Republic of the Philippines SUPREME COURT Manila EN BANC GR No. L-47362 December 19, 1940 JOHN F.

VILLARROEL, appellant-appellant vs. ESTRADA BERNARDINO, turned-appellee. D. Felipe Agoncillo in representation of the appellant-appelante. D. Crispin Oben in representation of the defendant-appellee. AVANCEA, CJ: On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from the spouses Mariano Estrada and Severina a loan of P1, 000 payable after seven years (Exhibito A). Alejandra died, leaving as sole heir to the defendant. Spouses Mariano Estrada and Severina also died, leaving as sole heir to the plaintiff Bernardino Estrada. On August 9, 1930, the defendant signed a document (Exhibito B) by which the applicant must declare in the amount of P1, 000, with an interest of 12 percent per year. This action relates to the recovery of this amount. The Court of First Instance of Laguna, which was filed in this action, condemn the defendant to pay the claimed amount of P1, 000 with legal interest of 12 percent per year since the August 9, 1930 until full pay. He appealed the sentence. It will be noted that the parties in the present case are, respectively, the only heirs and creditors of the original debtor. This action is brought under the defendant's liability as the only son of the original debtor in favor of the plaintiff contracted, sole heir of primitive loa creditors. It is recognized that the amount of P1, 000 to which contracts this obligation is the same debt of the mother's parents sued the plaintiff.
Lawphil.net

Although the action to recover the original debt has prescribed and when the lawsuit was filed in this case, the question raised in this appeal is primarily whether, notwithstanding such requirement, the action taken is appropriate. However, this action is based on the original obligation contracted by the mother of the defendant, who has already prescribed, but in which the defendant contracted the August 9, 1930 (Exhibito B) by assuming the fulfillment of that obligation, as prescribed. Being the only defendant in the original herdero debtor eligible successor into his inheritance, that debt brought by his mother in law, although it lost its effectiveness by prescription, is now, however, for a moral obligation, that is consideration enough to create and make effective and enforceable obligation voluntarily contracted its August 9, 1930 in Exhibito B. The rule that a new promise to pay a debt prrescrita must be made by the same person obligated or otherwise legally authorized by it, is not applicable to the present case is not required in compliance with the mandatory obligation orignalmente but which would give it voluntarily assumed this obligation. It confirms the judgment appealed from, with costs against the appellant. IT IS SO ORDERED. Imperial, Diaz, Laurel, and Horrilleno, MM., Concur.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-48006 July 8, 1942

FAUSTO BARREDO, petitioner, vs. SEVERINO GARCIA and TIMOTEA ALMARIO, respondents. Celedonio P. Gloria and Antonio Barredo for petitioner. Jose G. Advincula for respondents. BOCOBO, J.: This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in damages for the death of Faustino Garcia caused by the negligence of Pedro Fontanilla, a taxi driver employed by said Fausto Barredo. At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of Rizal, there was a head-on collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapalis. The carretela was overturned, and one of its passengers, 16-year-old boy Faustino Garcia, suffered injuries from which he died two days later. A criminal action was filed against Fontanilla in the Court of First Instance of Rizal, and he was convicted and sentenced to an indeterminate sentence of one year and one day to two years of prision correccional. The court in the criminal case granted the petition that the right to bring a separate civil action be reserved. The Court of Appeals affirmed the sentence of the lower court in the criminal case. Severino Garcia and Timotea Almario, parents of the deceased on March 7, 1939, brought an action in the Court of First Instance of Manila against Fausto Barredo as the sole proprietor of the Malate Taxicab and employer of Pedro Fontanilla. On July 8, 1939, the Court of First Instance of Manila awarded damages in favor of the plaintiffs for P2,000 plus legal interest from the date of the complaint. This decision was modified by the Court of Appeals by reducing the damages to P1,000 with legal interest from the time the action was instituted. It is undisputed that Fontanilla 's negligence was the cause of the mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's responsibility, the Court of Appeals found: ... It is admitted that defendant is Fontanilla's employer. There is proof that he exercised the diligence of a good father of a family to prevent damage. (See p. 22, appellant's brief.) In fact it is shown he was careless in employing Fontanilla who had been caught several times for violation of the Automobile Law and speeding (Exhibit A) violation which appeared in the records of the Bureau of Public Works available to be public and to himself. Therefore, he must indemnify plaintiffs under the provisions of article 1903 of the Civil Code. The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code; hence, his liability is only subsidiary, and as there has been no civil action against Pedro Fontanilla, the person criminally liable, Barredo cannot be held responsible in the case. The petitioner's brief states on page 10: ... The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the diligence of a good father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the respondents. In other words, The Court of Appeals insists on applying in the case article 1903 of the Civil Code. Article 1903 of the Civil Code is found in Chapter II, Title 16, Book IV of the Civil Code. This fact makes said article to a civil liability arising from a crime as in the case at bar simply because Chapter II of Title 16 of Book IV of the Civil Code, in the precise words of article 1903 of the Civil Code itself, is applicable only to "those (obligations) arising from wrongful or negligent acts or commission not punishable by law. The gist of the decision of the Court of Appeals is expressed thus:

... We cannot agree to the defendant's contention. The liability sought to be imposed upon him in this action is not a civil obligation arising from a felony or a misdemeanor (the crime of Pedro Fontanilla,), but an obligation imposed in article 1903 of the Civil Code by reason of his negligence in the selection or supervision of his servant or employee. The pivotal question in this case is whether the plaintiffs may bring this separate civil action against Fausto Barredo, thus making him primarily and directly, responsible under article 1903 of the Civil Code as an employer of Pedro Fontanilla. The defendant maintains that Fontanilla's negligence being punishable by the Penal Code, his (defendant's) liability as an employer is only subsidiary, according to said Penal code, but Fontanilla has not been sued in a civil action and his property has not been exhausted. To decide the main issue, we must cut through the tangle that has, in the minds of many confused and jumbled together delitos and cuasi delitos, or crimes under the Penal Code and fault or negligence under articles 1902-1910 of the Civil Code. This should be done, because justice may be lost in a labyrinth, unless principles and remedies are distinctly envisaged. Fortunately, we are aided in our inquiry by the luminous presentation of the perplexing subject by renown jurists and we are likewise guided by the decisions of this Court in previous cases as well as by the solemn clarity of the consideration in several sentences of the Supreme Tribunal of Spain. Authorities support the proposition that a quasi-delict or "culpa aquiliana " is a separate legal institution under the Civil Code with a substantivity all its own, and individuality that is entirely apart and independent from delict or crime. Upon this principle and on the wording and spirit article 1903 of the Civil Code, the primary and direct responsibility of employers may be safely anchored. The pertinent provisions of the Civil Code and Revised Penal Code are as follows: CIVIL CODE ART. 1089 Obligations arise from law, from contracts and quasi-contracts, and from acts and omissions which are unlawful or in which any kind of fault or negligence intervenes. xxx xxx xxx

ART. 1092. Civil obligations arising from felonies or misdemeanors shall be governed by the provisions of the Penal Code. ART. 1093. Those which are derived from acts or omissions in which fault or negligence, not punishable by law, intervenes shall be subject to the provisions of Chapter II, Title XVI of this book. xxx xxx xxx

ART 1902. Any person who by an act or omission causes damage to another by his fault or negligence shall be liable for the damage so done. ART. 1903. The obligation imposed by the next preceding article is enforcible, not only for personal acts and omissions, but also for those of persons for whom another is responsible. The father and in, case of his death or incapacity, the mother, are liable for any damages caused by the minor children who live with them. Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living with them. Owners or directors of an establishment or business are equally liable for any damages caused by their employees while engaged in the branch of the service in which employed, or on occasion of the performance of their duties. The State is subject to the same liability when it acts through a special agent, but not if the damage shall have been caused by the official upon whom properly devolved the duty of doing the act performed, in which case the provisions of the next preceding article shall be applicable.

Finally, teachers or directors of arts trades are liable for any damages caused by their pupils or apprentices while they are under their custody. The liability imposed by this article shall cease in case the persons mentioned therein prove that they are exercised all the diligence of a good father of a family to prevent the damage. ART. 1904. Any person who pays for damage caused by his employees may recover from the latter what he may have paid. REVISED PENAL CODE ART. 100. Civil liability of a person guilty of felony. Every person criminally liable for a felony is also civilly liable. ART. 101. Rules regarding civil liability in certain cases. The exemption from criminal liability established in subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11 of this Code does not include exemption from civil liability, which shall be enforced to the following rules: First. In cases of subdivision, 1, 2 and 3 of article 12 the civil liability for acts committed by any imbecile or insane person, and by a person under nine years of age, or by one over nine but under fifteen years of age, who has acted without discernment shall devolve upon those having such person under their legal authority or control, unless it appears that there was no fault or negligence on their part. Should there be no person having such insane, imbecile or minor under his authority, legal guardianship, or control, or if such person be insolvent, said insane, imbecile, or minor shall respond with their own property, excepting property exempt from execution, in accordance with the civil law. Second. In cases falling within subdivision 4 of article 11, the person for whose benefit the harm has been prevented shall be civilly liable in proportion to the benefit which they may have received. The courts shall determine, in their sound discretion, the proportionate amount for which each one shall be liable. When the respective shares can not be equitably determined, even approximately, or when the liability also attaches to the Government, or to the majority of the inhabitants of the town, and, in all events, whenever the damage has been caused with the consent of the authorities or their agents, indemnification shall be made in the manner prescribed by special laws or regulations. Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the fear shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable, saving always to the latter that part of their property exempt from execution. ART. 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment. In default of persons criminally liable, innkeepers, tavern keepers, and any other persons or corporation shall be civilly liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or some general or special police regulation shall have been committed by them or their employees. Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their houses lodging therein, or the person, or for the payment of the value thereof, provided that such guests shall have notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have followed the directions which such innkeeper or his representative may have given them with respect to the care of and vigilance over such goods. No liability shall attach in case of robbery with violence against or intimidation against or intimidation of persons unless committed by the innkeeper's employees. ART. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations

engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties. xxx xxx xxx

ART. 365. Imprudence and negligence. Any person who, by reckless imprudence, shall commit any act which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its maximum period to prision correccional in its minimum period; if it would have constituted a less grave felony, the penalty of arresto mayor in its minimum and medium periods shall be imposed. Any person who, by simple imprudence or negligence, shall commit an act which would otherwise constitute a grave felony, shall suffer the penalty of arresto mayor in its medium and maximum periods; if it would have constituted a less serious felony, the penalty of arresto mayor in its minimum period shall be imposed." It will thus be seen that while the terms of articles 1902 of the Civil Code seem to be broad enough to cover the driver's negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or omissions "not punishable by law." But inasmuch as article 365 of the Revised Penal Code punishes not only reckless but even simple imprudence or negligence, the fault or negligence under article 1902 of the Civil Code has apparently been crowded out. It is this overlapping that makes the "confusion worse confounded." However, a closer study shows that such a concurrence of scope in regard to negligent acts does not destroy the distinction between the civil liability arising from a crime and the responsibility for cuasi-delitos or culpa extra-contractual. The same negligent act causing damages may produce civil liability arising from a crime under article 100 of the Revised Penal Code, or create an action for cuasi-delito or culpa extra-contractual under articles 1902-1910 of the Civil Code. The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal institution is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish legal terminology, this responsibility is often referred to as culpa aquiliana. The Partidas also contributed to the genealogy of the present fault or negligence under the Civil Code; for instance, Law 6, Title 15, of Partida 7, says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a sabiendas en dao al otro, pero acaescio por su culpa." The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five sources of obligations is this legal institution of cuasi-delito or culpa extra-contractual: "los actos . . . en que intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-0910. This portion of the Civil Code is exclusively devoted to the legal institution of culpa aquiliana. Some of the differences between crimes under the Penal Code and the culpa aquiliana or cuasidelito under the Civil Code are: 1. That crimes affect the public interest, while cuasi-delitos are only of private concern. 2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of indemnification, merely repairs the damage. 3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law clearly covering them, while the latter, cuasi-delitos, include all acts in which "any king of fault or negligence intervenes." However, it should be noted that not all violations of the penal law produce civil responsibility, such as begging in contravention of ordinances, violation of the game laws, infraction of the rules of traffic when nobody is hurt. (See Colin and Capitant, "Curso Elemental de Derecho Civil," Vol. 3, p. 728.) Let us now ascertain what some jurists say on the separate existence of quasi-delicts and the employer's primary and direct liability under article 1903 of the Civil Code. Dorado Montero in his essay on "Responsibilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414) says:

El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes personas. Asi, existe una responsabilidad civil propiamente dicha, que en ningun casl lleva aparejada responsabilidad criminal alguna, y otra que es consecuencia indeclinable de la penal que nace de todo delito o falta." The juridical concept of civil responsibility has various aspects and comprises different persons. Thus, there is a civil responsibility, properly speaking, which in no case carries with it any criminal responsibility, and another which is a necessary consequence of the penal liability as a result of every felony or misdemeanor." Maura, an outstanding authority, was consulted on the following case: There had been a collision between two trains belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An employee of the latter had been prosecuted in a criminal case, in which the company had been made a party as subsidiarily responsible in civil damages. The employee had been acquitted in the criminal case, and the employer, the Ferrocarril del Norte, had also been exonerated. The question asked was whether the Ferrocarril Cantabrico could still bring a civil action for damages against the Ferrocarril del Norte. Maura's opinion was in the affirmative, stating in part (Maura, Dictamenes, Vol. 6, pp. 511-513): Quedando las cosas asi, a proposito de la realidad pura y neta de los hechos, todavia menos parece sostenible que exista cosa juzgada acerca de la obligacion civil de indemnizar los quebrantos y menoscabos inferidos por el choque de los trenes. El titulo en que se funda la accion para demandar el resarcimiento, no puede confundirse con las responsabilidades civiles nacidas de delito, siquiera exista en este, sea el cual sea, una culpa rodeada de notas agravatorias que motivan sanciones penales, mas o menos severas. La lesion causada por delito o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones, que cual la pena misma ataen al orden publico; por tal motivo vienen encomendadas, de ordinario, al Ministerio Fiscal; y claro es que si por esta via se enmiendan los quebrantos y menoscabos, el agraviado excusa procurar el ya conseguido desagravio; pero esta eventual coincidencia de los efectos, no borra la diversidad originaria de las acciones civiles para pedir indemnizacion. Estas, para el caso actual (prescindiendo de culpas contractuales, que no vendrian a cuento y que tiene otro regimen), dimanan, segun el articulo 1902 del Codigo Civil, de toda accion u omision, causante de daos o perjuicios, en que intervenga culpa o negligencia. Es trivial que acciones semejantes son ejercitadas ante los Tribunales de lo civil cotidianamente, sin que la Justicia punitiva tenga que mezclarse en los asuntos. Los articulos 18 al 21 y 121 al 128 del Codigo Penal, atentos al espiritu y a los fines sociales y politicos del mismo, desenvuelven y ordenan la materia de responsabilidades civiles nacidas de delito, en terminos separados del regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes legislativos del Corpus Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de la obligacion de indemnizar a titulo de culpa civil; pero viene al caso y es necesaria una de las diferenciaciones que en el tal paralelo se notarian. Los articulos 20 y 21 del Codigo Penal, despues de distribuir a su modo las responsabilidades civiles, entre los que sean por diversos conceptos culpables del delito o falta, las hacen extensivas a las empresas y los establecimientos al servicio de los cuales estan los delincuentes; pero con caracter subsidiario, o sea, segun el texto literal, en defecto de los que sean responsables criminalmente. No coincide en ello el Codigo Civil, cuyo articulo 1903, dice; La obligacion que impone el articulo anterior es exigible, no solo por los actos y omisiones propios, sino por los de aquellas personas de quienes se debe responder; personas en la enumeracion de las cuales figuran los dependientes y empleados de los establecimientos o empresas, sea por actos del servicio, sea con ocasion de sus funciones. Por esto acontece, y se observa en la jurisprudencia, que las empresas, despues de intervenir en las causas criminales con el caracter subsidiario de su responsabilidad civil por razon del delito, son demandadas y condenadas directa y aisladamente, cuando se trata de la obligacion, ante los tribunales civiles. Siendo como se ve, diverso el titulo de esta obligacion, y formando verdadero postulado de nuestro regimen judicial la separacion entre justicia punitiva y tribunales de lo civil, de suerte que tienen unos y otros normas de fondo en distintos cuerpos legales, y diferentes modos de proceder, habiendose, por aadidura, abstenido de asistir al juicio criminal la Compaia del Ferrocarril Cantabrico, que se reservo ejercitar sus acciones, parece innegable que la de indemnizacion por los daos y perjuicios que le irrogo el choque, no estuvo sub judice ante

el Tribunal del Jurado, ni fue sentenciada, sino que permanecio intacta, al pronunciarse el fallo de 21 de marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose mas arriba, que tal accion quedaba legitimamente reservada para despues del proceso; pero al declararse que no existio delito, ni responsabilidad dimanada de delito, materia unica sobre que tenian jurisdiccion aquellos juzgadores, se redobla el motivo para la obligacion civil ex lege, y se patentiza mas y mas que la accion para pedir su cumplimiento permanece incolume, extraa a la cosa juzgada. As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there should beres judicata with regard to the civil obligation for damages on account of the losses caused by the collision of the trains. The title upon which the action for reparation is based cannot be confused with the civil responsibilities born of a crime, because there exists in the latter, whatever each nature, a culpasurrounded with aggravating aspects which give rise to penal measures that are more or less severe. The injury caused by a felony or misdemeanor upon civil rights requires restitutions, reparations, or indemnifications which, like the penalty itself, affect public order; for this reason, they are ordinarily entrusted to the office of the prosecuting attorney; and it is clear that if by this means the losses and damages are repaired, the injured party no longer desires to seek another relief; but this coincidence of effects does not eliminate the peculiar nature of civil actions to ask for indemnity. Such civil actions in the present case (without referring to contractual faults which are not pertinent and belong to another scope) are derived, according to article 1902 of the Civil Code, from every act or omission causing losses and damages in which culpa or negligence intervenes. It is unimportant that such actions are every day filed before the civil courts without the criminal courts interfering therewith. Articles 18 to 21 and 121 to 128 of the Penal Code, bearing in mind the spirit and the social and political purposes of that Code, develop and regulate the matter of civil responsibilities arising from a crime, separately from the regime under common law, of culpa which is known as aquiliana, in accordance with legislative precedent of the Corpus Juris. It would be unwarranted to make a detailed comparison between the former provisions and that regarding the obligation to indemnify on account of civil culpa; but it is pertinent and necessary to point out to one of such differences. Articles 20 and 21 of the Penal Code, after distriburing in their own way the civil responsibilities among those who, for different reasons, are guilty of felony or misdemeanor, make such civil responsibilities applicable to enterprises and establishments for which the guilty parties render service, but with subsidiary character, that is to say, according to the wording of the Penal Code, in default of those who are criminally responsible. In this regard, the Civil Code does not coincide because article 1903 says: "The obligation imposed by the next preceding article is demandable, not only for personal acts and omissions, but also for those of persons for whom another is responsible." Among the persons enumerated are the subordinates and employees of establishments or enterprises, either for acts during their service or on the occasion of their functions. It is for this reason that it happens, and it is so observed in judicial decisions, that the companies or enterprises, after taking part in the criminal cases because of their subsidiary civil responsibility by reason of the crime, are sued and sentenced directly and separately with regard to theobligation, before the civil courts. Seeing that the title of this obligation is different, and the separation between punitive justice and the civil courts being a true postulate of our judicial system, so that they have different fundamental norms in different codes, as well as different modes of procedure, and inasmuch as the Compaa del Ferrocarril Cantabrico has abstained from taking part in the criminal case and has reserved the right to exercise its actions, it seems undeniable that the action for indemnification for the losses and damages caused to it by the collision was not sub judice before the Tribunal del Jurado, nor was it the subject of a sentence, but it remained intact when the decision of March 21 was rendered. Even if the verdict had not been that of acquittal, it has already been shown that such action had been legitimately reserved till after the criminal prosecution; but because of the declaration of the nonexistence of the felony and the non-existence of the responsibility arising from the crime, which was the sole subject matter upon which the Tribunal del Juradohad jurisdiction, there is greater reason for the civil obligation ex lege, and it becomes clearer that the action for its enforcement remain intact and is not res judicata.

Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil Code is largely based and whose provisions on cuasi-delito or culpa extra-contractual are similar to those of the Spanish Civil Code, says, referring to article 1384 of the French Civil Code which corresponds to article 1903, Spanish Civil Code: The action can be brought directly against the person responsible (for another), without including the author of the act. The action against the principal is accessory in the sense that it implies the existence of a prejudicial act committed by the employee, but it is not subsidiary in the sense that it can not be instituted till after the judgment against the author of the act or at least, that it is subsidiary to the principal action; the action for responsibility (of the employer) is in itself a principal action. (Laurent, Principles of French Civil Law, Spanish translation, Vol. 20, pp. 734-735.) Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the responsibility of the employer is principal and not subsidiary. He writes: Cuestion 1. La responsabilidad declarada en el articulo 1903 por las acciones u omisiones de aquellas personas por las que se debe responder, es subsidiaria? es principal? Para contestar a esta pregunta es necesario saber, en primer lugar, en que se funda el precepto legal. Es que realmente se impone una responsabilidad por una falta ajena? Asi parece a primera vista; pero semejante afirmacion seria contraria a la justicia y a la maxima universal, segun la que las faltas son personales, y cada uno responde de aquellas que le son imputables. La responsabilidad de que tratamos se impone con ocasion de un delito o culpa, pero no por causa de ellos, sino por causa del causi delito, esto es, de la imprudencia o de la negligencia del padre, del tutor, del dueo o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas que enumera el articulo citado (menores de edad, incapacitados, dependientes, aprendices) causan un dao, la ley presume que el padre, el tutor, el maestro, etc., han cometido una falta de negligencia para prevenir o evitar el dao. Esta falta es la que la ley castiga. No hay, pues, responsabilidad por un hecho ajeno, sino en la apariencia; en realidad la responsabilidad se exige por un hecho propio. La idea de que esa responsabilidad sea subsidiaria es, por lo tanto, completamente inadmisible. Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those persons for who one is responsible, subsidiary or principal? In order to answer this question it is necessary to know, in the first place, on what the legal provision is based. Is it true that there is a responsibility for the fault of another person? It seems so at first sight; but such assertion would be contrary to justice and to the universal maxim that all faults are personal, and that everyone is liable for those faults that can be imputed to him. The responsibility in question is imposed on the occasion of a crime or fault, but not because of the same, but because of the cuasi-delito, that is to say, the imprudence or negligence of the father, guardian, proprietor or manager of the establishment, of the teacher, etc. Whenever anyone of the persons enumerated in the article referred to (minors, incapacitated persons, employees, apprentices) causes any damage, the law presumes that the father, guardian, teacher, etc. have committed an act of negligence in not preventing or avoiding the damage. It is this fault that is condemned by the law. It is, therefore, only apparent that there is a responsibility for the act of another; in reality the responsibility exacted is for one's own act. The idea that such responsibility is subsidiary is, therefore, completely inadmissible. Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Codigo Civil Espaol," says in Vol. VII, p. 743: Es decir, no responde de hechos ajenos, porque se responde solo de su propia culpa, doctrina del articulo 1902; mas por excepcion, se responde de la ajena respecto de aquellas personas con las que media algun nexo o vinculo, que motiva o razona la responsabilidad. Esta responsabilidad, es directa o es subsidiaria? En el orden penal, el Codigo de esta clase distingue entre menores e incapacitados y los demas, declarando directa la primera (articulo 19) y subsidiaria la segunda (articulos 20 y 21); pero en el orden civil, en el caso del articulo 1903, ha de entenderse directa, por el tenor del articulo que impone la responsabilidad precisamente "por los actos de aquellas personas de quienes se deba responder." That is to say, one is not responsible for the acts of others, because one is liable only for his own faults, this being the doctrine of article 1902; but, by exception, one is liable for the acts of those persons with whom there is a bond or tie which gives rise to the responsibility. Is this responsibility direct or subsidiary? In the order of the penal law, the Penal Code

distinguishes between minors and incapacitated persons on the one hand, and other persons on the other, declaring that the responsibility for the former is direct (article 19), and for the latter, subsidiary (articles 20 and 21); but in the scheme of the civil law, in the case of article 1903, the responsibility should be understood as direct, according to the tenor of that articles, for precisely it imposes responsibility "for the acts of those persons for whom one should be responsible." Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles above set forth: that a quasi-delict or culpa extra-contractual is a separate and distinct legal institution, independent from the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil Code, primarily and directly responsible for the negligent acts of his employee. One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon Lafuente died as the result of having been run over by a street car owned by the "compaia Electric Madrilea de Traccion." The conductor was prosecuted in a criminal case but he was acquitted. Thereupon, the widow filed a civil action against the street car company, paying for damages in the amount of 15,000 pesetas. The lower court awarded damages; so the company appealed to the Supreme Tribunal, alleging violation of articles 1902 and 1903 of the Civil Code because by final judgment the non-existence of fault or negligence had been declared. The Supreme Court of Spain dismissed the appeal, saying: Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el Tribunal a quo, al condonar a la compaia Electrica Madrilea al pago del dao causado con la muerte de Ramon La fuente Izquierdo, desconoce el valor y efectos juridicos de la sentencia absolutoria deictada en la causa criminal que se siguio por el mismo hecho, cuando es lo cierto que de este han conocido las dos jurisdicciones bajo diferentes as pectos, y como la de lo criminal declrao dentro de los limites de su competencia que el hecho de que se trata no era constitutivo de delito por no haber mediado descuido o negligencia graves, lo que no excluye, siendo este el unico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no califacadas, fuente de obligaciones civiles segun el articulo 1902 del Codigo, y que alcanzan, segun el 1903, netre otras perosnas, a los Directores de establecimientos o empresas por los daos causados por sus dependientes en determinadas condiciones, es manifesto que la de lo civil, al conocer del mismo hehco baho este ultimo aspecto y al condenar a la compaia recurrente a la indemnizacion del dao causado por uno de sus empleados, lejos de infringer los mencionados textos, en relacion con el articulo 116 de la Ley de Enjuciamiento Criminal, se ha atenido estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccion propia, ni contrariar en lo mas minimo el fallo recaido en la causa. Considering that the first ground of the appeal is based on the mistaken supposition that the trial court, in sentencing the Compaia Madrilea to the payment of the damage caused by the death of Ramon Lafuente Izquierdo, disregards the value and juridical effects of the sentence of acquittal rendered in the criminal case instituted on account of the same act, when it is a fact that the two jurisdictions had taken cognizance of the same act in its different aspects, and as the criminal jurisdiction declared within the limits of its authority that the act in question did not constitute a felony because there was no grave carelessness or negligence, and this being the only basis of acquittal, it does no exclude the co-existence of fault or negligence which is not qualified, and is a source of civil obligations according to article 1902 of the Civil Code, affecting, in accordance with article 1903, among other persons, the managers of establishments or enterprises by reason of the damages caused by employees under certain conditions, it is manifest that the civil jurisdiccion in taking cognizance of the same act in this latter aspect and in ordering the company, appellant herein, to pay an indemnity for the damage caused by one of its employees, far from violating said legal provisions, in relation with article 116 of the Law of Criminal Procedure, strictly followed the same, without invading attributes which are beyond its own jurisdiction, and without in any way contradicting the decision in that cause. (Emphasis supplied.) It will be noted, as to the case just cited: First. That the conductor was not sued in a civil case, either separately or with the street car company. This is precisely what happens in the present case: the driver, Fontanilla, has not been sued in a civil action, either alone or with his employer.

Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal of Spain said that this did not exclude the co-existence of fault or negligence, which is not qualified, on the part of the conductor, under article 1902 of the Civil Code. In the present case, the taxi driver was found guilty of criminal negligence, so that if he had even sued for his civil responsibility arising from the crime, he would have been held primarily liable for civil damages, and Barredo would have been held subsidiarily liable for the same. But the plaintiffs are directly suing Barredo, on his primary responsibility because of his own presumed negligence which he did not overcome under article 1903. Thus, there were two liabilities of Barredo: first, the subsidiary one because of the civil liability of the taxi driver arising from the latter's criminal negligence; and, second, Barredo's primary liability as an employer under article 1903. The plaintiffs were free to choose which course to take, and they preferred the second remedy. In so doing, they were acting within their rights. It might be observed in passing, that the plaintiff choose the more expeditious and effective method of relief, because Fontanilla was either in prison, or had just been released, and besides, he was probably without property which might be seized in enforcing any judgment against him for damages. Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly, notwithstanding the acquittal of the employee (the conductor) in a previous criminal case, with greater reason should Barredo, the employer in the case at bar, be held liable for damages in a civil suit filed against him because his taxi driver had been convicted. The degree of negligence of the conductor in the Spanish case cited was less than that of the taxi driver, Fontanilla, because the former was acquitted in the previous criminal case while the latter was found guilty of criminal negligence and was sentenced to an indeterminate sentence of one year and one day to two years of prision correccional. (See also Sentence of February 19, 1902, which is similar to the one above quoted.) In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against a railroad company for damages because the station agent, employed by the company, had unjustly andfraudulently, refused to deliver certain articles consigned to the plaintiff. The Supreme Court of Spain held that this action was properly under article 1902 of the Civil Code, the court saying: Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con relacion a las pruebas del pleito: 1., que las expediciones facturadas por la compaia ferroviaria a la consignacion del actor de las vasijas vacias que en su demanda relacionan tenian como fin el que este las devolviera a sus remitentes con vinos y alcoholes; 2., que llegadas a su destino tales mercanias no se quisieron entregar a dicho consignatario por el jefe de la estacion sin motivo justificado y con intencion dolosa, y 3., que la falta de entrega de estas expediciones al tiempo de reclamarlas el demandante le originaron daos y perjuicios en cantidad de bastante importancia como expendedor al por mayor que era de vinos y alcoholes por las ganancias que dejo de obtener al verse privado de servir los pedidos que se le habian hecho por los remitentes en los envases: Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este recurso, porque la demanda inicial del pleito a que se contrae no contiene accion que nazca del incumplimiento del contrato de transporte, toda vez que no se funda en el retraso de la llegada de las mercancias ni de ningun otro vinculo contractual entre las partes contendientes, careciendo, por tanto, de aplicacion el articulo 371 del Codigo de Comercio, en que principalmente descansa el fallo recurrido, sino que se limita a pedir la reparaction de los daos y perjuicios producidos en el patrimonio del actor por la injustificada y dolosa negativa del porteador a la entrega de las mercancias a su nombre consignadas, segun lo reconoce la sentencia, y cuya responsabilidad esta claramente sancionada en el articulo 1902 del Codigo Civil, que obliga por el siguiente a la Compaia demandada como ligada con el causante de aquellos por relaciones de caracter economico y de jurarquia administrativa. Considering that the sentence, in question recognizes, in virtue of the facts which it declares, in relation to the evidence in the case: (1) that the invoice issued by the railroad company in favor of the plaintiff contemplated that the empty receptacles referred to in the complaint should be returned to the consignors with wines and liquors; (2) that when the said merchandise reached their destination, their delivery to the consignee was refused by the station agent without justification and with fraudulent intent, and (3) that the lack of delivery of these goods when they were demanded by the plaintiff caused him losses and damages

of considerable importance, as he was a wholesale vendor of wines and liquors and he failed to realize the profits when he was unable to fill the orders sent to him by the consignors of the receptacles: Considering that upon this basis there is need of upholding the four assignments of error, as the original complaint did not contain any cause of action arising from non-fulfillment of a contract of transportation, because the action was not based on the delay of the goods nor on any contractual relation between the parties litigant and, therefore, article 371 of the Code of Commerce, on which the decision appealed from is based, is not applicable; but it limits to asking for reparation for losses and damages produced on the patrimony of the plaintiff on account of the unjustified and fraudulent refusal of the carrier to deliver the goods consigned to the plaintiff as stated by the sentence, and the carrier's responsibility is clearly laid down in article 1902 of the Civil Code which binds, in virtue of the next article, the defendant company, because the latter is connected with the person who caused the damage by relations of economic character and by administrative hierarchy. (Emphasis supplied.) The above case is pertinent because it shows that the same act may come under both the Penal Code and the Civil Code. In that case, the action of the agent was unjustified and fraudulent and therefore could have been the subject of a criminal action. And yet, it was held to be also a proper subject of a civil action under article 1902 of the Civil Code. It is also to be noted that it was the employer and not the employee who was being sued. Let us now examine the cases previously decided by this Court. In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial court awarded damages to the plaintiff, a laborer of the defendant, because the latter had negligently failed to repair a tramway in consequence of which the rails slid off while iron was being transported, and caught the plaintiff whose leg was broken. This Court held: It is contended by the defendant, as its first defense to the action that the necessary conclusion from these collated laws is that the remedy for injuries through negligence lies only in a criminal action in which the official criminally responsible must be made primarily liable and his employer held only subsidiarily to him. According to this theory the plaintiff should have procured the arrest of the representative of the company accountable for not repairing the track, and on his prosecution a suitable fine should have been imposed, payable primarily by him and secondarily by his employer. This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the Civil Code makes obligations arising from faults or negligence not punished by the law, subject to the provisions of Chapter II of Title XVI. Section 1902 of that chapter reads: "A person who by an act or omission causes damage to another when there is fault or negligence shall be obliged to repair the damage so done. "SEC. 1903. The obligation imposed by the preceeding article is demandable, not only for personal acts and omissions, but also for those of the persons for whom they should be responsible. "The father, and on his death or incapacity, the mother, is liable for the damages caused by the minors who live with them. xxx xxx xxx

"Owners or directors of an establishment or enterprise are equally liable for the damages caused by their employees in the service of the branches in which the latter may be employed or in the performance of their duties. xxx xxx xxx

"The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the diligence of a good father of a family to avoid the damage."

As an answer to the argument urged in this particular action it may be sufficient to point out that nowhere in our general statutes is the employer penalized for failure to provide or maintain safe appliances for his workmen. His obligation therefore is one 'not punished by the laws' and falls under civil rather than criminal jurisprudence. But the answer may be a broader one. We should be reluctant, under any conditions, to adopt a forced construction of these scientific codes, such as is proposed by the defendant, that would rob some of these articles of effect, would shut out litigants against their will from the civil courts, would make the assertion of their rights dependent upon the selection for prosecution of the proper criminal offender, and render recovery doubtful by reason of the strict rules of proof prevailing in criminal actions. Even if these articles had always stood alone, such a construction would be unnecessary, but clear light is thrown upon their meaning by the provisions of the Law of Criminal Procedure of Spain (Ley de Enjuiciamiento Criminal), which, though never in actual force in these Islands, was formerly given a suppletory or explanatory effect. Under article 111 of this law, both classes of action, civil and criminal, might be prosecuted jointly or separately, but while the penal action was pending the civil was suspended. According to article 112, the penal action once started, the civil remedy should be sought therewith, unless it had been waived by the party injured or been expressly reserved by him for civil proceedings for the future. If the civil action alone was prosecuted, arising out of a crime that could be enforced only on private complaint, the penal action thereunder should be extinguished. These provisions are in harmony with those of articles 23 and 133 of our Penal Code on the same subject. An examination of this topic might be carried much further, but the citation of these articles suffices to show that the civil liability was not intended to be merged in the criminal nor even to be suspended thereby, except as expressly provided in the law. Where an individual is civilly liable for a negligent act or omission, it is not required that the injured party should seek out a third person criminally liable whose prosecution must be a condition precedent to the enforcement of the civil right. Under article 20 of the Penal Code the responsibility of an employer may be regarded as subsidiary in respect of criminal actions against his employees only while they are in process of prosecution, or in so far as they determine the existence of the criminal act from which liability arises, and his obligation under the civil law and its enforcement in the civil courts is not barred thereby unless by the election of the injured person. Inasmuch as no criminal proceeding had been instituted, growing our of the accident in question, the provisions of the Penal Code can not affect this action. This construction renders it unnecessary to finally determine here whether this subsidiary civil liability in penal actions has survived the laws that fully regulated it or has been abrogated by the American civil and criminal procedure now in force in the Philippines. The difficulty in construing the articles of the code above cited in this case appears from the briefs before us to have arisen from the interpretation of the words of article 1093, "fault or negligence not punished by law," as applied to the comprehensive definition of offenses in articles 568 and 590 of the Penal Code. It has been shown that the liability of an employer arising out of his relation to his employee who is the offender is not to be regarded as derived from negligence punished by the law, within the meaning of articles 1902 and 1093. More than this, however, it cannot be said to fall within the class of acts unpunished by the law, the consequence of which are regulated by articles 1902 and 1903 of the Civil Code. The acts to which these articles are applicable are understood to be those not growing out of pre-existing duties of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of the same code. A typical application of this distinction may be found in the consequences of a railway accident due to defective machinery supplied by the employer. His liability to his employee would arise out of the contract of employment, that to the passengers out of the contract for passage, while that to the injured bystander would originate in the negligent act itself. In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 of 9-year-old child Salvador Bona brought a civil action against Moreta to recover damages resulting from the death of the child, who had been run over by an automobile driven and managed by the defendant. The trial court rendered judgment requiring the defendant to pay the plaintiff the sum of P1,000 as indemnity: This Court in affirming the judgment, said in part:

If it were true that the defendant, in coming from the southern part of Solana Street, had to stop his auto before crossing Real Street, because he had met vehicles which were going along the latter street or were coming from the opposite direction along Solana Street, it is to be believed that, when he again started to run his auto across said Real Street and to continue its way along Solana Street northward, he should have adjusted the speed of the auto which he was operating until he had fully crossed Real Street and had completely reached a clear way on Solana Street. But, as the child was run over by the auto precisely at the entrance of Solana Street, this accident could not have occurred if the auto had been running at a slow speed, aside from the fact that the defendant, at the moment of crossing Real Street and entering Solana Street, in a northward direction, could have seen the child in the act of crossing the latter street from the sidewalk on the right to that on the left, and if the accident had occurred in such a way that after the automobile had run over the body of the child, and the child's body had already been stretched out on the ground, the automobile still moved along a distance of about 2 meters, this circumstance shows the fact that the automobile entered Solana Street from Real Street, at a high speed without the defendant having blown the horn. If these precautions had been taken by the defendant, the deplorable accident which caused the death of the child would not have occurred. It will be noticed that the defendant in the above case could have been prosecuted in a criminal case because his negligence causing the death of the child was punishable by the Penal Code. Here is therefore a clear instance of the same act of negligence being a proper subject-matter either of a criminal action with its consequent civil liability arising from a crime or of an entirely separate and independent civil action for fault or negligence under article 1902 of the Civil Code. Thus, in this jurisdiction, the separate individually of a cuasi-delito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with regard to a negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for which, after such a conviction, he could have been sued for this civil liability arising from his crime. Years later (in 1930) this Court had another occasion to apply the same doctrine. In Bernal and Enverso vs. House and Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the parents of the five-yearold child, Purificacion Bernal, brought a civil action to recover damages for the child's death as a result of burns caused by the fault and negligence of the defendants. On the evening of April 10, 1925, the Good Friday procession was held in Tacloban, Leyte. Fortunata Enverso with her daughter Purificacion Bernal had come from another municipality to attend the same. After the procession the mother and the daughter with two others were passing along Gran Capitan Street in front of the offices of the Tacloban Electric & Ice Plant, Ltd., owned by defendants J. V. House, when an automobile appeared from the opposite direction. The little girl, who was slightly ahead of the rest, was so frightened by the automobile that she turned to run, but unfortunately she fell into the street gutter where hot water from the electric plant was flowing. The child died that same night from the burns. The trial courts dismissed the action because of the contributory negligence of the plaintiffs. But this Court held, on appeal, that there was no contributory negligence, and allowed the parents P1,000 in damages from J. V. House who at the time of the tragic occurrence was the holder of the franchise for the electric plant. This Court said in part: Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led to order the dismissal of the action because of the contributory negligence of the plaintiffs. It is from this point that a majority of the court depart from the stand taken by the trial judge. The mother and her child had a perfect right to be on the principal street of Tacloban, Leyte, on the evening when the religious procession was held. There was nothing abnormal in allowing the child to run along a few paces in advance of the mother. No one could foresee the coincidence of an automobile appearing and of a frightened child running and falling into a ditch filled with hot water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and Pacific Co. ([1907]), 7 Phil., 359), still rule. Article 1902 of the Civil Code must again be enforced. The contributory negligence of the child and her mother, if any, does not operate as a bar to recovery, but in its strictest sense could only result in reduction of the damages. It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil Code. It is thus that although J. V. House could have been criminally prosecuted for reckless or simple negligence and not only punished but also made civilly liable because of his criminal negligence, nevertheless this Court awarded damages in an independent civil action for fault or negligence under article 1902 of the Civil Code.

In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915), the action was for damages for the death of the plaintiff's daughter alleged to have been caused by the negligence of the servant in driving an automobile over the child. It appeared that the cause of the mishap was a defect in the steering gear. The defendant Leynes had rented the automobile from the International Garage of Manila, to be used by him in carrying passengers during the fiesta of Tuy, Batangas. Leynes was ordered by the lower court to pay P1,000 as damages to the plaintiff. On appeal this Court reversed the judgment as to Leynes on the ground that he had shown that the exercised the care of a good father of a family, thus overcoming the presumption of negligence under article 1903. This Court said: As to selection, the defendant has clearly shown that he exercised the care and diligence of a good father of a family. He obtained the machine from a reputable garage and it was, so far as appeared, in good condition. The workmen were likewise selected from a standard garage, were duly licensed by the Government in their particular calling, and apparently thoroughly competent. The machine had been used but a few hours when the accident occurred and it is clear from the evidence that the defendant had no notice, either actual or constructive, of the defective condition of the steering gear. The legal aspect of the case was discussed by this Court thus: Article 1903 of the Civil Code not only establishes liability in cases of negligence, but also provides when the liability shall cease. It says: "The liability referred to in this article shall cease when the persons mentioned therein prove that they employed all the diligence of a good father of a family to avoid the damage." From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the matter or employer either in the selection of the servant or employee, or in supervision over him after the selection, or both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieve from liability. This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the latter case, the complaint alleged that the defendant's servant had so negligently driven an automobile, which was operated by defendant as a public vehicle, that said automobile struck and damaged the plaintiff's motorcycle. This Court, applying article 1903 and following the rule in Bahia vs. Litonjua and Leynes, said in part (p. 41) that: The master is liable for the negligent acts of his servant where he is the owner or director of a business or enterprise and the negligent acts are committed while the servant is engaged in his master's employment as such owner. Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton & Harrison Co., 55 Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for the death of his seven-year-old son Moises. The little boy was on his way to school with his sister Marciana. Some large pieces of lumber fell from a truck and pinned the boy underneath, instantly killing him. Two youths, Telesforo Binoya and Francisco Bautista, who were working for Ora, an employee of defendant Norton & Harrison Co., pleaded guilty to the crime of homicide through reckless negligence and were sentenced accordingly. This Court, applying articles 1902 and 1903, held: The basis of civil law liability is not respondent superior but the relationship of pater familias. This theory bases the liability of the master ultimately on his own negligence and not on that of his servant. (Bahia vs.Litonjua and Leynes [1915], 30 Phil., 624; Cangco vs. Manila Railroad Co. [1918], 38 Phil., 768.)

In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff brought an action for damages for the demolition of its wharf, which had been struck by the steamer Helen C belonging to the defendant. This Court held (p. 526): The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed captain, authorized to navigate and direct a vessel of any tonnage, and that the appellee contracted his services because of his reputation as a captain, according to F. C. Cadwallader. This being so, we are of the opinion that the presumption of liability against the defendant has been overcome by the exercise of the care and diligence of a good father of a family in selecting Captain Lasa, in accordance with the doctrines laid down by this court in the cases cited above, and the defendant is therefore absolved from all liability. It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases above set forth. He is, on the authority of these cases, primarily and directly responsible in damages under article 1903, in relation to article 1902, of the Civil Code. Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila vs. Manila Electric Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a street car of the Manila Electric Co. took place on June 8, 1925. The truck was damaged in the amount of P1,788.27. Sixto Eustaquio, the motorman, was prosecuted for the crime of damage to property and slight injuries through reckless imprudence. He was found guilty and sentenced to pay a fine of P900, to indemnify the City of Manila for P1,788.27, with subsidiary imprisonment in case of insolvency. Unable to collect the indemnity from Eustaquio, the City of Manila filed an action against the Manila Electric Company to obtain payment, claiming that the defendant was subsidiarily liable. The main defense was that the defendant had exercised the diligence of a good father of a family to prevent the damage. The lower court rendered judgment in favor of the plaintiff. This Court held, in part, that this case was governed by the Penal Code, saying: With this preliminary point out of the way, there is no escaping the conclusion that the provisions of the Penal Code govern. The Penal Code in easily understandable language authorizes the determination of subsidiary liability. The Civil Code negatives its application by providing that civil obligations arising from crimes or misdemeanors shall be governed by the provisions of the Penal Code. The conviction of the motorman was a misdemeanor falling under article 604 of the Penal Code. The act of the motorman was not a wrongful or negligent act or omission not punishable by law. Accordingly, the civil obligation connected up with the Penal Code and not with article 1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while the Civil Code negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises and not a case of civil negligence. xxx xxx xxx

Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code. Indeed, as pointed out by the trial judge, any different ruling would permit the master to escape scot-free by simply alleging and proving that the master had exercised all diligence in the selection and training of its servants to prevent the damage. That would be a good defense to a strictly civil action, but might or might not be to a civil action either as a part of or predicated on conviction for a crime or misdemeanor. (By way of parenthesis, it may be said further that the statements here made are offered to meet the argument advanced during our deliberations to the effect that article 0902 of the Civil Code should be disregarded and codal articles 1093 and 1903 applied.) It is not clear how the above case could support the defendant's proposition, because the Court of Appeals based its decision in the present case on the defendant's primary responsibility under article 1903 of the Civil Code and not on his subsidiary liability arising from Fontanilla's criminal negligence. In other words, the case of City of Manila vs. Manila Electric Co., supra, is predicated on an entirely different theory, which is the subsidiary liability of an employer arising from a criminal act of his employee, whereas the foundation of the decision of the Court of Appeals in the present case is the employer's primary liability under article 1903 of the Civil Code. We have already seen that this is a proper and independent remedy. Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in the employ of the Manila Electric Company had been convicted o homicide by simple negligence and sentenced, among other things, to pay the heirs of the deceased the sum of P1,000. An action was then brought to enforce the subsidiary liability of the defendant as employer under the

Penal Code. The defendant attempted to show that it had exercised the diligence of a good father of a family in selecting the motorman, and therefore claimed exemption from civil liability. But this Court held: In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption from civil liability established in article 1903 of the Civil Code for all who have acted with the diligence of a good father of a family, is not applicable to the subsidiary civil liability provided in article 20 of the Penal Code. The above case is also extraneous to the theory of the defendant in the instant case, because the action there had for its purpose the enforcement of the defendant's subsidiary liability under the Penal Code, while in the case at bar, the plaintiff's cause of action is based on the defendant's primary and direct responsibility under article 1903 of the Civil Code. In fact, the above case destroys the defendant's contention because that decision illustrates the principle that the employer's primary responsibility under article 1903 of the Civil Code is different in character from his subsidiary liability under the Penal Code. In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the distinction between civil liability arising from a crime, which is governed by the Penal Code, and the responsibility for cuasi-delito or culpa aquiliana under the Civil Code, and has likewise failed to give the importance to the latter type of civil action. The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth. Suffice it to say that the question involved was also civil liability arising from a crime. Hence, it is as inapplicable as the two cases above discussed. The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitos or culpa aquiliana under the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude that the employer in this case the defendant-petitioner is primarily and directly liable under article 1903 of the Civil Code. The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this case. But inasmuch as we are announcing doctrines that have been little understood in the past, it might not be inappropriate to indicate their foundations. Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we were to hold that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by law, according to the literal import of article 1093 of the Civil Code, the legal institution of culpa aquiliana would have very little scope and application in actual life. Death or injury to persons and damage to property through any degree of negligence even the slightest would have to be indemnified only through the principle of civil liability arising from a crime. In such a state of affairs, what sphere would remain for cuasi-delito or culpa aquiliana? We are loath to impute to the lawmaker any intention to bring about a situation so absurd and anomalous. Nor are we, in the interpretation of the laws, disposed to uphold the letter that killeth rather than the spirit that giveth life. We will not use the literal meaning of the law to smother and render almost lifeless a principle of such ancient origin and such full-grown development as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902 to 1910 of the Spanish Civil Code. Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required, while in a civil case, preponderance of evidence is sufficient to make the defendant pay in damages. There are numerous cases of criminal negligence which can not be shown beyond reasonable doubt, but can be proved by a preponderance of evidence. In such cases, the defendant can and should be made responsible in a civil action under articles 1902 to 1910 of the Civil Code. Otherwise, there would be many instances of unvindicated civil wrongs. Ubi jus ibi remedium. Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the driver and exhaust his (the latter's) property first, would be tantamount to compelling the plaintiff to follow a devious and cumbersome method of obtaining relief. True, there is such a remedy under our laws, but there is also a more expeditious way, which is based on the primary and direct responsibility of the defendant under article 1903 of the Civil Code. Our view of the law is more likely

to facilitate remedy for civil wrongs, because the procedure indicated by the defendant is wasteful and productive of delay, it being a matter of common knowledge that professional drivers of taxis and similar public conveyance usually do not have sufficient means with which to pay damages. Why, then, should the plaintiff be required in all cases to go through this roundabout, unnecessary, and probably useless procedure? In construing the laws, courts have endeavored to shorten and facilitate the pathways of right and justice. At this juncture, it should be said that the primary and direct responsibility of employers and their presumed negligence are principles calculated to protect society. Workmen and employees should be carefully chosen and supervised in order to avoid injury to the public. It is the masters or employers who principally reap the profits resulting from the services of these servants and employees. It is but right that they should guarantee the latter's careful conduct for the personnel and patrimonial safety of others. As Theilhard has said, "they should reproach themselves, at least, some for their weakness, others for their poor selection and all for their negligence." And according to Manresa, "It is much more equitable and just that such responsibility should fall upon the principal or director who could have chosen a careful and prudent employee, and not upon the injured person who could not exercise such selection and who used such employee because of his confidence in the principal or director." (Vol. 12, p. 622, 2nd Ed.) Many jurists also base this primary responsibility of the employer on the principle of representation of the principal by the agent. Thus, Oyuelos says in the work already cited (Vol. 7, p. 747) that before third persons the employer and employee "vienen a ser como una sola personalidad, por refundicion de la del dependiente en la de quien le emplea y utiliza." ("become as one personality by the merging of the person of the employee in that of him who employs and utilizes him.") All these observations acquire a peculiar force and significance when it comes to motor accidents, and there is need of stressing and accentuating the responsibility of owners of motor vehicles. Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this subject, which has given rise to the overlapping or concurrence of spheres already discussed, and for lack of understanding of the character and efficacy of the action for culpa aquiliana, there has grown up a common practice to seek damages only by virtue of the civil responsibility arising from a crime, forgetting that there is another remedy, which is by invoking articles 1902-1910 of the Civil Code. Although this habitual method is allowed by our laws, it has nevertheless rendered practically useless and nugatory the more expeditious and effective remedy based on culpa aquiliana or culpa extra-contractual. In the present case, we are asked to help perpetuate this usual course. But we believe it is high time we pointed out to the harm done by such practice and to restore the principle of responsibility for fault or negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time we caused the stream of quasi-delict or culpa aquiliana to flow on its own natural channel, so that its waters may no longer be diverted into that of a crime under the Penal Code. This will, it is believed, make for the better safeguarding of private rights because it re-establishes an ancient and additional remedy, and for the further reason that an independent civil action, not depending on the issues, limitations and results of a criminal prosecution, and entirely directed by the party wronged or his counsel, is more likely to secure adequate and efficacious redress. In view of the foregoing, the judgment of the Court of Appeals should be and is hereby affirmed, with costs against the defendant-petitioner. Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 46274 November 2, 1939

A.O. FISHER, plaintiff-appellee, vs. JOHN C. ROBB, defendant-appellant. Marcial P. Lichauco and Manuel M. Mejia for appellant. Wolfson, Barrion and Baradi and Ignacio Ycaza for appellee.

VILLA-REAL, J.: The defendant John C. Robb appeals to this Court from the judgment of the Court of First Instance of Manila, the dispositive part of which reads: Judgment is hereby rendered in favor of the plaintiff and against the defendant, who is ordered to pay to the former the sum of P2,000, with interest at the legal rate from March 11, 1938, until paid, plus costs. The facts established at the trial without discussion are the following: In September, 1935, the board of directors of the Philippine Greyhound Club, Inc., told the herein defendant-appellant John C. Robb, to make a business trip to Shanghai to study the operation of a dog racing course. In Shanghai, the defendant-appellant stayed at the American Club where be became acquainted with the plaintiff-appellee, A. O. Fisher, through their mutual friends. In the course of a conversation, the defendant-appellant came to know that the plaintiff-appellee was the manager of a dog racing course. Upon knowing the purpose of the defendant-appellant's trip, the plaintiff-appellee showed great interest and invited him to his establishment and for several days gave him information about the business. It seems that the plaintiff became interested in the Philippine Greyhound Club, Inc., and asked the defendant if he could have a part therein as a stockholder. As the defendant-appellant answered in the affirmative, the plaintiff-appellee thereupon filled a subscription blank and, through his bank in Shanghai, sent to the Philippine Greyhound Club, Inc., in Manila telegraphic transfer for P3,000 in payment of the first installment of his subscription. Later on the defendant-appellant returned to Manila from Shanghai. Some months thereafter, when the board of directors of the Philippine Greyhound Club, Inc., issued a call for the payment of the second installment of the subscriptions, the defendant-appellant sent a radiogram to the plaintiff-appellee did so and sent P2,000 directly to the Philippine Greyhound Club, Inc., in payment of the said installment. Due to the manipulations of those who controlled the Philippine Greyhound Club, Inc., during the absence of the defendant-appellant undertook the organization of a company called The Philippine Racing Club, which now manages the race track of the Santa Ana park. The defendant immediately endeavored to save the investment of those who had subscribed to the Philippine Greyhound Club, Inc., by having the Philippine Racing Club acquire the remaining assets of the Philippine Greyhound Club, Inc. The defendant-appellant wrote a letter to the plaintiff-appellee in Shanghai explaining in detail the critical condition of the Philippine Greyhound Club, Inc., and outlining his plans to save the properties and assets of the plaintiffappellee that he felt morally responsible to the stockholders who had paid their second installment (Exh. C). In answer to said letter, the plaintiff-appellee wrote the defendant-appellant requiring him to return the entire amount paid by him to the Philippine Greyhound Club, Inc., (exhibit E). Upon receiving this letter, the defendant-appellant answered the plaintiff-appellee for any loss which he might have suffered in connection with the Philippine Greyhound Club, Inc., in the same way that he could not expect anyone to reimburse him for his own losses which were much more than those of the plaintiff-appellee (Exh. B).

The principal question to be decided in this appeal is whether or not the trial court erred in holding that there was sufficient consideration to justify the promise made by the defendantappellant in his letters Exhibits B and C. In the fifth paragraph of the letter Exhibit B, dated March 16, 1936, addressed by the defendant-appellant to the plaintiff-appellee, the former said: "I feel a moral responsibility for these second payments, which were made in order to carry out my plan (not the first payments, as you have it in your letter), and Mr. Hilscher and I will see to it that stockholders who made second payments receive these amounts back as soon as possible, out of our own personal funds. "As it is, I have had to take my loss along with everyone else here, and so far as I can see that is what all of us must do. The corporation is finally flat, so it is out of the question to receive back any of your investment from that source; the only salvage will be the second payment that you made, and that will come from Hilscher and me personally, as I say, not because of any obligation, but simply because we have taken it on ourselves to do that. (And I wish I could find someone who would undertake to repay a part of my own losses in the enterprise!)" And in the seventh paragraph of the letter Exhibit C, dated February 21, 1936, addressed by the same defendant-appellant to the same plaintiff-appellee the former said the following: However, Mr. Fischer and I feel a personal responsibility to those few stockholders who made their second payments, including yourself, and it is our intention to personally repay the amounts of the second payments made by those few. . . . And, finally, paragraph 8 of the same letter Exhibit C states: "We are to receive a certain share of the new Philippine Racing Club for our services as promoters of that organization, and as soon as this is received by us, we will be in a position to compensate you and the few others who made the second payments. That, as T have said, will come from us personally, in an effort to make things easier for those who were sportsmen enough to try to save the Greyhound organization by making second payments. Article 1254 of the Civil Code provides as follows: A contract exists from the moment one or more persons consent to be bound with respect to another or others to deliver something or to render some services. And article 1261 of the same Civil Code provides the following: ART. 1261. There is no contract unless the following requisites exists: 1. The consent of the contracting parties; 2. A definite object which is the subject-matter of the contract; 3. A consideration for the obligation established. In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally responsible for the second payments which had been made to carry out his plan, and that Mr. Hilscher and he would do everything possible so that the stockholders who had made second payments may receive the amount paid by them from their personal funds because they voluntarily assumed the responsibility to make such payment as soon as they receive from the Philippine racing Club certain shares for their services as promoters of said organization, it does not appear that the plaintiff-appellee had consented to said form of reimbursement of the P2,000 which he had directly paid to the Philippine Greyhound Club, Inc., in satisfaction of the second installment. The first essential requisite, therefore, required by the cited article 1261 of the Civil Code for the existence of a contract, does not exists. As to the third essential requisite, namely, "A consideration for the obligation established," article 1274 of the same Code provides:
lawphi1.net

In onerous contracts the consideration as to each of the parties is the delivery or performance or the promise of delivery or performance of a thing or service by the other party; in remuneratory contracts the consideration is the service or benefit for which the

remuneration is given, and in contracts of pure beneficence the consideration is the liberality of the benefactors. And article 1275 of the same Code provides: ART. 1275. Contracts without consideration or with an illicit consideration produce no effect whatsoever. A consideration is illicit when it is contrary to law or morality. Manresa, in volume 8, 4rth edition, pages 618-619 of his Commentaries on the Civil Code, has this to say: Considering the concept of the consideration as the explanation and motive of the contract, it is related to the latter's object and even more to its motives with which it is often confused. It is differentiated from them, however, in that the former is the essential reason for the contract, while the latter are the particular reasons of a contracting party which do not affect the other party and which do not preclude the existence of a different consideration. To clarify by an example: A thing purchased constitutes the consideration for the purchaser and not the motives which have influenced his mind, like its usefulness, its perfection, its relation to another, the use thereof which he may have in mind, etc., a very important distinction, which precludes the annulment of the contract by the sole influence of the motives, unless the efficacy of the former had been subordinated to compliance with the latter as conditions. The jurisprudence shows some cases wherein this important distinction is established. The consideration of contracts, states the decision of February 24, 1904, is distinct from the motive which may prompt the parties in executing them. The inaccuracies committed in expressing its accidental or secondary details do not imply lack of consideration or false consideration, wherefore, they do not affect the essence and validity of the contract. In a loan the consideration in its essence is, for the borrower the acquisition of the amount, and for the lender the power to demand its return, whether the money be for the former or for another person and whether it be invested as stated or otherwise. The same distinction between the consideration and the motive is found in the decisions of November 23, 1920 and March 5, 1924. The contract sought to be judicially enforced by the plaintiff-appellee against the defendantappellant is onerous in character, because it supposes the deprivation of the latter of an amount of money which impairs his property, which is a burden, and for it to be legally valid it is necessary that it should have a consideration consisting in the lending or or promise of a thing or service by such party. The defendant-appellant is required to give a thing, namely, the payment of the sum of P2,000, but the plaintiff-appellee has not given or promised anything or service to the former which may compel him to make such payment. The promise which said defendant-appellant has made to the plaintiff-appellee to return to him P2,000 which he had paid to the Philippine Greyhound Club, Inc., as second installment of the payment of the amount of the shares for which he has subscribed, was prompted by a feeling of pity which said defendant-appellant had for the plaintiff-appellee as a result of the loss which the latter had suffered because of the failure of the enterprise. The obligation which the said defendant-appellant had contracted with the plaintiff-appellee is, therefore, purely moral and, as such, is not demandable in law but only in conscience, over which human judges have no jurisdiction.
1awphi1.net

As to whether a moral obligation is a sufficient consideration, read in volume 12 of the American Jurisprudence, pages 589-590, paragraphs 96, 67, the following: SEC. 96. Moral obligation. Although there is authority in support of the board proposition that a moral obligation is sufficient consideration, such proposition is usually denied. . . . . The case presenting the question whether a moral obligation will sustain an express executory promise may be divided into five classes: (1) Cases in which the moral obligation arose wholly from ethical considerations, unconnected with any legal obligations, perfect or imperfect, and without the receipt of actual pecuniary or material benefit by the promisor prior to the subsequent promise; (2) cases in which the moral obligation arose from a legal liability already performed or still enforceable; (3) cases in which the moral obligation arose out of, or was connected with, a previous request or promise creating originally an

enforceable legal liability, which, however, at the time of the subsequent express promise had become discharged or barred by operation of a positive rule of law, so that at that time there was no enforceable legal liability; (4) cases in which the moral obligation arose from, or was connected with, a previous request or promise which, however, never created any enforceable legal liability, because of a rule of law which rendered the original agreement void, or at least unenforceable; and (5) cases in which the moral obligation arose out of, or was connected with, the receipt of actual material or pecuniary benefit by the promisor, without, however, any previous request or promise on his part, express or implied, and therefore, of course, without any original legal liability, perfect or imperfect. SEC. 97. Moral obligation unconnected with legal liability or legal benefit. Although, as subsequently shown was formerly some doubt as to the point, it is now well established that a mere moral obligation or conscience duty arising wholly from ethical motives or a mere conscientious duty unconnected with any legal obligation, perfect or imperfect, or with the receipt of benefit by the promisor of a material or pecuniary nature will not furnish a consideration for an executory promise. . . . . In view of the foregoing considerations, we are of the opinion and so hold, that the promise made by an organizer of a dog racing course to a stockholder to return to him certain amounts paid by the latter in satisfaction of his subscription upon the belief of said organizer that he was morally responsible because of the failure of the enterprise, is not the consideration rquired by article 1261 of the Civil Code as an essential element for the legal existence of an onerous contract which would bind the promisor to comply with his promise. Wherefore, the appealed judgment is reversed and the costs to the plaintiff. Avancea, C.J., Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-32599 June 29, 1979 EDGARDO E. MENDOZA, petitioner vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR, respondents. David G. Nitafan for petitioner. Arsenio R. Reyes for respondent Timbol. Armando M. Pulgado for respondent Salazar.

MELENCIO-HERRERA, J: Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in Civil Case No. 80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and Rodolfo Salazar. The facts which spawned the present controversy may be summarized as follows: On October 22, 1969, at about 4:00 o'clock in the afternoon, a three- way vehicular accident occurred along Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and driven by Freddie Montoya. As a consequence of said mishap, two separate Informations for Reckless Imprudence Causing Damage

to Property were filed against Rodolfo Salazar and Freddie Montoya with the Court of First Instance of Bulacan. The race against truck-driver Montoya, docketed as Criminal Case No. SM-227, was for causing damage to the jeep owned by Salazar, in the amount of Pl,604.00, by hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car, which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar, docketed as Criminal Case No. SM 228, was for causing damage to the Mercedes Benz of petitioner in the amount of P8,890.00 At the joint trial of the above cases, petitioner testified that jeep-owner- driver Salazar overtook the truck driven by Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for Manila. Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was not aware that Salazar's jeep was bumped from behind by the truck driven by Montoya. Petitioner's version of the accident was adopted by truck driver Montoya. Jeepowner-driver Salazar, on the other hand, tried to show that, after overtaking the truck driven by Montoya, he flashed a signal indicating his intention to turn left towards the poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic; that while he was at a stop position, his jeep was bumped at the rear by the truck driven by Montova causing him to be thrown out of the jeep, which then swerved to the left and hit petitioner's car, which was coming from the opposite direction. On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in its decretal portion: IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya GUILTY beyond reasonable doubt of the crime of damage to property thru reckless imprudence in Crime. Case No. SM-227, and hereby sentences him to pay a fine of P972.50 and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual damages, with subsidiary imprisonment in case of insolvency, both as to fine and indemnity, with costs. Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crime. Case No. SM-228, with costs de oficio, and his bond is ordered canceled
SO ORDERED. 1

Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that the collision between Salazar's jeep and petitioner's car was the result of the former having been bumped from behind by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but only against jeep-ownerdriver Salazar. On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with the Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being the owner of the gravel and sand truck driven by Montoya, for indentification for the damages sustained by his car as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and truck-owner Timbol were joined as defendants, either in the alternative or in solidum allegedly for the reason that petitioner was uncertain as to whether he was entitled to relief against both on only one of them. On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An Opposition thereto was filed by petitioner. In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truckowner Timbol for reasons stated in the afore- mentioned Motion to Dismiss On September 30, 1970, petitioner sought before this Court the review of that dismissal, to which petition we gave due course. On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case as against the former. Respondent Judge reasoned out that "while it is true that an independent civil action for liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred pursuant to Section 2, Rule

111 ... 2 Petitioner's Motion for Reconsideration thereof was denied in the order dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court "for a more decisive interpretation of the rule. 3 On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two mentioned Orders, to which we required jeep-owner-driver Salazar to file an Answer. The Complaint against truck-owner Timbol We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's Complaint against truck-owner Timbol. In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's allegations that the civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no reservation to file a separate civil case was made by petitioner and where the latter actively participated in the trial and tried to prove damages against jeep-driver-Salazar only; and that the Complaint does not state a cause of action against truck-owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as the one solely responsible for the damage suffered by his car. Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and second actions, Identity of parties, Identity of subject matter and Identity of cause of action. It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that there is no Identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious is the fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioner's car but for damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it "the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he (Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-228. 4 And more importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal negligence under Article l of the Revised Penal Code, whereas Civil Case No. 80803 is based on quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code As held in Barredo vs. Garcia, et al. 5 The foregoing authorities clearly demonstrate the separate in. individuality of cuasidelitos or culpa aquiliana under the Civil Code. Specifically they show that there is a distinction between civil liability arising from criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising from a crime under the Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude that the employer in this case the defendant- petitioner is primarily and directly liable under article 1903 of the Civil Code. That petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in the complaint to wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep owned and driven by Salazar suddenly swerved to his (petitioner's) lane and collided with his car That the sudden swerving of Salazar's jeep was caused either by the negligence and lack of skill of Freddie Montoya, Timbol's employee, who was then driving a gravel and sand truck iii the same direction as Salazar's jeep; and that as a consequence of the collision, petitioner's car suffered extensive damage amounting to P12,248.20 and that he likewise incurred actual and moral damages, litigation expenses and attorney's fees. Clearly, therefore, the two factors that a cause of action must consist of, namely: (1) plaintiff's primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendant's delict or wrongful act or omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeep-owner Salazar or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to swerve and collide with petitioner's car, were alleged in the Complaint. 6

Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge committed reversible error when he dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal proceedings and regardless of the result of the latter. Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that petitioner's failure to make a reservation in the criminal action of his right to file an independent civil action bars the institution of such separate civil action, invoking section 2, Rule 111, Rules of Court, which says: Section 2. Independent civil action. In the cases provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code of the Philippines, an independent civil action entirely separate and distinct from the criminal action may be brought by the injured party during the pendency of the criminal case, provided the right is reserved as required in the preceding section. Such civil action shau proceed independently of the criminal prosecution, and shall require only a preponderance of evidence. Interpreting the above provision, this Court, in Garcia vs. Florida 7 said: As we have stated at the outset, the same negligent act causing damages may produce a civil liability arising from crime or create an action for quasi-delict or culpa extra-contractual. The former is a violation of the criminal law, while the latter is a distinct and independent negligence, having always had its own foundation and individuality. Some legal writers are of the view that in accordance with Article 31, the civil action based upon quasi-delict may proceed independently of the criminal proceeding for criminal negligence and regardless of the result of the latter. Hence, 'the proviso in Section 2 of Rule 111 with reference to ... Articles 32, 33 and 34 of the Civil Code is contrary to the letter and spirit of the said articles, for these articles were drafted ... and are intended to constitute as exceptions to the general rule stated in what is now Section 1 of Rule 111. The proviso, which is procedural, may also be regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide for the reservation required in the proviso ... . In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the criminal case; that Section 2 of Rule 111 is inoperative, "it being substantive in character and is not within the power of the Supreme Court to promulgate; and even if it were not substantive but adjective, it cannot stand because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940." We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based on quasi-delict. The suit against jeep-owner-driver Salazar The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a different picture altogether. At the outset it should be clarified that inasmuch as civil liability co-exists with criminal responsibility in negligence cases, the offended party has the option between an action for enforcement of civil liability based on culpa criminalunder Article 100 of the Revised Penal Code, and an action for recovery of damages based on culpa aquilianaunder Article 2177 of the Civil Code. The action for enforcement of civil liability based on culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal action, unless expressly waived or reserved for separate application by the offended party. 8

The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his cause of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana as evidenced by his active participation and intervention in the prosecution of the criminal suit against said Salazar. The latter's civil liability continued to be involved in the criminal action until its termination. Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action as his action for civil liability was deemed impliedly instituted in Criminal Case No. SM-228. Neither would an independent civil action he. Noteworthy is the basis of the acquittal of jeep-ownerdriver Salazar in the criminal case, expounded by the trial Court in this wise: In view of what has been proven and established during the trial, accused Freddie Montoya would be held able for having bumped and hit the rear portion of the jeep driven by the accused Rodolfo Salazar,
Considering that the collision between the jeep driven by Rodolfo Salazar and the car owned and driven by Edgardo Mendoza was the result of the hitting on the rear of the jeep by the truck driven by Freddie Montoya, this Court behaves that accused Rodolfo Salazar cannot be held able for the damages sustained by Edgardo Mendoza's car. 9

Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner-driver Salazar cannot be held liable for the damages sustained by petitioner's car. In other words, "the fact from which the civil might arise did not exist. " Accordingly, inasmuch as petitioner's cause of action as against jeep-owner-driver Salazar isex- delictu, founded on Article 100 of the Revised Penal Code, the civil action must be held to have been extinguished in consonance with Section 3(c), Rule 111 of the Rules of Court 10 which provides: Sec. 3. Other civil actions arising from offenses. In all cases not included in the preceding section the following rules shall be observed: xxx xxx xxx c) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil night arise did not exist. ... And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result would be the same, it being clear from the judgment in the criminal case that Salazar's acquittal was not based upon reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for in Article 29 of the Civil Code quoted here under: Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence ... If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground. In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge's Order dated January 30, 1971 dismissing the complaint, albeit on different grounds. WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private respondent Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed with the hearing on the merits; 2) but the Orders dated January 30, 1971 and February 23, 1971 dismissing the Complaint in Civil Case No. 80803 against respondent Rodolfo Salazar are hereby upheld. No costs.

SO ORDERED. Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
#Footnotes

1 p. 26, Rollo 2 pp. 147-149, Ibid. 3 pp. 138-139, Ibid. 4 Decision P. 26, Ibid 5 73 PhiL 607, 620 (1942) 6 Racoma vs. Fortich, 39S CRA 521(1971) 7 52 SCRA 420 (1973) 8 Padua vs. Robles, 66 SCRA 485 (1975) 9 pp. 25-26, Rollo 10 Eleano Hill, 77 SCRA 98 (1977) Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 23769 September 16, 1925

SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO., defendant-appellant. Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant. Arroyo, Gurrea and Muller for appellee. MALCOLM, J.: In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50, with legal interest, and costs. In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the said contract. The case was submitted for decision on a stipulation of facts and the exhibits therein mentioned. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs. From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the following assignment of errors: "I. The lower court erred in finding that appellant had agreed to sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its answer and crosscomplaint. IV. The lower court erred in denying appellant's motion for a new trial." The specified errors raise three questions which we will consider in the order suggested by the appellant.

1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses? The trial court found the former amount to be correct. The appellant contends that the smaller amount was the basis of the agreement. The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The First mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to Song Fo & Company on December 13, 1922. It reads: SILAY, OCC. NEGROS, P.I. December 13, 1922 Messrs. SONG FO AND CO. Iloilo, Iloilo. DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central, we wish to state as follows: He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same condition, and the same to start after the completion of our grinding season. He requested if possible to let you have molasses during January, February and March or in other words, while we are grinding, and we agreed with him that we would to the best of our ability, altho we are somewhat handicapped. But we believe we can let you have 25,000 gallons during each of the milling months, altho it interfere with the shipping of our own and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we stated we believe that this is possible and will do our best to let you have these extra 100,000 gallons during the next year the same to be taken by you before November 1st, 1923, along with the 300,000, making 400,000 gallons in all. Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at the end of each month for molasses delivered to you. Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain. Yours very truly, HAWAIIAN-PHILIPPINE COMPANY BY R. C. PITCAIRN Administrator. Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on December 16, 1922. This letter reads: December 16th, 1922. Messrs. HAWAIIAN-PHILIPPINE CO., Silay, Neg. Occ., P.I. DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all their contents. In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one who visited your Central, but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song Fo & Co. With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you have stated and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central.

(b) All handling charges and expenses at the central and at the dock at Mambaguid for our account. (c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the round trip dock to central and central to dock. This service to be restricted to one trip for the six tanks. Yours very truly, SONG FO & COMPANY By __________________________ Manager. We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The Hawaiian-Philippine Co. also believed it possible to accommodate Song Fo & Company by supplying the latter company with an extra 100,000 gallons. But the language used with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation. If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter written by the manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding between the parties of a contract for P300,000 gallons of molasses. We sustain appellant's point of view on the first question and rule that the contract between the parties provided for the delivery by the Hawaiian-Philippine Co. to song Fo & Company of 300,000 gallons of molasses. 2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company? The trial judge answers No, the appellant Yes. Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you." In Exhibit G, we find Song Fo & Company stating that they understand the contents of Exhibit F, and that they confirm all the arrangements you have stated, and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central." In connection with the portion of the contract having reference to the payment for the molasses, the parties have agree on a table showing the date of delivery of the molasses, the amount and date thereof, the date of receipt of account by plaintiff, and date of payment. The table mentioned is as follows: Date of receipt of account by plaintiff 1923 P206.16 206.16 Dec. 26/22 Jan. 3/23 Jan. 5 do

Date of delivery 1922 Dec. 18 Dec. 29 1923 Jan. 5 Feb. 12 Feb. 27 Mar. 5

Account and date thereof

Date of payment 1923 Feb. 20 Do

206.16 206.16 206.16 206.16

Jan. 9/23 Mar. 12/23 do do

Mar. 7 or 8 do do do

Mar. 31 Do Do Do

Mar. 16 Mar. 24 Mar. 29

206.16 206.16 206.16

Mar. 20/23 Mar. 31/23 do

Apr. 2/23 do do

Apr. 19 Do Do

Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-Philippine Co. to Song Fo & Company, mentions "payment on presentation of bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to Song Fo & Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the termination of the contract, gave as the reason for the rescission, the breach by Song Fo & Company of this condition: "You will recall that under the arrangements made for taking our molasses, you were to meet our accounts upon presentation and at each delivery." Not far removed from this statement, is the allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant, at the end of each month upon presentation accounts." Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of each month. Under this hypothesis, Song Fo & Company should have paid for the molasses delivered in December, 1922, and for which accounts were received by it on January 5, 1923, not later than January 31 of that year. Instead, payment was not made until February 20, 1923. All the rest of the molasses was paid for either on time or ahead of time. The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song Fo & Company. But actually, there is here present no outstanding fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine Co. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.) We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial judge in this respect. 3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as agreed upon by the parties. The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to secure molasses from other sources. Three hundred thousand gallons of molasses was the total of the agreement, as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were delivered by the defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the plaintiff at page 25 of its brief, 100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price specified in the contract between the plaintiff and the defendant, the plaintiff accordingly suffered no material loss in having to make this purchase. So 244,994 gallons minus the 100,000 gallons just mentioned leaves as a result 144,994 gallons. As to this amount, the plaintiff admits that it could have secured it and more from the Central Victorias Milling Company, at three and one-half centavos per gallon. In other words, the plaintiff had to pay the Central Victorias Milling company one and one-half centavos

a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co. Translated into pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions existing at the central of the Hawaiian-Philippine Co. may have been different than those found at the Central North Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but through expenses of transportation and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the molasses in the open market, we would concede under the first cause of action in round figures P3,000. The second cause of action relates to lost profits on account of the breach of the contract. The only evidence in the record on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of Song Fo & Company, been called as a witness, he would have testified that the plaintiff would have realized a profit of P14,948.43, if the contract of December 13, 1922, had been fulfilled by the defendant. Indisputably, this statement falls far short of presenting proof on which to make a finding as to damages. In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same line of thought as found in the decision of the trial court, which we have found to be unsustainable. In the second place, had Mr. Song Heng taken the witness-stand and made the statement attributed to him, it would have been insufficient proof of the allegations of the complaint, and the fact that it is a part of the stipulation by counsel does not change this result. And lastly, the testimony of the witness Song Heng, it we may dignify it as such, is a mere conclusion, not a proven fact. As to what items up the more than P14,000 of alleged lost profits, whether loss of sales or loss of customers, or what not, we have no means of knowing. We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error are accordingly found to be well taken in part and not well taken in part. Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment. Without special finding as to costs in either instance, it is so ordered. Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 108346 July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents. PANGANIBAN, J.: A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitled the injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits received. The Case Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution3 dated December 29, 1992 denying petitioner's motion for reconsideration.4 The dispositive portion of the assailed Decision reads:

"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14, 1990 dismissing the [C]omplaint is RESINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED."5 The Facts The factual antecedents of the case, as found by the CA, are as follows: "x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with the house and other improvements thereon, located at 1918 Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George Raymundo [herein private petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. '6', p. 232, Record of Civil Case No. 15952). "On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 1112, Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions: 'x x x xxx xxx

'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned and described above, together with the house and other improvements thereon. 'That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of the said Bank of the Philippine Islands, on _____ and which Real Estate Mortgage was ratified before Notary Public for Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of 1986 of his Notarial Register. 'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and other charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE. 'It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be the account of the VENDEE.' (Exh. 'A', pp. 11-12, Record).' "On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record).' 'x x x xxx xxx

'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the

terms and conditions of the Deed of Real Estate Mortgage dated _____, signed and executed by Mr. David A. Raymundo with the said Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. _____, Page No. _____, Book No. _____, Series of 1986 of his Notarial Register. 'WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A. Raymundo, in accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and other charges for late payment. 'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our private understanding concerning the said mortgage obligations to be assumed. 'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the Philippine Islands, I, Mrs, Avelina D, Velarde with the consent of my husband, Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors and assigns, to strictly and faithfully comply with the following terms and conditions: '1. That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. '2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to that effect, and Mr. David A. Raymundo shall resume total and complete ownership and possession of the property sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect, in the same manner as it (the) same had never been executed or entered into. '3. That I am executing the Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and faithfully comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and the covenants, stipulations and provisions of this Undertaking. 'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).' "This undertaking was signed by Avelina and Mariano Velarde and David Raymundo. "It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that plaintiffs were to secure from a bank with defendant's help. Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real estate mortgage. "Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).

"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any further payment. "On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220, Record). "In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows: 'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 provided: (a) you deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the re- lease of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) you execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'k', '4', p. 223, Record). "On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property allegedly due to the latter's failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)."6 Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the Complaint in a Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8 Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991,9 Judge Abad Santos granted petitioner's Motion for Reconsideration and directed the parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners. Private respondents appealed to the CA. Ruling of the Court of Appeal The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by private respondents, the CA explained its ruling in this wise: "In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage obligation on the subject property in the amount of P 1.8 million in favor of BPI in the name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and the balance of Pl.8 million, and the balance of Pl.8 million cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage obligation on the subject property. In other words, the assumption of the mortgage obligation is part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same were originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of violation by Velarde of any terms and conditions of said deed of real estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage

would thereby be Cancelled automatically and of no force and effect (pars. 2 & 3, thereof, pp 13-14, Record). "From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the mortgage obligation of Raymundo in the amount of Pl.8 million. This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state [M]ortgage the name of Raymundo. The application with BPI for the approval of the assumption of mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in the name of Velarde. And in the event said application is disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage obligation would result in a violation of the contract. And, upon Velarde's failure to pay the agreed price, the[n] Raymundo may choose either of two (2) actions - (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code). "The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velarde's non-payment of the balance of the purchase price. As borne out by the evidence, Velarde had to pay in full in case of BPI's disapproval of the application for assumption of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was strongly given weight by the lower court in reversing the decision rendered by then Judge Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new conditions which, to the mind of this Court, would constitute a new undertaking or new agreement which is subject to the consent or approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde and Raymundo. These are mere offers or, at most, an attempt to novate. But then again, there can be no novation because there was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493). "It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of Mortgage would be deemed 'automatically cancelled and of no further force and effect, as if the same had never been executed or entered into.' While it is true that even if the contract expressly provided for automatic rescission upon failure to pay the price, the vendee may still pay, he may do so only for as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to the latter's failure to comply with their obligation. The rescission was justified in view of Velarde's failure to pay the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the agreement. As adverted to above, the agreement of the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by appellees Velarde would create a right to demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellee's failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde having violated the contract, they have lost their right to its enforcement and hence, cannot avail of the action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10 Hence, this appeal. 11 The Issues Petitioners, in their Memorandum,12 interpose the following assignment of errors: "I. The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract. "II

The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. "III The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new conditions' constituting mere offers or an attempt to novate necessitating a new agreement between the parties." The Court's Ruling The Petition is partially meritorious. First Issue: Breach of Contract Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach of contract, considering that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to be their obligation and, instead, it devolved upon private respondents again. However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners received notice of the bank's disapproval of their application to assume respondents' mortgage, they should have paid the balance of the P1.8 million loan. Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of sale. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate things, and the buyer to pay therefor a price certain in money or its equivalent.13 Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery.14 Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase price. Second Issue Validity of the Rescission Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as would warrant a rescission. They cite several cases15 in which this Court declared that rescission of a contract would not be permitted for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith, considering that they have already made the initial payment of P800,000 and three (3) monthly mortgage payments. As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the purchase

price under the contract of sale. Private respondents' right to rescind the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows: "Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible." The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them.16 The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation.17 When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.18 In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondent's right to rescind the same in accordance with law. True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of the right to rescind. Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances in those cases are not analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer to pay was unconditional and was accepted by the seller. In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which was actually paid. In Tan, the alleged breach was private respondent's delay of only a few days, which was for the purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract price. In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were left with the legal option of seeking rescission to protect their own interest. Mutual Restitution Required in Rescission As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy. Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners

should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former. Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore.20 To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. 21

Third Issue Attempt to Novate In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners to private respondents were not part of the original contract. By that time, it was already incumbent upon the former to pay the balance of the sale price. They had no right to demand preconditions to the fulfillment of their obligation, which had become due. WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of rescission. No pronouncement as to costs. SO ORDERED.
1wphi1.nt

Melo, Vitug, and Sandoval-Gutierrez, JJ., concur.

Footnotes:
1

Rollo, pp. 37-53.

Rollo, pp. 68-78. Penned by Justice Regina G. Ordoez-Benitez and concurred in by Justices Gloria C. Paras (Division chairman) and Eduardo G. Montenegro (member).
2 3

Rollo, p. 81. Rollo, pp. 21-33. CA Decision, p. 11; Rollo, p. 20. Rollo, pp. 68-73. Records, pp. 280-284. Records, pp. 285-293. Records, pp. 339-341. Rollo, pp. 75-78.

10

To eradicate its backlog of old cases, the Court m Februry 27, 2001 resolved to redistribute long-pending cases to justices who had no backlog, and who were thus tasked to prioritize them. Consequently, this case was raffled and assigned to the undersigned ponente for study and report.
11

12

Rollo, p. 227. Coronel v. CA, 263 SCRA 15, October 7, 1996. Power Commercial and Industrial Corp. v. CA, 274 SCRA 597, June 20, 1997.

13

14

Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, September 16, 1925; Tan v. Court of Appeals,175 SCRA 656, July 28, 1989; and Zepeda v. Court of Appeals, 216 SCRA 293, December 9, 1992.
15

Uy v. Court of Appeals, 314 SCRA 69, September 9, 1999; Romeo v. Court of Appeals, 250 SCRA 223, November 23, 1995.
16 17

Cheng v. Genato, 300 SCRA 722, December 29, 1998. Central Philippine University v. Court of Appeals, 246 SCRA 511, July 17, 1995. See footnote 15.

18

19

Co v. Court of Appeals, 312 SCRA 528, August 17,1999. Vitug, Compendium of Civil Law and Jurisprudence, 1993 revised ed., p. 556.
20 21

0campo v. Court of Appeals, 233 SCRA 551, June 30, 1994. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-42283 March 18, 1985 BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.: This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs. The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate review. On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees. On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffsappellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants. The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land. The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the said contract. The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads: WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs and against the defendants declaring that the contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants. Consequently, the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500.00 by way of attorney's fees. Costs against the defendants. A motion for reconsideration filed by the defendants-appellants was denied. As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law. The defendants-appellants assigned the following alleged errors of the lower court: First Assignment of Error THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED. Second Assignment of Error EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF. Third Assignment of Error THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES. The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants. The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract which provides: xxx xxx xxx SIXTH.In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one

corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART expired; without the payments corresponding to both months having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such cancellation of the contract, all the amounts paid in accordance with this agreement together with all the improvements made on the premises, shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement; and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART. (Emphasis supplied by appellant) xxx xxx xxx The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite demands for more than four (4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The defendants-appellants also argue that even in the absence of the aforequoted provision, they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines. The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms, the sellers have the right to declare the contract cancelled and of no effect, because it granted the sellers an absolute and automatic right of rescission. Article 1191 of the Civil Code on the rescission of reciprocal obligations provides: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. xxx xxx xxx Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276) Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, and cases cited therein) Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).

The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions, was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that: Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. ... . We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription. The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. InUniversal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. HawaiianPhilippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968). ... . The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides: SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows: (a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and (b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of each month, from this date until the total payment of the price above stipulated, including interest. because they failed to pay the August installment, despite demand, for more than four (4) months. The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time,

the entire obligation would have been paid. Furthermore, although the principal obligation was only P 3,920.00 excluding the 7 percent interests, the plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendants-appellants. Article 1234 of the Civil Code which provides that: If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. also militates against the unilateral act of the defendants-appellants in cancelling the contract. We agree with the observation of the lower court to the effect that: Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own. The defendants-appellants cannot rely on paragraph 9 of the contract which provides: NINTH.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART, as not exacting a strict compliance with the conditions of paragraph 6 of this contract, as well as any other condonation that the party of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter, should not be interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this contract, in case of default or non-compliance by the party of the SECOND PART. The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once, but for as many times as he wishes. The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that: xxx xxx xxx But defendants do not deny that in spite of the long arrearages, neither they nor their predecessor, Teodoro de Guzman, even took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the delayed payments were received without protest or qualification. ... Under these circumstances, We cannot but agree with the lower court that at the time appellees exercised their option, appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees of all their arrearages. The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671,67 due from the plaintiffs-appellees. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said payments were applied to the interests since the contract specifically provides for a 7% interest per annum on the remaining balance. The defendants-appellants rely on paragraph 2 of the contract which provides: SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P

3,920.00), Philippine Currency, plus interest at the rate of 7% per annum ... . (Emphasis supplied) The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which provides: TWELFTH.That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party to the FIRST PART will execute in favor of the party of the SECOND PART, the necessary deed or deeds to transfer to the latter the title of the parcel of land sold, free from all hens and encumbrances other than those expressly provided in this contract; it is understood, however, that au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART, as above stated. Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion. We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that: xxx xxx xxx ... (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto. . . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the signing of his signature or his "adhesion" thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. (Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied) While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers." Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are justified. WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs against the defendants-appellants. SO ORDERED. Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.

Teehankee (Chairman), J., took no part.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. L-55665 February 8, 1989 DELTA MOTOR CORPORATION, petitioner, vs. EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents. Alcasid, Villanueva & Associates for petitioner. Luna, Puruganan, Sison & Ongkiko for respondents.

CORTES, J.: Petitioner, through this petition for review by certiorari, appeals from the decision of respondent appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor Corporation" promulgated on October 27, 1980. The facts are as follows: Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized and existing under Philippine laws. On the other hand, private respondents are the owners of an iceplant and cold storage located at 1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "Espaa Extension Iceplant and Cold Storage." In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black iron pipes. T The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes schedule 40, 2" x 20' including delivery at P66,000.00 with the following terms of payment: a. 20% of the net contract price or P13,200.00 will be due and payable upon signing of the contract papers. b. 20% of the net contract price or P13,200.00 will be due and payable before commencement of delivery. c. The balance of 60% of the net contract price or P39,600.00 with 8% financing charge per annum will be covered by a Promissory Note bearing interest at the rate of 14% per annum and payable in TWELVE (12) equal monthly installment (sic), the first of which will become due thirty (30) days after the completion of delivery. Additional 14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.] The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of payment: a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing of the contract papers.

b. 50% of the net contract price or P 2,700.00 will be due and payable before commencement of delivery. [Exh. "C"; Exh. "2".] Both letter-quotations also contain the following stipulations as to delivery and price offer: DELIVERY Ex-stock subject to prior sales. xxx xxx xxx Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be subject to our review and confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".] Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by signing his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second letter-quotations, respectively. It is undisputed that private respondents made initial payments on both contracts for the first contract, P13,200.00 and, for the second, P2,700.00 for a total sum of P15,900.00 on July 28, 1972 (Exhs. "B" and "D"]. Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the nonpayment of the subsequent installments by the Genuinos; and the non-execution by the Genuinos of the promissory note called for by the first contract. The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to deliver the iron pipes but the Genuinos did not accept the offer because the construction of the ice plant building where the pipes were to be installed was not yet finished. Almost three years later, on April 15, 1975, Hector Genuino, in behalf of Espaa Extension Ice Plant and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the request. At the same time private respondents manifested their preparedness to pay the second installment on both contracts upon notice of Delta's readiness to deliver. Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972. The company called the attention of the Genuinos to the stipulation in their two (2) contracts that the quoted prices were good only within thirty (30) days from date of offer. Whereupon Delta sent new price quotations to the Genuinos based on its current price of black iron pipes, as follows: P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G-1".] P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G-2".] The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance with damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City. After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision reading as follows: WHEREFORE, premises considered, judgment is rendered: 1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded; 2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the latter as downpayments on the aforesaid contracts; 3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,

4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.] On appeal, the Court of Appeals reversed and ordered private respondents to make the payments specified in "Terms of Payment (b)" of the contracts and to execute the promissory note required in the first contract and thereafter, Delta should immediately commence delivery of the black iron pipes.* [CA Decision, p. 20; Rollo, p. 75.] The Court of Appeals cited two main reasons why it reversed the trial court, namely: 1. As Delta was the one who prepared the contracts and admittedly, it had knowledge of the fact that the black iron pipes would be used by the Genuinos in their cold storage plant which was then undergoing construction and therefore, would require sometime before the Genuinos would require delivery, Delta should have included in said contracts a deadline for delivery but it did not. As a matter of fact neither did it insist on delivery when the Genuinos refused to accept its offer of delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.] 2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very much higher than the prices it previously quoted would mean an amendment of the contracts. It would be too unfair for the plaintiffs if they will be made to bear the increase in prices of the black iron pipes when they had already paid quite an amount for said items and defendant had made use of the advance payments. That would be unjust enrichment on the part of the defendant at the expense of the plaintiffs and is considered an abominable business practice. [CA Decision, pp. 1819; Rollo, pp. 73-74.] Respondent court denied Delta's motion for reconsideration hence this petition for review praying for the reversal of the Court of Appeals decision and affirmance of that of the trial court. Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions required of private respondents as vendees. These conditions are: payment of 20% of the net contract price or P13,200.00 and execution of a promissory note called for by the first contract; and payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta posits, are suspensive conditions and only upon their performance or compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.] Thus, when private respondents did not perform their obligations; when they refused to accept petitioner's offer to deliver the goods; and, when it took them three (3) long years before they demanded delivery of the iron pipes that in the meantime, great and sudden fluctuation in market prices have occurred; Delta is entitled to rescind the two (2) contracts. Delta relies on the following provision of law on rescission: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he question of whether a breach of a contract is substantial depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May 13,1970,33 SCRA 1, 18].

In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its obligations was not a substantial breach, let alone a breach of contract, as would warrant rescission. Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept delivery because the cold storage rooms have not been constructed yet. Plaintiffs (private respondents herein) were short-funded, and did not have the space to accommodate the pipes they ordered" [CFI Decision, p. 9; Rollo, p. 49]. Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager of the Technical Service department of petitioner: Q You stated that you sent a certain Evangelista to the Espaa Extension and Cold Storage to offer the delivery subject matter of the contract and then you said that Mr. Evangelista reported (sic) to you that plaintiff would not accept delivery, is that correct, as a summary of your statement? A A Yes, sir. Q Now, what did you do in the premises (sic)? A Yes, well, we take the word of Mr. Evangelista. We could not deliver the said black iron pipes, because as per information the Ice Plant is not yet finished. Q Did you not report that fact to ... any other defendant-officials of the Delta Motor Corporation? A No. Q And you did not do anything after that? A Because taking the word of my Engineer we did not do anything. [TSN, December 8, 1975, pp. 18-19.] xxx xxx xxx And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any argument but merely demanded that the quoted prices be increased. Thus, in its answer to private respondents' request for delivery of the pipes, Delta countered: Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron pipes;. We regret to say, however, that we cannot base our price on our proposals dated July 3 and July 18, 1972 as per the following paragraph quoted on said proposal: Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be subject to our review and confirmation. We are, therefore, enclosing our re-quoted proposal based on our current price. [Exh. "G".] Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the otherand is always provisional, being ever subject to scrutiny and review by the proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA 102, 107; Emphasis supplied.]

In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts with f-he Genuinos. It only raised rescission as a defense when it was sued for specific performance by private respondents. Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact that not only does it have in its possession and ownership the black iron pipes, but also the P15,900.00 down payments private respondents have paid. And if petitioner Delta claims the right to rescission, at the very least, it should have offered to return the P15,900.00 down payments [See Art. 1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)]. It is for these same reasons that while there is merit in Delta's claim that the sale is subject to suspensive conditions, the Court finds that it has, nevertheless, waived performance of these conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of the Civil Code provides: 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 waived performance of the condition. . . . [Emphasis supplied.] Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation makes reference to Delta's price offer as remaining firm for thirty (30) days and thereafter, will be subject to its review and confirmation. The offers of Delta, however, were accepted by the private respondents within the thirty (30)-day period. And as stipulated in the two (2) letterquotations, acceptance of the offer gives rise to a contract between the parties: In the event that this proposal is acceptable to you, please indicate your conformity by signing the space provided herein below which also serves as a contract of this proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".] And as further provided by the Civil Code: Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon thing which is the object of the contract and upon the price. Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was perfected and neither party could change the terms thereof. Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics, Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as to delivery, ex-stock subject to prior sales,means that "the goods have not been delivered and that there are no prior commitments other than the sale covered by the contracts.. . once the offer is accepted, the company has no more option to change the price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron pipes due to the increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents Genuinos should comply with the original terms of their contracts. WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Footnotes

* The Court of Appeals decision was penned by Justice German. Justice de la Fuente wrote a separate concurring opinion. Justice Cenzon concurred both with Justice German's decision and Justice de la Fuente's opinion. Justice Gancayco, however, wrote a separate dissenting opinion to which Justice Patajo concurred.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 101762 July 6, 1993 VERMEN REALTY DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents. Ramon P. Gutierrez for petitioner. Adriano Velasco for private respondent.

BIDIN, J.: Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set aside the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q45232. The dispositive portion of the assailed decision reads as follows: WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the "Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of the Vermen Pines Condominium should be returned by plaintiff-appellant to defendant-appellee upon payment by the latter of the sum of P330,855.25 to the former, plus damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of Condo (sic) Units Nos. 601 and 602, and three (3) day rental of Room 402 during the Holy Week of 1982, respectively. In addition, defendant-appellee is hereby ordered to pay plaintiff-appellant, who was compelled to litigate and hire the services of counsel to protect its interests against defendant-appellee's violation of their Offsetting Agreement, the sum of P10,000.00 as an award for attorney's fee (sic) and other expenses of litigation. The claim for unrealized profits in a sum equivalent to 10% to 20% percent or P522,000.00 not having been duly proved, is therefore DENIED. No costs. (Rollo, p. 31) On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and private respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract denominated as "Offsetting Agreement". The said agreement contained the following stipulations: 1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM located at Bakakeng Road, Baguio City; 2. That the SECOND PARTY is in business of construction materials and other hardware items; 3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS only; 4. That the FIRST PARTY desires to but from the SECOND PARTY construction materials mostly steel bars, electrical materials and other related items worth FIVE HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;

5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS shall be paid in the form of two (2) residential condominium units, studio type, with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00; 6. That, for every staggered delivery of construction materials, fifty percent (50%) shall be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%) shall be credited to the said condominium unit in favor of the SECOND PARTY; 7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction materials under the agreed price and conditions stated in the price quotation approved by both parties and made an integral part of this document; 8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all items in the purchase order seven (7) days from receipt of said purchase order until such time that the whole amount of P552,000.00 is settled; 9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road, Baguio City; 10. That the freight cost of said materials shall be borne fifty percent (50%) by the FIRST PARTY and fifty percent (50%) by the SECOND PARTY; 11. That the FIRST PARTY pending completion of the VERMEN PINES CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601 and 602, studio type with a total area of 76.22 square meters or less, worth P276,000.00; 12. That after the completion of Vermen Pines Condominium Phase II, the SECOND PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I to Phase II under the same price, terms and conditions. (Rollo, pp. 26-28). As found by the appellate court and admitted by both parties, private respondent had paid petitioner the amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending completion of Phase II of the Vermen Pines Condominiums, petitioner delivered to private respondent units 601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed unit 602. As a consequence of the repossession, the officers of the private respondent corporation had to rent another unit for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the private respondent corporation requested for a clarification of the petitioner's action of preventing them and their families from occupying condominium unit 602. In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another tenant because private respondent corporation had not paid anything for purchase of the condominium unit. Petitioner corporation demanded payment of P27,848.25 representing the balance of the purchase price of Room 601. In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied. Consequently, construction of the condominium project stopped and has not been resumed since then. On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City (Branch 92) for rescission of the Offsetting Agreement with damages. In said complaint, private respondent alleged that petitioner Vermen Realty Corporation had stopped issuing purchase orders of construction materials after April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its (Seneca Hardware) part, in violation of the Offsetting Agreement.

In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff therein): although petitioner issued purchase orders, it was private respondent who could not deliver the supplies ordered, alleging that they were out of stock. (However, during a hearing on January 28, 1987, the Treasurer of petitioner corporation, when asked where the purchase orders were, alleged that she was going to produce the same in court, but the same was never produced (Rollo, p. 30). Moreover, private respondent quoted higher prices for the construction materials which were available. Thus, petitioner had to resort to its other suppliers. Anent the query as to why Unit 602 was leased to another tenant, petitioner averred that this was done because private respondent had not paid anything for it. As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made deliveries of construction materials worth P219,727.00, leaving a balance of P27,848.25 representing the purchase price of unit 601 (Rollo, p. 28). The price of one condominium unit was P138,000.00. After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its counterclaim in the amount of P27,848.25 representing the balance due on the purchase price of condominium unit 601. On appeal, respondent court reversed the trial court's decision as adverted to above. Petitioner now comes before us with the following assignment of errors: I THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S CONCLUSIONS THAT PETITIONER DID NOT VIOLATE THE "OFFSETTING AGREEMENT" IT ENTERED INTO WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY BASELESS "PERCEPTION" THAT IT WAS PETITIONER WHICH DISCONTINUED TO ISSUE PURCHASE ORDERS DUE TO THE STOPPAGE OF THE CONSTRUCTION OF PHASE II OF THE CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID PROJECT WAS STOPPED. II THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT" BECAUSE IT DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT AND DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WAS FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT IN ITS DECISION. III THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT" DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS THAT PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE CONSTRUCTION MATERIAL (SIC) FROM THE FORMER. (Rollo, p. ) The issue presented before the Court is whether or not the circumstances of the case warrant rescission of the Offsetting Agreement as prayed for by Private Respondent when he instituted the case before the trial court. We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out of the same cause, and which results in a mutual relationship of creditor and debtor

between parties. In reciprocal obligations, the performance of one is conditioned on the simultaneous fulfillment of the other obligation (Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums (with total value of P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums Phase II, private respondent shall be given option to transfer to similar units therein. Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution") in case of reciprocal obligations, where one of the obligors fails to comply with that is incumbent upon him. The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in executing the agreement. The question of whether a breach of contract is substantial depends upon the attendant circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]). In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation in the Offsetting Agreement. It averred that contrary to the appellate court's ruling, the mere stoppage of the loan for the construction of Phase II of the Vermen Pines Condominiums should not have had any effect on the fulfillment of the obligations set forth in the Offsetting Agreement. Petitioner moreover stresses that contrary to private respondent's averments, purchase orders were sent, but there was failure to deliver the materials ordered because they were allegedly out of stock. Petitioner points out that, as admitted by private respondent's witness, petitioner had the discretion to order or not to order constructions materials, and that it was only after petitioner approved the price, after making a canvass from other suppliers, that the latter would issue a purchase order. Petitioner argues that this was the agreement, and therefore the law between the parties, hence, when no purchase orders were issued, no provision of the agreement was violated. Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of the Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission of the Offsetting Agreement, as it cannot forever wait for the delivery of the condominium units to it. It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting Agreement. The discontinuance of delivery of construction materials to petitioner stemmed from the failure of petitioner to send purchase orders to private respondent. The allegation that petitioner had been sending purchase orders to private respondent, which the latter could not fill, cannot be given credence. Perhaps in the beginning, it would send purchase orders to private respondent (as evidenced by the purchase orders presented in court), and the latter would deliver the construction materials ordered. However, according to private respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to refute this allegation. When petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the purchase orders in court, the latter promised to do so, but this was never complied with. On the other hand, petitioner would never able to fulfill its obligation in allowing private respondent to exercise the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased and the subject condominium units will never be available. The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting Agreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase II was one of the factors which were considered by private respondent when it entered into the agreement. Since the construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in no position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the height of injustice to make private respondent wait for something that may never come. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED.

Feliciano, Davide, Jr., Romero and Melo, JJ., concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 77648 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and ONG TENG, respondents. G.R. No. 77647 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and EDERLINA NAVALTA, respondents. G.R. No. 77649 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and JOSE LIWANAG, respondents. G.R. No. 77650 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and LEANDRO CANLAS, respondents. G.R. No. 77651 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and VICTORIA SUDARIO respondents. G.R. No.77652 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and FLORA NAGBUYA respondents.

MEDIALDEA, J.: This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch Ederlina Navalta, et. al., respondents. The following facts appear in the records: The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These individual verbal leases were on a month-to month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The

payments of the rentals were paid by the lessees to a collector of the Susana Realty who went to the premises monthly. Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc., a corporation duly organized and existing under the laws of the Philippines. From April to June, 1984, the private respondents continued to pay their monthly rentals to a collector sent by the petitioner. In the succeeding months of July, August and September 1984, the respondents failed to pay their monthly individual rentals as no collector came. On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the subject premises and to pay the back rentals for the months of July, August and September, 1984, within fifteen (15) days from the receipt thereof. Immediately upon the receipt of the said demand letters on October 10, 1984, the private respondents paid their respective arrearages in rent which were accepted by the petitioner subject to the unilateral condition that the acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the same condition. For failure of the private respondents to vacate the premises as demanded in the letter dated October 9, 1984, the petitioner filed with the Metropolitan Trial Court of Manila complaints for ejectment against the manner, as follows: (1) 105972-CV, against Ederlina Navalta (2) 105973-CV, against Jose Liwanag; (3) 105974-CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against Ong Teng. In their respective answers, the six (6) private respondents interposed a common defense. They claimed that since the occupancy of the premises they paid their monthly rental regularly through a collector of the lessor; that their non-payment of the rentals for the months of July, August and September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector; that they were at a loss as to where they should pay their rentals; that sometime later, one of the respondents called the office of the petitioner to inquire as to where they would make such payments and he was told that a collector would be sent to receive the same; that no collector was ever sent by the petitioner; and that instead they received a uniform demand letter dated October 9, 1984. The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as a result thereof, the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision dismissing the six cases, a pertinent portion of which reads, as follows: The records of this case show that at the time of the filing of this complaint, the rentals had all been paid. Hence, the plaintiff cannot eject the defendants from the leased premises, because at the time these cases were instituted, there are no rentals in arrears. The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case, the alleged rental arrearages were paid immediately after receipt of the demand letter, removes its cause of action in an unlawful detainer case, even if the acceptance was without prejudice. x x x. Furthermore, the court has observed that the account involved which constitutes the rentals of the tenants are relatively small to which the ejectment may not lie on grounds of equity and for humanitarian reasons. Defendants' counterclaim for litigation expenses has no legal and factual basis for assessing the same against plaintiff. WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to costs. Defendants' counterclaim is likewise dismissed. SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)

Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals). In its decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit.
lwph1.t

In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit. Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the following errors: ASSIGNMENT OF ERRORS I RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT PREMISES AND TO PAY THE RENTALS IN ARREARS. II RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION COMMITTED A GRAVE WHEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE RESPONDENT. III RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No. 77647) The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of action when the complaints for unlawful detainer were filed considering the fact that upon demand by petitioner from private respondents for payment of their back rentals, the latter immediately tendered payment which was accepted by petitioner. In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of Court, which provides: Sec. 2. Landlord to proceed against tenant only after demand. No landlord or his legal representative or assign, shall be such action against a tenant for failure to pay rent due or to comply with the conditions of his lease, unless the tenant shall have failed to pay such rent or comply with such conditions for a period of fifteen (15) days or five (5) days in case of building, after demand therefor, made upon qqqm personally, or by serving written notice of such demand upon the person found on the premises, or by posting such notice on the premises if no persons be found thereon. It interpreted the said provision as follows: .....the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants failed to pay rent after the demand therefor. It is not the failure per se to pay rent as agreed in the contract, but the failure to pay the rent after a demand therefor is made, that entitles the lessor to bring an action for unlawful

detainer. In other words, the demand contemplated by the above-quoted provision is not a demand to vacate, but a demand made by the landlord upon his tenant for the latter to pay the rent due if the tenant fails to comply with the said demand with the period provided, his possession becomes unlawful and the landlord may then bring the action for ejectment. (p. 28, , G.R. No. 77647) We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before resorting for judicial action so much so that when there is full compliance with the demand, there arises no necessity for court action. As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a demand to vacate, the answer can be gleaned from said Section 2. This section presupposes the existence of a cause of action for unlawful detainer as it speaks of "failure to pay rent due or comply with the conditions of the lease." The existence of said cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for the rescission of the contract of lease and indemnification for damages, or only the latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the demand referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is the option chosen, the demand must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan et al. vs. Tomassi, L-16574, February 28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs. Icasiano, 89 Phil. 44).
lwph1.t

Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate within the periods specified in Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer while the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued. It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the following exceptions where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond his power to perform. The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand required under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be pursued. The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation matured. Coupled with the fact that no collector was sent as previously done in the past, the private respondents cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private respondents lost no time in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to vacate was premature as it was an exercise of a non-existing right to rescind. In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action for ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the lessee.

Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action for ejectment especially when accepted with the written condition that it was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals merely to preserve the right to file an action for unlawful detainer. However, this line of argument presupposes that a cause of action for ejectment has already accrued, which is not true in the instant case. Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly established that it has been customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect. Petitioner also argues that neither is its refused to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified refusal on the part of petitioner or non-acceptance without reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand for payment of the rentals. In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion amounting to lack of jurisdiction in its conclusion affirming the trial court's decision dismissing petitioner's complaint for lack of cause of action. We do not agree, however, with the reasons relied upon. ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. Narvasa, Cruz, Gancayco and Gri;o-Aquino JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 108129 September 23, 1999 AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.

QUISUMBING, J.: This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals, which set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a complaint filed by the buyer (herein petitioner) against the seller (private respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and instead found petitioner guilty of delay and therefore liable for damages, as follows:

WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the complaint with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63 representing the balance of the maintenance cost and tank rental charges incurred by the defendant for the failure of the plaintiff to haul the rest of the rest of the sulfuric acid on the designated date.
Costs against plaintiff-appellee. 2

As gleaned from the records, the following are the antecedents: On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). The contract 3 was in letter-form as follows: 27 June 1986 AEROSPACE INDUSTRIES INC. 203 E. Fernandez St. San Juan, Metro Manila Attention: Mr. Melecio Hernandez Manager Subject : Sulfuric Acid Shipment Gentlemen: This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms and conditions: A. Commodity : Sulfuric Acid in Bulk B. Concentration : 98-99% H2SO4 C. Quantity : 500 MT-100 MT Ex-Basay 400 MT Ex-Sangi D. Price : US$ 50.00/MT-FOB Cotcot, Basay, Negros Or. US$ 54.00/MT-FOB Sangi, Cebu E. Payment : Cash in Philippine currency payable to Philippine Phosphate Fertilizer Corp. (MAKATI) at PCIB selling rate at the time of payment at least five (5) days prior to shipment date.

F. Shipping Conditions 1. Laycan : July 2. Load port : Cotcot, Basay, Negros Or. and Atlas Pier, Sangi, Cebu xxx xxx xxx 11. Other terms and Conditions: To be mutually agreed upon. Very truly yours, Philippine Phosphate Fertilizer Corp. Signed: Herman J. Rustia Sr. Manager, Materials & Logistics CONFORME: AEROSPACE INDUSTRIES, INC. Signed: Mr. Melecio Hernandez Manager Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the sulfuric acid purchased at Basay because private respondent had been incurring incremental expense of two thousand (P2,000.00) pesos for each day of delay in shipment. On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty (P553,280.00) pesos for 500 MT of sulfuric acid. On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head Services. The vessel was assigned to carry the agreed volumes of freight from designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter, the vessel underwent repairs. In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15, 1986. Private respondent said that it would charge petitioner the storage and consequential costs for the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to comply. On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board.
1wphi1.nt

Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT. 6 On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases, which letters are hereunder excerpted: January 26, 1987 xxx xxx xxx We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we are willing to pay the additional order at the prevailing market price, provided the lifting of the total 500 MT be centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu. 7

March 20, 1987 This refers to the remaining balance of the above product quantity which were not loaded to the authorized cargo vessel, M/T Sultan Kayumanggi at your load port Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April 1987 and we are arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT an additional product quantity thereof of 227.51 MT. 8

Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent. On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return of the purchase price of three hundred seven thousand five hundred thirty (P307,530.00) pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric acid from Basay, or pay maintenance and storage expenses commencing August 1, 1986. On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of 272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that: With regard to our balance of sulfuric acid product at your shore tank/plant for 272.49 metric ton that was left by M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of 227.51 metric ton of sulfuric acid, 98% concentration. The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule to lift the high grade sulfuric acid product is contracted for her full capacity/load which is 500 metric tons more or less.
We are willing to pay the additional quantity 227.51 metric tons high grade sulfuric acid in the prevailing price of the said product. 12

xxx xxx xxx By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get its additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the information to his associate, Herman Rustia, the Senior Manager for Imports and International Sales of private respondent. In a letter dated July 22, 1988, Rustia replied: Subject: Sulfuric Acid Ex-Isabel Gentlemen:

Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed arrival of imported Sulfuric Acid from Japan. 14

On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for the delivery of the purchases remaining, or suffer tedious legal action his client would commence. On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim, stating that it was the petitioner who was remiss in the performance of its obligation in arranging the shipping requirements of its purchases and, as a consequence, should pay damages as computed below: Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00 Less Shipments 70.009 MT sulfuric acid P72,830.36 151.51 MT sulfuric acid 176,966.27 (249,796.63) Balance P303,483.37 Less Charges Basay Maintenance Expense from Aug. 15 to Dec. 15, 1986 (P2,000.00/day x 122 days) P244,000.00 Sangi Tank Rental from Aug. 15, 1986 to Aug. 15, 1987 (P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00) Receivable/Counterclaim (P324,516.63) =========== Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's favor, disposing as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the latter to pay the former the following sums: 1. P306,060.77 representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff paid to defendant; 2. P91,818.23 representing unrealized profits, both items with 12% interest per annumfrom May 4, 1989, when the complaint was filed until fully paid; 3. P30,000.00 as exemplary damages; and

4. P30,000.00 as attorney's fees and litigation expenses, both last items also with 12% interest per annum from date hereof until fully paid. Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant. 15

In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pick-up the remaining sulfuric acid because its failure was due to force majeure. According to the trial court, it was private respondent who committed a breach of contract when it failed to accommodate the additional order of the petitioner, to replace those that sank in the sea, thus: To begin with, even if we assume that it is incumbent upon the plaintiff to "lift" the sulfuric acid it ordered from defendant, the fact that force majeure intervened when the vessel which was previouly (sic) listing, but which the parties, including a representative of the defendant, did not mind, sunk, has the effect of absolving plaintiff from "lifting" the sulfuric acid at the designated load port. But even assuming the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to a payment of a 2,000-peso incremental expenses per day to defendant for delayed "lifting has not been proven." . . . Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional order after the transaction in litigation? Why also, did defendant not send plaintiff statements of account until after 3 years?
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods which the latter did not actually receive. 16

On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as follows: Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation to withdraw the full amount of 500 MT of sulfuric acid from the defendant's loadport at Basay and Sangi on or before August 15, 1986. As early as August 6, 1986 it had been accordingly warned by the defendant that any delay in the hauling of the commodity would mean expenses on the part of the defendant amounting to P2,000.00 a day. The plaintiff sent its vessel, the "M/T Sultan Kayumanggi", only on November 19, 1987. The vessel, however; was not capable of loading the entire 500 MT and in fact, with its load of only 227.519 MT, it sank. Contrary to the position of the trial court, the sinking of the "M/T Sultan Kayumanggi" did not absolve the plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It was the plaintiff's duty to charter another vessel for the purpose. It did contract for the services of a new vessel, the "M/T Don Victor", but did not want to lift the balance of 272.481 MT only but insisted that its additional order of 227.51 MT be also given by the defendant to complete 500 MT. apparently so that the vessel may be availed of in its full capacity. xxx xxx xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only for the cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as well as exemplary damages and attorney's fees. 17

Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of its obligation. It dismissed the complaint of petitioner and ordered it to pay damages representing the counterclaim of private respondent. The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution dated December 21, 1992, for lack of merit. Petitioner now comes before us, assigning the following errors:

I. RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51 M.T. II. RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON EVIDENCE. III. RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED FACTS THAT PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT. IV. RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE). V. RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT. From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows: 1. Did the respondent court err in holding that the petitioner committed breach of contract, considering that: a) the petitioner allegedly paid the full value of its purchases, yet received only a portion of said purchases? b) petitioner and private respondent allegedly had also agreed for the purchase and supply of an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived? 2. Did the respondent court err in awarding damages to private respondent? 3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of the Civil Code?

To resolve these issues, petitioner urges us to review factual findings of respondent court and its conclusion that the petitioner was guilty of delay in the performance of its obligation. According to petitioner, that conclusion is contrary to the factual evidence. It adds that respondent court disregarded the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming that respondent court's findings conflict with those of the trial court, petitioner prays that the trial court's findings be upheld over those of the appellate court. Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal thereof, or on October 3, 1986, hence, it had complied with the primary condition set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a storm, a force majeure, which sank the vessel. It thus claims exemption from liability to pay damages. Petitioner also contends that it was actually the private respondent's shipping officer, who advised petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner insists that when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric acid, private respondent could not comply with the contract commitment due to "pyrite limitation." While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of the trial court, 18 this Court may review those findings, we find the appellate court's conclusion that petitioner violated the subject contract amply supported by preponderant evidence. Petitioner's claim was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm or force majeure caused the petitioner's delay and failure to lift the cargo of sulfuric acid at the designated loadports. In contrast, the appellate court discounted Hernandez' assertions. For on record, the storm was not the proximate cause of petitioner's failure to transport its purchases on time. The survey report submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel, which was unstable, was incapable of carrying the full load of sulfuric acid. Note that there was a premature termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs before continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS survey report, unstable and unseaworthy. Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros Oriental, elucidated this point: Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was temporarily stopped by the vessel's master due to ships stability was heavily tilted to port side, ship's had tried to transfer the loaded acid to stbdside but failed to do so, due to their auxiliary pump on board does not work out for acid. xxx xxx xxx Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel Declared quantity loaded onboard based on data's provided by PHILPHOS representative. On November 26, two representative of shipping company arrived Basay to assist the situation, at 1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or welding was suspended due to the explosion of tank no. 5. Explosion ripped about two feet of the double bottom tank.
November 27 up to date no progress of said vessel. 19

While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report therein noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ship's incomplete tank calibration table. Barge displacement cannot be applied due to ship was listing to Stboard side which has been loaded with rocks to control her stability. 20

These two vital pieces of information were totally ignored by trial court. The appellate court correctly took these into account, significantly. As to the weather condition in Basay, the appellate court accepted surveyor Rabe's testimony, thus:

Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the loading operation of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir. 21

Since the third party surveyor was neither petitioner's nor private respondent's employee, his professional report should carry more weight than that of Melecio Hernandez, an employee of petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping requirements of the cargo from the private respondent's loadports to the petitioner's designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy vessel. However, despite repeated demands, petitioner did not comply seasonably. Additionally, petitioner claims that private respondent's employee, Gil Belen, had recommended to petitioner to fully utilize the vessel, hence petitioner's request for additional order to complete the vessel's 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts that a contract of sale has been changed or modified has the burden of proving the change or modification by clear and convincing evidence. 22Repeated requests and additional orders were contained in petitioner's letters to private respondent. In contrast, Belen's alleged action was only verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could redound to petitioner's advantage, not the other party's. If additional orders were at the instance of private respondent, the same must be properly proved together with its relevance to the question of delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of written agreements is inadmissible, under the parol evidence rule. 23 Belen's purported recommendation could not be taken at face value and, obviously, cannot excuse petitioner's default. Respondent court found petitioner's default unjustified, and on this conclusion we agree: It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance of the original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early as August 15, 1986. What the defendant could not sell to the plaintiff was the additional 227.51 MT which said plaintiff was ordering, for the reason that the defendant was short of the supply needed. The defendant, however, had no obligation to agree to this additional order and may not be faulted for its inability to meet the said additional requirements of the plaintiff. And the defendant's incapacity to agree to the delivery of another 227.51 MT is not a legal justification for the plaintiffs refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the "M/T Don Victor" only if the defendant would confirm that it was ready to deliver 500 MT. Because the defendant could not sell another 227.51 MT to the plaintiff, the latter did not send a new vessel to pick up the balance of the 500 MT originally contracted for by the parties. This, inspite the representations made by the defendant for the hauling thereof as scheduled and its reminders that any expenses for the delay would be for the account of the plaintiff. 24

We are therefore constrained to declare that the respondent court did not err when it absolved private respondent from any breach of contract. Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified delay in the performance of its obligation under the contract. Where there has been breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them. 25 Article 1170 of the Civil Code provides: Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. 26 Art. 1169 states:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. In order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 27 In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed, otherwise petitioner would be charged for the consequential damages owing to any delay. As stated in private respondent's letter to petitioner, dated December 12, 1986: Subject: M/T "KAYUMANGGI" Gentlemen: This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986 regarding your sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th December 1986 as we are expecting the arrival of our chartered vessel purportedly to haul our equipments and all other remaining assets in Basay. This includes our sulfuric acid tanks. We regret, therefore, that if these tanks are not emptied on or before the 15th of December, we either have to charge you for the tanks waiting time at Basay and its consequential costs (i.e. chartering of another vessel for its second pick-up at Basay, handling, etc.)as well as all other incremental costs on account of the protracted loading delay. 28 (Emphasis supplied)

Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay begin? The above letter constitutes private respondent's extrajudicial demand for the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however, we cannot sustain the finding of the respondent court that petitioner's delay started on August 6, 1986. The Court of Appeals had relied on private respondent's earlier letter to petitioner of that date for computing the commencement of delay. But as averred by petitioner, said letter of August 6th is not a categorical demand. What it showed was a mere statement of fact, that "[F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00 per day." Noteworthy, private respondent accepted the full payment by petitioner for purchases on October 3, 1986, without qualification, long after the August 6th letter. In contrast to the August 6th letter, that of December 12th was a categorical demand. Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically, the computation of damages arising from the shipping delay would then have to be from December 15, 1986, given said reasonable period after the December 12th letter. More important, private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and regular business expenses for which the petitioner should not be obliged to pay. Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August 31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should reimburse private respondent's rental expenses of P32,000 monthly, commencing December 15, 1986, up to August 31, 1987, the period of the extended lease. Note further that there is nothing on record refuting the amount of expenses abovecited. Private respondent presented in court two supporting documents: first, the lease agreement pertaining to the equipment, and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to private respondent representing the rental charges incurred. Private respondent is entitled to recover the payment for these charges. It should be reimbursed the amount of two hundred seventy two thousand (P272,000.00) 29 pesos, corresponding to the total amount of rentals from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank. Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondent's account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the

risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: xxx xxx xxx (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault. (emphasis supplied) On this score, we quote with approval the findings of the appellate court, thus: . . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time. But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant. Art. 1170 of the Civil Code provides: Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-contract with the defendant. 30

As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When petitioner failed to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is indubitably liable for proven damages. Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the amount of three hundred three thousand, four hundred eighty three pesos and thirty seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses initially paid by private respondent. It is worth noting that the adjustment and allowance of private respondent's counterclaim or set-off in the present action, rather than by another independent action, is encouraged by the law. Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the court's time. 31 The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 32 The rules on counterclaims are designed to achieve the disposition of a whole controversy involving the conflicting claims of interested parties at one time and in one action, provided all parties can be brought before the court and the matter decided without prejudicing the right of any party. 33 Set-off in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will leave the amount of P31,483.37 refundable to petitioner. WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of Three hundred three thousand four hundred eighty three pesos and thirtyseven centavos (P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein petitioner.
1wphi1.nt

Costs against the petitioner.

SO ORDERED. Bellosillo, Mendoza and Buena, JJ., concur. Footnotes 1 Rollo, pp. 36-45, Penned by Justice Associate Justice Salome A. Montoya, concurred in by Justices Jose C. Campos and Serafin V.C. Guingona, of the Special Fifth Division of the Court of Appeals. 2 Rollo p. 44. 3 Records, pp. 5-6. 4 Id. at 136. 5 Id. at 137. 6 TSN, September 1, 1989, pp. 28-29. 7 Records, pp. 47-48. Emphasis ours. 8 Id. at 49. 9 Id. at 50. 10 Id. at 41. 11 Id. at 138. 12 Id. at 40. 13 Id. at 65, Affidavit of Gil B. Belen. 14 Id. at 46. 15 Rollo, p. 51. 16 Id. at 52-53. 17 Id. at 41-42. 18 Mijares vs. CA, 271 SCRA 558, 566 (1997), citing Cuizon vs. Court of Appeals, 260 SCRA 645, (1996); Floro vs. Llenado, 244 SCRA 713 (1995). 19 Records, p. 21. 20 Id. at 23. 21 TSN, December 20, 1989, p. 6. 22 77 Corpus Juris Secundum, Sales, Section 86, Evidence, p. 773. 23 Gerales vs. Court of Appeals, 218 SCRA 638, 648-649 (1993); citing Continental Airlines Inc. vs. Santiago. 172 SCRA 490 (1989). 24 Rollo, p. 42. 25 78 Corpus Juris Secundum, Sales, Action for Damages, Section 462, Right of Action, p. 112.

26 SSS vs. Moonwalk Development and Housing Corporation, 221 SCRA 119, 127 (1993). 27 Id. at 128. 28 Records, p. 137. 29 P32,000 x 8.5 months. 30 Rollo, pp. 43-44. 31 Development Bank of the Philippines vs. Court of Appeals, 249 SCRA 331, 341 (1995). 32 Id., citing 20 Am. Jur. 2d, Counterclaim, 237-238. 33 Id., citing Kuenzel vs. Universal Carloading and Distributing Co., Inc. (1939) 29 F. Supp. 407.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 153004 November 5, 2004

SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and RIVERLAND, INC., respondents.

DECISION

QUISUMBING, J.: Subject of the present petition for review on certiorari is the Decision,1 dated January 30, 2002, as well as the April 12, 2002, Resolution2 of the Court of Appeals in CA-G.R. CV No. 55122. The appellate court reversed the Decision,3 dated October 4, 1996, of the Regional Trial Court of Makati City, Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion for Reconsideration. The facts of this case are undisputed. Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and defendant, respectively, in several civil cases filed in different courts in the Philippines. On October 26, 1990, the parties executed a Compromise Agreement4 which amicably ended all their pending litigations. The pertinent portions of the Agreement read as follows: 1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner: a. P1.5 Million immediately upon the execution of this agreement; b. The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement; provided, however, that in the event that the Foundation does not pay the whole or any part of such balance, the same

shall be paid with the corresponding portion of the land or real properties subject of the aforesaid cases and previously covered by the notices of lis pendens, under such terms and conditions as to area, valuation, and location mutually acceptable to both parties; but in no case shall the payment of such balance be later than two (2) years from the date of this agreement; otherwise, payment of any unpaid portion shall only be in the form of land aforesaid; 2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the aforesaid various notices of lis pendens on the real properties aforementioned (by signing herein attached corresponding documents, for such lifting); provided, however, that in the event that defendant Foundation shall sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any such sale, or any part thereof as may be required, shall be partially devoted to the payment of the Foundation's obligations under this agreement as may still be subsisting and payable at the time of any such sale or sales; ... 5. Failure of compliance of any of the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the enforcement of this agreement. [Emphasis supplied]5 In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner demanding the payment of the remaining P13 million, which was ignored by the latter. Meanwhile, on September 30, 1991, the Regional Trial Court of Makati City, Branch 62, issued a Decision6approving the compromise agreement. On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ. Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner, which were formerly subjects of the lis pendens. Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile. On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within one year from the date of registration of the said properties. On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages7 alleging that there was delay on the part of petitioner in paying the balance of P13 million. They further alleged that under the Compromise Agreement, the obligation became due on October 26, 1992, but payment of the remaining P12 million was effected only on November 22, 1994. Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney's fees and costs of litigation. Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal redemption. In its Answer,8 petitioner countered that respondents have no cause of action against it since it had fully paid its obligation to the latter. It further claimed that the alleged delay in the payment of the

balance was due to its valid exercise of its rights to protect its interests as provided under the Rules. Petitioner counterclaimed for attorney's fees and exemplary damages. On October 4, 1996, the trial court rendered a Decision9 dismissing herein respondents' complaint and ordering them to pay attorney's fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals. The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit. SO ORDERED. Hence this petition for review on certiorari where petitioner assigns the following issues: I WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT AWARDED LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT NEITHER IN THE COMPROMISE AGREEMENT NOR IN THE COMPROMISE JUDGEMENT OF HON. JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE RESPONDENT II WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL IN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE PETITIONER TO RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN CONVERTED TO AN OBLIGATION TO PAY IN KIND DELIVERY OF REAL PROPERTIES OWNED BY THE PETITIONER WHICH HAD BEEN FULLY PERFORMED III WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT OF INTEREST BY REASON OF THE WAIVER PROVISION IN THE COMPROMISE AGREEMENT, WHICH BECAME THE LAW AMONG THE PARTIES10 The only issue to be resolved is whether the respondents are entitled to legal interest. Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not provide for the payment of interest, the legal interest by way of penalty on account of fault or delay shall not be due and payable, considering that the obligation or loan, on which the payment of legal interest could be based, has been superseded by the compromise agreement.11 Furthermore, the petitioner argues that the respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly approved compromise agreement.12 Article 4 of the compromise agreement provides: Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the defendant Foundation arising from and in connection with the aforesaid civil cases, and defendant Foundation, on the other hand, also waives and renounces any and all claims that it may have against plaintiff Santos in connection with such cases.13 [Emphasis supplied.] Lastly, petitioner alleges that since the compromise agreement did not provide for a period within which the obligation will become due and demandable, it is incumbent upon respondent Santos to ask for judicial intervention for purposes of fixing the period. It is only when a fixed period exists that the legal interests can be computed. Respondents profer that their right to damages is based on delay in the payment of the obligation provided in the Compromise Agreement. The Compromise Agreement provides that payment must

be made within the two-year period from its execution. This was approved by the trial court and became the law governing their contract. Respondents posit that petitioner's failure to comply entitles them to damages, by way of interest.14 The petition lacks merit. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced.15 It is an agreement between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing.16 The general rule is that a compromise has upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have been included therein.17 This holds true even if the agreement has not been judicially approved.18 In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990.19 It was judicially approved on September 30, 1991.20 Applying existing jurisprudence, the compromise agreement as a consensual contract became binding between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate controverted claims.21 In accordance with the compromise agreement, the respondents asked for the dismissal of the pending civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the execution of the agreement. This act of the petitioner showed that it acknowledges that the agreement was immediately executory and enforceable upon its execution. As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides: ... b. The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two (2) years from the execution of this agreement22[Emphasis supplied.] ... The two-year period must be counted from October 26, 1990, the date of execution of the compromise agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. When respondents wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred delay. Article 1169 of the New Civil Code provides: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. [Emphasis supplied] Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-fulfillment of the obligation with respect to time.23 In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.24 In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it.

The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle its outstanding balance only on February 8, 1995, which is more than two years after the extrajudicial demand. Moreover, it filed several motions and elevated adverse resolutions to the appellate court to hinder the execution of a final and executory judgment, and further delay the fulfillment of its obligation. Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extrajudicial demand contemplated by law. Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article 117025 of the New Civil Code. When the debtor knows the amount and period when he is to pay, interest as damages is generally allowed as a matter of right.26 The complaining party has been deprived of funds to which he is entitled by virtue of their compromise agreement. The goal of compensation requires that the complainant be compensated for the loss of use of those funds. This compensation is in the form of interest.27 In the absence of agreement, the legal rate of interest shall prevail.28 The legal interest for loan as forbearance of money is 12% per annum29 to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.30 WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED. Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur. Azcuna, J., on leave.

Footnotes Rollo, pp. 39-45. Penned by Associate Justice Hilarion L. Aquino, with Associate Justices Edgardo P. Cruz, and Amelita G. Tolentino concurring.
1 2

Id. at 46. Id. at 77-82. Records, pp. 118-123. Id. at 38-40. Id. at 36-40. Id. at 1-11. Id. at 23-35. Id. at 151-156. Rollo, p. 218. Id. at 219-220. Id. at 221. Records, pp. 39-40. Rollo, p. 149.

10

11

12

13

14

15

New Civil Code, Art. 2028.

Cebu International Finance Corp. v. Court of Appeals, G.R. No. 123031, 12 October 1999, 316 SCRA 488, 498-499 citing David v. Court of Appeals, G.R. No. 97240, 16 October 1992, 214 SCRA 644, 650.
16 17

Del Rosario v. Madayag, G.R. No. 118531, 28 August 1995, 247 SCRA 767, 771. Mayuga v. Court of Appeals, No. L-46953, 28 September 1987, 154 SCRA 309, 320. Records, pp. 118-123. Id. at 36-40.

18

19

20

Landoil Resources Corporation v. Tensuan, No. L-77733, 20 December 1988, 168 SCRA 569, 578.
21 22

Records, pp. 38-39. IV Arturo M. Tolentino, Civil Code of the Philippines, 101 (1987 ed.). Id. at 102.

23

24

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.
25 26

II J. Cesar S. Sangco, Philippine Law on Torts and Damages 1085 (1993 ed.). Ibid. Quiros v. Tan-Guinlay, No. 1904, 3 March 1906, 5 Phil 675, 680. Central Bank Circular No. 416, July 29, 1974.

27

28

29

Eastern Assurance and Surety Corporation v. Court of Appeals, G.R. No. 127135, 18 January 2000, 322 SCRA 73, 78.
30

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 149734 November 19, 2004

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners, vs. AYALA CORPORATION, respondent.

DECISION

TINGA, J.:

The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents big money. The huge price difference lies at the heart of the present controversy. Petitioners insist that the lots should be sold to them at 1984 prices while respondent maintains that the prevailing market price in 1990 should be the selling price. Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2 dated October 11, 2001 assailing the Decision3 of the Court of Appeals dated September 6, 2001 which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala Corporation. Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents:5 On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village." The development was then being undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP Construction). Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez spouses. The area to be developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez spouses at the prevailing price at the time of purchase. The relevant provisions of the MOA on this point are: "5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement. x x x" 5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at the time of the purchase." The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's development plan, but Ayala's amended development plan which was still to be formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year later, it was in the third phase, or Phase II-c. Under the MOA, the Vasquez spouses made several express warranties, as follows: "3.1. The SELLERS shall deliver to the BUYER: xxx 3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company showing: xxx D. A list of all persons and/or entities with whom the Company has pending contracts, if any. xxx 3.1.5. Audited financial statements of the Company as at Closing date. 4. Conditions Precedent

All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the Closing, of the following conditions: 4.1. The representations and warranties by the SELLERS contained in this Agreement shall be true and correct at the time of Closing as though such representations and warranties were made at such time; and xxx 6. Representation and Warranties by the SELLERS The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the execution of this Agreement and at the Closing: xxx 6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS, threatened against or affecting the SELLERS with respect to the Shares or the Property; and 7. Additional Warranties by the SELLERS 7.1. With respect to the Audited Financial Statements required to be submitted at Closing in accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that: 7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Par. 2 of this Agreement. 7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's income prior to Closing or arising out of transactions or state of facts existing prior thereto. 7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at closing or any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER. xxx xxx xxx 7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company. 7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the company is a party or by which it is bound, and no condition exists which, with notice or lapse of time or both, will constitute such default or breach." After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction...

G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the development of the property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP Construction the total of P4,686,113.39. Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of the approaching so-called deadline. However, no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla, categorically stated that they expected "development of Phase 1 to be completed by February 19, 1990, three years from the settlement of the legal problems with the previous contractor." By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the suit below. After trial, the court a quo rendered its decision, the dispositive portion of which states: "THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit." In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayala's accountants should have opened the records of Conduit to find out all claims; the warranty against suit is with respect to "the shares of the Property" and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time frame was to put the Vasquezes at Ayala's mercy; Ayala did not develop because of a slump in the real estate market; the MOA was drafted and prepared by the AYALA who should suffer its ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties had prestations to each other. [Emphasis supplied] Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach their warranties under the MOA6 dated April 23, 1981; that it was obliged to develop the land where the four (4) lots subject of the option to purchase are located within three (3) years from the date of the MOA; that it was in delay; and that the option to purchase was valid because it was incorporated in the MOA and the consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA. As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court, Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during the pendency of the case filed by Lancer. Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed to develop the first phase of its own amended development plan and not Conduit's development plan. Nowhere does the MOA provide that Ayala Corporation shall follow Conduit's development plan nor is Ayala Corporation prohibited from changing the sequence of the phases of the property it will develop. Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a demand for Ayala Corporation to sell the subject lots to them. According to the appellate court, what petitioners sent were mere reminder letters the last of which was dated prior to April 23,

1984 when the obligation was not yet demandable. At any rate, the Court of Appeals found that petitioners in fact waived the three (3)-year period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they "expect that the development of Phase I will be completed by 19 February 1990, three years from the settlement of the legal problems with the previous contractor." 7 The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they have effectively waived their right to buy the same. In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their warranties under the MOA; that Ayala Corporation was not obliged to develop the "Remaining Property" within three (3) years from the execution of the MOA; that Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of first refusal. Additionally, petitioners insist that the Court should review the factual findings of the Court of Appeals as they are in conflict with those of the trial court. Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending that the petition raises questions of fact and seeks a review of evidence which is within the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract between GP Construction, with whom Conduit contracted for the development of the property under a Construction Contract dated October 10, 1980, and Lancer was not disclosed by petitioners during the negotiations. Neither was the liability for Lancer's claim included in the Audited Financial Statements submitted by petitioners after the signing of the MOA. These justify the conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended only in February 1989, the three (3)-year period within which Ayala Corporation committed to develop the property should only be counted thence. Thus, when it offered the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay. In response to petitioners' contention that there was no action or proceeding against them at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave rise to the Lancer claim were already extant then. Petitioners warranted that their representations under the MOA shall be true and correct at the time of "Closing" which shall take place within four (4) weeks from the signing of the MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the third week of May 1981. Hence, Lancer's claims, articulated in a letter which Ayala Corporation received on May 4, 1981, are among the liabilities warranted against under paragraph 7.1.2 of the MOA. Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for relying on the express warranty that except for billings payable to GP Construction and advances made by petitioner Daniel Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit and should now assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP Construction. Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of the property within three (3) years from the execution of the MOA. The provision refers to a mere declaration of intent to develop the first phase of its (Ayala Corporation's) own development plan and not Conduit's. True to its intention, Ayala Corporation did complete the development of the first phase (Phase II-A) of its amended development plan within three (3) years from the execution of the MOA. However, it is not obliged to develop the third phase (Phase II-C) where the subject lots are located within the same time frame because there is no contractual stipulation in the MOA therefor. It is free to decide on its own the period for the development of Phase II-C. If petitioners wanted to impose the same three (3)-year timetable upon the third phase of the amended development plan, they should have filed a suit to fix the time table in accordance with Article 119710 of the Civil Code. Having failed to do so, Ayala Corporation cannot be declared to have been in delay. Ayala Corporation further contends that no demand was made on it for the performance of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer suit did not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date when the development of Phase 1 will be

completed. More importantly, their letter dated June 27, 1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase 1 will be completed by February 19, 1990. Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option contract. Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their Petition and contending further that they did not violate their warranties under the MOA because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that it received Lancer's claim before the "Closing" date. It therefore had all the time to rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the matter a violation of petitioners' warranty. Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought Conduit with "open eyes." Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP Construction. Since Lancer's claim was actually a claim against GP Construction being its sub-contractor, it is Ayala Corporation and not petitioners which is liable. Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan, it is obliged under the MOA to develop the entire area where the subject lots are located in three (3) years. They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA. Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to comply with the provisions of the MOA. The parties were required to submit their respective memoranda in the Resolution12 dated November 18, 2002. In compliance with this directive, petitioners submitted their Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its Memorandum14 dated February 14, 2003 on February 17, 2003. We shall first dispose of the procedural question raised by the instant petition. It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact being conclusive on this Court as a matter of general principle. However, since in the instant case there is a conflict between the factual findings of the trial court and the appellate court, particularly as regards the issues of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on record and resolve such factual issues as an exception to the general rule.15 In any event, the submitted issue relating to the categorization of the right to purchase granted to petitioners under the MOA is legal in character. The next issue that presents itself is whether petitioners breached their warranties under the MOA when they failed to disclose the Lancer claim. The trial court declared they did not; the appellate court found otherwise. Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed to disclose the Lancer claim: a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for P38,766.04, and for advances made by Daniel Vazquez; b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other liabilities whether accrued, absolute, contingent or otherwise; c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value not reflected or reserved in the financial statements, and those disclosed to Ayala;

d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any instrument or agreement to which it is a party or by which it is bound. 16 The Court is convinced that petitioners did not violate the foregoing warranties. The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof during the period of negotiations for the sale of Conduit. In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked for and was given information that GP Construction sub-contracted, presumably to Lancer, a greater percentage of the project than it was allowed. Petitioners gave this information to Ayala Corporation because the latter intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit. Ayala Corporation even admitted that it "tried to explorelegal basis to discontinue the contract of Conduit with GP" but found this "not feasible when information surfaced about the tacit consent of Conduit to the subcontracts of GP with Lancer." At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA. Lancer's letter19 dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction was received by Ayala Corporation on May 4, 1981, well before the "Closing"20 which occurred four (4) weeks after the date of signing of the MOA on April 23, 1981, or on May 23, 1981. The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation although the specifics thereof were no longer included in the MOA: 7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company shall own the "Remaining Property", free from all liens and encumbrances and that the Company shall have no obligation to any party except for billings payable to GP Construction & Development Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement. 7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without limitation, tax liabilities due or to become due and whether incurred in respect of or measured in respect of the Company's income prior to Closing or arising out of transactions or state of facts existing prior thereto. 7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion against the Company as at Closing of any liability of any nature and in any amount not fully reflected or reserved against such Audited Financial Statements referred to above, and those disclosed to BUYER. xxx xxx xxx 7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS, threatened with, any legal action or other proceedings before any court or administrative body, nor do the SELLERS know or have reasonable grounds to know of any basis for any such action or proceeding or of any governmental investigation relative to the Company. 7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and observance by the Company of any term, covenant or condition of any instrument or agreement to which the Company is a party or by which it is bound, and no condition exists

which, with notice or lapse of time or both, will constitute such default or breach."21 [Emphasis supplied] Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any legal action or proceeding is qualified by Ayala Corporation's actual knowledge of the Lancer claim which was disclosed to Ayala Corporation before the "Closing." At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for the payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87."22 The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP Construction is liable. Proof of this is Ayala Corporation's letter23 to GP Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala Corporation's receipt of the Lancer claim embodied in the letter dated April 30, 1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and requesting copies of all sub-contracts affecting the Conduit property. The pertinent excerpts of the letter read: In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D. Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of subcontracts that they have with your corporation. They have also furnished us with a copy of their letter to you dated 30 April 1981. Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe that it is necessary, at this point in time, that you furnish us with copies of all your subcontracts affecting the property of Conduit, not only with Lancer General Builders Corporation, but all subcontracts with other parties as well24 Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9, 1992 a copy of the letter26dated May 28, 1981 of GP Construction's counsel addressed to Conduit furnishing the latter with copies of all sub-contract agreements entered into by GP Construction. Since it was addressed to Conduit, it can be presumed that it was the latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter the existence of the Lancer sub-contract. The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow knowledge of the claim. Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer suit as an obstacle to its development of the property, it never actually brought up nor sought redress for petitioners' alleged breach of warranty for failure to disclose the Lancer claim until it filed its Answer27 dated February 17, 1992. We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a commitment or a mere intent on the part of Ayala Corporation to develop the property within three (3) years from date thereof? Paragraph 5.7 provides: 5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class residential subdivision of the same class as its New Alabang Subdivision, and that it intends to complete the first phase under its amended development plan within three (3) years from the date of this Agreement.28 Notably, while the first phrase of the paragraph uses the word "commits" in reference to the development of the "Remaining Property" into a first class residential subdivision, the second phrase uses the word "intends" in relation to the development of the first phase of the property within three (3) years from the date of the MOA. The variance in wording is significant. While "commit"29 connotes a pledge to do something, "intend"30 merely signifies a design or proposition.

Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who assisted in drafting the MOA, testified: COURT You only ask what do you mean by that intent. Just answer on that point. ATTY. BLANCO Don't talk about standard. WITNESS A Well, the word intent here, your Honor, was used to emphasize the tentative character of the period of development because it will be noted that the sentence refers to and I quote "to complete the first phase under its amended development plan within three (3) years from the date of this agreement, at the time of the execution of this agreement, your Honor." That amended development plan was not yet in existence because the buyer had manifested to the seller that the buyer could amend the subdivision plan originally belonging to the seller to conform with its own standard of development and second, your Honor, (interrupted) 31 It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporation's part to complete the first phase under its amended development plan within three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is deplorable. More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first phase of Ayala Corporation's amended development plan as the subject of the three (3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph refers not to Conduit's but to Ayala Corporation's development plan which was yet to be formulated when the MOA was executed: Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The Buyer hereby commits that to develop the remaining property into a first class residential subdivision of the same class as New Alabang Subdivision, and that they intend to complete the first phase under its amended development plan within three years from the date of this agreement." Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is the amended development plan of Ayala? A: Yes, sir. Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit? A: No, it is not. Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981? A: Yes, sir. Q: And point of fact during your direct examination as of the date of the agreement, this amended development plan was still to be formulated by Ayala? A: Yes, sir.32 As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to petitioners were in the first phase of the Conduit development plan, they were in the third or last phase of the Ayala Corporation development plan. Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala Corporation to develop the first phase of its amended development plan within three (3) years from the execution of the MOA, there was no parallel commitment made as to the timeframe for the development of the third phase where the subject lots are located.

Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots for sale to petitioners within three (3) years from the execution of the MOA. It is not that Ayala Corporation committed or intended to develop the first phase of its amended development plan within three (3) years. Whether it did or did not is actually beside the point since the subject lots are not located in the first phase anyway. We now come to the issue of default or delay in the fulfillment of the obligation. Article 1169 of the Civil Code provides: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially. 33 Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three (3) year period fixed by the MOA for the development of the first phase of the property since this is not the same period contemplated for the development of the subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners should have petitioned the court to fix the period in accordance with Article 119734 of the Civil Code. As no such action was filed by petitioners, their complaint for specific performance was premature, the obligation not being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of the obligation. Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within three (3) years from date thereof, Ayala Corporation could still not be held to have been in delay since no demand was made by petitioners for the performance of its obligation. As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable were all dated prior to April 23, 1984, the date when the period was supposed to expire. In other words, the letters were sent before the obligation could become legally demandable. Moreover, the letters were mere reminders and not categorical demands to perform. More importantly, petitioners waived the three (3)-year period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period should be counted from the termination of the case filed by Lancer. The letter reads in part: I. Completion of Phase I As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez were made to understand that you were unable to accomplish this because of legal problems with the previous contractor. These legal problems were resolved as of February 19, 1987, and Dr. & Mrs. Vazquez therefore expect that the development of Phase I will be completed by February 19, 1990, three years from the settlement of the legal problems with

the previous contractor. The reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till the surrounding area (which is Phase I) is developed and occupied. They have been anxious to build their residence for quite some time now, and would like to receive assurance from your goodselves regarding this, in compliance with the agreement. II. Option on the adjoining lots We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to their "Retained Area". They are concerned that although over a year has elapsed since the settlement of the legal problems, you have not presented them with the size, configuration, etc. of these lots. They would appreciate being provided with these at your earliest convenience.35 Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the development of Phase I was due to the legal problems with GP Construction, but also their acquiescence to the completion of the development of Phase I at the much later date of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be construed as a categorical demand on Ayala Corporation to offer the subject lots for sale to petitioners as the letter merely articulates petitioners' desire to exercise their option to purchase the subject lots and concern over the fact that they have not been provided with the specifications of these lots. The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23, 198436 and February 18, 198437 can also not be considered categorical demands on Ayala Corporation to develop the first phase of the property within the three (3)-year period much less to offer the subject lots for sale to petitioners. The letter dated January 23, 1984 reads in part: You will understand our interest in the completion of the roads to our property, since we cannot develop it till you have constructed the same. Allow us to remind you of our Memorandum of Agreement, as per which you committed to develop the roads to our property "as per the original plans of the company", and that 1. The back portion should have been developed before the front portion which has not been the case. 2. The whole project front and back portions be completed by 1984.38 The letter dated February 18, 1984 is similarly worded. It states: In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which states respectively:39 Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a categorical demand for Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter reads in part: and that we expect from your goodselves compliance with our Memorandum of Agreement, and a definite date as to when the road to our property and the development of Phase I will be completed.41 At best, petitioners' letters can only be construed as mere reminders which cannot be considered demands for performance because it must appear that the tolerance or benevolence of the creditor must have ended.42 The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an option contract or a right of first refusal. Paragraph 5.15 states: 5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at the time of the purchase.43 The Court has clearly distinguished between an option contract and a right of first refusal. An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined

price, the privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration.44 In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up.45 Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the period within which they will be offered for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not specified. The phrase "at the prevailing market price at the time of the purchase" connotes that there is no definite period within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or if the determination thereof is left to the judgment of a specified person or persons.46 Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at the price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by an independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil Code, viz: Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the other party.47 In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market price for the property when the offer was made on June 18, 1990.48 Insisting on paying for the lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter.49 Ayala Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their right to purchase the subject lots. It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market price in 1984. WHEREFORE, the instant petition is DENIED. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes
1

Alternatively spelled Vasquez.

Rollo, pp. 10-187 with Annexes.

Id. at 193-210; Penned by Associate Justice Perlita J. Tria-Tirona and concurred in by Associate Justices Eugenio S. Labitoria and Eloy R. Bello, Jr.
3 4

Id. at 74-79; Dated September 11, 1995. Id. at 193-198; Culled from the Decision of the Court of Appeals. Id. at 50-62. Id. at 206. Id. at 240-289. Id. at 53.

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.
10

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.
11

Supra, note 2 at 300-323. Id. at 324-325. Id. at 331-369. Id. at 370-433. Rosario v. Court of Appeals, 369 Phil. 729 (1999), citations omitted. Supra, note 2 at 401-402. RTC Records, pp. 60-61. Id. at 90-91 Id. at 77. Supra note 2 at 53. Id. at 58-60. Id. at 52-53. The full text of paragraph 2 reads: 2. Purchase Price and Mode of Payment The Purchase Price shall be FIFTY-SIX MILLION SIX HUNDRED TWENTY THREE THOUSAND THREE HUNDRED THIRTY EIGHT PESOS AND EIGHTY CENTAVOS (P56,623,338.80) and shall be paid at the Closing by the BUYER by means of a manager's check(s) payable to Ma. Luisa M. Vazquez in her own behalf and as representative of the other SELLERS, less the earnest money of EIGHT MILLION PESOS (P8,000,000.00) herein paid as mentioned below; provided, however, that on or before the Closing, SELLERS shall deliver to the BUYER duly executed letters of instruction from the other SELLERS specifically authorizing Ma. Luisa M. Vazquez to

12

13

14

15

16

17

18

19

20

21

22

receive on their own behalf their respective payments by means of a manager's check for the entire Purchase Price stated in this Paragraph payable to SELLERS. In addition to the foregoing, BUYER shall be responsible for the payment of all billings of the contractor GP Construction & Development Corporation after the first billing and any payments made by the company and/or SELLERS shall be reimbursed by BUYER on closing which advances to date is P1,159,012.87. Earnest money in the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency, shall be paid upon signing of this document.
23

Supra, note 17 at 78. Ibid. Supra, note 17 at 69-76. Id. at 81-82. Id. at 32-38. Supra, note 2 at 55. Black's Law Dictionary, Sixth Edition, p. 273. Id. at 809. TSN, November 18, 1993, pp. 35-36. TSN, August 3, 1993, pp. 17-19.

24

25

26

27

28

29

30

31

32

4 A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 102 (1991).
33 34

Supra note 10. Supra, note 17 at 651. Id. at 151. Id. at 154. Supra, note 36. Supra, note 37. Supra, note 17 at 157-158. Id. at 158. A. Tolentino, op. cit. supra, note 33 citing 2 Castan 528 and 3 Valverde 104. Supra, note 2 at 57.

35

36

37

38

39

40

41

42

43

Litonjua v. L&R Corporation, 385 Phil. 538 (2000); Carceller v. Court of Appeals, 362 Phil. 332 (1999);Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 332 Phil. 525 (1996).
44

Ang Yu Asuncion v. Court of Appeals, G.R. No. 109125, December 2, 1994, 238 SCRA 602.
45 46

Art. 1469, Civil Code.

47

A. Tolentino, op. cit. supra, note 33 at 465. Supra, note 2 at 63. Id. at 209-210.

48

49

The testimony of petitioner Daniel Vazquez on direct examination reads: Q Mr. Witness, at the last hearing which was interrupted by the brown-out, we were on Exhibit "L", which I am handing to you, upon receipt of Exhibit "L" which is the June 18, 1990 letter of Ayala to you, what did you do, if any? A We contacted Ayala to tell them we wanted to exercise our option and that we were not agreeable with the price they are mentioning here, sir. Q Did you offer any price? A Yes, sir, we offered them a price. Q According to the complaint, the price in April 1984 could have been only P460.00 pesos per square meter. Where did you get that price? A One of our secretaries, Mr. Eusebio, I believe, contacted the Ayala Corporation and that was the price the Ayala Corporation was selling it at that time, sir. Q Did the Ayala Corporation reduce this price for purposes of arriving in an agreeable or acceptable offer? A Yes, sir, we did. Q How much did the Ayala Corporation dropped to? A Ayala dropped, if I remember right, to I think P4,000.00 pesos, sir. Q And how about you? A We increased our price to P2,000.00 pesos based on the selling price of Ayala at that time converted to dollars and reconverted to pesos at this later dates of 1991. (TSN dated April 20, 1993, pp. 3-5). Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-32336 December 20, 1930

JULIO C. ABELLA, plaintiff-appellant, vs. GUILLERMO B. FRANCISCO, defendant-appellee. Antonio T. Carrascoso, Jr. for appellant. Camus and Delgado for appellee.

AVANCEA, C.J.:

Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the Tala Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of October, 1928, he signed the following document: MANILA, October 31, 1928 Received from Mr. Julio C. Abella the amount of five hundred pesos (P500), payment on account of lots Nos. 937, 938, 939, 940, 941, 942, 943, 924, and 945 of the Tala Estate, barrio of Novaliches, Caloocan, Rizal, containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per hectare, the balance being due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter. (Sgd.) G. B. FRANCISCO P500 Phone 67125. After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to George C. Sellner, collecting P10,000 on account thereof on December 29, 1928. Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another payment of P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th of the same year, the defendant, being in the Province of Cebu, wrote to Roman Mabanta of this City of Manila, attaching a power of attorney authorizing him to sign in behalf of the defendant all the documents required by the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter the defendant instructed Roman Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform him that the option would be considered cancelled, and to return to him the amount of P915.31 already delivered. On January 3, 1929, Mabanta notified the plaintiff that he had received the power of attorney to sign the deed of conveyance of the lots to him, and that he was willing to execute the proper deed of sale upon payment of the balance due. The plaintiff asked for a few days' time, but Mabanta, following the instructions he had received from the defendant, only gave him until the 5th of that month. The plaintiff did not pay the rest of the price on the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however, refused to accept it, and gave him to understand that he regarded the contract as rescinded. On the same day, Mabanta returned by check the sum of P915.31 which the plaintiff had paid. The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in question, upon receipt of the balance of the price, and asks that he be judicially declared the owner of said lots and that the defendant be ordered to deliver them to him. The court below absolved the defendant from the complaint, and the plaintiff appealed.
lawphi1>net

In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of the lots within the stipulated time; and that since the contract between plaintiff and defendant was an option for the purchase of the lots, time was an essential element in it. It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the date, extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He contends that Mabanta, as attorney-in-fact for the defendant in this transaction, granted him an extension of time until the 9th of January. But Mabanta has stated that he only extended the time until the 5th of that month. Mabanta's testimony on this point is corroborated by that of Paz Vicente and by the plaintiff's own admission to Narciso Javier that his option to purchase those lots expired on January 5, 1929. In holding that the period was an essential element of the transaction between plaintiff and defendant, the trial court considered that the contract in question was an option for the purchase of the lots, and that in an agreement of this nature the period is deemed essential. The opinion of the court is divided upon the question of whether the agreement was an option or a sale, but even supposing it was a sale, the court holds that time was an essential element in the transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain obligations which fell due in the month of December, 1928. The time fixed for the payment of the price was therefore essential for the defendant, and this view is borne out by his letter to his representative Mabanta instructing him to consider the contract rescinded if the price was not completed in time. In accordance with article 1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to pay the price within the time specified.

The judgment appealed from is affirmed, with costs against the appellant. So ordered. Johnson, Street, Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-8024 November 29, 1955

EUSEBIO DE LA CRUZ, plaintiff-appellee, vs. APOLONIO LEGASPI and CONCORDIA SAMPEROY, defendants-appellants. Jose A. Fornier for appellants. Ramon Maza for appellee. BENGZON, J.: In the Court of First Instance of Antique, in November, 1950, Eusebio de la Cruz sued Apolonio Legaspi and his wife to compel delivery of the parcel of land they had sold to him in December, 1949. The complaint alleged the execution of the contract, the terms thereof, the refusal of defendants to accept payment of the purchse price of P450 which he had tendered, and undue retention of the realty. The defendants, in their answer, admitted the sale and the price; but they alleged that before the document (of sale) "was made, the plaintiff agreed to pay the defendants the amount of P450 right after the document is executed that very day December 5, 1949, but after the document was signed and ratified by the Notary Public and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay the sum of P450 which is the purchase price of the said land in question." They asserted that for lack of consideration and for deceit, the document of sald should be annulled. Plaintiff's next move was a petition for judgment on the pleadings, contending that the allegations of the answer gave the defendants no excuse to retain the property, rejecting the price. Joining the motion for judgment on the pleadings, the defendants maintained that the sale should be annulled pursuant to their answer's allegatios. The Honorable F. Imperial Reyes, Judge, rendered judgment (a) ordering plaintiff to pay the price of P450 to defendants: (b) ordering the latter to receive such price and immediately after such receipt, to deliver possession of the property to plaintiff. Having failed in a motion to reconsider, defendants appealed in due time. The seven errors assigned in their printed brief, assail the correctness of the judgment, maintaining two principal propositions, namely: (1) the trial judge erroneously disregarded their allegations, in their answer, of non-payment of the price, as hereinbefore quoted; (2) such allegations which must be deemed admitted by plaintiff when he moved for judgment on the pleadings established a good defense, because the contract was without consideration, and was resolved by plaintiff's failure to pay the price "right after the document was executed. As to the first proposition, the decision does not say so, but there is no reason to doubt that as requested in the plaintiff's motion, His Honor considered the allegations made both in the complaint and in the answer. However, he found that defendants' allegations constituted no defense. He read the law correctly, as we shall forthwith explain.

On the second proposition, appellants rightly say that the Civil Code not the New Civil Code regulates the transaction, which occurred in 1949. Yet they err in the assertion that as plaintiff failed to pay the price after the execution of the document of sale as agreed previously, the contract became null and void for lack of consideration. It cannot be denied that when the document was signed the cause or consideration existed: P450. The document specifically said so; and such was undoubtedly the agreement. Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil, 457.) The situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the contract, plaintiff fialed to hand the money to defendants as he previously promised, there was default on his part at most, and defendants' right was to demand interest legal interest for the delay, pursuant to article 1501 (3) of the Civil Code (Villaruel vs. Tan King, 43 Phil. 251), or to demand rescission in court. (Escueta vs. Pardo, 42 Off. Gaz. 2759; Cortes vs. Bibano, 41 Phil. 298.) Such failure, however, did not ipso facto resolve the contract, no stipulation to that effect having been alleged. (Cf. Warner Barnes & Co. vs. Inza, 43 Phil., 505.) Neither was there any agreement nor allegation that payment on time was essential. (Cf. Abella vs. Francisco, 55 Phil., 447; Berg vs. Magdalena Estate, 92 Phil., 110. Indeed, even if the contract of sale herein question had expressly provided for "automatic rescission upon failure to pay the price," the trial judge could allow plaintiff to enforce the contract, as the judgment does, in effect because defendants had not made a previous demand on him, by suit or notarial act. In the sale of real property, even though it may have been stipulated that in default of the price within the time agreed upon, the resolution of the contract shall take place ipso facto, the vendee may pay even after the expiration of the period, at any time before demand has been made upon him either by suit or by notarial act. After such demand has been made the judge cannot grant him further time. (Art. 1504 Civil Code.). By the way, this previous demand, Manresa explains, is a demand for rescission. (Manresa Civil Code, Vol. 10, p. 288, 2d Ed.; Villaruel vs. Tan King, 43 Phil. 251.). The appealed judgment will therefore be affirmed, with costs against appellants. So ordered. Paras, C. J., Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ., concur.