G.R. No.

77425

June 19, 1991

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF

IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE
CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA
RIETA TOLENTINO, respondents.
G.R. No. 77450

June 19, 1991

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF

IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE
CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA
RIETA TOLENTINO, respondents.
REGALADO, J.:
These two petitions for review on certiorari1 seek to overturn the decision of the Court of Appeals
in CA-G.R. CV No. 054562 which reversed and set aside the order of the Regional Trial Court of
Imus, Cavite dismissing Civil Case No. 095-84, as well as the order of said respondent court
denying petitioner's motions for the reconsideration of its aforesaid decision.
On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of
deed of donation, rescission of contract and reconveyance of real property with damages
against petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus,
Cavite, together with the Roman Catholic Archbishop of Manila, before the Regional Trial Court,
Branch XX, Imus, Cavite and which was docketed as Civil Case No. 095-84 therein.3
In their complaint, private respondents alleged that on August 23, 1930, the spouses Eusebio de
Castro and Martina Rieta, now both deceased, executed a deed of donation in favor of therein
defendant Roman Catholic Archbishop of Manila covering a parcel of land (Lot No. 626,
Cadastral Survey of Kawit), located at Kawit, Cavite, containing an area of 964 square meters,
more or less. The deed of donation allegedly provides that the donee shall not dispose or sell
the property within a period of one hundred (100) years from the execution of the deed of
donation, otherwise a violation of such condition would render ipso facto null and void the deed
of donation and the property would revert to the estate of the donors.
It is further alleged that on or about June 30, 1980, and while still within the prohibitive period to
dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose administration all
properties within the province of Cavite owned by the Archdiocese of Manila was allegedly
transferred on April 26, 1962, executed a deed of absolute sale of the property subject of the
donation in favor of petitioners Florencio and Soledad C. Ignao in consideration of the sum of
P114,000. 00. As a consequence of the sale, Transfer Certificate of Title No. 115990 was issued
by the Register of Deeds of Cavite on November 15, 1980 in the name of said petitioner
spouses.
What transpired thereafter is narrated by respondent court in its assailed decision.4

On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to
dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no
legal capacity to sue; and (2) the complaint states no cause of action.
On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss
on three (3) grounds, the first two (2) grounds of which were identical to that of the motion to
dismiss filed by the Ignao spouses, and the third ground being that the cause of action has
prescribed.
On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss
on the ground that he is not a real party in interest and, therefore, the complaint does not state a
cause of action against him.
After private respondents had filed their oppositions to the said motions to dismiss and the
petitioners had countered with their respective replies, with rejoinders thereto by private
respondents, the trial court issued an order dated January 31, 1985, dismissing the complaint on
the ground that the cause of action has prescribed.5
Private respondents thereafter appealed to the Court of Appeals raising the issues on (a)
whether or not the action for rescission of contracts (deed of donation and deed of sale) has
prescribed; and (b) whether or not the dismissal of the action for rescission of contracts (deed of
donation and deed of sale) on the ground of prescription carries with it the dismissal of the main
action for reconveyance of real property.6
On December 23, 1986, respondent Court of Appeals, holding that the action has not yet
prescibed, rendered a decision in favor of private respondents, with the following dispositive
portion:
WHEREFORE, the Order of January 31, 1985 dismissing appellants' complaint is SET
ASIDE and Civil Case No. 095-84 is hereby ordered REINSTATED and REMANDED
to the lower court for further proceedings. No Costs.7
Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for
reconsideration which were denied by respondent Court of Appeals in its resolution dated
February 6, 1987,8 hence, the filing of these appeals by certiorari.
It is the contention of petitioners that the cause of action of herein private respondents has
already prescribed, invoking Article 764 of the Civil Code which provides that "(t)he donation
shall be revoked at the instance of the donor, when the donee fails to comply with any of the
conditions which the former imposed upon the latter," and that "(t)his action shall prescribe after
four years from the non-compliance with the condition, may be transmitted to the heirs of the
donor, and may be exercised against the donee's heirs.
We do not agree.
Although it is true that under Article 764 of the Civil Code an action for the revocation of a
donation must be brought within four (4) years from the non-compliance of the conditions of the
donation, the same is not applicable in the case at bar. The deed of donation involved herein
expressly provides for automatic reversion of the property donated in case of violation of the
condition therein, hence a judicial declaration revoking the same is not necessary, As aptly
stated by the Court of Appeals:

By the very express provision in the deed of donation itself that the violation of the
condition thereof would render ipso facto null and void the deed of donation, WE are
of the opinion that there would be no legal necessity anymore to have the donation
judicially declared null and void for the reason that the very deed of donation itself
declares it so. For where (sic) it otherwise and that the donors and the donee
contemplated a court action during the execution of the deed of donation to have the
donation judicially rescinded or declared null and void should the condition be
violated, then the phrase reading "would render ipso facto null and void" would not
appear in the deed of donation.9
In support of its aforesaid position, respondent court relied on the rule that a judicial action for
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. 10 It called attention to the holding that
there is nothing in the law that prohibits the parties from entering into an agreement that a
violation of the terms of the contract would cause its cancellation even without court intervention,
and that it is not always necessary for the injured party to resort to court for rescission of the
contract.11 It reiterated the doctrine that a judicial action is proper only when there is absence of
a special provision granting the power of cancellation.12
It is true that the aforesaid rules were applied to the contracts involved therein, but we see no
reason why the same should not apply to the donation in the present case. Article 732 of the
Civil Code provides that donationsinter vivos shall be governed by the general provisions on
contracts and obligations in all that is not determined in Title III, Book III on donations. Now, said
Title III does not have an explicit provision on the matter of a donation with a resolutory condition
and which is subject to an express provision that the same shall be considered ipso
facto revoked upon the breach of said resolutory condition imposed in the deed therefor, as is
the case of the deed presently in question. The suppletory application of the foregoing doctrinal
rulings to the present controversy is consequently justified.
The validity of such a stipulation in the deed of donation providing for the automatic reversion of
the donated property to the donor upon non-compliance of the condition was upheld in the
recent case of De Luna, et al. vs. Abrigo, et al.13 It was held therein that said stipulation is in the
nature of an agreement granting a party the right to rescind a contract unilaterally in case of
breach, without need of going to court, and that, upon the happening of the resolutory condition
or non-compliance with the conditions of the contract, the donation is automatically revoked
without need of a judicial declaration to that effect. While what was the subject of that case was
an onerous donation which, under Article 733 of the Civil Code is governed by the rules on
contracts, since the donation in the case at bar is also subject to the same rules because of its
provision on automatic revocation upon the violation of a resolutory condition, from parity of
reasons said pronouncements in De Luna pertinently apply.
The rationale for the foregoing is that in contracts providing for automatic revocation, judicial
intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an agreement providing for rescission even
without judicial intervention, but in order to determine whether or not the rescission was proper.14
When a deed of donation, as in this case, expressly provides for automatic revocation and
reversion of the property donated, the rules on contract and the general rules on prescription
should apply, and not Article 764 of the Civil Code. Since Article 1306 of said Code authorizes
the parties to a contract to establish such stipulations, clauses, terms and conditions not
contrary to law, morals, good customs, public order or public policy, we are of the opinion that, at
the very least, that stipulation of the parties providing for automatic revocation of the deed of
donation, without prior judicial action for that purpose, is valid subject to the determination of the
propriety of the rescission sought. Where such propriety is sustained, the decision of the court
will be merely declaratory of the revocation, but it is not in itself the revocatory act.

On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the
cause of action of herein private respondents has not yet prescribed since an action to enforce a
written contract prescribes in ten (10) years.15 It is our view that Article 764 was intended to
provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the
deed of donation if and when the parties have not agreed on the automatic revocation of such
donation upon the occurrence of the contingency contemplated therein. That is not the situation
in the case at bar.
Nonetheless, we find that although the action filed by private respondents may not be dismissed
by reason of prescription, the same should be dismissed on the ground that private respondents
have no cause of action against petitioners.
The cause of action of private respondents is based on the alleged breach by petitioners of the
resolutory condition in the deed of donation that the property donated should not be sold within a
period of one hundred (100) years from the date of execution of the deed of donation. Said
condition, in our opinion, constitutes an undue restriction on the rights arising from ownership of
petitioners and is, therefore, contrary to public policy.
Donation, as a mode of acquiring ownership, results in an effective transfer of title over the
property from the donor to the donee. Once a donation is accepted, the donee becomes the
absolute owner of the property donated. Although the donor may impose certain conditions in
the deed of donation, the same must not be contrary to law, morals, good customs, public order
and public policy. The condition imposed in the deed of donation in the case before us
constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of
the property donated, which right is an indispensable attribute of ownership. Such a prohibition
against alienation, in order to be valid, must not be perpetual or for an unreasonable period of
time.
Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered
applicable by analogy.1wphi1Under the third paragraph of Article 494, a donor or testator may
prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its part,
declares that the dispositions of the testator declaring all or part of the estate inalienable for
more than twenty (20) years are void.
It is significant that the provisions therein regarding a testator also necessarily involve, in the
main, the devolution of property by gratuitous title hence, as is generally the case of donations,
being an act of liberality, the imposition of an unreasonable period of prohibition to alienate the
property should be deemed anathema to the basic and actual intent of either the donor or
testator. For that reason, the regulatory arm of the law is or must be interposed to prevent an
unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and
870 of the Code.
In the case at bar, we hold that the prohibition in the deed of donation against the alienation of
the property for an entire century, being an unreasonable emasculation and denial of an integral
attribute of ownership, should be declared as an illegal or impossible condition within the
contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said
statutory provision, such condition shall be considered as not imposed. No reliance may
accordingly be placed on said prohibitory paragraph in the deed of donation. The net result is
that, absent said proscription, the deed of sale supposedly constitutive of the cause of action for
the nullification of the deed of donation is not in truth violative of the latter hence, for lack of
cause of action, the case for private respondents must fail.
It may be argued that the validity of such prohibitory provision in the deed of donation was not
specifically put in issue in the pleadings of the parties. That may be true, but such oversight or
inaction does not prevent this Court from passing upon and resolving the same.

It will readily be noted that the provision in the deed of donation against alienation of the land for
one hundred (100) years was the very basis for the action to nullify the deed of d donation. At
the same time, it was likewise the controverted fundament of the motion to dismiss the case a
quo, which motion was sustained by the trial court and set aside by respondent court, both on
the issue of prescription. That ruling of respondent court interpreting said provision was assigned
as an error in the present petition. While the issue of the validity of the same provision was not
squarely raised, it is ineluctably related to petitioner's aforesaid assignment of error since both
issues are grounded on and refer to the very same provision.
This Court is clothed with ample authority to review matters, even if they are not assigned as
errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of
the case:16 Thus, we have held that an unassigned error closely related to an error properly
assigned,17 or upon which the determination of the question properly assigned is dependent, will
be considered by the appellate court notwithstanding the failure to assign it as error.18
Additionally, we have laid down the rule that the remand of the case to the lower court for further
reception of evidence is not necessary where the Court is in a position to resolve the dispute
based on the records before it. On many occasions, the Court, in the public interest and for the
expeditious administration of justice, has resolved actions on the merits instead of remanding
them to the trial court for further proceedings, such as where the ends of justice, would not be
subserved by the remand of the case.19 The aforestated considerations obtain in and apply to
the present case with respect to the matter of the validity of the resolutory condition in question.
WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby
rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus,
Cavite.
SO ORDERED.

G.R. No. L-16109

October 2, 1922

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of Tan
Liuan & Company,defendants.
Uy TIENG PIAO, defendant-appellant.
STREET, J.:
This case comes by appeal from the Court of First Instance of the city of Manila, in a case where
the court awarded to the plaintiff the sum of P300, as damages for breach of contract. The
plaintiff appeals on the ground that the amount of damages awarded is inadequate; while the
defendant Uy Tieng Piao appeals on the ground that he is not liable at all. The judgment having
been heretofore affirmed by us in a brief opinion, we now avail ourselves of the occasion of the
filing of a motion to rehear by the attorneys for the plaintiff to modify the judgment in a slight
measure and to state more fully the reasons underlying our decision.
It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co.,
as superintendent of an oil factory which the latter contemplated establishing in this city. The
period of the contract extended over two years from the date mentioned; and the salary was to
be at the rate of P600 per month during the first year and P700 per month during the second,
with electric light and water for domestic consumption, and a residence to live in, or in lieu
thereof P60 per month.
At the time this agreement was made the machinery for the contemplated factory had not been
acquired, though ten expellers had been ordered from the United States; and among the
stipulations inserted in the contract with the plaintiff was a provision to the following effect:
It is understood and agreed that should the machinery to be installed in the said
factory fail, for any reason, to arrive in the city of Manila within a period of six months
from date hereof, this contract may be cancelled by the party of the second part at its
option, such cancellation, however, not to occur before the expiration of such six
months.
The machinery above referred to did not arrive in the city of Manila within the six months
succeeding the making of the contract; nor was other equipment necessary for the
establishment of the factory at any time provided by the defendants. The reason for this does not
appear with certainty, but a preponderance of the evidence is to the effect that the defendants, in
the first months of 1919, seeing that the oil business no longer promised large returns, either
cancelled the order for the machinery from choice or were unable to supply the capital
necessary to finance the project. At any rate on June 28, 1919, availing themselves in part of the
option given in the clause above quoted, the defendants communicated in writing to the plaintiff
the fact that they had decided to rescind the contract, effective June 30th then current, upon
which date he was discharged. The plaintiff thereupon instituted this action to recover damages
in the amount of P13,000, covering salary and perquisites due and to become due under the
contract.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the
defendants the right to cancel the contract upon the contingency of the nonarrival of the
machinery in Manila within six months, must be understood as applicable only in those cases
where such nonarrival is due to causes not having their origin in the will or act of the defendants,
as delays caused by strikes or unfavorable conditions of transporting by land or sea; and it is
urged that the right to cancel cannot be admitted unless the defendants affirmatively show that
the failure of the machinery to arrive was due to causes of that character, and that it did not have
its origin in their own act or volition. In this connection the plaintiff relies on article 1256 of the
Civil Code, which is to the effect that the validity and fulfillment of contracts cannot be left to the
will of one of the contracting parties, and to article 1119, which says that a condition shall be
deemed fulfilled if the obligor intentially impedes its fulfillment.
It will be noted that the language conferring the right of cancellation upon the defendants is
broad enough to cover any case of the nonarrival of the machinery, due to whatever cause; and
the stress in the expression "for any reason" should evidently fall upon the word "any." It must
follow of necessity that the defendants had the right to cancel the contract in the contingency
that occurred, unless some clear and sufficient reason can be adduced for limiting the operation
of the words conferring the right of cancellation. Upon this point it is our opinion that the
language used in the stipulation should be given effect in its ordinary sense, without technicality
or circumvention; and in this sense it is believed that the parties to the contract must have
understood it.
Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract
for personal service of a resolutory condition permitting the cancellation of the contract by one of
the parties. Such a stipulation, as can be readily seen, does not make either the validity or the
fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege
of cancellation; for where the contracting parties have agreed that such option shall exist, the
exercise of the option is as much in the fulfillment of the contract as any other act which may
have been the subject of agreement. Indeed, the cancellation of a contract in accordance with
conditions agreed upon beforehands is fulfillment.
In this connection, we note that the commentator Manresa has the following observation with
respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will
of either of the parties in the negative form of rescission, a case frequent in certain contracts (the
letting of service for hire, the supplying of electrical energy, etc.), for in such supposed case
neither is the article infringed, nor is there any lack of equality between the persons contracting,
since they remain with the same faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p.
610.) 1awph!l.net
Undoubtedly one of the consequences of this stipulation was that the employers were left in a
position where they could dominate the contingency, and the result was about the same as if
they had been given an unqualified option to dispense with the services of the plaintiff at the end
of six months. But this circumstance does not make the stipulation illegal.
The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially
somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to
render competent and efficient service as manager of a corporation, to which position it was
understood he was to be appointed. In the same contract it was stipulated that if "for any reason"
Hardaker should not be given that position, or if he should not be permitted to act in that

capacity for a stated period, certain things would be done by Hall. Upon being installed in the
position aforesaid, Hardaker failed to render efficient service and was discharged. It was held
that Hall was released from the obligation to do the things that he had agreed to perform. Some
of the judges appear to have thought that the case turned on the meaning of the phrase "for any
reason," and the familiar maxim was cited that no man shall take advantage of his own wrong.
The result of the case must have been the same from whatever point of view, as there was an
admitted failure on the part of Hardaker to render competent service. In the present case there
was no breach of contract by the defendants; and the argument to the contrary apparently
suffers from the logical defect of assuming the very point at issue.

article 1113 of the Civil Code. In other words, a condition at once facultative and resolutory may
be valid even though the condition is made to depend upon the will of the obligor.

But it will be said that the question is not so much one concerning the legality of the clause
referred to as one concerning the interpretation of the resolutory clause as written, the idea
being that the court should adjust its interpretation of said clause to the supposed precepts of
article 1256, by restricting its operation exclusively to cases where the nonarrival of the
machinery may be due to extraneous causes not referable to the will or act of the defendants.
But even when the question is viewed in this aspect their result is the same, because the
argument for the restrictive interpretation evidently proceeds on the assumption that the clause
in question is illegal in so far as it purports to concede to the defendants the broad right to
cancel the contract upon nonarrival of the machinery due to any cause; and the debate returns
again to the point whether in a contract for the prestation of service it is lawful for the parties to
insert a provision giving to the employer the power to cancel the contract in a contingency which
may be dominated by himself. Upon this point what has already been said must suffice.

Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's
claim in so far as damages are sought for the period subsequent to the expiration of the first six
months, but in assessing the damages due for the six-month period, the trial judge evidently
overlooked the item of P60, specified in the plaintiff's fourth assignment of error, which
represents commutation of house rent for the month of June, 1919. This amount the plaintiff is
clearly entitled to recover, in addition to the P300 awarded in the court below.

As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the
language used by the parties from its natural meaning and thereby in legal effect to restrict the
words "for any reason," as used in the contract, to mean "for any reason not having its origin in
the will or acts of the defendants." To impose this interpretation upon those words would in our
opinion constitute an unjustifiable invasion of the power of the parties to establish the terms
which they deem advisable, a right which is expressed in article 1255 of the Civil Code and
constitutes one of the most fundamental conceptions of contract right enshrined in the Code.
The view already expressed with regard to the legality and interpretation of the clause under
consideration disposes in a great measure of the argument of the appellant in so far as the
same is based on article 1119 of the Civil Code. This provision supposes a case where the
obligor intentionally impedes the fulfillment of a condition which would entitle the obligee to exact
performance from the obligor; and an assumption underlying the provision is that the obligor
prevents the obligee from performing some act which the obligee is entitled to perform as a
condition precedent to the exaction of what is due to him. Such an act must be considered
unwarranted and unlawful, involving per se a breach of the implied terms of the contract. The
article can have no application to an external contingency which, like that involved in this case, is
lawfully within the control of the obligor.
In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a
facultative condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and 1119
of the Civil Code that a condition, facultative as to the debtor, is obnoxious to the first sentence
contained in article 1115 and renders the whole obligation void (vol. 8, p. 131). That statement is
no doubt correct in the sense intended by the learned author, but it must be remembered that he
evidently has in mind the suspensive condition, such as is contemplated in article 1115. Said
article can have no application to the resolutory condition, the validity of which is recognized in

If it were apparent, or could be demonstrated, that the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in the
absence of affirmative proof showing that the nonarrival of the machinery was due to some
cause not having its origin in their own act or will. The contract, however, expresses no such
positive obligation, and its existence cannot be implied in the fact of stipulation, defining the
conditions under which the defendants can cancel the contract.

We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the
judgment holding him liable as a member of the firm of Tan Liuan and Co.; and it is insisted in his
behalf that he was not bound by the act of Tan Liuan as manager of Tan Liuan and Co. in
employing the plaintiff. Upon this we will merely say that the conclusion stated by the trial court
in the next to the last paragraph of the decision with respect to the liability of this appellant in our
opinion in conformity with the law and facts.
The judgment appealed from will be modified by declaring that the defendants shall pay to the
plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified
the judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of
the Code of Civil Procedure, and with costs. So ordered.

G.R. No. 156273

October 15, 2003

HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely: ESPERANZA R. EDJEC,

BERNARDA R. SUELA, RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE
LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R. ARQUISOLA, CORAZON ROTEA, FE R.
EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA, MARIA LUISA
ROTEA-VILLEGAS, ALFREDO R. ROTEA, represented by his heirs LIZBETH ROTEA and
ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFER ROTEA; and
ROLANDO R. ROTEA, represented by his heir ROLANDO R. ROTEA JR., petitioners,
vs.
MACTAN - CEBU INTERNATIONAL AIRPORT AUTHORITY, respondent.
DECISION
BELLOSILLO, J.:
THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are the
successors-in-interest of the former registered owners of two (2) parcels of land situated in
Lahug, Cebu City, designated as Lot No. 916 with an area of 2,355 square meters under TCT
No. RT-7543 (106) T-13694, and Lot No. 920 consisting of 3,097 square meters under TCT No.
RT-7544 (107) T-13695.1
In 1949 the National Airport Corporation as the predecessor agency of respondent Mactan-Cebu
International Airport Authority (MCIAA) wanted to acquire Lots Nos. 916 and 920 above
described among other parcels of land for the proposed expansion of Lahug Airport. 2 To entice
the landowners to cede their properties, the government assured them that they could
repurchase their lands once Lahug Airport was closed or its operations transferred to Mactan
Airport.3 Some of the landowners executed deeds of sale with right of repurchase in favor of the
government but many others, including the owners of Lots Nos. 916 and 920 herein mentioned,
refused the offer because the payment was perceived to be way below the market price.4
On 16 April 1952, as the negotiations for the purchase of the lots necessary for the expansion
and improvement of Lahug Airport irredeemably broke down, the Civil Aeronautics
Administration as the successor agency of the National Airport Corporation filed a complaint with
the Court of First Instance of Cebu, for the expropriation of Lots Nos. 916 and 920 and other
subject realties, docketed as Civil Case No. R-1881.
On 29 December 1961 the trial court promulgated its Decision in Civil Case No. R-1881
condemning Lots Nos. 916 and 920 and other lots for public use upon payment of just
compensation.5 Petitioners predecessors were paid P7,065.00 for Lot No. 916 and P9,291.00
for Lot No. 920 with consequential damages by way of legal interest from 16 November 1947.
No appeal was taken from the Decision on Lots Nos. 916 and 920, and the judgment of
condemnation became final and executory.6 Thereafter, the certificates of title for these parcels
of land were issued in the name of the Republic of the Philippines under TCT No. 58691 for Lot
No. 916 and TCT No. 58692 for Lot No. 920, which under RA 6958 (1990) were subsequently
transferred in favor of respondent MCIAA.7

At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to MCIAA, Lahug Airport
ceased operations as the Mactan Airport was opened for incoming and outgoing flights. 8 Lots
Nos. 916 and 920 which had been expropriated for the extension of Lahug Airport were not
utilized.9 In fact, no expansion of Lahug Airport was undertaken by MCIAA and its predecessorsin-interest.10 Hence, petitioners wrote then President Fidel V. Ramos and the airport manager
begging them for the exercise of their alleged right to repurchase Lots Nos. 916 and 920. 11 Their
pleas were not heeded.12
On 11 March 1997 petitioners filed a complaint for reconveyance and damages with RTC of
Cebu City against respondent MCIAA to compel the repurchase of Lots Nos. 916 and 920,
docketed as Civil Case No. CEB-20015. In the main, petitioners averred that they had been
convinced by the officers of the predecessor agency of respondent MCIAA not to oppose the
expropriation proceedings since in the future they could repurchase the properties if the airport
expansion would not push through. MCIAA did not object to petitioners evidence establishing
these allegations.
When the civil case was pending, one Richard E. Enchuan filed a Motion for Transfer of Interest
alleging that he acquired through deeds of assignment the rights of some of herein petitioners
over Lots Nos. 916 and 920.13 The Department of Public Works and Highways (DPWH) also
sought to intervene in the civil case claiming that it leased in good faith Lot No. 920 from the
predecessor agencies of respondent MCIAA and that it built thereon its Regional Equipment
Services and its Region 7 Office.14
On 12 April 1999 the trial court found merit in the claims of petitioners and granted them the right
to repurchase the properties at the amount pegged as just compensation in Civil Case No. R1881 but subject to the alleged property rights of Richard E. Enchuan and the leasehold of
DPWH.15 The trial court opined that the expropriation became illegal or functus officio when the
purpose for which it was intended was no longer there.16
Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals, docketed as
CA-G.R. CV No. 64456.1vvphi1.nt
On 20 December 2001 the Court of Appeals reversed the assailed Decision on the ground that
the judgment of condemnation in Civil Case No. R-1881 was unconditional so that the rights
gained therefrom by respondent MCIAA were indicative of ownership in fee simple. 17 The
appellate court cited Fery v. Municpality of Cabanatuan 18 which held that mere deviation from the
public purpose for which the power of eminent domain was exercised does not justify the
reversion of the property to its former owners, and Mactan-Cebu International Airport Authority v.
Court of Appeals19 which is allegedly stare decisis to the instant case to prevent the exercise of
the right of repurchase as the former dealt with a parcel of land similarly expropriated under Civil
Case No. R-1881.20
On 28 November 2002 reconsideration of the Decision was denied.
review.

21

Hence, this petition for

Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to the case at bar since
what was involved therein was the "right of reversion" and not the "right of repurchase" which
they are invoking. They also differentiate Mactan-Cebu International Airport Authority v. Court of
Appeals22 from the instant case in that the landowners in the MCIAA case offered inadmissible

evidence to show their entitlement to a right of repurchase, while petitioners herein offered
evidence based on personal knowledge for which reason MCIAA did not object and thus waived
whatever objection it might have had to the admissibility thereof. Finally, petitioners allege that
their right to equal protection of the laws would be infringed if some landowners are given the
right to repurchase their former properties even as they are denied the exercise of such
prerogative.
On the other hand, respondent MCIAA clings to our decisions in Fery v. Municpality of
Cabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals. According to
respondent MCIAA "there is only one instance when expropriated land may be repurchased by
its previous owners, and that is, if the decision of expropriation itself provides [the] condition for
such repurchase." Respondent asserts that the Decision in Civil Case No. R-1881 is absolute
and without conditions, thus, no repurchase could be validly exercised.
This is a difficult case calling for a difficult but just solution. To begin with, there exists an
undeniable historical narrative that the predecessors of respondent MCIAA had suggested to the
landowners of the properties covered by the Lahug Airport expansion scheme that they could
repurchase their properties at the termination of the airports venture. 23 Some acted on this
assurance and sold their properties;24 other landowners held out and waited for the exercise of
eminent domain to take its course until finally coming to terms with respondents predecessors
that they would not appeal nor block further the judgment of condemnation if the same right of
repurchase was extended to them.25 A handful failed to prove that they acted on such assurance
when they parted with the ownership of their lands.26
In resolving this dispute, we must reckon with the rulings of this Court in Fery v. Municpality of
Cabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals, which define
the rights and obligations of landowners whose properties were expropriated when the public
purpose for which eminent domain was exercised no longer subsists. In Fery, which was cited in
the recent case of Reyes v. Court of Appeals, 27 we declared that the government acquires only
such rights in expropriated parcels of land as may be allowed by the character of its title over the
properties If x x x land is expropriated for a particular purpose, with the condition that when that purpose is
ended or abandoned the property shall return to its former owner, then, of course, when the
purpose is terminated or abandoned the former owner reacquires the property so expropriated.
If x x x land is expropriated for a public street and the expropriation is granted upon condition
that the city can only use it for a public street, then, of course, when the city abandons its use as
a public street, it returns to the former owner, unless there is some statutory provision to the
contrary x x x x If, upon the contrary, however, the decree of expropriation gives to the entity a
fee simple title, then, of course, the land becomes the absolute property of the expropriator,
whether it be the State, a province, or municipality, and in that case the non-user does not have
the effect of defeating the title acquired by the expropriation proceedings x x x x When land has
been acquired for public use in fee simple, unconditionally, either by the exercise of eminent
domain or by purchase, the former owner retains no rights in the land, and the public use may
be abandoned, or the land may be devoted to a different use, without any impairment of the
estate or title acquired, or any reversion to the former owner x x x x28
In Mactan-Cebu International Airport Authority, respondent Chiongbian sought to enforce an
alleged right of repurchase over her properties that had been expropriated in Civil Case No. R-

1881. This Court did not allow her to adduce evidence of her claim, for to do so would unsettle
as to her properties the judgment of condemnation in the eminent domain proceedings. We also
held therein that Chiongbians evidence was both inadmissible and lacking in probative value The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee simple
to the Republic of the Philippines. There was no condition imposed to the effect that the lot
would return to CHIONGBIAN or that CHIONGBIAN had a right to repurchase the same if the
purpose for which it was expropriated is ended or abandoned or if the property was to be used
other than as the Lahug Airport. CHIONGBIAN cannot rely on the ruling in Mactan-Cebu
International Airport vs. Court of Appeals wherein the presentation of parol evidence was
allowed to prove the existence of a written agreement containing the right to repurchase. Said
case did not involve expropriation proceedings but a contract of sale x x x x To permit
CHIONGBIAN to prove the existence of a compromise settlement which she claims to have
entered into with the Republic of the Philippines prior to the rendition of judgment in the
expropriation case would result in a modification of the judgment of a court which has long
become final and executory x x x x And even assuming for the sake of argument that
CHIONGBIAN could prove the existence of the alleged written agreement acknowledging her
right to repurchase Lot No. 941 through parol evidence, the Court of Appeals erred in holding
that the evidence presented by CHIONGBIAN was admissible x x x x Aside from being
inadmissible under the provisions of the Statute of Frauds, [the] testimonies are also
inadmissible for being hearsay in nature x x x x29
We adhere to the principles enunciated in Fery and in Mactan-Cebu International Airport
Authority, and do not overrule them. Nonetheless the weight of their import, particularly our ruling
as regards the properties of respondent Chiongbian in Mactan-Cebu International Airport
Authority, must be commensurate to the facts that were established therein as distinguished
from those extant in the case at bar. Chiongbian put forth inadmissible and inconclusive
evidence, while in the instant case we have preponderant proof as found by the trial court of the
existence of the right of repurchase in favor of petitioners.
Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the
Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the
predecessors of respondent was ordered under the running impression that Lahug Airport would
continue in operation As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although
Mactan Airport is being constructed, it does not take away the actual usefulness and importance
of the Lahug Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to
Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no
evidence was adduced to show how soon is the Mactan Airport to be placed in operation and
whether the Lahug Airport will be closed immediately thereafter. It is up to the other departments
of the Government to determine said matters. The Court cannot substitute its judgment for those
of the said departments or agencies. In the absence of such showing, the Court will presume
that the Lahug Airport will continue to be in operation (emphasis supplied). 301awphi1.nt
While the trial court in Civil Case No. R-1881 could have simply acknowledged the presence of
public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport,
the trial court in its Decision chose not to do so but instead prefixed its finding of public purpose
upon its understanding that "Lahug Airport will continue to be in operation." Verily, these

meaningful statements in the body of the Decision warrant the conclusion that the expropriated
properties would remain to be so until it was confirmed that Lahug Airport was no longer "in
operation." This inference further implies two (2) things: (a) after the Lahug Airport ceased its
undertaking as such and the expropriated lots were not being used for any airport expansion
project, the rights vis--vis the expropriated Lots Nos. 916 and 920 as between the State and
their former owners, petitioners herein, must be equitably adjusted; and, (b) the foregoing
unmistakable declarations in the body of the Decision should merge with and become an
intrinsic part of the fallo thereof which under the premises is clearly inadequate since the
dispositive portion is not in accord with the findings as contained in the body thereof.31
Significantly, in light of the discussion above, the admission of petitioners during the pre-trial of
Civil Case No. CEB-20015 for reconveyance and damages that respondent MCIAA was the
absolute owner of Lots Nos. 916 and 920 does not prejudice petitioners interests. This is as it
should be not only because the admission concerns a legal conclusion fiercely debated by the
parties32 but more so since respondent was truly the absolute owner of the realties until it was
apparent that Lahug Airport had stopped doing business.
To sum up what we have said so far, the attendance in the case at bar of standing admissible
evidence validating the claim of petitioners as well as the portions above-quoted of the Decision
in the expropriation case volunteered no less than by respondent itself, takes this case away
from the ambit of Mactan-Cebu International Airport Authority v. Court of Appeals 33 but within the
principles enunciated in Fery as mentioned earlier. In addition, there should be no doubt that our
present reading of the fallo of the Decision in Civil Case No. R-1881 so as to include the
statements in the body thereof afore-quoted is sanctioned by the rule that a final and executory
judgment may nonetheless be "clarified" by reference to other portions of the decision of which it
forms a part. In Republic v. De Los Angeles34 we ruled This Court has promulgated many cases x x x wherein it was held that a judgment must not be
read separately but in connection with the other portions of the decision of which it forms a part.
Hence x x x the decision of the court below should be taken as a whole and considered in its
entirety to get the true meaning and intent of any particular portion thereof x x x x Neither is this
Court inclined to confine itself to a reading of the said fallo literally. On the contrary, the judgment
portion of a decision should be interpreted and construed in harmony with the ratio decidendi
thereof x x x x As stated in the case of Policarpio vs. Philippine Veterans Board, et al., supra, to
get the true intent and meaning of a decision, no specific portion thereof should be resorted to
but the same must be considered in its entirety. Hence, a resolution or ruling may and does
appear in other parts of the decision and not merely in the fallo thereof x x x x The foregoing
pronouncements find support in the case of Locsin, et al. vs. Paredes, et al., 63 Phil., 87, 91-92,
wherein this Court allowed a judgment that had become final and executory to be "clarified" by
supplying a word which had been inadvertently omitted and which, when supplied, in effect
changed the literal import of the original phraseology x x x x This is so because, in the first place,
if an already final judgment can still be amended to supply an omission committed through
oversight, this simply means that in the construction or interpretation of an already final decision,
the fallo or dispositive portion thereof must be correlated with the body of such final decision x x
x x [I]f an amendment may be allowed after a decision has already become final x x x such
amendment may consist x x x either in the x x x interpretation of an ambiguous phrase therein in
relation to the body of the decision which gives it life.35
We now resolve to harmonize the respective rights of the State and petitioners to the
expropriated Lots Nos. 916 and 920.

Mactan-Cebu International Airport Authority36 is correct in stating that one would not find an
express statement in the Decision in Civil Case No. R-1881 to the effect that "the [condemned]
lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if
the purpose for which it was expropriated is ended or abandoned or if the property was to be
used other than as the Lahug Airport." This omission notwithstanding, and while the inclusion of
this pronouncement in the judgment of condemnation would have been ideal, such precision is
not absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or
repurchase of the condemned properties of petitioners could be readily justified as the manifest
legal effect or consequence of the trial courts underlying presumption that "Lahug Airport will
continue to be in operation" when it granted the complaint for eminent domain and the airport
discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is akin 37 to the implied trust
referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in order
to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of
law is established. If the fulfillment of the obligation is offered by the grantor when it becomes
due, he may demand the reconveyance of the property to him." In the case at bar, petitioners
conveyed Lots Nos. 916 and 920 to the government with the latter obliging itself to use the
realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be
compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be
denied the use of their properties upon a state of affairs that was not conceived nor
contemplated when the expropriation was authorized.
Although the symmetry between the instant case and the situation contemplated by Art. 1454 is
not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of
trusts: "The only problem of great importance in the field of constructive trusts is to decide
whether in the numerous and varying fact situations presented to the courts there is a wrongful
holding of property and hence a threatened unjust enrichment of the defendant."38 Constructive
trusts are fictions of equity which are bound by no unyielding formula when they are used by
courts as devices to remedy any situation in which the holder of the legal title may not in good
conscience retain the beneficial interest.39
In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty
is to transfer the title and possession over the property to the plaintiff-beneficiary.40 Of course,
the "wronged party seeking the aid of a court of equity in establishing a constructive trust must
himself do equity."41 Accordingly, the court will exercise its discretion in deciding what acts are
required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the
obligation to reimburse the trustee the consideration received from the latter just as the plaintiffbeneficiary would if he proceeded on the theory of rescission. 42 In the good judgment of the
court, the trustee may also be paid the necessary expenses he may have incurred in sustaining
the property, his fixed costs for improvements thereon, and the monetary value of his services in
managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts.43
The rights and obligations between the constructive trustee and the beneficiary, in this case,
respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the
Civil Code, "When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what they have
received x x x x In case of the loss, deterioration or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in the preceding article shall be applied to the
party who is bound to return x x x x"

Hence, respondent MCIAA as representative of the State is obliged to reconvey Lots Nos. 916
and 920 to petitioners who shall hold the same subject to existing liens thereon, i.e., leasehold
right of DPWH. In return, petitioners as if they were plaintiff-beneficiaries of a constructive trust
must restore to respondent MCIAA what they received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot No. 916
and P9,291.00 for Lot No. 920 with consequential damages by way of legal interest from 16
November 1947. Petitioners must likewise pay respondent MCIAA the necessary expenses it
may have incurred in sustaining the properties and the monetary value of its services in
managing them to the extent that petitioners will be benefited thereby. The government however
may keep whatever income or fruits it may have obtained from the parcels of land, in the same
way that petitioners need not account for the interests that the amounts they received as just
compensation may have earned in the meantime. As a matter of justice and convenience, the
law considers the fruits and interests as the equivalent of each other.44
Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor x x x," the creditor being the person who
stands to receive something as a result of the process of restitution. Consequently, petitioners as
creditors do not have to settle as part of the process of restitution the appreciation in value of
Lots Nos. 916 and 920 which is the natural consequence of nature and time.
Petitioners need not also pay for improvements introduced by third parties, i.e., DPWH, as the
disposition of these properties is governed by existing contracts and relevant provisions of law.
As for the improvements that respondent MCIAA may have made on Lots Nos. 916 and 920, if
any, petitioners must pay respondent their prevailing free market price in case petitioners opt to
buy them and respondent decides to sell. In other words, if petitioners do not want to appropriate
such improvements or respondent does not choose to sell them, the improvements would have
to be removed without any obligation on the part of petitioners to pay any compensation to
respondent MCIAA for whatever it may have tangibly introduced therein.45

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interests;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's valid and demandable claim;1awphi1.nt
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;

The medium of compensation for the restitution shall be ready money or cash payable within a
period of three hundred sixty five (365) days from the date that the amount to be returned by
petitioners is determined with finality, unless the parties herein stipulate and agree upon a
different scheme, medium or schedule of payment. If after the period of three hundred sixty five
(365) days or the lapse of the compromise scheme or schedule of payment such amount owed
is not settled, the right of repurchase of petitioners and the obligation of respondent MCIAA to
reconvey Lots Nos. 916 and 920 and/or the latters improvements as set forth herein shall be
deemed forfeited and the ownership of those parcels of land shall vest absolutely upon
respondent MCIAA.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

Finally, we delete the award of P60,000.00 for attorneys fees and P15,000.00 for litigation
expenses in favor of petitioners as decreed in the assailed Decision of 12 April 1999 of the trial
court. It is not sound public policy to set a premium upon the right to litigate where such right is
exercised in good faith, as in the present case, albeit the decision to resist the claim is
erroneous.46

In the case at bar, considering the established absence of any stipulation regarding attorneys
fees, the trial court cannot base its award on any of the exceptions enumerated in Art. 2208. The
records of the instant case do not disclose any proof presented by petitioners to substantiate
that the actuations of respondent MCIAA were clearly unfounded or purely for the purpose of
harassment; neither does the trial court make any finding to that effect in its appealed Decision.

The rule on awards of attorneys fees and litigation expenses is found in Art. 2208 of the Civil
Code -

While Art. 2208, par. (4), allows attorneys fees in cases of clearly unfounded civil actions, this
exception must be understood to mean those where the defenses are so untenable as to
amount to gross and evident bad faith. Evidence must be presented to the court as to the facts
and circumstances constituting the alleged bad faith, otherwise, the award of attorneys fees is

(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.

As noted in Mirasol v. De la Cruz, 47 Art. 2208 intends to retain the award of attorneys fees as the
exception in our law and the general rule remains that attorneys fees are not recoverable in the
absence of a stipulation thereto.

not justified where there is no proof other than the bare statement of harassment that a party to
be so adjudged had acted in bad faith. The exercise of judicial discretion in the award of
attorneys fees under Art. 2208, par. (11), demands a factual, legal or equitable justification that
would bring the case within the exception and justify the grant of such award.

money or cash PAYABLE within a period of three hundred sixty five (365) days from
the date that the amount under letter (b) above is determined with finality, unless the
parties herein stipulate a different scheme or schedule of payment, otherwise, after
the period of three hundred sixty five (365) days or the lapse of the compromise
scheme or schedule of payment and the amount so payable is not settled, the right of
repurchase of petitioners and the obligation of respondent MCIAA to so reconvey Lots
Nos. 916 and 920 and/or the improvements shall be DEEMED FORFEITED and the
ownership of those parcels of land shall VEST ABSOLUTELY upon respondent
MCIAA;

WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of
Appeals in CA-G.R. CV No. 64456 dated 20 December 2001 and its Resolution of 28 November
2002 denying reconsideration of the Decision are REVERSED and SET ASIDE.
The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case No. CEB-20015 is
MODIFIED IN PART by (a) ORDERING respondent Mactan-Cebu International Airport Authority (MCIAA) TO
RECONVEY to petitioner Heirs of Timoteo Moreno and Maria Rotea, namely:
Esperanza R. Edjec, Bernarda R. Suela, Ruby C. Rotea, Bernarda R. Rotea, Elia R.
Vda De Limbaga, Virginia R. Arbon, Rosalinda R. Arquisola, Corazon Rotea, Fe R.
Ebora, Caridad Rotea, Angeles Vda. De Renacia, Jorge Rotea, Maria Luisa RoteaVillegas, Alfredo R. Rotea, represented by his heirs, namely: Lizbeth Rotea and
Elepeth Rotea; Luis Rotea, represented by his heir Jennifer Rotea; and Rolando R.
Rotea, represented by his heir Rolando R. Rotea Jr., Lot No. 916 with an area of
2,355 square meters and Lot No. 920 consisting of 3,097 square meters in Lahug,
Cebu City, with all the improvements thereon evolving through nature or time, but
excluding those that were introduced by third parties, i.e., DPWH, which shall be
governed by existing contracts and relevant provisions of law;
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO PAY
respondent MCIAA what the former received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881, i.e., P7,065.00 for
Lot No. 916 and P9,291.00 for Lot No. 920 with consequential damages by way of
legal interest from 16 November 1947. Petitioners must likewise PAY respondent
MCIAA the necessary expenses that the latter may have incurred in sustaining the
properties and the monetary value of its services in managing the properties to the
extent that petitioners will secure a benefit from such acts. Respondent MCIAA
however may keep whatever income or fruits it may have obtained from the parcels of
land, in the same way that petitioners need not account for the interests that the
amounts they received as just compensation may have earned in the meantime;
(c) ORDERING respondent MCIAA TO CONVEY to petitioners the improvements it
may have built on Lots Nos. 916 and 920, if any, in which case petitioners SHALL PAY
for these improvements at the prevailing free market price, otherwise, if petitioners do
not want to appropriate such improvements, or if respondent does not choose to sell
them, respondent MCIAA SHALL REMOVE these improvements WITHOUT ANY
OBLIGATION on the part of petitioners to pay any compensation to respondent
MCIAA for them;
(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of this
dispositive portion as consideration for the reconveyance of Lots Nos. 916 and 920,
as well as the prevailing free market price of the improvements built thereon by
respondent MCIAA, if any and desired to be bought and sold by the parties, in ready

(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes of
determining the amount of compensation for Lots Nos. 916 and 920 to be paid by
petitioners as mandated in letter (b) hereof, and the value of the prevailing free market
price of the improvements built thereon by respondent MCIAA, if any and desired to
be bought and sold by the parties, and in general, securing the immediate execution
of this Decision under the premises;
(f) ORDERING petitioners to respect the right of the Department of Public Works and
Highways to its lease contract until the expiration of the lease period; and
(g) DELETING the award of P60,000.00 for attorneys fees and P15,000.00 for
litigation expenses against respondent MCIAA and in favor of petitioners.
This Decision is without prejudice to the claim of intervenor one Richard E. Enchuan on his
allegation that he acquired through deeds of assignment the rights of some of herein petitioners
over Lots Nos. 916 and 920.
No costs.
SO ORDERED.

G.R. No. L-32811 March 31, 1980

FELIPE C. ROQUE, petitioner,
vs.
NICANOR LAPUZ and THE COURT OF APPEALS, respondents.
GUERRERO, J.:
Appeal by certiorari from the Resolution of the respondent court 1 dated October 12, 1970 in CAG.R. No. L-33998-R entitled "Felipe C. Roque, plaintiff-appellee, versus Nicanor Lapuz,
defendant-appellant" amending its original decision of April 23, 1970 which affirmed the decision
of the Court of First Instance of Rizal (Quezon City Branch) in Civil Case No. Q-4922 in favor of
petitioner, and the Resolution of the respondent court denying petitioner's motion for
reconsideration.
The facts of this case are as recited in the decision of the Trial Court which was adopted and
affirmed by the Court of Appeals:
Sometime in 1964, prior to the approval by the National Planning Commission of the
consolidation and subdivision plan of plaintiff's property known as the Rockville
Subdivision, situated in Balintawak, Quezon City, plaintiff and defendant entered into
an agreement of sale covering Lots 1, 2 and 9, Block 1, of said property, with an
aggregate area of 1,200 square meters, payable in 120 equal monthly installments at
the rate of P16.00, P15.00 per square meter, respectively. In accordance with said
agreement, defendant paid to plaintiff the sum of P150.00 as deposit and the further
sum of P740.56 to complete the payment of four monthly installments covering the
months of July, August, September, and October, 1954. (Exhs. A and B). When the
document Exhibit "A" was executed on June 25, 1954, the plan covering plaintiff's
property was merely tentative, and the plaintiff referred to the proposed lots appearing
in the tentative plan.
After the approval of the subdivision plan by the Bureau of Lands on January 24,
1955, defendant requested plaintiff that he be allowed to abandon and substitute Lots
1, 2 and 9, the subject matter of their previous agreement, with Lots 4 and 12, Block 2
of the approved subdivision plan, of the Rockville Subdivision, with a total area of 725
square meters, which are corner lots, to which request plaintiff graciously acceded.
The evidence discloses that defendant proposed to plaintiff modification of their
previous contract to sell because he found it quite difficult to pay the monthly
installments on the three lots, and besides the two lots he had chosen were better
lots, being corner lots. In addition, it was agreed that the purchase price of these two
lots would be at the uniform rate of P17.00 per square (meter) payable in 120 equal
monthly installments, with interest at 8% annually on the balance unpaid. Pursuant to
this new agreement, defendant occupied and possessed Lots 4 and 12, Block 2 of the
approved subdivision plan, and enclosed them, including the portion where his house
now stands, with barbed wires and adobe walls.

However, aside from the deposit of P150.00 and the amount of P740.56 which were
paid under their previous agreement, defendant failed to make any further payment on
account of the agreed monthly installments for the two lots in dispute, under the new
contract to sell. Plaintiff demanded upon defendant not only to pay the stipulated
monthly installments in arrears, but also to make up-to-date his payments, but
defendant, instead of complying with the demands, kept on asking for extensions,
promising at first that he would pay not only the installments in arrears but also make
up-to-date his payment, but later on refused altogether to comply with plaintiff's
demands.
Defendant was likewise requested by the plaintiff to sign the corresponding contract to
sell in accordance with his previous commitment. Again, defendant promised that he
would sign the required contract to sell when he shall have made up-to-date the
stipulated monthly installments on the lots in question, but subsequently backed out of
his promise and refused to sign any contract in noncompliance with what he had
represented on several occasions. And plaintiff relied on the good faith of defendant to
make good his promise because defendant is a professional and had been rather
good to him (plaintiff).
On or about November 3, 1957, in a formal letter, plaintiff demanded upon defendant
to vacate the lots in question and to pay the reasonable rentals thereon at the rate of
P60.00 per month from August, 1955. (Exh. "B"). Notwithstanding the receipt of said
letter, defendant did not deem it wise nor proper to answer the same.
In reference to the mode of payment, the Honorable Court of Appeals found
Both parties are agreed that the period within which to pay the lots in question is ten
years. They however, disagree on the mode of payment. While the appellant claims
that he could pay the purchase price at any time within a period of ten years with a
gradual proportionate discount on the price, the appellee maintains that the appellant
was bound to pay monthly installments.
On this point, the trial court correctly held that
It is further argued by defendant that under the agreement to sell in question, he has
the right or option to pay the purchase price at anytime within a period of ten years
from 1954, he being entitled, at the same time, to a graduated reduction of the price.
The Court is constrained to reject this version not only because it is contradicted by
the weight of evidence but also because it is not consistent with what is reasonable,
plausible and credible. It is highly improbable to expect plaintiff, or any real estate
subdivision owner for that matter, to agree to a sale of his land which would be
payable anytime in ten years at the exclusive option of the purchaser. There is no
showing that defendant is a friend, a relative, or someone to whom plaintiff had to be
grateful, as would justify an assumption that he would have agreed to extend to
defendant such an extra- ordinary concession. Furthermore, the context of the
document, Exhibit "B", not to mention the other evidences on records is indicative that
the real intention of the parties is for the payment of the purchase price of the lot in
question on an equal monthly installment basis for a period of ten years (Exhibits "A",
"II", "J" and "K").

On January 22, 1960, petitioner Felipe C, Roque (plaintiff below) filed the complaint against
defendant Nicanor Lapuz (private respondent herein) with the Court of First Instance of Rizal,
Quezon City Branch, for rescission and cancellation of the agreement of sale between them
involving the two lots in question and prayed that judgment be rendered ordering the rescission
and cancellation of the agreement of sale, the defendant to vacate the two parcels of land and
remove his house therefrom and to pay to the plaintiff the reasonable rental thereof at the rate of
P60.00 a month from August 1955 until such time as he shall have vacated the premises, and to
pay the sum of P2,000.00 as attorney's fees, costs of the suit and award such other relief or
remedy as may be deemed just and equitable in the premises.
Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of action,
which motion was denied by the court. Thereafter, defendant filed his Answer alleging that he
bought three lots from the plaintiff containing an aggregate area of 1,200 sq. meters and
previously known as Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at P16.00, P15.00 and
P15.00, respectively, payable at any time within ten years. Defendant admits having occupied
the lots in question.
As affirmative and special defenses, defendant alleges that the complaint states no cause of
action; that the present action for rescission has prescribed; that no demand for payment of the
balance was ever made; and that the action being based on reciprocal obligations, before one
party may compel performance, he must first comply what is incumbent upon him.
As counterclaim, defendant alleges that because of the acts of the plaintiff, he lost two lots
containing an area of 800 sq. meters and as a consequence, he suffered moral damages in the
amount of P200.000.00; that due to the filing of the present action, he suffered moral damages
amounting to P100,000.00 and incurred expenses for attorney's fees in the sum of P5,000.00.

(b) Ordering defendant to vacate the said lots and to remove his house therefrom and
also to pay plaintiff the reasonable rental thereof at the rate of P60.00 per month from
August, 1955 until he shall have actually vacated premises; and
(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as
well as the costs of the suit. (Record on Appeal. p. 118)
Not satisfied with the decision of the trial court, defendant appealed to the Court of Appeals. The
latter court, finding the judgment appealed from being in accordance with law and evidence,
affirmed the same.
In its decision, the appellate court, after holding that the findings of fact of the trial court are fully
supported by the evidence, found and held that the real intention of the parties is for the
payment of the purchase price of the lots in question on an equal monthly installment basis for
the period of ten years; that there was modification of the original agreement when defendant
actually occupied Lots Nos. 4 and 12 of Block 2 which were corner lots that commanded a better
price instead of the original Lots Nos. 1, 2 and 9, Block I of the Rockville Subdivision; that
appellant's bare assertion that the agreement is not rescindable because the appellee did not
comply with his obligation to put up the requisite facilities in the subdivision was insufficient to
overcome the presumption that the law has been obeyed by the appellee; that the present action
has not prescribed since Article 1191 of the New Civil Code authorizing rescission in reciprocal
obligations upon noncompliance by one of the obligors is the applicable provision in relation to
Article 1149 of the New Civil Code; and that the present action was filed within five years from
the time the right of action accrued.
Defendant filed a Motion for Reconsideration of the appellate court's decision on the following
grounds:

Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof.
After due hearing, the trial court rendered judgment, the dispositive portion of which reads:
WHEREFORE, the Court renders judgment in favor of plain. plaintiff and against the
defendant, as follows:
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots
in question (Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to remove his house therefrom and
also to pay plaintiff the reasonable rental thereof at the rate of P60.00 per month from
August, 1955 until he shall have actually vacated the premises; and
(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as
well as the costs of the suit. (Record on Appeal, p. 118)
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots
in question (Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;

First Neither the pleadings nor the evidence, testimonial, documentary or

circumstantial, justify the conclusion as to the existence of an alleged subsequent
agreement novatory of the original contract admittedly entered into between the
parties:
Second There is nothing so unusual or extraordinary, as would render improbable
the fixing of ten ears as the period within which payment of the stipulated price was to
be payable by appellant;
Third Appellee has no right, under the circumstances on the case at bar, to demand
and be entitled to the rescission of the contract had with appellant;
Fourth Assuming that any action for rescission is availability to appellee, the same,
contrary to the findings of the decision herein, has prescribed;
Fifth Assumming further that appellee's action for rescission, if any, has not yet
prescribed, the same is at least barred by laches;

Sixth Assuming furthermore that a cause of action for rescission exists, appellant
should nevertheless be entitled to tile fixing of a period within which to comply with his
obligation; and
Seventh At all events, the affirmance of the judgment for the payment of rentals on
the premises from August, 1955 and he taxing of attorney's fees against appellant are
not warranted b the circumstances at bar. (Rollo, pp. 87-88)
Acting on the Motion for Reconsideration, the Court of Appeals sustained the sixth ground raised
by the appellant, that assuming that a cause of action for rescission exists, he should
nevertheless be entitled to the fixing of a period within which to comply with his obligation. The
Court of Appeals, therefore, amended its original decision in the following wise and manner:
WHEREFORE, our decision dated April 23, 1970 is hereby amended in the sense that
the defendant Nicanor Lapuz is hereby granted a period of ninety (90) days from entry
hereof within which to pay the balance of the purchase price in the amount of
P11,434,44 with interest thereon at the rate of 8% per annum from August 17, 1955
until fully paid. In the event that the defendant fails to comply with his obligation as
above stated within the period fixed herein, our original judgment stands.
Petitioner Roque, as plaintiff-appellee below, filed a Motion for Reconsideration; the Court of
Appeals denied it. He now comes and appeals to this Court on a writ of certiorari.
The respondent Court of Appeals rationalizes its amending decision by considering that the
house presently erected on the land subject of the contract is worth P45,000.00, which
improvements introduced by defendant on the lots subject of the contract are very substantial,
and thus being the case, "as a matter of justice and equity, considering that the removal of
defendant's house would amount to a virtual forfeiture of the value of the house, the defendant
should be granted a period within which to fulfill his obligations under the agreement." Cited as
authorities are the cases of Kapisanan Banahaw vs. Dejarme and Alvero, 55 Phil. 338, 344,
where it is held that the discretionary power of the court to allow a period within which a person
in default may be permitted to perform the stipulation upon which the claim for resolution of the
contract is based should be exercised without hesitation in a case where a virtual forfeiture of
valuable rights is sought to be enforced as an act of mere reprisal for a refusal of the debtor to
submit to a usurious charge, and the case of Puerto vs. Go Ye Pin, 47 O.G. 264, holding that to
oust the defendant from the lots without giving him a chance to recover what his father and he
himself had spent may amount to a virtual forfeiture of valuable rights.
As further reasons for allowing a period within which defendant could fulfill his obligation, the
respondent court held that there exists good reasons therefor, having in mind that which affords
greater reciprocity of rights (Ramos vs. Blas, 51 O.G. 1920); that after appellant had testified
that plaintiff failed to comply with his part of the contract to put up the requisite facilities in the
subdivision, plaintiff did not introduce any evidence to rebut defendant's testimony but simply
relied. upon the presumption that the law has been obeyed, thus said presumption had been
successfully rebutted as Exhibit "5-D" shows that the road therein shown is not paved The Court,
however, concedes that plaintiff's failure to comply with his obligation to put up the necessary
facilities in the subdivision will not deter him from asking fr the rescission of the agreement since
this obligation is not correlative with defendant's obligation to buy the property.

Petitioner assails the decision of the Court of Appeals for the following alleged errors:
I. The Honorable Court of Appeals erred in applying paragraph 3, Article 1191 of the
Civil Code which refers to reciprocal obligations in general and, pursuant thereto, in
granting respondent Lapuz a period of ninety (90) days from entry of judgment within
which to pay the balance of the purchase price.
II. The Honorable Court of Appeals erred in not holding that Article 1592 of the same
Code, which specifically covers sales of immovable property and which constitutes an
exception to the third paragraph of Article 1191 of said Code, is applicable to the
present case.
III. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot
avail of the provisions of Article 1191, paragraph 3 of the Civil Code aforesaid because
he did not raise in his answer or in any of the pleadings he filed in the trial court the
question of whether or not he is entitled, by reason of a just cause, to a fixing of a new
period.
IV. Assuming arguendo that the agreement entered into by and between petitioner and
respondent Lapuz was a mere promise to sell or contract to sell, under which title to
the lots in question did not pass from petitioner to respondent, still the Honorable
Court of Appeals erred in not holding that aforesaid respondent is not entitled to a new
period within which to pay petitioner the balance of P11,434.44 interest due on the
purchase price of P12.325.00 of the lots.
V. Assuming arguendo that paragraph 3, Article 1191 of the Civil Code is applicable
and may be availed of by respondent, the Honorable Court of Appeals nonetheless
erred in not declaring that aid respondent has not shown the existence of a just cause
which would authorize said Court to fix a new period within which to pay the balance
aforesaid.
VI. The Honorable Court of Appeals erred in reconsidering its original decision
promulgated on April 23, 1970 which affirmed the decision of the trial court.
The above errors may, however, be synthesized into one issue and that is, whether private
respondent is entitled to the Benefits of the third paragraph of Article 1191, New Civil Code, for
the fixing of period within which he should comply with what is incumbent upon him, and that is
to pay the balance of P11,434,44 with interest thereon at the rate of 8% 1et annum from August
17, 1955 until fully paid since private respondent had paid only P150.00 as deposit and 4
months intallments amounting to P740.46, or a total of P890.46, the total price of the two lots
agreed upon being P12,325.00.
For his part, petitioner maintains that respondent is not entitled to the Benefits of paragraph 3,
Article 1191, NCC and that instead, Article 1592 of the New Civil Code which specifically covers
sales of immovable property and which constitute an exception to the third paragraph of Art.
1191 of aid Code, is the applicable law to the case at bar.

In resolving petitioner's assignment of errors, it is well that We lay clown the oda provisions and
pertinent rulings of the Supreme Court bearing on the crucial issue of whether Art. 1191,
paragraph 3 of the New Civil Code applies to the case at Bar as held by the appellate court and
supported by the private respondent, or Art. 1592 of the same Code which petitioner strongly
argues in view of the peculiar facts and circumstances attending this case. Article 1191, New
Civil Code, provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
at the obligors should not comply with hat is incumbent upon him
The injured partner 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.
Article 1592 also provides:
Art. 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new
term.
The controlling and latest jurisprudence is established and settled in the celebrated case
of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L25885, January 31, 1972, 43 SCRA 93, originally decided in 1972, reiterated in the Resolution
on Motion to Reconsider dated August 18, 1972, 46 SCRA 381 and emphatically repeated in the
Resolution on Second Motion for Reconsideration promulgated November 16, 1978, 86 SCRA
309, which once more denied Maritimes Second Motion for Reconsideration of October 7, 1972.
In the original decision, the Supreme Court speaking thru Justice J.B.L. Reyes said:
Under the circumstances, the action of Maritime in suspending payments to Myers
Corporation was a breach of contract tainted with fraud or malice (dolo), as
distinguished from mere negligence (culpa), "dolo" being succinctly defined as a
"conscious and intention design to evade the normal fulfillment of existing obligations"
(Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible
with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de
Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to ask the court to give it further
time to make payment and thereby erase the default or breach that it had deliberately
incurred. Thus the lower court committed no error in refusing to extend the periods for

payment. To do otherwise would be to sanction a deliberate and reiterated

infringement of the contractual obligations incurred by Maritime, an attitude repugnant
to the stability and obligatory force of contracts.
The decision reiterated the rule pointed out by the Supreme Court in Manuel vs. Rodriguez, 109
Phil. 1, p. 10, that:
In contracts to sell, where ownership is retained by the seller and is not to pass until
the fun payment of the price, such payment, as we said is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from acquiring binding i
force in accordance with Article 1117 of the Old Civil Code. To argue that there was
only a casual breach is to proceed from the assumption that the contract is one of
absolute sale, where non-payment is a resolutory condition, which is not the case."
Continuing, the Supreme Court declared:
... appellant overlooks that its contract with appellee Myers s not the ordinary sale
envisaged by Article 1592, transferring ownership simultaneously with the delivery of
the real property sold, but one in which the vendor retained ownership of the
immovable object of the sale, merely undertaking to convey it provided the buyer
strictly complied with the terms of the contract (see paragraph [d], ante page 5). In
suing to recover possession of the building from Maritime appellee Myers is not after
the resolution or setting aside of the contract and the restoration of the parties to the
status quo ante as contemplated by Article 1592, but precisely enforcing the
Provisions of the agreement that it is no longer obligated to part with the ownership or
possession of the property because Maritime failed to comply with the specific
condition precedent, which is to pay the installments as they fell due.
The distinction between contracts of sale and contracts to sell with reserved title has
been recognized by this Court in repeated decisions upholding the power of promisors
under contracts to sell in case of failure of the other party to complete payment, to
extrajudicially terminate the operation of the contract, refuse conveyance and retain
the sums or installments already received, where such rights are expressly provided
for, as in the case at bar.
In the Resolution denying the first Motion for Reconsideration, 46 SCRA 381, the Court again
speaking thru Justice J.B.L. Reyes, reiterated the rule that in a contract to sell, the full payment
of the price through the punctual performance of the monthly payments is a condition precedent
to the execution of the final sale 4nd to the transfer of the property from the owner to the
proposed buyer; so that there will be no actual sale until and unless full payment is made.
The Court further ruled that in seeking to oust Maritime for failure to pay the price as agreed
upon, Myers was not rescinding (or more properly, resolving) the contract but precisely enforcing
it according to its expressed terms. In its suit, Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, expressed or implied (Art. 1190); neither
was it seeking a declaration that its obligation to sell was extinguished. What is sought was a
judicial declaration that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or never became effective and,

therefore, it (Myers) was entitled to repossess the property object of the contract, possession
being a mere incident to its right of ownership.
The decision also stressed that "there can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen. Article 1592 of the New Civil
Code (Art. 1504 of Old Civil Code) requiring demand by suit or notarial act in case the vendor of
realty wants to rescind does not apply to a contract to sell or promise to sell, where title remains
with the vendor until fulfillment to a positive condition, such as full payment of the price." (Manuel
vs, Rodriguez, 109 Phil. 9)
Maritime's Second Motion for Reconsideration was denied in the Resolution of the Court dated
November 16, 1978, 86 SCRA 305, where the governing law and precedents were briefly
summarized in the strong and emphatic language of Justice Teehankee, thus:
(a) The contract between the parties was a contract to sell or conditional sale with title
expressly reserved in the vendor Myers Building Co., Inc. Myers until the suspensive
condition of full and punctual payment of the full price shall have been met on pain of
automatic cancellation of the contract upon failure to pay any of the monthly
installments when due and retention of the sums theretofore paid as rentals. When the
vendee, appellant Maritime, willfully and in bad faith failed since March, 1961 to pay
the P5,000. monthly installments notwithstanding that it was punctually collecting
P10,000. monthly rentals from the lessee Luzon Brokerage Co., Myers was
entitled, as it did in law and fact, to enforce the terms of the contract to sell and to
declare the same terminated and cancelled.
(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such
contracts to self or conditional sales and no error was committed by the trial court in
refusing to extend the periods for payment.
(c) As stressed in the Court's decision, "it is irrelevant whether appellant Maritime's
infringement of its contract was casual or serious" for as pointed out in Manuel vs.
Rodriguez, '(I)n contracts to self. whether ownership is retained by the seller and is not
to pass until the full payment of the price, such payment, as we said, is a positive
suspensive condition, the failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring
binding force ...
(d) It should be noted, however, that Maritimes breach was far from casual but a most
serious breach of contract ...
(e) Even if the contract were considered an unconditional sale so that Article 1592 of
the Civil Code could be deemed applicable, Myers' answer to the complaint for
interpleaded in the court below constituted a judicial demand for rescission of the
contract and by the very provision of the cited codal article, 'after the demand, the
court may not grant him a new term for payment; and
(f) Assumming further that Article 1191 of the new Civil Code governing rescission of
reciprocal obligations could be applied (although Article 1592 of the same Code is

controlling since it deals specifically with sales of real property), said article provides
that '(T)he court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period' and there exists to "just cause" as shown above for
the fixing of a further period. ...
Under the first and second assignments of error which petitioner jointly discusses, he argues
that the agreement entered into between him and the respondent is a perfected contract of
purchase and sale within the meaning of Article 1475 of the New Civil Code which provides that
"the contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of contract."
Petitioner contends that "(n)othing in the decision of the courts below would show that ownership
of the property remained with plaintiff for so long as the installments have not been fully paid.
Which yields the conclusion that, by the delivery of the lots to defendant, ownership likewise was
transferred to the latter." (Brief for the Petitioner, p. 15) And he concludes that the sale was
consummated by the delivery of the two lots, the subject thereof, by him to the respondent.
Under the findings of facts by the appellate court, it appears that the two lots subject of the
agreement between the parties herein were delivered by the petitioner to the private respondent
who took possession thereof and occupied the same and thereafter built his house thereon,
enclosing the lots with adobe stone walls and barbed wires. But the property being registered
under the Land Registration Act, it is the act of registration of the Deed of Sale which could
legally effect the transfer of title of ownership to the transferee, pursuant to Section 50 of Act
496. (Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs.
Raymundo, 28 Phil. 635: Worcestor vs. Ocampo, 34 Phil. 646). Hence, We hold that the contract
between the petitioner and the respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring binding force.
In the case at bar, there is no writing or document evidencing the agreement originally entered
into between petitioner and private respondent except the receipt showing the initial deposit of
P150.00 as shown in Exh. "A" and the payment of the 4- months installment made by
respondent corresponding to July, 1954 to October, 1954 in the sum of P740.56 as shown in
Exh. "B". Neither is there any writing or document evidencing the modified agreement when the
3 lots were changed to Lots 4 and 12 with a reduced area of 725 sq. meters, which are corner
lots. This absence of a formal deed of conveyance is a very strong indication that the parties did
not intend immediate transfer of ownership and title, but only a transfer after full payment of the
price. Parenthetically, We must say that the standard printed contracts for the sale of the lots in
the Rockville Subdivision on a monthly installment basis showing the terms and conditions
thereof are immaterial to the case at bar since they have not been signed by either of the parties
to this case.
Upon the law and jurisprudence hereinabove cited and considering the nature of the transaction
or agreement between petitioner and respondent which We affirm and sustain to be a contract to
sell, the following resolutions of petitioner's assignment of errors necessarily arise, and so We
hold that:

1. The first and second assignments of errors are without merit.

The overwhelming weight of authority culminating in the Luzon Brokerage vs. Maritime cases
has laid down the rule that Article 1592 of the New Civil Code does not apply to a contract to sell
where title remains with the vendor until full payment of the price as in the case at bar. This is
the ruling in Caridad Estates vs. Santero, 71 Phil. 120; Aldea vs. Inquimboy 86 Phil. 1601; Jocon
vs. Capitol Subdivision, Inc., L-6573, Feb. 28, 1955; Miranda vs. Caridad Estates, L-2077
and Aspuria vs. Caridad Estates, L-2121 Oct. 3, 1950, all reiterated in Manuel vs. Rodriguez, et
al. 109 Phil. 1, L-13435, July 27, 1960. We agree with the respondent Court of Appeals that Art,
1191 of the New Civil Code is the applicable provision where the obligee, like petitioner herein,
elects to rescind or cancel his obligation to deliver the ownership of the two lots in question for
failure of the respondent to pay in fun the purchase price on the basis of 120 monthly equal
installments, promptly and punctually for a period of 10 years.
2. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191,
NCC Having been in default, he is not entitled to the new period of 90 days from entry of
judgment within which to pay petitioner the balance of P11,434.44 with interest due on the
purchase price of P12,325.00 for the two lots.
Respondent a paid P150.00 as deposit under Exh. "A" and P740.56 for the 4-months
installments corresponding to the months of July to October, 1954. The judgment of the lower
court and the Court of Appeals held that respondent was under the obligation to pay the
purchase price of the lots m question on an equal monthly installment basis for a period of ten
years, or 120 equal monthly installments. Beginning November, 1954, respondent began to
default in complying with his obligation and continued to do so for the remaining 116 monthly
interest. His refusal to pay further installments on the purchase price, his insistence that he had
the option to pay the purchase price any time in ten years inspire of the clearness and certainty
of his agreement with the petitioner as evidenced further by the receipt, Exh. "B", his dilatory
tactic of refusing to sign the necessary contract of sale on the pretext that he will sign later when
he shall have updated his monthly payments in arrears but which he never attempted to update,
and his failure to deposit or make available any amount since the execution of Exh "B" on June
28, 1954 up to the present or a period of 26 years, are all unreasonable and unjustified which
altogether manifest clear bad faith and malice on the part of respondent puzzle making
inapplicable and unwarranted the benefits of paragraph 3, Art. 1191, N.C.C. To allow and grant
respondent an additional period for him to pay the balance of the purchase price, which balance
is about 92% of the agreed price, would be tantamount to excusing his bad faith and sanctioning
the deliberate infringement of a contractual obligation that is repugnant and contrary to the
stability, security and obligatory force of contracts. Moreover, respondent's failure to pay the
succeeding 116 monthly installments after paying only 4 monthly installments is a substantial
and material breach on his part, not merely casual, which takes the case out of the application of
the benefits of pa paragraph 3, Art. 1191, N.C.C.
At any rate, the fact that respondent failed to comply with the suspensive condition which is the
full payment of the price through the punctual performance of the monthly payments rendered
petitioner's obligation to sell ineffective and, therefore, petitioner was entitled to repossess the
property object of the contract, possession being a mere incident to his right of ownership
(Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., et al. 46 SCRA 381).

3. We further rule that there exists no just cause authorizing the fixing of a new period within
which private respondent may pay the balance of the purchase price. The equitable grounds or
considerations which are the basis of the respondent court in the fixing of an additional period
because respondent had constructed valuable improvements on the land, that he has built his
house on the property worth P45,000.00 and placed adobe stone walls with barbed wires
around, do not warrant the fixing of an additional period. We cannot sanction this claim for equity
of the respondent for to grant the same would place the vendor at the mercy of the vendee who
can easily construct substantial improvements on the land but beyond the capacity of the vendor
to reimburse in case he elects to rescind the contract by reason of the vendee's default or
deliberate refusal to pay or continue paying the purchase price of the land. Under this design,
strategem or scheme, the vendee can cleverly and easily "improve out" the vendor of his land.
More than that, respondent has not been honest, fair and reciprocal with the petitioner, hence it
would not be fair and reasonable to the petitioner to apply a solution that affords greater
reciprocity of rights which the appealed decision tried to effect between the parties. As matters
stand, respondent has been enjoying the possession and occupancy of the land without paying
the other 116 monthly installments as they fall due. The scales of justice are already tipped in
respondent,s favor under the amended decision of the respondent court. It is only right that We
strive and search for the application of the law whereby every person must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith (Art. 19, New Civil Code)
In the case at bar, respondent has not acted in good faith. With malice and deliberate intent, he
has twisted the clear import of his agreement with the petitioner in order to suit his ends and
delay the fulfillment of his obligation to pay the land he had enjoyed for the last 26 years, more
than twice the period of ten years that he obliged himself to complete payment of the price.
4. Respondent's contention that petitioner has not complied with his obligation to put up the
necessary facilities in the Rockville Subdivision is not sufficient nor does it constitute good
reason to justify the grant of an additional period of 90 days from entry of judgment within which
respondent may pay the balance of the purchase price agreed upon. The Judgment of the
appellate court concedes that petitioner's failure to comply with his obligation to put up the
necessary facilities in the subdivision will not deter him from asking for the rescission of the
agreement since his obligation is not correlative with respondent's obligation to buy the property.
Since this is so conceded, then the right of the petitioner to rescind the agreement upon the
happening or in the event that respondent fails or defaults in any of the monthly installments
would be rendered nugatory and ineffective. The right of rescission would then depend upon an
extraneous consideration which the law does not contemplate.
Besides, at the rate the two lots were sold to respondent with a combined area of 725 sq. meters
at the uniform price of P17.00 per sq. meter making a total price of P12,325.00, it is highly
doubtful if not improbable that aside from his obligation to deliver title and transfer ownership to
the respondent as a reciprocal obligation to that of the respondent in paying the price in full and
promptly as the installments fall due, petitioner would have assumed the additional obligation "to
provide the subdivision with streets ... provide said streets with street pavements concrete curbs
and gutters, fillings as required by regulations, adequate drainage facilities, tree plantings,
adequate water facilities" as required under Ordinance No. 2969 of Quezon City approved
on May 11, 1956 (Answer of Defendant, Record on Appeal, pp. 35-36) which was two years after
the agreement in question was entered intoJune, 1y54.

The fact remains, however, that respondent has not protested to the petitioner nor to the
authorities concerned the alleged failure of petitioner to put up and provide such facilities in the
subdivision because he knew too well that he has paid only the aggregate sum of P890.56
which represents more or less 7% of the agreed price of P12,325.00 and that he has not paid
the real estate taxes assessed by the government on his house erected on the property under
litigation. Neither has respondent made any allegation in his Answer and in all his pleadings
before the court up to the promulgation of the Resolution dated October 12, 1970 by the Court of
Appeals, to the effect that he was entitled to a new period within which to comply with his
obligation, hence the Court could not proceed to do so unless the Answer is first amended.
(Gregorio Araneta, Inc. vs. Philippine Sugar Estates Development Co., Ltd., G.R. No. L-22558,
May 31, 1967, 20 SCRA 330, 335). It is quite clear that it is already too late in the day for
respondent to claim an additional period within which to comply with his obligation.
Precedents there are in Philippine jurisprudence where the Supreme Court granted the buyer of
real property additional period within which to complete payment of the purchase price on
grounds of equity and justice as in (1) J.M. Tuazon Co., Inc. vs. Javier, 31 SCRA 829 where the
vendee religiously satisfied the monthly installments for eight years and paid a total of P4,134.08
including interests on the principal obligation of only P3,691.20, the price of the land; after
default, the vendee was willing to pay all arrears, in fact offered the same to the vendor; the
court granted an additional period of 60 days -from receipt of judgment for the vendee to make
all installment in arrears plus interest; (2) in Legarda Hermanos vs. Saldaa, 55 SCRA 324, the
Court ruled that where one purchase, from a subdivision owner two lots and has paid more than
the value of one lot, the former is entitled to a certificate of title to one lot in case of default.
On the other hand there are also cases where rescission was not granted and no new or
additional period was authorized. Thus, in Caridad Estates vs. Santero, 71 Phil. 114, the vendee
paid, totalling P7,590.00 or about 25% of the purchase price of P30,000.00 for the three lots
involved and when the vendor demanded revocation upon the vendee's default two years after,
the vendee offered to pay the arears in check which the vendor refused; and the Court sustained
the revocation and ordered the vendee ousted from the possession of the land. In Ayala y Cia
vs. Arcache, 98 Phil. 273, the total price of the land was P457,404.00 payable in installments;
the buyer initially paid P100,000.00 or about 25% of the agreed price; the Court ordered
rescission in view of the substantial breach and granted no extension to the vendee to comply
with his obligation.
The doctrinal rulings that "a slight or casual breach of contract is not a ground for rescission. It
must be so substantial and fundamental to defeat the object of the parties" (Gregorio Araneta
Inc. vs. Tuazon de Paterno, L-2886, August 22, 1962; Villanueva vs. Yulo, L-12985, Dec.
29,1959); that "where time is not of the essence of t agreement, a slight delay on the part of one
party in the performance of his obligation is not a sufficient ground for the rescission of the
agreement"( Biando vs. Embestro L-11919, July 27, 1959; cases cited in Notes appended to
Universal Foods Corporation vs. Court of Appeals, 33 SCRA 1), convince and persuade Us that
in the case at bar where the breach, delay or default was committed as early as in the payment
of the fifth monthly installment for November, 1954, that such failure continued and persisted the
next month and every month thereafter in 1955, 1956, 1957 and year after year to the end of the
ten-year period in 1964 (10 years is respondent's contention) and even to this time, now more
than twice as long a time as the original period without respondent adding, or even offering to
add a single centavo to the sum he had originally paid in 1954 which represents a mere 7% of
the total price agreed upon, equity and justice may not be invoked and applied. One who seeks

equity and justice must come to court with clean hands, which can hardly be said of the private
respondent.
One final point, on the supposed substantial improvements erected on the land, respondent's
house. To grant the period to the respondent because of the substantial value of his house is to
make the land an accessory to the house. This is unjust and unconscionable since it is a rule in
Our Law that buildings and constructions are regarded as mere accessories to the land which is
the principal, following the Roman maxim "omne quod solo inadeficatur solo cedit" (Everything
that is built on the soil yields to the soil).
Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of
damages which the trial court and the appellate court, in the latter's original decision, granted in
the form of rental at the rate of P60.00 per month from August, 1955 until respondent shall have
actually vacated the premises, plus P2,000.00 as attorney's fees. We affirm the same to be fair
and reasonable. We also sustain the right of the petitioner to the possession of the land,
ordering thereby respondent to vacate the same and remove his house therefrom.
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed from dated October
12, 1970 is hereby REVERSED. The decision of the respondent court dated April 23, 1970 is
hereby REINSTATED and AFFIRMED, with costs against private respondent.SO ORDERED.

G.R. No. L-27482 September 10, 1981

GRACE PARK ENGINEERING CO., INC., plaintiff-appellee,
vs.
MOHAMAD ALI DIMAPORO, defendant-appellant.
DE CASTRO,* J.:
Appeal (prior to the effectivity of Republic Act No. 5440) by Mohamad Ali Dimaporo from a
decision of the Court of First Instance of Rizal, Branch VI (in its Civil Case No. 3828), the
dispositive portion of which reads:
WHEREFORE, all premises considered, judgment is hereby rendered declaring the
rescission of the Contract for the Sale of Cassava Flour and Starch Processing
Machinery and Equipment, Exh. A, dated April 1, 1954, and ordering mutual restitution
by the parties, defendant to return to plaintiff the cassava flour and starch processing
machinery and equipment and bear the transportation expenses thereof to the port of
Cotabato, plaintiff corporation to bear the freight charges thereof for its shipment to
Manila, and, to pay plaintiff the total amount of P19,628.93 with interest thereon at the
rate of 6% per annum from the date of filing of this complaint until full payment of the
same, and plaintiff to return to defendant the amount of P15,750.00 representing the
partial payment made to it by defendant for the purchase price of said machinery and
equipment. No pronouncement as to damages and costs. 1
Defendant-Appellant Dimaporo questions the validity of the questioned decision in so far as said
decision 1) orders him to return the cassava flour and starch processing machinery and
equipment and 2) orders him to pay plaintiff-appellee Grace Park Engineering Co. P19,628.93
with interest.
The records disclose that on April 1, 1954, Grace Park Engineering, Inc., and Mohamad Ali
Dimaporo entered into a Contract for the Sale of Cassava Flour and Starch Processing
Machinery and Equipment (Exh. A) 2 whereby the corporation agreed to sell and install, for the
consideration of P52,000.00, a cassava flour and starch processing machinery and equipment
specifically described therein at Dimaporo's place in Karomatan Lanao Mill Site, within a period
of 70 working days from the date of signing of the contract. It was agreed that P5,750.00 shall
be paid upon signing of the contract; P10,000.00 shall be paid within 30 days from the date of
the signing of the contract but before machinery and equipment is loaded at Manila Harbor and
P36,750.00 shall be payable in 12 monthly installments as provided in the contract.

It appears on record, however, that during the course of installation of said machinery and
equipment, Dimaporo failed to comply with his obligations specified in par. 6 of said contract, so
much so that the Corporation was forced to provide the necessary materials and labor and
advance whatever expenses had been made for that purpose with previous knowledge and
consent given by Dimaporo because the latter was short of funds during that time.
It took the Corporation one (1) year and three (3) months to install the said machinery and
equipment, after which, it demanded from Dimaporo complete payment of the balance due and
for all expenses made in advance arising from the supply of materials and labor which Dimaporo
failed to provide on time. Dimaporo refused to pay on the ground that the balance of P36,750.00
never became due and demandable because of the Corporation's failure to complete the
installation of the machinery and equipment within the stipulated period and place the same in
satisfactory running conditions as guaranteed by it in the contract.
Hence, on October 1, 1955 the Corporation brought an action against Dimaporo for rescission of
the aforesaid contract after mutual restitution by the parties with provision for damages in its
favor. Dimaporo, in his answer, likewise seeks the rescission of the contract, after mutual
restitution by the parties, but with provision for the payment by the Corporation of freight charges
that may be incurred due to such restitution, and with the award of damages in his favor.
After hearing on tile merit, the trial court found both parties having violated the terms and
conditions of the contract, defendant Dimaporo failing to comply with his obligations under par. 6
of the contract and plaintiff corporation liable for installing machinery and equipment that are
basically defective and inadequate. As to who was the first infractor in point of time, it was not
determined by the trial court. Rescission of the contract was granted but held that parties should
bear his/its own damages, applying article i 192 of the New Civil Code which provides:
In case both parties have committed a breach of the obligation, the liability of the first
infractor should be equitably tempered by the Courts. If it cannot be determined which
of the parties first violated the contract, the same should be deemed extinguished, and
each shall bear his own damages.
From the judgment of the Court below, Dimaporo directly appealed to this Court imputing seven
(7) assignments of errors committed by the trial court, which may be synthesized into four (4)
main issues:
a) whether he was guilty of breach of contract.
b) whether he was liable to return the machinery and equipment subject matter of the contract.

In view of the foregoing considerations, the Corporation guaranteed said machinery and
equipment to process at least 6 tons of cassava flour and starch per 24-hour day operation,
while Dimaporo undertook to supply at his own expenses the building wherein shall be housed
the machinery and equipment, laborers needed to complement the operation of the mill, food,
foundation materials, and effective water system (par. 6, Exh. A).
In compliance with the agreement, defendant paid plaintiff the amounts of P5,750.00 and
P10,000.00 as agreed upon, thus leaving a balance of P36,750.00.

c) whether he was liable to pay appellee Corporation the amount of P19,628.93 with interest.
d) whether he was entitled to the award of damages in his favor.
Appellant Dimaporo maintained that he has not committed any breach of contract, Exh. A,
particularly par. 6 thereof that it was appellee Corporation who was guilty thereof, and points in
his appellant's brief testimonial and documentary evidence in support of the same. Upon the
other hand, the trial court, in its decision, makes the following findings:

From the entire evidence presented, it appears that defendant had failed to comply
with his obligations under the contract, Exh. A, more particularly with the provisions of
par. 6 thereof. He was unable to furnish sufficient laborers needed to complete the
operations of the mill, food, foundation materials and effective water systems (Exhs.
G, G-1, I, I-1, J-1, K, R, CC, KK LL NN-1). Under Exh. MM, a daily work progress
report duly certified correct by defendant, the hammer mill and flash drier were already
commercially operated on December 11, 1954 (Exh. MM-3). This necessarily gives the
impression that the installation of the mill has been completed in accordance with the
contract and the subsequent failure of the project is due to defendant's fault. ... Taking
into consideration defendant's failure to comply with this obligation, plaintiff's delay in
the complete installation of the machinery and equipment seems reasonable and
understandable. ... 3
The foregoing is a conclusion of fact of the trial court. The rule is well-settled that factual findings
of the trial court, supported by substantial evidence, are generally binding on the Supreme
Court. They are entitled to great respect, the lower court having had the opportunity of weighing
carefully what was testified to and did so without oversight or neglect. 4 Hence the rule that when
a party appeals directly to this Court, he is deemed to have waived the right to dispute any
finding of fact made by the court below. 5
It is next argued for appellant Dimaporo, that the trial court erred in ordering the return of the
machinery and equipment subject matter of the contract to appellee corporation and maintained
that although a rescission of the contract is in order, he has no obligation, however, to return the
machinery and equipment, much less pay the transportation expenses thereof to the port of
Cotabato, since the machinery and equipment shipped by appellee corporation were never
delivered to appellant. He contended that by reference to the contract, Exh. A, it is clear that the
obligation of the appellee did not end with the shipment of the machinery and equipment to the
all site; it must also install the machinery and equipment in such a manner that they would
produce at least 6 tons of cassava flour per 24 hours of operations so much so that until such
machinery and equipment were installed and shown to be capable of producing at the warranted
rate, there could be no delivery of such machinery and equipment to appellant.
This contention is in Our opinion, not sustained by the terms of the contract or by the facts
appearing in evidence. It is true that under par. 8 of the contract, E Exh. A, the "SELLER
warrants that it will deliver all the machinery and equipment as agreed in par. 4, guaranteed to
process at least 6 tons of cassava flour or starch per 24-hour day operation." However in said
paragraph it was also stipulated that "this warranty of capacity shall be attained only when
properly coordinated to the necessary manual labor required for the purpose." And according to
the trial court, "the delay of the completion of the installation as well as the incapacity of the mill
to produce the desired amount of flour/starch as warranted by the plaintiff under the contract are
attributable to defendant's non-compliance with his obligation to furnish food, materials, and
water system."
Even assuming that there is some degree of plausibility in appellant's position, still the lower
court did not commit any error in ordering appellant to return the machinery and equipment to
appellee corporation, for when the former, as defendant in the lower court, filed his Answer to
the complaint of appellee corporation, he prayed for the rescission of the contract between him
and the plaintiff and for mutual restitution by the parties. 6 To sustain appellant's contention that
he is not liable for the return of machinery and equipment would be fundamentally contradicting
the very notion of rescission. The first paragraph of article 1385 of the New Civil Code provides:

Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can
be carried out only when he who demands rescission can return whatever he may be
obliged to restore.
Furthermore, when a contract is resolved or rescinded, it is the duty of the court to require the
parties to surrender that which they have severally received and to place each as far as
practicable in his original situation; and when a resolution is granted, it has the effect of
abrogating the contract in all parts. The party seeking resolution cannot ask "performance as to
part and resolution as to remainder. 7
The last two issues are both centered on the question of who is liable for the payment of
damages and interests as a result of the breach of contract. The trial court, in resolving the
issues, applied Article 1192 of the New Civil Code, which as aforestated, enunciated the rule if
both parties committed a breach of obligation. The trial court find the following facts: "Both
parties have failed to comply with what is respectively encumbent upon them to do, and the
object of the contract is consequently defeated; defendant failed to comply with his obligations
under the contract, Exh. A; that further scrutiny of the evidence shows that the machinery and
equipment sold and installed by plaintiff were all along, by themselves, defective and
inadequate. As to who was the first infractor in point of time, under said circumstances, cannot
be specifically delineated. Hence, parties should bear his/its own damages.
Based on these findings, the trial court ruled, as aforestated in the dispositive portion, that
appellant Dimaporo must pay appellee corporation the total amount of P19,628.93 which the
latter had spent by way of advances to the former with which to purchase the necessary
materials and supplies at the rate of 6% per annum; that appellee corporation must return to
appellant the amount of P15,750.00 representing the partial payment made by it to appellant for
the purchase price of said machinery and equipment. The trial court, however, made no
pronouncement as to damages and costs.
But appellant would contend that the amount of P19,628.93 should be offset by the damages
that are due to him by reason of the violations by the appellee corporation of its obligation under
the contract; that appellee must be required to pay interests on the amount of P15,750.00 since
this amount paid has already been used by it; and that since the first infractor was the appellee's
corporation, therefore, damages should be paid by that party to the appellant.
The findings of fact of the trial court that both appellant Dimaporo and appellee corporation have
committed a breach of obligation are fully supported by the evidence on record. As We have
stated, We are not in a position to disturb the same. Therefore, it correctly applied Article 1192 of
the New Civil Code to the effect that in case both parties have committed a breach of obligation
and it cannot be determined who was the first infractor, the contract shall be deemed
extinguished and each shall bear his/its own damages. Consequently, the trial court committed
no reversible error when it ordered appellee corporation to pay appellant the amount of
P15,570.00 representing partial payment of the purchase price of the machinery and equipment.
This is but a consequence of the decree of rescission granted by the trial court. Neither did it
commit any error when it refused to grant any interest on the aforesaid amount of P15,570.00.
This is also but a consequence of the enunciated rule that each party should bear his/its own
damages. For the same reasons, We hold that although appellant is liable to pay the amount of
P19,628.93 which appellee corporation had spent by way of advances with which to purchase

the necessary materials and supplies, however, he is not liable to pay interest thereon at the rate
of 6% per annum until full payment of the same, as held by the lower court. Otherwise, to hold
so would be in conflict with the above-mentioned rule that each party must bear his/its own
damages.
PREMISES CONSIDERED, with the only modification that the sum of P19,628.93 be paid by
appellant Dimaporo to appellee Grace Park Engineering, Inc., without interest, the judgment
appealed from is affirmed in all other respects. No pronouncement as to costs.
SO ORDERED.

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 plaintiffsappellees, 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.

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:

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
plaintiffs-appellees 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.

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 defendantsappellants 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. In Universal 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 plaintiffsappellees 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.

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffsappellees 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 defendantsappellants 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.

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."

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO,
JR., defendants-appellees.
FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated
July 25, 1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal,
Quezon City, Branch V in Civil Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M. Yulo,
Jr., Plaintiffs versus Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr.,
Defendants," which, among others, ordered them to jointly and severally pay defendant-appellee
Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as moral damages
and P5,000.00 as attorney's fees; the defendants-appellees Interphil Promotions, Inc. and Lope
Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as actual damages and P5,000.00
as attorney's fees; and defendant-appellee Lope Sarreal, Sr., the additional amount of
P20,000.00 as moral damages aside from costs.
The antecedent facts of the case are as follows:
On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde
in a boxing contest for the junior lightweight championship of the world.
It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on
September 30, 1961 or not later than thirty [30] days thereafter should a postponement be
mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest,
engage in any other such contest without the written consent of Interphil Promotions, Inc.
On May 3, 1961, a supplemental agreement on certain details not covered by the principal
contract was entered into by Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash"
Elorde to a similar agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial
Stadium on September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in
Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session of March 14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay,
assigned to J. Amado Araneta the managerial rights over Solomon Boysaw.
Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the
Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights
over Boysaw that he earlier acquired from Ketchum and Ruskay. The next day, September 2,

1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the
Philippines.
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the
boxing contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter to
the Games and Amusement Board [GAB] expressing concern over reports that there had been a
switch of managers in the case of Boysaw, of which he had not been formally notified, and
requesting that Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties concerned culminating in the issuance of
its decision to schedule the Elorde-Boysaw fight for November 4, 1961. The USA National
Boxing Association which has supervisory control of all world title fights approved the date set by
the GAB
Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal
on September 26, 1961, offered to advance the fight date to October 28, 1961 which was within
the 30-day period of allowable postponements provided in the principal boxing contract of May
1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local
boxing promoter, for a possible promotion of the projected Elorde-Boysaw title bout. In one of
such communications dated October 6, 1961, Yulo informed Besa that he was willing to approve
the fight date of November 4,1961 provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961
boxing contract never materialized.
As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued
Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr., then
GAB Chairman, to honor their commitments under the boxing contract of May 1,1961.
On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the
Solicitor General's Office and Atty. Romeo Edu of the GAB Legal Department from appearing for
defendant Nieto, Jr. on the ground that the latter had been sued in his personal capacity and,
therefore, was not entitled to be represented by government counsel. The motion was denied
insofar as Solicitor General Coquia was concerned, but was granted as regards the
disqualification of Atty. Edu.
The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left
the country without informing the court and, as alleged, his counsel. He was still abroad when,
on May 13, 1963, he was scheduled to take the witness stand. Thus, the lower court reset the
trial for June 20, 1963. Since Boysaw was still abroad on the later date, another postponement
was granted by the lower court for July 23, 1963 upon assurance of Boysaw's counsel that
should Boysaw fail to appear on said date, plaintiff's case would be deemed submitted on the
evidence thus far presented.

On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for
postponement of the July 23, 1963 trial, pleading anew Boysaw's inability to return to the country
on time. The motion was denied; so was the motion for reconsideration filed by plaintiffs on July
22, 1963.
The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being deemed submitted
after the plaintiffs declined to submit documentary evidence when they had no other witnesses
to present. When defendant's counsel was about to present their case, plaintiff's counsel after
asking the court's permission, took no further part in the proceedings.
After the lower court rendered its judgment dismissing the plaintiffs' complaint, the plaintiffs
moved for a new trial. The motion was denied, hence, this appeal taken directly to this Court by
reason of the amount involved.
From the errors assigned by the plaintiffs, as having been committed by the lower court, the
following principal issues can be deduced:
1. Whether or not there was a violation of the fight contract of May 1, 1961; and if
there was, who was guilty of such violation.
2. Whether or not there was legal ground for the postponement of the fight date from
September 1, 1961, as stipulated in the May 1, 1961 boxing contract, to November
4,1961,
3. Whether or not the lower court erred in the refusing a postponement of the July 23,
1963 trial.
4. Whether or not the lower court erred in denying the appellant's motion for a new
trial.
5. Whether or not the lower court, on the basis of the evidence adduced, erred in
awarding the appellees damages of the character and amount stated in the decision.
On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence
established that the contract was violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada.
Appellant Yulo admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this does not grant any of the parties
the unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that
actionable injury inheres in every contractual breach. Thus:
Those who in the performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the terms thereof, are liable for
damages. [Art. 1170, Civil Code].
Also:

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. [Part 1, Art. 1191, Civil
Code].
There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and
a creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other" [Tolentino, Civil Code of the Philippines, Vol. IV, p.
175.1
The power to rescind is given to the injured party. "Where the plaintiff is the party who did not
perform the undertaking which he was bound by the terms of the agreement to perform 4 he is
not entitled to insist upon the performance of the contract by the defendant, or recover damages
by reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].
Another violation of the contract in question was the assignment and transfer, first to J. Amado
Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without
the knowledge or consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of
the original contract which, to be valid, should have been consented to by Interphil.
Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor.[Art. 1293, Civil Code, emphasis supplied].
That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his
acquisition of the managerial rights over Boysaw cannot change the fact that such acquisition,
and the prior acquisition of such rights by Araneta were done without the consent of Interphil.
There is no showing that Interphil, upon receipt of Yulo's letter, acceded to the "substitution" by
Yulo of the original principal obligor, who is Ketchum. The logical presumption can only be that,
with Interphil's letter to the GAB expressing concern over reported managerial changes and
requesting for clarification on the matter, the appellees were not reliably informed of the changes
of managers. Not being reliably informed, appellees cannot be deemed to have consented to
such changes.
Under the law when a contract is unlawfully novated by an applicable and unilateral substitution
of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.
The consent of the creditor to the change of debtors, whether
in expromision or delegacion is an, indispensable requirement . . . Substitution of one
debtor for another may delay or prevent the fulfillment of the obligation by reason of
the inability or insolvency of the new debtor, hence, the creditor should agree to
accept the substitution in order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract
with z, under which he transfers to z all his rights under the first contract, together with

the obligations thereunder, but such transfer is not consented to or approved by x,

there is no novation. X can still bring his action against y for performance of their
contract or damages in case of breach. [Tolentino, Civil Code of the Philippines, Vol.
IV, p. 3611.
From the evidence, it is clear that the appellees, instead of availing themselves of the options
given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really
wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That
the appellees had the justification to renegotiate the original contract, particularly the fight date is
undeniable from the facts aforestated. Under the circumstances, the appellees' desire to
postpone the fight date could neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on the matter rested with the
appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon
the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's
request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had
earlier agreed to abide by the GAB ruling.
In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to
October 28, 1961 just to place it within the 30- day limit of allowable postponements stipulated in
the original boxing contract.
The refusal of appellants to accept a postponement without any other reason but the
implementation of the terms of the original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms thereof, they have forfeited any right to
its enforcement.

On the denial of appellant's motion for a new trial, we find that the lower court did not commit
any reversible error.
The alleged newly discovered evidence, upon which the motion for new trial was made to rest,
consists merely of clearances which Boysaw secured from the clerk of court prior to his
departure for abroad. Such evidence cannot alter the result of the case even if admitted for they
can only prove that Boysaw did not leave the country without notice to the court or his counsel.
The argument of appellants is that if the clearances were admitted to support the motion for a
new trial, the lower court would have allowed the postponement of the trial, it being convinced
that Boysaw did not leave without notice to the court or to his counsel. Boysaw's testimony upon
his return would, then, have altered the results of the case.
We find the argument without merit because it confuses the evidence of the clearances and the
testimony of Boysaw. We uphold the lower court's ruling that:
The said documents [clearances] are not evidence to offset the evidence adduced
during the hearing of the defendants. In fact, the clearances are not even material to
the issues raised. It is the opinion of the Court that the 'newly discovered evidence'
contemplated in Rule 37 of the Rules of Court, is such kind of evidence which has
reference to the merits of the case, of such a nature and kind, that if it were presented,
it would alter the result of the judgment. As admitted by the counsel in their pleadings,
such clearances might have impelled the Court to grant the postponement prayed for
by them had they been presented on time. The question of the denial of the
postponement sought for by counsel for plaintiffs is a moot issue . . . The denial of the
petition for certiorari and prohibition filed by them, had he effect of sustaining such
ruling of the court . . . [pp. 296-297, Record on Appeal].

On the validity of the fight postponement, the violations of the terms of the original contract by
appellants vested the appellees with the right to rescind and repudiate such contract altogether.
That they sought to seek an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.

The testimony of Boysaw cannot be considered newly discovered evidence for as appellees
rightly contend, such evidence has been in existence waiting only to be elicited from him by
questioning.

While the appellants concede to the GAB's authority to regulate boxing contests, including the
setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel
Nieto, Jr. made the decision for postponement, thereby arrogating to himself the prerogatives of
the whole GAB Board.

We cite with approval appellee's contention that "the two qualities that ought to concur or dwell
on each and every of evidence that is invoked as a ground for new trial in order to warrant the
reopening . . . inhered separately on two unrelated species of proof" which "creates a legal
monstrosity that deserves no recognition."

The records do not support appellants' contention. Appellant Yulo himself admitted that it was
the GAB Board that set the questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must
be stated that one of the strongest presumptions of law is that official duty has been regularly
performed. In this case, the absence of evidence to the contrary, warrants the full application of
said presumption that the decision to set the Elorde-Boysaw fight on November 4, 1961 was a
GAB Board decision and not of Manuel Nieto, Jr. alone.

On the issue pertaining to the award of excessive damages, it must be noted that because the
appellants wilfully refused to participate in the final hearing and refused to present documentary
evidence after they no longer had witnesses to present, they, by their own acts prevented
themselves from objecting to or presenting proof contrary to those adduced for the appellees.

Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say that the same
issue had been raised before Us by appellants in a petition for certiorari and prohibition
docketed as G.R. No. L-21506. The dismissal by the Court of said petition had laid this issue to
rest, and appellants cannot now hope to resurrect the said issue in this appeal.

On the actual damages awarded to appellees, the appellants contend that a conclusion or
finding based upon the uncorroborated testimony of a lone witness cannot be sufficient. We hold
that in civil cases, there is no rule requiring more than one witness or declaring that the
testimony of a single witness will not suffice to establish facts, especially where such testimony
has not been contradicted or rebutted. Thus, we find no reason to disturb the award of
P250,000.00 as and for unrealized profits to the appellees.

On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence
presented by appellees of actual damages which were neither objected to nor rebutted by
appellants, again because they adamantly refused to participate in the court proceedings.
The award of attorney's fees in the amount of P5,000.00 in favor of defendant-appellee Manuel
Nieto, Jr. and another P5,000.00 in favor of defendants-appellees Interphil Promotions, Inc. and
Lope Sarreal, Sr., jointly, cannot also be regarded as excessive considering the extent and
nature of defensecounsels' services which involved legal work for sixteen [16] months.
However, in the matter of moral damages, we are inclined to uphold the appellant's contention
that the award is not sanctioned by law and well- settled authorities. Art. 2219 of the Civil Code
provides:
Art. 2219. Moral damages may be recovered in the following analogous cases:
1) A criminal offense resulting in physical injuries;
2) Quasi-delict causing physical injuries;
3) Seduction, abduction, rape or other lascivious acts;
4) Adultery or concubinage;
5) Illegal or arbitrary detention or arrest;
6) Illegal search;
7) Libel, slander or any other form of defamation;
8) Malicious prosecution;
9) Acts mentioned in Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32, 34 and 35.
The award of moral damages in the instant case is not based on any of the cases enumerated in
Art. 2219 of the Civil Code. The action herein brought by plaintiffs-appellants is based on a
perceived breach committed by the defendants-appellees of the contract of May 1, 1961, and
cannot, as such, be arbitrarily considered as a case of malicious prosecution.
Moral damages cannot be imposed on a party litigant although such litigant exercises it
erroneously because if the action has been erroneously filed, such litigant may be penalized for
costs.
The grant of moral damages is not subject to the whims and caprices of judges or
courts. The court's discretion in granting or refusing it is governed by reason and

justice. In order that a person may be made liable to the payment of moral damages,
the law requires that his act be wrongful. The adverse result of an action does not per
se make the act wrongful and subject the actor to the payment of moral damages. The
law could not have meant to impose a penalty on the right to litigate; such right is so
precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. [Barreto vs. Arevalo, et. al. No. L-7748,
Aug. 27, 1956, 52 O.G., No. 13, p. 5818.]
WHEREFORE, except for the award of moral damages which is herein deleted, the decision of
the lower court is hereby affirmed.
SO ORDERED.

G.R. No. 83851. March 3, 1993.

VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE
COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA,
proprietor, respondents.
DECISION
DAVIDE, JR., J p:
By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set
aside the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1
promulgated on 16 March 1988, which affirmed with modification, in respect to the moral
damages, the decision of the Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an
action for specific performance and damages, filed by the herein private respondent against the
petitioners. The dispositive portion of the trial court's decision reads as follows:

Pursuelo. This, however, is denied by defendants-appellants who allege that on May 23, 1983,
they sent a telegram to plaintiff-appellee cancelling the contract of sale because of failure of the
latter to comply with the conditions thereof.
On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of
credit was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but
then (sic) the transmittal was delayed.
On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City
Branch of the Bank of the Philippine Islands dated May 26, 1983, the content of which is quited
(sic) as follows:
'Please be advised that we have received today cable advise from our Head Office which reads
as follows:

1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as
actual damages;

'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor
ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACOMARSTEEL ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo
Village, Makati, Metro Manila Shipments of about 500 MT of assorted steel scrap marine/heavy
equipment expiring on July 24, 1983 without recourse at sight draft drawn on Armaco Marsteel
Alloy Corporation accompanied by the following documents: Certificate of Acceptance by
Armaco-Marsteel Alloy Corporation shipment from Dumaguete City to buyer's warehouse partial
shipment allowed/transhipment (sic) not allowed'.

2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;

For your information'.

3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;

On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against
him by Pursuelo had been dismissed and demanding that defendants-appellants comply with
the deed of sale, otherwise a case will be filed against them.

"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and
against the defendants ordering the latter to pay jointly and severally plaintiff, to wit:

4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2
The public respondent reduced the amount of moral damages to P25,000.00.
The antecedent facts, summarized by the public respondent, are as follows:
"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale
involving scrap iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta.
Catalina, Negros Oriental, subject to the condition that plaintiff-appellee will open a letter of
credit in the amount of P250,000.00 in favor of defendant-appellant corporation on or before
May 15, 1983. This is evidenced by a contract entitled `Purchase and Sale of Scrap Iron' duly
signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic)
scrap iron at the defendant-appellant's (sic) premises, proceeding with such endeavor until May
30 when defendants-appellants allegedly directed plaintiff-appellee's men to desist from
pursuing the work in view of an alleged case filed against plaintiff-appellee by a certain Alberto

In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiffappellee's lawyer that defendant-appellant corporation is unwilling to continue with the sale due
to plaintiff-appellee's failure to comply with essential pre-conditions of the contract.
On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary
attachment. The writ of attachment was returned unserved because the defendant-appellant
corporation was no longer in operation and also because the scrap iron as well as other pieces
of machinery can no longer be found on the premises of the corporation." 3
In his complaint, private respondent prayed for judgment ordering the petitioner corporation to
comply with the contract by delivering to him the scrap iron subject thereof; he further sought an
award of actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4
In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was
justified because of private respondent's non-compliance with essential pre-conditions, among
which is the opening of an irrevocable and unconditional letter of credit not later than 15 May
1983.

During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved;
these issues were subsequently embodied in the pre-trial order, to wit:
"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by
the parties cancelled and terminated before the Complaint was filed by anyone of the parties; if
so, what are the grounds and reasons relied upon by the cancelling parties; and were the
reasons or grounds for cancelling valid and justified?

On the second and third assignments of error, defendants-appellants argue that under Articles
1593 and 1597 of the Civil Code, automatic rescission may take place by a mere notice to the
buyer if the latter committed a breach of the contract of sale.
Even if one were to grant that there was a breach of the contract by the buyer, automatic
rescission cannot take place because, as already (sic) stated, delivery had already been made.
And, in cases where there has already been delivery, the intervention of the court is necessary
to annul the contract.

2. Are the parties entitled to damages they respectively claim under the pleadings?" 6
As the lower court aptly stated:
On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was
quoted earlier.
Petitioners appealed from said decision to the Court of Appeals which docketed the same as
C.A.-G.R. CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the
trial court erred:
"1. In finding that there was delivery of the scrap iron subject of the sale;
2. In not finding that plaintiff had not complied with the conditions in the contract of sale;
3. In finding that defendants-appellants were not justified in cancelling the sale;
4. In awarding damages to the plaintiff as against the defendants-appellants;
5. In not awarding damages to defendants-appellants." 7
Public respondent disposed of these assigned errors in this wise:
"On the first error assigned, defendants-appellants argue that there was no delivery because the
purchase document states that the seller agreed to sell and the buyer agreed to buy 'an
undetermined quantity of scrap iron and junk which the seller will identify and designate.' Thus, it
is contended, since no identification and designation was made, there could be no delivery. In
addition, defendants-appellants maintain that their obligation to deliver cannot be completed until
they furnish the cargo trucks to haul the weighed materials to the wharf.
The arguments are untenable. Article 1497 of the Civil Code states:
'The thing sold shall be understood as delivered when it is placed in the control and possession
of the vendee.'
In the case at bar, control and possession over the subject matter of the contract was given to
plaintiff-appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer
and his men to enter the corporation's premises and to dig-up the scrap iron. The pieces of
scrap iron then (sic) placed at the disposal of the buyer. Delivery was therefore complete. The
identification and designation by the seller does not complete delivery.

'Respecting these allegations of the contending parties, while it is true that Article 1593 of the
New Civil Code provides that with respect to movable property, the rescission of the sale shall of
right take place in the interest of the vendor, if the vendee fails to tender the price at the time or
period fixed or agreed, however, automatic rescission is not allowed if the object sold has been
delivered to the buyer (Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the
action being one to rescind judicially and where (sic) Article 1191, supra, thereby applies. There
being already an implied delivery of the items, subject matter of the contract between the parties
in this case, the defendant having surrendered the premises where the scraps (sic) were found
for plaintiff's men to dig and gather, as in fact they had dug and gathered, this Court finds the
mere notice of resolution by the defendants untenable and not conclusive on the rights of the
plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi. 631). Likewise, as early as in the case of Song Fo vs.
Hawaiian Philippine Company, it has been ruled that rescission cannot be sanctioned for a slight
or casual breach (47 Phil. 821).'
In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:
'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract
upon failure of the other to perform the obligation assumed thereunder.
Of course, it must be understood that the right 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.'
Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review
by the courts and cannot be considered final.
In the case at bar, the trial court ruled that rescission is improper because the breach was very
slight and the delay in opening the letter of credit was only 11 days.
'Where time is not of the essence of the agreement, a slight delay by one party in the
performance of his obligation is not a sufficient ground for rescission of the agreement. Equity
and justice mandates (sic) that the vendor be given additional (sic) period to complete payment
of the purchase price.' (Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).'
There is no need to discuss the fourth and fifth assigned errors since these are merely corollary
to the first three assigned errors." 8

Their motion to reconsider the said decision having been denied by public respondent in its
Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned
assignment of errors.

In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller
bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of
his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of
the purchase price. Its principal stipulation reads, to wit:

There is merit in the instant petition.

xxx xxx xxx
Both the trial court and the public respondent erred in the appreciation of the nature of the
transaction between the petitioner corporation and the private respondent. To this Court's mind,
what obtains in the case at bar is a mere contract to sell or promise to sell, and not a contract of
sale.
The trial court assumed that the transaction is a contract of sale and, influenced by its view that
there was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the
Civil Code was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled
that rescission under Article 1191 of the Civil Code could only be done judicially. The trial court
further classified the breach committed by the private respondent as slight or casual, foreclosing,
thereby, petitioners' right to rescind the agreement.
Article 1593 of the Civil Code provides:
"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take
place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the
delivery of the thing, should not have appeared to receive it, or, having appeared, he should not
have tendered the price at the same time, unless a longer period has been stipulated for its
payment."

"Witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of
scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina,
Negros Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and
conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg.
Oriental.
2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable
and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust
Company, Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND
FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency.
3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers,
to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on
BUYER's barge. All expenses for labor, loading and unloading shall be for the account of the
BUYER.

Article 1191 provides:

"ARTICLE 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."
xxx xxx xxx
Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil
Code which provides:
"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee."

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance."
(Emphasis supplied).
The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive
condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and
unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of
the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise
stated, the contract is not one of sale where the buyer acquired ownership over the property
subject to the resolutory condition that the purchase price would be paid after delivery. Thus,
there was to be no actual sale until the opening, making or indorsing of the irrevocable and
unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, the
failure of the private respondent to comply with the positive suspensive condition cannot even be
considered a breach casual or serious but simply an event that prevented the obligation of
petitioner corporation to convey title from acquiring binding force. In Luzon Brokerage Co., Inc.
vs. Maritime Building Co., Inc., 13 this Court stated:
" . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to
pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the
contract, but precisely enforcing it according to its express terms. In its suit Myers was not
seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such
restoration being the logical consequence of the fulfillment of a resolutory condition, express or

implied (article 1190); neither was it seeking a declaration that its obligation to sell was
extinguished. What it sought was a judicial declaration that because the suspensive condition
(full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or
never became effective and, therefore, it (Myers) was entitled to repossess the property object of
the contract, possession being a mere incident to its right of ownership. It is elementary that, as
stated by Castan,
'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor
pierde todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil,
7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113)'."
In the instant case, not only did the private respondent fail to open, make or indorse an
irrevocable and unconditional letter of credit on or before 15 May 1983 despite his earlier
representation in his 24 May 1983 telegram that he had opened one on 12 May 1983, the letter
of advice received by the petitioner corporation on 26 May 1983 from the Bank of the Philippine
Islands Dumaguete City branch explicitly makes reference to the opening on that date of a letter
of credit in favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on
ARMACO-MARSTEEL ALLOY CORPORATION and set to expire on 24 July 1983, which is
indisputably not in accordance with the stipulation in the contract signed by the parties on at
least three (3) counts: (1) it was not opened, made or indorsed by the private respondent, but by
a corporation which is not a party to the contract; (2) it was not opened with the bank agreed
upon; and (3) it is not irrevocable and unconditional, for it is without recourse, it is set to expire
on a specific date and it stipulates certain conditions with respect to shipment. In all probability,
private respondent may have sold the subject scrap iron to ARMACO-MARSTEEL ALLOY
CORPORATION, or otherwise assigned to it the contract with the petitioners. Private
respondent's complaint fails to disclose the sudden entry into the picture of this corporation.
Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot
be compelled by specific performance to comply with its prestation. In short, Article 1191 of the
Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the
petitioner corporation may totally rescind, as it did in this case, the contract. Said Article
provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has
repudiated the contract of sale, or has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale
by giving notice of his election so to do to the buyer."
The trial court ruled, however, and the public respondent was in agreement, that there had been
an implied delivery in this case of the subject scrap iron because on 17 May 1983, private
respondent's men started digging up and gathering scrap iron within the petitioner's premises.
The entry of these men was upon the private respondent's request. Paragraph 6 of the
Complaint reads:
"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the
stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and
gather the scrap iron and stock the same for weighing." 14

This permission or consent can, by no stretch of the imagination, be construed as delivery of the
scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil
Code, petitioners placed the private respondent in control and possession thereof. In the first
place, said Article 1497 falls under the Chapter 15 Obligations of the Vendor, which is found in
Title VI (Sales), Book IV of the Civil Code. As such, therefore, the obligation imposed therein is
premised on an existing obligation to deliver the subject of the contract. In the instant case, in
view of the private respondent's failure to comply with the positive suspensive condition earlier
discussed, such an obligation had not yet arisen. In the second place, it was a mere
accommodation to expedite the weighing and hauling of the iron in the event that the sale would
materialize. The private respondent was not thereby placed in possession of and control over
the scrap iron. Thirdly, We cannot even assume the conversion of the initial contract or promise
to sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap
iron because its action and conduct in the premises do not support this conclusion. Indeed,
petitioners demanded the fulfillment of the suspensive condition and eventually cancelled the
contract.
All told, Civil Case No. 15128 filed before the trial court was nothing more than the private
respondent's preemptive action to beat the petitioners to the draw.
One last point. This Court notes the palpably excessive and unconscionable moral and
exemplary damages awarded by the trial court to the private respondent despite a clear absence
of any legal and factual basis therefor. In contracts, such as in the instant case, moral damages
may be recovered if defendants acted fraudulently and in bad faith, 16 while exemplary
damages may only be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner. 17 In the instant case, the refusal of the petitioners to deliver the scrap
iron was founded on the non-fulfillment by the private respondent of a suspensive condition. It
cannot, therefore, be said that the herein petitioners had acted fraudulently and in bad faith or in
a wanton, reckless, oppressive or malevolent manner. What this Court stated in Inhelder Corp.
vs. Court of Appeals 18 needs to be stressed anew:
"At this juncture, it may not be amiss to remind Trial Courts to guard against the award of
exhorbitant (sic) damages that are way out of proportion to the environmental circumstances of
a case and which, time and again, this Court has reduced or eliminated. Judicial discretion
granted to the Courts in the assessment of damages must always be exercised with balanced
restraint and measured objectivity."
For, indeed, moral damages are emphatically not intended to enrich a complainant at the
expense of the defendant. They are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral suffering he has undergone, by
reason of the defendant's culpable action. Its award is aimed at the restoration, within the limits
of the possible, of the spiritual status quo ante, and it must be proportional to the suffering
inflicted. 19
WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of
Appeals in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional
Trial Court of Iloilo is ordered DISMISSED.
Costs against the private respondent.

SO ORDERED.
G.R. No. 96643. April 23, 1993.
ERNESTO DEIPARINE, JR., petitioner,
vs.
THE HON. COURT OF APPEALS, CESARIO CARUNGAY and ENGR. NICANOR TRINIDAD,
respondents.
DECISION
CRUZ, J p:
This case involves not only the factual issue of breach of contract and the legal questions of
jurisdiction and rescission. The basic inquiry is whether the building subject of this litigation is
safe enough for its future occupants. The petitioner says it is, but the private respondents demur.
They have been sustained by the trial court and the appellate court. The petitioner says they
have all erred.
The spouses Cesario and Teresita Carungay entered into an agreement with Ernesto Deiparine,
Jr. on August 13, 19B2, for the construction of a three-story dormitory in Cebu City. 1 The
Carungays agreed to pay P970,000.00, inclusive of contractor's fee, and Deiparine bound
himself to erect the building "in strict accordance to (sic) plans and specifications." Nicanor
Trinidad, Jr., a civil engineer, was designated as the representative of the Carungay spouses,
with powers of inspection and coordination with the contractor.
Deiparine started the construction on September 1, 1982. 2 On November 6, 1982, Trinidad sent
him a document entitled General Conditions and Specifications which inter alia prescribed 3,000
psi (pounds per square inch) as the minimum acceptable compressive strength of the building. 3
In the course of the construction, Trinidad reported to Cesario Carungay that Deiparine had
been deviating from the plans and specifications, thus impairing the strength and safety of the
building. On September 25, 1982, Carungay ordered Deiparine to first secure approval from him
before pouring cement. 4 This order was not heeded, prompting Carungay to send Deiparine
another memorandum complaining that the "construction works are faulty and done haphazardly
. . . mainly due to lax supervision coupled with . . . inexperienced and unqualified staff." 5 This
memorandum was also ignored.
After several conferences, the parties agreed to conduct cylinder tests to ascertain if the
structure thus far built complied with safety standards. Carungay suggested core testing.
Deiparine was reluctant at first but in the end agreed. He even promised that if the tests should
show total failure, or if the failure should exceed 10%, he would shoulder all expenses;
otherwise, the tests should be for the account of Carungay.
The core testing was conducted by Geo-Testing International, a Manila-based firm, on twentyfour core samples. On the basis of 3,000 psi, all the samples failed; on the basis of 2,500 psi,
only three samples passed; and on the basis of 2,000 psi, nineteen samples failed. 6 This meant
that the building was structurally defective.

In view of this finding, the spouses Carungay filed complaint with the Regional Trial Court of
Cebu for the rescission of the construction contract and for damages. Deiparine moved to
dismiss, alleging that the court had no jurisdiction over construction contracts, which were now
cognizable by the Philippine Construction Development Board pursuant to Presidential Decree
No. 1746. The motion was denied in an order dated April 12, 1984.
After trial on the merits, Judge Juanito A. Bernad rendered judgment: a) declaring the
construction agreement rescinded; b) condemning Deiparine to have forfeited his expenses in
the construction in the same of P244,253.70; c) ordering Deiparine to reimburse to the spouses
Carungay the sum of P15,104.33 for the core testing; d) ordering Deiparine to demolish and
remove all the existing structures and restore the premises to their former condition before the
construction began, being allowed at the same time to take back with him all the construction
materials belonging to him; and e) ordering Deiparine to pay the Carungay spouses attorney's
fees in the amount of P10,000.00 as well as the costs of the suit. 7
On appeal, the decision was affirmed in toto by the respondent court on August 14, 1990. 8 His
motion for reconsideration having been denied, petitioner Ernesto Deiparine, Jr. has come to this
Court to question once more the jurisdiction of the regular courts over the case and the power of
the trial court to grant rescission. He will lose again.
The challenge to the jurisdiction of the trial court is untenable.
P.D. 1746 created the Construction Industry Authority of the Philippines (CIAP) as the umbrella
organization which shall exercise jurisdiction and supervision over certain administrative bodies
acting as its implementing branches. The implementing body in this case is the Philippine
Domestic Construction Board (PDCB) and not the inexistent Philippine Construction
Development Board as maintained by Deiparine.
Among the functions of the PDCB under Section 6 of the decree are to:
xxx xxx xxx
3. Adjudicate and settle claims and implementation of public construction contracts and for this
purpose, formulate and adopt the necessary rules and regulations subject to the approval of the
President:
xxx xxx xxx
5. Formulate and recommend rules and procedures for the adjudication and settlement of claims
and disputes in the implementation of contracts in private construction; (Emphasis supplied)
Deiparine argues that the Philippine Construction Development Board (that is, the Philippine
Domestic Construction Board) has exclusive jurisdiction to hear and try disputes arising from
domestic constructions. He invokes the above-mentioned functions to prove his point.

His counsel is obviously trying to mislead the Court. First, he purposely misquotes Section 6(b),
paragraph 3, substituting the word "the" for "public," thus:
3. Adjudicate and settle claims and disputes in the implementation of the construction contracts
and for this purpose, formulate and adopt the necessary rules and regulations subject to the
approval of the President; (Emphasis ours).
Second, he makes the wrong emphasis in paragraph 5, thus:
5. Formulate and recommend rules and procedures for the ADJUDICATION and SETTLEMENT
of CLAIMS and DISPUTES in the implementation of CONTRACTS in PRIVATE
CONSTRUCTIONS.
For deliberately changing the language of the abovequoted paragraph 3, Atty. Gregorio P.
Escasinas has committed contempt of this Court and shall be disciplined. As for paragraph 5,
the correct stress should be on the words "formulate and recommend," which is all the body can
do, rather than on "adjudication and settlement."
The wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic
Construction Board are meant to apply only to public construction contracts. Its power over
private construction contracts is limited to the formulation and recommendation of rules and
procedures for the adjudication and settlement of disputes involving such (private) contracts. It
therefore has no jurisdiction over cases like the one at bar which remain cognizable by the
regular courts of justice.
On the issue of rescission, Deiparine insists that the construction agreement does not specify
any compressive strength for the structure nor does it require that the same be subjected to any
kind of stress test. Therefore, since he did not breach any of his covenants under the
agreement, the court erred in rescinding the contract.
The record shows that Deiparine commenced the construction soon after the signing of the
contract, even before Trinidad had submitted the contract documents, including the General
Conditions and Specifications.
According to Eduardo Logarta, the petitioner's own project engineer, Deiparine actually
instructed him and some of the other workers to ignore the specific orders or instructions of
Carungay or Trinidad relative to the construction. 9 Most of these orders involved safety
measures such as: (1) the use of two concrete vibrators in the pouring of all columns, beams
and slabs; (2) making PVC pipes well-capped to prevent concrete from setting inside them; (3)
the use of 12-mm reinforcement bars instead of 10-mm bars; (4) the use of mixed concrete
reinforcements instead of hollow block reinforcements; and (5) securing the approval of the
owner or his representative before any concrete-pouring so that it could be determined whether
the cement mixture complied with safety standards. Deiparine obviously wanted to avoid
additional expenses which would reduce his profit.
Parenthetically, it is not disputed that Deiparine is not a civil engineer or an architect but a
master mariner and former ship captain; 10 that Pio Bonilla, a retainer of Deiparine Construction,
was not the supervising architect of the protect; 11 that the real supervisor of the construction

was Eduardo-Logarta, who was only a third year civil engineering student at the time; 12 that his
understudy was Eduardo Martinez, who had then not yet passed the board examinations; 13
and that the supposed project engineer, Nilo Paglinawan, was teaching full-time at the University
of San Jose-Recoletos, and had in fact entered the construction site only after November 4,
1982, although the construction had already begun two months earlier. 14
It was after discovering that the specifications and the field memorandums were not being
followed by Deiparine that Carungay insisted on the stress tests.
There were actually two sets of specifications. The first "Specifications" are labeled as such and
are but a general summary of the materials to be used in the construction. These were prepared
by Trinidad prior to the execution of the contract for the purpose only of complying with the
document requirements of the loan application of Cesario Carungay with the Development Bank
of the Philippines. The other specifications, which were also prepared by Trinidad, are entitled
"General Conditions and Specifications" and laid down in detail the requirements of the private
respondent in the construction of his building.
In his testimony, Deiparine declared that when the contract was signed on August 13, 1982, it
was understood that the plans and specifications would be given to him by Trinidad later. 15
Deiparine thus admitted that the plans and specifications referred to in the construction
agreement were not the first Specifications but the General Conditions and Specifications
submitted by Trinidad in November 1982. This second set of specifications required a structural
compressive strength of 3,000 psi. 16 It completely belies Deiparine's contention that no
compressive strength of the dormitory was required.
Deiparine further argues that by following the concrete mixture indicated in the first
specifications, that is, 1:2:4, the structure would still attain a compressive strength of 2,500 psi,
which was acceptable for dormitories. According to him, the 3,000 psi prescribed in the General
Conditions and Specifications was recommended for roads, not for buildings. In so arguing, he is
interpreting the two specifications together but applying only the first and rejecting the second.
Deiparine also avers that the contract does not also require any kind of test to be done on the
structure and that, test or no test, he has not violated the agreement. Nevertheless, he subjected
the building to a cylinder test just to convince Carungay that the unfinished dormitory was
structurally sound.
A cylinder test is done by taking samples from fresh concrete, placing them in a cylinder mold
and allowing them to harden for a maximum of 28 days, following which they are subjected to
compression to determine if the cement mixture to be poured conforms to accepted standards in
construction. 17 Carungay was not satisfied with the results of the cylinder test because they
were inconsistent and could easily be falsified by the simple expedient of replacing the samples
with a good mixture although a different mixture had been used in the actual pouring.
Consequently, Carungay requested core testing, a more reliable procedure because the
specimens obtained by extracting concrete from the hardened existing structure would
determine its actual strength. The core test is less prone to manipulation than the cylinder test
because the samples in the former are taken from the building which is already standing. 18
Deiparine vehemently refused to go along with the core test, insisting that the results of the
cylinder test earlier made were conclusive enough to prove that the building was structurally

sound. What was the real reason for this refusal? After all, Carungay would shoulder the
expenses if the specimens passed the core test, unlike the cylinder test, which was for the
petitioner's account. The only logical explanation would be that Deiparine was not sure that the
core test would prove favorable to him.

Article 1385, upon which Deiparine relies, deals with the rescission of the contracts enumerated
above, which do not include the construction agreement in question.
There is also a right of rescission under the law on obligations as granted in Article 1191,
providing as follows:

We see no reason to disturb the factual finding of the courts below that Deiparine did not deal
with the Carungays in good faith. His breach of this duty constituted a substantial violation of the
contract correctible by judicial 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 petitioner challenges the application by the lower court of Article 1191 of the Civil Code in
rescinding the construction agreement. His position is that the applicable rules are Articles 1385
and 1725 of the Civil Code.

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.

Article 1385 states:

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be obliged to restore.
Article 1725 provides that in a contract for a piece of work:
The owner may withdraw at will from the construction of the work, although it may have been
commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness
which the owner may obtain therefrom, and damages.
Deiparine seems to be confused over the right of rescission, which is used in two different
contexts in the Civil Code.
Under the law on contracts, there are what are called "rescissible contracts" which are
enumerated in Article 1381 thus:
(1) Those which are entered into by guardians whenever the wards who they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number:

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.
This was the provision the trial court and the respondent court correctly applied because it
relates to contracts involving reciprocal obligations like the subject construction contract. The
construction contract fails squarely under the coverage of Article 1191 because it imposes upon
Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for
the project upon its completion.
Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the, parties
but on breach of faith by one of them that violates the reciprocity between them. 19 The violation
of reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by
Deiparine's failure to follow the stipulated plans and specifications, has given the Carungay
spouses the right to rescind or cancel the contract.
Article 1725 cannot support the petitioner's position either, for this contemplates a voluntary
withdrawal by the owner without fault on the part of the contractor, who is therefore entitled to
indemnity, and even damages, for the work he has already commenced. there is no such
voluntary withdrawal in the case at bar. On the contrary, the Carungays have been constrained
to ask for judicial rescission because of the petitioner's failure to comply with the terms and
conditions of their contract.

(3) Those undertaken in fraud of creditors when the later cannot in any other manner collect the
claims due them:

The other applicable provisions are:

(4) Those which refer to things under litigation if they have been entered into by the defendants
without the knowledge and approval of the litigants or of competent judicial authority;

Article 1714. If the contractor agrees to produce the work from material furnished by him, he
shall deliver the thing produced to the employer and transfer dominion over the thing. This
contract shall be governed by the following articles as well as by the pertinent provisions on
warranty of title and against hidden defects and the payment of price in a contract of sale.

(5) All other contracts specially declared by law to be subject to rescission.

Article 1715. The contractor shall execute the work in such a manner that it has the qualities
agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or

stipulated use. Should the work be not of such quality, the employer may require that the
contractor remove the defect or execute another work. If the contractor fails or refuses to comply
with this obligation, the employer may have the defect removed or another work executed, at the
contractor's cost.
Article 1727. The contractor is responsible for the work done by persons employed by him.

It is a basic principle in human relations, acknowledged in Article 19 of the Civil Code, that
"every person must, in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith." This admonition is reiterated in Article 1159, which states that
"obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith." The petitioner has ignored these exhortations and is
therefore not entitled to the relief he seeks.

While it is true that the stress test was not required in any of the contract documents, conducting
the test was the only manner by which the owner could determine if the contractor had been
faithfully complying with his presentations under their agreement. Furthermore, both parties later
agreed in writing that the core test should be conducted. When the structure failed under this
test the Carungay spouses were left with no other recourse than to rescind their contract.

WHEREFORE, the challenged decision is hereby AFFIRMED and the instant petition for review
is DENIED, with costs against the petitioner. For deliberately changing the language of Section
6(b), paragraph 3, of P.D. No. 1746, Atty. Gregorio B. Escasinas is hereby fined P1,000.00, with
the warning that repetition of a similar offense will be dealt with more severely. It is so ordered.
Concur.