Professional Documents
Culture Documents
DBP VS Ca
DBP VS Ca
DBP VS Ca
Sometime in 1939, the late Don Ramon Lopez, Sr., The appellate court also found that while the first
who was then a member of the Board of Trustees of condition mandated petitioner to utilize the donated
the Central Philippine College (now Central Philippine property for the establishment of a medical school,
University [CPU]), executed a deed of donation in the donor did not fix a period within which the
favor of the latter of a parcel of land identified as Lot condition must be fulfilled, hence, until a period was
No. 3174-B-1 of the subdivision plan Psd-1144, then fixed for the fulfillment of the condition, petitioner
a portion of Lot No. 3174-B, for which Transfer could not be considered as having failed to comply
Certificate of Title No. T-3910-A was issued in the with its part of the bargain. Thus, the appellate court
name of the donee CPU with the following rendered its decision reversing the appealed decision
annotations copied from the deed of donation — and remanding the case to the court of origin for the
determination of the time within which petitioner
1. The land described shall be utilized by the should comply with the first condition annotated in the
CPU exclusively for the establishment and certificate of title.
use of a medical college with all its buildings
as part of the curriculum; Petitioner now alleges that the Court of Appeals
erred: (a) in holding that the quoted annotations in the
2. The said college shall not sell, transfer or certificate of title of petitioner are onerous obligations
convey to any third party nor in any way and resolutory conditions of the donation which must
encumber said land; be fulfilled non-compliance of which would render the
donation revocable; (b) in holding that the issue of
3. The said land shall be called "RAMON prescription does not deserve "disquisition;" and, (c)
LOPEZ CAMPUS", and the said college shall in remanding the case to the trial court for the fixing of
be under obligation to erect a cornerstone the period within which petitioner would establish a
bearing that name. Any net income from the medical college.2
land or any of its parks shall be put in a fund
to be known as the "RAMON LOPEZ We find it difficult to sustain the petition. A clear
CAMPUS FUND" to be used for perusal of the conditions set forth in the deed of
improvements of said campus and erection donation executed by Don Ramon Lopez, Sr., gives
of a building thereon.1 us no alternative but to conclude that his donation
was onerous, one executed for a valuable
On 31 May 1989, private respondents, who are the consideration which is considered the equivalent of
heirs of Don Ramon Lopez, Sr., filed an action for the donation itself, e.g., when a donation imposes a
annulment of donation, reconveyance and damages burden equivalent to the value of the donation. A gift
against CPU alleging that since 1939 up to the time of land to the City of Manila requiring the latter to
the action was filed the latter had not complied with erect schools, construct a children's playground and
the conditions of the donation. Private respondents open streets on the land was considered an onerous
also argued that petitioner had in fact negotiated with donation.3 Similarly, where Don Ramon Lopez
the National Housing Authority (NHA) to exchange the donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a The period of time for the establishment of a medical
medical college thereon, the donation must be for an college and the necessary buildings and
onerous consideration. improvements on the property cannot be quantified in
a specific number of years because of the presence
Under Art. 1181 of the Civil Code, on conditional of several factors and circumstances involved in the
obligations, the acquisition of rights, as well as the erection of an educational institution, such as
extinguishment or loss of those already acquired, government laws and regulations pertaining to
shall depend upon the happening of the event which education, building requirements and property
constitutes the condition. Thus, when a person restrictions which are beyond the control of the
donates land to another on the condition that the latter donee.
would build upon the land a school, the condition
imposed was not a condition precedent or a Thus, when the obligation does not fix a period but
suspensive condition but a resolutory one.4 It is not from its nature and circumstances it can be inferred
correct to say that the schoolhouse had to be that a period was intended, the general rule provided
constructed before the donation became effective, in Art. 1197 of the Civil Code applies, which provides
that is, before the donee could become the owner of that the courts may fix the duration thereof because
the land, otherwise, it would be invading the property the fulfillment of the obligation itself cannot be
rights of the donor. The donation had to be valid demanded until after the court has fixed the period for
before the fulfillment of the condition.5 If there was no compliance therewith and such period has arrived.8
fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may This general rule however cannot be applied
now be revoked and all rights which the donee may considering the different set of circumstances existing
have acquired under it shall be deemed lost and in the instant case. More than a reasonable period of
extinguished. fifty (50) years has already been allowed petitioner to
avail of the opportunity to comply with the condition
The claim of petitioner that prescription bars the even if it be burdensome, to make the donation in its
instant action of private respondents is unavailing. favor forever valid. But, unfortunately, it failed to do
so. Hence, there is no more need to fix the duration of
The condition imposed by the donor, i.e., the a term of the obligation when such procedure would
building of a medical school upon the land be a mere technicality and formality and would serve
donated, depended upon the exclusive will of no purpose than to delay or lead to an unnecessary
the donee as to when this condition shall be and expensive multiplication of suits. 9 Moreover,
fulfilled. When petitioner accepted the under Art. 1191 of the Civil Code, when one of the
donation, it bound itself to comply with the obligors cannot comply with what is incumbent upon
condition thereof. Since the time within which him, the obligee may seek rescission and the court
the condition should be fulfilled depended shall decree the same unless there is just cause
upon the exclusive will of the petitioner, it authorizing the fixing of a period. In the absence of
has been held that its absolute acceptance any just cause for the court to determine the period of
and the acknowledgment of its obligation the compliance, there is no more obstacle for the
provided in the deed of donation were court to decree the rescission claimed.
sufficient to prevent the statute of limitations
from barring the action of private Finally, since the questioned deed of donation herein
respondents upon the original contract which is basically a gratuitous one, doubts referring to
was the deed of donation.6 incidental circumstances of a gratuitous contract
should be resolved in favor of the least transmission
Moreover, the time from which the cause of action of rights and interests. 10 Records are clear and facts
accrued for the revocation of the donation and are undisputed that since the execution of the deed of
recovery of the property donated cannot be donation up to the time of filing of the instant action,
specifically determined in the instant case. A cause of petitioner has failed to comply with its obligation as
action arises when that which should have been done donee. Petitioner has slept on its obligation for an
is not done, or that which should not have been done unreasonable length of time. Hence, it is only just and
is done.7 In cases where there is no special provision equitable now to declare the subject donation already
for such computation, recourse must be had to the ineffective and, for all purposes, revoked so that
rule that the period must be counted from the day on petitioner as donee should now return the donated
which the corresponding action could have been property to the heirs of the donor, private respondents
instituted. It is the legal possibility of bringing the herein, by means of reconveyance.
action which determines the starting point for the
computation of the period. In this case, the starting WHEREFORE, the decision of the Regional Trial
point begins with the expiration of a reasonable period Court of Iloilo, Br. 34, of 31 May 1991 is
and opportunity for petitioner to fulfill what has been REINSTATED and AFFIRMED, and the decision of
charged upon it by the donor. the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to
reconvey to private respondents Lot No. 3174-B-1 of
the subdivision plan Psd-1144 covered by Transfer
Certificate of Title No. T-3910-A within thirty (30) days
from the finality of this judgment.
SO ORDERED.
Republic of the Philippines
SUPREME COURT On September 24, 1994, the developer and owner
Manila agreed, through the addendum to the JVA,9 to
increase the initial deposit for the settlement of claims
FIRST DIVISION and the relocation of the tenants from P10,000,000.00
to P60,000,000.00.
G.R. No. 169694 December 09, 2015
On October 27, 1994, the developer, by deed of
MEGAWORLD PROPERTIES AND HOLDINGS, assignment,10 transferred, conveyed and assigned to
INC., EMPIRE EAST LAND HOLDINGS, INC., AND Empire East Land Holdings, Inc. (developer/assignee)
ANDREW L. TAN, Petitioners, all its rights and obligations under the JVA including
vs the addendum.
MAJESTIC FINANCE AND INVESTMENT CO., INC.,
RHODORA LOPEZ-LIM, AND PAULINA CRUZ, On February 29, 2000, the owner filed in the RTC a
Respondents. complaint for specific performance with damages
against the developer, the developer/assignee, and
DECISION respondent Andrew Tan, who are now the petitioners
herein. The complaint, docketed as Civil Case No.
BERSAMIN, J.: 67813, was mainly based on the failure of the
petitioners to comply with their obligations under the
This case arises from a dispute on whether either JVA,11 including the obligation to maintain a strong
party of a joint venture agreement to develop property security force to safeguard the entire joint venture
into a residential subdivision has already performed property of 215 hectares from illegal entrants and
its obligation as to entitle it to demand the occupants.
performance of the other's reciprocal obligation.
Following the joinder of issues by the petitioners'
The Case answer with counterclaim, and by the respondents'
reply with answer to the counterclaim, the RTC set
Under review is the decision promulgated on April 27, the pre-trial of the case. At the conclusion of the pre-
2005,1 whereby the Court of Appeals (CA) upheld the trial conference, the presentation of the owner's
order issued on November 5, 2002 by the Regional evidence was suspended because of the parties'
Trial Court, Branch 67, in Pasig City (RTC) in Civil manifestation that they would settle the case
Case No. 67813 directing the defendants (petitioners amicably. It appears that the parties negotiated with
herein) to perform their obligation to provide round- each other on how to implement the JVA and the
the-clock security for the property under addendum.
development.2 Also appealed is the resolution
promulgated on September 12, 2005 denying the On September 16, 2002, the owner filed in the RTC a
petitioners' motion for reconsideration. manifestation and motion,12 praying therein that the
petitioners be directed to provide round-the-clock
Antecedents security for the joint venture property in order to
defend and protect it from the invasion of
On September 23, 1994, Megaworld Properties and unauthorized persons. The petitioners opposed the
Holdings, Inc. (developer) entered into a Joint Venture manifestation and motion,13 pointing out that: (1) the
Agreement (JVA)4 with Majestic Finance and move to have them provide security in the properties
Investment Co., Inc. (owner) for the development of was premature; and (2) under the principle of
the residential subdivision located in Brgy. Alingaro, reciprocal obligations, the owner could not compel
General Trias, Cavite. According to the JVA, the them to perform their obligations under the JVA if the
development of the 215 hectares of land belonging to owner itself refused to honor its obligations under the
the owner (joint venture property) would be for the JVA and the addendum.
sole account of the developer;5 and that upon
completion of the development of the subdivision, the On November 5, 2002, the RTC issued its first
owner would compensate the developer in the form of assailed order,14 directing the developer to provide
saleable residential subdivision lots.6 The JVA further sufficient round-the-clock security for the protection of
provided that the developer would advance all the the joint venture property, as follows:
costs for the relocation and resettlement of the
occupants of the joint venture property, subject to For consideration is a "Manifestation and Motion" filed
reimbursement by the owner;7 and that the developer by plaintiff, through counsel, defendants having filed
would deposit the initial amount of P10,000,000.00 to their Opposition thereto, the incident is now ripe for
defray the expenses for the relocation and settlement, resolution.
and the costs for obtaining from the Government the
exemptions and conversion permits, and the required After a careful examination of the records of this case,
clearances. the Court believes that the defendants should provide
security for the 215 hectares land subject of the joint respondent judge's order directing the petitioners to
venture agreement to protect it from unlawful provide security over the joint venture property. Like
elements as well as to avoid undue damage which the respondent judge, we believe that the obligation of
may be caused by the settling of squatters. As the petitioners under the JVA to provide security in
specified in Article III par. (j) of the joint venture the area, as spelled out under Article II, par. (c) and
agreement which was entered into by plaintiffs and Article III, paragraphs (h) and (j), is well established,
defendants, the latter shall at its exclusive account thus:
and sole expense secure the land in question from
the influx of squatters and/or unauthorized settlers, xxxx
occupants, tillers, cultivators and the likes from date
of execution of this agreement. These clear and categorical provisions in the JVA -
which petitioners themselves do not question -
WHEREFORE, and as prayed for, the Court hereby obviously belie their contention that the respondent
directs the defendants to provide sufficient round the judge's order to provide security for the property is
clock security for the protection of the 215 hectares premature at this stage. The petitioner's obligation to
land subject of the joint venture agreement during the secure the property under the JVA arose upon the
pendency of this case. execution of the Agreement, or as soon as the
petitioners acquired possession of the joint venture
SO ORDERED. property in 1994, and is therefore already
demandable. The settled rule is that "contracts are the
The petitioners sought the reconsideration of the laws between the contracting parties, and if their
November 5, 2002 order,15 but the RTC denied the terms are clear and leave no room for doubt as to
motion on May 19, 2003,16 observing that there was their intentions, the contracts are obligatory no matter
no reason to reverse the order in question considering what their forms may be, whenever the essential
that the allegations in the motion for reconsideration, requisites for their validity are present." Thus, unless
being a mere rehash of those made earlier, had the existence of this particular obligation - i.e., to
already been passed upon. secure the joint venture property - is challenged,
petitioners are bound to respect the terms of the
On August 4, 2003, the petitioners instituted a special Agreement and of his obligation as the law between
civil action for certiorari in the CA,17 claiming therein them and MAJESTIC.
that the RTC thereby gravely abused its discretion
amounting to lack or excess of jurisdiction in issuing We stress along this line that the complaint
the order of November 5, 2002, specifying the MAJESTIC filed below is for specific performance and
following grounds, namely: is not for rescission of contract. The complaint
presupposes existing obligations on the part of the
THE PUBLIC RESPONDENT GRAVELY ABUSED petitioners that MAJESTIC seeks to be carried out in
HIS DISCRETION AMOUNTING TO LACK OR accordance with the terms of the Agreement.
EXCESS OF JURISDICTION IN DIRECTING Significantly, MAJESTIC did not pray in the complaint
PETITIONERS TO PROVIDE ROUND THE CLOCK that petitioners be ordered to secure the area from the
SECURITY GUARDS ON THE SUBJECT influx of illegal settlers and squatters because
PROPERTIES. petitioner's obligation in this regard commenced upon
the execution of the JVA and hence, is already an
I. THE PUBLIC RESPONDENT ARBITRARILY AND existing obligation. What it did ask is for the
PREMATURELY DISPOSED OF ONE OF THE petitioners to maintain a strong security force at all
RELIEF[S] PRAYED FOR BY PRIVATE times over the area, in keeping with their commitment
RESPONDENTS IN THEIR COMPLAINT WHEN to secure the area from the influx of illegal settlers
TRIAL HAS NOT EVEN STARTED. and occupant. To be sure, to "maintain" means "to
continue", "to carry on", to "hold or keep in any
II. PUBLIC RESPONDENT ARBITRARILY particular state or condition" and presupposes an
DISREGARDED THE FACT THAT THE PARTIES obligation that already began. Thus, contrary to
ARE DISCUSSING HOW TO PURSUE THE JVA. petitioner's submissions, the question of whether or
not they have the obligation to provide security in the
III. PUBLIC RESPONDENT ARBITRARILY area is not at all an issue in the case below. The issue
DISREGARDED THE PRINCIPLE OF "RECIPROCAL MAJESTIC presented below is whether or not
OBLIGATIONS" UNDER THE CIVIL CODE. petitioner should be ordered to maintain a strong
security force within the joint venture property. Hence,
On April 27, 2005, the CA promulgated its assailed in issuing the assailed orders, the public respondent
decision dismissing the petitioner's petition for prejudged no issue that is yet to be resolved after the
certiorari,18 ruling thusly: parties shall have presented their evidence.
On the merits of the petition, our examination of the Our conclusion (that the petitioner's obligation to
records shows nothing whimsical or arbitrary in the secure and protect the joint venture property is a non-
issue in the case below) necessarily explains why the
first assailed order -although not in the form of a b Whether or not the RTC gravely abused its
preliminary mandatory injunction -is nonetheless discretion in directing the petitioners to
legally justified. As an established and undisputed perform their obligations under the JVA,
interim measure pending the resolution of the case on including that of providing round-the-clock
the merits, we do not see its enforcement as security for the subject properties, although
hindrance to whatever negotiations the parties may the JVA had been suspended due to the
undertake to settle their dispute. parties' disagreement as to how to
implement the same;
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their c Whether or not the RTC gravely abused its
commitment of safeguarding the joint venture discretion in issuing the first and second
property. For, while it is true that the JVA gives rise to assailed orders and prematurely resolving
reciprocal obligations from both parties, these and disposing of one of the causes of action
obligations are not necessarily demandable at the of the respondents, which was to provide
same time. MAJESTIC's initial obligation under the round-the-clock security for the subject
JVA is to deliver or surrender to the petitioners the properties, an issue proposed by the
possession of the joint venture property -an obligation respondents, even before the termination of
it fulfilled upon the execution of the Agreement. the pre-trial;
MAJESTIC's obligation under the JVA to deliver to the
petitioners the titles to the joint venture property and d Whether or not the RTC gravely abused its
to reimburse them for tenant-related expenses are discretion in issuing the first and second
demandable at later stages of the contract or upon assailed orders in clear disregard of the
completion of the development, and therefore may not mandatory requirements of Rule 58 of the
be used by the petitioners as an excuse for not Rules of Court.
complying with their own currently demandable
obligation. Ruling of the Court
All told, we believe that securing and protecting the The appeal is meritorious. The CA erred in upholding
area from unlawful elements benefits both the the November 5, 2002 order of the RTC.
developer and the landowner who are equally keen in
safeguarding their interests in the project. Otherwise The obligations of the parties under the JVA were
stated, incursion by unlawful settlers into an unquestionably reciprocal. Reciprocal obligations are
unsecured and unprotected joint venture property can those that arise from the same cause, and in which
only cause great loss and damage to both parties. each party is a debtor and a creditor of the other at
Reasons of practicality within legal parameters, rather the same time, such that the obligations of one are
than grave abuse of discretion, therefore underlie the dependent upon the obligations of the other. They are
respondent judge's challenged orders. to be performed simultaneously, so that the
performance by one is conditioned upon the
WHEREFORE, premises considered, we hereby simultaneous fulfillment by the other.23 As the Court
DISMISS the petition for lack of merit. has expounded in Consolidated Industrial Gases, Inc.
v. Alabang Medical Center:
SO ORDERED.19 (Emphasis omitted)
Reciprocal obligations are those which arise from the
On May 26, 2005, the petitioners filed a motion for same cause, and in which each party is a debtor and
reconsideration,20 but the CA denied the motion on a creditor of the other, such that the obligation of one
September 12, 2005.21chanroblesvirtuallawlibrary is dependent upon the obligation of the other. They
are to be performed simultaneously, so that the
Hence, this appeal by petition for review on certiorari. performance of one is conditioned upon the
simultaneous fulfillment of the other. In reciprocal
Issues obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
The petitioner submits the following issues: moment one of the parties fulfills his obligation, delay
by the other begins.
a Whether or not the petitioners are obligated
to perform their obligations under the JVA, xxxx
including that of providing round-the-clock
security for the subject properties, despite In reciprocal obligations, before a party can demand
respondents' failure or refusal to the performance of the obligation of the other, the
acknowledge, or perform their reciprocal former must also perform its own obligation. For its
obligations there; failure to turn over a complete project in accordance
with the terms and conditions of the installation ER to pay Deliver any and all Pay real estate
contracts, CIGI cannot demand for the payment of the and settle documents taxes
contract price balance from AMC, which, in turn, all required for the Art. II(c)
cannot legally be ordered to pay.25chanrobleslaw monetary successful Take possession
claims of development of the of the parcels of
The determination of default on the part of either of all tenants, Project land
the parties depends on the terms of the JVA that settlers, Art. V par. 2 Art. III (j)
clearly categorized the parties' several obligations into occupants, Pay real estate Secure property
two types. tillers, taxes from invasion of
cultivators Art. VI squatters and
The first type related to the continuous obligations of the Must consent on other elements
that would be continuously performed from the land. the reasonableness Art. III(a) par. 1
moment of the execution of the JVA until the parties of the expenses. Advance
shall have achieved the purpose of their joint venture. expense for
The continuous obligations under the JVA were as settlement and
follows: (1) the developer would secure the joint relocation
venture property from unauthorized occupants;26 (2) Art. III(a) par. 2
the owner would allow the developer to take Deposit P10M in
possession of the joint venture property;27 (3) the a joint account of
owner would deliver any and all documents necessary parties.
for the accomplishment of each activity;28 and (4) both DEVELOP Art. II(b) Art. V par. 2
the developer and the owner would pay the real ER to Deliver any and all Pay real estate
estate taxes. relocate documents taxes
and required for the Art. III(c)
The second type referred to the activity obligations. transfer all successful Take possession
The following table shows the activity obligations of the development of the of the parcels of
the parties under the JVA, to wit: tenants, Project land
settlers, Art. V par. 2 Art. III(j)
SEQUENCE OF ACTIVITIES (Article XIV of the occupants, Pay real estate Secure property
JVA) tillers, taxes from invasion of
ACTIVITY OWNER DEVELOPER cultivators Art. II(d) squatters and
OBLIGATION OBLIGATION of the land Agree to allocate other elements
Signing of Sign JVA Sign JVA to their and aggregate a Art. III(a) par. 1
JVA. Art. II(b) Art. V par. 2 relocation resettlement site Advance
Deliver any and all Pay real estate site, and within the property expense for
documents taxes shall subject to mutually settlement and
required for the Art. IIIa par. 2 endeavor accepted relocation
successful Deposit P10M to fulfill the conditions. Art. III(a)par. 2
development of the same and Art. VI Deposit P10M in
Project the two Must consent on a joint account of
Art. V par. 2 immediatel the reasonableness OWNER and
Pay real estate y of the expenses. DEVELOPER
taxes preceding Art. III(c)
Art. II(g) paragraph Relocate the
Warrant absolute s (b & c) occupants
ownership up to the
DEVELOP Art. II(b) Art. V par. 2 extent of
ER to Deliver any and all Pay real estate 75%
negotiate documents taxes accomplis
immediatel required for the Art. II(c) hment
y with all successful Take possession thereof
tenants, development of the of the parcels of within a
settlers, Project land period of
occupants, Art. V par. 2 Art. III (j) one (1)
tillers, Pay real estate Secure property year from
cultivators taxes from invasion of date of
of the land Art. II(c) squatters and execution
in Allow DEVELOPER other elements of this
question. to take possession Art. III (c) Agreement
of subject property To negotiate with . The
occupants remaining
DEVELOP Art. II(b) Art. V par. 2 25% of the
same and required for the Art. II(c)
requireme secure all successful Take possession
nts shall necessary development of the of the parcels of
be fully developme Project land
accomplis nt permit, Art. V par. 2 Art. III (j)
hed within performan Pay real estate Secure property
another 6 ce bonds, taxes from invasion of
months environme squatters and
from date ntal other elements
of complianc Art. III(f)
expiration e Secure
of the certificate, development
original license to permit, ECC,
one-year sell and all License to Sell,
period. other etc.
DEVELOP Art. II(b) Art. V par. 2 related
ER to Deliver any and all Pay real estate requireme
apply for documents taxes nt from the
and required for the Art. II(c) pertinent
secure successful Take possession Municipal
exemption development of the of the parcels of Governme
or Project land nt, DENR,
conversion Art. V par. 2 Art. III (j) HLURB
permit and Pay real estate Secure property and other
such other taxes from invasion of governme
related Art. II(f) squatters and ntal
requireme Assist other elements agencies
nts DEVELOPER Art. III(a) concerned
needed for secure exemption Advance within a
the from CARL and expenses for period of 2
approval conversion/reclassif exemption, years from
of ication of subject conversion, re- date of
exemption property classification execution
or Art. III(b) expenses. of this
conversion Give DEVELOPER Art.III(b) secure Agreement
application authority to apply exemption and .
of the land for exemption, conversion permit DEVELOP Art. II(b) Art. V par. 2
in question conversion and re- ER Deliver any and all Pay real estate
within a classification. constructio documents taxes
period of Art. VI n required for the Art. II(c)
one and a Must consent on stage/grou successful Take possession
half (1 1/2) the reasonableness nd development of the of the parcels of
years from of the expenses. breaking Project land
date of to Art. V par. 2 Art. III (j)
execution commence Pay real estate Secure property
of this after taxes from invasion of
Agreement release of squatters and
subject to DAR other elements
a six (6) exemption Art. III(e)
month permit or Mobilize
extension. conversion development
DEVELOP Art.III(i) Art. III(d) clearance work and solely
ER to lay Give written Complete and pay its expenses
out a conformity to the comprehensive approval Art. III(f)
complete development plan development plan of other Develop the
Developm (within 6 months required property and
ent Plan to one year from permits by solely pay its
the execution of pertinent expenses on
the JVA) agencies necessary
DEVELOP Art. II(b) Art. V par. 2 of the permits
ER to Deliver any and all Pay real estate governme
apply for documents taxes nt.
DEVELOP Art. II(b) Art. V par. 2 resettlement site within the property, and to approve
ER to Deliver any and all Pay real estate the expenses to be incurred for the process. Should
secure documents taxes the owner fail to allocate the site for the resettlement,
approval required for the Art. II(c) the obligation of the developer to relocate would not
of successful Take possession be demandable. Conversely, should the developer fail
subdivisio development of the of the parcels of to negotiate with the occupants, the owner's obligation
n plan and Project land to allocate the resettlement site would not become
technical Art. V par. 2 Art. III (j) due.
description Pay real estate Secure property
from the taxes from invasion of As to the second activity (i.e., the completion of the
Bureau of Art. II(a) squatters and development plan), the developer had the obligation
Lands Deliver titles to other elements to lay out the plan, but the owner needed to conform
based on DEVELOPER Art. III(k) to the plan before the same was finalized.
the Art. II(a) Process titling of Accordingly, the final development plan would not be
approved Execute Deed of lots generated should the owner fail to approve the lay-out
scheme Assignment plan; nor would the owner be able to approve if no
and Art. III(a) such plan had been initially laid out by the developer.
thereafter Pay all expenses
to petition, for settlement of In each activity, the obligation of each party was
follow-up claims, relocation, dependent upon the obligation of the other. Although
and application for their obligations were to be performed simultaneously,
secure the exemption, the performance of an activity obligation was still
release of conversion, re- conditioned upon the fulfillment of the continuous
individual classification. obligation, and vice versa. Should either party cease
titles for all to perform a continuous obligation, the other's
lots in the subsequent activity obligation would not accrue.
project in Conversely, if an activity obligation was not performed
the by either party, the continuous obligation of the other
respective would cease to take effect. The performance of the
names of continuous obligation was subject to the resolutory
the parties condition that the precedent obligation of the other
form the party, whether continuous or activity, was fulfilled as it
register of became due. Otherwise, the continuous obligation
deeds. would be extinguished.
Market Fix selling date Fix selling date
and Sell According to Article 1184 of the Civil Code, the
the condition that some event happen at a determinate
property time shall extinguish the obligation as soon as the
Owner to time expires, or if it has become indubitable that the
reimburse event will not take place. Here, the common cause of
and pay the parties in entering into the joint venture was the
the development of the joint venture property into the
DEVELOP residential subdivision as to eventually profit
ER therefrom. Consequently, all of the obligations under
the JVA were subject to the happening of the
complete development of the joint venture property, or
The activities under the JVA fell into seven major if it would become indubitable that the completion
categories, specifically: (l)the relocation of the would not take place, like when an obligation, whether
occupants; (2) the completion of the development continuous or activity, was not performed. Should any
plan; (3) the securing of exemption and conversion of the obligations, whether continuous or activity, be
permits; (4) the obtention of the development permits not performed, all the other remaining obligations
from government agencies; (5) the development of would not ripen into demandable obligations while
the subject land; (6) the issuance of titles for the those already performed would cease to take effect.
subdivided lots; and (7) the selling of the subdivided This is because every single obligation of each party
lots and the reimbursement of the advances. under the JVA rested on the common cause of
profiting from the developed subdivision.
For the first activity (i.e., the relocation of the
occupants), the developer was obliged to negotiate It appears that upon the execution of the JVA, the
with the occupants, to advance payment for parties were performing their respective obligations
disturbance compensation, and to relocate the until disagreement arose between them that affected
occupants to an area within the subject land, while the the subsequent performance of their accrued
owner was obliged to agree to and to allocate the obligations. Being reciprocal in nature, their
respective obligations as the owner and the developer Apart from the provisional remedies expressly
were dependent upon the performance by the other of recognized and made available under Rule 56 to Rule
its obligations; hence, any claim of delay or non- 61 of the Rules of Court, the Court has sanctioned
performance against the other could prosper only if only the issuance of the status quo ante order but
the complaining party had faithfully complied with its only to maintain the last, actual, peaceable and
own correlative obligation. uncontested state of things that preceded the
controversy.32 The eminent Justice Florenz D.
A respected commentator has cogently observed in Regalado,33 an authority on remedial law, has
this connection: delineated the nature of the status quo ante order,
and distinguished it from the provisional remedy of
§ 135. Same; consequences of simultaneous temporary restraining order, as follows:
performance. As a consequence of the rule of
simultaneous performance, if the party who has not
performed his obligation demands performance from There have been instances when the Supreme Court
the other, the latter may interpose the defense of has issued a status quo order which, as the very term
unfulfilled contract (exceptio non adimpleli contraclus) connotes, is merely intended to maintain the last,
by virtue of which he cannot be obliged to perform actual, peaceable and uncontested state of things
while the other's obligation remains unfulfilled. Hence, which preceded the controversy. This was resorted to
the Spanish Supreme Court has ruled that the non- when the projected proceedings in the case made the
performance of one party is justified if based on the conservation of the status quo desirable or essential,
non-performance of the other; that the party who has but the affected party neither sought such relief or the
failed to perform cannot demand performance from allegations in his pleading did not sufficiently make
the other; and that judicial approval is not necessary out a case for a temporary restraining order. The
to release a party from his obligation, the non- status quo order was thus issued motu proprio on
performance of the other being a sufficient defense equitable considerations. Also, unlike a temporary
against any demand for performance by the guilty restraining order or a preliminary injunction, a status
party. quo order is more in the nature of a cease and desist
order, since it neither directs the doing or undoing of
Another consequence of simultaneous performance is acts as in the case of prohibitory or mandatory
the rule of compensatio morae, that is to say that injunctive relief. The further distinction is provided by
neither party incurs in delay if the other does not or is the present amendment in the sense that, unlike the
not ready to comply in a proper manner with what is amended rule on restraining orders, a status quo
incumbent upon him. From the moment one of the order does not require the posting of a bond.
parties fulfills his obligations, delay by the other
begins. The order of November 5, 2002, by directing the
developer to provide sufficient round-the-clock
Yet, the record is bereft of the proof to support the security for the protection of the joint venture property
lower courts' unanimous conclusion that the owner during the pendency of the case, was not of the
had already performed its correlative obligation under nature of the status quo ante order because the
the JVA as to place itself in the position to demand developer, as averred in the complaint, had not yet
that the developer should already perform its provided a single security watchman to secure the
obligation of providing the round-the-clock security on entire 215 hectares of land for several years. 34 Also,
the property. In issuing its order of November 5, 2002, the owner stated in the comment to the petition that
therefore, the RTC acted whimsically because it did the developer had dismissed all the security guards
not first ascertain whether or not the precedent posted in the property since 1997.35 At the time of the
reciprocal obligation of the owner upon which the filing of the complaint for specific performance on
demanded obligation of the developer was dependent February 29, 2000, therefore, the last actual,
had already been performed. Without such showing peaceable and uncontested state of things preceding
that the developer had ceased to perform a the controversy was the absence of such security, not
continuous obligation to provide security over the joint the installation of the security personnel/measures. In
venture property despite complete fulfillment by the fact, the failure of the developer to provide the round-
owner of all its accrued obligations, the owner had no the-clock security itself became the controversy that
right to demand from the developer the round-the- impelled the owner to bring the action against the
clock security over the 215 hectares of land. petitioners.
The CA further gravely erred in characterizing the By preliminarily directing the developer to provide
order for the petitioners to implement the round-the- sufficient round-the-clock security for the protection of
clock security provision of the JVA and the addendum the joint venture property during the pendency of the
as an established and undisputed interim measure case, the November 5, 2002 order of the RTC did not
that could be issued pending the resolution of the come under the category of the status quo ante order
case on the merits. that would issue upon equitable consideration, or
even of an injunctive relief that would issue under
Rule 58 of the Rules of Court. Hence, the issuance of Regional Trial Court, Branch 67, in Pasig City;
the order constituted a blatant jurisdictional error that DIRECTS the Regional Trial Court, Branch 67, in
needed to be excised. Verily, a jurisdictional error is Pasig City to resume the proceedings in Civil Case
one by which the act complained of was issued by the No. 67813 with dispatch; and ORDERS the
court without or in excess of jurisdiction. 36Without respondents to pay the costs of suit.
jurisdiction means that the court acted with absolute
want of jurisdiction. Excess of jurisdiction means that SO ORDERED
the court has jurisdiction but has transcended the
same or acted without any statutory authority.
considering that the heirs of Juan Galicia, Sr. Lastly, petitioners argue that there was no valid
accommodated private respondent by accepting the tender of payment nor consignation of the sum of
latter's delayed payments not only beyond the grace P18,520.00 which they acknowledge to have been
periods but also during the pendency of the case for deposited in court on January 22, 1981 five years
specific performance (p. 27, Memorandum for after the amount of P27,000.00 had to be paid (p. 23,
petitioners; p. 166, Rollo). Indeed, the right to rescind Memorandum for Petitioners; p. 162, Rollo). Again
is not absolute and will not be granted where there this suggestion ignores the fact that consignation
has been substantial compliance by partial payments alone produced the effect of payment in the case at
(4 Caguioa, Comments and Cases on Civil Law, First bar because it was established below that two or
Ed. [1968] p. 132). By and large, petitioners' actuation more heirs of Juan Galicia, Sr. claimed the same right
is susceptible of but one construction — that they are to collect (Article 1256, (4), Civil Code; pp. 4-5,
now estopped from reneging from their commitment Decision in Civil Case No. 681-G; pp. 67-68, Rollo).
on account of acceptance of benefits arising from Moreover, petitioners did not bother to refute the
overdue accounts of private respondent. evidence on hand that, aside from the P18,520.00
(not P18,500.00 as computed by respondent court)
Now, as to the issue of whether payments had in fact which was consigned, private respondent also paid
been made, there is no doubt that the second the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50,
installment was actually paid to the heirs of Juan Rollo). These two figures representing private
Galicia, Sr. due to Josefina Tayag's admission in respondent's payment of the fourth condition amount
judicio that the sum of P10,000.00 was fully to P32,428.25, less the P3,778.77 paid by petitioners
liquidated. It is thus erroneous for petitioners to to the bank, will lead us to the sum of P28,649.48 or a
suppose that "the evidence in the records do not refund of P1,649.48 to private respondent as
support this conclusion" (p. 18, Memorandum for overpayment of the P27,000.00 balance.
Petitioners; p. 157, Rollo). A contrario, when the court
of origin, as well as the appellate court, emphasized WHEREFORE, the petition is hereby DISMISSED
the frank representation along this line of Josefina and the decision appealed from is hereby AFFIRMED
Tayag before the trial court (TSN, September l, 1983, with the slight modification of Paragraph 4 of the
pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. dispositive thereof which is thus amended to read:
50, Rollo; p. 3, Decision in Civil Case No. 681-G, p.
66, Rollo), petitioners chose to remain completely 4. ordering the withdrawal of the sum of
mute even at this stage despite the opportunity P18,520.00 consigned with the Regional
accorded to them, for clarification. Consequently, the Trial Court, and that the amount of
prejudicial aftermath of Josefina Tayag's spontaneous P16,870.52 be delivered by private
reaction may no longer be obliterated on the basis of respondent with legal rate of interest until
estoppel (Article 1431, Civil Code; Section 4, Rule fully paid to the heirs of Juan Galicia, Sr. as
129; Section 2(a), Rule 131, Revised Rules on balance of the sale including reimbursement
Evidence). of the sum paid to the Philippine Veterans
Bank, minus the attorney's fees and
Insofar as the third item of the contract is concerned, damages awarded in favor of private
it may be recalled that respondent court applied respondent. The excess of P1,649.48 shall
Article 1186 of the Civil Code on constructive be returned to private respondent also with
fulfillment which petitioners claim should not have legal interest until fully paid by petitioners.
been appreciated because they are the obligees while With costs against petitioners.
the proviso in point speaks of the obligor. But, SO ORDERED.
Republic of the Philippines Date Amount Paid
SUPREME COURT July 19, 1990 P40,000.00[6]
Manila March 13, 1991 15,000.00[7]
April 6, 1991 15,000.00[8]
SECOND DIVISION
November 28, 1991 5,000.00[9]
G.R. No. 139523 May 26, 2005 Total P75,000.00
SPS. FELIPE AND LETICIA CANNU, Petitioners, Thus, leaving a balance of P45,000.00.
vs.
SPS. GIL AND FERNANDINA GALANG AND A Deed of Sale with Assumption of Mortgage
NATIONAL HOME MORTGAGE FINANCE Obligation[10] dated 20 August 1990 was made and
CORPORATION, Respondents. entered into by and between spouses Fernandina and
Gil Galang (vendors) and spouses Leticia and Felipe
DECISION Cannu (vendees) over the house and lot in question
which contains, inter alia, the following:
CHICO-NAZARIO, J.:
NOW, THEREFORE, for and in consideration of the
Before Us is a Petition for Review on Certiorari which sum of TWO HUNDRED FIFTY THOUSAND PESOS
seeks to set aside the decision[1] of the Court of (P250,000.00), Philippine Currency, receipt of which
Appeals dated 30 September 1998 which affirmed is hereby acknowledged by the Vendors and the
with modification the decision of Branch 135 of the assumption of the mortgage obligation, the Vendors
Regional Trial Court (RTC) of Makati City, dismissing hereby sell, cede and transfer unto the Vendees, their
the complaint for Specific Performance and Damages heirs, assigns and successor in interest the above-
filed by petitioners, and its Resolution[2] dated 22 July described property together with the existing
1999 denying petitioners motion for reconsideration. improvement thereon.
A complaint[3] for Specific Performance and It is a special condition of this contract that the
Damages was filed by petitioners-spouses Felipe and Vendees shall assume and continue with the payment
Leticia Cannu against respondents-spouses Gil and of the amortization with the National Home Mortgage
Fernandina Galang and the National Home Mortgage Finance Corporation Inc. in the outstanding balance
Finance Corporation (NHMFC) before Branch 135 of of P_______________, as of __________ and shall
the RTC of Makati, on 24 June 1993. The case was comply with and abide by the terms and conditions of
docketed as Civil Case No. 93-2069. the mortgage document dated Feb. 27, 1989 and
identified as Doc. No. 82, Page 18, Book VII, S. of
The facts that gave rise to the aforesaid complaint are 1989 of Notary Public for Quezon City Marites Sto.
as follows: Tomas Alonzo, as if the Vendees are the original
signatories.
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan Petitioners immediately took possession and
Association for P173,800.00 to purchase a house and occupied the house and lot.
lot located at Pulang Lupa, Las Pias, with an area of
150 square meters covered by Transfer Certificate of Petitioners made the following payments to the
Title (TCT) No. T-8505 in the names of respondents- NHMFC:
spouses. To secure payment, a real estate mortgage
was constituted on the said house and lot in favor of Date Amount Receipt No.
Fortune Savings & Loan Association. In early 1990, July 9, 1990 P 14,312.47 D-503986[11]
NHMFC purchased the mortgage loan of March 12, 1991 8,000.00 D-729478[12]
respondents-spouses from Fortune Savings & Loan February 4, 1992 10,000.00 D-999127[13]
Association for P173,800.00. March 31, 1993 6,000.00 E-563749[14]
April 19, 1993 10,000.00 E-582432[15]
Respondent Fernandina Galang authorized[4] her April 27, 1993 7,000.00 E-618326[16]
attorney-in-fact, Adelina R. Timbang, to sell the
P 55,312.47
subject house and lot.
Petitioners paid the equity or second mortgage to
Petitioner Leticia Cannu agreed to buy the property
CERF Realty.[17]
for P120,000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with CERF
Despite requests from Adelina R. Timbang and
Realty[5] (the Developer of the property).
Fernandina Galang to pay the balance of P45,000.00
or in the alternative to vacate the property in question,
Of the P120,000.00, the following payments were
petitioners refused to do so.
made by petitioners:
In a letter[18] dated 29 March 1993, petitioner Leticia case, NHMFC has not been duly informed due to lack
Cannu informed Mr. Fermin T. Arzaga, Vice of formal requirements to acknowledge plaintiffs as
President, Fund Management Group of the NHMFC, legal assignees, or legitimate tranferees and,
that the ownership rights over the land covered by therefore, successors-in-interest to the property,
TCT No. T-8505 in the names of respondents- plaintiffs should have no legal personality to claim any
spouses had been ceded and transferred to her and right to the same property.[23]
her husband per Deed of Sale with Assumption of
Mortgage, and that they were obligated to assume the The decretal portion of the decision reads:
mortgage and pay the remaining unpaid loan balance.
Petitioners formal assumption of mortgage was not Premises considered, the foregoing complaint has not
approved by the NHMFC.[19] been proven even by preponderance of evidence,
and, as such, plaintiffs have no cause of action
Because the Cannus failed to fully comply with their against the defendants herein. The above-entitled
obligations, respondent Fernandina Galang, on 21 case is ordered dismissed for lack of merit.
May 1993, paid P233,957.64 as full payment of her
remaining mortgage loan with NHMFC.[20] Judgment is hereby rendered by way of counterclaim,
in favor of defendants and against plaintiffs, to wit:
Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the 1. Ordering the Deed of Sale With Assumption of
subject property had already been sold to them. Mortgage Obligation (Exhs. C and 3) rescinded and
Consequently, the NHMFC held in abeyance the hereby declared the same as nullified without
release of said TCT. prejudice for defendants-spouses Galang to return the
partial payments made by plaintiffs; and the plaintiffs
Thereupon, a Complaint for Specific Performance and are ordered, on the other hand, to return the physical
Damages was filed asking, among other things, that and legal possession of the subject property to
petitioners (plaintiffs therein) be declared the owners spouses Galang by way of mutual restitution;
of the property involved subject to reimbursements of
the amount made by respondents-spouses 2. To pay defendants spouses Galang and NHMFC,
(defendants therein) in preterminating the mortgage each the amount of P10,000.00 as litigation
loan with NHMFC. expenses, jointly and severally;
Respondent NHMFC filed its Answer.[21] It claimed 3. To pay attorneys fees to defendants in the amount
that petitioners have no cause of action against it of P20,000.00, jointly and severally; and
because they have not submitted the formal
requirements to be considered assignees and 4. The costs of suit.
successors-in-interest of the property under litigation.
5. No moral and exemplary damages awarded.[24]
In their Answer,[22] respondents-spouses alleged that
because of petitioners-spouses failure to fully pay the A Motion for Reconsideration[25] was filed, but same
consideration and to update the monthly was denied. Petitioners appealed the decision of the
amortizations with the NHMFC, they paid in full the RTC to the Court of Appeals. On 30 September 1998,
existing obligations with NHMFC as an initial step in the Court of Appeals disposed of the appeal as
the rescission and annulment of the Deed of Sale with follows:
Assumption of Mortgage. In their counterclaim, they
maintain that the acts of petitioners in not fully Obligations arising from contract have the force of law
complying with their obligations give rise to rescission between the contracting parties and should be
of the Deed of Sale with Assumption of Mortgage with complied in good faith. The terms of a written contract
the corresponding damages. are binding on the parties thereto.
After trial, the lower court rendered its decision Plaintiffs-appellants therefore are under obligation to
ratiocinating: pay defendants-appellees spouses Galang the sum of
P250,000.00, and to assume the mortgage.
On the basis of the evidence on record, testimonial
and documentary, this Court is of the view that Records show that upon the execution of the Contract
plaintiffs have no cause of action either against the of Sale or on July 19, 1990 plaintiffs-appellants paid
spouses Galang or the NHMFC. Plaintiffs have defendants-appellees spouses Galang the amount of
admitted on record they failed to pay the amount of only P40,000.00.
P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption of The next payment was made by plaintiffs-appellants
Mortgage Obligation (Exhs. C and 3). Consequently, on March 13, 1991 or eight (8) months after the
this is a breach of contract and evidently a failure to execution of the contract. Plaintiffs-appellants paid the
comply with obligation arising from contracts. . . In this amount of P5,000.00.
The next payment was made on April 6, 1991 for 1. THE HONORABLE COURT OF APPEALS ERRED
P15,000.00 and on November 28, 1991, for another WHEN IT HELD THAT PETITIONERS BREACH OF
P15,000.00. THE OBLIGATION WAS SUBSTANTIAL.
From 1991 until the present, no other payments were 2. THE HONORABLE COURT OF APPEALS ERRED
made by plaintiffs-appellants to defendants-appellees WHEN IN EFFECT IT HELD THAT THERE WAS NO
spouses Galang. SUBSTANTIAL COMPLIANCE WITH THE
OBLIGATION TO PAY THE MONTHLY
Out of the P250,000.00 purchase price which was AMORTIZATION WITH NHMFC.
supposed to be paid on the day of the execution of
contract in July, 1990 plaintiffs-appellants have paid, 3. THE HONORABLE COURT OF APPEALS ERRED
in the span of eight (8) years, from 1990 to present, WHEN IT FAILED TO CONSIDER THE OTHER
the amount of only P75,000.00. Plaintiffs-appellants FACTS AND CIRCUMSTANCES THAT MILITATE
should have paid the P250,000.00 at the time of the AGAINST RESCISSION.
execution of contract in 1990. Eight (8) years have
already lapsed and plaintiffs-appellants have not yet 4. THE HONORABLE COURT OF APPEALS ERRED
complied with their obligation. WHEN IT FAILED TO CONSIDER THAT THE
ACTION FOR RESCISSION IS SUBSIDIARY.[29]
We consider this breach to be substantial.
Before discussing the errors allegedly committed by
The tender made by plaintiffs-appellants after the the Court of Appeals, it must be stated a priori that the
filing of this case, of the Managerial Check in the latter made a misappreciation of evidence regarding
amount of P278,957.00 dated January 24, 1994 the consideration of the property in litigation when it
cannot be considered as an effective mode of relied solely on the Deed of Sale with Assumption of
payment. Mortgage executed by the respondents-spouses
Galang and petitioners-spouses Cannu.
Performance or payment may be effected not by
tender of payment alone but by both tender and As above-quoted, the consideration for the house and
consignation. It is consignation which is essential in lot stated in the Deed of Sale with Assumption of
order to extinguish plaintiffs-appellants obligation to Mortgage is P250,000.00, plus the assumption of the
pay the balance of the purchase price. balance of the mortgage loan with NHMFC. However,
after going over the record of the case, more
In addition, plaintiffs-appellants failed to comply with particularly the Answer of respondents-spouses, the
their obligation to pay the monthly amortizations due evidence shows the consideration therefor is
on the mortgage. P120,000.00, plus the payment of the outstanding
loan mortgage with NHMFC, and of the equity or
In the span of three (3) years from 1990 to 1993, second mortgage with CERF Realty (Developer of the
plaintiffs-appellants made only six payments. The property).[30]
payments made by plaintiffs-appellants are not even
sufficient to answer for the arrearages, interests and Nowhere in the complaint and answer of the
penalty charges. petitioners-spouses Cannu and respondents-spouses
Galang shows that the consideration is P250,000.00.
On account of these circumstances, the rescission of In fact, what is clear is that of the P120,000.00 to be
the Contract of Sale is warranted and justified. paid to the latter, only P75,000.00 was paid to Adelina
Timbang, the spouses Galangs attorney-in-fact. This
... debunks the provision in the Deed of Sale with
Assumption of Mortgage that the amount of
WHEREFORE, foregoing considered, the appealed P250,000.00 has been received by petitioners.
decision is hereby AFFIRMED with modification.
Defendants-appellees spouses Galang are hereby Inasmuch as the Deed of Sale with Assumption of
ordered to return the partial payments made by Mortgage failed to express the true intent and
plaintiff-appellants in the amount of P135,000.00. agreement of the parties regarding its consideration,
the same should not be fully relied upon. The
No pronouncement as to cost.[26] foregoing facts lead us to hold that the case on hand
falls within one of the recognized exceptions to the
The motion for reconsideration[27] filed by petitioners parole evidence rule. Under the Rules of Court, a
was denied by the Court of Appeals in a party may present evidence to modify, explain or add
Resolution[28] dated 22 July 1999. to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to
Hence, this Petition for Certiorari. express the true intent and agreement of the parties
thereto.[31]
Petitioners raise the following assignment of errors:
In the case at bar, when respondents-spouses Citing Massive Construction, Inc. v. Intermediate
enumerated in their Answer the terms and conditions Appellate Court,[38] petitioners ask that they be
for the sale of the property under litigation, which is granted additional time to complete their obligation.
different from that stated in the Deed of Sale with Under the facts of the case, to give petitioners
Assumption with Mortgage, they already put in issue additional time to comply with their obligation will be
the matter of consideration. Since there is a difference putting premium on their blatant non-compliance of
as to what the true consideration is, this Court has their obligation. They had all the time to do what was
admitted evidence aliunde to explain such required of them (i.e., pay the P45,000.00 balance
inconsistency. Thus, the Court has looked into the and to properly assume the mortgage loan with the
pleadings and testimonies of the parties to thresh out NHMFC), but still they failed to comply. Despite
the discrepancy and to clarify the intent of the parties. demands for them to pay the balance, no payments
were made.[39]
As regards the computation[32] of petitioners as to
the breakdown of the P250,000.00 consideration, we The fact that petitioners tendered a Managers Check
find the same to be self-serving and unsupported by to respondents-spouses Galang in the amount of
evidence. P278,957.00 seven months after the filing of this case
is of no moment. Tender of payment does not by itself
On the first assigned error, petitioners argue that the produce legal payment, unless it is completed by
Court erred when it ruled that their breach of the consignation.[40] Their failure to fulfill their obligation
obligation was substantial. gave the respondents-spouses Galang the right to
rescission.
Settled is the rule that rescission or, more accurately,
resolution,[33] of a party to an obligation under Article Anent the second assigned error, we find that
1191[34] is predicated on a breach of faith by the petitioners were not religious in paying the
other party that violates the reciprocity between amortization with the NHMFC. As admitted by them,
them.[35] Article 1191 reads: in the span of three years from 1990 to 1993, their
payments covered only thirty months.[41] This,
Art. 1191. The power to rescind obligations is implied indeed, constitutes another breach or violation of the
in reciprocal ones, in case one of the obligors should Deed of Sale with Assumption of Mortgage. On top of
not comply with what is incumbent upon him. this, there was no formal assumption of the mortgage
obligation with NHMFC because of the lack of
The injured party may choose between the fulfillment approval by the NHMFC[42] on account of petitioners
and the rescission of the obligation, with the payment non-submission of requirements in order to be
of damages in either case. He may also seek considered as assignees/successors-in-interest over
rescission, even after he has chosen fulfillment, if the the property covered by the mortgage obligation.[43]
latter should become impossible.
On the third assigned error, petitioners claim there
The court shall decree the rescission claimed, unless was no clear evidence to show that respondents-
there be just cause authorizing the fixing of a period. spouses Galang demanded from them a strict and/or
faithful compliance of the Deed of Sale with
Rescission will not be permitted for a slight or casual Assumption of Mortgage.
breach of the contract. Rescission may be had only
for such breaches that are substantial and We do not agree.
fundamental as to defeat the object of the parties in
making the agreement.[36] The question of whether a There is sufficient evidence showing that demands
breach of contract is substantial depends upon the were made from petitioners to comply with their
attending circumstances[37] and not merely on the obligation. Adelina R. Timbang, attorney-in-fact of
percentage of the amount not paid. respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after
In the case at bar, we find petitioners failure to pay the last payment made on 28 November 1991, but
the remaining balance of P45,000.00 to be petitioners did not pay.[44] Respondent Fernandina
substantial. Even assuming arguendo that only said Galang stated in her Answer[45] that upon her arrival
amount was left out of the supposed consideration of from America in October 1992, she demanded from
P250,000.00, or eighteen (18%) percent thereof, this petitioners the complete compliance of their obligation
percentage is still substantial. Taken together with the by paying the full amount of the consideration
fact that the last payment made was on 28 November (P120,000.00) or in the alternative to vacate the
1991, eighteen months before the respondent property in question, but still, petitioners refused to
Fernandina Galang paid the outstanding balance of fulfill their obligations under the Deed of Sale with
the mortgage loan with NHMFC, the intention of Assumption of Mortgage. Sometime in March 1993,
petitioners to renege on their obligation is utterly due to the fact that full payment has not been paid
clear. and that the monthly amortizations with the NHMFC
have not been fully updated, she made her intentions
clear with petitioner Leticia Cannu that she will failure of one party to perform his obligation was the
rescind or annul the Deed of Sale with Assumption of fault of the other party, while in the case on hand,
Mortgage. failure on the part of petitioners to perform their
obligation was due to their own fault.
We likewise rule that there was no waiver on the part
of petitioners to demand the rescission of the Deed of Second, what is stated in the book of Justice Edgardo
Sale with Assumption of Mortgage. The fact that L. Paras is [i]t (referring to the right to rescind or
respondents-spouses accepted, through their resolve) can be demanded only if the plaintiff is ready,
attorney-in-fact, payments in installments does not willing and able to comply with his own obligation, and
constitute waiver on their part to exercise their right to the other is not. In other words, if one party has
rescind the Deed of Sale with Assumption of complied or fulfilled his obligation, and the other has
Mortgage. Adelina Timbang merely accepted the not, then the former can exercise his right to rescind.
installment payments as an accommodation to In this case, respondents-spouses complied with their
petitioners since they kept on promising they would obligation when they gave the possession of the
pay. However, after the lapse of considerable time (18 property in question to petitioners. Thus, they have
months from last payment) and the purchase price the right to ask for the rescission of the Deed of Sale
was not yet fully paid, respondents-spouses exercised with Assumption of Mortgage.
their right of rescission when they paid the
outstanding balance of the mortgage loan with On the fourth assigned error, petitioners, relying on
NHMFC. It was only after petitioners stopped paying Article 1383 of the Civil Code, maintain that the Court
that respondents-spouses moved to exercise their of Appeals erred when it failed to consider that the
right of rescission. action for rescission is subsidiary.
Petitioners cite the case of Angeles v. Calasanz[46] to Their reliance on Article 1383 is misplaced.
support their claim that respondents-spouses waived
their right to rescind. We cannot apply this case since The subsidiary character of the action for rescission
it is not on all fours with the case before us. First, in applies to contracts enumerated in Articles 1381[48]
Angeles, the breach was only slight and casual which of the Civil Code. The contract involved in the case
is not true in the case before us. Second, in Angeles, before us is not one of those mentioned therein. The
the buyer had already paid more than the principal provision that applies in the case at bar is Article
obligation, while in the instant case, the buyers 1191.
(petitioners) did not pay P45,000.00 of the
P120,000.00 they were obligated to pay. In the concurring opinion of Justice Jose B.L. Reyes
in Universal Food Corp. v. Court of Appeals,[49]
We find petitioners statement that there is no rescission under Article 1191 was distinguished from
evidence of prejudice or damage to justify rescission rescission under Article 1381. Justice J.B.L. Reyes
in favor of respondents-spouses to be unfounded. said:
The damage suffered by respondents-spouses is the
effect of petitioners failure to fully comply with their . . . The rescission on account of breach of
obligation, that is, their failure to pay the remaining stipulations is not predicated on injury to economic
P45,000.00 and to update the amortizations on the interests of the party plaintiff but on the breach of faith
mortgage loan with the NHMFC. Petitioners have in by the defendant, that violates the reciprocity between
their possession the property under litigation. Having the parties. It is not a subsidiary action, and Article
parted with their house and lot, respondents-spouses 1191 may be scanned without disclosing anywhere
should be fully compensated for it, not only that the action for rescission thereunder is
monetarily, but also as to the terms and conditions subordinated to anything other than the culpable
agreed upon by the parties. This did not happen in the breach of his obligations by the defendant. This
case before us. rescission is a principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
Citing Seva v. Berwin & Co., Inc.,[47] petitioners promises when the other violates his. As expressed in
argue that no rescission should be decreed because the old Latin aphorism: Non servanti fidem, non est
there is no evidence on record that respondent fides servanda. Hence, the reparation of damages for
Fernandina Galang is ready, willing and able to the breach is purely secondary.
comply with her own obligation to restore to them the
total payments they made. They added that no On the contrary, in the rescission by reason of lesion
allegation to that effect is contained in respondents- or economic prejudice, the cause of action is
spouses Answer. subordinated to the existence of that prejudice,
because it is the raison d tre as well as the measure
We find this argument to be misleading. of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
First, the facts obtaining in Seva case do not fall be maintained or continued, as expressly provided in
squarely with the case on hand. In the former, the Articles 1383 and 1384. But the operation of these
two articles is limited to the cases of rescission for accurately, resolution of the Deed of Sale with
lesion enumerated in Article 1381 of the Civil Code of Assumption of Mortgage, it is the duty of the court to
the Philippines, and does not apply to cases under require the parties to surrender whatever they may
Article 1191. have received from the other. The parties should be
restored to their original situation.[51]
From the foregoing, it is clear that rescission
(resolution in the Old Civil Code) under Article 1191 is The record shows petitioners paid respondents-
a principal action, while rescission under Article 1383 spouses the amount of P75,000.00 out of the
is a subsidiary action. The former is based on breach P120,000.00 agreed upon. They also made payments
by the other party that violates the reciprocity between to NHMFC amounting to P55,312.47. As to the
the parties, while the latter is not. petitioners alleged payment to CERF Realty of
P46,616.70, except for petitioner Leticia Cannus bare
In the case at bar, the reciprocity between the parties allegation, we find the same not to be supported by
was violated when petitioners failed to fully pay the competent evidence. As a general rule, one who
balance of P45,000.00 to respondents-spouses and pleads payment has the burden of proving it.[52]
their failure to update their amortizations with the However, since it has been admitted in respondents-
NHMFC. spouses Answer that petitioners shall assume the
second mortgage with CERF Realty in the amount of
Petitioners maintain that inasmuch as respondents- P35,000.00, and that Adelina Timbang, respondents-
spouses Galang were not granted the right to spouses very own witness, testified[53] that same has
unilaterally rescind the sale under the Deed of Sale been paid, it is but proper to return this amount to
with Assumption of Mortgage, they should have first petitioners. The three amounts total P165,312.47 --
asked the court for the rescission thereof before they the sum to be returned to petitioners.
fully paid the outstanding balance of the mortgage
loan with the NHMFC. They claim that such payment WHEREFORE, premises considered, the decision of
is a unilateral act of rescission which violates existing the Court of Appeals is hereby AFFIRMED with
jurisprudence. MODIFICATION. Spouses Gil and Fernandina
Galang are hereby ordered to return the partial
In Tan v. Court of Appeals,[50] this court said: payments made by petitioners in the amount of
P165,312.47. With costs.
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not SO ORDERED.
comply with what is incumbent upon him is clear from
a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to
the contrary, this power must be invoked judicially; it
cannot be exercised solely on a partys own judgment
that the other has committed a breach of the
obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort
to the courts, the petitioners action in unilaterally
terminating the contract in this case is unjustified.
INTEGRATED BRIDGE SYSTEM Two months after the execution of the contracts, GL
Enterprises technicians delivered various materials to
A. 2-RADAR SYSTEM the project site. However, when they started installing
B. OVERHEAD CONSOLE MONITORING the components, respondent halted the operations.
GL Enterprises then asked for an explanation.
Northwestern justified the work stoppage upon its defendant's old equipment at P1,000,000.00.
finding that the delivered equipment were Likewise, in the event that restoration of the
substandard.9 It explained further that GL Enterprises equipment and materials delivered by the plaintiff to
violated the terms and conditions of the contracts, the defendant is no longer possible, defendant is
since the delivered components (1) were old; (2) did hereby ordered to pay its appraised value at
not have instruction manuals and warranty P1,027,480.00.
certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO Moreover, plaintiff is likewise ordered to restore and
and CHED standards. Thus, Northwestern demanded return all the equipment obtained by reason of the
compliance with the agreement and suggested that Second Contract, or if restoration or return is not
GL Enterprises meet with the former's representatives possible, plaintiff is ordered to pay the value thereof to
to iron out the situation. the defendant.
Although the RTC and the CA concurred in ordering Given these conditions, it was thus incumbent upon
restitution, the courts a quo, however, differed on the GL Enterprises to supply the components that would
basis thereof. The RTC applied the equitable principle create an IBS that would effectively facilitate the
of mutual fault, while the CA applied Article 1191 on learning of the students.
rescission.
However, GL Enterprises miserably failed in meeting
The power to rescind the obligations of the injured its responsibility. As contained in the findings of the
party is implied in reciprocal obligations, such as in CA and the RTC, petitioner supplied substandard
this case. On this score, the CA correctly applied equipment when it delivered components that (1)
Article 1191, which provides thus: were old; (2) did not have instruction manuals and
warranty certificates; (3) bore indications of being
The power to rescind obligations is implied in reconditioned machines; and, all told, (4) might not
reciprocal ones, in case one of the obligors should not have met the IMO and CHED standards. Highlighting
comply with what is incumbent upon him. the defects of the delivered materials, the CA quoted
respondent's testimonial evidence as follows:
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment Q: In particular which of these equipment of CHED
of damages in either case. He may also seek requirements were not complied with?
rescission, even after he has chosen fulfillment, if the
latter should become impossible. A: The Radar Ma'am, because they delivered only 10-
inch PPI, that is the monitor of the Radar. That is 16-
The court shall decree the rescission claimed, unless inch and the gyrocompass with two (2) repeaters and
there be just cause authorizing the fixing of a period. the history card. The gyrocompass - there is no
marker, there is no model, there is no serial number,
The two contracts require no less than substantial no gimbal, no gyroscope and a bulb to work it
breach before they can be rescinded. Since the properly to point the true North because it is very
contracts do not provide for a definition of substantial important to the Cadets to learn where is the true
breach that would terminate the rights and obligations North being indicated by the Master Gyrocompass.
of the parties, we apply the definition found in our
jurisprudence. xxx
This Court defined in Cannu v. Galang13 that Q: Mr. Witness, one of the defects you noted down in
substantial, unlike slight or casual breaches of this history card is that the master gyrocompass had
contract, are fundamental breaches that defeat the no gimbals, gyroscope and balls and was replaced
object of the parties in entering into an agreement, with an ordinary electric motor. So what is the
since the law is not concerned with trifles. Implication of this?
The question of whether a breach of contract is A: Because those gimbals, balls and the gyroscope it
substantial depends upon the attending let the gyrocompass to work so it will point the true
circumstances. North but they being replaced with the ordinary motor
used for toys so it will not indicate the true North.
In the case at bar, the parties explicitly agreed that
the materials to be delivered must be compliant with Q: So what happens if it will not indicate the true
the CHED and IMO standards and must be complete North?
with manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the A: It is very big problem for my cadets because they
intent of the parties was to replace the old IBS in must, to learn into school where is the true North and
order to obtain CHED accreditation for Northwestern's what is that equipment to be used on board.
maritime-related courses.
Q: One of the defects is that the steering wheel was
According to CHED Memorandum Order (CMO) No. that of an ordinary automobile. And what is the
10, Series of 1999, as amended by CMO No. 13, implication of this?
Series of 2005, any simulator used for simulator-
based training shall be capable of simulating the A: Because. on board Ma am, we are using the real
operating capabilities of the shipboard equipment steering wheel and the cadets will be implicated if
concerned. The simulation must be achieved at a they will notice that the ship have the same steering
wheel as the car so it is not advisable for them. Furthermore, for there to be a breach to begin with,
there must be a "failure, without legal excuse, to
Q:. And another one is that the gyrocompass repeater perform any promise which forms the whole or part of
was only refurbished and it has no serial number. the contract."
What is wrong with that?
Here, as discussed, the stoppage of the installation
A: It should be original Ma am because this gyro was justified. The action of Northwestern constituted a
repeater, it must to repeat also the true North being legal excuse to prevent the highly possible rejection of
indicated by the Master Gyro Compass so it will not the IBS. Hence, just as the CA concluded, we find
work properly, I don t know it will work properly. that Northwestern exercised ordinary prudence to
(Underscoring supplied) avert a possible wastage of time, effort, resources
and also of the P2.9 million representing the value of
Evidently, the materials delivered were less likely to the new IBS.
pass the CHED standards, because the navigation
system to be installed might not accurately point to Actual Damages, Moral and Exemplary Damages,
the true north; and the steering wheel delivered was and Attorney's Fees
one that came from an automobile, instead of one As between the parties, substantial breach can clearly
used in ships. Logically, by no stretch of the be attributed to GL Enterprises. Consequently, it is
imagination could these form part of the most modern not the injured party who can claim damages under
IBS compliant with the IMO and CHED standards. Article 1170 of the Civil Code. For this reason, we
concur in the result of the CA's Decision denying
Even in the instant appeal, GL Enterprises does not petitioner actual damages in the form of lost earnings,
refute that the equipment it delivered was as well as moral and exemplary damages.
substandard. However, it reiterates its rejected
excuse that Northwestern should have made an With respect to attorney's fees, Article 2208 of the
assessment only after the completion of the IBS. 17 Civil Code allows the grant thereof when the court
Thus, petitioner stresses that it was Northwestern that deems it just and equitable that attorney's fees should
breached the agreement when the latter halted the be recovered. An award of attorney's fees is proper if
installation of the materials for the IBS, even if the one was forced to litigate and incur expenses to
parties had contemplated a completed project to be protect one's rights and interest by reason of an
evaluated by CHED. However, as aptly considered by unjustified act or omission on the part of the party
the CA, respondent could not just "sit still and wait for from whom the award is sought.
such day that its accreditation may not be granted by
CHED due to the apparent substandard equipment Since we affirm the CA's finding that it was not
installed in the bridge system."18 The appellate court Northwestern but GL Enterprises that breached the
correctly emphasized that, by that time, both parties contracts without justification, it follows that the
would have incurred more costs for nothing. appellate court correctly awarded attorney's fees to
respondent. Notably, this litigation could have
Additionally, GL Enterprises reasons that, based on altogether been avoided if petitioner heeded
the contracts, the materials that were hauled all the respondent's suggestion to amicably settle; or, better
way from Quezon City to Laoag City under the yet, if in the first place petitioner delivered the right
custody of the four designated installers might not materials as required by the contracts.
have been the components to be used.19 Without
belaboring the point, we affirm the conclusion of the IN VIEW THEREOF, the assailed 27 July 2009
CA and the RTC that the excuse is untenable for Decision of the Court of Appeals in CA-G.R. CV No.
being contrary to human experience. 88989 is hereby AFFIRMED.
1. To finish the subject unit as pointed out 1 Declaring the contract to sell as rescinded
in the inspection Report and directing [petitioner] to refund to
[respondent] the amount of P7,519,371.80 at
6% per annum from the time of extrajudicial appeal must be made within the
demand on January 05, 2001: subject to day following receipt of the denial of
computation and payment of the correct filing said motion by the appealing
fee; party. (Underscoring supplied)
3 Directing [petitioner] to pay an administrative Accordingly, the [petitioner] had only four (4)
fine of P10,000.00 for violation of Section 20, days from receipt on 23 July 2007 of HLURB
in relation to Section 38 of P.D. 957: Resolution dated 14 June 2007, or until 27
July 2007 to file the Notice of Appeal before
SO ORDERED. this Office. However, [petitioner] filed its
appeal only on 7 August 2007 or eleven (11)
Petitioner moved for reconsideration, but the same days late.
was denied by the HLURB Board of Commissioners
in a Resolution 7 dated June 14, 2007. Thus, this Office need not delve on the
merits of the appeal filed as the records
Unfazed, petitioner appealed to the Office of the clearly show that the said appeal was filed
President (OP) on August 7, 2007. out of time.
In a Decision 8 dated November 21, 2007, the OP, WHEREFORE, premises considered,
through then Deputy Executive Secretary Manuel [petitioner]’s appeal is hereby DISMISSED,
Gaite, dismissed petitioner’s appeal on the ground and the HLURB Decision dated 30 March
that it failed to promptly file its appeal before the OP. 2006 and HLURB Resolution dated 14 June
It held: 2007 are hereby AFFIRMED.
Thus, while there may be exceptions for the relaxation 2 During the time of inspection, the said unit
of technical rules principally geared to attain the ends appears to be completed except for the
of justice, petitioner’s fatuous belief that it had a fresh installation of kitchen cabinets and fixtures.
15-day period to elevate an appeal with the OP is not
the kind of exceptional circumstance that merits 3 Complainant pinpointed to the undersigned the
relaxation. deficiencies as follows:
Second, Article 1191 of the Civil Code sanctions the a The delivered unit has high density fiber
right to rescind the obligation in the event that specific (HDF) floorings instead of narra wood
performance becomes impossible, to wit: parquet.
Article 1191. The power to rescind b The [petitioners] have also installed
obligations is implied in reciprocal ones, in baseboards as borders instead of pink
case one of the obligors should not comply porrino granite boarders.
with what is incumbent upon him.
c Walls are newly painted by the respondent
The injured party may choose between the and the alleged obvious signs of cladding
fulfillment and the rescission of the could not be determined.
obligation, with the payment of damages in
either case. He may also seek rescission, d Window opening at the master bedroom
even after he has chosen fulfillment, if the conforms to the approved plans. As a
latter should become impossible. result it leaves a 3 inches (sic) gap
between the glass window and partitioning
The court shall decree the rescission of the master’s bedroom.
claimed, unless there be just cause
authorizing the fixing of a period. e It was verified and confirmed that a square
column replaced the round column, based
This is understood to be without prejudice to on the approved plans.
the rights of third persons who have acquired
the thing, in accordance with Articles 1385 f At the time of inspection, amenities such
and 1388 and the Mortgage Law. as swimming pool and change room are
seen at the 31st floor only. These
amenities are reflected on the 27th floor
plan of the approved condominium plans.
Health spa for men and women, Shiatsu
Massage Room, Two-Level Sky Palace
Restaurant and Hall for games and
entertainments, replete with billiard tables,
a bar, indoor golf with spectacular deck
and karaoke rooms were not yet provided
by the [petitioner].
SO ORDERED.
Republic of the Philippines that they would use in their food business. Fong’s
SUPREME COURT cash contributions are summarized below.
Manila
Date Amount
SECOND DIVISION November 25, 1996 P1,980,475.20
January 14, 1997 P1,000,000.00
G.R. No. 185592 June 15, 2015 February 8, 1997 P500,000.00
March 7, 1997 P100,000.00
GEORGE C. FONG, Petitioner,
vs. April 28, 1997 P500,000.00
JOSE V. DUEÑAS, Respondent. June 13, 1997 P919,524.80
Total P5,000,000.00
DECISION
On June 13, 1997, Fong sent a letter to Dueñas
BRION, J.: informing him of his decision to limit his total
We resolve in this petition for review on certiorari1 the contribution from P32.5 Million to P5 Million. This
challenge to the September 16, 2008 decision2 and letter reads:
the December 8, 2008 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 88396. June 13, 1997
These assailed CA rulings annulled the June 27, 2006 Mr. Jose Dueñas
decision4 and October 30, 2006 order5 of the Regional c/o Camira Industries
Trial Court of Makati, Branch 64 (trial court), which
directed respondent Jose V. Dueñas (Dueñas) to pay Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Five Million Pesos (P5 Million) to petitioner George C.
Fong (Fong), and imposed a six percent (6%) annual Dear Jojit,
interest on this amount.
Enclosed is our check for P919,534.80 representing
Factual Antecedents our additional advances to subject company in
process of incorporation. This will make our total
Dueñas is engaged in the bakery, food advances to date amounting to P5 million.
manufacturing, and retailing business, which are all
operated under his two companies, D.C. DANTON, Since we agreed in principal late last year to pursue
Inc. (Danton) and Bakcom Food Industries, Inc. subject matter, the delays in implementing the joint
(Bakcom). He was an old acquaintance of Fong as venture have caused us to rethink our position. First,
they were former schoolmates at the De La Salle we were faced with the ‘personal’ factor which was
University. explained to you one time. This has caused us to turn
down a number of business opportunities. Secondly,
Sometime in November 1996, Dueñas and Fong since last year, the operation of Century 21 has been
entered into a verbal joint venture contract where taking more time from us than anticipated. That is why
they agreed to engage in the food business and to we decided to relinquish our original plan to manage
incorporate a holding company under the name and operate ‘Boboli’ knowing this limitation. For us, it
Alliance Holdings, Inc. (Alliance or the proposed does not make sense anymore to go for a significant
corporation). Its capitalization would be Sixty Five shareholding when we cannot be hands on and
Million Pesos (P65 Million), to which they would participate actively as originally planned. For your
contribute in equal parts. information, we will probably be giving up our subway
franchise too.
The parties agreed that Fong would contribute Thirty
Two Million and Five Hundred Thousand Pesos Together with our business advisers and legal
(P32.5 Million) in cash while Dueñas would contribute counsel, we came to a decision to hold our
all his Danton and Bakcom shares which he valued at commitment (from advances to investment) at P5
P32.5 Million.8 Fong required Dueñas to submit the million only for now from the original plan of
financial documents supporting the valuation of these P32.5 million, if this is acceptable to you.
shares.
We know that our decision will somewhat upset the
On November 25, 1996, Fong started remitting in overall plans. But it will probably be more problematic
tranches his share in the proposed corporation’s for us in the long run if we continue full speed. We
capital. He made the remittances under the have put our money down in trust and good faith
impression that his contribution would be applied as despite the much delayed financials. We continue
his subscription to fifty percent (50%) of Alliance’s to believe in your game plan and capabilities to
total shareholdings. On the other hand, Dueñas achieve the desired goals for subject undertaking.
started processing the Boboli9 international license Please permit us instead to be just a modest silent
investor now with a take out plan when time and price that each remittance should be applied as
is right. advance subscription to Fong’s shareholding in
Alliance. Thus, Dueñas’ investment of the money in
Thank you for your kind understanding and Danton and Bakcom was clearly unauthorized and
consideration. contrary to the parties’ agreement.
In its June 27, 2006 decision, the trial court ruled in Fong submits that the CA erred when it ruled that his
favor of Fong and held that a careful examination of June 13, 1997 letter showed his intent to convert his
the complaint shows that although it was labeled as contributions from advance subscriptions to Alliance’s
an action for collection of a sum of money, it was shares, to investments in Dueñas’ two companies.
actually an action for rescission. Contrary to the CA’s findings, the receipts and the
letter expressly mentioned that his contributions
The trial court noted that Dueñas’ failure to furnish should all be treated as his share subscription to
Fong with the financial documents on the valuation of Alliance.
the Danton and Bakcom shares, as well as the almost
one year delay in the incorporation of Alliance, Also, Fong argues that Dueñas’ unjustified retention
caused Fong to rescind the joint venture agreement. 20 of the P5 Million and its appropriation to his (Dueñas’)
According to the trial court, these are adequate and own business, amounted to unjust enrichment; and
acceptable reasons for rescission. that he contributed to fund Alliance’s capital and
incorporation, not to pay for Danton and Bakcom’s
The trial court also held that Dueñas erroneously business expenses.
invested Fong’s cash contributions in his two
companies, Danton and Bakcom. The signed The Case for Dueñas
receipts,21 presented as evidence, expressly provided
Dueñas contends that he could no longer refund the right to revoke his pre-incorporation subscription.
P5 Million since he had already applied it to his two Such revocation entitles plaintiff to a refund of the
companies; that this is proper since Danton and amount of P5,000,000.00 he remitted to defendant,
Bakcom’s shares would also form part of his capital representing advances made in favor of defendant to
contribution to Alliance. be considered as payment on plaintiff’s subscription
to the proposed holding company upon its
Moreover, the incorporation did not push through incorporation, plus interest from receipt by defendant
because Fong unilaterally rescinded the joint venture of said amount until fully paid. [Emphasis supplied.]
agreement by limiting his investment from P32.5 Fong’s allegations primarily pertained to his
Million to P5 Million.29 Thus, it was Fong who first cancellation of their verbal agreement because
breached the contract, not he. Consequently, Fong’s Dueñas failed to perform his obligations to
failure to comply with his undertaking disqualified him provide verifiable documents on the valuation of
from seeking the agreement’s rescission. the Danton’s and Bakcom’s shares, and to
incorporate the proposed corporation. These
The Court’s Ruling allegations clearly show that what Fong sought was
the joint venture agreement’s rescission.
We resolve to GRANT the petition.
As a contractual remedy, rescission is available when
At the outset, the Court notes that the parties’ joint one of the parties substantially fails to do what he has
venture agreement to incorporate a company that obligated himself to perform.32 It aims to address the
would hold the shares of Danton and Bakcom and breach of faith and the violation of reciprocity between
that would serve as the business vehicle for their food two parties in a contract.33 Under Article 1191 of the
enterprise, is a valid agreement. The failure to reduce Civil Code, the right of rescission is inherent in
the agreement to writing does not affect its validity or reciprocal obligations, viz:
enforceability as there is no law or regulation which
provides that an agreement to incorporate must be in The power to rescind obligations is implied in
writing. reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
With this as premise, we now address the related [Emphasis supplied.]
issues raised by the parties.
Dueñas submits that Fong’s prayer for the return of
The body rather than the title of the complaint his cash contribution supports his claim that Fong’s
determines the nature of the action. complaint is an action for collection of a sum of
money. However, Dueñas failed to appreciate that the
A well-settled rule in procedural law is that the ultimate effect of rescission is to restore the
allegations in the body of the pleading or the parties to their original status before they entered
complaint, and not its title, determine the nature of an in a contract. As the Court ruled in Unlad Resources
action. v. Dragon:34
An examination of Fong’s complaint shows that Rescission has the effect of “unmaking a contract, or
although it was labeled as an action for a sum of its undoing from the beginning, and not merely its
money and damages, it was actually a complaint termination.” Hence, rescission creates the
for rescission. The following allegations in the obligation to return the object of the contract. It
complaint support this finding: can be carried out only when the one who demands
rescission can return whatever he may be obliged to
9. Notwithstanding the aforesaid remittances, restore. To rescind is to declare a contract void at its
defendant failed for an unreasonable length of inception and to put an end to it as though it never
time to submit a valuation of the equipment of was. It is not merely to terminate it and release the
D.C. Danton and Bakcom x x x. parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties
10. Worse, despite repeated reminders from plaintiff, to their relative positions as if no contract has been
defendant failed to accomplish the organization made.
and incorporation of the proposed holding
company, contrary to his representation to promptly Accordingly, when a decree for rescission is
do so. handed down, it is the duty of the court to require
both parties to surrender that which they have
xxxx respectively received and to place each other as
far as practicable in his original situation.35
17. Considering that the incorporation of the [Emphasis supplied.]
proposed holding company failed to materialize,
despite the lapse of one year and four months In this light, we rule that Fong’s prayer for the return
from the time of subscription, plaintiff has the of his contribution did not automatically convert the
action to a complaint for a sum of money. The mutual its authorized capital stock as stated in the articles of
restitution of the parties’ original contributions is incorporation, be first subscribed at the time of
only a necessary consequence of their incorporation, and at least twenty five percent (25%)
agreement’s rescission. of the total subscription, be paid upon subscription.
Rescission under Art. 1191 is applicable in the To prove compliance with this requirement, the SEC
present case requires the incorporators to submit a treasurer’s
affidavit and a certificate of bank deposit, showing the
Reciprocal obligations are those which arise from the existence of an amount compliant with the prescribed
same cause, in which each party is a debtor and a capital subscription.
creditor of the other, such that the obligation of one is
dependent on the obligation of the other. In this light, we conclude that Fong’s cash
contributions play an indispensable part in
Fong and Dueñas’ execution of a joint venture Alliance’s incorporation. The process necessarily
agreement created between them reciprocal requires the money not only to fund Alliance’s
obligations that must be performed in order to fully registration with the SEC but also its initial capital
consummate the contract and achieve the purpose for subscription. This is evident in the receipts which
which it was entered into. Dueñas himself executed, one of which provides:
Both parties verbally agreed to incorporate a I, JOSE V. DUEÑAS, hereby acknowledge the receipt
company that would hold the shares of Danton and on January 14, 1997 of the amount of One Million
Bakcom and which, in turn, would be the platform for Pesos (Php 1,000,000.00) Check No. 118 118 7014
their food business. Fong obligated himself to Metro Bank, Pasong Tamo branch dated January 13,
contribute half of the capital or P32.5 Million in cash. 1997 from Mr. George Fong, which amount shall
On the other hand, Dueñas bound himself to shoulder constitute an advance of the contribution or
the other half by contributing his Danton and Bakcom investment of Mr. Fong in the joint venture which
shares, which were allegedly also valued at P32.5 he and I are in the process of organizing.
Million. Aside from this, Dueñas undertook to process Specifically, this amount will be considered as part of
Alliance’s incorporation and registration with the SEC. Mr. Fong’s subscription to the shares of stock of the
joint venture company which we will incorporate to
When the proposed company remained embody and carry out our joint venture. 40 [Emphasis
unincorporated by October 30, 1997, Fong cancelled supplied.]
the joint venture agreement and demanded the return
of his P5 Million contribution. Thus, Dueñas erred when he invested Fong’s
contributions in his two companies. This money
For his part, Dueñas explained that he could not should have been used in processing Alliance’s
immediately return the P5 Million since he had registration. Its incorporation would not materialize if
invested it in his two companies. He found nothing there would be no funds for its initial capital.
irregular in this as eventually, the Danton and Bakcom Moreover, Dueñas represented that Danton and
shares would form part of Alliance’s capital. Bakcom’s shares were valued at P32.5 Million. If this
was true, then there was no need for Fong’s
Dueñas’ assertion is erroneous. additional P5 Million investment, which may possibly
increase the value of the Danton and Bakcom shares.
The parties never agreed that Fong would invest his
money in Danton and Bakcom. Contrary to Dueñas’ Under these circumstances, the Court agrees with the
submission, Fong’s understanding was that his trial court that Dueñas violated his agreement with
money would be applied to his shareholdings in Fong. Aside from unilaterally applying Fong’s
Alliance. As shown in Fong’s June 13, 1997 letter, this contributions to his two companies, Dueñas also
fact remained to be true even after he limited his failed to deliver the valuation documents of the
contribution to P5 Million, viz: Danton and Bakcom shares to prove that the
combined values of their capital contributions
Dear Jojit, actually amounted to P32.5 Million.
Enclosed is our check for P919,534.80 representing These acts led to Dueñas’ delay in incorporating
our additional advances to subject company in the planned holding company, thus resulting in
process of incorporation. This will make our total his breach of the contract.
advances to date amounting to P5 million. 37
[Emphasis supplied.] On this basis, Dueñas’ breach justified Fong’s
rescission of the joint venture agreement under Article
Moreover, under the Corporation Code, before a 1191. As the Court ruled in Velarde v. Court of
stock corporation may be incorporated and registered, Appeals:
it is required that at least twenty five percent (25%) of
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on Fong cannot entirely blame Dueñas since the
a breach of faith by the other party who violates substantial reduction of his capital contribution also
the reciprocity between them. The breach greatly impeded the implementation of their
contemplated in the said provision is the obligor’s agreement to engage in the food business and to
failure to comply with an existing obligation. When incorporate a holding company for it.
the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and in the As both parties failed to comply with their respective
absence of any just cause for the court to determine reciprocal obligations, we apply Article 1192 of the
the period of compliance, the court shall decree the Civil Code, which provides:
rescission.
Art. 1192. In case both parties have committed a
In the present case, private respondents validly breach of the obligation, the liability of the first
exercised their right to rescind the contract, infractor shall be equitably tempered by the courts. If
because of the failure of petitioners to comply it cannot be determined which of the parties first
with their obligation to pay the balance of the violated the contract, the same shall be deemed
purchase price. Indubitably, the latter violated the very extinguished, and each shall bear his own
essence of reciprocity in the contract of sale, a damages. [Emphasis supplied.]
violation that consequently gave rise to private
respondents’ right to rescind the same in accordance Notably, the Court is not aware of the schedule of
with law.42 [Emphasis supplied.] performance of the parties’ obligations since the joint
However, the Court notes that Fong also breached venture agreement was never reduced to writing. The
his obligation in the joint venture agreement. facts, however, show that both parties began
performing their obligations after executing the joint
In his June 13, 1997 letter, Fong expressly informed venture agreement. Fong started remitting his share
Dueñas that he would be limiting his cash contribution while Dueñas started processing the Boboli
from P32.5 Million to P5 Million because of the international license for the proposed corporation’s
following reasons which we quote verbatim: food business.
1. First, we were faced with the ‘personal’ The absence of a written contract renders the Court
factor which was explained to you one unsure as to whose obligation must be performed
time. This has caused us to turn down a first. It is possible that the parties agreed that Fong
number of business opportunities; would infuse capital first and Dueñas’ submission of
the documents on the Danton and Bakcom shares
2. Secondly, since last year, the operation would just follow. It could also be the other way
of Century 21 has been taking more around. Further, the parties could have even agreed
time from us than anticipated. That is to simultaneously perform their respective obligations.
why we decided to relinquish our
original plan to manage and operate Despite these gray areas, the fact that both Fong
‘Boboli’ knowing this limitation. For us, it and Dueñas substantially contributed to the non-
does not make sense anymore to go for incorporation of Alliance and to the failure of their
a significant shareholding when we food business plans remains certain.
cannot be hands on and participate
actively as originally planned.43 x x x. As the Court cannot precisely determine who between
the parties first violated the agreement, we apply the
Although these reasons appear to be valid, they second part of Article 1192 which states: “if it cannot
do not erase the fact that Fong still reneged on be determined which of the parties first violated the
his original promise to contribute P32.5 Million. contract, the same shall be deemed extinguished,
The joint venture agreement was not reduced to and each shall bear his own damages.”
writing and the evidence does not show if the parties
agreed on valid causes that would justify the limitation In these lights, the Court holds that the joint venture
of the parties’ capital contributions. Their only agreement between Fong and Dueñas is deemed
admission was that they obligated themselves to extinguished through rescission under Article
contribute P32.5 Million each. 1192 in relation with Article 1191 of the Civil Code.
Dueñas must therefore return the P5 Million that Fong
Hence, Fong’s diminution of his capital share to initially contributed since rescission requires mutual
P5 Million also amounted to a substantial breach restitution.44After rescission, the parties must go
of the joint venture agreement, which breach back to their original status before they entered
occurred before Fong decided to rescind his into the agreement. Dueñas cannot keep Fong’s
agreement with Dueñas. Thus, Fong also contribution as this would constitute unjust
contributed to the non-incorporation of Alliance that enrichment.
needed P65 Million as capital to operate.
No damages shall be awarded to any party in
accordance with the rule under Article 1192 of the
Civil Code that in case of mutual breach and the first
infractor of the contract cannot exactly be determined,
each party shall bear his own damages.
SO ORDERED.
Republic of the Philippines On 13 February 1995, petitioners submitted to Pacific
SUPREME COURT a Barangay Agrarian Reform Council Certification
Manila stating that the property was untenanted. They also
informed Pacific that the other necessary documents
SECOND DIVISION were being processed and more expected to be
completed the following month.
G.R. No. 205113 August 26, 2015
The following month, however, petitioners failed to
HONORLITA ASCANO-CUPINO AND FLAVIANA submit the necessary documents despite several
ASCANO-COLOCADO, Petitioners, demands from Pacific to do so. Instead, they informed
vs. Pacific that they wanted to rescind the contract and
PACIFIC REHOUSE CORPORATION, Respondent. refused to accept Pacific's tender of additional
payments amounting to P1,005,180.
DECISION
In the latter part of March 1995, Pacific, through
CARPIO, J.: Melecio P. Fortuno, Jr. (Fortuno), opened a savings
account with the Capitol Bank of General Trias,
The Case Cavite, in the names of petitioners, depositing in said
account the amount of P1,005,180.11 Pacific then
Before the Court is a petition for review on certiorari informed petitioners of the deposit and that "they were
under Rule 45 of the Rules of Court seeking to authorized to withdraw the same at [their]
reverse the Decision1 dated 17 July 2012 and convenience."
Resolution2 dated 8 January 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 90568. The CA Thereafter, Pacific learned that petitioners were
reversed and set aside the Decision3 dated 15 April negotiating the sale of the property with other buyers
2005 of the Regional Trial Court (RTC) of Trece allegedly for a higher consideration. In September
Martires City, Cavite, Branch 23, in Civil Case No. 1995, Pacific effected an annotation of an adverse
TM-936. claim on the property's title.
In this case, parties admitted that there was a Deed of The Decision of the CA
Conditional Sale and an addendum to it executed by
the parties. That based on this contract, plaintiff paid In the assailed decision dated 17 July 2012, the CA
defendant the amount of One Million Seven Hundred granted the appeal, thus:
Ninety Two Thousand Five Hundred Ninety (PI
,792,590.00) [Pesos] (Exh. "K"), Six Hundred WHEREFORE, premises considered, the instant
Appeal is GRANTED. The appealed Decision dated secure a surety bond.
15 April 2005 is hereby REVERSED and SET ASIDE.
Accordingly, this Court ORDERS: Petitioners' Arguments
(1) the plaintiff-appellant to pay the defendants- Petitioners aver that the CA erred in ordering specific
appellees the amount of One Million Five Hundred performance instead of rescission, arguing that the
Seventy Seven Thousand Five Hundred Thirty Pesos cancellation of the Deed of Conditional Sale was
(P1,577,530.00), upon the execution by the justified because Pacific was indeed remiss in its
defendants-appellees of the Deed of Absolute Sale in obligation as vendee.34 Petitioners further argue that
favor of the plaintiff-appellant and delivery to the latter they, and not Pacific, are the injured parties in this
all documents necessary for the transfer of the title to case.
the subject property; and
Petitioners assert that Pacific is bound by the Deed of
(2) the defendants-appellees shall, at their expense, Conditional Sale and its Addendum because Fortuno
commence the necessary proceedings for the eviction was its authorized representative. They emphasized
of the tenants and/or informal settlers in the property that Fortuno, along with Pacific's liaison officer Purita
until the same is cleared of the same. Mendez, signed the Deed of Conditional Sale and
Addendum, while Dee Hua T. Gatchalian did not. 35 As
No pronouncement as to costs. further proof, they pointed to a letter dated 5 April
1995 where Fortuno himself clearly stated that he was
SO ORDERED.26 the company's authorized representative.
The CA held that "the trial court erred in deciding the
case on the basis of the original complaint." The CA Petitioners also insist that Pacific has not paid the
noted that Pacific amended its complaint from entire purchase price agreed upon. They underscore
cancellation of contract to specific performance, which that the real purchase price agreed upon was P200
was done with leave of and allowed by the RTC. per square meter or P11,950,600. However, Pacific
only acknowledges the purchase price to be
The CA also held that rescission was not warranted in P5,975,300, the amount stated in the Deed of
this case. It ruled that petitioners "were clearly the Conditional Sale. In any case, petitioners insist that
ones who failed in their obligation under the since the total amount paid by Pacific only totals
contract."28 Pacific then is the injured party entitled to P3,605,180,37 there remains a balance to be paid
choose between rescission of the contract and whether the purchase price is that stated in the Deed
fulfillment of the obligation. Pacific chose the latter, as of Conditional Sale or P11,950,600.
stated in their Amended Complaint for specific
performance. Petitioners also allege that Pacific has not complied
with its contractual obligation to pay the tenants'
Lastly, the CA found that it was proven and disturbance compensation. Despite receiving
undisputed that a total of P4,497,770 had already P792,590 through its authorized representative,
been paid by Pacific leaving only a balance of Pacific never paid the tenants who continue to occupy
P4,577,530. the property.
Petitioners filed a motion for reconsideration, which Thus, petitioners contend that they are the injured
was denied in a Resolution dated 8 January 2013. parties in this case, and therefore, entitled to ask for
the rescission of the Deed of Conditional
Petition for Review with Prayer for TRO Sale.39redarclaw
Petitioners filed the present petition for review asking Respondent's Arguments
the Court to verse the decision of the CA and
reinstate the decision of the RTC with the deletion of In its Comment/Opposition,40 Pacific presents a
the order to return the payments received.31redarclaw different version of the facts. It alleges that the
purchase price agreed upon is that stated in the Deed
Petitioners also prayed for the issuance of a of Conditional Sale, which is P5,975,300. Pacific paid
temporary restraining order (TRO) arguing that Pacific the down payment amounting to P1,792,590, leaving
was likely to move for a writ of execution once the CA a balance of P4,182,710. The balance, as stipulated
issues an entry of judgment, causing them grave and in the deed, was to be paid "upon completion by the
irreparable damage. VENDORS of the pertinent documents that are
necessary for the transfer of trie Certificate of Title of
In its Resolution dated 4 March 2013, the Court the above mentioned parcel of land unto the
granted the request for TRO upon payment of a cash VENDEE[.]" Likewise, the deed stated that the
or surety bond in the amount of P4.4 million.32 vendors guaranteed to pay the tenants disturbance
However, petitioners later withdrew their application compensation to rid the property of squatters and
for TRO 'ecause they could no longer afford to pay or other occupants.
true that the purchase price agreed upon is P200 per
In November 1994, petitioners requested from Pacific square meter. For one, it says, being a corporation, it
an additional partial payment of P600,000 purportedly is in its best interest that the true and correct
to be used to fulfill the conditions in the Deed of purchase price be recorded in its books as an
Conditional Sale. Thereafter, petitioners asked for expense. In fact, it further says, the party that will
another P1,000,000, again to be considered as partial most benefit from reducing the price will be petitioners
payment, which Pacific agreed tj) pay on the themselves.
conditions that, first, petitioners submit a Barangay
Agrarian Reform Council Certification that the Likewise, Pacific points out that the Addendum, which
property was untenanted, and second, deliver all the states, "[t]hat we, the above-named Vendors, hereby
necessary documents, certifications and clearances amend item 2 of the said Deed of Conditional Sale to
necessary to consummate the sale. On 13 February read as follows x x x," proves that the amendment
1995, petitioners submitted to Pacific a Barangay was a "unilateral act" and without Pacific's consent.
Agrarian Reform Council Certification that the land
was untenanted. They also assured Pacific that the Based on the foregoing arguments, Pacific insists that
other documents needed to complete the sale were it is the injured party in this case. As it has clearly
being processed. asked for specific performance in its Amended
Complaint, the CA correctly overturned the RTC's
However, by March 1995, petitioners were still unable decision.
to deliver the necessary documents, certifications and
clearances. Pacific also heard from Fortuno that The Issue
petitioners were contemplating on rescinding the
Deed of Conditional Sale. Petitioners raise this sole issue:
This prompted Pacific to tender to petitioners the WITH ALL DUE RESPECT, TO DECLARE THAT
payment for the balance of the purchase price by SPECIFIC PERFORMANCE IS WARRANTED IN
opening a savings account in petitioners' names and THE CASE AT BAR, INSTEAD OF RESCISSION,
depositing the amount in said account. Pacific THE COURT OF APPEALS HAS DECIDED IN A
informed petitioners of the deposit and told them that WAY PROBABLY NOT IN ACCORD WITH LAW
the amount was at their disposal. Petitioners still AND/OR WITH THE APPLICABLE DECISIONS OF
failed to comply with their obligations under the Deed THIS HONORABLE COURT. ON THE CONTRARY,
of Conditional Sale. CANCELLATION OF THE DEED OF CONDITIONAL
SALE IS JUSTIFIED BECAUSE [RESPONDENT]
Pacific was then constrained to effect an annotation of WAS INDEED REMISS [IN] ITS OBLIGATION AS
adverse claim on the property's transfer certificate of VENDEE.53
title.44 Thereafter, Pacific sent several demand letters
to petitioners,45 which remained unheeded. The Court's Ruling
When Pacific was about to initiate legal action, The petition is denied. The Court affirms the assailed
petitioners' lawyer commenced negotiations for the decision and resolution of the CA.
rescission of the Deed of Conditional Sale. However,
in December 1998, the lawyer informed Pacific that The RTC erred in deciding
his services lad been terminated and he would no based on the original complaint.
longer negotiate for petitioners.
It is clear that the RTC erred in deciding the case
On 11 February 1999, Pacific again demanded that based on the original complaint and not on the
petitioners fulfill their obligations under the Deed of Amended Complaint, thus:
Conditional Sale.47 The demand was again unheeded.
Hence, Pacific filed the Complaint48 for [Pacific] in [its] complaint prays for the rescission or
rescission/cancellation of contract and damages cancellation of contract and to this allegation, the
before the RTC. Court has no recourse but to grant this prayer x x x.
Pacific argues that the petition raises questions of fact WHEREFORE, judgment is hereby rendered
and should be denied. Moreover, Pacific avers that cancelling (sic) the contract and the addendum to it
the issues raised by petitioners have already been entered into by [Pacific] and [petitioners] on October
decided by the CA. In particular, Pacific emphasizes 1, 1994 x x x."54
that the argument regarding Fortuno's authority has The RTC failed to consider the Amended Complaint
been conclusively passed upon by the CA. filed by Pacific which changed Pacific's cause of
action from cancellation/rescission of the Conditional
Pacific also maintains that it is not the party guilty of Deed of Sale55 into one for specific performance. In
failing to comply with the obligations under the Deed particular, he Amended Complaint modified Pacific's
of Conditional Sale. It maintains that it is simply not prayer to read:
the
WHEREFORE, in view of the foregoing premises, VENDORS upon completion by the VENDORS of
plaintiff respectfully prays that judgment be rendered the pertinent documents that are necessary for the
in favor of plaintiff and against defendants: transfer of the [Transfer of] Certificate of Title of the
above mentioned parcel of land unto the VENDEE;
a) Directing defendants to sign and deliver to plaintiff
a Deed of Absolute Sale covering the subject property 3. That the VENDORS shall guarantee the removal
and compel said defendants [to] comply with their of any tenant/s, squatters and other occupants on the
undertaking with plaintiff as embodied in the said parcel of land. Payments for the tenants'
Conditional Deed of Sale marked as Annex C. disturbance compensation shall be shouldered by the
VENDORS;
x x x x56 (Underscoring in the original)
Section 8, Rule 10 of the Rules of Court provides: 4. That the VENDORS shall furnish the VENDEE the
Affidavit of Non-Tenancy and the Land operation
SEC. 8. Effect of amended pleadings. - An amended transfer document;
pleading supersedes the pleading that it amends.
However, admissions in superseded pleadings may x x x x60
be received in evidence against the pleader; and In summary, Pacific's obligations are: (1) to pay the
claims or defenses alleged therein not incorporated in down payment of P1,892,590, which it did; and (2) to
the amended pleading shall be deemed waived. pay the balance of the purchase price "upon
(Emphasis supplied) completion by the VENDORS of the pertinent
documents that are necessary for the transfer of the
With Pacific's filing of the Amended Complaint, the Transfer Certificate of Title of the above mentioned
original one must be deemed to have been parcel of land unto the VENDEE[.]"
abandoned and to have become functus officio.57
Thus, this Court has ruled: On the other hand, the Ascanos undertook the
following: (1) to furnish Pacific with all "pertinent
When a pleading is amended, the original pleading is documents that are necessary for the transfer of the
deemed abandoned. The original ceases to perform Transfer Certificate of Title" to the subject property;
any further function as a pleading. The case stands (2) to guarantee removal of tenants and shoulder the
for trial on the amended pleading only.58 full amount of the tenants' disturbance compensation;
and (3) to furnish Pacific the certificate of non-tenancy
Therefore, the Amended Compliant, to which and land operation transfer document.
petitioners filed an Amended Answer with
Counterclaim,59 should have been the basis for the Likewise, as ruled by the CA, the Addendum relied
RTC's decision. upon by petitioners cannot prevail over the original
Deed of Conditional Sale entered into by the parties. 61
The parties' obligations under As the CA found, the Addendum was not signed by
the Deed of Conditional Sale any of Pacific's officers or authorized representatives.
Pacific's authorized representative, Dee Hua T.
Considering that Pacific seeks specific performance, Gatchalian, did not sign the Addendum. Moreover,
particularly for petitioners to execute a Deed of Fortuno, the person purported to be Pacific's
Absolute Sale and fulfill their obligations under the representative, signed as a mere witness.
Deed of Conditional Sale, it is prudent to re-examine
the terms of said deed to understand each party's A witness is not a party to the contract and is not
obligations. automatically converted to a party simply because,
under some other extraneous document or
In particular, the terms and conditions under the Deed circumstance, he has presented himself as the
of Conditional Sale are: corporation's authorized representative.63 Likewise,
such act of signing as a witness cannot be taken as
1. That the VENDEE shall pay unto the VENDORS evidence of that person's authority.
the sum of PESOS: ONE MILLION SEVEN
HUNDRED NINETY TWO THOUSAND FIVE Thus, the Addendum did not alter the parties'
HUNDRED NINETY (P1,792,590.00), as obligations under the original Deed of Conditional
downpayment for the purchase of the aforesaid parcel Sale.
of land, which the VENDORS acknowledged receipt
hereof upon the execution of this Conditional Sale; Pacific is entitled to ask
for specific performance.
2. That full payment of the balance of PESOS: FOUR
MILLION ONE HUNDRED EIGHTY TWO Article 1191 of the Civil Code states:
THOUSAND SEVEN HUNDRED TEN ONLY
(P4,182,710.00), shall be made by the VENDEE unto Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should xxxx
not comply with what is incumbent upon him.
2. That on October 1, 1994, plaintiff and defendants]
The injured party may choose between fulfillment and entered into a Deed of Conditional Sale whereby
the rescission of the obligation, with payment of plaintiff obliged itself to purchase the property
damages in either case. He may also seek rescission, belonging to defendants for a sum of P5,975,300.00;
even after he has chosen fulfillment, if the latter
should become impossible. x x x x67
The court shall decree the rescission claimed, unless Likewise, in the check vouchers issued by Pacific for
there be just cause authorizing the fixing of a period. each of its payments, the consideration under the
contract was stated as P100 per square meter. These
This is understood to be without prejudice to the rights check vouchers were acknowledged and signed by
of third persons who have acquired the thing, in petitioners.68redarclaw
accordance with Articles 1385 and 1388 and the
Mortgage Law. Finally, records show, and petitioners do not dispute,
that the following amounts have already been paid by
As previously discussed, the Deed of Conditional Sale Pacific:
clearly spells out the obligations of each party. Based
on the allegations of the parties and the findings of (1) down payment of PI,792,590, receipt evidenced by
the lower courts, Pacific has already partially fulfilled Check Voucher No. 0863;
its obligation while petitioners have not.
(2) additional payment of P600,000, receipt evidenced
The obligation of petitioners under the Deed of by Check Voucher No. 0968;
Conditional Sale is to "guarantee removal of tenants"
and not merely to pay disturbance compensation. It is (3) additional payment of P1,000,000, receipt
an undertaking specifically given to petitioners under evidenced by Check Voucher No. 1113;71redarclaw
the Deed of Conditional Sale, considering that Pacific
is not yet the owner of the property and will have no (4) additional payments of P505,18072 and P500,000
personality to evict the property's present occupants. deposited at Capitol Bank of General Trias in
Petitioners failed to fulfill this obligation, as well as the Cavite.73
obligation to deliver the necessary documents to
complete the sale. Pacific, therefore, has a balance of P1,577,530 to be
paid upon the fulfillment by petitioners of their
As previously held by the Court, "the injured party is obligations under the Deed of Conditional Sale.
the party who has faithfully fulfilled his obligation or is Thereafter, petitioners are to execute the Deed of
ready and willing to perform his obligation." 64 From Absolute Sale in favor of Pacific and deliver all the
the foregoing, it is clear that Pacific is the injured necessary documents to consummate the sale.
party, entitled to elect between rescinding of the
contract and exacting fulfillment of the obligation. It WHEREFORE, the petition is DENIED for lack of
has opted for the remedy of specific performance, as merit. The Decision dated 17 July 2012 and
embodied in its Amended Complaint. Resolution dated 8 January 2013 of the Court of
Appeals in CA-G.R. CV No. 90568 are AFFIRMED.
Moreover, rescission must not be allowed in favor of
petitioners, since they themselves failed to perform SO ORDERED.
their obligations under the Deed of Conditional Sale.
STIPULATIONS
SO ORDERED.
Republic of the Philippines square meters situated in Barrio Oranbo, Pasig City
SUPREME COURT and registered under Transfer Certificate of Title
Manila (TCT) No. 65118 of the Register of Deeds of Rizal4 for
the consideration of P2,024,000.00. The Deed of
FIRST DIVISION Sale5 contained the following stipulations, among
others:
G.R. No. 202947 December 09, 2015
COVENANTS, CONDITIONS AND RESTRICTIONS
ASB REALTY CORPORATION, Petitioner,
vs. This lot has been segregated by ORTIGAS from its
ORTIGAS & COMPANY LIMITED PARTNERSHIP, subdivisions to form part of a zonified BUILDING
Respondent. AREA pursuant to its controlled real estate
development project and subdivision scheme, and is
DECISION subject to the following covenants which form part of
the consideration of ORTIGAS' sale to VENDEE and
BERSAMIN, J.: its assigns, namely:
WHEREFORE, premises considered, judgment is 1. The building to be constructed on the lot shall be of
rendered: reinforced concrete, cement hollow blocks and other
high-quality materials and shall be of the following
1. Granting the appeal of plaintiff-appellant and herein height of not more than: fourteen (14) storeys plus
movant Ortigas and Company Limited Partnership, one penthouse.
and reversing the Decision of the court a quo dated
December 14, 2009; xxxx
4. Ordering the Register of Deeds of Pasig City to The VENDEE shall finish construction of its building
cancel TCT No. PT-105797 and issue a new title over within four (4) years from December 31,
the subject property under the name of ORTIGAS & 1991.6ChanRoblesVirtualawlibrary
COMPANY LIMITED PARTNERSHIP. As a result, the Register of Deeds of Rizal cancelled
TCT No. 65118 and issued TCT No. PT-94175 in the
No pronouncement as to cost. name of Amethyst.7 The conditions contained in the
Deed of Sale were also annotated on TCT No. PT-
SO ORDERED.2 94175 as encumbrances.8
The petitioner also assails the resolution promulgated On December 28, 1996, Amethyst assigned the
on July 26, 2012,3 whereby the CA denied its Motion subject property to its sole stockholder, petitioner ASB
for Reconsideration. Realty Corporation (the petitioner), under a so-called
Deed of Assignment in Liquidation in consideration of
Antecedents 10,000 shares of the petitioner's outstanding capital
stock.9 Thus, the property was transferred to the
On June 29, 1994, respondent Ortigas & Company petitioner free from any liens or encumbrances except
Limited Partnership (Ortigas) entered into a Deed of those duly annotated on TCT No. PT-94175.10 The
Sale with Amethyst Pearl Corporation (Amethyst) Register of Deeds of Rizal cancelled TCT No. PT-
involving the parcel of land with an area of 1,012 94175 and issued TCT No. PT-105797 in the name of
the petitioner with the same encumbrances annotated property was transferred to ASB on 28 December
on TCT No. PT-94175.11 1996, Ortigas never initiated any action against
Amethyst to enforce said provision. Ortigas is
On July 7, 2000, Ortigas filed its complaint for specific therefore guilty of laches or negligence or omission to
performance against the petitioner,12 which was assert a right within a reasonable time, warranting a
docketed as Civil Case No. 67978 of the Regional presumption that the party entitled to assert it either
Trial Court (RTC) in Pasig City.13 Ortigas amended has abandoned it or declined to assert it. (Tijam v.
the complaint, and alleged,14 among others, that: Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
5. Defendant has violated the terms of the Deed of It is worth mentioning that the restrictions annotated in
Absolute Sale (Annex "A") in the following manner: TCT No. 94175 (in the name of Amethyst Pearl
a. While the lot may be used only "for office and Corporation) and TCT No. PT-105797 (in the name of
residential purposes", defendant introduced ASB) repeatedly and consistently refer to the
constructions on the property which are commercial in VENDEE. The term VENDEE in the said restrictions
nature, like restaurants, retail stores and the like (see obviously refer to Amethyst Pearls Corporation
par. A, Deed of Absolute Sale, Annex "A"). considering the fact that the date referred to in
Paragraph N thereof (Construction and Completion of
b. The commercial structures constructed by Building), which is four (4) years from December 31,
defendant on the property extend up to the boundary 1991, obviously refer to the plaintiffs VENDEE
lines of the lot in question violating the setbacks Amethyst Pearl Corporation. Definitely, it cannot refer
established in the contract (see par. B.A., ibid). to the defendant ASB which is not a vendee of the
plaintiff. Therefore, all references to VENDEE in the
c. Defendant likewise failed to submit the final plans restrictions evidently refer to Amethyst Pearl
and specifications of its proposed building not later Corporation, the VENDEE in the sale from the
than six (6) months from June 29, 1994 and to plaintiff. Such explanation is more consistent with
complete construction of the same within four (4) logic than the plaintiffs convoluted assertions that the
years from December 31, 1991. (see pars. L and M, said restrictions apply to the defendant ASB.
ibid).
Reconveyance of the property to Ortigas necessarily
d. Being situated in a first-class office building area, it implies rescission of the sale or transfer from
was agreed that no advertisements or any kind of Amethyst to ASB and from Ortigas to Amethyst. But
commercial signs shall be allowed on the lot or the Amethyst was not made a party to the case.
improvements therein but this was violated by Reconveyance of the property to the original seller
defendant when it put up commercial signs and (Ortigas) applies only on the sale to the original
advertisements all over the area, (see par. F, ibid). vendee (Amethyst) and not to subsequent vendees to
whom the property was sold (Ayala Corp. v. Rosa
6. Any of the afore-described violations committed by Diana Realty and Dev. Corp., G.R. No. 134284, Dec.
the defendant empower the plaintiff to sue under 1, 2000, 346 SCRA 663).
parangraph "N. Unilateral Cancellation", plaintiff may
have the Deed of Absolute Sale (Annex "A") The non-compliance by the plaintiff with the requisites
cancelled and the property reverted to it by paying the of its own restrictions further proves that it had no
defendant the amount it has paid less the items intention whatsoever to enforce or implement the
indicated therein.15 same. If at all, this evinces an afterthought of the
plaintiff to belatedly and unjustifiably single out the
For reliefs, Ortigas prayed for the reconveyance of the defendant for alleged non compliance of the said
subject property, or, alternatively, for the demolition of restrictions which are not applicable to it anyway.
the structures and improvements thereon, plus the
payment of penalties, attorney's fees and costs of WHEREFORE, foregoing premises considered, the
suit.16 present complaint is hereby dismissed for lack of
basis.
During the pendency of the proceedings in the RTC,
the petitioner amended its Articles of Incorporation to SO ORDERED.
change its name to St. Francis Square Realty
Corporation.17 Ortigas appealed to the CA, which initially affirmed
the RTC under the decision promulgated on
After trial on the merits, the RTC rendered its decision September 6, 2011,20 ruling thusly:
on December 14, 2009,18 and dismissed the
complaint, pertinently holding as follows: x x x x ORTIGAS can no longer enforce the said
restrictions as against ASB.
Ortigas sold the property [to] Amethyst on 29 June
1994. Amethyst was supposed to finish construction The "Covenants, Conditions and Restrictions" of
on 31 December 1995. Yet, up to the time the ORTIGAS with respect to the property clearly states
the following purpose: real estate development project and subdivision
scheme". The Court thus concurs with the
"This lot has been segregated by ORTIGAS from its ratiocinations of the RTC when it posited that the
subdivisions to form part of a zonified BUILDING restrictions imposed by ORTIGAS on ASB have been
AREA pursuant to its controlled real estate "rendered obsolete and inexistent" for failure of
development project and subdivision scheme. x x x" ORTIGAS to enforce the same uniformly and
indiscriminately against all non-complying property
However, it appears from the circumstances obtaining owners. If the purpose of ORTIGAS for imposing the
in this case that ORTIGAS failed to pursue the restrictions was for its "controlled real estate
aforequoted purpose. It never filed a complaint development project and subdivision scheme", then it
against its vendee, AMETHYST, notwithstanding that should have sought compliance from all property
it required the latter to complete construction of the owners that have violated the restriction on building
building within four (4) years from the execution of the completion. As things stand, ASB would appear to
Deed of Sale. Neither did it make a demand to have been singled out by ORTIGAS, rendering the
enforce the subject restriction. Moreover, while it present action highly suspect and a mere
imposed a restriction on the registration and issuance afterthought.
of title in the name of the vendee under Paragraph "P"
on "Registration of Sale", to wit: Consequently, while it may be true that ASB was
bound by the restrictions annotated on its title,
"P. REGISTRATION OF SALE: specifically the restriction on building completion,
ORTIGAS is now effectively estopped from enforcing
The VENDEE hereby agrees that, for the time being, the same by virtue of its inaction and silence.
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the xxxx
contemplated Office Building and VENDEE's
compliance with all conditions therein. x x x" In this case, ORTIGAS acquiesced to the conveyance
of the property from AMETHYST to ASB with nary a
AMETHYST was nonetheless able to procure the title demand, reservation or complaint for the enforcement
to the property in its name, and subsequently, of the restriction on building construction. It allowed
assigned the same to ASB. the four-year period within which to construct a
building to lapse before it decided that it wanted, after
Besides, records show that there are registered all, to enforce the restriction, which cannot be allowed
owner-corporations of several properties within the lest the property rights of the registered owner, ASB,
Ortigas area, where the subject property is located, be transgressed. Such a silence or inaction, which in
that have likewise failed to comply with the restriction effect led ASB to believe that ORTIGAS no longer
on building construction notwithstanding the fact of its sought the enforcement of the restrictions on the
annotation on the titles covering their properties. In contract, therefore bars ORTIGAS from enforcing the
fact, the tax declarations covering these properties in restriction it imposed on the subject property.
the respective names of UNIMART INC., CHAILEASE
DEVELOPMENT CO. INC., CANOGA PARK xxxx
DEVELOPMENT CORPORATION, and MAKATI
SUPERMARKET CORPORATION reveal that no WHEREFORE, premises considered, the instant
improvements or buildings have been erected appeal is DENIED. The assailed Decision is hereby
thereon. AFFIRMED.
ASB contends that it could not have complied with the Per allegation of material dates, the Motion for
particular restriction to finish construction of the Reconsideration filed by Balgos Gumara & Jalandoni,
building as the period to finish the same had already co-counsel with Jose, Mendoza & Associates, on
lapsed by the time ASB acquired the property by way January 30, 2012 appears to have been filed on time.
of a Deed of Assignment in Liquidation between However, per registry return attached at the back of p.
AMETHYST and ASB on 28 December 1996. We 212 of the Rollo, the Motion for Reconsideration was
hold, however, that the mere assignment or filed three (3) days late considering that the Amended
transfer of the subject property from AMETHYST Decision was received by defendant appellee's
to ASB does not serve to defeat the vested right counsel of record, Jose, Mendoza & Associates, on
of ORTIGAS to avail of remedies to enforce the January 12, 2012.
subject restriction within the applicable
prescriptive period. The conclusion of the CA was unwarranted because
the petitioner established that its filing of the Motion
xxxx for Reconsideration was timely.
As to the argument that the inaction of ORTIGAS with It is basic that the party who asserts a fact or the
respect to other non-compliant properties in the affirmative of an issue has the burden of proving it. 28
Ortigas area is tantamount to consenting to such non- Here, that party was the petitioner. To comply with its
compliance, it must be mentioned that it is the sole burden, it attached to its petition for review on
prerogative and discretion of Ortigas to initiate any certiorari: (1) the affidavit executed by Noel S.R.
action against the violators of the deed restrictions. Rose, Senior Partner of Jose, Mendoza & Associates
This Court cannot interfere with the exercise of such attesting that he had requested the postmaster of the
prerogative/discretion. Furthermore, We cannot Mandaluyong City Post Office to certify the date when
sustain estoppel in doubtful inference. Absent the Jose, Mendoza & Associates had received the copy
conclusive proof that its essential elements are of the amended decision of the CA;29 and (2) the
present, estoppel must fail. Estoppel, when certification issued on August 15, 2012 by Postmaster
misapplied, becomes an effective weapon to Rufino C. Robles, and Letter Carrier, Jojo Salvador,
accomplish an injustice, inasmuch as it shuts a man's both of the Mandaluyong Central Post Office,
mouth from speaking the certifying that Registered Letter No. MVC 457
truth.23ChanRoblesVirtualawlibrary containing the copy of the amended decision had
By its resolution promulgated on July 26, 2012, the been delivered to and received on January 18, 2012
CA denied the petitioner's Motion for by Jose, Mendoza & Associates, through Ric
Reconsideration24 for being filed out of Ancheta.30 It thereby sought to prove that it had
time.25cralawred received the copy of the amended decision only on
January 18, 2012, not January 12, 2012 as stated in
Issues the registry return card on record. Thus, it had until
February 2, 2012, or 15 days from January 18, 2012,
Hence, this appeal in which ASB submits: (1) that its within which to file the same. In contrast, Ortigas
Motion for Reconsideration vis-a-vis the CA's relied only on the copy of the registry return to refute
amended decision was filed on time; and (2) that the the petitioner's assertion.31 Under the circumstances,
amended decision promulgated on January 9, 2012 the filing on January 30, 2012 of the Motion for
by CA be reversed and set aside, and the decision Reconsideration was timely.
promulgated on September 6, 2011 be reinstated.26
2.
The petitioner essentially seeks the resolution of the
issue of whether or not Ortigas validly rescinded the Ortigas' action for rescission could not prosper
Deed of Sale due to the failure of Amethyst and its
assignee, the petitioner, to fulfil the covenants under The petitioner reiterates that although the restrictions
the Deed of Sale. and covenants imposed by Ortigas under the Deed of
Sale with Amethyst, particularly with regard to the
Ruling of the Court construction of the building, were similarly imposed on
Ortigas' other buyers and annotated on the latter's
The petition for review is meritorious. respective certificates of title,32 Ortigas never took to
task such other buyers and Amethyst for failing to
1. construct the buildings within the periods contractually
imposed.33 It maintains, therefore, that Ortigas slept
Petitioner's motion for reconsideration vis-a-vis on its rights because it did not take any action against
the amended decision of the CA was timely filed Amethyst during the period prescribed in the Deed of
Sale.34 It argues that even assuming that it was bound ASSIGNOR from any and all claims.40
by the terms of the Deed of Sale, certain
circumstances occurred in the interim that rendered it The express terms of the Deed of Assignment in
impossible for the petitioner to comply with the Liquidation, supra, indicate that Amethyst transferred
covenants embodied in the Deed of Sale, namely: (1) to the petitioner only the tangible asset consisting of
the delay in the petitioner's possession of the property the parcel of land covered by TCT No. PT-94175
resulted from the complaint for forcible entry it had registered in the name of Amethyst. By no means did
filed in the Metropolitan Trial Court in Pasig City; (2) Amethyst assign the rights or duties it had assumed
at the time the property was transferred to the under the Deed of Sale. The petitioner thus became
petitioner, the period within which to construct the vested with the ownership of the parcel of land "free
building had already expired without Ortigas enforcing from any lien or encumbrance except those that are
the obligation against Amethyst; and (3) the petitioner duly annotated on the [title]" from the time Amethyst
was placed under corporate rehabilitation by the executed the Deed of Assignment in Liquidation.
Securities and Exchange Commission (SEC) by virtue
of which a stay order was issued on May 4, 2000.35 Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon,
In contrast, Ortigas contends that it had the sole or any rights thereto, shall not be transferred, sold or
discretion whether or not to commence any action encumbered before the final completion of the
against a party who violated a restriction in the Deed building as herein provided unless it is with the prior
of Sale;36 and that it could not be estopped because express written approval of ORTIGAS.41
the Deed of Sale with Amethyst and the deeds of sale
with its other buyers contained a uniform provision to xxxx
the effect that "any inaction, delay or tolerance by
OCLP (Ortigas) in respect to violation of any of the The VENDEE hereby agrees that, for the time being,
covenants and restrictions committed by these buyers this Deed will not be registered and that its title shall
shall not bar or estop the institution of an action to not be issued until the satisfactory construction of the
enforce them."37 contemplated Office Building and VENDEE's
compliance with all conditions herein. x x x42
In asserting its right to rescind, Ortigas insists that the
petitioner was bound by the covenants of the Deed of Ortigas apparently recognized without any reservation
Sale annotated on TCT No. PT-10597 in the name of the issuance of the new certificate of title in the name
the petitioner;38 and that the petitioner's privity to the of Amethyst and the subsequent transfer by
Deed of Sale was by virtue of its being the successor- assignment from Amethyst to the petitioner that
in-interest or assignee of Amethyst.39 resulted in the issuance of the new certificate of title
under the name of the petitioner. As such, Ortigas
After evaluating the parties' arguments and the was estopped from assailing the petitioner's
records of the case, the Court holds that Ortigas could acquisition and ownership of the property.
not validly demand the reconveyance of the property,
or the demolition of the structures thereon through The application of estoppel was appropriate. The
rescission. doctrine of estoppel was based on public policy, fair
dealing, good faith and justice, and its purpose was to
The Deed of Assignment in Liquidation executed forbid a party to speak against his own act or
between Amethyst and the petitioner expressly omission, representation, or commitment to the injury
stated, in part, that: of another to whom the act, omission, representation,
x x x x [T]he ASSIGNOR hereby assigns, transfers or commitment was directed and who reasonably
and conveys unto the ASSIGNEE, its successors relied thereon. The doctrine sprang from equitable
and assigns, free from any lien or encumbrance principles and the equities in the case, and was
except those that are duly annotated on the Transfer designed to aid the law in the administration of justice
Certificate of Title (TCT), one parcel of real property where without its aid injustice would result. Estoppel
(with improvements). x x x. has been applied by the Court wherever and
whenever special circumstances of the case so
xxxx demanded.43
The ASSIGNEE in turn in consideration of the Yet, the query that persists is whether or not the
foregoing assignment of assets to it, hereby covenants annotated on TCT No. PT-10597 bound
surrenders to ASSIGNOR, Amethyst Pearl the petitioner to the performance of the obligations
Corporation, Stock Certificate Nos. (006, 007, 008, assumed by Amethyst under the Deed of Sale.
009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the We agree with Ortigas that the annotations on TCT
ASSIGNEE and its nominees in the books of No. PT-10597 bound the petitioner but not to the
ASSIGNOR, receipt of which is hereby extent that rendered the petitioner liable for the non-
acknowledged, and in addition hereby releases performance of the covenants stipulated in the Deed
of Sale. of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
Section 39 of Act No. 496 (The Land Registration Act) rights mentioned in articles 1236 and 1237.
requires that every person receiving a certificate of
title in pursuance of a decree of registration, and Therefore, the obligation to pay the mortgage
every subsequent purchaser of registered land who indebtedness remains with the original debtors Galas
takes a certificate of title for value in good faith shall and Pingol. x x x
hold the same free of all encumbrances except those
noted on said certificate. An encumbrance in the To be clear, contractual obligations, unlike contractual
context of the provision is "anything that impairs the rights or benefits, are generally not assignable. But
use or transfer of property; anything which constitutes there are recognized means by which obligations may
a burden on the title; a burden or charge upon be transferred, such as by sub-contract and novation.
property; a claim or lien upon property." 44 It denotes In this case, the substitution of the petitioner in the
"any right to, or interest in, land which may subsist in place of Amethyst did not result in the novation of the
another to the diminution of its value, but consistent Deed of Sale. To start with, it does not appear from
with the passing of the fee by conveyance."45 An the records that the consent of Ortigas to the
annotation, on the other hand, is "a remark, note, substitution had been obtained despite its essentiality
case summary, or commentary on some passage of a to the novation. Secondly, the petitioner did not
book, statutory provision, court decision, of the like, expressly assume Amethyst's obligations under the
intended to illustrate or explain its meaning." 46 The Deed of Sale, whether through the Deed of
purpose of the annotation is to charge the purchaser Assignment in Liquidation or another document. And,
or title holder with notice of such burden and claims.47 thirdly, the consent of the new obligor (i.e., the
Being aware of the annotation, the purchaser must petitioner), which was as essential to the novation as
face the possibility that the title or the real property that of the obligee (i.e., Ortigas), was not obtained.50
could be subject to the rights of third parties.48
Even if we would regard the petitioner as the
By acquiring the parcel of land with notice of the assignee of Amethyst as far as the Deed of Sale was
covenants contained in the Deed of Sale between the concerned, instead of being the buyer only of the
vendor (Ortigas) and the vendee (Amethyst), the subject property, there would still be no express or
petitioner bound itself to acknowledge and respect the implied indication that the petitioner had assumed
encumbrance. Even so, the petitioner did not step into Amethyst's obligations. In short, the burden to perform
the shoes of Amethyst as a party in the Deed of Sale. the covenants under the Deed of Sale, or the liability
Thus, the annotation of the covenants contained in for the non-performance thereof, remained with
the Deed of Sale did not give rise to a liability on the Amethyst. As held in an American case:
part of the petitioner as the purchaser/successor-in-
interest without its express assumption of the duties The mere assignment of a bilateral executory contract
or obligations subject of the annotation. As stated, the may not be interpreted as a promise by the assignee
annotation was only the notice to the to the assignor to assume the performance of the
purchaser/successor-in-interest of the burden, claim assignor's duties, so as to have the effect of creating
or lien subject of the annotation. In that respect, the a new liability on the part of the assignee to the other
Court has observed in Garcia v. Villar:49 party to the contract assigned. The assignee of the
vendee is under no personal engagement to the
The sale or transfer of the mortgaged property cannot vendor where there is no privity between them.
affect or release the mortgage; thus the purchaser or (Champion v. Brown, 6 Johns. Ch. 398; Anderson v.
transferee is necessarily bound to acknowledge and N. Y. & H. R. R. Co., 132 App. Div. 183, 187, 188;
respect the encumbrance. Hugel v. Habel, 132 App. Div. 327, 328.) The
assignee may, however, expressly or impliedly, bind
xxxx himself to perform the assignor's duties. This he may
do by contract with the assignor or with the other
x x x However, Villar, in buying the subject property party to the contract. It has been held (Epstein v.
with notice that it was mortgaged, only undertook to Gluckin, 233 N. Y. 490) that where the assignee of
pay such mortgage or allow the subject property to be the vendee invokes the aid of a court of equity in an
sold upon failure of the mortgage creditor to obtain action for specific performance, he impliedly binds
payment from the principal debtor once the debt himself to perform on his part and subjects himself to
matures. Villar did not obligate herself to replace the the conditions of the judgment appropriate thereto.
debtor in the principal obligation, and could not do so "He who seeks equity must do equity." The converse
in law without the creditors consent. Article 1293 of of the proposition, that the assignee of the vendee
the Civil Code provides: would be bound when the vendor began the action,
did not follow from the decision in that case. On the
Art. 1293. Novation which consists in substituting a contrary, the question was wholly one of remedy
new debtor in the place of the original one, may be rather than right and it was held that mutuality of
made even without the knowledge or against the will remedy is important only so far as its presence is
essential to the attainment of the ends of justice. This The injured party may choose between the fulfillment
holding was necessary to sustain the decision. No and the rescission of the obligation, with the payment
change was made in the law of contracts nor in the of damages in either case. He may also seek
rule for the interpretation of an assignment of a rescission, even after he has chosen fulfillment, if the
contract. latter should become impossible.
A judgment requiring the assignee of the vendee to The court shall decree the rescission claimed, unless
perform at the suit of the vendor would operate as the there be just cause authorizing the fixing of a period.
imposition of a new liability on the assignee which
would be an act of oppression and injustice, unless This is understood to be without prejudice to the rights
the assignee had, expressly or by implication, entered of third persons who have acquired the thing, in
into a personal and binding contract with the assignor accordance with articles 1385 and 1388 and the
or with the vendor to assume the obligations of the Mortgage Law.
assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover Rescission under Article 1191 of the Civil Code is
the subject property from the petitioner? proper if one of the parties to the contract commits a
substantial breach of its provisions. It abrogates the
The Civil Code uses rescission in two different contract from its inception and requires the mutual
contexts, namely: (1) rescission on account of breach restitution of the benefits received;53 hence, it can be
of contract under Article 1191; and (2) rescission by carried out only when the party who demands
reason of lesion or economic prejudice under Article rescission can return whatever he may be obliged to
1381. Cogently explaining the differences between restore.
the contexts of rescission in his concurring opinion in
Universal Food Corp. v. Court of Appeals,52 the Considering the foregoing, Ortigas did not have a
eminent Justice J.B.L. Reyes observed: cause of action against the petitioner for the
rescission of the Deed of Sale. Under Section 2, Rule
x x x The rescission on account of breach of 2 of the Rules of Court, a cause of action is the act or
stipulations is not predicated on injury to economic omission by which a party violates a right of another.
interests of the party plaintiff but on the breach of faith The essential elements of a cause of action are: (1) a
by the defendant, that violates the reciprocity between right in favor of the plaintiff by whatever means and
the parties. It is not a subsidiary action, and Article under whatever law it arises or is created; (2) an
1191 may be scanned without disclosing anywhere obligation on the part of the defendant not to violate
that the action for rescission thereunder is such right; and (3) an act or omission on the part of
subordinated to anything; other than the culpable the defendant in violation of the right of the plaintiff or
breach of his obligations by the defendant. This constituting a breach of the obligation of the
rescission is in principal action retaliatory in character, defendant to the plaintiff for which the latter may
it being unjust that a party be held bound to fulfill his maintain an action for recovery of damages or other
promises when the other violates his, as expressed in relief. It is only upon the occurrence of the last
the old Latin aphorism: "Non servanti fidem, non est element that the cause of action arises, giving the
fides servanda." Hence, the reparation of damages for plaintiff the right to file an action in court for the
the breach is purely secondary. recovery of damages or other relief.54
On the contrary, in the rescission by reason of lesion The second and third elements were absent herein.
or economic prejudice, the cause of action is The petitioner was not privy to the Deed of Sale
subordinated to the existence of that prejudice, because it was not the party obliged thereon. Not
because it is the raison d'etre as well as the measure having come under the duty not to violate any
of the right to rescind. Hence, where the defendant covenant in the Deed of Sale when it purchased the
makes good the damages caused, the action cannot subject property despite the annotation on the title, its
be maintained or continued, as expressly provided in failure to comply with the covenants in the Deed of
Articles 1383 and 1384. But the operation of these Sale did not constitute a breach of contract that gave
two articles is limited to the cases of rescission for rise to Ortigas' right of rescission. It was rather
lesion enumerated in Article 1381 of the Civil Code of Amethyst that defaulted on the covenants under the
the Philippines, and does not apply to cases under Deed of Sale; hence, the action to enforce the
Article 1191. provisions of the contract or to rescind the contract
should be against Amethyst. In other words,
Based on the foregoing, Ortigas' complaint was rescission could not anymore take place against the
predicated on Article 1191 of the Civil Code, which petitioner once the subject property legally came into
provides: the juridical possession of the petitioner, who was a
Article 1191. The power to rescind obligations is third party to the Deed of Sale.55
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. In view of the outcome, we consider to be superfluous
any discussion of the other matters raised in the
petition, like the effects of the petitioner's corporate
rehabilitation and whether Ortigas was guilty of
laches.
SO ORDERED.