G.R. No.

146839               March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-
WESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-G.R.
CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,1 which affirmed the
Decision2 dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-
L, and (b) the January 30, 2001 Resolution,3 denying herein petitioners’ motion for reconsideration of the August 8, 2000
Decision.

The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order4 filed on
December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu,
docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of
65,246 square meters, covered by Original Certificate of Title (OCT) No. 1055 in her name situated in the Barrio of
Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell6 with respondent
Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed of Sale7 dated July 26,
1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (₱25,000,000.00) payable as
follows:

a. FIVE HUNDRED THOUSAND PESOS (₱500,000.00) downpayment upon the signing of this agreement, receipt
of which sum is hereby acknowledged in full from the VENDEE.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (₱24,500,000.00) shall be
payable in five separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR
MILLION FIVE HUNDRED THOUSAND PESOS (₱4,500,000.00) and the remaining balance to be paid in four
checks in the amounts of FIVE MILLION PESOS (₱5,000,000.00) each after the VENDEE have (sic) successfully
negotiated, secured and provided a Road Right of Way consisting of 12 meters in width cutting across Lot 10884
up to the national road, either by widening the existing Road Right of Way or by securing a new Road Right of Way
of 12 meters in width. If however said Road Right of Way could not be negotiated, the VENDEE shall give notice to
the VENDOR for them to reassess and solve the problem by taking other options and should the situation
ultimately prove futile, he shall take steps to rescind or cancel the herein Conditional Deed of Sale.

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to
secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the success of his endeavor, granting him a free hand in
negotiating for the passage.

BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to
VENDEE, his heirs, successors and assigns, the real property described in the Original Certificate of Title No. 105 x x x.

xxxx
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00) representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.8

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and
through his efforts, the property was reclassified from agricultural land into residential land which he claimed substantially
increased the property’s value. He likewise alleged that he actively negotiated for the road right of way as stipulated in the
contract.9

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of ₱5,000,000.00 on the
purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was
not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the
Catungals were offering the property for sale to third parties.10

Thereafter, Rodriguez received letters dated October 22, 1990,11 October 24, 199012 and October 29, 1990,13 all signed by
Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about buying the land or
exercising his "option" to buy because the spouses Catungal allegedly received other offers and they needed money to pay
for personal obligations and for investing in other properties/business ventures. Should Rodriguez fail to exercise his option
to buy the land, the Catungals warned that they would consider the contract cancelled and that they were free to look for
other buyers.

In a letter dated November 4, 1990,14 Rodriguez registered his objections to what he termed the Catungals’ unwarranted
demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of
way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez
purportedly received a letter dated November 9, 199015 from Atty. Catungal, stating that the contract had been cancelled and
terminated.

Contending that the Catungals’ unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez prayed in his Complaint, that:

1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses Catungal], their
employees, agents, representatives or other persons acting in their behalf from offering the property subject of this
case for sale to third persons; from entertaining offers or proposals by third persons to purchase the said property;
and, in general, from performing acts in furtherance or implementation of defendants’ rescission of their
Conditional Deed of Sale with plaintiff [Rodriguez].

2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed by the court
enjoining defendants and other persons acting in their behalf from performing any of the acts mentioned in the next
preceding paragraph.

3. After trial, a Decision be rendered:

a) Making the injunction permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:

Actual damages in the amount of ₱400,000.00 for their unlawful rescission of the Agreement and their performance of acts
in violation or disregard of the said Agreement;

Moral damages in the amount of ₱200,000.00;

Exemplary damages in the amount of ₱200,000.00; Expenses of litigation and attorney’s fees in the amount of ₱100,000.00;
and

Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of preliminary
injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show cause within five days from
notice why preliminary injunction should not be granted. The trial court likewise ordered that summons be served on them.17

Thereafter, the spouses Catungal filed their opposition18 to the issuance of a writ of preliminary injunction and later filed a
motion to dismiss19 on the ground of improper venue. According to the Catungals, the subject property was located in Cebu
City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to
dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed of
Sale, and not title to, or possession of real property.20

In an Order dated January 17, 1991,21 the trial court denied the motion to dismiss and ruled that the complaint involved a
personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon posting by
Rodriguez of a bond in the amount of ₱100,000.00 to answer for damages that the defendants may sustain by reason of the
injunction.

On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim22 alleging that they had the right to rescind
the contract in view of (1) Rodriguez’s failure to negotiate the road right of way despite the lapse of several months since the
signing of the contract, and (2) his refusal to pay the additional amount of ₱5,000,000.00 asked by the Catungals, which to
them indicated his lack of funds to purchase the property. The Catungals likewise contended that Rodriguez did not have an
exclusive right to rescind the contract and that the contract, being reciprocal, meant both parties had the right to
rescind.23 The spouses Catungal further claimed that it was Rodriguez who was in breach of their agreement and guilty of
bad faith which justified their rescission of the contract.24 By way of counterclaim, the spouses Catungal prayed for actual
and consequential damages in the form of unearned interests from the balance (of the purchase price in the amount) of
₱24,500,000.00, moral and exemplary damages in the amount of ₱2,000,000.00, attorney’s fees in the amount of
₱200,000.00 and costs of suits and litigation expenses in the amount of ₱10,000.00.25 The spouses Catungal prayed for the
dismissal of the complaint and the grant of their counterclaim.

The Catungals amended their Answer twice,26 retaining their basic allegations but amplifying their charges of contractual
breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191 of the Civil Code, the
power to rescind reciprocal obligations is granted by the law itself to both parties and does not need an express stipulation to
grant the same to the injured party. In the Second Amended Answer with Counterclaim, the spouses Catungal added a
prayer for the trial court to order the Register of Deeds to cancel the annotations of the two contracts at the back of their
OCT.27

On October 24, 1991, Rodriguez filed an Amended Complaint,28 adding allegations to the effect that the Catungals were
guilty of several misrepresentations which purportedly induced Rodriguez to buy the property at the price of ₱25,000,000.00.
Among others, it was alleged that the spouses Catungal misrepresented that their Lot 10963 includes a flat portion of land
which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo.
The Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned by Anatolia Tudtud
and her daughter Sally who were their relatives and who had already agreed to sell a portion of the said lots for the road
right of way at a price of ₱550.00 per square meter. However, because of the Catungals’ acts of offering the property to
other buyers who offered to buy the road lots for ₱2,500.00 per square meter, the adjacent lot owners were no longer willing
to sell the road lots to Rodriguez at ₱550.00 per square meter but were asking for a price of ₱3,500.00 per square meter. In
other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal allegedly
intentionally and maliciously defeated Rodriguez’s negotiations for a road right of way in order to justify rescission of the said
contract and enable them to offer the property to other buyers.

Despite requesting the trial court for an extension of time to file an amended Answer,29 the Catungals did not file an
amended Answer and instead filed an Urgent Motion to Dismiss30 again invoking the ground of improper venue. In the
meantime, for failure to file an amended Answer within the period allowed, the trial court set the case for pre-trial on
December 20, 1991.

During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals’ Urgent Motion to Dismiss
for violation of the rules and for being repetitious and having been previously denied.31 However, Atty. Catungal refused to
enter into pre-trial which prompted the trial court to declare the defendants in default and to set the presentation of the
plaintiff’s evidence on February 14, 1992.32

On December 23, 1991, the Catungals filed a motion for reconsideration33 of the December 20, 1991 Order denying their
Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3, 1992.34 Undeterred, the
Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default35 but it was likewise denied for being in
violation of the rules and for being not meritorious.36 On February 28, 1992, the Catungals filed a Petition for Certiorari and
Prohibition37 with the Court of Appeals, questioning the denial of their motion to dismiss and the order of default. This was
docketed as CA-G.R. SP No. 27565.

Meanwhile, Rodriguez proceeded to present his evidence before the trial court.

In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract it was
complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguez’s obligation to pay the balance of the
purchase price arises only upon successful negotiation of the road right of way; (c) he proved his diligent efforts to negotiate
the road right of way; (d) the spouses Catungal were guilty of misrepresentation which defeated Rodriguez’s efforts to
acquire the road right of way; and (e) the Catungals’ rescission of the contract had no basis and was in bad faith. Thus, the
trial court made the injunction permanent, ordered the Catungals to reduce the purchase price by the amount of acquisition
of Lot 10963 which they misrepresented was part of the property sold but was in fact owned by a third party and ordered
them to pay ₱100,000.00 as damages, ₱30,000.00 as attorney’s fees and costs.

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors by the trial
court in their appellants’ brief38 dated February 9, 1994:

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER VENUE
AND LACK OF JURISDICTION.

II

THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.

III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL ACTION,
THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT
THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.

IV

THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN
COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES
OF ALL FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF
DEFAULT.

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE
OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT’S TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE
NULLITY OF THE WRIT.

VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND
FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT
FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI
QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF
COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND
DIVISION, AND THE COURT A QUO WAS FURNISHED WITH COPY OF SAID NOTICE.

VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE
DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO
BE STATED IN DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS
REVERSIBLE.39

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellee’s brief,40 essentially arguing the
correctness of the trial court’s Decision regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals
filed a Reply Brief41 dated October 16, 1995.

From the filing of the appellants’ brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were represented by
appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo),
entered his appearance before the Court of Appeals on September 2, 1997.42 On the same date, Atty. Borromeo filed a
Motion for Leave of Court to File Citation of Authorities43 and a Citation of Authorities.44 This would be followed by Atty.
Borromeo’s filing of an Additional Citation of Authority and Second Additional Citation of Authority both on November 17,
1997.45

During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose,
filed on February 17, 1999 a motion for Agapita’s substitution by her surviving children.46

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No. 40627 and CA-
G.R. SP No. 27565,47 affirming the trial court’s Decision.

In a Motion for Reconsideration dated August 21, 2000,48 counsel for the Catungals, Atty. Borromeo, argued for the first time
that paragraphs 1(b) and 549 of the Conditional Deed of Sale, whether taken separately or jointly, violated the principle of
mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted to the
cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his position that
this issue may be raised for the first time on appeal.

Meanwhile, a Second Motion for Substitution50 was filed by Atty. Borromeo in view of the death of Jose Catungal.

In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita and Jose
Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit

Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for review,51 which essentially
argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional Deed of Sale, violated
the principle of mutuality of contracts under Article 1308 of the Civil Code. Thus, said contract was supposedly void ab initio
and the Catungals’ rescission thereof was superfluous.

In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new matters that cannot be passed upon on appeal;
(b) the validity of the Conditional Deed of Sale was already admitted and petitioners cannot be allowed to change theories
on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for not having come to court with clean hands.

The Court gave due course to the Petition53 and the parties filed their respective Memoranda.

The issues to be resolved in the case at bar can be summed into two questions:

I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time on appeal?

II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts under
Article 1308 of the Civil Code?

On petitioners’ change of theory

Petitioners claimed that the Court of Appeals should have reversed the trial courts’ Decision on the ground of the alleged
nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same was not raised as an error in
their appellants’ brief. Citing Catholic Bishop of Balanga v. Court of Appeals,54 petitioners argued in the Petition that this case
falls under the following exceptions:
 (3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision
and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record
having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an error assigned; and

(6) Matters not assigned as errors but upon which the determination of a question properly assigned is
dependent.55

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to argue a material
point on appeal that was raised in the trial court and supported by the record. Neither is this a case where a party raised an
error closely related to, nor dependent on the resolution of, an error properly assigned in his brief. This is a situation where a
party completely changes his theory of the case on appeal and abandons his previous assignment of errors in his brief,
which plainly should not be allowed as anathema to due process.

Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the litigants and to indicate
fairly the nature of the claims or defenses of both parties.56 In Philippine National Construction Corporation v. Court of
Appeals,57 we held that "[w]hen a party adopts a certain theory in the trial court, he will not be permitted to change his theory
on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic
rules of fair play, justice and due process."58

We have also previously ruled that "courts of justice have no jurisdiction or power to decide a question not in issue. Thus, a
judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is
not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play."59

During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in the Conditional
Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent upon the successful
negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the option to rescind (paragraph 5), were void for
allegedly making the fulfillment of the contract dependent solely on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its amended versions) that
the payment of the purchase price was subject to the will of Rodriguez but rather they claimed that paragraph 1(b) in relation
to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate the road right of way. However, it was
petitioners’ theory that more than sufficient time had already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguez’s refusal/failure to pay the balance of the purchase price, upon demand, was allegedly indicative
of lack of funds and a breach of the contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez’s option to rescind, it was petitioners’ theory in the
court a quo that notwithstanding such provision, they retained the right to rescind the contract for Rodriguez’s breach of the
same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of the questioned
provisions was only in their Motion for Reconsideration of the Court of Appeals’ Decision, affirming the trial court’s judgment.
The previous filing of various citations of authorities by Atty. Borromeo and the Court of Appeals’ resolutions noting such
citations were of no moment. The citations of authorities merely listed cases and their main rulings without even any mention
of their relevance to the present case or any prayer for the Court of Appeals to consider them.  In sum, the Court of Appeals
1âwphi1

did not err in disregarding the citations of authorities or in denying petitioners’ motion for reconsideration of the assailed
August 8, 2000 Decision in view of the proscription against changing legal theories on appeal.

Ruling on the questioned provisions of the Conditional Deed of Sale

Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we still cannot
uphold their belatedly proffered arguments.

At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses
Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the
payment of the purchase price was additionally made contingent on the successful negotiation of a road right of way. It is
elementary that "[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition."60

Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the
aforementioned provisions. Article 1308 states that "[t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

Article 1182 of the Civil Code, in turn, provides:

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or
to waive the condition.61 This principle is evident in Article 1545 of the Civil Code on sales, which provides in part:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may waive performance of the condition x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price when he
has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the
validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition imposed only on
respondent’s obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is
not purely potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such
a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would
come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182
of the Civil Code.

Analogous to the present case is Romero v. Court of Appeals,62 wherein the Court interpreted the legal effect of a condition
in a deed of sale that the balance of the purchase price would be paid by the vendee when the vendor has successfully
ejected the informal settlers occupying the property. In Romero, we found that such a condition did not affect the perfection
of the contract but only imposed a condition on the fulfillment of the obligation to pay the balance of the purchase price, to
wit:

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and
law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to private
respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a
"potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil
Code but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and
government agencies and personnel concerned." We must hasten to add, however, that where the so-called "potestative
condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected
the obligation itself.63 (Emphases supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee (Rodriguez) that had the
obligation to successfully negotiate and secure the road right of way. However, in the decision of the trial court, which was
affirmed by the Court of Appeals, it was found that respondent Rodriguez diligently exerted efforts to secure the road right of
way but the spouses Catungal, in bad faith, contributed to the collapse of the negotiations for said road right of way. To
quote from the trial court’s decision:
It is therefore apparent that the vendee’s obligations (sic) to pay the balance of the purchase price arises only when the
road-right-of-way to the property shall have been successfully negotiated, secured and provided. In other words, the
obligation to pay the balance is conditioned upon the acquisition of the road-right-of-way, in accordance with paragraph 2 of
Article 1181 of the New Civil Code. Accordingly, "an obligation dependent upon a suspensive condition cannot be demanded
until after the condition takes place because it is only after the fulfillment of the condition that the obligation arises." (Javier
v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was diligent in his efforts to
negotiate for a road-right-of-way to the property. The written offers, proposals and follow-up of his proposals show that
plaintiff [Rodriguez] went all out in his efforts to immediately acquire an access road to the property, even going to the extent
of offering ₱3,000.00 per square meter for the road lots (Exh. Q) from the original ₱550.00 per sq. meter. This Court also
notes that defendant (sic) [the Catungals] made misrepresentation in the negotiation they have entered into with plaintiff
[Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be
part and parcel of the subject property [(]Lot 10963) contributed in defeating the plaintiff’s [Rodriguez’s] effort in acquiring the
road-right-of-way to the property. Defendants [the Catungals] cannot now invoke the non-fulfillment of the condition in the
contract as a ground for rescission when defendants [the Catungals] themselves are guilty of preventing the fulfillment of
such condition.

From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale by the defendants is
without any legal or factual basis.64 x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.

Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for respondent’s obligation to
pay the balance of the purchase price to arise) in itself partly involves an obligation to do, i.e., the undertaking of respondent
to negotiate and secure a road right of way at his own expense.65 It does not escape our notice as well, that far from
disclaiming paragraph 1(b) as void, it was the Catungals’ contention before the trial court that said provision should be read
in relation to paragraph 1(c) which stated:

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and
any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage.66 (Emphasis
supplied.)

The Catungals’ interpretation of the foregoing stipulation was that Rodriguez’s obligation to negotiate and secure a road right
of way was one with a period and that period, i.e., "enough time" to negotiate, had already lapsed by the time they
demanded the payment of ₱5,000,000.00 from respondent. Even assuming arguendo that the Catungals were correct that
the respondent’s obligation to negotiate a road right of way was one with an uncertain period, their rescission of the
Conditional Deed of Sale would still be unwarranted. Based on their own theory, the Catungals had a remedy under Article
1197 of the Civil Code, which mandates:

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be changed by them.

What the Catungals should have done was to first file an action in court to fix the period within which Rodriguez should
accomplish the successful negotiation of the road right of way pursuant to the above quoted provision. Thus, the Catungals’
demand for Rodriguez to make an additional payment of ₱5,000,000.00 was premature and Rodriguez’s failure to accede to
such demand did not justify the rescission of the contract.

With respect to petitioners’ argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the said contract
void, we find no merit to this theory. Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00) representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall
have been able to sell the property to another party.67
Petitioners posited that the above stipulation was the "deadliest" provision in the Conditional Deed of Sale for violating the
principle of mutuality of contracts since it purportedly rendered the contract subject to the will of respondent.

We do not agree.

It is petitioners’ strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist a correlation of
such sentence with other provisions of the contract. Petitioners’ view, however, ignores a basic rule in the interpretation of
contracts – that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken jointly." The same Code further sets down the rule that
"[i]f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is
most adequate to render it effectual."68

Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all"69 and "for the proper
construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof and
of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to
interpret."70

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5 must be taken in
relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the contract is not absolute as it is subject to
the requirement that there should be written notice to the vendor and the vendor shall only return Rodriguez’s downpayment
of ₱500,000.00, without interest, when the vendor shall have been able to sell the property to another party. That what is
stipulated to be returned is only the downpayment of ₱500,000.00 in the event that Rodriguez exercises his option to rescind
is significant. To recall, paragraph 1(b) of the contract clearly states that the installments on the balance of the purchase
price shall only be paid upon successful negotiation and procurement of a road right of way. It is clear from such provision
that the existence of a road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior to
him being able to procure the road right of way, by express stipulation in the contract, he is not bound to make additional
payments to the Catungals. It was further stipulated in paragraph 1(b) that: "[i]f however said road right of way cannot be
negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other
options and should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein
Conditional Deed of Sale." The intention of the parties for providing subsequently in paragraph 5 that Rodriguez has the
option to rescind the sale is undeniably only limited to the contingency that Rodriguez shall not be able to secure the road
right of way. Indeed, if the parties intended to give Rodriguez the absolute option to rescind the sale at any time, the contract
would have provided for the return of all payments made by Rodriguez and not only the downpayment. To our mind, the
reason only the downpayment was stipulated to be returned is that the vendee’s option to rescind can only be exercised in
the event that no road right of way is secured and, thus, the vendee has not made any additional payments, other than his
downpayment.

In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject to the same mixed
condition as his obligation to pay the balance of the purchase price – i.e., the negotiation of a road right of way. In the event
the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price. In the event
the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the sale and
demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition
and still pay the purchase price despite the lack of road access. This is the most just interpretation of the parties’ contract
that gives effect to all its provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind, in the manner
provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the perfection of the
contract, only the said condition would be considered void and the rest of the contract will remain valid. In Romero, the Court
observed that "where the so-called ‘potestative condition’ is imposed not on the birth of the obligation but on its fulfillment,
only the condition is avoided, leaving unaffected the obligation itself."71

It cannot be gainsaid that "contracts have the force of law between the contracting parties and should be complied with in
good faith."72 We have also previously ruled that "[b]eing the primary law between the parties, the contract governs the
adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the
manner they have been agreed upon and written."73 We find no merit in petitioners’ contention that their parents were merely
"duped" into accepting the questioned provisions in the Conditional Deed of Sale. We note that although the contract was
between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the
same. We concur with the trial court’s finding that the spouses Catungals’ claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose Catungal who was a practicing lawyer while
Rodriquez was a non-lawyer.74 It can be reasonably presumed that Atty. Catungal and his wife reviewed the provisions of the
contract, understood and accepted its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners failed to demonstrate that
the Court of Appeals committed any reversible error in deciding the present controversy. However, having made the
observation that it was desirable for the Catungals to file a separate action to fix the period for respondent Rodriguez’s
obligation to negotiate a road right of way, the Court finds it necessary to fix said period in these proceedings. It is but
equitable for us to make a determination of the issue here to obviate further delay and in line with the judicial policy of
avoiding multiplicity of suits.

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

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

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

No pronouncement as to costs.

SO ORDERED.
G.R. No. 138739               July 6, 2000

RADIOWEALTH FINANCE COMPANY, petitioner,

vs.
Spouses VICENTE and MA. SUMILANG DEL ROSARIO, respondents.

DECISION

PANGANIBAN, J.:

When a demurrer to evidence granted by a trial court is reversed on appeal, the reviewing court cannot
remand the case for further proceedings. Rather, it should render judgment on the basis of the evidence
proffered by the plaintiff. Inasmuch as defendants in the present case admitted the due execution of the
Promissory Note both in their Answer and during the pretrial, the appellate court should have rendered
judgment on the bases of that Note and on the other pieces of evidence adduced during the trial.

The Case

Before us is a Petition for Review on Certiorari of the December 9, 1997 Decision and the May 3, 1999
1 

Resolution of the Court of Appeals in CA-GR CV No. 47737. The assailed Decision disposed as follows:
2 

"WHEREFORE, premises considered, the appealed order (dated November 4, 1994) of the Regional Trial
Court (Branch XIV) in the City of Manila in Civil Case No. 93-66507 is hereby REVERSED and SET
ASIDE. Let the records of this case be remanded to the court a quo for further proceedings. No
pronouncement as to costs." 3

The assailed Resolution denied the petitioner’s Partial Motion for Reconsideration. 4

The Facts

The facts of this case are undisputed. On March 2, 1991, Spouses Vicente and Maria Sumilang del
Rosario (herein respondents), jointly and severally executed, signed and delivered in favor of Radiowealth
Finance Company (herein petitioner), a Promissory Note for ₱138,948. Pertinent provisions of the
5 

Promissory Note read:

"FOR VALUE RECEIVED, on or before the date listed below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum of ONE HUNDRED THIRTY EIGHT THOUSAND
NINE HUNDRED FORTY EIGHT Pesos (₱138,948.00) without need of notice or demand, in installments
as follows:

₱11,579.00 payable for 12 consecutive months starting on ________ 19__ until the amount of
₱11,579.00 is fully paid. Each installment shall be due every ____ day of each month. A late payment
penalty charge of two and a half (2.5%) percent per month shall be added to each unpaid installment from
due date thereof until fully paid.

x x x           x x x          x x x

It is hereby agreed that if default be made in the payment of any of the installments or late payment
charges thereon as and when the same becomes due and payable as specified above, the total principal
sum then remaining unpaid, together with the agreed late payment charges thereon, shall at once
become due and payable without need of notice or demand.
 x x x           x x x          x x x

If any amount due on this Note is not paid at its maturity and this Note is placed in the hands of an
attorney or collection agency for collection, I/We jointly and severally agree to pay, in addition to the
aggregate of the principal amount and interest due, a sum equivalent to ten (10%) per cent thereof as
attorney’s and/or collection fees, in case no legal action is filed, otherwise, the sum will be equivalent to
twenty-five (25%) percent of the amount due which shall not in any case be less than FIVE HUNDRED
PESOS (P500.00) plus the cost of suit and other litigation expenses and, in addition, a further sum of ten
per cent (10%) of said amount which in no case shall be less than FIVE HUNDRED PESOS (P500.00),
as and for liquidated damages." 6

Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to
pay their obligations under their Promissory Note.

On June 7, 1993, petitioner filed a Complaint for the collection of a sum of money before the Regional
7 

Trial Court of Manila, Branch 14. During the trial, Jasmer Famatico, the credit and collection officer of
8 

petitioner, presented in evidence the respondents’ check payments, the demand letter dated July 12,
1991, the customer’s ledger card for the respondents, another demand letter and Metropolitan Bank
dishonor slips. Famatico admitted that he did not have personal knowledge of the transaction or the
execution of any of these pieces of documentary evidence, which had merely been endorsed to him.

On July 4, 1994, the trial court issued an Order terminating the presentation of evidence for the
petitioner. Thus, the latter formally offered its evidence and exhibits and rested its case on July 5, 1994.
9 

Respondents filed on July 29, 1994 a Demurrer to Evidence for alleged lack of cause of action. On
10 

November 4, 1994, the trial court dismissed the complaint for failure of petitioner to substantiate its
11 

claims, the evidence it had presented being merely hearsay.

On appeal, the Court of Appeals (CA) reversed the trial court and remanded the case for further
proceedings.

Hence, this recourse. 12

Ruling of the Court of Appeals

According to the appellate court, the judicial admissions of respondents established their indebtedness to
the petitioner, on the grounds that they admitted the due execution of the Promissory Note, and that their
only defense was the absence of an agreement on when the installment payments were to begin. Indeed,
during the pretrial, they admitted the genuineness not only of the Promissory Note, but also of the
demand letter dated July 12, 1991. Even if the petitioner’s witness had no personal knowledge of these
documents, they would still be admissible "if the purpose for which [they are] produced is merely to
establish the fact that the statement or document was in fact made or to show its tenor[,] and such fact or
tenor is of independent relevance."

Besides, Articles 19 and 22 of the Civil Code require that every person must -- in the exercise of rights
and in the performance of duties -- act with justice, give all else their due, and observe honesty and good
faith. Further, the rules on evidence are to be liberally construed in order to promote their objective and to
assist the parties in obtaining just, speedy and inexpensive determination of an action.

Issue

The petitioner raises this lone issue:

"The Honorable Court of Appeals patently erred in ordering the remand of this case to the trial court
instead of rendering judgment on the basis of petitioner’s evidence." 13

For an orderly discussion, we shall divide the issue into two parts: (a) legal effect of the Demurrer to
Evidence, and (b) the date when the obligation became due and demandable.

The Court’s Ruling

The Petition has merit. While the CA correctly reversed the trial court, it erred in remanding the case "for
further proceedings."

Consequences of a Reversal, on Appeal, of a Demurrer to Evidence

Petitioner contends that if a demurrer to evidence is reversed on appeal, the defendant should be
deemed to have waived the right to present evidence, and the appellate court should render judgment on
the basis of the evidence submitted by the plaintiff. A remand to the trial court "for further proceedings"
would be an outright defiance of Rule 33, Section 1 of the 1997 Rules of Court.

On the other hand, respondents argue that the petitioner was not necessarily entitled to its claim, simply
on the ground that they lost their right to present evidence in support of their defense when the Demurrer
to Evidence was reversed on appeal. They stress that the CA merely found them indebted to petitioner,
but was silent on when their obligation became due and demandable.

The old Rule 35 of the Rules of Court was reworded under Rule 33 of the 1997 Rules, but the
consequence on appeal of a demurrer to evidence was not changed. As amended, the pertinent provision
of Rule 33 reads as follows:

"SECTION 1. Demurrer to evidence.—After the plaintiff has completed the presentation of his evidence,
the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has
shown no right to relief. If his motion is denied, he shall have the right to present evidence. If the motion is
granted but on appeal the order of dismissal is reversed he shall be deemed to have waived the right to
present evidence." 14

Explaining the consequence of a demurrer to evidence, the Court in Villanueva Transit v.

Javellana pronounced:
15 

"The rationale behind the rule and doctrine is simple and logical. The defendant is permitted, without
waiving his right to offer evidence in the event that his motion is not granted, to move for a dismissal (i.e.,
demur to the plaintiff’s evidence) on the ground that upon the facts as thus established and the applicable
law, the plaintiff has shown no right to relief. If the trial court denies the dismissal motion, i.e., finds that
plaintiff’s evidence is sufficient for an award of judgment in the absence of contrary evidence, the case
still remains before the trial court which should then proceed to hear and receive the defendant’s
evidence so that all the facts and evidence of the contending parties may be properly placed before it for
adjudication as well as before the appellate courts, in case of appeal. Nothing is lost. The doctrine is but
in line with the established procedural precepts in the conduct of trials that the trial court liberally receive
all proffered evidence at the trial to enable it to render its decision with all possibly relevant proofs in the
record, thus assuring that the appellate courts upon appeal have all the material before them necessary
to make a correct judgment, and avoiding the need of remanding the case for retrial or reception of
improperly excluded evidence, with the possibility thereafter of still another appeal, with all the
concomitant delays. The rule, however, imposes the condition by the same token that if his demurrer
is granted  by the trial court, and the order of dismissal is reversed on appeal, the movant losses his right
to present evidence in his behalf and he shall have been deemed to have elected to stand on the
insufficiency of plaintiff’s case and evidence. In such event, the appellate court which reverses the order
of dismissal shall proceed to render judgment on the merits on the basis of plaintiff’s evidence."
(Underscoring supplied)

In other words, defendants who present a demurrer to the plaintiff’s evidence retain the right to present
their own evidence, if the trial court disagrees with them; if the trial court agrees with them, but on appeal,
the appellate court disagrees with both of them and reverses the dismissal order, the defendants lose the
right to present their own evidence. The appellate court shall, in addition, resolve the case and render
16 

judgment on the merits, inasmuch as a demurrer aims to discourage prolonged litigations. 17

In the case at bar, the trial court, acting on respondents’ demurrer to evidence, dismissed the Complaint
on the ground that the plaintiff had adduced mere hearsay evidence. However, on appeal, the appellate
court reversed the trial court because the genuineness and the due execution of the disputed pieces of
evidence had in fact been admitted by defendants.

Applying Rule 33, Section 1 of the 1997 Rules of Court, the CA should have rendered judgment on the
basis of the evidence submitted by the petitioner. While the appellate court correctly ruled that "the
documentary evidence submitted by the [petitioner] should have been allowed and appreciated xxx," and
that "the petitioner presented quite a number of documentary exhibits xxx enumerated in the appealed
order," we agree with petitioner that the CA had sufficient evidence on record to decide the collection
18 

suit. A remand is not only frowned upon by the Rules, it is also logically unnecessary on the basis of the
facts on record.

Due and Demandable Obligation

Petitioner claims that respondents are liable for the whole amount of their debt and the interest thereon,
after they defaulted on the monthly installments.

Respondents, on the other hand, counter that the installments were not yet due and demandable.
Petitioner had allegedly allowed them to apply their promotion services for its financing business as
payment of the Promissory Note. This was supposedly evidenced by the blank space left for the date on
which the installments should have commenced. In other words, respondents theorize that the action for
19 

immediate enforcement of their obligation is premature because its fulfillment is dependent on the sole
will of the debtor. Hence, they consider that the proper court should first fix a period for payment, pursuant
to Articles 1180 and 1197 of the Civil Code.

This contention is untenable. The act of leaving blank the due date of the first installment did not
necessarily mean that the debtors were allowed to pay as and when they could. If this was the intention of
the parties, they should have so indicated in the Promissory Note. However, it did not reflect any such
intention.

On the contrary, the Note expressly stipulated that the debt should be amortized monthly in installments
of ₱11,579 for twelve consecutive months. While the specific date on which each installment would be
due was left blank, the Note clearly provided that each installment should be payable each month.

Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which
showed the intention of the parties that the installments should be paid at a definite date. Had they
intended that the debtors could pay as and when they could, there would have been no need for these
two clauses.

Verily, the contemporaneous and subsequent acts of the parties manifest their intention and knowledge
that the monthly installments would be due and demandable each month. In this case, the conclusion
20 

that the installments had already became due and demandable is bolstered by the fact that respondents
started paying installments on the Promissory Note, even if the checks were dishonored by their drawee
bank. We are convinced neither by their avowals that the obligation had not yet matured nor by their claim
that a period for payment should be fixed by a court.

Convincingly, petitioner has established not only a cause of action against the respondents, but also a
due and demandable obligation. The obligation of the respondents had matured and they clearly
defaulted when their checks bounced. Per the acceleration clause, the whole debt became due one
month (April 2, 1991) after the date of the Note because the check representing their first installment
bounced.

As for the disputed documents submitted by the petitioner, the CA ruling in favor of their admissibility,
which was not challenged by the respondents, stands. A party who did not appeal cannot obtain
affirmative relief other than that granted in the appealed decision.
21

It should be stressed that respondents do not contest the amount of the principal obligation.  Their liability
1âwphi1

as expressly stated in the Promissory Note and found by the CA is "₱13[8],948.00 which is payable in
22 

twelve (12) installments at ₱11,579.00 a month for twelve (12) consecutive months." As correctly found
by the CA, the "ambiguity" in the Promissory Note is clearly attributable to human error. 23

Petitioner, in its Complaint, prayed for "14% interest per annum from May 6, 1993 until fully paid." We
disagree.  The Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each
1âwphi1

unpaid installment until fully paid. Payment of interest was not expressly stipulated in the Note. Thus, it
should be deemed included in such penalty.

In addition, the Note also provided that the debtors would be liable for attorney’s fees equivalent to 25
percent of the amount due in case a legal action was instituted and 10 percent of the same amount as
liquidated damages. Liquidated damages, however, should no longer be imposed for being
unconscionable. Such damages should also be deemed included in the 2.5 percent monthly penalty.
24 

Furthermore, we hold that petitioner is entitled to attorney’s fees, but only in a sum equal to 10 percent of
the amount due which we deem reasonable under the proven facts. 25

The Court deems it improper to discuss respondents' claim for moral and other damages. Not having
appealed the CA Decision, they are not entitled to affirmative relief, as already explained earlier. 26

WHEREFORE, the Petition is GRANTED. The appealed Decision is MODIFIED in that the remand is SET
ASIDE and respondents are ordered TO PAY ₱138,948, plus 2.5 percent penalty charge per month
beginning April 2, 1991 until fully paid, and 10 percent of the amount due as attorney’s fees. No costs.

SO ORDERED.
G.R. No. L-28967 July 22, 1975

AMELIA G. TIBLE, petitioner-administratrix,
vs.
JOSE C. AQUINO, respondent-claimant .

Herras Law-Office for petitioner administratrix.

Bengzon, Villegas, Zarraga, Narciso and Cudala for respondent-claimant.

ESGUERRA, J.:

Petition for review on certiorari of the decision of the Court of Appeals in its C.A.-G. R. No. 32383-R,
entitled "Amelia G. Tible, petitioner-appellee vs. Jose C. Aquino, claimant-appellant", reversing the order
of the Court of First Instance of Camarines Sur in Sp. Proc. No. 731 (In the Matter of Intestate Estate of
Emilio M. Tible, Amelia G. Tible, petitioner), which dismissed the claim of Jose C. Aquino in the amount of
P30,000.00 against the estate of the deceased, Emilio M. Tible, and instead, ordered said claimant to pay
said estate the sum of P50,500.00 as his indebtedness to the deceased Emilio M. Tible. The decision of
the appellate court sought to be reviewed reads as follows:

WHEREFORE, the judgment appealed from is hereby reversed. Let another be entered,
ordering the administratrix-appellee to pay claimant-appellant Jose C. Aquino the sum of
P25,500.00 with legal interest from the date of filing of the complaint. The counter-claim
set forth herein is hereby dismissed for lack of merit. With costs against the
administratrix-appellee.

Petitioner was appointed administratrix of the Intestate Estate of the late Congressman Emilio M. Tible
who died on August 14, 1957, by the Court of First Instance of Naga City in Special Proceedings No. 731.
Notice to creditors as required by the Rules of Court having been published on March 8, 15, 22, 1958,
private respondent-claimant Jose C. Aquino filed with the probate court a claim against the estate for
P30,000.00 on February 6, 1959, or almost eleven months after the date of the first publication of the
notice to creditors. A motion to dismiss was filed by the petitioner-administratrix on the ground that the
claim was filed beyond the reglementary period, but the trial court gave due course to the claim. An
answer with counterclaim for P54,500.00 was filed by petitioner-administratrix on May 8, 1959, followed
by an amended answer with counterclaim filed on October 12, 1959. After trial the lower court rendered
judgment in favor of the petitioner-administratrix as above mentioned.

The lower court, in dismissing Aquino's claim of P30,000.00 against the estate and ordering him to pay
the estate the sum of P50,500.00 rationalized as follows:

The evidence of the claimant shows that in 1954, he met Atty. Emilio Tible in the office of
the Bureau of Forestry in Manila he being a timber licensee and thereafter Atty. Tible
borrowed money from him in the total amount of P50,000.00. Thereafter, Congressman
Tible bought from him a portion of his forest concession for the amount of P107,000.00
so that, Atty. Tible has still a balance of P30,000.00 of his indebtedness to him as shown
by the promissory notes, Exhs. A, A-1, A-2 and A-3; that according to the claimant, he
transferred to Atty. Tible a portion of his forest concession in the Municipality of
Esperanza, Agusan, under the authority of the Director of Forestry; that while Atty. Tible
was still living, he used to remind him about his indebtedness to him of P30,000.00 but
the latter told him that he had no money yet. According to the claimant, Jose C. Aquino,
 their agreement of the cession of the 2,000 hectares of forest land to Congressman Tible
for the amount of P107,000.00, was not made in writing.

The evidence of the administratrix, on the other hand, shows that the real agreement that
took place between the claimant and Atty. Tible was for the cession of 2,000 hectares of
timberland to Tible for the amount of P50,000.00 which was already paid by the latter as
shown in the promissory note dated March 8, 1655, marked Exhibit "11"; that on April 9,
1955, the claimant was able to convince Atty. Tible to increase the amount of P50,000.00
to P80,000.00 alleging that Atty. Emilio Tible would profit much from the 2,000 hectares
and so, promissory notes marked Exhs. A, A-1 to A-3, were executed by Atty. Emilio
Tible on condition that the payment of which should depend upon the operation of the
said 2,000 hectares to him; that after March 8, 1955, the claimant borrowed several
amounts of money from Atty. Tible as shown in the receipts and checks marked Exhibit 3,
4, 4-B, 4-b, 4-C, 4-D, 4-E, 4-F, 4-G, 5, 6, 7, 8, 9, 10 and 11 in the total amount of
P50,000.00 to be paid by the claimant to the said Atty. Tible but in the even that said
claimant could not pay said amount, Atty. Tible would be made a partner of the claimant
in the operation of the timberland which was left to him after the cession of the 2,000
hectares. This fact was established by the testimony of witness for the administratrix, Dr.
Marcial Tena, who was a partner of Atty. Emilio Tible, in their logging business; that
besides the amount mentioned above, Atty. Emilio Tible continued advancing money to
the Aquinos' until the amount borrowed by the latter reached the total sum of P54,500.00
as shown by the receipts marked Exhibits "3",
"4-F", "5", "6," "7", "8", "9", and "10". This amount was not yet paid by the claimant, Jose
C. Aquino, up to the present.

The Court after a careful study of the evidence presented both by the claimant and the
administratrix, arrived at the conclusion that the amount of P30,000.00 claimed by the
claimant, Jose C. Aquino, was not yet due and demandable at the time of the
presentation of the claim on the ground that Atty. Tible was not able to operate the 2,000
hectares ceded to him by the claimant and that, the amount of P54,000.00 borrowed by
the claimant from Atty. Tible has not been paid until at present, neither was Atty. Tible
made a partner by the claimant in the operation of the remaining forest concession
belonging to the said claimant. It was also found by the Court that the agreement entered
into by and between Atty. Tible and the claimant on the cession of this 2,000 hectares of
timberland was against the law because a big amount of money was paid by Atty. Tible
as consideration for the cession of the 2,000 hectares of timberland which is speculative,
considering that claimant, Jose C. Aquino, had no improvement made in the ceded forest
concession.

From the appealed order of the trial court it can be gleaned that although both petitioner and the private
respondent agree that there was a sale of the portion of Aquino's forest concession in Esperanza,
Agusan, to Emilio Tible in 1955, two conflicting versions of the agreement are put forward by each party
as regards the consideration and the conditions agreed upon.

Private respondent Aquino's evidence seeks to prove that Congressman Tible borrowed from him
P50,000.00; thereafter bought from him a portion of his forest concession for an agreed amount of
P107,000.00; that Atty. Tible owed him a balance of P30,000.00 as shown by promissory notes (Exhs. A,
A-1, A-2, and A-3); that said forest concession was transferred to Atty. Tible by authority of the Director of
Forestry after the oral agreement of sale; and the balance of P30,000.00 was never paid until the death of
Atty. Tible.

Petitioner's version of the transaction was that the real agreement was for the cession of 2,000 hectares
of timberland to Atty. Tible for the amount of P50,000.00 which was paid by Atty. Tible as shown by the
promissory note dated March 8, 1955 (]Exhibit "11"); that on April 9, 1955, Aquino was able to convince
Atty. Tible to increase the sale price from P50,000.00 to P80,000.00, as the latter expected to profit much
from the 2,000 hectares of timberland; that promissory notes (Exhs. "A", "A-1," to "A-3") were executed by
Atty. Tible on condition that the payment of those promissory notes would depend upon the operation of
said 2,000 hectares; that after March 8, 1955, Aquino borrowed several amounts of money from Atty.
Tible (receipts and checks, Exhs. 3, 4, 4-B, 4-b, 4-C, 4-D, 4-E, 4-F, 4-G, 5, 6, 7, 8, 9, 10 and 11) in the
total amount of P50,000.00 to be paid by Aquino to Atty. Tible but in the event Aquino could not pay, Atty.
Tible would be made a partner of Aquino in the operation of the remainder of the timberland area still
owned by Aquino; that Atty. Tible continued lending money to Aquino until the amount of the latter's
indebtedness reached P54,500.00 (Exhibits 3, 4-F, 5, 6, 7, 8, 9, 10); and that Atty. Aquino failed to pay
that amount.

The two conflicting versions can be simplified thus — private respondent Aquino claims that Tible
borrowed from him P50,000.00 and then bought from him 2,000 hectares of his timberland in Agusan for
P107,000.00; that Tible still owed him a balance of P30,000.00 representing the unpaid balance of the
consideration of the sale of the timberland at the time of Tible's death. On the other hand, petitioner
claims that the consideration for the sale of the timberland of Aquino to Tible was only P50,000.00 which
was already paid; that on April 9, 1955, Aquino and Tible agreed on an increase of the sale price of the
timberland from P50,000.00 to P80,000.00, so Tible executed promissory notes in favor of Aquino for the
balance of P30,000.00 subject to the condition that payment of those promissory notes would depend
upon the operation by Tible of the timberland; that after the foregoing transaction, Aquino borrowed
several amounts from Tible (total P50,000.00) but payment of said loans was subject to the condition that
if Aquino cannot pay the loans to Tible, the latter would be made a partner by Aquino in the operation of
the remaining 2,000 hectares of timberland controlled by Aquino. It is very clear that Aquino's version
speaks of two transactions — loan of P50,000.00 to Tible and sale of 2,000 hectares of timberland to
Tible for P107,000.00. Petitioner's version speaks of three transactions sale of 2,000 hectares of Aquino's
timberland to Tible for P50,000.00; novation of the contract of sale by increasing the consideration from
P50,000.00 to P80,000.00, payment of the balance of P30,000.00 subject to the condition that payment
would depend upon Tible's operation of the timberland; and the supposed loans (total P50,000.00) given
by Tible to Aquino, which if not paid by Aquino would render it obligatory upon the latter to make Tible a
partner in the operation of his remaining timberland.

The trial court in its evaluation of the evidence believed in petitioner's version of the transaction; hence
the order of October 31, 1961, which dismissed the claim of private respondent Aquino and ordered him
to pay to the estate of Tible the amount of P50,500.00 as his indebtedness to the deceased. It is this
order of October 31, 1961, of the trial court that was reversed by the respondent appellate court.

The respondent appellate court believed in claimant Aquino's version of the transaction in a well-
discussed dissertation, thus —

There is no dispute as to the sale of portion of Aquino's forest concession to Emilio Tible
during the latter's lifetime. However, there apparently exist two different versions as
adduced by claimant and the administratrix relating to the actual and real agreement as
to the consideration of the sale and the conditions agreed upon. We have taken the pains
of reviewing carefully the records of this case in order to arrive as to the real agreement
of the parties when they entered into such contract of sale covering portion of Aquino's
forest concession consisting of about 2,000 hectares and we are more to believe that the
version as advanced by claimant Aquino relating to their real agreement about said sale
is more plausible as it dovetailed with the material circumstances and facts of the case.
To begin with, if the consideration of said transfer was only P50,000.00 as insisted by the
administratrix which was already paid as evidenced by receipt duly signed by the
claimant (Exh. 11), it would have been stated therein at least as full payment of the
purchase price not as "payment of the debt", considering that as insisted by the appellee
the agreed price for such purchase of Aquino's forest concession was only P50,000.00,
which was already paid. The phrase "payment of debt" simply shows that the one
tendering payment (Tible) had an outstanding obligation to settle and this tallies with
Aquino's assertion that prior to the negotiation of said sale Tible had obtained various
amounts from Aquino, which amounted all to P50,000.00 and which after consolidation
was paid by Tible as evidenced by a receipt duly signed by Aquino (Exh. 11). True, that
the claimant-appellant at the outset when asked to identify the questioned receipt of
P50,000.00 (Exh. 11), admitted that said sum "covers the amount I have taken from him
which is part of the P77,000.00". Such admission, however, should be interpreted in the
light of extant circumstances. In making such sweeping admission, Aquino, however,
made a qualification that said amount was reached after consolidation and an accounting
made of all the amounts received by him (t.s.n. pp. 38-39, hearing of July 3, 1955). And
1äwphï1.ñët 

the consolidation referred to herein had reference to the various amounts secured by
Aquino from Tible as advances and as loan which were duly covered by receipts
amounting also to P50,000.00 (Exhs. 3, 5, 6, 7 and 4-C) under the agreement that should
the former fail to pay the same the latter would be a partner in the logging operation of
the Aquinos (t.s.n., p. 7, January 11, 1960). Thus, Aquino on rebuttal clarified his
admission on this point —

Q The same witness Mr. Tena also declared that he was

present on an occasion wherein you received from Mr.
Tible the sum of P50,000.00 as part payment of the
portion of the area you ceded to Mr. Tible?

A I have never received the sum of P50,000.00 from the

late Tible but instead that amount is a payment of what
he owned me.

Mr. Tena also declared that P50,000.00 which you

received from Mr. Tible as part payment of a portion of
your area was made to appear as an indebtedness
which is shown in this document, which is Exhibit "A", is
that correct?

A It is true that I have received the amount from him as

advances of the amount he is supposed to pay me.
Those are the advances he gave me and later on we
made a liquidation of these advances and for the
balance, because he has no money at that time, he gave
me that promissory note.

Q You are referring to the 4 Promissory notes executed

by Mr. Tible on April 9, 1955?

A Yes, sir. (pp. 6-8, t.s.n., Jan. 11, 1960, Aquino on

Rebuttal, Emphasis ours.)

Further, the foregoing asseverations of claimant-appellant coincide with the material facts
of the case clearly indicating that the amount of P50,000.00 embodied in Exhibit 11,
involved another transaction which separate and distinct from the consideration of the
purchase price of the portion of Aquino's forest concession. It is of significant importance
to note that Exhibit 11, which appellee maintains as full payment of the purchase of the
2,000 hectares of Aquino's timber land concession ceded to the deceased was executed
on March 8, 1955, that is ahead by almost one month of the four promissory notes in
question upon which claimant's cause of action is predicated (Exhs. A, A-1 to A-3), which
were executed by Tible on April 9, 1955. Such being the case, therefore, and if it were
really true that Tible had already paid the purchase price as allegedly evidenced by
Exhibit 11, we cannot conceive of any idea that would be within the realm of probabilities
 as to why Tible had to execute the 4 promissory notes in question representing the
balance of the purchase price of said forest concession. It is advanced, however, as an
excuse by the appellee that the agreed consideration thereof in the amount of
P50,000.00 was increased to P80,000.00, for which reason Tible had to execute said
promissory notes, whereby he then acknowledged to have an outstanding balance of
P30,000.00 payable under the terms and conditions embodied therein. Be that as it may,
this would not create a situation contrary to what is reflected in the questioned promissory
notes (Exhs. A, A-1 to A-3). For it is undisputed that as of March 14, 1955 to April 5,
1955, Aquino evidently appeared to be indebted to Tible in the sum total of P54,000.
(Exhs. 3, 5, 6, 7, 4-C to 4-F), which various amounts were obtained by the former from
the latter as loan with an agreement that upon failure of Aquino to settle said amount,
Tible would then be a partner in the operation of Aquino's forest concession. And there is
no evidence that Tible ever became a partner in the operation of Aquino's forest
concession when claimant failed to liquidate all the amounts he secured from Tible.
Therefore, it would appear that there would be no necessity for Tible to execute the
promissory notes on April 9, 1955, assuming arguendo that the purchase price as
originally agreed upon was increased, for Aquino was then still indebted to Tible. Stated
in short, as of March 14, 1955 to April 5, 1955, Tible appeared to be the creditor of
Aquino. However, on April 9, 1955, when Tible executed the promissory notes, the
situation was reversed, as Aquino by this time was the creditor of Tible. The reason for
such shifting is clearly illustrated by Aquino when he testified —

Q Mr. Tena also declared that you received from Mr.

Tible P54,500.00 which was conditioned that if you could
not pay the same you will make Mr. Tible a partner in
your logging business at Esperanza, Agusan, is that
correct?

A I do not exactly remember the amount but that was our

first agreement that we will be partners in the logging but
later on he changed his mind because as a
Congressman he cannot come to Butuan City. So,
instead he asked me to cede part of my area, at least
2,000 hectares which was already finalized later on. (p.
7, t.s.n., January 11, 1960.)

The four promissory notes in question executed on April 9, 1955, consisting of

P12,500.00 which is payable within 240 days (Exh. A); the sum of P12,500.00 which is
payable within 120 days (Exh. A-1); the sum of P2,500.00 which is payable within 240
days (Exh. A-2); and the sum of P2,500.00 which is payable within 120 days (Exh. A-3),
were found by the trial court to be not yet due and demandable at the time of the
presentation of the claim, which finding is now being capitalized by the appellee as Tible
was not able to operate the 2,000 hectares ceded to him by the claimant. The conclusion
reached by the trial court is obviously based on the subsequent receipt for P500.00
issued by Aquino in favor of Tible which provides as follows —

P500.00

RECEIPT

RECEIVED from Congressman Emilio M. Tible an additional sum of Five

Hundred (P500.00,) Pesos, to be credited against the various amounts
payable by him to the undersigned.
The following are also agreed:

(1) The various amounts totalling P4,000.00 taken by my brother, Rafael

Aquino, will not be paid back to Emilio M. Tible as promised in the
receipts signed by my brother but will be credited against the various
amounts payable in the future by him to the undersigned.

(2) It is also understood that these various amounts appearing in the

receipts signed by Emilio M. Tible payable to the undersigned will not
become due and payable until after the lapse of the respective periods
therein specified, same to be counted from the date the said Emilio M.
Tible commences his operation within the public forest he acquired from
the undersigned. This present receipt, therefore, changes the dates of
payment of the said various amounts just above specified.

Manila, Philippines, June 15, 1955.

(Sgd.) JOSE AQUINO.

It is therefore, the theory of appellee that novation took place concerning the four
promissory notes in question. Contrary to appellee's view on this point, it is to be noted in
these promissory notes executed by Tible that said amounts would be payable within the
period therein stated, provided "that in case of force majeure or any other cause beyond
my control that may hinder sale of logs, the payment of the amount ... in cash or in logs,
will be deferred until normal times are restored". The period therein stated was
reproduced in a subsequent receipt (Exh. 1) which appellee maintains novated the
promissory notes stating that "these various amounts appearing in the receipts signed by
Emilio M. Tible payable to the undersigned will not become due and payable until after
the lapse of the respective periods therein specified" which obviously had reference to
the period stated in the promissory notes in question. Such being the case, this can not
be treated as a novation at all. Conversely, the subsequent receipt is but a mere
reiteration of acknowledgment of a debt by Tible, although there was a qualified
statement therein that "same to be counted from the date the said Emilio M. Tible
commences his operation within the public forest he acquired from the undersigned", and
that said receipt (Exh. 1) "changes the dates of payment of the said various amounts just
above specified". Nonetheless, said qualification is but a provision for a method and more
time to pay and does not extinguish the obligation (Nat. Rice & Corn Corp. vs. Gatbonton,
CA-G.R. No. 27488-R, July 20, 1962). Thus, it has been held that —

An obligation to pay a sum of money is not novated in a new instrument

wherein the old is ratified by changing only the term of payment and
adding other obligations not incompatible with the old one (Ynchausti vs.
Yulo, 34 Phil., 978; Pablo vs. Sapungan, 71 Phil., 145., 145).

We rule, therefore, that the subsequent agreement between Aquino and Tible as to
another mode of payment by giving the latter more time to pay does not necessarily
constitute novation as contemplated in Article 1291 of the New Civil Code based on the
well settled principle on novation that a "mere extension of payment and the addition of
another obligation not incompatible with the old one is not a novation thereof. Novation is
never presumed; there must be a declaration to the effect in unequivocal terms or that
the old and the new obligations must be incompatible" (Santos vs. Acuna, G.R. No, L-
8831, October 31, 1956). In short, the facts of the case should plainly disclose that there
was an unqualified intent to discard the original substantial agreement, and not merely a
change as to the mode of payment of an existing obligation for novation is never
presumed. The fact that Tible was not able to operate is beside the point, considering
that the said 2,000 hectares of Aquino's timber concession was already ceded and
 transferred in the name of Emilio M. Tible of which he was already granted by the
Department of Agriculture and Natural Resources "Ordinary Timber License" (Exh. 22)
and later on in the name of the "Heirs of Emilio M. Tible" (Exh. 20). This consummates
1äwphï1.ñët 

the transaction relating to the sale of 2,000 hectares of Aquino's timber concession in
favor of Tible and negates any idea that said sale of 2,000 hectares was speculative.
Besides, the condition that payment of amounts embodied in the promissory notes shall
be dependent upon Tible's operation of the forest concession he acquired from Aquino is
undoubtedly a void conditional obligation, since its fulfillment is made to depend upon the
exclusive will of the debtor (Tible) (Art. 115, Civil Code).
1äwphï1.ñët

It appearing that subsequent to the execution of the promissory notes, claimant Jose
Aquino received the amount of P500.00 and he acknowledged the amounts of P4,000.00
which was secured by his brother (Exh. 4-D to Exh. 4-F), to be credited against the
various sums payable by Tible in his favor, said amount in sum total of P4,500.00 should
accordingly be deducted from the whole amount of P30,000.00 as reflected in the four
promissory notes subject matter of claimant's cause of action, thereby leaving only the
amount of P25,500.00 which claimant could lawfully recover from the estate of Emilio M.
Tible.

We find it difficult to dispute private respondent's argument that the real solution of this case hinges on
findings based on an evaluation of evidence as to the true nature of the transaction that transpired
between Tible and Aquino. The crucial issue of whether or not Tible borrowed from Aquino P50,000.00
before the former bought from Aquino 2,000 hectares of timberland for P107,000.00 was resolved by the
respondent Appellate Court in favor of respondent Aquino in its aforequoted discussion on the basis of
the evidence presented by both the petitioner and private respondent. Petitioner's version of the
supposed transactions that took place between Tible and Aquino was demolished by the findings of
respondent Appellate Court. Even if We were to disregard the cardinal rule that only issues of law decided
by the respondent Appellate Court may be reviewed by Us, and its findings of facts may likewise be
subjected to a minute inquiry, still We see no reasonable grounds for altering or modifying the Appellate
Court's well founded conclusions.

Here, evidence of a nature that approaches the approximation of moral certainty, and not merely
preponderance of evidence, indicates the real transaction that took place between Aquino and Tible was
that Tible borrowed P50,000.00 from Aquino before Tible bought 2,000 hectares of timberland from
Aquino for an agreed consideration of P107,000.00. Respondent Appellate Court's ruling relative to the
four promissory notes (Exhs. "A", "A-1", "A-2", "A-3") as executed by Tible in favor of Aquino to pay the
balance of the agreed consideration of the sale, that "the subsequent agreement between Aquino and
Tible as to another mode of payment by giving the latter more time to pay does not necessarily constitute
novation as contemplated in Article 1291 of the New Civil Code on the well settled principle on novation
that a "mere extension of payment and the addition of another obligation not incompatible with the old one
is not a novation thereof", is well-buttressed by the evidence and We find no compelling reason to
overturn the same. Neither do We see any reason to disagree with respondent Appellate Court's ruling
that "the condition that payment of amounts embodied in the promissory notes shall be dependent upon
Tible's operation of the forest concession he acquired from Aquino is undoubtedly a void conditional
obligation since its fulfillment is made to depend upon the exclusive will of the debtor, Tible (Art. 1115,
Civil Code)". The payment of the remaining balance of the purchase price of the 2,000 hectares of
timberland cannot be made to depend on the exclusive will of the debtor, Tible, whether or not he will
operate the timber concession.

As to the petitioner's contention raised for the first time before Us that the sale of the timberland for
P107,000.00 by Aquino to Tible is null and void for being contrary to law and public policy, suffice it to say
that this new contention was not raised by petitioner in the respondent Appellate Court where she only
asked that the order of the trial court recognizing the validity of the sale in accordance with petitioner's
version and giving her a favorable judgment should be affirmed. When the respondent Appellate Court
reversed the order of the trial court and rendered judgment in favor of private respondent Aquino by
accepting his version of the transaction, petitioner now claims that the sale is void. In short, she wants to
win the case at any cost even by a complete change of theory on the real issues involved.

Petitioner's argument that the trial court erred in giving due course to Aquino's claim for P30,000.00 since
it was filed about eleven months after the date of the first publication of the notice to creditors hardly
deserves consideration at this time. When the trial court accepted the claim, what the petitioner did,
instead of questioning the trial court's jurisdiction on the matter, was to file a counterclaim against
claimant Aquino, wherein she was sustained by the trial court, and she urged the respondent Appellate
Court to affirm it when claimant Aquino appealed the trial court's order. It is now late in the day to
question the timeless of the filing of the claim.

WHEREFORE, the decision of respondent Court of Appeals is affirmed, with costs against petitioner.

SO ORDERED.
G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,

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

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court
of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to
private respondents the property donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of
the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in
favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then
a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of
the donee CPU with the following annotations copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the establishment and
use of a medical college with all its buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall
be under obligation to erect a cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for improvements of said campus and erection of a building
thereon. 1

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time
the action was filed the latter had not complied with the conditions of the donation. Private respondents
also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange
the donated property with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it
did not violate any of the conditions in the deed of donation because it never used the donated property
for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to
any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and
declared it null and void. The court a quo further directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.

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.  Similarly, where Don Ramon Lopez donated the subject
3

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.  It is not correct to say that the schoolhouse had to be constructed before
4

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.  If there was no fulfillment or compliance with the condition, such as what obtains in the
5

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.  In cases where there is no special provision for such computation, recourse must be had to the
7

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.   Moreover,
9

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.   Records are clear and facts are undisputed that since the execution of the deed of
10

donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to the heirs of the donor, private respondents
herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED
and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days
from the finality of this judgment.

Costs against petitioner.

SO ORDERED.
G.R. No. 172384               September 12, 2007

ERMINDA F. FLORENTINO, Petitioner,
vs.
SUPERVALUE, INC., Respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed
by petitioner Erminda F. Florentino, seeking to reverse and set aside the Decision,1 dated 10 October
2003 and the Resolution,2 dated 19 April 2006 of the Court of Appeals in CA-G.R. CV No. 73853. The
appellate court, in its assailed Decision and Resolution, modified the Decision dated 30 April 2001 of the
Regional Trial Court (RTC) of Makati, Branch 57, in Civil Case No. 00-1015, finding the respondent
Supervalue, Inc., liable for the sum of ₱192,000.00, representing the security deposits made by the
petitioner upon the commencement of their Contract of Lease. The dispositive portion of the assailed
appellate court’s Decision thus reads:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30, 2001 Decision of
the Regional Trial Court of Makati, Branch 57 is therefore MODIFIED to wit: (a) the portion ordering the
[herein respondent] to pay the amount of ₱192,000.00 representing the security deposits and ₱50,000.00
as attorney’s fees in favor of the [herein petitioner] as well as giving [respondent] the option to reimburse
[petitioner] ½ of the value of the improvements introduced by the [petitioner] on the leased [premises]
should [respondent] choose to appropriate itself or require the [petitioner] to remove the improvements, is
hereby REVERSED and SET ASIDE; and (b) the portion ordering the return to [petitioner] the properties
seized by [respondent] after the former settled her obligation with the latter is however MAINTAINED.3

The factual and procedural antecedents of the instant petition are as follows:

Petitioner is doing business under the business name "Empanada Royale," a sole proprietorship engaged
in the retail of empanada with outlets in different malls and business establishments within Metro Manila.4

Respondent, on the other hand, is a domestic corporation engaged in the business of leasing stalls and
commercial store spaces located inside SM Malls found all throughout the country.5

On 8 March 1999, petitioner and respondent executed three Contracts of Lease containing similar terms
and conditions over the cart-type stalls at SM North Edsa and SM Southmall and a store space at SM
Megamall. The term of each contract is for a period of four months and may be renewed upon agreement
of the parties.6

Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending
their terms until 31 March 2000.7

Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner received two letters
from the respondent, both dated 14 January 2000, transmitted through facsimile transmissions.8

In the first letter, petitioner was charged with violating Section 8 of the Contracts of Lease by not opening
on 16 December 1999 and 26 December 1999.9
Respondent also charged petitioner with selling a new variety of empanada called "mini-embutido" and of
increasing the price of her merchandise from ₱20.00 to ₱22.00, without the prior approval of the
respondent.10

Respondent observed that petitioner was frequently closing earlier than the usual mall hours, either
because of non-delivery or delay in the delivery of stocks to her outlets, again in violation of the terms of
the contract. A stern warning was thus given to petitioner to refrain from committing similar infractions in
the future in order to avoid the termination of the lease contract.11

In the second letter, respondent informed the petitioner that it will no longer renew the Contracts of Lease
for the three outlets, upon their expiration on 31 March 2000.12

In a letter-reply dated 11 February 2000, petitioner explained that the "mini-embutido" is not a new variety
of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was
reduced in order to make it more affordable to the buyers.13

Such explanation notwithstanding, respondent still refused to renew its Contracts of Lease with the
petitioner. To the contrary, respondent took possession of the store space in SM Megamall and
confiscated the equipment and personal belongings of the petitioner found therein after the expiration of
the lease contract.14

In a letter dated 8 May 2000, petitioner demanded that the respondent release the equipment and
personal belongings it seized from the SM Megamall store space and return the security deposits, in the
sum of ₱192,000.00, turned over by the petitioner upon signing of the Contracts of Lease. On 15 June
2000, petitioner sent respondent another letter reiterating her previous demands, but the latter failed or
refused to comply therewith. 15

On 17 August 2000, an action for Specific Performance, Sum of Money and Damages was filed by the
petitioner against the respondent before the RTC of Makati, Branch 57.16

In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the respondent made verbal
representations that the Contracts of Lease will be renewed from time to time and, through the said
representations, the petitioner was induced to introduce improvements upon the store space at SM
Megamall in the sum of ₱200,000.00, only to find out a year later that the respondent will no longer renew
her lease contracts for all three outlets.17

In addition, petitioner alleged that the respondent, without justifiable cause and without previous demand,
refused to return the security deposits in the amount of ₱192,000.00.18

Further, petitioner claimed that the respondent seized her equipment and personal belongings found
inside the store space in SM Megamall after the lease contract for the said outlet expired and despite
repeated written demands from the petitioner, respondent continuously refused to return the seized
items.19

Petitioner thus prayed for the award of actual damages in the sum of ₱472,000.00, representing the sum
of security deposits, cost of improvements and the value of the personal properties seized. Petitioner also
asked for the award of ₱300,000.00 as moral damages; ₱50,000.00 as exemplary damages; and
₱80,000.00 as attorney’s fees and expenses of litigation.20

For its part, respondent countered that petitioner committed several violations of the terms of their
Contracts of Lease by not opening from 16 December 1999 to 26 December 1999, and by introducing a
new variety of empanada without the prior consent of the respondent, as mandated by the provision of
Section 2 of the Contract of Lease. Respondent also alleged that petitioner infringed the lease contract by
frequently closing earlier than the agreed closing hours. Respondent finally averred that petitioner is liable
for the amount ₱106,474.09, representing the penalty for selling a new variety of empanada, electricity
and water bills, and rental adjustment, among other charges incidental to the lease agreements.
Respondent claimed that the seizure of petitioner’s personal belongings and equipment was in the
exercise of its retaining lien, considering that the petitioner failed to settle the said obligations up to the
time the complaint was filed.21

Considering that petitioner already committed several breaches of contract, the respondent thus opted not
to renew its Contracts of Lease with her anymore. The security deposits were made in order to ensure
faithful compliance with the terms of their lease agreements; and since petitioner committed several
infractions thereof, respondent was justified in forfeiting the security deposits in the latter’s favor.

On 30 April 2001, the RTC rendered a Judgment22 in favor of the petitioner and found that the physical
takeover by the respondent of the leased premises and the seizure of petitioner’s equipment and personal
belongings without prior notice were illegal. The decretal part of the RTC Judgment reads:

WHEREFORE, premises duly considered, judgment is hereby rendered ordering the [herein respondent]
to pay [herein petitioner] the amount of ₱192,000.00 representing the security deposits made by the
[petitioner] and ₱50,000.00 as and for attorney’s fees.

The [respondent] is likewise ordered to return to the [petitioner] the various properties seized by the
former after settling her account with the [respondent].

Lastly, the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of the value of the
improvements introduced by the plaintiff at SM Megamall should [respondent] choose to appropriate the
improvements to itself or require the [petitioner] to remove the improvements, even though the principal
thing may suffer damage thereby. [Petitioner] shall not, however, cause anymore impairment upon the
said leased premises than is necessary.

The other damages claimed by the plaintiff are denied for lack of merit.

Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals.

In a Decision23 dated 10 October 2003, the Court of Appeals modified the RTC Judgment and found that
the respondent was justified in forfeiting the security deposits and was not liable to reimburse the
petitioner for the value of the improvements introduced in the leased premises and to pay for attorney’s
fees. In modifying the findings of the lower court, the appellate court declared that in view of the breaches
of contract committed by the petitioner, the respondent is justified in forfeiting the security deposits.
Moreover, since the petitioner did not obtain the consent of the respondent before she introduced
improvements on the SM Megamall store space, the respondent has therefore no obligation to reimburse
the petitioner for the amount expended in connection with the said improvements.24 The Court of Appeals,
however, maintained the order of the trial court for respondent to return to petitioner her properties after
she has settled her obligations to the respondent. The appellate court denied petitioner’s Motion for
Reconsideration in a Resolution25 dated 19 April 2006.

Hence, this instant Petition for Review on Certiorari26 filed by the petitioner assailing the Court of Appeals
Decision. For the resolution of this Court are the following issues:

I. Whether or not the respondent is liable to return the security deposits to the petitions.

II. Whether or not the respondent is liable to reimburse the petitioner for the sum of the
improvements she introduced in the leased premises.
 III. Whether or not the respondent is liable for attorney’s fees.27

The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on
the provisions of Sections 5 and 18 of the Contract of Lease, to wit:

Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS
(P60,000.00) equivalent to three (3) months rent as security for the full and faithful performance to each
and every term, provision, covenant and condition of this lease and not as a pre-payment of rent. If at any
time during the term of this lease the rent is increased[,] the LESSEE on demand shall make an additional
deposit equal to the increase in rent. The LESSOR shall not be required to keep the deposit separate
from its general funds and the deposit shall not be entitled to interest. The deposit shall remain intact
during the entire term and shall not be applied as payment for any monetary obligations of the LESSEE
under this contract. If the LESSEE shall faithfully perform every provision of this lease[,] the deposit shall
be refunded to the LESSEE upon the expiration of this Lease and upon satisfaction of all monetary
obligation to the LESSOR.

xxxx

Section 18. TERMINATION. Any breach, non-performance or non-observance of the terms and

conditions herein provided shall constitute default which shall be sufficient ground to terminate this
lease, its extension or renewal. In which event, the LESSOR shall demand that LESSEE immediately
vacate the premises, and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any
such other appropriate action as may be legally authorized.28

Since it was already established by the trial court that the petitioner was guilty of committing several
breaches of contract, the Court of Appeals decreed that she cannot therefore rightfully demand the return
of the security deposits for the same are deemed forfeited by reason of evident contractual violations.

It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal
clause to ensure petitioner’s faithful compliance with the terms and conditions of the said contracts.

A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to
an obligation in order to insure performance and has a double function: (1) to provide for liquidated
damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility
in the event of breach.29 The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof of the existence and the measure of damages caused by the breach.30 Article 1226 of
the Civil Code states:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree on such terms
and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order
or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contracts in two
instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there
has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of
the Civil Code which clearly provides:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.31

In ascertaining whether the penalty is unconscionable or not, this court set out the following standard in
Ligutan v. Court of Appeals,32 to wit:

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factor as, but not necessarily confined to, the type, extent
and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like, the application of which, by
and large, is addressed to the sound discretion of the court. xxx.

In the instant case, the forfeiture of the entire amount of the security deposits in the sum of ₱192,000.00
was excessive and unconscionable considering that the gravity of the breaches committed by the
petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable
therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits.

It is in the exercise of its sound discretion that this court tempered the penalty for the breaches committed
by the petitioner to 50% of the amount of the security deposits. The forfeiture of the entire sum of
₱192,000.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the
petitioner. The respondent is therefore under the obligation to return the 50% of ₱192,000.00 to the
petitioner.

Turning now to the liability of the respondent to reimburse the petitioner for one-half of the expenses
incurred for the improvements on the leased store space at SM Megamall, the following provision in the
Contracts of Lease will enlighten us in resolving this issue:

Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not make any
alterations, additions, or improvements without the prior written consent of LESSOR; and all alterations,
additions or improvements made on the leased premises, except movable or fixtures put in at LESSEE’s
expense and which are removable, without defacing the buildings or damaging its floorings, shall become
LESSOR’s property without compensation/reimbursement but the LESSOR reserves the right to require
the removal of the said alterations, additions or improvements upon expiration of the lease.

The foregoing provision in the Contract of Lease mandates that before the petitioner can introduce any
improvement on the leased premises, she should first obtain respondent’s consent. In the case at bar, it
was not shown that petitioner previously secured the consent of the respondent before she made the
improvements on the leased space in SM Megamall. It was not even alleged by the petitioner that she
obtained such consent or she at least attempted to secure the same. On the other hand, the petitioner
asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts
from time to time after their expirations, and that the petitioner was so induced thereby that she expended
the sum of ₱200,000.00 for the improvement of the store space leased.

This argument was squarely addressed by this court in Fernandez v. Court of Appeals,33 thus:

The Court ruled that the stipulation of the parties in their lease contract "to be renewable" at the option of
both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by
himself but to the two simultaneously; hence, both must agree to renew if a new contract is to come
about.

Petitioner’s contention that respondents had verbally agreed to extend the lease indefinitely is
inadmissible to qualify the terms of the written contract under the parole evidence rule, and unenforceable
under the statute of frauds.34
Moreover, it is consonant with human experience that lessees, before occupying the leased premises,
especially store spaces located inside malls and big commercial establishments, would renovate the
place and introduce improvements thereon according to the needs and nature of their business and in
harmony with their trademark designs as part of their marketing ploy to attract customers. Certainly, no
inducement or misrepresentation from the lessor is necessary for this purpose, for it is not only a matter of
necessity that a lessee should re-design its place of business but a business strategy as well.

In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements
made on the leased store space should it choose to appropriate the same, the RTC relied on the
provision of Article 1678 of the Civil Code which provides:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which
the lease is intended, without altering the form or substance of the property leased, the lessor upon the
termination of the lease shall pay the lessee one-half of the value of the improvements at that time.
Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even
though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment
upon the property leased than is necessary.

While it is true that under the above-quoted provision of the Civil Code, the lessor is under the obligation
to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate
the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the
same statute, which provide:

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.

xxxx

Art. 546. Necessary expenses shall be refunded to every possessor; but only possessor in good faith may
retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have acquired by reason thereof.

Thus, to be entitled to reimbursement for improvements introduced on the property, the petitioner must be
considered a builder in good faith. Further, Articles 448 and 546 of the Civil Code, which allow full
reimbursement of useful improvements and retention of the premises until reimbursement is made, apply
only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof.
A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on
it.35 In this case, the petitioner cannot claim that she was not aware of any flaw in her title or was under
the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee
thereof.1âwphi1

In Geminiano v. Court of Appeals,36 this Court was emphatic in declaring that lessees are not possessors
or builders in good faith, thus:
Being mere lessees, the private respondents knew that their occupation of the premises would continue
only for the life of the lease. Plainly, they cannot be considered as possessors nor builders in good faith.

In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to Article 546 of the
same Code, which allows full reimbursement of useful improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the
belief that he is the owner thereof. It does not apply where one's only interest is that of a lessee under a
rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his
property.

Since petitioner’s interest in the store space is merely that of the lessee under the lease contract, she
cannot therefore be considered a builder in good faith. Consequently, respondent may appropriate the
improvements introduced on the leased premises without any obligation to reimburse the petitioner for the
sum expended.

Anent the claim for attorney’s fees, we resolve to likewise deny the award of the same. Attorney’s fees
may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason
of unjustified act of the other.37

In the instant petition, it was not shown that the respondent unjustifiably refused to grant the demands of
the petitioner so as to compel the latter to initiate legal action to enforce her right. As we have found
herein, there is basis for respondent’s refusal to return to petitioner the security deposits and to reimburse
the costs of the improvements in the leased premises. The award of attorney’s fees is therefore not
proper in the instant case.

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The Court of Appeals
Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby AFFIRMED with the
MODIFICATION that the respondent may forfeit only 50% of the total amount of the security deposits in
the sum of ₱192,000.00, and must return the remaining 50% to the petitioner. No costs.

SO ORDERED.
G.R. No. L-6515           October 18, 1954

DAGUHOY ENTERPRISES, INC., plaintiff-appellee,

vs.
RITA L. PONCE, with whom is joined her husband, DOMINGO PONCE,
defendants-appellants.

MONTEMAYOR, J.:

The Daguhoy Enterprises, Inc., a local corporation, with principal office in the City of Manila filed in the
Court of First Instance of the City Civil Case No. 15923 against Rita L. Ponce and her husband Domingo
Ponce, for the collection of a loan of P6,190 with interest at 12 per cent per annum from June 24, 1950,
plus P2,500 as attorney's fees and P34 as expenses of litigation. Defendant filed an answer admitting
practically all the allegations of the complaint, set up affirmative defenses, and a counterclaim asking for
the cancellation of the mortgage which secured the payment of the loan of P6,190. They also filed a
petition for the inclusion of Potenciano Gapol as a third party litigant, at the same time filing a third party
complaint against him asking for damages in the amount of P25,000. The plaintiff corporation answered
the counterclaim and opposed the petition for the inclusion of a third party litigant. Thereafter, plaintiff
corporation filed a motion for judgment on the pleadings which petition was opposed by the defendants.
Then, on October 9, 1952, the trial court rendered judgment whose dispositive part we reproduce below:

EN VIRTUD DE TODO LO EXPUESTO, el Juzgado dicta sentencia de acuerdon con los escritos, condemnando a los
demandados a pagar a la demandante la suma de P6,190 mas sus intereses a razon de 12 por ciento anual desde el 10
de marzo de 1951 hasta su completo pago, mas P1,000 como honorarios de abogado y P34 como gastos de la
incoaccion de esta demanda. Asi se ordena.

Defendants are now appealing from that decision.

The above-mentioned decision was rendered on the pleadings. The facts of the case which we gathered
from the said pleadings and which we find are as follows. In the year 1950, defendant-appellant Domingo
Ponce was Chairman and Manager and his son Buhay M. Ponce was Secretary-Treasurer, of the plaintiff
corporation Daguhoy Enterprises, Inc. on June 24th of said year Rita L. Ponce, wife of Domingo,
executed in favor of plaintiff corporation a deed of mortgage over a parcel of land including the
improvements thereon, situated in Manila, to secure the payment of a loan of P5,000 granted to her by
said corporation, payable within six years with interest at 12 per cent per annum. On March 10, 1951, Rita
L. Ponce with the consent of her husband Domingo executed another mortgage deed amending the first
one, whereby the loan was increased from P5,000 to P6,190, the terms and conditions of the mortgage
remaining the same. Rita and Domingo presented the two mortgage deeds for registration in the office of
the register of deeds, but the said register after going over the papers noted defects and deficiencies and
advised Rita and Domingo to cure the defects and furnish the necessary data. Instead of complying with
the suggestion and requirements, the two withdrew the two mortgage deeds and then mortgaged the
same parcel of land in favor of the Rehabilitation Finance Corporation (RFC) to secure a loan.

Potenciano Gapol was the majority stockholder in the Daguhoy Enterprises, Inc., and naturally was
interested in the security of the payment of the loan aforesaid. Upon learning that the deeds of mortgage
were not registered and what is more, that they were withdrawn from the office of the register of deeds
and the land covered by the two deeds was again mortgaged to the RFC, he filed Civil Case No. 13753
entitle "Potenciano Gapol, for and on behalf of Daguhoy Enterprises, Inc. vs. Domingo Ponce and Buhay
M. Ponce" for accounting, not only for the amount of the loan of P6,190 but apparently for other sums,
possibly on the theory that the loan in question was granted by Domingo and Buhay acting as Chairman-
Manager and Secretary-Treasurer, respectively of the corporation. To account for the amount of said
loan, Domingo and his son Buhay filed in court in said Civil Case No. 13753 a check of the RFC in the
amount of P6,190 in favor of the Daguhoy Enterprises, Inc. and interests amounting to P266.10. After the
deposit of said check and interests, Potenciano Gapol in representation of the Daguhoy Enterprises, Inc.
petitioned the court in said Civil Case No. 13753 for permission to withdraw the amounts, presumably to
apply them to the payment of the loan. Because of the opposition of defendants therein to the withdrawal
unless the mortgage by Rita was cancelled the court denied the petition. A second petition for withdrawal
was filed by Gapol, agreeing to the cancellation of the mortgage as soon as the amounts were withdrawn
from the Court and deposited with the Bank of America, in the name of Daguhoy Enterprises, Inc.
Because of the failure of defendants therein to agree to said second petition, the same was similarly
denied. Thereafter, the Daguhoy Enterprises, Inc. filed the present action against Rita and her husband
Domingo, as already stated, to collect the amount of the loan, including interests. Later, plaintiff
corporation filed a manifestation on September 18, 1952, saying that in the course of the pre-trial
conference held that same morning in Civil Case No. 13753 the plaintiff therein waived his cause of action
for accounting for said sum, which waiver was approved by the presiding Judge.

Although the original loan of P5,000.00 including the increase of P1,190 was payable within six years
from June 1950, and so did not become due and payable until 1956, the trial court held that under article
1198 of the new Civil Code, the debtor lost the benefit of the period by reason of her failure to give the
security in the form of the two deeds of mortgage and register them, including the defendants' act in
withdrawing said two deeds from the office of the register of deeds and then mortgaging the same
property in favor of the RFC; and so the obligation became pure and without any condition and
consequently, the loan became due and immediately demandable. On this, we agree with the trial Court.

One of the affirmative defenses set up by the defendants is that the plaintiff corporation had no legal
capacity to sue for the reason that as a corporation it no longer was in existence because on April 16,
1951, at a meeting held by the stockholders and attended by Potenciano Gapol, the majority stockholder,
a resolution was adopted dissolving the said corporation, and that as a matter of fact, Gapol was
designated Assignee. However, as contended by counsel for the appellee, a mere resolution by the
stockholders or by the Board of Directors of a corporation to dissolve the same does not effect the
dissolution but that some other step, administrative or judicial, is necessary. Furthermore, as stated by the
trial court in its decision, under section 77 of the Corporation Law, a corporation dissolved will continue in
existence as a judicial entity for a period of three years after the declaration of its dissolution, to windup its
affairs and protect its interests during the period of liquidation.

The point that remains for determination is the effect, if any, on the present case, of the deposit of the
amount of P6,190 with part of the interest, in civil Case No. 33753. There is no question that said deposit
was in favor of the Daguhoy Enterprises, Inc. and eventually would be given to it. But did the said deposit
relieve the present defendants from the payment of interests from the time of deposit, on the theory that
the deposit amounted to a payment of the loan? The answer must be in the negative. It should be
remembered that Civil Case No. 13753 though in the same Court of First Instance of Manila, is a separate
and different action, for accounting not only for the amount of the loan but for other sums. The plaintiff in
that case was Gapol in behalf of the Daguhoy Enterprises, Inc. and the defendants are Domingo Ponce
and his son Buhay M. Ponce. The parties in the present case are different. Furthermore, when the plaintiff
in said case 13753 petitioned the trial court for permission to withdraw the deposit, presumably to pay the
loan involved in the present action, his petition was denied by the court because of the opposition of the
defendants therein, one of whom is Domingo Ponce, co-defendant of Rita Ponce in the present case. The
result was that the present plaintiff corporation could not take possession and dispose of said amount. In
other words, the loan is not yet paid.

We find no necessity for or profit in discussing and ruling on the other points raised in the appeal.

In view of the foregoing, with the modification that the amount of attorney's fees be reduced from P1,000
to P300 considering that no hearing was held, judgment having been rendered on the pleadings, the
decision appealed from is hereby affirmed, with costs.

The sum in the form of an RFC check, and some interest, deposited in Civil Case No. 13753 may be
withdrawn to satisfy the judgment in this case, especially to pay the loan of P6,190 and part of the interest
due.
G.R. No. L-7721            March 25, 1914

INCHAUSTI & CO., plaintiff-appellant,

vs.
GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.

Rohde and Wright for appellee.
Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money, the balance of a current account opened
by the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and
children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the
exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had been
borrowing money from the firm of Inchausti & Company under specific conditions. On April 9, 1903;
Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as
administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a widow,
Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the marriage
the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen,
Concepcion, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors, while
Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow
and children held the conjugal property in common and at the death of this said widow, Gregoria
Regalado, these children preserved the same relations under the name of Hijos de T. Yulo continuing
their current account with Inchausti & Company in the best and most harmonious reciprocity until said
balance amounted to two hundred thousand pesos. In for the payment of the disbursements of money
which until that time it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano,
and Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their
indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with
interest thereon at 10 per cent per annum, they especially mortgaged an undivided six-ninth of their thirty-
eight rural properties, their remaining urban properties, lorchas, and family credits which were listed,
obligating themselves to make a forma inventory and to describe in due form all the said properties, as
well as to cure all the defects which might prevent the inscription of the said instrument in the registry of
property and finally to extend by the necessary formalities the aforesaid mortgage over the remaining
three-ninths part of all the property and rights belonging to their other brothers, the incompetent Teodoro,
and the minors Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of
the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an
abstract of our current account with your important firm, closed on the 31st of last December, with which
we desire to express our entire conformity as also with the balance in your favor of P271,863.12." On July
17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to
P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the
19th of the same month and year. Regarding this conformity a new document evidencing the mortgage
credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo,
and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being
of age at the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including
Concepcion Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of two
hundred fifty-three thousand four hundred forty-five pesos and forty-two centavos (P253,445.42) which
they obligated themselves to pay, with interest at ten per cent per annum, in five installments at the rate of
fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four hundred forty-five
pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively on the
30th of each June until the last payment on June 30, 1914. Among other clauses, they expressly
stipulated the following:

Fifth. The default in payment of any of the installments established in clause 3, or the
noncompliance of any of the other obligations which by the present document and that of June
26, 1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the
said installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti &
Company may exercise at once all the rights and actions which to them appertain in order to
obtain the immediate and total payment of our debt, in the same manner that they would have so
done at the maturity of the said installments.

Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern
us, will be understood as having been contradicted in solidum by all of us, the Yulos, brothers and
sisters.

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts,
within the present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod,
otherwise it will not be binding on Messrs. Inchausti & Company who can make use of their rights
to demand and obtain immediate payment of their credit without any further extension or delay, in
accordance with what we have agreed.

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first
installment of the obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First
Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three
thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at ten per cent
per annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six
centavos (P42,944.76)

Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor
Inchausti & Company another notarial instrument in recognition of the debt and obligation of payment in
the following terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos
(P225,000); second, the interest is likewise reduced for them to 6 percent per annum, from March 15,
1911; third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and
the rest of P30,000 each on the same date of each successive year until the total obligation shall be
finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial
payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial
payment together with its interest shall bear interest at the rate of 15 per cent per annum from the date of
said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive
years the partial payments agreed upon be not made, they shall lose the right to make use of the period
granted to them for the payment of the debt or the part thereof which remains unpaid, and that Messrs.
Inchausti & Company may consider the total obligation due and demandable, and proceed to collect the
same together with the interest for the delay above stipulated through all legal means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by
way of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the
special proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doña Gregoria
Regalado — stipulating expressly however in the sixth clause that "Inchausti & Company should include
in their suit brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and joint
co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the least time possible a
judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to pay the total
amount of the obligation acknowledged by them in the aforementioned instrument of August 12, 1909;
with the understanding that if they should deem it convenient for their interests, Don Francisco, Don
Manuel, and Doña Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti &
Company in the proceedings of the said case."

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as
defenses; first, that an accumulation of interest had taken place and that compound interest was asked
for the Philippine currency at par with Mexican; second, that in the instrument of August 21, 1909, two
conditions were agreed one of which ought to be approved by the Court of First Instance, and the other
ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third , that
with regard to the same debt claims were presented before the commissioners in the special proceedings
over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were dismissed, pending
the present suit; fourth and finally, that the instrument of August 12, 1909, was novated by that of May 12,
1911, executed by Manuel, Francisco and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to
the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that
the plaintiff pay the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions and before this court made the following
assignment of errors:

I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of
August 12, 1909.

II. That the court erred in rendering judgment in favor of the defendant.

III. And that the court erred n denying the motion for a new trial.

"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe
Inchausti & Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18).
"The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same
is owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that
the plaintiff had a right to bring an action against Gregorio Yulo, as one of the conjoint and solidary
obligors in the contract of August 12, 1909; but the defendant says that the plaintiff has no right to sue
him alone, since after the present suit was brought, the plaintiff entered into a compromise with the other
conjoint and solidary debtors, the result being the new contract of May 12, 1911, by virtue of which the
payments were extended, the same constituting a novation of the contract which gave him the same
privileges that were given his conjoint and solidary codebtors. This (the judge concludes) is the only
question brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors
alleged. Consequently, there is no need of saying anything regarding the first three defenses of the
answer, nor regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument of
August 12, 1909, upon which the appellee still insists in his brief for this appeal; although it will not be
superfluous to state the doctrine that a condition, such as is contained in the sixteenth clause of the said
contract (third point in the statement of facts), is by no means of suspensive but a resolutory condition;
the effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and
confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti &
Company at liberty, as stipulated, "to make use of its rights to demand and obtain the immediate payment
of its credit."

The only question indicated in the decision of the inferior court involves, however, these others: First,
whether the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost
this right by the fact of its having agreed with the other obligors in the reduction of the debt, the
proroguing of the obligation and the extension of the time for payment, in accordance with the instrument
of May 12, 1911; third, whether this contract with the said three obligors constitutes a novation of that of
August 12, 1909, entered into with the six debtors who assumed the payment of two hundred fifty-three
thousand and some odd pesos, the subject matter of the suit; and fourth, if not so, whether it does have
any effect at all in the action brought, and in this present suit.

With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the
creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose in
demanding that the obligation contracted in its favor should be solidary having in mind the principle of law
that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is
bound to perform in full the undertaking which is the subject matter of such obligation." (Civil Code,
articles 1137 and 1144.)

And even though the creditor may have stipulated with some of the solidary debtors diverse installments
and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen
Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity
stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that
"solidarity may exist even though the debtors are not bound in the same manner and for the same periods
and under the same conditions." (Ibid, article 1140.) Whereby the second point is resolved.

With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute
a novation of the former one of August 12, 1909, with respect to the other debtors who executed this
contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because "in order that an
obligation may be extinguished by another which substitutes it, it is necessary that it should be so
expressly declared or that the old and the new be incompatible in all points" (Civil Code, article 1204);
and the instrument of May 12, 1911, far from expressly declaring that the obligation of the three who
executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly
stated that the said obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and odd
pesos sued for exists, stipulating that the suit must continue its course and, if necessary, these three
parties who executed the contract of May 12, 1911, would cooperate in order that the action against
Gregorio Yulo might prosper (7th point in the statement of facts), with other undertakings concerning the
execution of the judgment which might be rendered against Gregorio Yulo in this same suit. "It is always
necessary to state that it is the intention of the contracting parties to extinguish the former obligation by
the new one" (Judgment in cassation, July 8, 1909). There exist no incompatibility between the old and
the new obligation as will be demonstrated in the resolution of the last point, and for the present we will
merely reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a new
instrument wherein the old is ratified, by changing only the term of payment and adding other obligations
not incompatible with the old one. (Judgments in cassation of June 28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in mind:

Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely,
Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of P253,445.42 at 10 per
cent per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children,
Francisco, Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a
reduction of the capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the
same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and Jose have not
taken part in these instruments and have not mortgaged their hereditary portions. Fourth. By the first
instrument the maturity of the first installment was June 30, 1910, whereas by the second instrument,
Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their debt, June
30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and judgment
was pronounced on December 22, 1911, when the whole debt was not yet due nor even the first
installment of the same respective the three aforesaid debtors, Francisco, Manuel, and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August
12, 1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco,
Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the
three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus
constituting a violation of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum
paid by him, with the interest of the amounts advanced at the rate of one-sixth part from each of his five
codebtors. (Civ. Code, article 1145, par. 2). This result would have been a ponderous obstacle against
the prospering of the suit as it had been brought. It would have been very just then to have absolved the
solidary debtor who having to pay the debt in its entirety would not be able to demand contribution from
his codebtors in order that they might reimburse him pro rata for the amount advanced for them by him.
But such hypothesis must be put out of consideration by reason of the fact that occurred during the
pendency of the action, which fact the judge states in his decision. "In this contract of May last," he says,
"the amount of the debt was reduced to P225,000 and the attorney of the plaintiff admits in his plea that
Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.) This is a fact which this Supreme
Court must hold as firmly established, considering that the plaintiff in its brief, on page 27, corroborates
the same in these words: "What effect," it says, "could this contract have over the rights and obligations of
the defendant Gregorio Yulo with respect to the plaintiff company? In the first place, we are the first to
realize that it benefits him with respect to the reduction of the amount of the debt. The obligation being
solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary
debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the
provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the partial
remission of the debt granted by the creditor."

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it
has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of
P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot
be recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the
three of the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the
Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the former touching the amount of the debt had been
recognized, should such efficacy not likewise be recognized concerning the maturity of the same? If
Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of the
nonmaturity of the installments since the first installment did not mature until June 30, 1912, and without
the least doubt the defense would have prospered, and the three would have been absolved from the suit.
Cannot this defense of the prematurity of the action, which is implied in the last special defense set up in
the answer of the defendant Gregorio Yulo be made available to him in this proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . .
Before the performance of the condition, or before the execution of a term which affects one debtor alone
proceedings may be had against him or against any of the others for the remainder which may be already
demandable but the conditional obligation or that which has not yet matured cannot be demanded from
any one of them. Article 1148 confirms the rule which we now enunciate inasmuch as in case the total
claim is made by one creditor, which we believe improper if directed against the debtor affected by the
condition or the term, the latter can make use of such exceptions as are peculiarly personal to his own
obligation; and if against the other debtors, they might make use of those exceptions, even though they
are personal to the other, inasmuch as they alleged they are personal to the other, inasmuch as they
alleged them in connection with that part of the responsibility attaching in a special manner to the other."
(8 Manresa, Sp. Civil Code, 196.)
Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of the creditor of the
defenses arising from the nature of the obligation and those which are personal to him. Those personally
pertaining to the others may be employed by him only with regard to the share of the debt for which the
latter may be liable."

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on
March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and with the
maturity of this installment, the first not having been paid, the whole debt had become mature, according
to the express agreement of the parties, independently of the resolutory condition which gave the creditor
the right to demand the immediate payment of the whole debt upon the expiration of the stipulated term of
one week allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August
12, 1909.

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion
Yulo, they being in identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their
obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on
June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the
part of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense to
the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or
P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is
P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his
codebtors is not yet due, a state of affairs which not only prevents any action against the persons who
were granted the term which has not yet matured, but also against the other solidary debtors who being
ordered to pay could not now sue for a contribution, and for this reason the action will be only as to the
P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths
part of the debt which forms the subject matter of the suit, we do not think that there was any reason or
argument offered which sustains an opinion that for the present it is not proper to order him to pay all or
part of the debt, the object of the action.

It has been said in the brief of the appellee that the prematurity of the action is one of the defenses
derived from the nature of the obligation, according to the opinion of the commentator of the Civil Code,
Mucius Scaevola, and consequently the defendant Gregorio Yulo may make use of it in accordance with
article 1148 of the said Code. It may be so and yet, taken in that light, the effect would not be different
from that already stated in this decision; Gregorio Yulo could not be freed from making any payment
whatever but only from the payment of that part of the debt which corresponds to his codebtors Francisco,
Manuel, and Carmen. The same author, considering the case of the opposing contention of two solidary
debtors as to one of whom the obligation is pure and unconditional and as to the other it is conditional and
is not yet demandable, and comparing the disadvantages which must flow from holding that the obligation
is demandable with these which must follow if the contrary view is adopted, favors this solution of the
problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor
may of course, demand the payment of his credit against the debtor not favored by any condition
or extension of time." And further on, he decides the question as to whether the whole debt may
be recovered or only that part unconditionally owing or which has already matured, saying,
"Without failing to proceed with juridical rigor, but without falling into extravagances or
monstrosities, we believe that the solution of the difficulty is perfectly possible. How? By limiting
the right of the creditor to the recovery of the amount owed by the debtors bound unconditionally
or as to whom the obligation has matured, and leaving in suspense the right to demand the
payment of the remainder until the expiration of the term of the fulfillment of the condition. But
what then is the effect of solidarity? How can this restriction of right be reconciled with the duty
 imposed upon each one of the debtors to answer for the whole obligation? Simply this, by
recognizing in the creditor the power, upon the performance of the condition or the expiration of
the term of claiming from any one or all of the debtors that part of the obligation affected by those
conditions. (Scaevola, Civil Code, 19, 800 and 801.)

It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo
for the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part
of the amount which is owed by them because they are obliged to pay only 225,000 pesos and this is
eight installments none of which was due. For this reason he was of the opinion that he (Gregorio Yulo)
cannot be obliged to pay his part of the debt before the contract of May 12, 1911, may be enforced, and
"consequently he decided the case in favor of the defendant, without prejudice to the plaintiff proceeding
in due time against him for his proportional part of the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article
1143 of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the
instrument of August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of
the instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt
corresponding to them by reason of there having been upheld in his favor the exception of an unmatured
installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor
who is unconditionally obligated as to when the debt has matured, the creditor should be forced to await
the realization of the condition (or the expiration of the term.) Not only is there no reason for this, as
stated by the author, but the court would even fail to consider the special law of the contract, neither
repealed nor novated, which cannot be omitted without violating article 1091 of the Civil Code according
to which "the obligations arising from contracts have the force of law between the contracting parties
and must be complied with in accordance with the  tenor of the same." Certain it is that the trial court, in
holding that this action was premature but might be brought in the time, regarded the contract of August
12, 1909, as having been expressly novated; but it is absolutely impossible in law to sustain such
supposed novation, in accordance with the legal principles already stated, and nevertheless the obligation
of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor, which is
contrary in all respects to the supposed novation, by obliging the parties who signed the contract to carry
on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected the action and the
suit, to the extent that Gregorio Yulo has been able to make in his favor the defense of remission of part
of the debt, thanks to the provision of article 1148, because it is a defense derived from the nature of the
obligation, so that although the said defendant was not party to the contract in question, yet because of
the principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit
here, because he has been benefited by the remission made by the plaintiff to three of his codebtors,
many times named above.

Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he
can recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be
rendered only as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500,
with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest
on this interest due, from the time that it was claimed judicially in accordance with article 1109 of the Civil
Code, without any special finding as to costs. The judgment appealed from is reversed. So ordered.
Carson, Trent, and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:

In my judgment the action must be dismissed, as it was brought prematurely. The defendant was entitled
to all of the benefits of the contract of May 12, 1911, between the plaintiff and Francisco, Manuel, and
Carmen. One of these provisions was that the first payment need not be made until June 30, 1912. The
action was commenced on the 27t of March, 1911, and although this date was prior to the date of the
second contract, that is, the contract with Francisco, Manuel, and Carmen, said contract was executed
before the trial of the action, and some of the beneficial provisions therein contained were to produce their
effects from March 15, 1911, a date prior to the commencement of the action. At the time of the trial the
defendant could, in my judgment, have interposed, under the allegations of the amended answer, any of
the defenses which could have been made use of by Francisco, Manuel, or Carmen if they had been the
defendant. That being the case, nothing was due the plaintiff at the time it sued and accordingly its action
must be dismissed with costs.

For these reasons I vote to affirm.