CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs.
National Housing Authority (NHA) to exchange the donated property with
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA
P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.
G.R. No. 112127 | July 17, 1995
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which reversed that of
the Regional Trial Court of Iloilo City directing petitioner to reconvey to
private respondents the property donated to it by their predecessor-in-
interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member
of the Board of Trustees of the Central Philippine College (now Central
Philippine University [CPU]), executed a deed of donation in favor of the
latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision
plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the donee CPU
with the following annotations copied from the deed of donation —
1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as
part of the curriculum;
2. The said college shall not sell, transfer or convey to any third
party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the
said college shall be under obligation to erect a cornerstone
bearing that name. Any net income from the land or any of its parks
shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS
FUND" to be used for improvements of said campus and erection
of a building thereon.1
On 31 May 1989, private respondents, who are the heirs of Don Ramon
Lopez, Sr., filed an action for annulment of donation, reconveyance and
damages against CPU alleging that since 1939 up to the time the action was
filed the latter had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated with the
another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file
the action had prescribed; that it did not violate any of the conditions in the
deed of donation because it never used the donated property for any other
purpose than that for which it was intended; and, that it did not sell, transfer
or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with
the conditions of the donation and declared it null and void. The court a
quo further directed petitioner to execute a deed of the reconveyance of
the property in favor of the heirs of the donor, namely, private respondents
herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled
that the annotations at the back of petitioner's certificate of title were
resolutory conditions breach of which should terminate the rights of the
donee thus making the donation revocable.
The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a medical
school, the donor did not fix a period within which the condition must be
fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part
of the bargain. Thus, the appellate court rendered its decision reversing the
appealed decision and remanding the case to the court of origin for the
determination of the time within which petitioner should comply with the
first condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that
the quoted annotations in the certificate of title of petitioner are onerous
obligations and resolutory conditions of the donation which must be fulfilled
non-compliance of which would render the donation revocable; (b) in
holding that the issue of prescription does not deserve "disquisition;" and,
(c) in remanding the case to the trial court for the fixing of the period within
which petitioner would establish a medical college.2
We find it difficult to sustain the petition. A clear perusal of the conditions
set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives
us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent of
the donation itself, e.g., when a donation imposes a burden equivalent to
the value of the donation. A gift of land to the City of Manila requiring the
latter to erect schools, construct a children's playground and open streets
on the land was considered an onerous donation.3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the
donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition
of rights, as well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which constitutes the
condition. Thus, when a person donates land to another on the condition
that the latter would build upon the land a school, the condition imposed
was not a condition precedent or a suspensive condition but a resolutory
one.4 It is not correct to say that the schoolhouse had to be constructed
before the donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be invading the property
rights of the donor. The donation had to be valid before the fulfillment of
the condition.5 If there was no fulfillment or compliance with the condition,
such as what obtains in the instant case, the donation may now be revoked
and all rights which the donee may have acquired under it shall be deemed
lost and extinguished.
The claim of petitioner that prescription bars the instant action of private
respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical
school upon the land donated, depended upon the exclusive will of
the donee as to when this condition shall be fulfilled. When
petitioner accepted the donation, it bound itself to comply with the
condition thereof. Since the time within which the condition should
be fulfilled depended upon the exclusive will of the petitioner, it
has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation
were sufficient to prevent the statute of limitations from barring
the action of private respondents upon the original contract which
was the deed of donation.6
Moreover, the time from which the cause of action accrued for the
revocation of the donation and recovery of the property donated cannot be
specifically determined in the instant case. A cause of action arises when
that which should have been done is not done, or that which should not
have been done is done.7 In cases where there is no special provision for
such computation, recourse must be had to the rule that the period must be
counted from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which determines
the starting point for the computation of the period. In this case, the starting
point begins with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the
necessary buildings and improvements on the property cannot be
quantified in a specific number of years because of the presence of several
factors and circumstances involved in the erection of an educational
institution, such as government laws and regulations pertaining to
education, building requirements and property restrictions which are
beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the general rule
provided in Art. 1197 of the Civil Code applies, which provides that the
courts may fix the duration thereof because the fulfillment of the obligation
itself cannot be demanded until after the court has fixed the period for
compliance therewith and such period has arrived.8
This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of
fifty (50) years has already been allowed petitioner to avail of the
opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so.
Hence, there is no more need to fix the duration of a term of the obligation
when such procedure would be a mere technicality and formality and would
serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when
one of the obligors cannot comply with what is incumbent upon him, the
obligee may seek rescission and the court shall decree the same unless there
is just cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance, there is no
more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a gratuitous
contract should be resolved in favor of the least transmission of rights and
interests. 10Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant
action, petitioner has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an unreasonable length of time.
Hence, it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that petitioner as donee
should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31
May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of
Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner
is directed to reconvey to private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-
3910-A within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the donation in question
is onerous considering the conditions imposed by the donor on the donee
which created reciprocal obligations upon both parties. Beyond that, I beg
to disagree.
First of all, may I point out an inconsistency in the majority opinion's
description of the donation in question. In one part, it says that the donation
in question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., give us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration
which is considered the equivalent of the donation itself, e.g., when
a donation imposes a burden equivalent to the value of the
donation . . . . (emphasis supplied)
Yet, in the last paragraph of page 8 it states that the donation is basically a
gratuitous one. The pertinent portion thereof reads:
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of
a gratuitous contract should be resolved in favor of the least
transmission of rights and interest . . . (emphasis supplied)
Second, the discussion on conditional obligations is unnecessary. There is no
conditional obligation to speak of in this case. It seems that the "conditions"
imposed by the donor and as the word is used in the law of donations is
confused with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and
Alguer, and Colin & Capitant, states clearly the context within which the
term "conditions" is used in the law of donations, to wit:
 The word "conditions" in this article does not refer to uncertain
events on which the birth or extinguishment of a juridical relation
depends, but is used in the vulgar sense of obligations or
chargesimposed by the donor on the donee. It is used, not in its
technical or strict legal sense, but in its broadest sense.1 (emphasis
supplied)
Clearly then, when the law and the deed of donation speaks of "conditions"
of a donation, what are referred to are actually the obligations, charges or
burdens imposed by the donor upon the donee and which would
characterize the donation as onerous. In the present case, the donation is,
quite obviously, onerous, but it is more properly called a "modal donation."
A modal donation is one in which the donor imposes a prestation upon the
donee. The establishment of the medical college as the condition of the
donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez determines neither
the existence nor the extinguishment of the obligations of the donor and
the donee with respect to the donation. In fact, the conditions imposed by
Don Ramon Lopez upon the donee are the very obligations of the donation
— to build the medical college and use the property for the purposes
specified in the deed of donation. It is very clear that those obligations are
unconditional, the fulfillment, performance, existence or extinguishment of
which is not dependent on any future or uncertain event or past and
unknown event, as the Civil Code would define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac3 as cited on page 5 of the
majority opinion is erroneous in so far as the latter stated that the condition
in Parks is a resolutory one and applied this to the present case. A more
careful reading of this Court's decision would reveal that nowhere did we
say, whether explicitly or impliedly, that the donation in that case, which
also has a condition imposed to build a school and a public park upon the
property donated, is a resolutory condition. 4 It is incorrect to say that the
"conditions" of the donation there or in the present case are resolutory
conditions because, applying Article 1181 of the Civil Code, that would mean
that upon fulfillment of the conditions, the rights already acquired will be
extinguished. Obviously, that could not have been the intention of the
parties.
What the majority opinion probably had in mind was that the conditions are
resolutory because if they are notcomplied with, the rights of the donee as
such will be extinguished and the donation will be revoked. To my mind,
though, it is more accurate to state that the conditions here are not
resolutory conditions but, for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of Article 1197
cannot be applied here. The conditions/obligations imposed by the donor
herein are subject to a period. I draw this conclusion based on our previous
ruling which, although made almost 90 years ago, still finds application in
the present case. In Barretto vs. City of Manila,5 we said that when the
contract of donation, as the one involved therein, has no fixed period in
which the condition should be fulfilled, the provisions of what is now Article
1197 (then Article 1128) are applicable and it is the duty of the court to fix a
suitable time for its fulfillment. Indeed, from the nature and circumstances
of the conditions/obligations of the present donation, it can be inferred that
a period was contemplated by the donor. Don Ramon Lopez could not have
intended his property to remain idle for a long period of time when in fact,
he specifically burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There is a need to fix
the duration of the time within which the conditions imposed are to be
fulfilled.
It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim
that prescription has already barred the present action. I disagree once
more with the ruling of the majority that the action of the petitioners is not
barred by the statute of limitations. There is misplaced reliance again on a
previous decision of this Court in Osmeña vs. Rama.6 That case does not
speak of a deed of donation as erroneously quoted and cited by the majority
opinion. It speaks of a contract for a sum of money where the debtor herself
imposed a condition which will determine when she will fulfill her obligation
to pay the creditor, thus, making the fulfillment of her obligation dependent
upon her will. What we have here, however, is not a contract for a sum of
money but a donation where the donee has not imposed any conditions on
the fulfillment of its obligations. Although it is admitted that the fulfillment
of the conditions/obligations of the present donation may be dependent on
the will of the donee as to when it will comply therewith, this did not arise
out of a condition which the donee itself imposed. It is believed that the
donee was not meant to and does not have absolute control over the time
within which it will perform its obligations. It must still do so within a
reasonable time. What that reasonable time is, under the circumstances, for
the courts to determine. Thus, the mere fact that there is no time fixed as
to when the conditions of the donation are to be fulfilled does not ipso
facto mean that the statute of limitations will not apply anymore and the
action to revoke the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous donation and is
governed by the law on contracts (Article 733) and the case of Osmeña,
being one involving a contract, may apply. But we must not lose sight of the
fact that it is still a donation for which this Court itself applied the pertinent
law to resolve situations such as this. That the action to revoke the donation
can still prescribe has been the pronouncement of this Court as early as 1926
in the case of Parks which, on this point, finds relevance in this case. There,
this Court said,
[that] this action [for the revocation of the donation] is
prescriptible, there is no doubt. There is no legal provision which
excludes this class of action from the statute of limitations. And not
only this, the law itself recognizes the prescriptibility of the action
for the revocation of a donation, providing a special period of [four]
years for the revocation by the subsequent birth of children [Art.
646, now Art. 763], and . . . by reason of ingratitude. If no special
period is provided for the prescription of the action for revocation
for noncompliance of the conditions of the donation [Art. 647, now
Art. 764], it is because in this respect the donation is considered
onerous and is governed by the law of contracts and the general
rules of prescription.7
More recently, in De Luna v. Abrigo,8 this Court reiterated the ruling
in Parks and said that:
It is true that under Article 764 of the New Civil Code, actions for
the revocation of a donation must be brought within four (4) years
from the non-compliance of the conditions of the donation.
However, it is Our opinion that said article does not apply to
onerous donations in view of the specific provision of Article 733
providing that onerous donations are governed by the rules on
contracts.
In the light of the above, the rules on contracts and the general
rules on prescription and not the rules on donations are applicable
in the case at bar.
The law applied in both cases is Article 1144(1). It refers to the prescription
of an action upon a written contract, which is what the deed of an onerous
donation is. The prescriptive period is ten years from the time the cause of
action accrues, and that is, from the expiration of the time within which the
donee must comply with the conditions/obligations of the donation. As to
when this exactly is remains to be determined, and that is for the courts to
do as reposed upon them by Article 1197.
For the reasons expressed above, I register my dissent. Accordingly, the
decision of the Court of Appeals must be upheld, except its ruling that the
conditions of the donation are resolutory.
Padilla, J., dissents
GEORGE L. PARKS, plaintiff-appellant, vs. PROVINCE OF TARLAC,
MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her
husband, defendants-appellees.
G.R. No. L-24190 | July 13, 1926
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.
AVANCEÑA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel
of land No. 2 referred to in the complaint, donated it perpetually to the
municipality of Tarlac, Province of Tarlac, under certain conditions specified
in the public document in which they made this donation. The donation was
accepted by Mr. Santiago de Jesus in the same document on behalf of the
municipal council of Tarlac of which he was the municipal president. The
parcel thus donated was later registered in the name of the donee, the
municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill
sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923,
the municipality of Tarlac transferred the parcel to the Province of Tarlac
which, by reason of this transfer, applied for and obtained the registration
thereof in its name, the corresponding certificate of title having been issued
to it.
The plaintiff, George L. Parks, alleging that the conditions of the donation
had not been complied with and invoking the sale of this parcel of land made
by Concepcion Cirer and James Hill in his favor, brought this action against
the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and
James Hill and prayed that he be declared the absolute owner entitled to
the possession of this parcel, that the transfer of the same by the
municipality of Tarlac to the Province of Tarlac be annulled, and the transfer
certificate issued to the Province of Tarlac cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by virtue of the
sale of this parcel made by Concepcion Cirer and James Hill in his favor on
January 15, 1921, but that sale cannot have any effect. This parcel having
been donated by Concepcion Cirer and James Hill to the municipality of
Tarlac, which donation was accepted by the latter, the title to the property
was transferred to the municipality of Tarlac. It is true that the donation
might have been revoked for the causes, if any, provided by the law, but the
fact is that it was not revoked when Concepcion Cirer and James Hill made
the sale of this parcel to the plaintiff. Even supposing that causes existed for
the revocation of this donation, still, it was necessary, in order to consider it
revoked, either that the revocation had been consented to by the donee,
the municipality of Tarlac, or that it had been judicially decreed. None of
these circumstances existed when Concepcion Cirer and James Hill sold this
parcel to the plaintiff. Consequently, when the sale was made Concepcion
Cirer and James Hill were no longer the owners of this parcel and could not
have sold it to the plaintiff, nor could the latter have acquired it from them.
But the appellant contends that a condition precedent having been imposed
in the donation and the same not having been complied with, the donation
never became effective. We find no merit in this contention. The appellant
refers to the condition imposed that one of the parcels donated was to be
used absolutely and exclusively for the erection of a central school and the
other for a public park, the work to commence in both cases within the
period of six months from the date of the ratification by the partes of the
document evidencing the donation. It is true that this condition has not been
complied with. The allegation, however, that it is a condition precedent is
erroneous. The characteristic of a condition precedent is that the acquisition
of the right is not effected while said condition is not complied with or is not
deemed complied with. Meanwhile nothing is acquired and there is only an
expectancy of right. Consequently, when a condition is imposed, the
compliance of which cannot be effected except when the right is deemed
acquired, such condition cannot be a condition precedent. In the present
case the condition that a public school be erected and a public park made of
the donated land, work on the same to commence within six months from
the date of the ratification of the donation by the parties, could not be
complied with except after giving effect to the donation. The donee could
not do any work on the donated land if the donation had not really been
effected, because it would be an invasion of another's title, for the land
would have continued to belong to the donor so long as the condition
imposed was not complied with.

The appellant also contends that, in any event, the condition not having
been complied with, even supposing that it was not a condition precedent
but subsequent, the non-compliance thereof is sufficient cause for the
revocation of the donation. This is correct. But the period for bringing an
action for the revocation of the donation has prescribed. That this action is
prescriptible, there is no doubt. There is no legal provision which excludes
this class of action from the statute of limitations. And not only this, — the
law itself recognizes the prescriptibility of the action for the revocation of a
donation, providing a special period of five years for the revocation by the
subsequent birth of children (art. 646, Civil Code), and one year for the
revocation by reason of ingratitude. If no special period is provided for the
prescription of the action for revocation for noncompliance of the
conditions of the donation (art. 647, Civil Code), it is because in this respect
the donation is considered onerous and is governed by the law of contracts
and the general rules of prescription. Under the law in force (sec. 43, Code
of Civ. Proc.) the period of prescription of this class of action is ten years.
The action for the revocation of the donation for this cause arose on April
19, 1911, that is six months after the ratification of the instrument of
donation of October 18, 1910. The complaint in this action was presented
July 5, 1924, more than ten years after this cause accrued.

By virtue of the foregoing, the judgment appealed from is affirmed, with the
costs against the appellant. So ordered.

Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

ARTICLE 1182
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses
BERNARDINO NAGUIAT and MARIA PAULINA GERONA-
NAGUIAT, respondents.
[G.R. No. 137909. December 11, 2003]
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale
does not ipso facto grant the seller the right to rescind the
agreement. Unless otherwise stipulated by the parties, rescission is allowed
only when the breach of the contract is substantial and fundamental to the
fulfillment of the obligation.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
seeking to nullify the October 31, 1997 Decision[2] and the February 23,
1999 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The
assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the Regional Trial
Court is hereby AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner
of a parcel of land located at Malhacan, Meycauayan, Bulacan. A portion
thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with
[Respondent Bernardino Naguiat] over a portion of the aforementioned lot
containing an area of 200 square meters. This agreement was reduced to
writing in a document entitled Kasulatan sa Pagbibilihan which reads as
follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng
isang lagay na lupa na nasa Nayon ng Malhacan, Bayan ng
Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga
kahangga nito gaya ng sumusunod:
xxxxxxxxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO
(P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo
ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG
DAAN (200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na
ang mga kahangga nito ay gaya ng sumusunod:
xxxxxxxxx
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na
halagang DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino,
sa sandaling lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO
(P18,000.00) Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob
ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang
kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon
pinagkasunduan, an[g] BUMIBILI ay magbabayad ng pakinabang o
interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy
mabayaran tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang
kasulatang ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng
Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed) (signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili
Pursuant to said agreement, [Respondent Bernardino Naguiat]
gave a downpayment of P2,000.00. He made another partial payment
of P1,000.00 on 7 February 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission
alleging inter alia: that the failure and refusal of [respondents] to pay the
balance of the purchase price constitutes a violation of the contract which
entitles her to rescind the same; that [respondents] have been in possession
of the subject portion and they should be ordered to vacate and surrender
possession of the same to [petitioner] ; that the reasonable amount of rental
for the subject land is P200.00 a month; that on account of the unjustified
actuations of [respondents], [petitioner] has been constrained to litigate
where she incurred expenses for attorneys fees and litigation expenses in
the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the
contract cannot be rescinded on the ground that it clearly stipulates that in
case of failure to pay the balance as stipulated, a yearly interest of 12% is to
be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime
in October 1986, during the wake of the late Eulalio Mistica, he offered to
pay the remaining balance to [petitioner] but the latter refused and hence,
there is no breach or violation committed by them and no damages could
yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to
the said document; that he is presently the owner in fee simple of the
subject lot having acquired the same by virtue of a Free Patent Title duly
awarded to him by the Bureau of Lands; and that his title and ownership had
already become indefeasible and incontrovertible. As counterclaim,
[respondents] pray for moral damages in the amount of P50,000.00;
exemplary damages in the amount of P30,000.00; attorneys fees in the
amount of P10,000.00 and other litigation expenses.
On 8 July 1992, [respondents] also filed a motion to dismiss which was
denied by the court on 29 July 1992. The motion for reconsideration was
likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January 1995 rendered
the now assailed judgment, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the
[respondents] attorneys fee in the amount of P10,000.00 and costs of the
suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the
purchase price in the amount of P17,000.00, with interest
thereon at the rate of 12% per annum computed from April 5,
1989 until full payment is made, subject to the application of the
consigned amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the extra
area of 58 square meters from the land covered by OCT No. 4917
(M), the corresponding price therefor based on the prevailing
market price thereof.[5] (Citations omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not breach the
Contract of Sale. It explained that the conclusion of the ten-year period was
not a resolutory term, because the Contract had stipulated that payment --
with interest of 12 percent -- could still be made if respondents failed to pay
within the period. According to the appellate court, petitioner did not
disprove the allegation of respondents that they had tendered payment of
the balance of the purchase price during her husbands funeral, which was
well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they
had already transferred the land title to their names. The proper recourse,
the CA held, was to order them to pay the balance of the purchase price,
with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its
reconveyance was no longer feasible, because it had been included in the
title issued to them. The appellate court ruled that the only remedy
available was to order them to pay petitioner the fair market value of the
usurped portion.
Hence, this Petition.[6]
Issues
In her Memorandum,[7] petitioner raises the following issues:
1. Whether or not the Honorable Court of Appeals erred in the application
of Art. 1191 of the New Civil Code, as it ruled that there is no breach
 of obligation inspite of the lapse of the stipulated period and the
failure of the private respondents to pay.
2. Whether or not the Honorable Court of Appeals [e]rred in ruling that
rescission of the contract is no longer feasible considering that a
certificate of title had been issued in favor of the private
respondents.
3. Whether or not the Honorable Court of Appeals erred in ruling that since
the 58 sq. m. portion in question is covered by a certificate of title in
the names of private respondents reconveyance is no longer feasible
and proper.[8]
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under
Article 1191 of the Civil Code, because respondents committed a substantial
breach when they did not pay the balance of the purchase price within the
ten-year period. She further avers that the proviso on the payment of
interest did not extend the period to pay. To interpret it in that way would
make the obligation purely potestative and, thus, void under Article 1182 of
the Civil Code.
We disagree. The transaction between Eulalio Mistica and
respondents, as evidenced by the Kasulatan, was clearly a Contract of
Sale. A deed of sale is considered absolute in nature when there is neither a
stipulation in the deed that title to the property sold is reserved to the seller
until the full payment of the price; nor a stipulation giving the vendor the
right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission.[10] Under Article 1191 of the Civil Code, the right
to rescind an obligation is predicated on the violation of the reciprocity
between parties, brought about by a breach of faith by one of
them.[11] Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of
the purchase price within ten years from the execution of the Deed did not
amount to a substantial breach. In the Kasulatan, it was stipulated that
payment could be made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest. The stipulations of
the contract constitute the law between the parties; thus, courts have no
alternative but to enforce them as agreed upon and written. [13]
Moreover, it is undisputed that during the ten-year period, petitioner
and her deceased husband never made any demand for the balance of the
purchase price. Petitioner even refused the payment tendered by
respondents during her husbands funeral, thus showing that she was not
exactly blameless for the lapse of the ten-year period. Had she accepted the
tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties
intended otherwise, she has to show competent proof to support her
contention. Instead, she argues that the period cannot be extended beyond
ten years, because to do so would convert the buyers obligation to a purely
potestative obligation that would annul the contract under Article 1182 of
the Civil Code.
This contention is likewise untenable. The Code prohibits purely
potestative, suspensive, conditional obligations that depend on the whims
of the debtor, because such obligations are usually not meant to be
fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtors will would be to sanction illusory
obligations. [15] The Kasulatan does not allow such thing. First, nowhere
is it stated in the Deed that payment of the purchase price is dependent
upon whether respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties intended
to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-
settled is the rule that findings of fact by the CA are generally binding upon
this Court and will not be disturbed on appeal, especially when they are the
same as those of the trial court.[16] Petitioner has not given us sufficient
reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to
respondents, because a certificate of title had already been issued in their
names. Petitioner nonetheless argues that the Court is still empowered to
order rescission.
We clarify. The issuance of a certificate of title in favor of respondents
does not determine whether petitioner is entitled to rescission. It is a
fundamental principle in land registration that such title serves merely as an
evidence of an indefeasible and incontrovertible title to the property in
favor of the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after
the expiration of the one-year period from entry, an equitable remedy is still
available to those wrongfully deprived of their property.[18] A certificate of
title cannot be subject to collateral attack and can only be altered, modified
or canceled in direct proceedings in accordance with law.[19] Hence, the CA
correctly held that the propriety of the issuance of title in the name of
respondents was an issue that was not determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay
her the value of the lot, because the CA erred in ruling that the
reconveyance of the extra 58-square meter lot, which had been included in
the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a
mode of acquiring ownership over immovable property, because it does not
create or vest title, but merely confirms one already created or
vested.[20] Registration does not give holders any better title than what they
actually have.[21] Land erroneously included in the certificate of title of
another must be reconveyed in favor of its true and actual owner. [22]
Section 48 of Presidential Decree 1529, however, provides that the
certificate of title shall not be subject to collateral attack, alteration,
modification, or cancellation except in a direct proceeding.[23] The
cancellation or removal of the extra portion from the title of respondents is
not permissible in an action for rescission of the contract of sale between
them and petitioners late husband, because such action is tantamount to
allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title
and for reversion was already filed by the State in favor of petitioner and
the heirs of her husband.[24] Hence, there is no need in this case to pass upon
the right of respondents to the registration of the subject land under their
names. For the same reason, there is no necessity to order them to pay
petitioner the fair market value of the extra 58-square meter lot
importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with
the MODIFICATION that the payment for the extra 58-square meter lot
included in respondents title is DELETED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.
NAZARIO TRILLANA, administrator-appellee, vs.
QUEZON COLLEGE, INC., claimant-appellant.
G.R. No. L-5003 June 27, 1953
Singson, Barnes, Yap and Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
PARAS, J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of
the Quezon College:
June 1, 1948
The BOARD OF TRUSTEES
Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang daan (200) shares of your capital
stock with a par value of P100 each. Enclosed you will find (Babayaran
kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my
initial payment and the balance payable in accordance with law and the
rules and regulations of the Quezon College. I hereby agree to shoulder the
expenses connected with said shares of stock. I further submit myself to all
lawful demands, decisions or directives of the Board of Trustees of the
Quezon College and all its duly constituted officers or authorities (ang nasa
itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking
nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
Nilagdaan sa aming harapan:
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no payment
appears to have been made on the subscription mentioned in the foregoing
letter, the Quezon College, Inc. presented a claim before the Court of First
Instance of Bulacan in her testate proceeding, for the collection of the sum
of P20,000, representing the value of the subscription to the capital stock of
the Quezon College, Inc. This claim was opposed by the administrator of the
estate, and the Court of First Instance of Bulacan, after hearing issued an
order dismissing the claim of the Quezon College, Inc. on the ground that
the subscription in question was neither registered in nor authorized by the
Securities and Exchange Commission. From this order the Quezon College,
Inc. has appealed.
It is not necessary for us to discuss at length appellant's various
assignments of error relating to the propriety of the ground relief upon by
the trial court, since, as pointed out in the brief for the administrator and
appellee, there are other decisive considerations which, though not touched
by the lower court, amply sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the
Quezon College, Inc. was written on a general form indicating that an
applicant will enclose an amount as initial payment and will pay the balance
in accordance with law and the regulations of the College. On the other
hand, in the letter actually sent by Damasa Crisostomo, the latter (who
requested that her subscription for 200 shares be entered) not only did not
enclose any initial payment but stated that "babayaran kong lahat
pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record
to show that the Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was any acceptance the
same came to her knowledge during her lifetime. As the application of
Damasa Crisostomo is obviously at variance with the terms evidenced in the
form letter issued by the Quezon College, Inc., there was absolute necessity
on the part of the College to express its agreement to Damasa's offer in
order to bind the latter. Conversely, said acceptance was essential, because
it would be unfair to immediately obligate the Quezon College, Inc. under
Damasa's promise to pay the price of the subscription after she had caused
fish to be caught. In other words, the relation between Damasa Crisostomo
and the Quezon College, Inc. had only thus reached the preliminary stage
whereby the latter offered its stock for subscription on the terms stated in
the form letter, and Damasa applied for subscription fixing her own plan of
payment, — a relation, in the absence as in the present case of acceptance
by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that
had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon
College, Inc. becomes the more imperative, in view of the proposal of
Damasa Crisostomo to pay the value of the subscription after she has
harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void, under article
1115 of the old Civil Code which provides as follows: "If the fulfillment of the
condition should depend upon the exclusive will of the debtor, the
conditional obligation shall be void. If it should depend upon chance, or
upon the will of a third person, the obligation shall produce all its effects in
accordance with the provisions of this code." It cannot be argued that the
condition solely is void, because it would have served to create the
obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil.,
99), wherein only the potestative condition was held void because it
referred merely to the fulfillment of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court
already held that "a condition, facultative as to the debtor, is obnoxious to
the first sentence contained in article 1115 and renders the whole obligation
void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs

against appellant.

Tuason, Padilla and Reyes, JJ., concur in the result.

VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and
ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
G.R. No. 107207 November 23, 1995
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a
contract for the sale of a parcel of land for a cause traceable to his own
failure to have the squatters on the subject property evicted within the
contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business
of production, manufacture and exportation of perlite filter aids, permalite
insulation and processed perlite ore. In 1988, petitioner and his foreign
partners decided to put up a central warehouse in Metro Manila on a land
area of approximately 2,000 square meters. The project was made known
to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife,
accompanied by a broker, offered a parcel of land measuring 1,952 square
meters. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot
was covered by TCT No. 361402 in the name of private respondent
Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and,
except for the presence of squatters in the area, he found the place suitable
for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he
advance the amount of P50,000.00 which could be used in taking up an
ejectment case against the squatters, private respondent would agree to sell
the property for only P800.00 per square meter. Petitioner expressed his
concurrence. On 09 June 1988, a contract, denominated "Deed of
Conditional Sale," was executed between petitioner and private
respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines
this 9th day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and
residing at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred
to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and
residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila,
hereinafter referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total
area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE
METERS, more or less, located in Barrio San Dionisio, Municipality of
Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the
Registry of Deeds of Pasig and more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions
hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE
HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set
forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors,
administrators, executors, assign, all her rights, titles and interest in and to
the property mentioned in the FIRST WHEREAS CLAUSE, subject to the
following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine
Currency, is to be paid upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of ONE MILLION FIVE
HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY
shall be paid 45 days after the removal of all squatters from the above
described property.
3. Upon full payment of the overall purchase price as aforesaid, VENDOR
without necessity of demand shall immediately sign, execute, acknowledged
(sic) and deliver the corresponding deed of absolute sale in favor of the
VENDEE free from all liens and encumbrances and all Real Estate taxes are
all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the parties
hereto that if after 60 days from the date of the signing of this contract the
VENDOR shall not be able to remove the squatters from the property being
purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the
balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from
written notification to the VENDEE of the removal of the squatters from the
property being purchased, the FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp,
transfer fee, assurances and such other fees and expenses as may be
necessary to transfer the title to the name of the VENDEE shall be for the
account of the VENDEE while capital gains tax shall be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in
the City of Makati MM, Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz1
Alfonso Flores, in behalf of private respondent, forthwith received and
acknowledged a check for P50,000.002from petitioner.3
Pursuant to the agreement, private respondent filed a complaint for
ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter
families with the Metropolitan Trial Court of Parañaque. A few months later,
or on 21 February 1989, judgment was rendered ordering the defendants to
vacate the premises. The decision was handed down beyond the 60-day
period (expiring 09 August 1988) stipulated in the contract. The writ of
execution of the judgment was issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the
P50,000.00 she received from petitioner since, she said, she could not "get
rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for
petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence
considering the favorable decision rendered by the Court and the
writ of execution issued pursuant thereto, it is now possible to eject
the squatters from the premises of the subject property, for which
reason, he proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred by
reason thereof shall be chargeable to the purchase price of the
land.4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"),
through its Regional Director for Luzon, Farley O. Viloria, asked the
Metropolitan Trial Court of Parañaque for a grace period of 45 days from 21
April 1989 within which to relocate and transfer the squatter families. Acting
favorably on the request, the court suspended the enforcement of the writ
of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry
of the 45-day grace period and his client's willingness to "underwrite the
expenses for the execution of the judgment and ejectment of the
occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private
respondent, advised Atty. Apostol that the Deed of Conditional Sale had
been rendered null and void by virtue of his client's failure to evict the
squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very
moment that there was a meeting of the minds of the parties upon the
subject lot and the price in the amount of P1,561,600.00. Moreover, the
contract had already been partially fulfilled and executed upon receipt
of the downpayment of your client. Ms. Ongsiong is precluded from
rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed
period. Suffice it to state that, the provision of the Deed of Conditional
Sale do not grant her the option or prerogative to rescind the contract
and to retain the property should she fail to comply with the obligation
she has assumed under the contract. In fact, a perusal of the terms and
conditions of the contract clearly shows that the right to rescind the
contract and to demand the return/reimbursement of the
downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the
contract and demand the return, reimbursement of the downpayment,
our client had opted to take it upon himself to eject the squatters from
the premises. Precisely, we refer you to our letters addressed to your
client dated April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to
rescind is given to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under
their contract in good faith. It is undeniable that Ms. Ongsiong
deliberately refused to exert efforts to eject the squatters from the
premises of the subject property and her decision to retain the property
was brought about by the sudden increase in the value of realties in the
surrounding areas.
Please consider this letter as a tender of payment to your client and a
demand to execute the absolute Deed of Sale.7
A few days later (or on 27 June 1989), private respondent, prompted by
petitioner's continued refusal to accept the return of the P50,000.00
advance payment, filed with the Regional Trial Court of Makati, Branch 133,
Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued
an alias writ of execution in Civil Case No. 7579 on motion of private
respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of
Makati8 rendered decision holding that private respondent had no right to
rescind the contract since it was she who "violated her obligation to eject
the squatters from the subject property" and that petitioner, being the
injured party, was the party who could, under Article 1191 of the Civil Code,
rescind the agreement. The court ruled that the provisions in the contract
relating to (a) the return/reimbursement of the P50,000.00 if the vendor
were to fail in her obligation to free the property from squatters within the
stipulated period or (b), upon the other hand, the sum's forfeiture by the
vendor if the vendee were to fail in paying the agreed purchase price,
amounted to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the
plaintiff in seeking the rescission, namely: (1) he (sic) is afraid of the
squatters; and (2) she has spent so much to eject them from the
premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her
profession of good faith is plaintiffs conduct which is not in accord
 with the rules of fair play and justice. Notably, she caused the
issuance of an alias writ of execution on August 25, 1989 (Exh. 6) in
the ejectment suit which was almost two months after she filed the
complaint before this Court on June 27, 1989. If she were really
afraid of the squatters, then she should not have pursued the
issuance of an alias writ of execution. Besides, she did not even
report to the police the alleged phone threats from the squatters.
To the mind of the Court, the so-called squatter factor is simply
factuitous (sic).9
The lower court, accordingly, dismissed the complaint and ordered,
instead, private respondent to eject or cause the ejectment of the
squatters from the property and to execute the absolute deed of
conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the
appellate court rendered its decision. 10It opined that the contract entered
into by the parties was subject to a resolutory condition, i.e., the ejectment
of the squatters from the land, the non-occurrence of which resulted in the
failure of the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was petitioner
who was not ready to pay the purchase price and fulfill his part of the
contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would
fail to eject the squatters within the 60-day period was not a penal clause.
Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a
new one entered declaring the contract of conditional sale dated June 9,
1988 cancelled and ordering the defendant-appellee to accept the return of
the downpayment in the amount of P50,000.00 which was deposited in the
court below. No pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition for review
on certiorari raising issues that, in fine, center on the nature of the contract
adverted to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or
conditional12 depending on whether the agreement is devoid of, or subject
to, any condition imposed on the passing of title of the thing to be conveyed
or on the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory force. If the
condition is imposed on an obligationof a party which is not complied with,
the other party may either refuse to proceed or waive said condition (Art.
1545, Civil Code). Where, of course, the condition is imposed upon
the perfection of the contract itself, the failure of such condition would
prevent the juridical relation itself from coming into existence.13
In determining the real character of the contract, the title given to it by the
parties is not as much significant as its substance. For example, a deed of
sale, although denominated as a deed of conditional sale, may be treated as
absolute in nature, if title to the property sold is not reserved in the vendor
or if the vendor is not granted the right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed
condition.14
The term "condition" in the context of a perfected contract of sale pertains,
in reality, to the compliance by one party of an undertaking the fulfillment
of which would beckon, in turn, the demandability of the reciprocal
prestation of the other party. The reciprocal obligations referred to would
normally be, in the case of vendee, the payment of the agreed purchase
price and, in the case of the vendor, the fulfillment of certain express
warranties (which, in the case at bench is the timely eviction of the squatters
on the property).
It would be futile to challenge the agreement here in question as not being
a duly perfected contract. A sale is at once perfected when a person (the
seller) obligates himself, for a price certain, to deliver and to transfer
ownership of a specified thing or right to another (the buyer) over which the
latter agrees.15
The object of the sale, in the case before us, was specifically identified to be
a 1,952-square meter lot in San Dionisio, Parañaque, Rizal, covered by
Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig
and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of
the document of sale and the balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the above described property."
From the moment the contract is perfected, the parties are bound not only
to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good
faith, usage and law. Under the agreement, private respondent is obligated
to evict the squatters on the property. The ejectment of the squatters is
a condition the operative act of which sets into motion the period of
compliance by petitioner of his own obligation, i.e., to pay the balance of
the purchase price. Private respondent's failure "to remove the squatters
from the property" within the stipulated period gives petitioner the right to
either refuse to proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code.16 This option clearly belongs
to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required
of private respondent does not constitute a "potestative condition
dependent solely on his will" that might, otherwise, be void in accordance
with Article 1182 of the Civil Code17 but a "mixed" condition "dependent not
on the will of the vendor alone but also of third persons like the squatters
and government agencies and personnel concerned."18 We must hasten to
add, however, that where the so-called "potestative condition" is imposed
not on the birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself.19
In contracts of sale particularly, Article 1545 of the Civil Code,
aforementioned, allows the obligee to choose between proceeding with the
agreement or waiving the performance of the condition. It is this provision
which is the pertinent rule in the case at bench. Here, evidently, petitioner
has waived the performance of the condition imposed on private
respondent to free the property from squatters. 20
In any case, private respondent's action for rescission is not warranted. She
is not the injured party.21 The right of resolution of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the
other party that violates the reciprocity between them. 22 It is private
respondent who has failed in her obligation under the contract. Petitioner
did not breach the agreement. He has agreed, in fact, to shoulder the
expenses of the execution of the judgment in the ejectment case and to
make arrangements with the sheriff to effect such execution. In his letter of
23 June 1989, counsel for petitioner has tendered payment and demanded
forthwith the execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for rescission, assuming
for the sake of argument that such a demand is proper under Article
159223 of the Civil Code, would likewise suffice to defeat private
respondent's prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00
advance payment is reimbursable to petitioner or forfeitable by private
respondent, since, on the basis of our foregoing conclusions, the matter has
ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement
from private respondent nor may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby
REVERSED AND SET ASIDE, and another is entered ordering petitioner to pay
private respondent the balance of the purchase price and the latter to
execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Panganiban, JJ., concur.
ARTICLE 1189
SERGIO R. OSMENA III et al Petitioners, vs SOCIAL SECURITY SYSTEM OF
THE PHILIPPINES et al, Respondents.
G.R. No. 165272 | 2007-09-13
DECISION
GARCIA, J.:
Senator Sergio R. Osmeña III[1] and four (4) other members[2] of the
Philippine Senate, joined by Social Security System (SSS) members Luis F.
Sison and Patricia C. Sison, specifically seek in this original petition for
certiorari and prohibition the nullification of the following issuances of
respondent Social Security Commission (SSC):
1) RESOLUTION No. 428[3] dated July 14, 2004; and
2) RESOLUTION No. 485[4] dated August 11, 2004.
The first assailed resolution approved the proposed sale of the entire equity
stake of the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or
EPCI), consisting of 187,847,891 common shares, through the Swiss
Challengebidding procedure, and authorized SSS President Corazon S. Dela
Paz (Dela Paz) to constitute a bidding committee that would formulate the
terms of reference of the Swiss Challenge bidding mode. The second
resolution approved the Timetable and Instructions to Bidders.
Petitioners[5] also ask that a prohibitive writ issue to permanently enjoin
public respondents from implementing Res. Nos. 428 and 485 or otherwise
proceeding with the sale of subject shares through the Swiss
Challengemethod.
By Resolution[6] dated October 5, 2004, the Court en banc required the
parties to observe the status quo ante the passage of the assailed
resolutions. In the same resolution, the Court noted the motion of
respondent BDO Capital and Investment Corporation (BDO Capital) to admit
its Opposition to the Petition.
The relevant factual antecedents:
Sometime in 2003, SSS, a government financial institution (GFI) created
pursuant to Republic Act (RA) No. 1161[7] and placed under the direction
and control of SSC, took steps to liquefy its long-term investments and
diversify them into higher-yielding and less volatile investment products.
Among its assets determined as needing to be liquefied were its
shareholdings in EPCIB. The principal reason behind the intended
disposition, as explained by respondent Dela Paz during the February 4,
2004 hearing conducted by the Senate Committee on Banks, Financial
Institutions and Currencies, is that the shares in question have substantially
declined in value and the SSS could no longer afford to continue holding on
to them at the present level of EPCIB's income.
Some excerpts of what respondent Dela Paz said in that hearing:
The market value of Equitable-PCI Bank had actually hovered at P34.00 since
July 2003. At some point after the price went down to P16 or P17 after the
September 11 ..., it went up to P42.00 but later on went down to P34.00.
xxx. We looked at the prices in about March of 2001 and noted that the
trade prices then ranged from P50 to P57.
xxx xxx xxx
I have to concede that [EPCIB] has started to recover, ....
Perhaps the fact that there had been this improved situation in the bank
that attracted Banco de Oro .... xxx. I wouldn't know whether the prices
would eventually go up to 60 of (sic) 120. But on the basis of my being the
vice-chair on the bank, I believe that this is the subject of a lot of conjecture.
It can also go down .... So, in the present situation where the holdings of SSS
in [EPCIB] consists of about 10 percent of the total reserve fund, we cannot
afford to continue holding it at the present level of income ....xxx. And
therefore, on that basis, an exposure to certain form of assets whose price
can go down to 16 to 17 which is a little over 20 percent of what we have in
our books, is not a very prudent way or conservative way of handling those
funds. We need not continue experiencing opportunity losses but have an
amount that will give us a fair return to that kind of value (Words in bracket
added.)
Albeit there were other interested parties, only Banco de Oro Universal Bank
(BDO) and its investment subsidiary, respondent BDO Capital,[8] appeared
in earnest to acquire the shares in question. Following talks between them,
BDO and SSS signed, on December 30, 2003, a Letter- Agreement,[9] for the
sale and purchase of some 187.8 million EPCIB common shares (the Shares,
hereinafter), at P43.50 per share, which represents a premium of 30% of the
then market value of the EPCIB shares. At about this time, the Shares were
trading at an average of P34.50 @ share.
In the same Letter-Agreement,[10] the parties agreed "to negotiate in good
faith a mutually acceptable Share Sale and Purchase Agreement and execute
the same not later than thirty (30) business days from [December 30,
2003]."
On April 19, 2004, the Commission on Audit (COA),[11] in response to
respondent Dela Paz's letter-query on the applicability of the public bidding
requirement under COA Circular No. 89-296[12] on the divestment by the
SSS of its entire EPICB equity holdings, stated that the "circular covers all
assets of government agencies except those merchandize or inventory held
for sale in the regular course of business." And while it expressed the
opinion[13] that the sale of the subject Shares are "subject to guidelines in
the Circular," the COA qualified its determination with a statement that such
negotiated sale would partake of a stock exchange transaction and,
therefore, would be adhering to the general policy of public auction. Wrote
the COA:
Nevertheless, since activities in the stock exchange which offer to the
general public stocks listed therein, the proposed sale, although
denominated as "negotiated sale" substantially complies with the general
policy of public auction as a mode of divestment. This is so for shares of
stocks are actually being auctioned to the general public every time that the
stock exchanges are openly operating.
Following several drafting sessions, SSS and BDO Capital, the designated
buyers of the Banco de Oro Group, agreed on a final draft version of the
Share Purchase Agreement[14] (SPA). In it, the parties mutually agreed to
the purchase by the BDO Capital and the sale by SSS of all the latter's EPCIB
shares at the closing date at the specified price of P43.50 per share or a total
of P8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement, was then submitted
to the Department of Justice (DOJ) which, in an Opinion[15] dated April 29,
2004, concurred with the COA's opinion adverted to and stated that it did
not find anything objectionable with the terms of both documents.
On July 14, 2004, SSC passed Res. No. 428[16] approving, as earlier stated,
the sale of the EPCIB shares through the Swiss Challenge method. A month
later, the equally assailed Res. No. 485[17] was also passed.
On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid[18] for
the block purchase of the Shares. The Invitation to Bid expressly provided
that the "result of the bidding is subject to the right of BDO Capital ... to
match the highest bid." October 20, 2004 was the date set for determining
the winning bid.
The records do not show whether or not any interested group/s submitted
bids. The bottom line, however, is that even before the bid envelopes, if any,
could be opened, the herein petitioners commenced the instant special civil
action for certiorari, setting their sights primarily on the legality of the Swiss
Challenge angle and a provision in the Instruction to Bidders under which
the SSS undertakes to offer the Shares to BDO should no bidder or
prospective bidder qualifies. And as earlier mentioned, the
Court, via a status quo order,[19] effectively suspended the proceedings on
the proposed sale.
Under the Swiss Challenge format, one of the bidders is given the option or
preferential "right to match" the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss
Challenge component is contrary to COA Circular No. 89-296 and public
policy which requires adherence to competitive public bidding in a
government-contract award to assure the best price possible for
government assets. Accordingly, the petitioners urge that the planned
disposition of the Shares through a Swiss Challenge method be scrapped. As
argued, the Swiss Challenge feature tends to discourage would-be-bidders
from undertaking the expense and effort of bidding if the chance of winning
is diminished by the preferential "right to match" clause. Pushing the point,
petitioners aver that the Shares are in the nature of long-term or non-
current assets not regularly traded or held for sale in the regular course of
business. As such, their disposition must be governed by the
aforementioned COA circular which, subject to several exceptions,
prescribes "public auction" as a primary mode of disposal of GFIs' assets.
And obviously finding the proposed purchase price to be inadequate, the
petitioners expressed the belief that "if properly bidded out in accordance
with [the] COA Circular ..., the Shares could be sold at a price of at least Sixty
Pesos (P60.00) per share." Other supporting arguments for allowing
certiorari are set forth in some detail in the basic petition.
Against the petitioners' stance, public respondents inter alia submit that the
sale of subject Shares is exempt from the tedious public bidding
requirement of COA. Obviously stressing the practical side of the matter,
public respondents assert that if they are to hew to the bidding requirement
in the disposition of SSS's Philippine Stock Exchange (PSE)-listed stocks, it
would place the System at a disadvantage vis-á -vis other stock market
players who certainly enjoy greater flexibility in reacting to the vagaries of
the market and could sell their holdings at a moment's notice when the price
is right. Public respondents hasten to add, however, that the bidding-
exempt status of the Shares did not prevent the SSS from prudently
proceeding with the bidding as contemplated in the assailed resolutions as
a measure to validate the adequacy of the unit price BDO Capital offered
therefor and to possibly obtain a higher price than its definitive offer of
P43.50 per share.[20] Public respondents also advanced the legal argument,
also shared by their co-respondent BDO Capital, in its Comment,[21] that
the proposed sale is not covered by COA Circular No. 89-296 since the Shares
partake of the nature of merchandise or inventory held for sale in the
regular course of SSS's business.
Pending consideration of the petition, supervening events and corporate
movements transpired that radically altered the factual complexion of the
case. Some of these undisputed events are detailed in the petitioners'
separate Manifestation & Motion to Take Judicial Notice[22] and their
respective annexes. To cite the relevant ones:
1. In January 2006, BDO made public its intent to merge with EPCIB. Under
what BDO termed as "Merger of Equals", EPCIB shareholders would get 1.6
BDO shares for every EPCIB share.[23]
2. In early January 2006, the GSIS publicly announced receiving from an
undisclosed entity an offer to buy its stake in EPCIB - 12% of the bank's
outstanding capital stock - at P92.00 per share.[24]
3. On August 31, 2006, SM Investments Corporation, an affiliate of BDO and
BDO Capital, in consortium with Shoemart, Inc. et al., (collectively, the SM
Group) commenced, through the facilities of the PSE and pursuant to R.A.
No. 8799[25], a mandatory tender offer (Tender Offer) covering the
purchase of the entire outstanding capital stock of EPCIB at P92.00 per
share. Pursuant to the terms of the Tender Offer, which was to start on
August 31, 2006 and end on September 28, 2006 - the Tender Offer Period
- all shares validly tendered under it by EPCIB shareholders of record shall
be deemed accepted for payment on closing date subject to certain
conditions.[26] Among those who accepted the Tender Offer of the SM
Group was EBC Investments, Inc., a subsidiary of EPCIB.
4. A day or two later, BDO filed a Tender Offer Report with the Securities
and Exchange Commission (SEC) and the PSE.[27]
Owing to the foregoing developments, the Court, on October 3, 2006, issued
a Resolution requiring the 'parties to CONFIRM news reports that price of
subject shares has been agreed upon at P92; and if so, to MANIFEST whether
this case has become moot."
First to comply with the above were public respondents SSS et al., by filing
their Compliance and Manifestation,[28] therein essentially stating that the
case is now moot in view of the SM-BDO Group's Tender Offer at P92.00 @
unit share, for the subject EPCIB common shares, inclusive of the SSS shares
subject of the petition. They also stated the observation that the
petitioners' Manifestation and Motion to Take Judicial Notice,[29] never
questioned the Tender Offer, thus confirming the dispensability of a
competitive public bidding in the disposition of subject Shares.
For perspective, a "tender offer" is a publicly announced intention by a
person acting alone or in concert with other persons to acquire equity
securities of a public company, i.e., one listed on an exchange, among
others.[30] The term is also defined as "an offer by the acquiring person to
stockholders of a public company for them to tender their shares therein on
the terms specified in the offer"[31] Tender offer is in place to protect the
interests of minority stockholders of a target company against any scheme
that dilutes the share value of their investments. It affords such minority
shareholders the opportunity to withdraw or exit from the company under
reasonable terms, a chance to sell their shares at the same price as those of
the majority stockholders.[32]
Next to comply with the same Resolution of the Court was respondent BDO
Capital via its Compliance,[33] thereunder practically reiterating public
respondents' position on the question of mootness and the need, under the
premises, to go into public bidding. It added the arguments that the BDO-
SM Group's Tender Offer, involving as it did a general offer to buy all EPCIB
common shares at the stated price and terms, were inconsistent with the
idea of public bidding; and that the Tender Offer rules actually provide for
an opportunity for competing groups to top the Tender Offer price.
On the other hand, petitioners, in their Manifestation,[34] concede the
huge gap between the unit price stated in the Tender Offer and the floor
price of P43.50 per share stated in the Invitation to Bid. It is their posture,
however, that unless SSS withdraws the sale of the subject shares by way of
the Swiss Challenge, the offer price of P92 per share cannot render the case
moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the SM-BDO
Group to acquire controlling interests over EPCIB and paved the way for a
BDO-EPCIB merger. The merger was formalized by subsequent submission
of the necessary merger documents[35] to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan
of Merger[36] approving the merger between BDO and EPCIB, relevant
portions of which are reproduced hereunder:
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
BANCO DE ORO UNIVERSAL BANK,
Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
and
EQUITABLE PCI BANK, INC.
(Absorbed Corporation)
... approved by a majority of the Board of Directors on November 06, 2006
and by a vote of the stockholders owning or representing at least two-thirds
of the outstanding capital stock of constituent corporations on December
27, 2006, signed by the Presidents, certified by their respective Corporate
Secretaries, whereby the entire assets of [EPCI] Inc. will be transferred to
and absorbed by [BDO] UNIVERSAL BANK nowBANCO DE ORO-EPCI,
INC. was approved by this Office on this date but which approval shall be
effective on May 31, 2007 pursuant to the provisions of ... (Word in bracket
added; emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set forth in
Article 1.3 of the Plan of Mergeradverted to, among the effects of the BDO-
EPCIB merger are the following:
a. BDO and EPCI shall become a single corporation, with BDO as the surviving
corporation. [EPCIB] shall cease to exist...;
xxx xxx xxx
c. All the rights, privileges, immunities, franchises and powers of EPCI shall
be deemed transferred to and possessed by the merged Bank...; and
d. All the properties of EPCI, real or personal, tangible or intangible ... shall
be deemed transferred to the Merged Bank without further act or deed.
Per Article 2 of the Plan of Merger on the exchange of shares
mechanism, "all the issued and outstanding common stock of [EPCIB] ('EPCI
shares') shall be converted into fully-paid and non assessable common stock
of BDO ('BDO common shares') at the ratio of 1.80 BDO Common shares for
each issued [EPCIB] share ('the Exchange Ratio')." And under the exchange
procedure, "BDO shall issue BDO Common Shares to EPCI stockholders
corresponding to each EPCI Share held by them in accordance with the
aforesaid Exchange Ratio."
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO
common shares to respondent SSS corresponding to the number of its
former EPCIB shareholdings under the ratio and exchange procedure
prescribed in the Plan of Merger. In net effect, SSS, once the owner of a
block of EPCIB shares, is now a large stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and
academic, BDO Capital supplemented its earlier Compliance and
Manifestation[37] with a formal Motion to Dismiss.[38]
By Resolution dated July 10, 2007, the Court required petitioners and
respondent SSS to comment on BDO Capital's motion to dismiss "within ten
(10) days from notice."
To date, petitioners have not submitted their compliance. On the other
hand, SSS, by way of comment, reiterated its position articulated in
respondents' Compliance and Motion[39] that the SM-BDO Group Tender
Offer at the price therein stated had rendered this case moot and academic.
And respondent SSS confirmed the following: a) its status as BDO-EPCIB
stockholder; b) the Tender Offer made by the SM Group to EPCIB
stockholders, including SSS, for their shares at P92.00 per share; and c) SSS'
acceptance of the Tender Offer thus made.
A case or issue is considered moot and academic when it ceases to present
a justiciable controversy by virtue of supervening events,[40] so that an
adjudication of the case or a declaration on the issue would be of no
practical value or use.[41] In such instance, there is no actual substantial
relief which a petitioner would be entitled to, and which would be negated
by the dismissal of the petition.[42] Courts generally decline jurisdiction
over such case or dismiss it on the ground of mootness -- save when, among
others, a compelling constitutional issue raised requires the formulation of
controlling principles to guide the bench, the bar and the public; or when
the case is capable of repetition yet evading judicial review.[43]
The case, with the view we take of it, has indeed become moot and
academic for interrelated reasons.
We start off with the core subject of this case. As may be noted, the Letter-
Agreement,[44] the SPA,[45] the SSC resolutions assailed in this recourse,
and the Invitation to Bid sent out to implement said resolutions, all have a
common subject: the Shares - the 187.84 Million EPCIB common shares. It
cannot be overemphasized, however, that the Shares, as a necessary
consequence of the BDO-EPCIB merger[46] which saw EPCIB being absorbed
by the surviving BDO, have been transferred to BDO
and converted into BDO common shares under the exchange ratio set forth
in the BDO-EPCIB Plan of Merger. As thus converted, the subject Shares are
no longer equity security issuances of the now defunct EPCIB, but those of
BDO-EPCI, which, needless to stress, is a totally separate and distinct entity
from what used to be EPCIB. In net effect, therefore, the 187.84 Million
EPCIB common shares are now lost or inexistent. And in this regard, the
Court takes judicial notice of the disappearance of EPCIB stocks from the
local bourse listing. Instead, BDO-EPCI Stocks are presently listed and being
traded in the PSE.
Under the law on obligations and contracts, the obligation to give a
determinate thing is extinguished if the object is lost without the fault of the
debtor.[47] And per Art. 1192 (2) of the Civil Code, a thing is considered lost
when it perishes or disappears in such a way that it cannot be recovered.[48]
In a very real sense, the interplay of the ensuing factors: a) the BDO-EPCIB
merger; and b) the cancellation of subject Shares and their replacement by
totally new common shares of BDO, has rendered the erstwhile 187.84
million EPCIB shares of SSS "unrecoverable" in the contemplation of the
adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under any
circumstance, cause the implementation of the assailed resolutions, let
alone proceed with the planned disposition of the Shares, be it via the
traditional competitive bidding or the challenged public bidding with a Swiss
Challenge feature.
At any rate, the moot-and-academic angle would still hold sway even if it
were to be assumed hypothetically that the subject Shares are still existing.
This is so, for the supervening BDO-EPCIB merger has so effected changes in resolutions, and, in the process, enabled the SSS and necessarily their
the circumstances of SSS and BDO/BDO Capital as to render the fulfillment members to realize very much more for their investments.
of any of the obligations that each may have agreed to undertake under
either the Letter-Agreement, the SPA or the Swiss Challenge package legally WHEREFORE, the instant petition is DISMISSED.
impossible. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties,[49] total or partial release from a No costs.
prestation and from the counter-prestation is allowed.
SO ORDERED.
Under the theory of rebus sic stantibus,[50] the parties stipulate in the light
of certain prevailing conditions, and once these conditions cease to exist, CANCIO C. GARCIA
the contract also ceases to exist.[51] Upon the facts obtaining in this case, it Associate Justice
is abundantly clear that the conditions in which SSS and BDO Capital and/or
BDO executed the Letter-Agreement upon which the pricing component - at
P43.50 per share - of the Invitation to Bid was predicated, have ceased to
exist. Accordingly, the implementation of the Letter- Agreement or of the
challenged Res. Nos. 428 and 485 cannot plausibly push through, even if the
central figures in this case are so minded.

Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the

issuer[52] of what were once the subject Shares. Consequently, should SSS
opt to exit from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue
SSS's shareholdings in EPCIB, as thus converted into BDO shares, the sale-
purchase ought to be via an Issuer Tender Offer -- a phrase which means a
publicly announced intention by an issuer to acquire any of its own class of
equity securities or by an affiliate of such issuer to acquire such
securities.[53] In that eventuality, BDO or BDO Capital cannot possibly
exercise the "right to match" under the Swiss Challenge procedure, a tender
offer being wholly inconsistent with public bidding. The offeror or buyer in
an issue tender offer transaction proposes to buy or acquire, at the stated
price and given terms, its own shares of stocks held by its own stockholder
who in turn simply have to accept the tender to effect the sale. No bidding
is involved in the process.

While the Court ends up dismissing this petition because the facts and legal
situation call for this kind of disposition, petitioners have to be commended
for their efforts in initiating this proceeding. For, in the final analysis, it was
their petition which initially blocked implementation of the assailed SSC
ARTICLE 1191
ESTELITA VILLAMAR, Petitioner, vs. BALBINO MANGAOIL, Respondent.
G.R. No. 188661 | 2012-04-11
DECISION
REYES, J.:
The Case
Before us is a petition for review on certiorari[1] under Rule 45 of the
Rules of Court filed by Estelita Villamar (Villamar) to assail the
Decision[2] rendered by the Court of Appeals (CA) on February 20, 2009 in
CA-G.R. CV No. 86286, the dispositive portion of which reads:
WHEREFORE, the instant appeal is DISMISSED.
The assailed decision is AFFIRMED in toto.
SO ORDERED.[3]
The resolution[4] issued by the CA on July 8, 2009 denied the
petitioner's motion for reconsideration to the foregoing.
The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas,
Isabela, which was affirmed by the CA in the herein assailed decision and
resolution, ordered the (1) rescission of the contract of sale of real property
entered into by Villamar and Balbino Mangaoil (Mangaoil); and (2) return of
the down payment made relative to the said contract.
Antecedents Facts
The CA aptly summarized as follows the facts of the case prior to the
filing by Mangaoil of the complaint[6] for rescission of contract before the
RTC:
Villamar is the registered owner of a 3.6080
hectares parcel of land [hereinafter referred as the subject
property] in San Francisco, Manuel, Isabela covered by
Transfer Certificate of Title (TCT) No. T-92958-A.
On March 30, 1998, she entered into an Agreement with
Mangaoil for the purchase and sale of said parcel of land,
under the following terms and conditions:
“1. The price of the land is ONE
HUNDRED AND EIGHTY THOUSAND
(180,000.00) PESOS per hectare but only the
3.5000 hec. shall be paid and the rest shall be
given free, so that the total purchase or selling
price shall be [P]630,000.00 only;
2. ONE HUNDRED EIGHTY FIVE
THOUSAND (185,000.00) PESOS of the total
price was already received on March 27,
1998 for payment of the loan secured by the
certificate of title covering the land in favor of
the Rural Bank of Cauayan, San Manuel Branch,
San Manuel, Isabela [Rural Bank of Cauayan], in
order that the certificate of title thereof be
withdrawn and released from the said bank, and
the rest shall be for the payment of the
mortgag[e]s in favor of Romeo Lacaden and
Florante Parangan;
3. After the release of the certificate of
title covering the land subject-matter of this
agreement, the necessary deed of absolute
sale in favor of the PARTY OF THE SECOND PART
shall be executed and the transfer be
immediately effected so that the latter can
apply for a loan from any lending institution
using the corresponding certificate of title as
collateral therefor, and the proceeds of the
loan, whatever be the amount, be given to the
PARTY OF THE FIRST PART;
4. Whatever balance left from the agreed
purchase price of the land subject matter hereof
after deducting the proceed of the loan and the
[P]185,000.00 already received as above-
mentioned, the PARTY OF THE SECOND PART
shall pay unto the PARTY OF THE FIRST PART not
later than June 30, 1998 and thereafter the
parties shall be released of any obligations for
and against each other; xxx”
 On April 1, 1998, the parties executed a Deed of
Absolute Sale whereby Villamar (then Estelita Bernabe)
transferred the subject parcel of land to Mangaoil for and
in consideration of [P]150,000.00.
In a letter dated September 18, 1998, Mangaoil
informed Villamar that he was backing out from the sale
agreed upon giving as one of the reasons therefor:
“3. That the area is not yet fully cleared by
incumbrances as there are tenants who are not
willing to vacate the land without giving them
back the amount that they mortgaged the land.”
Mangaoil demanded refund of his [P]185,000.00 down
payment. Reiterating said demand in another letter dated
April 29, 1999, the same, however, was unheeded.[7] x x x
(Citations omitted)
On January 28, 2002, the respondent filed before the RTC a
complaint[8] for rescission of contract against the petitioner. In the said
complaint, the respondent sought the return of P185,000.00 which he paid
to the petitioner, payment of interests thereon to be computed from March
27, 1998 until the suit's termination, and the award of damages, costs
and P20,000.00 attorney's fees. The respondent's factual allegations were
as follows:
5. That as could be gleaned the “Agreement”
(Annex “A”), the plaintiff [Mangaoil] handed to the
defendant [Villamar] the sum of [P]185,000.00 to be
applied as follows; [P]80,000 was for the redemption of
the land which was mortgaged to the Rural Bank of
Cauayan, San Manuel Branch, San Manuel, Isabela, to
enable the plaintiff to get hold of the title and register the
sale x x x and[P]105,000.00 was for the redemption of the
said land from private mortgages to enable plaintiff to
posses[s] and cultivate the same;
6. That although the defendant had already long
redeemed the said land from the said bank and withdrawn
TCT No. T-92958-A, she has failed and refused, despite
repeated demands, to hand over the said title to the
plaintiff and still refuses and fails to do so;
7. That, also, the plaintiff could not physically,
actually and materially posses[s] and cultivate the said
land because the private mortgage[e]s and/or present
possessors refuse to vacate the same;
xxxx
11. That on September 18, 1998, the plaintiff sent
a letter to the defendant demanding a return of the
amount so advanced by him, but the latter ignored the
same, x x x;
12. That, again, on April 29, 1999, the plaintiff
sent to the defendant another demand letter but the
latter likewise ignored the same, x x x;
13. That, finally, the plaintiff notified the
defendant by a notarial act of his desire and intention to
rescind the said contract of sale, xxx;
x x x x.[9] (Citations omitted)
In the respondent’s answer to the complaint, she averred that she had
complied with her obligations to the respondent. Specifically, she claimed
having caused the release of TCT No. T-92958-A by the Rural Bank of
Cauayan and its delivery to a certain “Atty. Pedro C. Antonio” (Atty.
Antonio). The petitioner alleged that Atty. Antonio was commissioned to
facilitate the transfer of the said title in the respondent's name. The
petitioner likewise insisted that it was the respondent who
unceremoniously withdrew from their agreement for reasons only the latter
knew.
The Ruling of the RTC
 On September 9, 2005, the RTC ordered the rescission of the
agreement and the deed of absolute sale executed between the respondent
and the petitioner. The petitioner was, thus directed to return to the
respondent the sum of P185,000.00 which the latter tendered as initial
payment for the purchase of the subject property. The RTC ratiocinated
that:
There is no dispute that the defendant sold the
LAND to the plaintiff for [P]630,000.00 with down
payment of [P]185,000.00. There is no evidence
presented if there were any other partial payments made
after the perfection of the contract of sale.
Article 1458 of the Civil Code provides:
“Art. 1458. By the contract of sale[,] one
of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and
the other to pay therefore a price certain in money or its
equivalent.”
As such, in a contract of sale, the obligation of the
vendee to pay the price is correlative of the obligation of
the vendor to deliver the thing sold. It created or
established at the same time, out of the same course, and
which result in mutual relations of creditor and debtor
between the parties.
The claim of the plaintiff that the LAND has not
been delivered to him was not refuted by the defendant.
Considering that defendant failed to deliver to him the
certificate of title and of the possession over the LAND to
the plaintiff, the contract must be rescinded pursuant to
Article 1191 of the Civil Code which, in part, provides:
“Art. 1191. The power of rescind
obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon
him.”[10]
The petitioner filed before the CA an appeal to challenge the foregoing.
She ascribed error on the part of the RTC when the latter ruled that the
agreement and deed of sale executed by and between the parties can be
rescinded as she failed to deliver to the respondent both the subject
property and the certificate of title covering the same.
The Ruling of the CA
On February 20, 2009, the CA rendered the now assailed decision
dismissing the petitioner’s appeal based on the following grounds:
Burden of proof is the duty of a party to prove the
truth of his claim or defense, or any fact in issue necessary
to establish his claim or defense by the amount of
evidence required by law. In civil cases, the burden of
proof is on the defendant if he alleges, in his answer, an
affirmative defense, which is not a denial of an essential
ingredient in the plaintiff's cause of action, but is one
which, if established, will be a good defense – i.e., an
“avoidance” of the claim, which prima facie, the plaintiff
already has because of the defendant's own admissions in
the pleadings.
Defendant-appellant Villamar's defense in this case
was an affirmative defense. She did not deny plaintiff-
appellee’s allegation that she had an agreement with
plaintiff-appellee for the sale of the subject parcel of land.
Neither did she deny that she was obliged under the
contract to deliver the certificate of title to plaintiff-
appellee immediately after said title/property was
redeemed from the bank.What she rather claims is that
she already complied with her obligation to deliver the
title to plaintiff-appellee when she delivered the same to
Atty. Antonio as it was plaintiff-appellee himself who
engaged the services of said lawyer to precisely work for
the immediate transfer of said title in his name. Since,
however, this affirmative defense as alleged in defendant-
appellant's answer was not admitted by plaintiff-appellee,
it then follows that it behooved the defendant-appellant
to prove her averments by preponderance of evidence.
Yet, a careful perusal of the record shows that the
defendant-appellant failed to sufficiently prove said
affirmative defense. She failed to prove that in the first
place, “Atty. Antonio” existed to receive the title for and
in behalf of plaintiff-appellee. Worse, the defendant-
appellant failed to prove that Atty. Antonio received said
title “as allegedly agreed upon.”
We likewise sustain the RTC's finding that
defendant-appellant V[i]llamar failed to deliver
possession of the subject property to plaintiff-appellee
Mangaoil. As correctly observed by the RTC - “[t]he claim
of the plaintiff that the land has not been delivered to him
was not refuted by the defendant.” Not only that. On
cross-examination, the defendant-appellant gave Us
insight on why no such delivery could be made, viz.:
“x x x x
Q: So, you were not able to deliver this property to Mr.
Mangaoil just after you redeem the property because of
the presence of these two (2) persons, is it not?
xxx
A: Yes, sir.
Q: Forcing you to file the case against them and
which according to you, you have won, is it not?
A: Yes, sir.
Q: And now at present[,] you are in actual
possession of the land?
A: Yes, sir. x x x”
With the foregoing judicial admission, the RTC
could not have erred in finding that defendant-[appellant]
failed to deliver the possession of the property sold, to
plaintiff-appellee.
Neither can We agree with defendant-appellant in
her argument that the execution of the Deed of Absolute
Sale by the parties is already equivalent to a valid and
constructive delivery of the property to plaintiff-appellee.
Not only is it doctrinally settled that in a contract of sale,
the vendor is bound to transfer the ownership of, and to
deliver the thing that is the object of the sale, the way
Article 1547 of the Civil Code is worded, viz.:
“Art. 1547. In a contract of sale, unless a
contrary intention appears, there is:
(1) An implied warranty on the part of
the seller that he has a right to sell the thing at
the time when the ownership is to pass,
and that the buyer shall from that time have
and enjoy the legal and peaceful possession of
the thing;
(2) An implied warranty that the thing
shall be free from any hidden defaults or
defects, or any change or encumbrance not
declared or known to the buyer.
x x x.”
shows that actual, and not mere constructive delivery is
warrantied by the seller to the buyer. “(P)eaceful
possession of the thing” sold can hardly be enjoyed in a
mere constructive delivery.
 The obligation of defendant-appellant Villamar to transfer
ownership and deliver possession of the subject parcel of
land was her correlative obligation to plaintiff-appellee in
exchange for the latter's purchase price thereof. Thus, if
she fails to comply with what is incumbent upon her, a
correlative right to rescind such contract from plaintiff-
appellee arises, pursuant to Article 1191 of the Civil
Code.[11] x x x (Citations omitted)
The Issues
Aggrieved, the petitioner filed before us the instant petition and
submits the following issues for resolution:
I.
WHETHER THE FAILURE OF PETITIONER-SELLER TO
DELIVER THE CERTIFICATE OF TITLE OVER THE PROPERTY
TO RESPONDENT-BUYER IS A BREACH OF OBLIGATION IN
A CONTRACT OF SALE OF REAL PROPERTY THAT WOULD
WARRANT RESCISSION OF THE CONTRACT;
II.
WHETHER PETITIONER IS LIABLE FOR BREACH OF
OBLIGATION IN A CONTRACT OF SALE FOR FAILURE OF
RESPONDENT[-]BUYER TO IMMEDIATELY TAKE ACTUAL
POSSESSION OF THE PROPERTY NOTWITHSTANDING THE
ABSENCE OF ANY STIPULATION IN THE CONTRACT
PROVIDING FOR THE SAME;
III.
WHETHER THE EXECUTION OF A DEED OF SALE OF REAL
PROPERTY IN THE PRESENT CASE IS ALREADY EQUIVALENT
TO A VALID AND CONSTRUCTIVE DELIVERY OF THE
PROPERTY TO THE BUYER;
IV.
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT
MATTER OF THIS CASE SHOULD BE RESCINDED ON SLIGHT
OR CASUAL BREACH;
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
AFFIRMING THE DECISION OF THE RTC ORDERING THE
RESCISSION OF THE CONTRACT OF SALE[.][12]
The Petitioner's Arguments
The petitioner avers that the CA, in ordering the rescission of the
agreement and deed of sale, which she entered into with the respondent,
on the basis of her alleged failure to deliver the certificate of title, effectively
imposed upon her an extra duty which was neither stipulated in the contract
nor required by law. She argues that under Articles 1495[13]and 1496[14] of
the New Civil Code (NCC), the obligation to deliver the thing sold is complied
with by a seller who executes in favor of a buyer an instrument of sale in a
public document. Citing Chua v. Court of Appeals,[15] she claims that there is
a distinction between transferring a certificate of title in the buyer's name,
on one hand, and transferring ownership over the property sold, on the
other. The latter can be accomplished by the seller's execution of an
instrument of sale in a public document. The recording of the sale with the
Registry of Deeds and the transfer of the certificate of title in the buyer's
name are necessary only to bind third parties to the transfer of
ownership.[16]
The petitioner contends that in her case, she had already complied with
her obligations under the agreement and the law when she had caused the
release of TCT No. T-92958-A from the Rural Bank of Cauayan, paid
individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan
(Paranga), and executed an absolute deed of sale in the respondent's favor.
She adds that before T-92958-A can be cancelled and a new one be issued
in the respondent's favor, the latter decided to withdraw from their
agreement. She also points out that in the letters seeking for an outright
rescission of their agreement sent to her by the respondent, not once did
he demand for the delivery of TCT.
The petitioner insists that the respondent's change of heart was due to
(1) the latter's realization of the difficulty in determining the subject
property's perimeter boundary; (2) his doubt that the property he
purchased would yield harvests in the amount he expected; and (3) the
presence of mortgagees who were not willing to give up possession without
first being paid the amounts due to them. The petitioner contends that the
actual reasons for the respondent's intent to rescind their agreement did
not at all constitute a substantial breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC, when a sale
is made through a public instrument, its execution is equivalent to the
delivery of the thing which is the contract's object, unless in the deed, the
contrary appears or can be inferred. Further, in Power Commercial and
Industrial Corporation v. CA,[17] it was ruled that the failure of a seller to eject
lessees from the property he sold and to deliver actual and physical
possession, cannot be considered a substantial breach, when such failure
was not stipulated as a resolutory or suspensive condition in the contract
and when the effects and consequences of the said failure were not
specified as well. The execution of a deed of sale operates as a formal or
symbolic delivery of the property sold and it already authorizes the buyer to
use the instrument as proof of ownership.[18]
The petitioner argues that in the case at bar, the agreement and the
absolute deed of sale contains no stipulation that she was obliged to actually
and physically deliver the subject property to the respondent. The
respondent fully knew Lacaden's and Parangan's possession of the subject
property. When they agreed on the sale of the property, the respondent
consciously assumed the risk of not being able to take immediate physical
possession on account of Lacaden's and Parangan's presence therein.
The petitioner likewise laments that the CA allegedly misappreciated
the evidence offered before it when it declared that she failed to prove the
existence of Atty. Antonio. For the record, she emphasizes that the said
lawyer prepared and notarized the agreement and deed of absolute sale
which were executed between the parties. He was also the petitioner’s
counsel in the proceedings before the RTC. Atty. Antonio was also the one
asked by the respondent to cease the transfer of the title over the subject
property in the latter's name and to return the money he paid in advance.
The Respondent's Contentions
In the respondent's comment,[19] he seeks the dismissal of the instant
petition. He invokes Articles 1191 and 1458 to argue that when a seller fails
to transfer the ownership and possession of a property sold, the buyer is
entitled to rescind the contract of sale. Further, he contends that the
execution of a deed of absolute sale does not necessarily amount to a valid
and constructive delivery. In Masallo v. Cesar,[20] it was ruled that a person
who does not have actual possession of real property cannot transfer
constructive possession by the execution and delivery of a public document
by which the title to the land is transferred. In Addison v. Felix and
Tioco,[21] the Court was emphatic that symbolic delivery by the execution of
a public instrument is equivalent to actual delivery only when the thing sold
is subject to the control of the vendor.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition, to wit,
whether or not the failure of the petitioner to deliver to the respondent
both the physical possession of the subject property and the certificate of
title covering the same amount to a substantial breach of the former's
obligations to the latter constituting a valid cause to rescind the agreement
and deed of sale entered into by the parties.
We rule in the affirmative
The RTC and the CA both found that the petitioner failed to comply
with her obligations to deliver to the respondent both the possession of the
subject property and the certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law
do not generally require the seller to deliver to the buyer the physical
possession of the property subject of a contract of sale and the certificate
of title covering the same, the agreement entered into by the petitioner
and the respondent provides otherwise. However, the terms of the
agreement cannot be considered as violative of law, morals, good
customs, public order, or public policy, hence, valid.
Article 1458 of the NCC obliges the seller to transfer the ownership of
and to deliver a determinate thing to the buyer, who shall in turn pay
therefor a price certain in money or its equivalent. In addition thereto,
Article 1495 of the NCC binds the seller to warrant the thing which is the
object of the sale. On the other hand, Article 1498 of the same code provides
that when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of
the contract, if from the deed, the contrary does not appear or cannot
clearly be inferred.
In the case of Chua v. Court of Appeals,[22] which was cited by the
petitioner, it was ruled that “when the deed of absolute sale is signed by the
parties and notarized, then delivery of the real property is deemed made by
the seller to the buyer.”[23] The transfer of the certificate of title in the name
of the buyer is not necessary to confer ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of the
agreement entered into by the petitioner and the respondent explicitly
provide:
2. ONE HUNDRED EIGHTY FIVE THOUSAND
(P185,000.00) PESOS of the total price was already
received on March 27, 1998 for payment of the loan
secured by the certificate of title covering the land in favor
of the Rural Bank of Cauayan, San Manuel Branch, San
Manuel, Isabela, in order that the certificate of title
thereof be withdrawn and released from the said bank,
and the rest shall be for the payment of the mortgages in
favor of Romeo Lacaden and Florante Parangan;
3. After the release of the certificate of title covering
the land subject-matter of this agreement, the necessary
deed of absolute sale in favor of the PARTY OF THE
SECOND PART shall be executed and the transfer be
immediately effected so that the latter can apply for a loan
from any lending institution using the corresponding
certificate of title as collateral therefor, and the proceeds
of the loan, whatever be the amount, be given to the
PARTY OF THE FIRST PART;[24] (underlining supplied)
As can be gleaned from the agreement of the contending parties, the
respondent initially paid the petitioner P185,000.00 for the latter to pay the
loan obtained from the Rural Bank of Cauayan and to cause the release from
the said bank of the certificate of title covering the subject property. The
rest of the amount shall be used to pay the mortgages over the subject
property which was executed in favor of Lacaden and Parangan. After the
release of the TCT, a deed of sale shall be executed and transfer shall be
immediately effected so that the title covering the subject property can be
used as a collateral for a loan the respondent will apply for, the proceeds of
which shall be given to the petitioner.
Under Article 1306 of the NCC, the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
While Articles 1458 and 1495 of the NCC and the doctrine enunciated
in the case of Chua do not impose upon the petitioner the obligation to
physically deliver to the respondent the certificate of title covering the
subject property or cause the transfer in the latter's name of the said title,
a stipulation requiring otherwise is not prohibited by law and cannot be
regarded as violative of morals, good customs, public order or public policy.
Item no. 3 of the agreement executed by the parties expressly states that
“transfer [shall] be immediately effected so that the latter can apply for a
loan from any lending institution using the corresponding certificate of title
as collateral therefore.” Item no. 3 is literal enough to mean that there
should be physical delivery of the TCT for how else can the respondent use
it as a collateral to obtain a loan if the title remains in the petitioner’s
possession. We agree with the RTC and the CA that the petitioner failed to
prove that she delivered the TCT covering the subject property to the
respondent. What the petitioner attempted to establish was that she gave
the TCT to Atty. Antonio whom she alleged was commissioned to effect the
transfer of the title in the respondent's name. Although Atty. Antonio's
existence is certain as he was the petitioner’s counsel in the proceedings
before the RTC, there was no proof that the former indeed received the TCT
or that he was commissioned to process the transfer of the title in the
respondent's name.
It is likewise the petitioner’s contention that pursuant to Article 1498
of the NCC, she had already complied with her obligation to deliver the
subject property upon her execution of an absolute deed of sale in the
respondent’s favor. The petitioner avers that she did not undertake to eject
the mortgagors Parangan and Lacaden, whose presence in the premises of
the subject property was known to the respondent.
 We are not persuaded.
In the case of Power Commercial and Industrial Corporation[25] cited by
the petitioner, the Court ruled that the failure of the seller to eject the
squatters from the property sold cannot be made a ground for rescission if
the said ejectment was not stipulated as a condition in the contract of sale,
and when in the negotiation stage, the buyer's counsel himself undertook
to eject the illegal settlers.
The circumstances surrounding the case now under our consideration
are different. In item no. 2 of the agreement, it is stated that part of
the P185,000.00 initially paid to the petitioner shall be used to pay the
mortgagors, Parangan and Lacaden. While the provision does not expressly
impose upon the petitioner the obligation to eject the said mortgagors, the
undertaking is necessarily implied. Cessation of occupancy of the subject
property is logically expected from the mortgagors upon payment by the
petitioner of the amounts due to them
We note that in the demand letter[26] dated September 18, 1998, which
was sent by the respondent to the petitioner, the former lamented that “the
area is not yet fully cleared of incumbrances as there are tenants who are
not willing to vacate the land without giving them back the amount that they
mortgaged the land.” Further, in the proceedings before the RTC conducted
after the complaint for rescission was filed, the petitioner herself testified
that she won the ejectment suit against the mortgagors “only last
year”.[27] The complaint was filed on September 8, 2002 or more than four
years from the execution of the parties' agreement. This means that after
the lapse of a considerable period of time from the agreement's execution,
the mortgagors remained in possession of the subject property.
Notwithstanding the absence of stipulations in the agreement
and absolute deed of sale entered into by Villamar and Mangaoil expressly
indicating the consequences of the former's failure to deliver the physical
possession of the subject property and the certificate of title covering the
same, the latter is entitled to demand for the rescission of their
contract pursuant to Article 1191 of the NCC.
We note that the agreement entered into by the petitioner and the
respondent only contains three items specifying the parties' undertakings.
In item no. 5, the parties consented “to abide with all the terms and
conditions set forth in this agreement and never violate the same.” [28]
Article 1191 of the NCC is clear that “the power to rescind obligations
is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.” The respondent cannot be deprived of
his right to demand for rescission in view of the petitioner’s failure to abide
with item nos. 2 and 3 of the agreement. This remains true notwithstanding
the absence of express stipulations in the agreement indicating the
consequences of breaches which the parties may commit. To hold otherwise
would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution of a
public instrument as constructive delivery by the seller to the buyer of
the property subject of a contract of sale. The case at bar, however, falls
among the exceptions to the foregoing rule since a mere presumptive and
not conclusive delivery is created as the respondent failed to take
material possession of the subject property.
Further, even if we were to assume for argument's sake that the
agreement entered into by the contending parties does not require the
delivery of the physical possession of the subject property from the
mortgagors to the respondent, still, the petitioner's claim that her execution
of an absolute deed of sale was already sufficient as it already amounted to
a constructive delivery of the thing sold which Article 1498 of the NCC
allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor
General,[29] we held:
When the sale of real property is made in a public
instrument, the execution thereof is equivalent to the
delivery of the thing object of the contract, if from the
deed the contrary does not appear or cannot clearly be
inferred.
In other words, there is symbolic delivery of the
property subject of the sale by the execution of the public
instrument, unless from the express terms of the
instrument, or by clear inference therefrom, this was not
the intention of the parties. Such would be the case, for
instance, x x x where the vendor has no control over the
 thing sold at the moment of the sale, and, therefore, its
material delivery could not have been
made.[30] (Underlining supplied and citations omitted)
Stated differently, as a general rule, the execution of a public
instrument amounts to a constructive delivery of the thing subject of a
contract of sale. However, exceptions exist, among which is when mere
presumptive and not conclusive delivery is created in cases where the buyer
fails to take material possession of the subject of sale. A person who does
not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument.

In the case at bar, the RTC and the CA found that the petitioner failed
to deliver to the respondent the possession of the subject property due to
the continued presence and occupation of Parangan and Lacaden. We find
no ample reason to reverse the said findings. Considered in the light of
either the agreement entered into by the parties or the pertinent provisions
of law, the petitioner failed in her undertaking to deliver the subject
property to the respondent.
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The
February 20, 2009 Decision and July 8, 2009 Resolution of the Court of
Appeals, directing the rescission of the agreement and absolute deed of sale
entered into by Estelita Villamar and Balbino Mangaoil and the return of the
down payment made for the purchase of the subject property,
are AFFIRMED. However, pursuant to our ruling in Eastern Shipping Lines,
Inc. v. CA,[31] an interest of 12% per annum is imposed on the sum
ofP185,000.00 to be returned to Mangaoil to be computed from the date
of finality of this Decision until full satisfaction thereof.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice
GENEROSA AYSON-SIMON, plaintiff-appellee, vs.
NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.
G.R. No. L-39378 August 28, 1984
Wenceslao V. Jarin for plaintiff-appellee.
Arnovit, Lacre & Adamos for defendants-appellants.
MELENCIO-HERRERA, J.:
Originally, this was an appeal by defendants from the Decision of the then
Court of First Instance of Manila, Branch XX, in Civil Case No. 73942, to the
Court of Appeals (now Intermediate Appellate Court), which Tribunal,
certified the case to us because the issue is a pure question of law.
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-
appellants herein, purchased two lots forming part of the Piedad Estate in
Quezon City, with an area of approximately 56,395 square meters, from
Juan Porciuncula. Sometime thereafter, the successors-in-interest of the
latter filed Civil Case No. 174 in the then Court of First Instance of Quezon
City for annulment of the sale and the cancellation of Transfer Certificate of
Title No. 69475, which had been issued to defendants-appellants by virtue
of the disputed sale. On December 18, 1963, the Court rendered a Decision
annulling the sale, cancelling TCT 69475, and authorizing the issuance of a
new title in favor of Porciuncula's successors-in-interest. The said judgment
was affirmed by the Appellate Court and had attained finality.
In the meantime, on May 29, 1946, during the pendency of the above-
mentioned case, defendants-appellants sold to GENEROSA Ayson Simon,
plaintiff-appellee herein, the two lots in question for P3,800.00 each, plus
an additional P800.00 paid subsequently for the purpose of facilitating the
issuance of new titles in GENEROSA's name. Due to the failure of
defendants-appellants to comply with their commitment to have the
subdivision plan of the lots approved and to deliver the titles and possession
to GENEROSA, the latter filed suit for specific performance before the Court
of First Instance of Quezon City on September 4, 1963 (Civil Case No. Q-
7275). On January 20, 1964, said Court ordered:
WHEREFORE, the plaintiff is declared entitled to a
summary judgment and the defendants are hereby ordered to
have the subdivision of Lot No. 6, Block No. 2, and Lot No. 11,
Block No. 3, relocated and resurveyed and the subdivision plan
approved and, if not possible for one reason or another, and in
case of the absence or loss of said subdivision, to cause and effect
the subdivision of the said lots and deliver the titles and
possession thereof to the plaintiff. As to the claim and
counterclaim for damages, let the hearing thereon be deferred
until further move by the parties. 1
However, since execution of the foregoing Order was rendered impossible
because of the judgment in Civil Case No. 174, which earlier declared the
sale of the lots in question by Juan Porciuncula to defendants-appellants to
be null and void, GENEROSA filed, on August 16, 1968, another suit in the
Court of First Instance of Manila (Civil Case No. 73942) for rescission of the
sale with damages. On June 7, 1969, the Court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiff
and against defendants, ordering the latter jointly and severally,
to pay the former the sum of P7,600.00, the total amount received
by them from her as purchase price of the two lots, with legal rate
of interest from May 29, 1946 until fully paid; another sum of
P800.00, with legal rate 6f interest from August 1, 1966 until fully
paid; the sum of P1,000 for attorney's fees; and the costs of this
suit. 2
Hence, the appeal before the Appellate Court on the ground that
GENEROSA's action had prescribed, considering that she had only four years
from May 29, 1946, the date of sale, within which to rescind said
transaction, and that her complaint for specific performance may be
deemed as a waiver of her right to rescission since the fulfillment and
rescission of an obligation are alternative and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge, later
Court of Appeals Associate Justice Luis B. Reyes, correctly resolved the
issues, reiterated in the assignments of error on appeal, as follows:
Defendants contend (1) that the fulfillment and the
rescission of the obligation in reciprocal ones are alternative
remedies, and plaintiff having chosen fulfillment in Civil Case No.
Q- 7525, she cannot now seek rescission; and (2) that even if
plaintiff could seek rescission the action to rescind the obligation
has prescribed.
The first contention is without merit. The rule that the
injured party can only choose between fulfillment and rescission
of the obligation, and cannot have both, applies when the
obligation is possible of fulfillment. If, as in this case, the
fulfillment has become impossible, Article 1191 3 allows the
injured party to seek rescission even after he has chosen
fulfillment.
True it is that in Civil Case No. 7275 the Court already
rendered a Decision in favor of plaintiff, but since defendants
cannot fulfill their obligation to deliver the titles to and possession
of the lots to plaintiff, the portion of the decision requiring them
to fulfill their obligations is without force and effect. Only that
portion relative to the payment of damages remains in the
dispositive part of the decision, since in either case (fulfillment or
rescission) defendants may be required to pay damages.
The next question to determine is whether the action to
rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the injured
party may also seek rescission, if the fulfillment should become
impossible. The cause of action to claim rescission arises when the
fulfillment of the obligation became impossible when the Court of
First Instance of Quezon City in Civil Case No. 174 declared the sale
of the land to defendants by Juan Porciuncula a complete nullity
and ordered the cancellation of Transfer Certificate of Title No.
69475 issued to them. Since the two lots sold to plaintiff by
defendants form part of the land involved in Civil Case No. 174, it
became impossible for defendants to secure and deliver the titles
to and the possession of the lots to plaintiff. But plaintiff had to
wait for the finality of the decision in Civil Case No. 174, According
to the certification of the clerk of the Court of First Instance of
Quezon City (Exhibit "E-2"), the decision in Civil Case No. 174
became final and executory "as per entry of Judgment dated May
3, 1967 of the Court of Appeals." The action for rescission must be
commenced within four years from that date, May 3, 1967. Since
the complaint for rescission was filed on August 16, 1968, the four
year period within which the action must be commenced had not
expired.
Defendants have the obligation to return to plaintiff the
amount of P7,600.00 representing the purchase price of the two
lots, and the amount of P800.00 which they received from plaintiff
to expedite the issuance of titles but which they could not secure
by reason of the decision in Civil Case No. 174. Defendant has to
pay interest at the legal rate on the amount of P7,600.00 from
May 29, 1946, when they received the amount upon the
execution of the deeds of sale, and legal interest on the P800.00
from August 1, 1966, when they received the same from
plaintiff. 4
WHEREFORE, the appealed judgment of the former Court of First Instance
of Manila, Branch XX, in Civil Case No. 73942, dated June 7, 1969, is hereby
affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
Teehankee, Actg. C.J., Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ.,
concur.
GALILEO A. MAGLASANG, doing business under the name GL SUPPLY & INSTALLATION OF THE FOLLOWING:
Enterprises, Petitioner, vs. INTEGRATED BRIDGE SYSTEM
NORTHWESTERN INC., UNIVERSITY, Respondent. A. 2-RADAR SYSTEM
B. OVERHEAD CONSOLE MONITORING SYSTEM
DECISION C. ENGINE TELEGRAPH SYSTEM
D. ENGINE CONTROL SYSTEM
SERENO, CJ.: E. WEATHER CONTROL SYSTEM
F. ECDIS SYSTEM
G. STEERING WHEEL SYSTEM
Before this Court is a Rule 45 Petition, seeking a review of the 27 July 2009
H. BRIDGE CONSOLE
Court of Appeals (CA) Decision in CA-G.R. CV No. 88989,1 which modified the
Regional Trial Court (RTC) Decision of 8 January 2007 in Civil Case No. Q-04- Php
TOTAL COST:
53660.2 The CA held that petitioner substantially breached its contracts with 3,800,000.00
respondent for the installation of an integrated bridge system (IBS).
LESS: OLD MARITIME
The antecedent .facts are as follows:3 EQUIPMENT TRADE-IN VALUE 1,000,000.00

DISCOUNT 100,000.00
On 10 June 2004, respondent Northwestern University (Northwestern), an
educational institution offering maritime-related courses, engaged the PROJECT COST (MATERIALS & PhP
services of a Quezon City-based firm, petitioner GL Enterprises, to install a INSTALLATION) 2,700,000.00
new IBS in Laoag City. The installation of an IBS, used as the students’
training laboratory, was required by the Commission on Higher Education (Emphasis in the original)
(CHED) before a school could offer maritime transportation programs.4

Since its IBS was already obsolete, respondent required petitioner to supply
and install specific components in order to form the most modern IBS that
would be acceptable to CHED and would be compliant with the standards of
the International Maritime Organization (IMO). For this purpose, the parties
executed two contracts.
The first contract partly reads:5
That in consideration of the payment herein mentioned to be made by the
First Party (defendant), the Second Party agrees to furnish, supply, install
and integrate the most modern INTEGRATED BRIDGE SYSTEM located at
Northwestern University MOCK BOAT in accordance with the general
conditions, plans and specifications of this contract.
The second contract essentially contains the same terms and conditions as
follows:6
That in consideration of the payment herein mentioned to be made by the
First Party (defendant), the Second Party agrees to furnish, supply, install &
integrate the most modern INTEGRATED BRIDGE SYSTEM located at
Northwestern University MOCK BOAT in accordance with the general
conditions, plans and specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
1. ARPA RADAR SIMULATION ROOM
xxxx
2. GMDSS SIMULATION ROOM
 xxxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions: (1) the IBS and its
components must be compliant with the IMO and CHED standard and with
manuals for simulators/major equipment; (2) the contracts may be
terminated if one party commits a substantial breach of its undertaking; and
(3) any dispute under the agreement shall first be settled mutually between
the parties, and if settlement is not obtained, resort shall be sought in the
courts of law.
Subsequently, Northwestern paid ₱1 million as down payment to GL
Enterprises. The former then assumed possession of Northwestern’s old IBS
as trade-in payment for its service. Thus, the balance of the contract price
remained at ₱1.97 million.7
Two months after the execution of the contracts, GL Enterprises technicians
delivered various materials to the project site. However, when they started
installing the components, respondent halted the operations. GL
Enterprises then asked for an explanation.8
Northwestern justified the work stoppage upon its finding that the delivered
equipment were substandard.9 It explained further that GL Enterprises
violated the terms and conditions of the contracts, since the delivered
components (1) were old; (2) did not have instruction manuals and warranty
certificates; (3) contained indications of being reconditioned machines; and
(4) did not meet the IMO and CHED standards. Thus, Northwestern
demanded compliance with the agreement and suggested that GL
Enterprises meet with the former’s representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004
a Complaint10 for breach of contract and prayed for the following sums:
₱1.97 million, representing the amount that it would have earned, had
Northwestern not stopped it from performing its tasks under the two
contracts; at least ₱100,000 as moral damages; at least ₱100,000 by way of
exemplary damages; at least ₱100,000 as attorney’s fees and litigation
expenses; and cost of suit. Petitioner alleged that Northwestern breached
the contracts by ordering the work stoppage and thus preventing the
installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that since the
equipment delivered were not in accordance with the specifications
provided by the contracts, all succeeding works would be futile and would
entail unnecessary expenses. Hence, it prayed for the rescission of the
contracts and made a compulsory counterclaim for actual, moral, and
exemplary damages, and attorney’s fees.
The RTC held both parties at fault. It found that Northwestern unduly halted
the operations, even if the contracts called for a completed project to be
evaluated by the CHED. In turn, the breach committed by GL Enterprises
consisted of the delivery of substandard equipment that were not compliant
with IMO and CHED standards as required by the agreement.
Invoking the equitable principle that "each party must bear its own loss,"
the trial court treated the contracts as impossible of performance without
the fault of either party or as having been dissolved by mutual consent.
Consequently, it ordered mutual restitution, which would thereby restore
the parties to their original positions as follows:11
Accordingly, plaintiff is hereby ordered to restore to the defendant all the
equipment obtained by reason of the First Contract and refund the
downpayment of ₱1,000,000.00 to the defendant; and for the defendant to
return to the plaintiff the equipment and materials it withheld by reason of
the non-continuance of the installation and integration project. In the event
that restoration of the old equipment taken from defendant's premises is
no longer possible, plaintiff is hereby ordered to pay the appraised value of
defendant's old equipment at ₱1,000,000.00. Likewise, in the event that
restoration of the equipment and materials delivered by the plaintiff to the
defendant is no longer possible, defendant is hereby ordered to pay its
appraised value at ₱1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all the
equipment obtained by reason of the Second Contract, or if restoration or
return is not possible, plaintiff is ordered to pay the value thereof to the
defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them pointing a
finger at the other party as the violator of the contracts, the appellate court
ultimately determined that GL Enterprises was the one guilty of substantial
breach and liable for attorney’s fees.
The CA appreciated that since the parties essentially sought to have an IBS
compliant with the CHED and IMO standards, it was GL Enterprises’ delivery
of defective equipment that materially and substantially breached the
contracts. Although the contracts contemplated a completed project to be
evaluated by CHED, Northwestern could not just sit idly by when it was
apparent that the components delivered were substandard.
The CA held that Northwestern only exercised ordinary prudence to prevent
the inevitable rejection of the IBS delivered by GL Enterprises. Likewise, the
appellate court disregarded petitioner’s excuse that the equipment
delivered might not have been the components intended to be installed, for
it would be contrary to human experience to deliver equipment from
Quezon City to Laoag City with no intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared the
rescission of the contracts. It then proceeded to affirm the RTC’s order of
mutual restitution. Additionally, the appellate court granted ₱50,000 to
Northwestern by way of attorney’s fees.
Before this Court, petitioner rehashes all the arguments he had raised in the
courts a quo.12 He maintains his prayer for actual damages equivalent to the
amount that he would have earned, had respondent not stopped him from
performing his tasks under the two contracts; moral and exemplary
damages; attorney’s fees; litigation expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is whether
the CA gravely erred in (1) finding substantial breach on the part of GL
Enterprises; (2) refusing petitioner’s claims for damages, and (3) awarding
attorney’s fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the courts a
quo, however, differed on the basis thereof. The RTC applied the equitable
principle of mutual fault, while the CA applied Article 1191 on rescission.
The power to rescind the obligations of the injured party is implied in
reciprocal obligations, such as in this case. On this score, the CA correctly
applied Article 1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
The two contracts require no less than substantial breach before they can
be rescinded. Since the contracts do not provide for a definition of
substantial breach that would terminate the rights and obligations of the
parties, we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike slight or
casual breaches of contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement, since the law is not
concerned with trifles.14
The question of whether a breach of contract is substantial depends upon
the attending circumstances.15
In the case at bar, the parties explicitly agreed that the materials to be
delivered must be compliant with the CHED and IMO standards and must be
complete with manuals. Aside from these clear provisions in the contracts,
the courts a quo similarly found that the intent of the parties was to replace
the old IBS in order to obtain CHED accreditation for Northwestern’s
maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as
amended by CMO No. 13, Series of 2005, any simulator used for simulator-
based training shall be capable of simulating the operating capabilities of
the shipboard equipment concerned. The simulation must be achieved at a
level of physical realism appropriate for training objectives; include the
capabilities, limitations and possible errors of such equipment; and provide
an interface through which a trainee can interact with the equipment, and
the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises to supply
the components that would create an IBS that would effectively facilitate
the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility. As
contained in the findings of the CA and the RTC, petitioner supplied
substandard equipment when it delivered components that (1) were old; (2)
did not have instruction manuals and warranty certificates; (3) bore
indications of being reconditioned machines; and, all told, (4) might not
have met the IMO and CHED standards. Highlighting the defects of the
delivered materials, the CA quoted respondent’s testimonial evidence as
follows:16
Q: In particular which of these equipment of CHED requirements were not
complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that is the
monitor of the Radar. That is 16-inch and the gyrocompass with two (2)
repeaters and the history card. The gyrocompass - there is no marker, there
is no model, there is no serial number, no gimbal, no gyroscope and a bulb
to work it properly to point the true North because it is very important to
the Cadets to learn where is the true North being indicated by the Master
Gyrocompass.
xxxx
Q: Mr. Witness, one of the defects you noted down in this history card is
that the master gyrocompass had no gimbals, gyroscope and balls and was
replaced with an ordinary electric motor. So what is the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the gyrocompass to
work so it will point the true North but they being replaced with the ordinary
motor used for toys so it will not indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn into
school where is the true North and what is that equipment to be used on
board.
Q: One of the defects is that the steering wheel was that of an ordinary
automobile. And what is the implication of this?
A: Because. on board Ma’am, we are using the real steering wheel and the
cadets will be implicated if they will notice that the ship have the same
steering wheel as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater was only refurbished
and it has no serial number. What is wrong with that?
A: It should be original Ma’am because this gyro repeater, it must to repeat
also the true North being indicated by the Master Gyro Compass so it will
not work properly, I don’t know it will work properly. (Underscoring
supplied)
Evidently, the materials delivered were less likely to pass the CHED
standards, because the navigation system to be installed might not
accurately point to the true north; and the steering wheel delivered was one
that came from an automobile, instead of one used in ships. Logically, by no
stretch of the imagination could these form part of the most modern IBS
compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the
equipment it delivered was substandard. However, it reiterates its rejected
excuse that Northwestern should have made an assessment only after the
completion of the IBS.17 Thus, petitioner stresses that it was Northwestern
that breached the agreement when the latter halted the installation of the
materials for the IBS, even if the parties had contemplated a completed
project to be evaluated by CHED. However, as aptly considered by the CA,
respondent could not just "sit still and wait for such day that its accreditation
may not be granted by CHED due to the apparent substandard equipment
installed in the bridge system."18 The appellate court correctly emphasized
that, by that time, both parties would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts, the
materials that were hauled all the way from Quezon City to Laoag City under
the custody of the four designated installers might not have been the
components to be used.19 Without belaboring the point, we affirm the
conclusion of the CA and the RTC that the excuse is untenable for being
contrary to human experience.20
Given that petitioner, without justification, supplied substandard
components for the new IBS, it is thus clear that its violation was not merely
incidental, but directly related to the essence of the agreement pertaining
to the installation of an IBS compliant with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the part of
petitioner.
In contrast, Northwestern’s breach, if any, was characterized by the
appellate court as slight or casual.21 By way of negative definition, a breach
is considered casual if it does not fundamentally defeat the object of the
parties in entering into an agreement. Furthermore, for there to be a breach
to begin with, there must be a "failure, without legal excuse, to perform any
promise which forms the whole or part of the contract."22
Here, as discussed, the stoppage of the installation was justified. The action
of Northwestern constituted a legal excuse to prevent the highly possible
rejection of the IBS. Hence, just as the CA concluded, we find that
Northwestern exercised ordinary prudence to avert a possible wastage of
time, effort, resources and also of the ₱2.9 million representing the value of
the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's Fees
As between the parties, substantial breach can clearly be attributed to GL
Enterprises.1âwphi1 Consequently, it is not the injured party who can claim
damages under Article 1170 of the Civil Code. For this reason, we concur in
the result of the CA's Decision denying petitioner actual damages in the form
of lost earnings, as well as moral and exemplary damages.
With respect to attorney's fees, Article 2208 of the Civil Code allows the
grant thereof when the court deems it just and equitable that attorney's
fees should be recovered. An award of attorney's fees is proper if one was
forced to litigate and incur expenses to protect one's rights and interest by
reason of an unjustified act or omission on the part of the party from whom
the award is sought.23
Since we affirm the CA's finding that it was not Northwestern but GL
Enterprises that breached the contracts without justification, it follows that
the appellate court correctly awarded attorney’s fees to respondent.
Notably, this litigation could have altogether been avoided if petitioner
heeded respondent's suggestion to amicably settle; or, better yet, if in the
first place petitioner delivered the right materials as required by the
contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals
in CA-G.R. CV No. 88989 is hereby AFFIRMED.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson
MILA A. REYES, Petitioner,vs.VICTORIA T. TUPARAN, Respondent.
G.R. No. 188064 | 2011-06-01
DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13, 2009 Decision [1] of
the Court of Appeals (CA) which affirmed with modification the February 22,
2006 Decision [2] of the Regional Trial Court, Branch 172, Valenzuela City
(RTC), in Civil Case No. 3945-V-92, an action for Rescission of Contract with
Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for
Rescission of Contract with Damages against Victoria T. Tuparan
(respondent) before the RTC. In her Complaint, petitioner alleged, among
others, that she was the registered owner of a 1,274 square meter
residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130; that on that property, she put up a three-
storey commercial building known as RBJ Building and a residential
apartment building; that since 1990, she had been operating a drugstore
and cosmetics store on the ground floor of RBJ Building where she also had
been residing while the other areas of the buildings including the sidewalks
were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the
ground floor of the RBJ Building for her pawnshop business for a monthly
rental of P4,000.00. A close friendship developed between the two which
led to the respondent investing thousands of pesos in petitioner's
financing/lending business from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the
Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of
P2,000,000.00 payable in installments. On November 15, 1990, petitioner's
outstanding account on the mortgage reached P2,278,078.13. Petitioner
then decided to sell her real properties for at least P6,500,000.00 so she
could liquidate her bank loan and finance her businesses. As a gesture of
friendship, respondent verbally offered to conditionally buy petitioner's real
properties for P4,200,000.00 payable on installment basis without interest
and to assume the bank loan. To induce the petitioner to accept her offer,
respondent offered the following conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff (petitioner) can
find a buyer of said properties for the amount of P6,500,000.00 within the
next three (3) months provided all amounts received by the plaintiff from
the defendant (respondent) including payments actually made by defendant
to Farmers Savings and Loan Bank would be refunded to the defendant with
additional interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and
drugstore and cosmetics store without any rentals for the duration of the
installment payments;
3. That there will be a lease for fifteen (15) years in favor of the plaintiff over
the space for drugstore and cosmetics store at a monthly rental of only
P8,000.00 after full payment of the stipulated installment payments are
made by the defendant;
4. That the defendant will undertake the renewal and payment of the fire
insurance policies on the two (2) subject buildings following the expiration
of the then existing fire insurance policy of the plaintiff up to the time that
plaintiff is fully paid of the total purchase price of P4,200,000.00. [3]
After petitioner's verbal acceptance of all the conditions/concessions, both
parties worked together to obtain FSL Bank's approval for respondent to
assume her (petitioner's) outstanding bank account. The assumption would
be part of respondent's purchase price for petitioner's mortgaged real
properties. FSL Bank approved their proposal on the condition that
petitioner would sign or remain as co-maker for the mortgage obligation
assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the
corresponding Deed of Conditional Sale of Real Properties with Assumption
of Mortgage. Due to their close personal friendship and business
relationship, both parties chose not to reduce into writing the other terms
of their agreement mentioned in paragraph 11 of the complaint. Besides,
FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage any other side agreement between
petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of
Mortgage, respondent was bound to pay the petitioner a lump sum of P1.2
million pesos without interest as part of the purchase price in three (3) fixed
installments as follows:
a) P200,000.00 - due January 31, 1991
b) P200,000.00 - due June 30, 1991
c) P800,000.00 - due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their
due dates. Instead of paying the amounts due in lump sum on their
respective maturity dates, respondent paid petitioner in small amounts
from time to time. To compensate for her delayed payments, respondent
agreed to pay petitioner an interest of 6% a month. As of August 31, 1992,
respondent had only paid P395,000.00, leaving a balance of P805,000.00 as
principal on the unpaid installments and P466,893.25 as unpaid
accumulated interest.
Petitioner further averred that despite her success in finding a prospective
buyer for the subject real properties within the 3-month period agreed
upon, respondent reneged on her promise to allow the cancellation of their
deed of conditional sale. Instead, respondent became interested in owning
the subject real properties and even wanted to convert the entire property
into a modern commercial complex. Nonetheless, she consented because
respondent repeatedly professed friendship and assured her that all their
verbal side agreement would be honored as shown by the fact that since
December 1990, she (respondent) had not collected any rentals from the
petitioner for the space occupied by her drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused
the petitioner to lose rental income in the amount of P8,000.00 a month
since April 1992. Respondent neglected to renew the fire insurance policy
on the subject buildings.
Since December 1990, respondent had taken possession of the subject real
properties and had been continuously collecting and receiving monthly
rental income from the tenants of the buildings and vendors of the sidewalk
fronting the RBJ building without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of P751,000.00 only
payable on September 7, 1992, as full payment of the purchase price of the
subject real properties and demanded the simultaneous execution of the
corresponding deed of absolute sale.
Respondent's Answer
Respondent countered, among others, that the tripartite agreement
erroneously designated by the petitioner as a Deed of Conditional Sale of
Real Property with Assumption of Mortgage was actually a pure and
absolute contract of sale with a term period. It could not be considered a
conditional sale because the acquisition of contractual rights and the
performance of the obligation therein did not depend upon a future and
uncertain event. Moreover, the capital gains and documentary stamps and
other miscellaneous expenses and real estate taxes up to 1990 were
supposed to be paid by petitioner but she failed to do so.
Respondent further averred that she successfully rescued the properties
from a definite foreclosure by paying the assumed mortgage in the amount
of P2,278,078.13 plus interest and other finance charges. Because of her
payment, she was able to obtain a deed of cancellation of mortgage and
secure a release of mortgage on the subject real properties including
petitioner's ancestral residential property in Sta. Maria, Bulacan.
Petitioner's claim for the balance of the purchase price of the subject real
properties was baseless and unwarranted because the full amount of the
purchase price had already been paid, as she did pay more than
P4,200,000.00, the agreed purchase price of the subject real properties, and
she had even introduced improvements thereon worth more than
P4,800,000.00. As the parties could no longer be restored to their original
positions, rescission could not be resorted to.
Respondent added that as a result of their business relationship, petitioner
was able to obtain from her a loan in the amount of P400,000.00 with
interest and took several pieces of jewelry worth P120,000.00. Petitioner
also failed and refused to pay the monthly rental of P20,000.00 since
November 16, 1990 up to the present for the use and occupancy of the
ground floor of the building on the subject real property, thus, accumulating
arrearages in the amount of P470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that
respondent failed to pay in full the P4.2 million total purchase price of the
subject real properties leaving a balance of P805,000.00. It stated that the
checks and receipts presented by respondent refer to her payments of the
mortgage obligation with FSL Bank and not the payment of the balance of
P1,200,000.00. The RTC also considered the Deed of Conditional Sale of Real
Property with Assumption of Mortgage executed by and among the two
parties and FSL Bank a contract to sell, and not a contract of sale. It was of
the opinion that although the petitioner was entitled to a rescission of the
contract, it could not be permitted because her non-payment in full of the
purchase price "may not be considered as substantial and fundamental
breach of the contract as to defeat the object of the parties in entering into
the contract." [4] The RTC believed that the respondent's offer stated in her
counsel's letter dated September 2, 1992 to settle what she thought was her
unpaid balance of P751,000.00 showed her sincerity and willingness to
settle her obligation. Hence, it would be more equitable to give respondent
a chance to pay the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award
damages and attorney's fees because there was no proof that either party
acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days from
the finality hereof the amount of P805,000.00, representing the unpaid
purchase price of the subject property, with interest thereon at 2% a month
from January 1, 1992 until fully paid. Failure of the defendant to pay said
amount within the said period shall cause the automatic rescission of the
contract (Deed of Conditional Sale of Real Property with Assumption of
Mortgage) and the plaintiff and the defendant shall be restored to their
former positions relative to the subject property with each returning to the
other whatever benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the space
occupied by her for drugstore and cosmetic store without any rental
pending payment of the aforesaid balance of the purchase price.
3. Ordering the defendant, upon her full payment of the purchase price
together with interest, to execute a contract of lease for fifteen (15) years
in favor of the plaintiff over the space for the drugstore and cosmetic store
at a fixed monthly rental of P8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of the
purchase price together with interest, to execute the necessary deed of sale,
as well as to pay the Capital Gains Tax, documentary stamps and other
miscellaneous expenses necessary for securing the BIR Clearance, and to
pay the real estate taxes due on the subject property up to 1990, all
necessary to transfer ownership of the subject property to the defendant.
No pronouncement as to damages, attorney's fees and costs.
SO ORDERED. [5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with
modification the RTC Decision. The CA agreed with the RTC that the contract
entered into by the parties is a contract to sell but ruled that the remedy of
rescission could not apply because the respondent's failure to pay the
petitioner the balance of the purchase price in the total amount of
P805,000.00 was not a breach of contract, but merely an event that
prevented the seller (petitioner) from conveying title to the purchaser
(respondent). It reasoned that out of the total purchase price of the subject
property in the amount of P4,200,000.00, respondent's remaining unpaid
balance was only P805,000.00. Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to allow
her to pay the unpaid balance of the purchase price plus interest. Thus, the
decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006
and Order dated 22 December 2006 of the Regional Trial Court of Valenzuela
City, Branch 172 in Civil Case No. 3945-V-92 are AFFIRMED with
MODIFICATION in that defendant-appellant Victoria T. Tuparan is hereby
ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days
from finality of this Decision, the amount of P805,000.00 representing the
unpaid balance of the purchase price of the subject property, plus interest
thereon at the rate of 6% per annum from 11 September 1992 up to finality
of this Decision and, thereafter, at the rate of 12% per annum until full
payment. The ruling of the trial court on the automatic rescission of the
Deed of Conditional Sale with Assumption of Mortgage is hereby DELETED.
Subject to the foregoing, the dispositive portion of the trial court's decision
is AFFIRMED in all other respects.
SO ORDERED. [6]
After the denial of petitioner's motion for reconsideration and respondent's
motion for partial reconsideration, petitioner filed the subject petition for
review praying for the reversal and setting aside of the CA Decision
anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF
CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF
MORTGAGE ON THE GROUND THAT RESPONDENT TUPARAN'S FAILURE TO
PAY PETITIONER REYES THE BALANCE OF THE PURCHASE PRICE OF
P805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS
THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT
REAL PROPERTIES DUE TO RESPONDENT'S REFUSAL TO PAY THE BALANCE
OF THE TOTAL PURCHASE PRICE OF P805,000.00 WHICH IS EQUAL TO 20%
OF THE TOTAL PURCHASE PRICE OF P4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF P1,200,000.00 PLUS THE INTEREST
THEREON. IN EFFECT, THE COURT OF APPEALS AFFIRMED AND ADOPTED
THE TRIAL COURT'S CONCLUSION THAT THE RESPONDENT'S NON-PAYMENT
OF THE P805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE
SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY
THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF
THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE P805,000.00 PLUS INTEREST THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE
RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL
SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE
INTEREST ON THE P805,000.00 TO ONLY "6% PER ANNUM STARTING FROM
THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992" DESPITE
THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT
BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE
P805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF
DELINQUENCY ON DECEMBER 31, 1991.
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING
INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL
DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF
RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT
TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH
THE UNPAID BALANCE OF P805,000.00 AND DESPITE THE FACT THAT
RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS
CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE
CLAIM OF PETITIONER REYES FOR THE P29,609.00 BACK RENTALS THAT
WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF
THE PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DENYING THE PETITIONER'S EARLIER "URGENT MOTION FOR ISSUANCE
OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION" DATED
JULY 7, 2008 AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008
THEREBY CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE
FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONER'S
THREE (3) SEPARATE "MOTIONS FOR PRELIMINARY INJUNCTION/
TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL
INCOME" DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006
THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY
CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT
REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF
THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION
TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED
UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL
PROPERTIES" DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT
REAL PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OF
VALENZUELA CITY.
G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION
IN DENYING THE PETITIONER'S CLAIM FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA
was correct in ruling that there was no legal basis for the rescission of the
Deed of Conditional Sale with Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the
rescission of the subject Deed of Conditional Sale of Real Properties with
Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose
outstanding characteristic is reciprocity arising from identity of cause by
virtue of which one obligation is correlative of the other.
2. The petitioner was rescinding - not enforcing - the subject Deed of
Conditional Sale pursuant to Article 1191 of the Civil Code because of the
respondent's failure/refusal to pay the P805,000.00 balance of the total
purchase price of the petitioner's properties within the stipulated period
ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent
because she (respondent) deliberately failed to comply with her contractual
obligations with the petitioner by violating the terms or manner of payment
of the P1,200,000.00 balance and unjustly enriched herself at the expense
of the petitioner by collecting all rental payments for her personal benefit
and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay
interest at the rate of 6% per month on her unpaid installment of
P805,000.00 from the date of the delinquency, December 31, 1991, because
she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as
well as for the back rentals in the amount of P29,609.00 has been fully
substantiated and, therefore, should have been granted by the CA. Her claim
for moral and exemplary damages and attorney's fees has been likewise
substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into between the parties is a contract to
sell and not a contract of sale because the title of the subject properties still
remains with the petitioner as she failed to pay the installment payments in
accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full balance
on the purchase price may not be considered as a substantial and
fundamental breach of the subject contract and it would be more equitable
if she would be allowed to pay the balance including interest within a certain
period of time. She claims that as early as 1992, she has shown her sincerity
by offering to pay a certain amount which was, however, rejected by the
petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly
provides that the installment payments shall not bear any interest.
Moreover, petitioner failed to prove that she was entitled to back rentals.
The Court's Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject Deed
of Conditional Sale with Assumption of Mortgage entered into by and
among the two parties and FSL Bank on November 26, 1990 is a contract to
sell and not a contract of sale. The subject contract was correctly classified
as a contract to sell based on the following pertinent stipulations:
8. That the title and ownership of the subject real properties shall remain
with the First Party until the full payment of the Second Party of the balance
of the purchase price and liquidation of the mortgage obligation of
P2,000,000.00. Pending payment of the balance of the purchase price and
liquidation of the mortgage obligation that was assumed by the Second
Party, the Second Party shall not sell, transfer and convey and otherwise
encumber the subject real properties without the written consent of the
First and Third Party.
9. That upon full payment by the Second Party of the full balance of the
purchase price and the assumed mortgage obligation herein mentioned the
Third Party shall issue the corresponding Deed of Cancellation of Mortgage
and the First Party shall execute the corresponding Deed of Absolute Sale in
favor of the Second Party. [7]
Based on the above provisions, the title and ownership of the subject
properties remains with the petitioner until the respondent fully pays the
balance of the purchase price and the assumed mortgage obligation.
Thereafter, FSL Bank shall then issue the corresponding deed of cancellation
of mortgage and the petitioner shall execute the corresponding deed of
absolute sale in favor of the respondent.
Accordingly, the petitioner's obligation to sell the subject properties
becomes demandable only upon the happening of the positive suspensive
condition, which is the respondent's full payment of the purchase price.
Without respondent's full payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to turn over the title.
Respondent's failure to pay in full the purchase price is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather
just an event that prevents the petitioner from being bound to convey title
to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson [8] is
enlightening:
The Court holds that the contract entered into by the Spouses Nabus and
respondents was a contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by
mere consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract
of Sale because the first essential element is lacking. In a contract to sell, the
prospective seller explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words, the full
payment of the purchase price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from arising and, thus,
ownership is retained by the prospective seller without further remedies by
the prospective buyer.
xxx xxx xxx
Stated positively, upon the fulfillment of the suspensive condition which is
the full payment of the purchase price, the prospective seller's obligation to
sell the subject property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer upon fulfillment
of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the
property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent
event which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely abated.
However, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of
the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further
act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which
is the full payment of the purchase price, ownership will not automatically
transfer to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract
of sale and a contract to sell:
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of
the purchase price. Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of which is
not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.
It is not the title of the contract, but its express terms or stipulations that
determine the kind of contract entered into by the parties. In this case, the
contract entitled "Deed of Conditional Sale" is actually a contract to sell. The
contract stipulated that "as soon as the full consideration of the sale has
been paid by the vendee, the corresponding transfer documents shall be
executed by the vendor to the vendee for the portion sold." Where the
vendor promises to execute a deed of absolute sale upon the completion by
the vendee of the payment of the price, the contract is only a contract to
sell." The aforecited stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale
executed in their favor was merely a contract to sell, the obligation of the
seller to sell becomes demandable only upon the happening of the
suspensive condition. The full payment of the purchase price is the positive
suspensive condition, the failure of which is not a breach of contract, but
simply an event that prevented the obligation of the vendor to convey title
from acquiring binding force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. With this circumstance, there
can be no rescission or fulfillment of an obligation that is still non-existent,
the suspensive condition not having occurred as yet. Emphasis should be
made that the breach contemplated in Article 1191 of the New Civil Code is
the obligor's failure to comply with an obligation already extant, not a failure
of a condition to render binding that obligation.[Emphases and underscoring
supplied]
Consistently, the Court handed down a similar ruling in the 2010 case of
Heirs of Atienza v. Espidol, [9] where it was written:
Regarding the right to cancel the contract for non-payment of an
installment, there is need to initially determine if what the parties had was
a contract of sale or a contract to sell. In a contract of sale, the title to the
property passes to the buyer upon the delivery of the thing sold. In a
contract to sell, on the other hand, the ownership is, by agreement, retained
by the seller and is not to pass to the vendee until full payment of the
purchase price. In the contract of sale, the buyer's non-payment of the price
is a negative resolutory condition; in the contract to sell, the buyer's full
payment of the price is a positive suspensive condition to the coming into
effect of the agreement. In the first case, the seller has lost and cannot
recover the ownership of the property unless he takes action to set aside
the contract of sale. In the second case, the title simply remains in the seller
if the buyer does not comply with the condition precedent of making
payment at the time specified in the contract. Here, it is quite evident that
the contract involved was one of a contract to sell since the Atienzas, as
sellers, were to retain title of ownership to the land until respondent
Espidol, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment
of P1,750,000.00 that fell due in December 2002. That payment, said both
the RTC and the CA, was a positive suspensive condition failure of which
was not regarded a breach in the sense that there can be no rescission of
an obligation (to turn over title) that did not yet exist since the suspensive
condition had not taken place. x x x. [Emphases and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: "Considering,
however, that the Deed of Conditional Sale was not cancelled by Vendor
Reyes (petitioner) and that out of the total purchase price of the subject
property in the amount of P4,200,000.00, the remaining unpaid balance of
Tuparan (respondent) is only P805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to allow
Tuparan to pay the said unpaid balance of the purchase price to Reyes." [10]
Granting that a rescission can be permitted under Article 1191, the Court
still cannot allow it for the reason that, considering the circumstances, there
was only a slight or casual breach in the fulfillment of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach
of the contract is substantial and fundamental to the fulfillment of the
obligation. Whether the breach is slight or substantial is largely determined
by the attendant circumstances. [11] In the case at bench, the subject
contract stipulated the following important provisions:
2. That the purchase price of P4,200,000.00 shall be paid as follows:
a) P278,078.13 received in cash by the First Party but directly paid to the
Third Party as partial payment of the mortgage obligation of the First Party
in order to reduce the amount to P2,000,000.00 only as of November 15,
1990;
b) P721,921.87 received in cash by the First Party as additional payment of
the Second Party;
c) P1,200,000.00 to be paid in installments as follows:
1. P200,000.00 payable on or before January 31, 1991;
2. P200,000.00 payable on or before June 30, 1991;
3. P800,000.00 payable on or before December 31, 1991;
Note: All the installments shall not bear any interest.
d) P2,000,000.00 outstanding balance of the mortgage obligation as of
November 15, 1990 which is hereby assumed by the Second Party.
xxx
3. That the Third Party hereby acknowledges receipts from the Second
Party P278,078.13 as partial payment of the loan obligation of First Party in
order to reduce the account to only P2,000,000.00 as of November 15, 1990
to be assumed by the Second Party effective November 15, 1990. [12]
From the records, it cannot be denied that respondent paid to FSL Bank
petitioner's mortgage obligation in the amount of P2,278,078.13, which
formed part of the purchase price of the subject property. Likewise, it is not
disputed that respondent paid directly to petitioner the amount of
P721,921.87 representing the additional payment for the purchase of the
subject property. Clearly, out of the total price of P4,200,000.00, respondent
was able to pay the total amount of P3,000,000.00, leaving a balance of
P1,200,000.00 payable in three (3) installments.
Out of the P1,200,000.00 remaining balance, respondent paid on several
dates the first and second installments of P200,000.00 each. She, however,
failed to pay the third and last installment of P800,000.00 due on December
31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel,
offered to pay the amount of P751,000.00, which was rejected by petitioner
for the reason that the actual balance was P805,000.00 excluding the
interest charges.
Considering that out of the total purchase price of P4,200,000.00,
respondent has already paid the substantial amount of P3,400,000.00, more
or less, leaving an unpaid balance of only P805,000.00, it is right and just to
allow her to settle, within a reasonable period of time, the balance of the
unpaid purchase price. The Court agrees with the courts below that the
respondent showed her sincerity and willingness to comply with her
obligation when she offered to pay the petitioner the amount of
P751,000.00.
On the issue of interest, petitioner failed to substantiate her claim that
respondent made a personal commitment to pay a 6% monthly interest on
the P805,000.00 from the date of delinquency, December 31, 1991. As can
be gleaned from the contract, there was a stipulation stating that: "All the
installments shall not bear interest." The CA was, however, correct in
imposing interest at the rate of 6% per annum starting from the filing of the
complaint on September 11, 1992.
Finally, the Court upholds the ruling of the courts below regarding the non-
imposition of damages and attorney's fees. Aside from petitioner's self-
serving statements, there is not enough evidence on record to prove that
respondent acted fraudulently and maliciously against the petitioner. In the
case of Heirs of Atienza v. Espidol, [13] it was stated:
Respondents are not entitled to moral damages because contracts are not
referred to in Article 2219 of the Civil Code, which enumerates the cases
when moral damages may be recovered. Article 2220 of the Civil Code
allows the recovery of moral damages in breaches of contract where the
defendant acted fraudulently or in bad faith. However, this case involves a
contract to sell, wherein full payment of the purchase price is a positive
suspensive condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from conveying title
to the purchaser. Since there is no breach of contract in this case,
respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages,
exemplary damages cannot be granted for they are allowed only in addition
to any of the four kinds of damages mentioned.
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA
Associate Justice
MANUEL C. PAGTALUNAN, Petitioner, versus RUFINA DELA CRUZ VDA. DE
MANZANO, Respondent.
G.R. No. 147695 | 2007-09-13
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court of the Court of Appeals' (CA) Decision promulgated on October 30,
2000 and its Resolution dated March 23, 2001 denying petitioner's motion
for reconsideration. The Decision of the CA affirmed the Decision of the
Regional Trial Court (RTC) of Malolos, Bulacan, dated June 25, 1999
dismissing the case of unlawful detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner's stepfather and
predecessor-in-interest, entered into a Contract to Sell with respondent,
wife of Patricio's former mechanic, Teodoro Manzano, whereby the former
agreed to sell, and the latter to buy, a house and lot which formed half of a
parcel of land, covered by Transfer Certificate of Title (TCT) No. T-10029
(now TCT No. RT59929 [T-254773]), with an area of 236 square meters.
The consideration of P17,800 was agreed to be paid in the following
manner: P1,500 as downpayment upon execution of the Contract to Sell,
and the balance to be paid in equal monthly installments of P150 on or
before the last day of each month until fully paid.
It was also stipulated in the contract that respondent could immediately
occupy the house and lot; that in case of default in the payment of any of
the installments for 90 days after its due date, the contract would be
automatically rescinded without need of judicial declaration, and that all
payments made and all improvements done on the premises by
respondent would be considered as rentals for the use and occupation of
the property or payment for damages suffered, and respondent was
obliged to peacefully vacate the premises and deliver the possession
thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She allegedly
stopped paying after December 1979 without any justification or
explanation. Moreover, in a "Kasunduan"[1] dated November 18, 1979,
respondent borrowed P3,000 from Patricio payable in one year either in
one lump sum payment or by installments, failing which the balance of the
loan would be added to the principal subject of the monthly amortizations
on the land.
Lastly, petitioner asserted that when respondent ceased paying her
installments, her status of buyer was automatically transformed to that of
a lessee. Therefore, she continued to possess the property by mere
tolerance of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio changed his
mind and offered to refund all her payments provided she would surrender
the house. She refused. Patricio then started harassing her and began
demolishing the house portion by portion. Respondent admitted that she
failed to pay some installments after December 1979, but that she
resumed paying in 1980 until her balance dwindled to P5,650. She claimed
that despite several months of delay in payment, Patricio never sued for
ejectment and even accepted her late payments.
Respondent also averred that on September 14, 1981, she and Patricio
signed an agreement (Exh. 2) whereby he consented to the suspension of
respondent's monthly payments until December 1981. However, even
before the lapse of said period, Patricio resumed demolishing respondent's
house, prompting her to lodge a complaint with the Barangay Captain who
advised her that she could continue suspending payment even beyond
December 31, 1981 until Patricio returned all the materials he took from
her house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio P5,650, but claimed
that she did not resume paying her monthly installment because of the
unlawful acts committed by Patricio, as well as the filing of the ejectment
case against her. She denied having any knowledge of the Kasunduan of
November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October 17, 1994,
respectively. Petitioner became their sole successor-in-interest pursuant to
a waiver by the other heirs. On March 5, 1997, respondent received a
letter from petitioner's counsel dated February 24, 1997 demanding that
she vacate the premises within five days on the ground that her possession
had become unlawful. Respondent ignored the demand. The Punong
Barangay failed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer against
respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan
praying that, after hearing, judgment be rendered ordering respondent to
immediately vacate the subject property and surrender it to petitioner;
forfeiting the amount of P12,950 in favor of petitioner as rentals; ordering
respondent to pay petitioner the amount of P3,000 under
the Kasunduan and the amount of P500 per month from January 1980 until
she vacates the property, and to pay petitioner attorney's fees and the
costs.
On December 22, 1998, the MTC rendered a decision in favor of petitioner.
It stated that although the Contract to Sell provides for a rescission of the
agreement upon failure of the vendee to pay any installment, what the
contract actually allows is properly termed a resolution under Art. 1191 of
the Civil Code.
The MTC held that respondent's failure to pay not a few installments
caused the resolution or termination of the Contract to Sell. The last
payment made by respondent was on January 9, 1980 (Exh. 71).
Thereafter, respondent's right of possession ipso facto ceased to be a legal
right, and became possession by mere tolerance of Patricio and his
successors-in-interest. Said tolerance ceased upon demand on respondent
to vacate the property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is hereby
rendered, ordering the defendant:
a. to vacate the property covered by Transfer Certificate of Title No.
T-10029 of the Register of Deeds of Bulacan (now TCT No. RT-59929
of the Register of Deeds of Bulacan), and to surrender possession
thereof to the plaintiff;
b. to pay the plaintiff the amount of P113,500 representing rentals
from January 1980 to the present;
c. to pay the plaintiff such amount of rentals, at P500/month, that
may become due after the date of judgment, until she finally
vacates the subject property;
d. to pay to the plaintiff the amount of P25,000 as attorney's fees.
SO ORDERED.[2]
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999,
reversed the decision of the MTC and dismissed the case for lack of merit.
According to the RTC, the agreement could not be automatically rescinded
since there was delivery to the buyer. A judicial determination of rescission
must be secured by petitioner as a condition precedent to convert the
possession de facto of respondent from lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the decision
of the Municipal Trial Court of Guiguinto, Bulacan and the
ejectment case instead be dismissed for lack of merit.[3]
The motion for reconsideration and motion for execution filed by
petitioner were denied by the RTC for lack of merit in an Order dated
August 10, 1999.
Thereafter, petitioner filed a petition for review with the CA.
In a Decision promulgated on October 30, 2000, the CA denied the petition
and affirmed the Decision of the RTC. The dispositive portion of the
Decision reads:
WHEREFORE, the petition for review on certiorari is Denied. The
assailed Decision of the Regional Trial Court of Malolos, Bulacan
dated 25 June 1999 and its Order dated 10 August 1999 are hereby
AFFIRMED.
SO ORDERED. [4]
The CA found that the parties, as well as the MTC and RTC failed to advert
to and to apply Republic Act (R.A.) No. 6552, more commonly referred to
as the Maceda Law, which is a special law enacted in 1972 to protect
buyers of real estate on installment payments against onerous and
oppressive conditions.
The CA held that the Contract to Sell was not validly cancelled or rescinded
under Sec. 3 (b) of R.A. No. 6552, and recognized respondent's right to
continue occupying unmolested the property subject of the contract to
sell.
The CA denied petitioner's motion for reconsideration in a Resolution
dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:
A. Respondent Dela Cruz must bear the consequences of her
deliberate withholding of, and refusal to pay, the monthly
payment. The Court of Appeals erred in allowing Dela Cruz who
acted in bad faith from benefiting under the Maceda Law.
B. The Court of Appeals erred in resolving the issue on the
applicability of the Maceda Law, which issue was not raised in the
proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling that the
MTC has no jurisdiction over a rescission case, the Court of Appeals
erred in not remanding the case to the RTC for trial.[5]
Petitioner submits that the Maceda Law supports and recognizes the right
of vendors of real estate to cancel the sale outside of court, without need
for a judicial declaration of rescission, citing Luzon Brokerage Co., Inc., v.
Maritime Building Co., Inc.[6]
Petitioner contends that respondent also had more than the grace periods
provided under the Maceda Law within which to pay. Under Sec. 3[7] of
the said law, a buyer who has paid at least two years of installments has a
grace period of one month for every year of installment paid. Based on the
amount of P12,950 which respondent had already paid, she is entitled to a
grace period of six months within which to pay her unpaid installments
after December, 1979. Respondent was given more than six months from
January 1980 within which to settle her unpaid installments, but she failed
to do so. Petitioner's demand to vacate was sent to respondent in
February 1997.
There is nothing in the Maceda Law, petitioner asserts, which gives the
buyer a right to pay arrearages after the grace periods have lapsed, in the
event of an invalid demand for rescission. The Maceda Law only provides
that actual cancellation shall take place after 30 days from receipt of the
notice of cancellation or demand for rescission and upon full payment of
the cash surrender value to the buyer.
Petitioner contends that his demand letter dated February 24, 1997 should
be considered the notice of cancellation since the demand letter informed
respondent that she had "long ceased to have any right to possess the
premises in question due to [her] failure to pay without justifiable cause."
In support of his contention, he cited Layug v. Intermediate Appellate
Court[8] which held that "the additional formality of a demand on [the
seller's] part for rescission by notarial act would appear, in the premises, to
be merely circuitous and consequently superfluous." He stated that
in Layug, the seller already made a written demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value
respondent is entitled to have been applied and must be applied to rentals
for her use of the house and lot after December, 1979 or after she stopped
payment of her installments.
Petitioner argues that assuming Patricio accepted respondent's delayed
installments in 1981, such act cannot prevent the cancellation of the
Contract to Sell. Installments after 1981 were still unpaid and the
applicable grace periods under the Maceda Law on the unpaid installments
have long lapsed. Respondent cannot be allowed to hide behind the
Maceda Law. She acted with bad faith and must bear the consequences of
her deliberate withholding of and refusal to make the monthly payments.
Petitioner also contends that the applicability of the Maceda Law was
never raised in the proceedings below; hence, it should not have been
applied by the CA in resolving the case.
The Court is not persuaded.
The CA correctly ruled that R.A No. 6552, which governs sales of real estate
on installment, is applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent is
alleged to be illegally withholding possession of the subject property after
the termination of the Contract to Sell between Patricio and respondent. It
is, therefore, incumbent upon petitioner to prove that the Contract to Sell
had been cancelled in accordance with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-
eight hundred forty-four as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only
once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments
made and, after five years of installments, an additional five
percent every year but not to exceed ninety percent of the
total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract
by a notarial act and upon full payment of the cash
surrender value to the buyer.[9]
R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is simply
an event that prevents the obligation of the vendor to convey title from
acquiring binding force.[10] The Court agrees with petitioner that the
cancellation of the Contract to Sell may be done outside the court
particularly when the buyer agrees to such cancellation.
However, the cancellation of the contract by the seller must be in
accordance with Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of
rescission and the refund to the buyer of the full payment of the cash
surrender value of the payments on the property. Actual cancellation of
the contract takes place after 30 days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the
buyer.
Based on the records of the case, the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September 17,
1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in accordance
with law.
Petitioner contends that he has complied with the requirements of
cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his demand
letter dated February 24, 1997 should be considered as the notice of
cancellation or demand for rescission by notarial act and that the cash
surrender value of the payments on the property has been applied to
rentals for the use of the house and lot after respondent stopped payment
after January 1980.
The Court, however, finds that the letter[11] dated February 24, 1997,
which was written by petitioner's counsel, merely made formal demand
upon respondent to vacate the premises in question within five days from
receipt thereof since she had "long ceased to have any right to possess the
premises x x x due to [her] failure to pay without justifiable cause the
installment payments x x x."
Clearly, the demand letter is not the same as the notice of cancellation or
demand for rescission by a notarial actrequired by R.A No. 6552. Petitioner
cannot rely on Layug v. Intermediate Appellate Court[12] to support his
contention that the demand letter was sufficient compliance. Layug held
that "the additional formality of a demand on [the seller's] part for
rescission by notarial act would appear, in the premises, to be merely
circuitous and consequently superfluous" since the seller therein filed an
action for annulment of contract, which is a kindred concept of rescission
by notarial act.[13] Evidently, the case of unlawful detainer filed by
petitioner does not exempt him from complying with the said
requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer before
cancellation of the contract. The provision does not provide a different
requirement for contracts to sell which allow possession of the property by
the buyer upon execution of the contract like the instant case. Hence,
petitioner cannot insist on compliance with the requirement by assuming
that the cash surrender value payable to the buyer had been applied to
rentals of the property after respondent failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the CA correctly
recognized respondent's right to continue occupying the property subject
of the Contract to Sell and affirmed the dismissal of the unlawful detainer
case by the RTC.
The Court notes that this case has been pending for more than ten years.
Both parties prayed for other reliefs that are just and equitable under the
premises. Hence, the rights of the parties over the subject property shall
be resolved to finally dispose of that issue in this case.
Considering that the Contract to Sell was not cancelled by the vendor,
Patricio, during his lifetime or by petitioner in accordance with R.A. No.
6552 when petitioner filed this case of unlawful detainer after 22 years of
continuous possession of the property by respondent who has paid the
substantial amount of P12,300 out of the purchase price of P17,800, the
Court agrees with the CA that it is only right and just to allow respondent
to pay her arrears and settle the balance of the purchase price.
For respondent's delay in the payment of the installments, the Court, in its
discretion, and applying Article 2209[14] of the Civil Code, may award
interest at the rate of 6% per annum[15] on the unpaid balance
considering that there is no stipulation in the Contract to Sell for such
interest. For purposes of computing the legal interest, the reckoning
period should be the filing of the complaint for unlawful detainer on April
8, 1997.
Based on respondent's evidence[16] of payments made, the MTC found
that respondent paid a total of P12,300 out of the purchase price of
P17,800. Hence, respondent still has a balance of P5,500, plus legal
interest at the rate of 6% per annum on the unpaid balance starting April 8,
1997.

The third issue is disregarded since petitioner assails an inexistent ruling of

the RTC on the lack of jurisdiction of the MTC over a rescission case when
the instant case he filed is for unlawful detainer.

WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000
sustaining the dismissal of the unlawful detainer case by the RTC
is AFFIRMED with the following MODIFICATIONS:

1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner

Manuel C. Pagtalunan the balance of the purchase price in the amount of
Five Thousand Five Hundred Pesos (P5,500) plus interest at 6% per annum
from April 8, 1997 up to the finality of this judgment, and thereafter, at the
rate of 12% per annum;

2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of

Absolute Sale of the subject property and deliver the certificate of title in
favor of respondent Rufina Dela Cruz Vda. de Manzano; and

3. In case of failure to pay within 60 days from finality of this Decision,

respondent Rufina Dela Cruz Vda. de Manzano shall immediately vacate
the premises without need of further demand, and the downpayment and
installment payments of P12,300 paid by her shall constitute rental for the
subject property.

No costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice
ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS, Petitioners, versus
SAN FRANCISCO DEL MONTE, INC., Respondent.
G.R. No. 152346 | 2005-11-25
DECISION
Tinga, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, which assails theDecision of the Court of
Appeals in CA-G.R. CV No. 45203 and its Resolution therein denying
petitioners' motion for reconsideration. Said Decision affirmed
the Decision dated January 3, 1994 of the Regional Trial Court (RTC), Branch
63, Makati City in Civil Case No. 90-2711 entitled San Francisco Del Monte,
Inc. v. Isaias F. Fabrigas and Marcelina R. Fabrigas.
The dispositive portion of the trial court's Decision reads:
In the light of the foregoing, the Court is convinced that plaintiff has proven
by preponderance of evidence, the allegation appearing in its complaint and
is therefore, entitled to the reliefs prayed for.
Considering, however, that defendants had already paid P78,152.00, the
Court exercising its discretion, hereby renders judgment as follows:
1. Ordering defendant to make complete payment under the conditions of
Contract to Sell No. 2491-V dated January 21, 1985, within twenty days from
receipt of this Decision, and in the event that defendant fail or refuse to
observe the latter, defendants and all persons claiming right of possession
or occupation from defendants are ordered to vacate and leave the
premises, described as Lot No. 9 Block No. 3 of Subdivision Plan (LRC) Psd-
50064 covered by Transfer Certificate of Title No. 4980 (161653) T-1083 of
the Registry of Deeds of Rizal, and to surrender possession thereof to
plaintiff or any of its authorized representatives;
2. That in the event that defendants chose to surrender possession of the
property, they are further ordered to pay plaintiff P206,223.80 as unpaid
installments on the land inclusive of interests;
3. Ordering defendants to jointly and severally pay plaintiff the amount of
P10,000.00 as and for attorney's fees; and
4. Ordering defendants to pay the costs of suit.
SO ORDERED.[1]
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas
("Spouses Fabrigas" or "petitioners") and respondent San Francisco Del
Monte, Inc. ("Del Monte") entered into an agreement, denominated
as Contract to Sell No. 2482-V, whereby the latter agreed to sell to Spouses
Fabrigas a parcel of residential land situated in Barrio Almanza, Las Piñas,
Manila for and in consideration of the amount of P109,200.00. Said
property, which is known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC)
Psd-50064, is covered by Transfer Certificate of Title No. 4980 (161653) T-
1083 registered in the name of respondent Del Monte. The agreement
stipulated that Spouses Fabrigas shall pay P30,000.00 as downpayment and
the balance within ten (10) years in monthly successive installments of
P1,285.69.[2] Among the clauses in the contract is an automatic cancellation
clause in case of default, which states as follows:
7. Should the PURCHASER fail to make any of the payments including
interest as herein provided, within 30 days after the due date, this contract
will be deemed and considered as forfeited and annulled without necessity
of notice to the PURCHASER, and said SELLER shall be at liberty to dispose
of the said parcel of land to any other person in the same manner as if this
contract had never been executed. In the event of such forfeiture, all sums
of money paid under this contract will be considered and treated as rentals
for the use of said parcel of land, and the PURCHASER hereby waives all right March 19, 1985 P1, 328.52
to ask or demand the return thereof and agrees to peaceably vacate the said July 2, 1985 P2, 600.00
premises.[3] September 30, 1985 P2, 600.00
November 27, 1985 P2, 600.00
After paying P30,000.00, Spouses Fabrigas took possession of the property January 20, 1986 P2, 000.00[9]
but failed to make any installment payments on the balance of the purchase
price. Del Monte sent demand letters on four occasions to remind Spouses Del Monte sent a demand letter dated February 3, 1986, informing
Fabrigas to satisfy their contractual obligation.[4] In particular, Del Monte's petitioners of their overdue account equivalent to nine (9) installments or a
third letter dated November 9, 1983 demanded the payment of arrears in total amount of P26,861.40. Del Monte required petitioners to satisfy said
the amount of P8,999.00. Said notice granted Spouses Fabrigas a fifteen-day amount immediately in two subsequent letters dated March 5 and April 2,
grace period within which to settle their accounts. Petitioners' failure to 1986.[10] This prompted petitioners to pay the following amounts:
heed Del Monte's demands prompted the latter to send a final demand
letter dated December 7, 1983, granting Spouses Fabrigas another grace February 3, 1986 P2, 000.00
period of fifteen days within which to pay the overdue amount and warned March 10, 1986 P2, 000.00
them that their failure to satisfy their obligation would cause the rescission April 9, 1986 P2, 000.00
of the contract and the forfeiture of the sums of money already paid. May 13, 1986 P2, 000.00
Petitioners received Del Monte's final demand letter on December 23, 1983. June 6, 1986 P2, 000.00
Del Monte considered Contract to Sell No. 2482-V cancelled fifteen days July 14, 1986 P2, 000.00[11]
thereafter, but did not furnish petitioners any notice regarding its
cancellation.[5] No other payments were made by petitioners except the amount of
P10,000.00 which petitioners tendered sometime in October 1987 but
On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner which Del Monte refused to accept, the latter claiming that the payment
Marcelina") remitted the amount of P13,000.00 to Del Monte.[6] On was intended for the satisfaction of Contract to Sell No. 2482-V which had
January 12, 1985, petitioner Marcelina again remitted the amount of already been previously cancelled. On March 24, 1988, Del Monte sent a
P12,000.00.[7] A few days thereafter, or on January 21, 1985, petitioner letter demanding the payment of accrued installments under Contract to
Marcelina and Del Monte entered into another agreement denominated as Sell No. 2491-V in the amount of P165,759.60 less P48,128.52, representing
Contract to Sell No. 2491-V, covering the same property but under the payments made under the restructured contract, or the net amount of
restructured terms of payment. Under the second contract, the parties P117,631.08. Del Monte allowed petitioners a grace period of thirty (30)
agreed on a new purchase price of P131,642.58, the amount of P26,328.52 days within which to pay the amount asked to avoid rescission of the
as downpayment and the balance to be paid in monthly installments of contract. For failure to pay, Del Monte notified petitioners on March 30,
P2,984.60 each.[8] 1989 that Contract to Sell No. 2482-V had been cancelled and demanded
that petitioners vacate the property.[12]
Between March 1985 and January 1986, Spouses Fabrigas made irregular
payments under Contract to Sell No. 2491-V, to wit: On September 28, 1990, Del Monte instituted an action for Recovery of
Possession with Damages against Spouses Fabrigas before the RTC, Branch
63 of Makati City. The complaint alleged that Spouses Fabrigas owed Del
Monte the principal amount of P206,223.80 plus interest of 24% per annum.
In their answer, Spouses Fabrigas claimed, among others, that Del Monte
unilaterally cancelled the first contract and forced petitioner Marcelina to
execute the second contract, which materially and unjustly altered the
terms and conditions of the original contract.[13]
After trial on the merits, the trial court rendered a Decision on January 3,
1994, upholding the validity of Contract to Sell No. 2491-V and ordering
Spouses Fabrigas either to complete payments thereunder or to vacate the
property.
Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals,
arguing that the trial court should have upheld the validity and existence
of Contract to Sell No. 2482-V instead and nullified Contract to Sell No. 2491-
V. The Court of Appeals rejected this argument on the ground that Contract
to Sell No. 2482-V had been rescinded pursuant to the automatic rescission
clause therein. While the Court of Appeals declared Contract to Sell No.
2491-V as merely unenforceable for having been executed without
petitioner Marcelina's signature, it upheld its validity upon finding that the
contract was subsequently ratified.
Hence, the instant petition attributing the following errors to the Court of
Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THE
PROVISIONS OF R.A. NO. 6552 (THE MACEDA LAW) AND RULED THAT
CONTRACT TO SELL NO. 2482-V WAS VALIDLY CANCELLED BY SENDING A
MERE NOTICE TO THE PETITIONERS.
B. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE WAS AN
IMPLIED RATIFICATION OF CONTRACT TO SELL NO. 2491-V.
C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THE RULES OF
NOVATION TO THE INSTANT CASE.[14]
As reframed for better understanding, the questions are the following: Was
Contract to Sell No. 2482-V extinguished through rescission or was it
novated by the subsequent Contract to Sell No. 2491-V? If Contract to Sell
No. 2482-V was rescinded, should the manner of rescission comply with the
requirements of Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-V
was subsequently novated by Contract to Sell No. 2491-V, are petitioners
liable for breach under the subsequent agreement?
Petitioners theorize that Contract to Sell No. 2482-V should remain valid and
subsisting because the notice of cancellation sent by Del Monte did not
observe the requisites under Section 3 of R.A. 6552.[15] According to
petitioners, since respondent did not send a notarial notice informing them
of the cancellation or rescission of Contract to Sell No. 2482-Vand also did
not pay them the cash surrender value of the payments on the property, the
Court of Appeals erred in concluding that respondent correctly applied the
automatic rescission clause of Contract to Sell No. 2482-V. Petitioners also
cite Section 7[16] of said law to bolster their theory that the automatic
rescission clause in Contract to Sell No. 2482-V is invalid for being contrary
to law and public policy.
The Court of Appeals erred in ruling that Del Monte was "well within its right
to cancel the contract by express grant of paragraph 7 without the need of
notifying [petitioners],[17]" instead of applying the pertinent provisions of
R.A. 6552. Petitioners' contention that none of Del Monte's demand letters
constituted a valid rescission of Contract to Sell No. 2482-Vis correct.
Petitioners defaulted in all monthly installments. They may be credited only
with the amount of P30,000.00 paid upon the execution of Contract to Sell
No. 2482-V, which should be deemed equivalent to less than two (2) years'
installments. Given the nature of the contract between petitioners and Del
Monte, the applicable legal provision on the mode of cancellation of
Contract to Sell No. 2482-V is Section 4 and not Section 3 of R.A. 6552.
Section 4 is applicable to instances where less than two years installments
were paid. It reads:
SECTION 4. In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days from the
date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.
Thus, the cancellation of the contract under Section 4 is a two-step process.
First, the seller should extend the buyer a grace period of at least sixty (60)
days from the due date of the installment. Second, at the end of the grace
period, the seller shall furnish the buyer with a notice of cancellation or
demand for rescission through a notarial act, effective thirty (30) days from
the buyer's receipt thereof. It is worth mentioning, of course, that a mere
notice or letter, short of a notarial act, would not suffice.
While the Court concedes that Del Monte had allowed petitioners a grace
period longer than the minimum sixty (60)-day requirement under Section
4, it did not comply, however, with the requirement of notice of cancellation
or a demand for rescission. Instead, Del Monte applied the automatic
rescission clause of the contract. Contrary, however, to Del Monte's position
which the appellate court sustained, the automatic cancellation clause is
void under Section 7[18] in relation to Section 4 of R.A. 6552.[19]
Rescission, of course, is not the only mode of extinguishing obligations.
Ordinarily, obligations are also extinguished by payment or performance, by
the loss of the thing due, by the condonation or remission of the debt, by
the confusion or merger of the rights of the creditor and debtor, by
compensation, or by novation.[20]
Novation, in its broad concept, may either be extinctive or modificatory. It
is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when
the old obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by changing
the object or principal conditions (objective or real), or by substituting the
person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have
dual functions-one to extinguish an existing obligation, the other to
substitute a new one in its place-requiring a conflux of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation;
and (4) the birth of a valid new obligation.[21]
Notwithstanding the improper rescission, the facts of the case show
that Contract to Sell No. 2482-V was subsequently novated by Contract to
Sell No. 2491-V. The execution of Contract to Sell No. 2491-V accompanied
an upward change in the contract price, which constitutes a change in the
object or principal conditions of the contract. In entering into Contract to
Sell No. 2491-V, the parties were impelled by causes different from those
obtaining under Contract to Sell No. 2482-V. On the part of petitioners, they
agreed to the terms and conditions of Contract to Sell No. 2491-V not only
to acquire ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del Monte's
end, the upward change in price was the consideration for entering
into Contract to Sell No. 2491-V.
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point
incompatible with each other.[22] The test of incompatibility is whether or
not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation
novates the first.[23] The execution of Contract to Sell No. 2491-V created
new obligations in lieu of those under Contract to Sell No. 2482-V, which are
already considered extinguished upon the execution of the second contract.
The two contracts do not have independent existence for to hold otherwise
would present an absurd situation where the parties would be liable under
each contract having only one subject matter.

To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell No.
2491-V, petitioners contend that the subsequent contract is void for two
reasons: first, petitioner Isaias Fabrigas did not give his consent thereto, and
second, the subsequent contract is a contract of adhesion.
Petitioner rely on Article 172 of the Civil Code governing their property
relations as spouses. Said article states that the wife cannot bind the
conjugal partnership without the husband's consent except in cases
provided by law. Since only petitioner Marcelina executed Contract to Sell
No. 2491-V, the same is allegedly void, petitioners conclude.
Under the Civil Code, the husband is the administrator of the conjugal
partnership.[24] Unless the wife has been declared a non compos mentis or
a spendthrift, or is under civil interdiction or is confined in a leprosarium,
the husband cannot alienate or encumber any real property of the conjugal
partnership without the wife's consent.[25] Conversely, the wife cannot
bind the conjugal partnership without the husband's consent except in cases
provided by law.[26]
Thus, if a contract entered into by one spouse involving a conjugal property
lacks the consent of the other spouse, as in the case at bar, is it automatically
void for that reason alone?
Article 173[27] of the Civil Code expressly classifies a contract executed by
the husband without the consent of the wife as merely annullable at the
instance of the wife. However, there is no comparable provision covering an
instance where the wife alone has consented to a contract involving
conjugal property. Article 172 of the Civil Code, though, does not expressly
declare as void a contract entered by the wife without the husband's
consent. It is also not one of the contracts considered as void under Article
1409[28] of the Civil Code.
In Felipe v. Heirs of Maximo Aldon,[29] the Court had the occasion to rule on
the validity of a sale of lands belonging to the conjugal partnership made by
the wife without the consent of the husband. Speaking through Mr. Justice
Abad Santos, the Court declared such a contract as voidable because one of
the parties is incapable of giving consent to the contract. The capacity to
give consent belonged not even to the husband alone but to both
spouses.[30] In that case, the Court anchored its ruling on Article 173 of the
Civil Code which states that contracts entered by the husband without the
consent of the wife when such consent is required, are annullable at her
instance during the marriage and within ten years from the transaction
mentioned.[31]
The factual milieu of the instant case, however, differs from that in Felipe.
The defect which Contract to Sell No. 2491-V suffers from is lack of consent
of the husband, who was out of the country at the time of the execution of
the contract. There is no express provision in the Civil Code governing a
situation where the husband is absent and his absence incapacitates him
from administering the conjugal partnership property. The following Civil
Code provisions, however, are illuminating:
ARTICLE 167. In case of abuse of powers of administration of the conjugal
partnership property by the husband, the courts, on petition of the wife,
may provide for receivership, or administration by the wife, or separation of
property.
ARTICLE 168. The wife may, by express authority of the husband embodied
in a public instrument, administer the conjugal partnership property.
ARTICLE 169. The wife may also, by express authority of the husband
appearing in a public instrument, administer the latter's estate.
While the husband is the recognized administrator of the conjugal property
under the Civil Code, there are instances when the wife may assume
administrative powers or ask for the separation of property. In the
abovementioned instances, the wife must be authorized either by the court
or by the husband. Where the husband is absent and incapable of
administering the conjugal property, the wife must be expressly authorized
by the husband or seek judicial authority to assume powers of
administration. Thus, any transaction entered by the wife without the court
or the husband's authority is unenforceable in accordance with Article
1317[32] of the Civil Code. That is the status to be accorded Contract to Sell
No. 2491-V, it having been executed by petitioner Marcelina without her
husband's conformity.
Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible
to ratification. As found by the courts below, after being informed of the
execution of the contract, the husband, petitioner Isaias Fabrigas, continued
remitting payments for the satisfaction of the obligation under Contract to
Sell No. 2491-V. These acts constitute ratification of the contract. Such
ratification cleanses the contract from all its defects from the moment it was
constituted. The factual findings of the courts below are beyond review at
this stage.
signing of Contract No. 2491-V is taken to be valid and binding. The fact that
she has paid monthly amortizations subsequent to the execution of Contract
to Sell No. 2491-V, is an indication that she had recognized the validity of
such contract. . . .[34]
In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to
prevent respondent Del Monte from enforcing its contractual stipulations
and pursuing the proper court action to hold petitioners liable for their
breach thereof.
WHEREFORE, the instant Petition for Review is DENIED and the September
28, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203
is AFFIRMED. Costs against petitioners.
SO ORDERED.

Anent Del Monte's claim that Contract to Sell No. 2491-V is a contract of
adhesion, suffice it to say that assuming for the nonce that the contract is DANTE O. TINGA
such the characterization does not automatically render it void. A contract Associate Justice
of adhesion is so-called because its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion
thereto. Such contracts are not void in themselves. They are as binding as
ordinary contracts. Parties who enter into such contracts are free to reject
the stipulations entirely.[33]

The Court quotes with approval the following factual observations of the
trial court, which cannot be disturbed in this case, to wit:

The Court notes that defendant, Marcelina Fabrigas, although she had to
sign contract No. 2491-V, to avoid forfeiture of her downpayment, and her
other monthly amortizations, was entirely free to refuse to accept the new
contract. There was no clear case of intimidation or threat on the part of
plaintiff in offering the new contract to her. At most, since she was of
sufficient intelligence to discern the agreement she is entering into, her
ARTICLE 1192
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.
CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK,
petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
G.R. No. L-45710 October 3, 1985
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the
decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February
11, 1977, modifying the decision dated February 15, 1972 of the Court of
First Instance of Agusan, which dismissed the petition of respondent Sulpicio
M. Tolentino for injunction, specific performance or rescission, and damages
with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of
its legal department, approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo, Las
Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was
annotated on the said title the next day. The approved loan application
called for a lump sum P80,000.00 loan, repayable in semi-annual
installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan
was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual interest,
payable within 3 years from the date of execution of the contract at semi-
annual installments of P3,459.00 (p. 64, rec.). An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was
deducted from the partial release of P17,000.00. But this pre-deducted
interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being
informed by the Bank that there was no fund yet available for the release of
the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance (p.
113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding
Island Savings Bank was suffering liquidity problems, issued Resolution No.
1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against
its deposit liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals of
already approved loans, provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency
as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank
failed to put up the required capital to restore its solvency, issued Resolution
No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take
charge of the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100-
hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction
for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of
First Instance of Agusan for injunction, specific performance or rescission
and damages with preliminary injunction, alleging that since Island Savings
Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings Bank to deliver
the P63,000.00 with interest of 12% per annum from April 28, 1965, and if
said balance cannot be delivered, to rescind the real estate mortgage (pp.
32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety
bond, issued a temporary restraining order enjoining the Island Savings Bank
from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention
praying for the dismissal of the petition of Sulpicio M. Tolentino and the
setting aside of the restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its
decision, finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so
that the sheriff may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M.
Tolentino, modified the Court of First Instance decision by affirming the
dismissal of Sulpicio M. Tolentino's petition for specific performance, but it
ruled that Island Savings Bank can neither foreclose the real estate mortgage
nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the
promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his
real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each party
is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party
has performed or is ready and willing to perform his part of the contract, the
other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed
a real estate mortgage on April 28, 1965, he signified his willingness to pay
the P80,000.00 loan. From such date, the obligation of Island Savings Bank
to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing
the entire loan started on April 28, 1965, and lasted for a period of 3 years
or when the Monetary Board of the Central Bank issued Resolution No. 967
on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank
to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the public
is recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt
the default of Island Savings Bank in complying with its obligation of
releasing the P63,000.00 balance because said resolution merely prohibited
the Bank from making new loans and investments, and nowhere did it
prohibit island Savings Bank from releasing the balance of loan agreements
previously contracted. Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract, nor does it
constitute any defense to a decree of specific performance (Gutierrez
Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of an
obligation but 'instead it is taken as a breach of the contract by him (vol.
17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of
the pre-deducted interest amounting to P4,800.00 for the supposed
P80,000.00 loan covering a 6-month period cannot be taken as a waiver of
his right to collect the P63,000.00 balance. The act of Island Savings Bank, in
asking the advance interest for 6 months on the supposed P80,000.00 loan,
was improper considering that only P17,000.00 out of the P80,000.00 loan
was released. A person cannot be legally charged interest for a non-existing
debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist independently of
his right to demand the completion of the P80,000.00 loan. The exercise of
one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the
loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled
that bank officials and employees are expected to exercise caution and
prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs.
C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and
employees that before they approve the loan application of their customers,
they must investigate the existence and evaluation of the properties being
offered as a loan security. The recent rush of events where collaterals for
bank loans turn out to be non-existent or grossly over-valued underscore
the importance of this responsibility. The mere reliance by bank officials and
employees on their customer's representation regarding the loan collateral
being offered as loan security is a patent non-performance of this
responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan collateral,
the bank shall bear the risk in case the collateral turn out to be over-valued.
The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower
court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from
presenting proof on the alleged over-valuation because of their failure to
raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The
lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9,
which states that "defenses and objections not pleaded either in a motion
to dismiss or in the answer are deemed waived." Petitioners, thus, cannot
raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation
under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the
Civil Code, may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from
doing further business by Monetary Board Resolution No. 967, WE cannot
grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan, because
the bank is in default only insofar as such amount is concerned, as there is
no doubt that the bank failed to give the P63,000.00. As far as the partial
release of P17,000.00, which Sulpicio M. Tolentino accepted and executed
a promissory note to cover it, the bank was deemed to have complied with
its reciprocal obligation to furnish a P17,000.00 loan. The promissory note
gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence
not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is,
Island Savings Bank. If Tolentino had not signed a promissory note setting
the date for payment of P17,000.00 within 3 years, he would be entitled to
ask for rescission of the entire loan because he cannot possibly be in default
as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset
by the liability of Sulpicio M. Tolentino for damages, in the form of penalties
and surcharges, for not paying his overdue P17,000.00 debt. The liability of
Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is just that
he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the
same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA
443 [1979]). For the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate mortgage,
the consideration of the debtor in furnishing the mortgage is the existence
of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art,
2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage,
no consideration was then in existence, as there was no debt yet because
Island Savings Bank had not made any release on the loan, does not make
the real estate mortgage void for lack of consideration. It is not necessary
that any consideration should pass at the time of the execution of the
contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may
either be a prior or subsequent matter. But when the consideration is
subsequent to the mortgage, the mortgage can take effect only when the
debt secured by it is created as a binding contract to pay (Parks vs, Sherman,
Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-
6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore,
Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the
indebtedness actually owing to the holder of the mortgage is less than the
sum named in the mortgage, the mortgage cannot be enforced for more
than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19,
F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became
unenforARTceable to such extent. P63,000.00 is 78.75% of P80,000.00,
hence the real estate mortgage covering 100 hectares is unenforceable to
the extent of 78.75 hectares. The mortgage covering the remainder of 21.25
hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is
more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article
2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be
divided among the successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can
not ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the
debt return the pledge or cancel the mortgage, to the prejudice of
other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-
quoted presupposes several heirs of the debtor or creditor which does not
obtain in this case. Hence, the rule of indivisibility of a mortgage cannot
apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY
11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF
HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00
REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL
AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY
HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR
OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.
ARTICLE 1207
INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP.
(INIMACO), petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION,
(Fourth Division) Cebu City et al respondents.
[G.R. No. 101723. May 11, 2000]
DECISION
BUENA, J.:
This is a petition for certiorari assailing the Resolution dated September 4,
1991 issued by the National Labor Relations Commission in RAB-VII-0711-84
on the alleged ground that it committed a grave abuse of discretion
amounting to lack of jurisdiction in upholding the Alias Writ of Execution
issued by the Labor Arbiter which deviated from the dispositive portion of
the Decision dated March 10, 1987, thereby holding that the liability of the
six respondents in the case below is solidary despite the absence of the word
"solidary" in the dispositive portion of the Decision, when their liability
should merely be joint. S-jcj
The factual antecedents are undisputed: Supr-eme
In September 1984, private respondent Enrique Sulit, Socorro Mahinay,
Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto
Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the
Department of Labor and Employment, Regional Arbitration Branch No. VII
in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial
Management Development Corporation (INIMACO), for payment of
separation pay and unpaid wages. Sc-jj
In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak
held that:
"RESPONSIVE, to all the foregoing, judgment is hereby entered,
ordering respondents Filipinas Carbon and Mining Corp. Gerardo
Sicat, Antonio Gonzales/Industrial Management Development
Corp. (INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay
complainants Enrique Sulit, the total award of P82,800.00;
ESMERALDO PEGARIDO the full award of P19,565.00; Roberto
Nemenzo the total sum of P29,623.60 and DARIO GO the total
award of P6,599.71, or the total aggregate award of ONE HUNDRED
THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS
AND 31/100 (P138,588.31) to be deposited with this Commission
within ten (10) days from receipt of this Decision for appropriate
disposition. All other claims are hereby Dismiss (sic) for lack of
merit. Jjs-c
"SO ORDERED.
"Cebu City, Philippines.
"10 March 1987."0[1]
No appeal was filed within the reglementary period thus, the above
Decision became final and executory. On June 16, 1987, the Labor Arbiter
issued a writ of execution but it was returned unsatisfied. On August 26,
1987, the Labor Arbiter issued an Alias Writ of Execution which ordered
thus: Ed-pm-is
"NOW THEREFORE, by virtue of the powers vested in me by law,
you are hereby commanded to proceed to the premises of
respondents Antonio Gonzales/Industrial Management
Development Corporation (INIMACO) situated at Barangay Lahug,
Cebu City, in front of La Curacha Restaurant, and/or to Filipinas
Carbon and Mining corporation and Gerardo Sicat at 4th Floor
Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati
Metro Manila and at Philippine National Bank, Escolta, Manila
respectively, and collect the aggregate award of ONE HUNDRED
THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS
AND THIRTY ONE CENTAVOS (P138,588.31) and thereafter turn
over said amount to complainants ENRIQUE SULIT, ESMERALDO
PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office
 for appropriate disposition. Should you fail to collect the said sum
in cash, you are hereby authorized to cause the satisfaction of the
same on the movable or immovable property(s) of respondents not
exempt from execution. You are to return this writ sixty (6) (sic)
days from your receipt hereof, together with your corresponding
report.
"You may collect your legal expenses from the respondents as
provided for by law.
"SO ORDERED."[2]
On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of
Execution and Set Aside Decision,"[3] alleging among others that the alias
writ of execution altered and changed the tenor of the decision by
changing the liability of therein respondents from joint to solidary, by the
insertion of the words "AND/OR" between "Antonio Gonzales/Industrial
Management Development Corporation and Filipinas Carbon and Mining
Corporation, et al." However, in an order dated September 14, 1987, the
Labor Arbiter denied the motion. Mis-oedp
On October 2, 1987, petitioner appealed[4] the Labor Arbiters Order dated
September 14, 1987 to the respondent NLRC. Mis-edp
The respondent NLRC dismissed the appeal in a Decision [5] dated August
31, 1988, the pertinent portions of which read:
"In matters affecting labor rights and labor justice, we
have always adopted the liberal approach which favors
the exercise of labor rights and which is beneficial to labor
as a means to give full meaning and import to the
constitutional mandate to afford protection to labor.
Considering the factual circumstances in this case, there is
no doubt in our mind that the respondents herein are
called upon to pay, jointly and severally, the claims of the
complainants as was the latters prayers. Inasmuch as
respondents herein never controverted the claims of the
complainants below, there is no reason why complainants
prayer should not be granted. Further, in line with the
powers granted to the Commission under Article 218 (c)
of the Labor code, to waive any error, defect or irregularity
whether in substance or in form in a proceeding before
Us, We hold that the Writ of Execution be given due
course in all respects." Ed-p
On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept
Payment Of P23,198.05 Representing One Sixth Pro Rata Share of
Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said
Respondent."[6] The private respondents opposed the motion. In an
Order[7] dated August 15, 1989, the Labor Arbiter denied the motion ruling
thus:
"WHEREFORE, responsive to the foregoing respondent
INIMACOs Motions are hereby DENIED. The Sheriff of this
Office is order (sic) to accept INIMACOs tender payment
(sic) of the sum of P23,198.05, as partial satisfaction of the
judgment and to proceed with the enforcement of the
Alias Writ of Execution of the levied properties, now
issued by this Office, for the full and final satisfaction of
the monetary award granted in the instant case.
"SO ORDERED." Ed-psc
Petitioner appealed the above Order of the Labor Arbiter but this was again
dismissed by the respondent NLRC in its Resolution [8] dated September 4,
1991 which held that:
"The arguments of respondent on the finality of the
dispositive portion of the decision in this case is beside the
point. What is important is that the Commission has ruled
that the Writ of Execution issued by the Labor Arbiter in
this case is proper. It is not really correct to say that said
Writ of Execution varied the terms of the judgment. At
most, considering the nature of labor proceedings there
 was, an ambiguity in said dispositive portion which was
subsequently clarified by the Labor Arbiter and the
Commission in the incidents which were initiated by
INIMACO itself. By sheer technicality and unfounded
assertions, INIMACO would now reopen the issue which
was already resolved against it. It is not in keeping with
the established rules of practice and procedure to allow
this attempt of INIMACO to delay the final disposition of
this case.
"WHEREFORE, in view of all the foregoing, this appeal is
DISMISSED and the Order appealed from is hereby
AFFIRMED. Sce-dp
"With double costs against appellant."
Dissatisfied with the foregoing, petitioner filed the instant case, alleging that
the respondent NLRC committed grave abuse of discretion in affirming the
Order of the Labor Arbiter dated August 15, 1989, which declared the
liability of petitioner to be solidary.
The only issue in this petition is whether petitioners liability pursuant to the
Decision of the Labor Arbiter dated March 10, 1987, is solidary or not. Calrs-
pped
Upon careful examination of the pleadings filed by the parties, the Court
finds that petitioner INIMACOs liability is not solidary but merely joint and
that the respondent NLRC acted with grave abuse of discretion in upholding
the Labor Arbiters Alias Writ of Execution and subsequent Orders to the
effect that petitioners liability is solidary.
A solidary or joint and several obligation is one in which each debtor is liable
for the entire obligation, and each creditor is entitled to demand the whole
obligation.[9] In a joint obligation each obligor answers only for a part of the
whole liability and to each obligee belongs only a part of the correlative
rights.[10]
Well-entrenched is the rule that solidary obligation cannot lightly be
inferred.[11] There is a solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so
requires.[12]
In the dispositive portion of the Labor Arbiter, the word "solidary" does not
appear. The said fallo expressly states the following respondents therein as
liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat,
Antonio Gonzales, Industrial Management Development Corporation
(petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred
therefrom that the liability of the six (6) respondents in the case below is
solidary, thus their liability should merely be joint.
Moreover, it is already a well-settled doctrine in this jurisdiction that, when
it is not provided in a judgment that the defendants are liable to pay jointly
and severally a certain sum of money, none of them may be compelled to
satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto and
Mabanag[13] this Court held:
"It is of no consequence that, under the contract of
suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in
character. The final judgment, which superseded the
action for the enforcement of said contract, declared the
obligation to be merely joint, and the same cannot be
executed otherwise."[14]
Granting that the Labor Arbiter has committed a mistake in failing to
indicate in the dispositive portion that the liability of respondents therein is
solidary, the correction -- which is substantial -- can no longer be allowed in
this case because the judgment has already become final and
executory. Scc-alr
It is an elementary principle of procedure that the resolution of the court in
a given issue as embodied in the dispositive part of a decision or order is the
controlling factor as to settlement of rights of the parties.[15] Once a decision
or order becomes final and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter or amend it. [16] It
thereby becomes immutable and unalterable and any amendment or
alteration which substantially affects a final and executory judgment is null
and void for lack of jurisdiction, including the entire proceedings held for
that purpose.[17] An order of execution which varies the tenor of the
judgment or exceeds the terms thereof is a nullity.[18]

None of the parties in the case before the Labor Arbiter appealed the
Decision dated March 10, 1987, hence the same became final and
executory. It was, therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus, the proceedings held
for the purpose of amending or altering the dispositive portion of the said
decision are null and void for lack of jurisdiction. Also, the Alias Writ of
Execution is null and void because it varied the tenor of the judgment in that
it sought to enforce the final judgment against "Antonio Gonzales/Industrial
Management Development Corp. (INIMACO) and/or Filipinas Carbon and
Mining Corp. and Gerardo Sicat," which makes the liability solidary. Ca-lrsc

WHEREFORE, the petition is hereby GRANTED. The Resolution dated

September 4, 1991 of the respondent National Labor Relations is hereby
declared NULL and VOID. The liability of the respondents in RAB-VII-0711-
84 pursuant to the Decision of the Labor Arbiter dated March 10, 1987
should be, as it is hereby, considered joint and petitioners payment which
has been accepted considered as full satisfaction of its liability, without
prejudice to the enforcement of the award, against the other five (5)
respondents in the said case. Sppedsc

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and Quisumbing, JJ., concur.

De Leon, Jr., J., on leave.

ERNESTO V. RONQUILLO, petitioner, vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents
G.R. No. L-55138 September 28, 1984
Gloria A. Fortun for petitioner.
Roselino Reyes Isler for respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980 of the then
Court of Appeals (now the Intermediate Appellate Court) in CA-G.R. No. SP-
10573, entitled "Ernesto V. Ronquillo versus the Hon. Florellana Castro-
Bartolome, etc." and the Order of said court dated August 20, 1980,
denying petitioner's motion for reconsideration of the above resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case
No. 33958 of the then Court of First Instance of Rizal (now the Regional
Trial Court), Branch XV filed by private respondent Antonio P. So, on July
23, 1979, for the collection of the sum of P17,498.98 plus attorney's fees
and costs. The other defendants were Offshore Catertrade Inc., Johnny Tan
and Pilar Tan. The amount of P117,498.98 sought to be collected
represents the value of the checks issued by said defendants in payment
for foodstuffs delivered to and received by them. The said checks were
dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its Decision 1 based on
the compromise agreement submitted by the parties, the pertinent
portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95
to only P11,000 .00 and defendants agree to
acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness
of P10,000.00 the amount of P55,000.00 on or before
December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a
period of six months from January 1980, or before June
30, 1980; (Emphasis supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of
either party to comply with the foregoing terms and
conditions, the innocent party will be entitled to an
execution of the decision based on this compromise
agreement and the defaulting party agrees and hold
themselves to reimburse the innocent party for
attorney's fees, execution fees and other fees related
with the execution.
xxx xxx xxx
On December 26, 1979, herein private respondent (then plaintiff filed a
Motion for Execution on the ground that defendants failed to make the
initial payment of P55,000.00 on or before December 24, 1979 as provided
in the Decision. Said motion for execution was opposed by herein
petitioner (as one of the defendants) contending that his inability to make
the payment was due to private respondent's own act of making himself
scarce and inaccessible on December 24, 1979. Petitioner then prayed that
private respondent be ordered to accept his payment in the amount of
P13,750.00. 2
During the hearing of the Motion for Execution and the Opposition thereto
on January 16, 1980, petitioner, as one of the four defendants, tendered
the amount of P13,750.00, as his prorata share in the P55,000.00 initial
payment. Another defendant, Pilar P. Tan, offered to pay the same
amount. Because private respondent refused to accept their payments,
demanding from them the full initial installment of P 55,000.00, petitioner
and Pilar Tan instead deposited the said amount with the Clerk of Court.
The amount deposited was subsequently withdrawn by private
respondent. 3
On the same day, January 16, 1980, the lower court ordered the issuance
of a writ of execution for the balance of the initial amount payable, against
the other two defendants, Offshore Catertrade Inc. and Johnny Tan 4 who
did not pay their shares.
On January 22, 1980, private respondent moved for the reconsideration
and/or modification of the aforesaid Order of execution and prayed
instead for the "execution of the decision in its entirety against all
defendants, jointly and severally." 5 Petitioner opposed the said motion
arguing that under the decision of the lower court being executed which
has already become final, the liability of the four (4) defendants was not
expressly declared to be solidary, consequently each defendant is obliged
to pay only his own pro-rata or 1/4 of the amount due and payable.
On March 17, 1980, the lower court issued an Order reading as follows:
ORDER
Regardless of whatever the compromise agreement has
intended the payment whether jointly or individually, or
jointly and severally, the fact is that only P27,500.00 has
been paid. There appears to be a non-payment in
accordance with the compromise agreement of the
amount of P27,500.00 on or before December 24, 1979.
The parties are reminded that the payment is condition
sine qua non to the lifting of the preliminary attachment
and the execution of an affidavit of desistance.
WHEREFORE, let writ of execution issue as prayed for
On March 17, 1980, petitioner moved for the reconsideration of the above
order, and the same was set for hearing on March 25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of execution
was issued for the satisfaction of the sum of P82,500.00 as against the
properties of the defendants (including petitioner), "singly or jointly
hable." 6
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a
notice of sheriff's sale, for the sale of certain furnitures and appliances
found in petitioner's residence to satisfy the sum of P82,500.00. The public
sale was scheduled for April 2, 1980 at 10:00 a.m. 7
Petitioner's motion for reconsideration of the Order of Execution dated
March 17, 1980 which was set for hearing on March 25, 1980, was upon
motion of private respondent reset to April 2, 1980 at 8:30 a.m. Realizing
the actual threat to property rights poised by the re-setting of the hearing
of s motion for reconsideration for April 2, 1980 at 8:30 a.m. such that if
his motion for reconsideration would be denied he would have no more
time to obtain a writ from the appellate court to stop the scheduled public
sale of his personal properties at 10:00 a.m. of the same day, April 2, 1980,
petitioner filed on March 26, 1980 a petition for certiorari and prohibition
with the then Court of Appeals (CA-G.R. No. SP-10573), praying at the
same time for the issuance of a restraining order to stop the public sale. He
raised the question of the validity of the order of execution, the writ of
execution and the notice of public sale of his properties to satisfy fully the
entire unpaid obligation payable by all of the four (4) defendants, when
the lower court's decision based on the compromise agreement did not
specifically state the liability of the four (4) defendants to be solidary.
On April 2, 1980, the lower court denied petitioner's motion for
reconsideration but the scheduled public sale in that same day did not
proceed in view of the pendency of a certiorari proceeding before the then
Court of Appeals.
On June 30, 1980, the said court issued a Resolution, the pertinent portion
of which reads as follows:
This Court, however, finds the present petition to have
been filed prematurely. The rule is that before a petition
 for certiorari can be brought against an order of a lower
court, all remedies available in that court must first be
exhausted. In the case at bar, herein petitioner filed a
petition without waiting for a resolution of the Court on
the motion for reconsideration, which could have been
favorable to the petitioner. The fact that the hearing of
the motion for reconsideration had been reset on the
same day the public sale was to take place is of no
moment since the motion for reconsideration of the
Order of March 17, 1980 having been seasonably filed,
the scheduled public sale should be suspended.
Moreover, when the defendants, including herein
petitioner, defaulted in their obligation based on the
compromise agreement, private respondent had become
entitled to move for an execution of the decision based
on the said agreement.
WHEREFORE, the instant petition for certiorari and
prohibition with preliminary injunction is hereby denied
due course. The restraining order issued in our resolution
dated April 9, 1980 is hereby lifted without
pronouncement as to costs.
final decision of the lower court filed barely four (4) days before the
scheduled public sale of the attached movable properties;
(b) denying reconsideration of the Resolution of June 30, 1980, which
declared as premature the filing of the petition, although there is proof on
record that as of April 2, 1980, the motion referred to was already denied
by the lower court and there was no more motion pending therein;
(c) failing to resolve the legal issues raised in the petition and in not
declaring the liabilities of the defendants, under the final decision of the
lower court, to be only joint;
(d) not holding the lower court's order of execution dated March 17, 1980,
the writ of execution and the notice of sheriff's sale, executing the lower
court's decision against "all defendants, singly and jointly", to be at
variance with the lower court's final decision which did not provide for
solidary obligation; and
(e) not declaring as invalid and unlawful the threatened execution, as
against the properties of petitioner who had paid his pro-rata share of the
adjudged obligation, of the total unpaid amount payable by his joint co-
defendants.

SO ORDERED.
The foregoing assigned errors maybe synthesized into the more important
issues of —
Petitioner moved to reconsider the aforesaid Resolution alleging that on
April 2, 1980, the lower court had already denied the motion referred to
1. Was the filing of a petition for certiorari before the then Court of
and consequently, the legal issues being raised in the petition were already
Appeals against the Order of Execution issued by the lower court, dated
"ripe" for determination. 8 The said motion was however denied by the
March 17, 1980, proper, despite the pendency of a motion for
Court of Appeals in its Resolution dated August 20, 1980.
reconsideration of the same questioned Order?

Hence, this petition for review, petitioner contending that the Court of
2. What is the nature of the liability of the defendants (including
Appeals erred in
petitioner), was it merely joint, or was it several or solidary?

(a) declaring as premature, and in denying due course to the petition to

Anent the first issue raised, suffice it to state that while as a general rule, a
restrain implementation of a writ of execution issued at variance with the
motion for reconsideration should precede recourse to certiorari in order
to give the trial court an opportunity to correct the error that it may have
committed, the said rule is not absolutes 9 and may be dispensed with in
instances where the filing of a motion for reconsideration would serve no
useful purpose, such as when the motion for reconsideration would raise
the same point stated in the motion 10 or where the error is patent for the
order is void 11 or where the relief is extremely urgent, as in cases where
execution had already been ordered 12 where the issue raised is one purely
of law. 13
In the case at bar, the records show that not only was a writ of execution
issued but petitioner's properties were already scheduled to be sold at
public auction on April 2, 1980 at 10:00 a.m. The records likewise show
that petitioner's motion for reconsideration of the questioned Order of
Execution was filed on March 17, 1980 and was set for hearing on March
25, 1980 at 8:30 a.m., but upon motion of private respondent, the hearing
was reset to April 2, 1980 at 8:30 a.m., the very same clay when
petitioner's properties were to be sold at public auction. Needless to state
that under the circumstances, petitioner was faced with imminent danger
of his properties being immediately sold the moment his motion for
reconsideration is denied. Plainly, urgency prompted recourse to the Court
of Appeals and the adequate and speedy remedy for petitioner under the
situation was to file a petition for certiorari with prayer for restraining
order to stop the sale. For him to wait until after the hearing of the motion
for reconsideration on April 2, 1980 before taking recourse to the appellate
court may already be too late since without a restraining order, the public
sale can proceed at 10:00 that morning. In fact, the said motion was
already denied by the lower court in its order dated April 2, 1980 and were
it not for the pendency of the petition with the Court of Appeals and the
restraining order issued thereafter, the public sale scheduled that very
same morning could have proceeded.
The other issue raised refers to the nature of the liability of petitioner, as
one of the defendants in Civil Case No. 33958, that is whether or not he is
liable jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence of two or more debtors in
one and the same obligation does not imply that each
one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance
with the prestation. Then is a solidary liability only when
the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.
Art. 1208. If from the law,or the nature or the wording of
the obligation to which the preceding article refers the
contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as
there are creditors and debtors, the credits or debts
being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise
agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95
to only P110,000.00 and defendants agree to
acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness
of P110,000.00, the amount of P5,000.00 on or before
December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a
period of six months from January 1980 or before June
30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".
The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An agreement to
be "individually liable" undoubtedly creates a several obligation, 14 and a
"several obligation is one by which one individual binds himself to perform
the whole obligation. 15

In the case of Parot vs. Gemora 16 We therein ruled that "the

phrase juntos or separadamente or in the promissory note is an express
statement making each of the persons who signed it individually liable for
the payment of the fun amount of the obligation contained therein."
Likewise in Un Pak Leung vs. Negorra 17 We held that "in the absence of a
finding of facts that the defendants made themselves individually hable for
the debt incurred they are each liable only for one-half of said amount

The obligation in the case at bar being described as "individually and

jointly", the same is therefore enforceable against one of the numerous
obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is

hereby DISMISSED. Cost against petitioner.

SO ORDERED.

Makasiar (Chairman), Abad Santos and Escolin, JJ., concur.

Aquino, J., concurs in the result.

Concepcion, Jr. and Guerrero, JJ., are on leave.