes of the document evidencing the donation. It is true that this condition has not been complied with. The allegation, however, that it is a condition precedent is erroneous. The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition precedent. In the present case the condition that a public school be erected and a public park made of the donated land, work on the same to commence within six months from the date of the ratification of the donation by the parties, could not be complied with except after giving effect to the donation. The donee could not do any work on the donated land if the donation had not really been effected, because it would be an invasion of another's title, for the land would have continued to belong to the donor so long as the condition imposed was not complied with. The appellant also contends that, in any event, the condition not having been complied with, even supposing that it was not a condition precedent but subsequent, the non-compliance thereof is sufficient cause for the revocation of the donation. This is correct. But the period for bringing an action for the revocation of the donation has prescribed. That this action is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of five years for the revocation by the subsequent birth of children (art. 646, Civil Code), and one year for the revocation by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation (art. 647, Civil Code), it is because in this respect the donation is considered onerous and is governed by the law of contracts and the general rules of prescription. Under the law in force (sec. 43, Code of Civ. Proc.) the period of prescription of this class of action is ten years. The action for the revocation of the donation for this cause arose on April

19, 1911, that is six months after the ratification of the instrument of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten years after this cause accrued. By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the appellant. So ordered. G.R. No. 112127 July 17, 1995

Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable. The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title. Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which petitioner would establish a medical college. 2 We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration. Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished. The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. 6

CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.: CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessor-in-interest. Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation 1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum; 2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; 3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. 1 On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by the latter. In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party. On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.

Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that which should not have been done is done. 7 In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor. The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee. Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived. 8 This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed. Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interests. 10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance. WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment. Costs against petitioner.

SO ORDERED.