Republic of the Philippines (3) a parcel of land situated at Cebu City containing an area of
SUPREME COURT 368 sq. m. and covered by TCT No. 87019; and
Manila
FIRST DIVISION
G.R. No. 134685 November 19, 1999
MARIA ANTONIA SIGUAN, petitioner,
vs.
ROSA LIM, LINDE LIM, INGRID LIM and NEIL
LIM, respondents.
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim
(hereafter LIM) in favor of her children be rescinded for being
in fraud of her alleged creditor, petitioner Maria Antonia
Siguan? This is the pivotal issue to be resolved in this petition
for review on certiorari under Rule 45 of the Revised Rules of
Court.
The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks
in the sums of P300,000 and P241,668, respectively, payable
to "cash." Upon presentment by petitioner with the drawee
bank, the checks were dishonored for the reason "account
closed." Demands to make good the checks proved futile. As a
consequence, a criminal case for violation of Batas Pambansa
Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed
by petitioner against LIM with Branch 23 of the Regional Trial
Court (RTC) of Cebu City. In its decision 1 dated 29 December
1992, the court a quo convicted LIM as charged. The case is
pending before this Court for review and docketed as G.R. No.
134685.
It also appears that on 31 July 1990 LIM was convicted of
estafa by the RTC of Quezon City in Criminal Case No. Q-89-
2216 2 filed by a certain Victoria Suarez. This decision was
affirmed by the Court of Appeals. On appeal, however, this
Court, in a decision 3 promulgated on 7 April 1997, acquitted
LIM but held her civilly liable in the amount of P169,000, as
actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying
the following parcels of land and purportedly executed by LIM
on 10 August 1989 in favor of her children, Linde, Ingrid and
Neil, was registered with the Office of the Register of Deeds of
Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 563 sq. m. and covered by TCT No.
93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City,
containing an area of 600 sq. m. and covered by TCT No.
93434;
(4) a parcel of land situated at Cebu City, Cebu containing an
area of 511 sq. m. and covered by TCT No. 87020.
New transfer certificates of title were thereafter issued in the
names of the donees. 5
On 23 June 1993, petitioner filed an accion pauliana against
LIM and her children before Branch 18 of the RTC of Cebu City
to rescind the questioned Deed of Donation and to declare as
null and void the new transfer certificates of title issued for the
lots covered by the questioned Deed. The complaint was
docketed as Civil Case No. CEB-14181. Petitioner claimed
therein that sometime in July 1991, LIM, through a Deed of
Donation, fraudulently transferred all her real property to her
children in bad faith and in fraud of creditors, including her; that
LIM conspired and confederated with her children in antedating
the questioned Deed of Donation, to petitioner's and other
creditors' prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She
claimed that her convictions in Criminal Cases Nos. 22127-28
were erroneous, which was the reason why she appealed said
decision to the Court of Appeals. As regards the questioned
Deed of Donation, she maintained that it was not antedated but
was made in good faith at a time when she had sufficient
property. Finally, she alleged that the Deed of Donation was
registered only on 2 July 1991 because she was seriously ill.
In its decision of 31 December 1994, 6 the trial court ordered
the rescission of the questioned deed of donation; (2) declared
null and void the transfer certificates of title issued in the
names of private respondents Linde, Ingrid and Neil Lim; (3)
ordered the Register of Deeds of Cebu City to cancel said titles
and to reinstate the previous titles in the name of Rosa Lim;
and (4) directed the LIMs to pay the petitioner, jointly and
severally, the sum of P10,000 as moral damages; P10,000 as
attorney's fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision 7 promulgated
on 20 February 1998, reversed the decision of the trial court
and dismissed petitioner's accion pauliana. It held that two of
the requisites for filing an accion pauliana were absent,
namely, (1) there must be a credit existing prior to the
celebration of the contract; and (2) there must be a fraud, or at
least the intent to commit fraud, to the prejudice of the creditor
seeking the rescission.
According to the Court of Appeals, the Deed of Donation,
which was executed and acknowledged before a notary public,
appears on its face to have been executed on 10 August 1989.
Under Section 23 of Rule 132 of the Rules of Court, the
questioned Deed, being a public document, is evidence of the
fact which gave rise to its execution and of the date thereof. No
antedating of the Deed of Donation was made, there being no
convincing evidence on record to indicate that the notary public
and the parties did antedate it. Since LIM's indebtedness to
petitioner was incurred in August 1990, or a year after the
execution of the Deed of Donation, the first requirement
for accion pauliana was not met.
Anent petitioner's contention that assuming that the Deed of
Donation was not antedated it was nevertheless in fraud of
creditors because Victoria Suarez became LIM's creditor on 8
October 1987, the Court of Appeals found the same untenable,
for the rule is basic that the fraud must prejudice the creditor
seeking the rescission.
Her motion for reconsideration having been denied, petitioner
came to this Court and submits the following issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1,
WAS ENTERED INTO IN FRAUD OF [THE] CREDITORS OF
RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that
the Deed of Donation was not in fraud of creditors is contrary
to well-settled jurisprudence laid down by this Court as early as
1912 in the case of Oria v. McMicking, 8which enumerated the
various circumstances indicating the existence of fraud in a
transaction. She reiterates her arguments below, and adds that
another fact found by the trial court and admitted by the parties
but untouched by the Court of Appeals is the existence of a
prior final judgment against LIM in Criminal Case No. Q-89-
2216 declaring Victoria Suarez as LIM's judgment creditor
before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly
applied or interpreted Section 23, 9 Rule 132 of the Rules of
Court, in holding that "being a public document, the said deed
of donation is evidence of the fact which gave rise to its
execution and of the date of the latter." Said provision should
be read with Section 30 10 of the same Rule which provides
that notarial documents are prima facie evidence of their
execution, not "of the facts which gave rise to their execution
and of the date of the latter."
Finally, petitioner avers that the Court of Appeals overlooked
Article 759 of the New Civil Code, which provides: "The
donation is always presumed to be in fraud of creditors when
at the time of the execution thereof the donor did not reserve
sufficient property to pay his debts prior to the donation." In this
case, LIM made no reservation of sufficient property to pay her
creditors prior to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed
on the law and requisites of accion pauliana, petitioner cannot
take shelter under a different law; (b) petitioner cannot invoke
the credit of Victoria Suarez, who is not a party to this case, to
support her accion pauliana; (c) the Court of Appeals correctly
applied or interpreted Section 23 of Rule 132 of the Rules of
Court; (d) petitioner failed to present convincing evidence that
the Deed of Donation was antedated and executed in fraud of
petitioner; and (e) the Court of Appeals correctly struck down
the awards of damages, attorney's fees and expenses of
litigation because there is no factual basis therefor in the body
of the trial court's decision.
The primordial issue for resolution is whether the questioned
Deed of Donation was made in fraud of petitioner and,
therefore, rescissible. A corollary issue is whether the awards
of damages, attorney's fees and expenses of litigation are
proper.
We resolve these issues in the negative.
The rule is well settled that the jurisdiction of this Court in
cases brought before it from the Court of Appeals via Rule 45
of the Rules of Court is limited to reviewing errors of law.
Findings of fact of the latter court are conclusive, except in a
number of instances. 11 In the case at bar, one of the
recognized exceptions warranting a review by this Court of the
factual findings of the Court of Appeals exists, to wit, the
factual findings and conclusions of the lower court and Court of
Appeals are conflicting, especially on the issue of whether the
Deed of Donation in question was in fraud of creditors.
Art. 1381 of the Civil Code enumerates the contracts which are
rescissible, and among them are "those contracts undertaken
in fraud of creditors when the latter cannot in any other manner
collect the claims due them."
The action to rescind contracts in fraud of creditors is known
as accion pauliana. For this action to prosper, the following
requisites must be present: (1) the plaintiff asking for rescission
has a credit prior to the alienation, 12although demandable
later; (2) the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; (3) the
creditor has no other legal remedy to satisfy his claim; 13 (4) the
act being impugned is fraudulent; 14 (5) the third person who
received the property conveyed, if it is by onerous title, has
been an accomplice in the fraud. 15
The general rule is that rescission requires the existence of
creditors at the time of the alleged fraudulent alienation, and
this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. 16 Without any prior
existing debt, there can neither be injury nor fraud. While it is
necessary that the credit of the plaintiff in the accion
pauliana must exist prior to the fraudulent alienation, the date
of the judgment enforcing it is immaterial. Even if the judgment
be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted. 17
In the instant case, the alleged debt of LIM in favor of petitioner
was incurred in August 1990, while the deed of donation was
purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that
the questioned deed was antedated to make it appear that it
was made prior to petitioner's credit. Notably, that deed is a
public document, it having been acknowledged before a notary
public. 18 As such, it is evidence of the fact which gave rise to
its execution and of its date, pursuant to Section 23, Rule 132
of the Rules of Court.
Petitioner's contention that the public documents referred to in
said Section 23 are only those entries in public records made
in the performance of a duty by a public officer does not hold
water. Section 23 reads:
Sec. 23. Public documents as evidence. Documents
consisting of entries in public records made in the performance
of a duty by a public officer are prima facie evidence of the
facts therein stated. All other public documents are evidence,
even against a third person, of the fact which gave rise to their
execution and of the date of the latter. (Emphasis supplied).
The phrase "all other public documents" in the second
sentence of Section 23 means those public documents other
than the entries in public records made in the performance of a
duty by a public officer. And these include notarial documents,
like the subject deed of donation. Section 19, Rule 132 of the
Rules of Court provides:
Sec. 19. Classes of docum/ents. For the purpose of their
presentation in evidence, documents are either public or
private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except
last wills and testaments. . . .
It bears repeating that notarial documents, except last wills and
testaments, are public documents and are evidence of the
facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was
registered only on 2 July 1991 is not enough to overcome the
presumption as to the truthfulness of the statement of the date
in the questioned deed, which is 10 August 1989. Petitioner's
claim against LIM was constituted only in August 1990, or a
year after the questioned alienation. Thus, the first two
requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of
LIM prior to the celebration of the contract of donation, still her
action for rescission would not fare well because the third
requisite was not met. Under Article 1381 of the Civil Code,
contracts entered into in fraud of creditors may be rescinded
only when the creditors cannot in any manner collect the
claims due them. Also, Article 1383 of the same Code provides
that the action for rescission is but a subsidiary remedy which
cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
The term "subsidiary remedy" has been defined as "the
exhaustion of all remedies by the prejudiced creditor to collect
claims due him before rescission is resorted to." 19 It is,
therefore, "essential that the party asking for rescission prove
that he has exhausted all other legal means to obtain
satisfaction of his claim. 20 Petitioner neither alleged nor proved
that she did so. On this score, her action for the rescission of
the questioned deed is not maintainable even if the fraud
charged actually did exist." 21
The fourth requisite for an accion pauliana to prosper is not
present either.
Art. 1387, first paragraph, of the Civil Code provides: "All
contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud
of creditors when the donor did not reserve sufficient property
to pay all debts contracted before the donation. Likewise,
Article 759 of the same Code, second paragraph, states that
the donation is always presumed to be in fraud of creditors
when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established
that the donor did not leave adequate properties which
creditors might have recourse for the collection of their credits
existing before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a
year after the deed of donation was executed. She cannot,
therefore, be said to have been prejudiced or defrauded by
such alienation. Besides, the evidence disclose that as of 10
August 1989, when the deed of donation was executed, LIM
had the following properties:
(1) A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in Sto.
Nio Village, Mandaue City, Cebu, registered in the name of
Rosa Lim and covered by TCT No. 19706; 22
(2) A parcel of land located in Benros Subdivision, Lawa-an,
Talisay, Cebu; 23
(3) A parcel of land containing an area of 2.152 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13572. 24
(4) A parcel of land containing an area of 3.6 hectares, with
coconut trees thereon, situated at Hindag-an, St. Bernard,
Southern Leyte, and covered by Tax Declaration No. 13571. 25
During her cross-examination, LIM declared that the house and
lot mentioned in no. 1 was bought by her in the amount of
about P800,000 to P900,000. 26 Thus:
ATTY. FLORIDO:
Q These properties at the Sto. Nio Village, how much did you
acquire this property?
A Including the residential house P800,000.00 to P900,000.00.
Q How about the lot which includes the house. How much was
the price in the Deed of Sale of the house and lot at Sto. Nio
Violage [sic]?
A I forgot.
Q How much did you pay for it?
A That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said
property was lower. Anent the property in no. 2, LIM testified
that she sold it in 1990. 27 As to the properties in nos. 3 and 4,
the total market value stated in the tax declarations dated 23
November 1993 was P56,871.60. Aside from these tax
declarations, petitioner did not present evidence that would
indicate the actual market value of said properties. It was not,
therefore, sufficiently established that the properties left behind
by LIM were not sufficient to cover her debts existing before
the donation was made. Hence, the presumption of fraud will
not come into play.
Nevertheless, a creditor need not depend solely upon the
presumption laid down in Articles 759 and 1387 of the Civil
Code. Under the third paragraph of Article 1387, the design to
defraud may be proved in any other manner recognized by the
law of evidence. Thus in the consideration of whether certain
transfers are fraudulent, the Court has laid down specific rules
by which the character of the transaction may be determined.
The following have been denominated by the Court as badges
of fraud:
(1) The fact that the consideration of the conveyance is
fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while
it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed
financially;
(6) The fact that the transfer is made between father and son,
when there are present other of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all
the property. 28
The above enumeration, however, is not an exclusive list. The
circumstances evidencing fraud are as varied as the men who
perpetrate the fraud in each case. This Court has therefore
declined to define it, reserving the liberty to deal with it under
whatever form it may present itself. 29
Petitioner failed to discharge the burden of proving any of the
circumstances enumerated above or any other circumstance
from which fraud can be inferred. Accordingly, since the four
requirements for the rescission of a gratuitous contract are not
present in this case, petitioner's action must fail.
In her further attempt to support her action for rescission,
petitioner brings to our attention the 31 July 1990 Decision 30 of
the RTC of Quezon City, Branch 92, in Criminal Case No. Q-
89-2216. LIM was therein held guilty of estafa and was ordered
to pay complainant Victoria Suarez the sum of P169,000 for
the obligation LIM incurred on 8 October 1987. This decision
was affirmed by the Court of Appeals. Upon appeal, however,
this Court acquitted LIM of estafa but held her civilly liable for
P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria
Suarez, albeit a creditor prior to the questioned alienation, is
not a party to this accion pauliana. Article 1384 of the Civil
Code provides that rescission shall only be to the extent
necessary to cover the damages caused. Under this Article,
only the creditor who brought the action for rescission can
benefit from the rescission; those who are strangers to the
action cannot benefit from its effects. 31And the revocation is
only to the extent of the plaintiff creditor's unsatisfied credit; as
to the excess, the alienation is maintained. 32 Thus, petitioner
cannot invoke the credit of Suarez to justify rescission of the
subject deed of donation.
Now on the propriety of the trial court's awards of moral
damages, attorney's fees and expenses of litigation in favor of
the petitioner. We have pored over the records and found no
factual or legal basis therefor. The trial court made these
awards in the dispositive portion of its decision without stating,
however, any justification for the same in the ratio decidendi.
Hence, the Court of Appeals correctly deleted these awards for
want of basis in fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the
challenged decision of the Court of Appeals in CA-G.R. CV.
No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
Footnotes
1 Original Record (OR), 42.
2 Id., 135.
3 G.R. No. 102784, 271 SCRA 12 [1997].
4 OR, 10-12.
5 Id., 6-9.
6 OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.
7 Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola,
E., JJ., concurring.
8 21 Phil. 243 [1912].
9 Sec. 23. Public documents as evidence. Documents
consisting of entries in public records made in the
performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the
fact which gave rise to their execution and of the date of the
latter.
10 Sec. 30. Proof of notarial documents. Every instrument
duly acknowledged or proved and certified as provided by law
may be presented in evidence without further proof, the
certificate of acknowledgment being prima facie evidence of
the execution of the instrument or document involved.
11 In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the
Court enumerated some of the instances when the factual
findings of the Court of Appeals are not deemed conclusive, to
wit: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when in making its findings the Court
of Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the
evidence on record.
12 Panlilio v. Victoria, 35 Phil. 706 [1916]; Solis v. Chua Pua
Hermanos, 50 Phil. 636 [1927].
13 Art. 1383, Civil Code.
14 4 TOLENTINO, ARTURO M., CIVIL CODE OF THE PHILIPPINES
576 (1991), [hereafter 4 TOLENTINO]; citing 8 MANRESA 756,
2 Castan 543-555, and 3 Camus 207.
15 4 TOLENTINO 576, citing 2 Castan 543-555 and 3 Camus
107.
16 Solis v. Chua Pua Hernanes, supra note 12, at 639.
17 4 TOLENTINO 576-577, citing Sentencia (Cuba) of 7 May
1910 and 1 Gasperi 484-485.
18 Sec. 19(b), Rule 132, Rules of Court.
19 MORENO, FEDERICO B., PHILIPPINE LAW DICTIONARY 915
(1988).
20 Art. 1177, Civil Code.
21 See Goquiolay v. Sycip, 9 SCRA 663, 677 [1963]; Solis v.
Chua Pua Hermanos, supra note 12, at 639-640.
22 Exhibit "M"; Exhibit "2"; OR, 114.
23 TSN, 12 November 1993, 4.
24 Exhibit "N"; OR, 146.
25 Exhibit "O"; Id., 147.
26 TSN, 12 November 1993, 7.
27 Id., 6.
28 Oria v. McMicking, supra note 8.
29 Rivera v. Litam & Co., 4 SCRA 1072 [1962].
30 Exhibit "K"; OR, 135.
31 4 PARAS, EDGARDO L., CIVIL CODE OF THE PHILIPPINES, 70
(1994); 4 TOLENTINO 586, citing 7 Planiol & Ripert 274-275.
32 4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 126890 November 28, 2006
UNITED PLANTERS SUGAR MILLING COMPANY, INC.
(UPSUMCO), Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE
NATIONAL BANK (PNB), and ASSET PRIVATIZATION TRUST
(APT), as TRUSTEE OF THE REPUBLIC OF THE
PHILIPPINES, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the Decision2 dated 29 February
1996 and the Resolution dated 29 October 1996 of the Court of
Appeals remanding to the Regional Trial Court of Bais City,
Negros Oriental a suit for collection of sum of money and
damages for further proceedings.
The Facts
Petitioner United Planters Sugar Milling Company, Inc.
("UPSUMCO") is a domestic sugar miller based in Manjuyod,
Negros Oriental. To finance the construction of its milling plant,
UPSUMCO obtained loans from respondent Philippine
National Bank ("PNB"), evidenced by, among others, a Credit
Agreement dated 5 November 1974, subsequently restructured
on 24 June 1982, 10 December 1982, and 9 May 1984 ("take-
off loans"). These loans were secured by a real estate
mortgage over two parcels of land3 where UPSUMCOs milling
plant stands and by chattel mortgages over machineries and
equipment on the parcels of land. The loan agreements also
required UPSUMCO to open bank accounts with PNB the
funds of which PNB could apply to pay any due obligations of
UPSUMCO. As of 1987, UPSUMCO maintained five savings
accounts4 and one current account5 with PNBs Dumaguete
City Branch ("PNB Dumaguete") and an account6 at PNBs
Escolta, Manila Branch ("PNB Escolta"). UPSUMCO also
maintained bank accounts with the Bank of the Philippine
Islands, Republic Planters Bank, and the Rural Banks of Bais
City and Manjuyod, Negros Oriental, the latter two being PNB
affiliates at that time.
To monitor UPSUMCOs finances, PNB subsequently assigned
a comptroller to UPSUMCO, Dante Santos ("Santos"), who
was made signatory to all checks UPSUMCO drew against its
current account with PNB Dumaguete. PNB also placed five
representatives in UPSUMCOs Board of Directors. Lastly,
PNB required UPSUMCOs Directors to bind themselves
solidarily liable with UPSUMCO on the loans.
To finance its operations, UPSUMCO also obtained loans from
PNB evidenced by, among others, the Deed of Assignment by
Way of Payment, notarized on 16 November 1984 and the
Credit Agreements dated 19 February 1987 and 29 April 1987
("operational loans"). The Credit Agreements, which also
carried set-off clauses,7 were secured by Pledge contracts
dated 19 February 1987 and 30 March 1987. By these
contracts, UPSUMCO undertook to assign to PNB all its sugar
produce for PNB to sell and apply the proceeds to satisfy
UPSUMCOs unpaid obligation under the operational loans.
The promissory notes8 for the funds released under the
operational loans also carried set-off clauses. In the Deed of
Assignment by Way of Payment, UPSUMCO undertook to
assign to PNB its milled sugar and molasses beginning the
crop year 1984-1985. To keep track of UPSUMCOs sugar
assignments and the payments to UPSUMCOs loans, PNB
maintained "sugar accounts payable" under UPSUMCOs
name.9
In the early 1980s, UPSUMCO and other sugar millers, hard hit
by a slump in the international sugar market, started to default
on their loan payments. To bail out these corporations, then
President Ferdinand E. Marcos created10 the Philippine Sugar
Corporation (PHILSUCOR), which was authorized to issue and
sell "sugar bonds" to various commercial banks holding non-
performing loans of ailing sugar millers. Accordingly,
PHILSUCOR issued and sold to PNB P3 billion worth of "sugar
bonds" on 14 February 1984. PNB partly paid the bonds by
assigning to PHILSUCOR
30% of its credit with UPSUMCO, computed as of 14 February
1984.11 This made PHILSUCOR UPSUMCOs creditor to that
extent. To secure PHILSUCORs interest in UPSUMCO,
PHILSUCOR agreed that PNB will continue to hold
UPSUMCOs collateral for the take-off loans, for itself and
PHILSUCOR, to the extent of their pro-rata interest in the
event of a foreclosure.
On 8 December 1986, then President Corazon C. Aquino
issued Proclamation No. 5012 creating respondent Asset
Privatization Trust ("APT"),13 to among others, "[circumscribe]
the areas of economic activities within which government
corporations may operate x x x [by disposing and liquidating
the] non-relevant and non-performing assets of retained
corporations" like PNB. On 27 February 1987, PNB assigned
to the Government its "rights, titles, and interests in" several
corporations and entities, including UPSUMCO.14 The
Government then transferred these financial assets to APT
under a Trust Agreement.
To quickly dispose of UPSUMCOs mortgaged assets, APT
negotiated with UPSUMCO for the mortgages uncontested or
"friendly" foreclosure and for UPSUMCOs waiver of its right of
redemption. UPSUMCO accommodated APT. Hence, APT and
PNB ("respondents"), the latter as PHILSUCORs
representative, scheduled the foreclosure sale on 27 August
1987. In the notices of foreclosure, PNB placed UPSUMCOs
total "mortgage indebtedness" at P2,137,076,433.15, as of 30
June 1987. At the foreclosure sale, APT purchased the
auctioned properties for P450 million.
On 3 September 1987, UPSUMCO "transferred" to APT its
right to redeem the foreclosed properties under a Deed of
Assignment15 which reads in full:
That United Planter[s] Sugar Milling Co., Inc. (the
"Corporation") (pursuant to a resolution passed by its board
of Directors on September 3, 1987, and confirmed by the
Corporations stockholders in a stockholders Meeting held on
the same (date), for and in consideration of the Asset
Privatization Trust ("APT") condoning any deficiency amount it
may be entitled to recover from the Corporation under the
Credit Agreement dated November 5, 1974 and the
Restructuring Agreement[s] dated June 24 and December 10,
1982, and May 9, 1984, respectively, executed between the
Corporation and the Philippine National Bank ("PNB"), which
financial claims have been assigned to APT, through the
National Government, by PNB, hereby irrevocably sells,
assigns and transfer to APT its right to redeem the foreclosed
real properties covered by Transfer Certificates of Title Nos. T-
16700 and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this
instrument to be executed on its behalf by Mr. Joaquin S.
Montenegro, thereunto duly authorized, this 3rd day of
September, 1987.16
On 29 September 1987, APT, in a public auction, sold the
foreclosed properties to Universal Robina Sugar Milling
Corporation ("URSUMCO") for P500 million. APT and
URSUMCO signed the Deed of Sale on 29 December 1987.
On 13 March 1989, UPSUMCO sued respondents in the
Regional Trial Court of Bais City, Branch 45 ("trial court"), for
sum of money and damages. UPSUMCO alleged that
respondents illegally appropriated funds belonging to it,
namely: (1) funds on deposit in UPSUMCOs bank accounts
with PNB, a portion of which APT allegedly used to pay for the
salaries of the mill workers; (2) the proceeds of the sale of
UPSUMCO sugar PNB sold in September 1987; and (3) a sum
of money respondent APT withdrew from UPSUMCOs account
in the Rural Bank of Bais City and placed in an escrow account
at PNB Dumaguete. UPSUMCO claimed that it is entitled to
recover these amounts as APT had condoned its deficiency
obligation. UPSUMCO subsequently amended its complaint to
pray for the remittance of the proceeds of all UPSUMCO sugar
PNB sold after 27 August 1987 and that respondents liability
be made solidary.
Respondents denied UPSUMCOs claims. PNB contended that
as foreclosing creditor, it had the prerogative to place
UPSUMCOs accounts in PNB Dumaguete in the name of APT.
PNB added that this procedure is based on the set-off clauses
provided in the "covering instruments" of UPSUMCOs loans.
PNB counterclaimed for damages.
For its part, APT contended that UPSUMCOs claims have
been "paid, waived, abandoned or otherwise extinguished." As
counterclaim, APT sought payment of the deficiency from the
foreclosure sale.
Pending trial, the trial court allowed UPSUMCO to examine the
records of PNB relating to UPSUMCOs accounts in PNB
Dumaguete and PNB Escolta. In the course of such
examination, UPSUMCO found out that, as of latest updating,
the credit balance in its five savings accounts in PNB
Dumaguete was P1,489,656.80.17 For its bank account in PNB
Escolta, UPSUMCO learned that as of 26 November 1986, it
had a credit balance of P352,869.28 which, however, PNB
refused to release. UPSUMCO also discovered the following:
(1) on 27 August 1987, PNB transferred to APTs bank account
UPSUMCOs deposits from its five savings accounts in PNB
Dumaguete amounting to P14,316,593.29; (2) Santos, as
APTs comptroller, withdrew the funds in UPSUMCOs bank
accounts in the Rural Banks of Bais City and Manjuyod and
deposited them to APTs bank account in PNB Dumaguete; (3)
from 27 August 1987 to 8 December 1987, PNB credited to
APTs bank account, through credit memoranda, the proceeds
from the sale of UPSUMCOs sugar amounting
to P74,563,823.80; and (4) on 2 September 1987 and 2
October 1987, PNB paid PHILSUCOR P41,407,444.95.
UPSUMCO adopted as part of its evidence the documents
showing these transfers and payments.
The Ruling of the Trial Court
In its Decision 18 of 27 April 1992, the trial court rendered
judgment for UPSUMCO and ordered respondents, singly and
solidarily, to pay UPSUMCO, with interest, the following: (1) the
credit balance, as of 13 February 1990, in UPSUMCOs five
savings accounts in PNB Dumaguete and the deposits from
these accounts PNB credited to APT on 27 February 1987; (2)
the deposits in UPSUMCOs bank accounts in the Rural Banks
of Bais City and Manjuyod Santos transferred to APT; (3) the
proceeds of the sale of UPSUMCO sugar PNB transferred to
APT from 27 August 1987 to 8 December 1987; (4) the
payments PNB made to PHILSUCOR; (5) the credit balance,
as of 26 November 1986, in UPSUMCOs bank account in
PNB Escolta; (6) the milling plants maintenance and operating
expenses from 3 September 1987 to January 1988 which
UPSUMCO paid; and (7) attorneys fees. The trial court also
ordered respondents to solidarily pay exemplary
damages.19 The trial court held:
Crystal[l]izing in simpler terms the facts, it appears that the
[UPSUMCO] was both a debtor and depositor[], and that
defendant PNB was both a creditor and a depository bank.
When Proclamation No. 50 was issued by President Aquino on
[December 8, 1986] and defendant PNB executed in favor of
defendant APT a deed of assignment of its rights and interest
on certain corporations, UPSUMCOs debt was included which
indebtedness total[]ed as of June 30, 1987 in the amount
of P2,137,076,433.15. Defendants PNB and APT jointly
executed foreclosure proceedings against the properties of
[UPSUMCO] covered by mortgages and pledges. Prior, on and
after the foreclosure proceedings, defendant PNB paid
Philippine Sugar Corporation out of [UPSUMCOs] funds and
deposits. At the foreclosure sale, on August 27, 1987,
defendant APT was the winning bid [sic] in the amount
of P450,000,000.00. Thus, deducting the amount of the
winning bid, there remained a deficiency balance
of P1,687,076,433.15. On September 3, 1987, [UPSUMCO]
and defendant APT entered into a Deed of Assignment (Exh.
"K") and [the] term[s] substantially stated that in consideration
of [UPSUMCOs] [sic] waiving its right of redemption,
defendant APT condoned any deficiency amount it may be
entitled from the [UPSUMCO].
In finest terms, before the assignment by defendant PNB of its
rights, interests, [and] collectibles in favor of defendant APT on
February 27, 1987 x x x the role of PNB, was both a creditor
and a depository bank. [UPSUMCO] was a debtor and a
depositor. After the execution of said Deed of Assignment of
February 27, 1987, defendant PNB became an assignor and
maintained its status as a depository bank. [UPSUMCO]
maintained itself as a debtor and a depositor. However, a third
party came in, APT, who was subrogated to the rights of
defendant PNB as a creditor.
As its legal effect, the obligation of [UPSUMCO] with defendant
PNB was novated by the subrogation of creditors, i.e.
defendant APT stepping into the shoes on the creditors right of
defendant PNB. x x x x
[D]efendant PNBs participation in the foreclosure proceedings
did not cause retention of the former as a creditor, the same
being unnecessary. Legally, as the assignee, and subrogated
to the rights of defendant PNB, defendant APT is considered
the only foreclosing creditor. Thus, defendant PNB being not a
foreclosing creditor, cannot claim to any deficiency claim.
Furthermore, if at all any deficiency claim do exists [sic],
regardless as to whether it is in favor of defendant PNB, or
defendant APT, the same has been absolutely abandoned or
condoned upon the execution of [the] Deed of Assignment
between [UPSUMCO] and APT in its initial pleadings may have
attempted to becloued [sic] the existence and validity of said
Deed of Assignment, [however] in its Memorandum dated
February 18, 1992 (p. 716, Records), [APT] clearly admitted its
validity and existence with the qualification that the same
should not be given retroactive effects [sic] prior to August 27,
1987. But, even admitting in arguendo that either defendant
PNB or defendant APT is entitled to deficiency claim, was the
procedure in perfecting [sic] such claim followed[?] As of the
date of the foreclosure on August 27, 1987, [UPSUMCO] was a
creditor as to its deposits and proceeds of sugar sale with the
defendant PNB. NEITHER defendant PNB nor defendant APT
can[] simply appropriate the things of [UPSUMCO]. (Article
2088, Civil Code of the Philippines). If at all, such deficiency
claim did exist and subsist [sic], [the] foreclosing creditor
should have initiated proper actions to recover the same,
particularly the creditors interest of [UPSUMCO] in the form of
deposits and proceeds of sale with defendant PNB. x x x
Defendant PNB did not have any right, as a debtor, to debit the
interest of its creditor, [UPSUMCO], by the simple expediency
of furnishing [UPSUMCO] of credit memos that the latters
bank deposits have been debited, and credited in favor of
defendant APT.20 (Capitalization in the original)
Respondents separately appealed to, but raised similar claims
in, the Court of Appeals. Respondents took issue with the trial
courts finding that UPSUMCO no longer has any unpaid
obligations. Respondents claimed that the Deed of Assignment
only covered the loans dated 5 November 1974, 24 June 1982,
10 December 1982, and 9 May 1984. Thus, UPSUMCO
remains liable for the other loans not mentioned in the Deed of
Assignment.
The Ruling of the Court of Appeals
In its Decision of 29 February 1996, the Court of Appeals set
aside the trial courts ruling and remanded the case for further
proceedings. The Court of Appeals found merit in respondents
claim that the Deed of Assignment condoned only some and
not all of UPSUMCOs unpaid obligations. At the same time,
the Court of Appeals found that APT failed to show how much
UPSUMCO owes it and to account "for all the money which
had been transferred to its account," thus the order to remand
the case. The Court of Appeals held:
A perusal of the Deed of Assignment plainly shows that what
it expressly condoned was any deficiency which APT, as
assignee of PNBs rights, may be entitled to recover under the
following documents: (1) Credit Agreement dated November 5,
1974 x x x; and (2) the Restructuring Agreements dated:
(a) June 24, 1982, (b) December 10, 1982, and (c) May 9,
1984,
There is no ambiguity in the terms of the Deed of Assignment.
What APT condoned were the obligations covered by the
documents expressly mentioned therein[.] Therefore,
UPSUMCOs assertion that said Deed covered all its other
obligations with PNB and APT is unfounded. The Deed of
Assignment did not in any way include nor mention
UPSUMCOs other obligations with PNB subsequently
transferred to APT covered by the following instruments or
agreements, to wit:
1) Trust Receipts dated August 26, 1987; February 5, 1987;
and July 10, 1987;
2) Deed of Assignment By Way of Payment dated November
16, 1984 x x x;
(3) Two (2) documents of Pledge both dated February 19,
1987;
(4) Sugar Quedans x x x;
(5) Credit Agreements dated February 19, 1987 x x x and April
29, 1987 x x x [;]
(6) Promissory Notes dated February 20, 1987 x x x; March 2,
1987 x x x; March 3, 1987 x x x; March 27, 1987 x x x; March
30,1987 x x x; April 7, 1987 x x x; May 22, 1987 x x x; and July
30, 1987 x x x.
xxxx
The provisions [in these instruments] are clear and leave no
room for interpretation the Bank has all the right to apply the
proceeds of UPSUMCOs deposits with it and its affiliated
banks, as well as the proceeds of the sale of UPSUMCOs
sugar and molasses, in satisfaction of UPSUMCOs
obligations. This right was never waived by PNB and was
subsequently transferred to APT by virtue of the Deed of
Transfer executed between them (Exh. MM). Neither did APT
ever waive such right. Thus, the same should be considered as
valid and binding between it and UPSUMCO.
The lower court, in granting [UPSUMCOs] motion for release
of the aforementioned deposits, treated the savings deposits of
UPSUMCO with PNB and the Rural Banks of Bais and
Manjuyod as "ordinary or regular savings accounts." These
accounts however are not ordinary. They were opened
because UPSUMCO was required to do so in compliance with
the mandate of the Credit Agreements x x x. The deposits form
part of the additional securities required of UPSUMCO under
the Credit Agreements for the release of its additional loan.
Consequently, since APT as assignee of PNB enjoyed the
privilege to apply the proceeds therefrom in satisfaction of
UPSUMCOs obligations and had accordingly applied the
same thereto, UPSUMCO cannot validly claim that it still owns
the funds deposited in these accounts.
Significantly, if UPSUMCO truly owned these funds, why did it
need APTs approval to use or disburse the same while it was
acting as caretaker of the mill after the foreclosure? x x x
In view of the foregoing, APT is therefore entitled to have the
funds from UPSUMCOs savings accounts with PNB
Dumaguete and its affiliated banks transferred to its own
account, to the extent of UPSUMCOs remaining obligation,
less the amount condoned in the Deed of Assignment and
the P450,000,000.00 proceeds of the foreclosure. As
transferee of these deposits, APT has the right to use and
enjoy these funds as it deems fit, in furtherance of its role
under Proclamation No. 50. We find nothing irregular either in
the transfer of the proceeds of the sugar sold to APT x x x. As
previously mentioned, the obligations secured by these objects
were not included in the Deed of Assignment and have not
been condoned.
xxxx
On APTs counterclaim that it is still entitled to recover
deficiency balance from UPSUMCO, it is not clear from the
record how much deficiency balance there is, if any. It is not
disputed that as of June 30, 1987, the total obligation of
UPSUMCO amounted to P2,137,076,433.15. x x x Thereafter,
it applied UPSUMCOs deposits as well as the sugar and
molasses sales to UPSUMCOs remaining obligation.
However, APT failed to present an accounting of UPSUMCOs
entire obligation and the total amount of payments already
made. We could not make an award based on conjectures.
APT has the duty to prove its claims against UPSUMCO, and
the latter is entitled to know how much it already paid and to
which obligations these payments were applied.
Finally, although the foreclosure yielded only P450,000,000.00,
APT is still duty-bound to render an accounting for all the
money which had been transferred to its account as well as the
proceeds of the sugar and molasses sale. Only after such
accounting has been completed could this Court decide how
much it is still entitled to recover from UPSUMCO.
Correlatively, before we could decide on whether any balance
remains in favor of UPSUMCO and whether it is entitled to
recover the funds expended for the operation of the mill and
the wages of the mill workers, the aforementioned accounting
should first be completed.21 (Emphasis in the original)
UPSUMCO sought reconsideration but the Court of Appeals
denied its motion in the Resolution of 29 October 1996.
Hence, this petition. UPSUMCO contends that:
(A) THE COURT OF APPEALS SERIOUSLY ERRED IN ITS
FINDINGS AND CONCLUSION THAT EXCEPT FOR
THE P2,137,076,433.15 PAST DUE OR DELINQUENT
ACCOUNTS OF UPSUMCO, COMPUTED AND
DETERMINED AS OF JUNE 30, 1987 WITH THE
CONFORMITY OF UPSUMCO, WHOSE COLLATERALS
WERE EXTRAJUDICIALLY FORECLOSED BY PNB AND APT,
UPSUMCO HAS OTHER UNPAID OBLIGATIONS TO PNB
WHICH IT SUBSEQUENTLY TRANSFERRED TO APT.
(A-1) AS A SIGNATORY IN THE STATEMENT OF ACCOUNT-
SUMMARY COVERING THE PAST DUE ACCOUNTS OF
UPSUMCO AS OF JUNE 30, 1987 TO PNB AND PHILSUCOR
FOR PURPOSES OF EXTRAJUDICIAL FORECLOSURE
[PNB] KNEW IT WAS FULLY PAID OF ITS OPERATIONAL
LOANS GRANTED ON PER CROP YEAR BASIS TO
UPSUMCO.
(A-2) PNB IS ONLY A NOMINAL PARTY IN THE
EXTRAJUDICIAL FORECLOSURE, AS ATTORNEY-IN-FACT
OF THE PHILIPPINE SUGAR CORPORATION (PHILSUCOR).
(A-3) KNOWLEDGE OF FOREGOING FACTS PRECLUDED
PNB AND APT FROM ALLEGING IN THEIR RESPECTIVE
PLEADINGS CLAIMS OR COUNTERCLAIMS
CONSTITUTING OTHER UNPAID OBLIGATIONS OF
UPSUMCO TO PNB OR APT --- THERE BEING NONE.
(A-4) THE PRE-TRIAL BRIEFS OF PNB AND APT DO NOT
RAISE ANY ISSUE CONCERNING OTHER UNPAID
OBLIGATIONS OF UPSUMCO TO PNB/APT.
(A-5) NO EVIDENCE OF DEMAND WAS MADE BY PNB AND
APT TO ENFORCE COLLECTION OF OTHER UNPAID
OBLIGATIONS ON UPSUMCO, IF TRUE.
(A-6) PNB AND APT ALLOWED UPSUMCO UNIMPEDED
ENJOYMENT OF ITS DEPOSITS AS AN EXERCISE AND
ATTRIBUTE OF OWNERSHIP IN OTHER BANK BRANCHES
OF PNB AFTER THE EXTRAJUDICIAL FORECLOSURE, AND
IN OTHER BANKS WHERE UPSUMCO HAS BANK
DEPOSITS. ACTS WHICH AMOUNTED TO RELEASE AND
DISCHARGE OF UPSUMCOS OBLIGATIONS TO PNB,
THENCE TO APT.
(A-7) UPSUMCO PAID ITS CREDITORS FROM BANK
DEPOSITS AND SUGAR PROCEEDS MAINTAINED IN PNB,
DUMAGUETE CITY BRANCH WITHOUT PNB AND/OR APT
OBJECTING. ANOTHER EVIDENCE OF RELEASE OF
UPSUMCO FROM ITS REMAINING OBLIGATIONS TO
PNB/APT, IF ANY.
(A-8) OF THE ELIMINATION OF PNBS REPRESENTATION,
THENCE APT, IN THE BOARD OF UPSUMCO DURING THE
REGULAR ELECTION AT A STOCKHOLDERS MEETING ON
NOVEMBER 11, 1987 WAS ANOTHER INDELIBLE
EVIDENCE THAT THE FINDINGS AND CONCLUSION OF
THE COURT OF APPEALS WERE PREMISED ON THE
ABSENCE OF EVIDENCE AND IS CONTRADICTED BY THE
EVIDENCE ON RECORD CONCERNING ITS ERRONEOUS
FINDINGS ON "OTHER UNPAID OBLIGATIONS OF
UPSUMCO.["]
(A-9) PNB COULD NOT HAVE ASSIGNED OR
TRANSFERRED TO APT OTHER LOAN ACCOUNTS OF
UPSUMCO OBTAINED THRU QUEDAN FINANCING, BEING
CURRENT IN STATUS.
(A-10) CREDIT AGREEMENTS DATED FEBRUARY 19, 1987
AND APRIL 29, 1987 AND ALL OTHER INSTRUMENTS OF
INDEBTEDNESS OF UPSUMCO IN 1984 AND 1987 WERE
NOT INCLUDED IN THE FORECLOSED AMOUNT
OF P2,137,076,433.15 AND WERE NEITHER VALIDLY
TRANSFERRED OR ASSIGNED BY PNB TO APT ANYTIME
THEREAFTER BECAUSE OF THE STATUTE OF FRAUD[.]
(A-11) CREDIT AGREEMENTS, PROMISSORY NOTES, AND
TRUST RECEIPTS WERE FORMALLY OFFERED IN
EVIDENCE NOT TO ESTABLISH THE LIABILITY OF
UPSUMCO UNDER SAID INSTRUMENTS, BUT FOR
DIFFERENT PURPOSES.
(B) THE DECISION OF THE COURT OF APPEALS IS
CONTRARY TO THE LAWS ON NOVATION AND
COMPENSATION AND THE SETTLED AND APPLICABLE
DOCTRINES THEREON WHERE THE TRIAL COURT HAS
APTLY AND CORRECTLY APPLIED IN ITS DECISION
DATED APRIL 27, 199[2.]
(B-1) THERE IS NO DEFICIENCY BALANCE REMAINING
THAT UPSUMCO COULD BE HELD LIABLE TO PAY AS A
RESULT OF THE EXECUTION OF THE DEED OF
ASSIGNMENT ON SEPTEMBER 3, 1987. AND SHOULD
THERE BE ANY, PNBS RIGHTS UNDER SAID CREDIT
AGREEMENTS AND OTHER INSTRUMENTS OF
INDEBTEDNESS HAS BECOME FUNCTUS OFFICIO, THAT
COMPENSATION WAS NO LONGER PROPER.
(B-2) APT IS NOT ENTITLED TO COMPENSATION
OTHERWISE THERE WOULD BE DOUBLE PAYMENT.
(B-3) PNB, AFTER FEBRUARY 27, 1987 COULD NO
LONGER INVOKE COMPENSATION[.]
(C) IN FAILING TO AFFIRM THE LIABILITY OF PNB TO
UPSUMCO WHEN PNB PAID PHILIPPINE SUGAR
CORPORATION (PHILSUCOR) THE TOTAL AMOUNT
OF P41,407,444.75 WITHOUT THE KNOWLEDGE AND
AUTHORITY FROM THE BOARD OF DIRECTORS OF
UPSUMCO.
(D) IN ORDERING THE REMAND OF THE CASE TO THE
LOWER COURT WHEN IT COUL[D] HAVE DECIDED THE
CASE BASED ON THE EVIDENCE ON RECORD.22
In their respective Comments, respondents claim that the
Court should deny the petition outright for raising questions of
fact instead of questions of law. Alternatively, respondents
maintain that the Court of Appeals did not commit any
reversible error.
The Issues
The petition raises the following issues:
(1) Procedurally, whether the petition should be denied outright
for raising factual questions; and
(2) On the merits
(a) Whether UPSUMCO has any outstanding obligations to
respondents, and, in the negative,
(b) Whether UPSUMCO is entitled to all the monetary awards
the trial court ordered respondents to pay.
The Ruling of the Court
The petition has merit. With some modifications, we reinstate
the trial courts ruling.
On Whether the Petition Deserves Outright Denial
Respondents correctly observe that the petition raises
questions of fact instead of questions of law because the
issues call for a determination of the truth or falsity of alleged
facts and not of what the law is on a certain state of
facts.23 However, respondents err in concluding that, for this
reason, the petition deserves outright denial. Although under
Section 1, Rule 45 of the 1997 Rules of Civil Procedure, this
Court will resolve only questions of law in a petition for
review,24 this rule is subject to several exceptions and one of
these is when, as here, the lower courts arrived at conflicting
findings of fact.25 For this reason, we opt to review this case.
UPSUMCO Has No
Unpaid Obligations to Respondents
UPSUMCOs obligations to PNB, and later, to APT, sprang
from two sources (1) the take-off loans to finance the
construction of UPSUMCOs milling plant (e.g. the Credit
Agreement dated 5 November 1974 as re-structured on 24
June 1982, 10 December 1982, and 9 May 1984) and (2) the
operational loans (e.g. Credit Agreements dated 19 February
1987 and 29 April 1987 and the loan under the Deed of
Payment by Way of Assignment). As will be shown shortly, we
find that UPSUMCO no longer owes respondents under either
types of loan.
As of 30 June 1987, PNB placed UPSUMCOs total "mortgage
indebtedness" at P2,137,076,433.15.26 By APTs own
admission27 in its counterclaim, this amount in fact represents
UPSUMCOs total indebtedness to PNB and APT as of 30
June 1987, thus:
COUNTERCLAIM
19. The total indebtedness of [UPSUMCO] to PNB and APT as
of June 30, 1987 was TWO BILLION ONE HUNDRED THIRTY
SEVEN MILLION SEVENTY SIX THOUSAND FOUR
HUNDRED THIRTY THREE AND 15/100 (P2,137,076,433.15)
PESOS, while the assets of [UPSUMCO] were foreclosed and
sold for FOUR HUNDRED FIFTY MILLION (P450,000.000.00)
PESOS[] only thereby leaving a deficiency balance of ONE
BILLION SIX HUNDRED EIGHTY SEVEN MILLION SEVENTY
SIX THOUSAND FOUR HUNDRED THIRTY THREE AND
15/100 (P1,687,076,433.15) payable by the plaintiff
[UPSUMCO] to the NATIONAL GOVERNMENT[.]
(Capitalization in the original; boldfacing supplied) 28
The parties agree that this total obligation was partially paid by
the proceeds of the foreclosure sale of P450 million, leaving a
deficiency balance of P1,687,076,433.15. It is respondents
claim, which the Court of Appeals sustained, that a portion of
this amount remains unpaid because the Deed of Assignment
only condoned "any deficiency amount [APT] may be entitled
to recover from [UPSUMCO] under the Credit Agreement
dated November 5, 1974 and the Restructuring Agreements
dated June 24 and December 10, 1988, and May 9, 1984."
Thus, the appellate court concluded that the Deed of
Assignment could not have condoned UPSUMCOs other
obligations under the Credit Agreements dated 19 February
1987 and 29 April 1987 and their ancillary documents (i.e. the
Pledges, assignment contracts and promissory notes).
This is error.
Contrary to the Court of Appeals ruling, we find that the Deed
of Assignment fully condoned UPSUMCOs deficiency
obligation of P1,687,076,433.15. For clarity in discussion, we
reproduce below the Deed of Assignment, thus:
That United Planter[s] Sugar Milling Co., Inc. (the
"Corporation") (pursuant to a resolution passed by its board
of Directors on September 3, 1987, and confirmed by the
Corporations stockholders in a stockholders Meeting held on
the same (date), for and in consideration of the Asset
Privatization Trust ("APT") condoning any deficiency amount it
may be entitled to recover from the Corporation under the
Credit Agreement dated November 5, 1974 and the
Restructuring Agreement[s] dated June 24 and December 10,
1982, and May 9, 1984, respectively, executed between the
Corporation and the Philippine National Bank ("PNB"), which
financial claims have been assigned to APT, through the
National Government, by PNB, hereby irrevocably sells,
assigns and transfer to APT its right to redeem the foreclosed
real properties covered by Transfer Certificates of Title Nos. T-
16700 and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this
instrument to be executed on its behalf by Mr. Joaquin S.
Montenegro, thereunto duly authorized, this 3rd day of
September, 1987.29 (Emphasis supplied)
UPSUMCOs Board Resolution of 3 September 1987,
authorizing its President Joaquin Montenegro ("Montenegro")
to sign the Deed of Assignment, reads in full:
RESOLVED, That in consideration of the Asset Privatization
Trust ("APT") condoning any deficiency amount it may be
entitled to recover from the Corporation after having foreclosed
the real estate and chattel mortgages assigned to
APT, through the National Government, by the Philippine
National Bank ("PNB"), which mortgages were executed in
favor of PNB by the Corporation to secure its obligations under
the Credit Agreement dated November 5, 1974 and the
Restructuring Agreements dated June 24 and December 10,
1982, and May 9, 1984, respectively, executed by the
Corporation and PNB, the Corporation is hereby authorized to
irrevocably sell, assign, and transfer to APT the Corporations
right to redeem the foreclosed real properties covered by
Transfer Certificates of Title Nos. T-16700 and T-16701;
RESOLVED, Further that Mr. Joaquin S. Montenegro, the
President-Director of the Corporation, be and is hereby
authorized for and in behalf of the Corporation to make, sign,
execute and/or deliver any and all such agreements,
undertakings, or other documents, as well as to perform any
and all such acts as may be necessary to implement the
foregoing resolution;
RESOLVED, FINALLY That all actions taken by Mr. Joaquin S.
Montenegro pursuant to the foregoing resolution be, and the
same are hereby confirmed and ratified to be binding on this
Corporation.30 (Emphasis supplied)
Taken together, these two documents support UPSUMCOs
claim that, as stated in its Resolution of 3 September 1987,
APT condoned "any deficiency amount it may be entitled to
recover x x x after [foreclosing the mortgages securing] the
obligations under the Credit Agreement dated November 5,
1974 and the Restructuring Agreements dated June 24 and
December 10, 1982, and May 9, 1984." Indeed, the Deed of
Assignment should not be treated in isolation but considered in
the larger context of the APT initiated "friendly foreclosure" of
UPSUMCOs mortgaged assets.
During the trial, it was disclosed that APT offered UPSUMCO
the following incentives for the latter to agree to the expedited
foreclosure (to enable APT to quickly dispose of the mortgaged
properties, as it did sell them to URSUMCO less than a month
after the Deed of Assignments signing): (1) a 5% "preference"
or mark-up on UPSUMCOs bid price in the auction sale of the
foreclosed properties, or, should UPSUMCO lose in the
bidding, a cash payment equivalent to 5% of the winning bid;
(2) the waiver of the solidary obligation of UPSUMCOs
Directors; and (3) the condonation of any deficiency from the
foreclosure sale.31 APT made good on its word by releasing
UPSUMCOs Directors from their solidary liability, executing
the Deed of Assignment, and paying UPSUMCO P25 million in
April 1988 (representing 5% of URSUMCOs P500 million
winning bid).32 Thus, we find unconvincing APTs claim here
that the Deed of Assignment condoned only a portion of
UPSUMCOs deficiency obligation. Significantly, UPSUMCO
and APTs actuations after the signing of the Deed of
Assignment are consistent with a full condonation of the
formers deficiency liability APT never demanded payment
from UPSUMCO and UPSUMCO carried out its affairs as a
debt-free corporation.33
Further, the question of whether APT fully condoned
UPSUMCOs deficiency obligation had been judicially settled.
In United Planters and Sugar Milling Corporation, Inc. v.
Philippine Sugar Corporation ("PHILSUCOR Case"),
UPSUMCO sued PHILSUCOR also in the Regional Trial Court
of Bais City, Branch 45, for "Release and Discharge of
Obligation with Damages" to recover, as in this case, a sum of
money PNB paid to PHILSUCOR after the foreclosure on 27
August 1987. In its Decision dated 7 March 1994 in Civil Case
No. 63-B, the trial court ruled for UPSUMCO, holding that since
PHILSUCOR appointed PNB as its foreclosing agent for its
proportionate lien in UPSUMCOs mortgaged assets,
PHILSUCOR is bound by PNBs assignment of credit to the
Government/APT and by APTs subsequent condonation of
UPSUMCOs deficiency liability. The trial court held:
Defendant [PHILSUCOR] ha[d] notice of the friendly
foreclosure conducted by APT and PNB. x x x x [UPSUMCO]
was made to believe that the proceedings were with the
participation of APT, PNB and the defendant
[PHILSUCOR]. [UPSUMCO], due to the conduct of the
defendant [PHILSUCOR], and the other parties, PNB and
APT[,] was made to believe that when it assigned its right of
redemption, it was in consideration of the condonation of
deficiency claims against it including that which pertains to the
defendant [PHILSUCOR].
xxxx
The doctrine of estoppel x x x, precludes [a party] from
repudiating an obligation voluntarily assumed after its having
accepted benefits therefrom. x x x x
Under the aforesaid principle of estoppel, defendant
[PHILSUCOR] in the case at bar, after having made
[UPSUMCO] believed [sic] in good faith that the foreclosure
proceedings, including[] a part of it, i.e. condonation of
deficiency claims against plaintiff, and after having benefited
from such conduct, [cannot] undertake an inconsistent claim
subsequently and proceed with its concealed intention to
collect deficiency claim against [UPSUMCO].
In fact, according to Atty. Buag, defendant [PHILSUCOR] did
not make any reservation to claim for deficiency after having
received its share of the auction sale in the amount of P58
million from APT. x x x However, defendant [PHILSUCOR] left
the matter of deficiency balance to APT. x x x But, what
happened was that APT condoned said deficiency claim
against [UPSUMCO]. x x x x
WHEREFORE, premises considered, this Court renders the
following judgment:
On Civil Case No. 63-B
1. [UPSUMCO] is hereby ordered released and discharged
from any and all claims that the defendant [PHILSUCOR] may
have against the former;
x x x x34
(Underlining in the original; boldfacing supplied)
PHILSUCOR appealed to the Court of Appeals but that court
affirmed the trial courts ruling in its Decision35 dated 15
October 1997 in CA G.R. CV No. 46957, the dispositive portion
of which provides:
WHEREFORE, the decision appealed from is AFFIRMED with
the MODIFICATION that the defendant-appellant, the
PHILIPPINE SUGAR CORPORATION[,] is held liable to
plaintiff-appellant, the UNITED PLANTERS SUGAR MILLING
[COMPANY], INC., for attorneys fees in the amount equivalent
to ten percent (10%) of the award for compensatory damages
allowed by the court below.36
PHILSUCOR further appealed to this Court but we dismissed
its petition outright in the Resolution of 30 March 1998 in G.R.
No. 132731.1wphi1 This ruling became final on 6 August
1998. The doctrine of stare decisis provides that a conclusion
reached in one case should, for the sake of certainty, be
applied to those which follow, if the facts are substantially the
same, even though the parties may be different.37 Accordingly,
we apply the conclusion in the PHILSUCOR Case here.
Indeed, for us to rule that UPSUMCO still owes respondents,
nothing less than concrete and uncontested proof of
UPSUMCOs unpaid obligations suffices. Absent such proof,
and respondents presented none, we see no reason to remand
this case to the trial court to compute UPSUMCOs supposed
unpaid obligations, the existence of which is left to inference.
PNB and/or APTs Right to Set-Off
UPSUMCO Funds Ended on 26 August 1987
Aside from wiping-out all of UPSUMCOs deficiency obligation,
the Deed of Assignment also ended any right PNB and/or APT
had to set-off UPSUMCO funds.38 Although UPSUMCO and
APT signed the Deed of Assignment on 3 September 1987, we
hold that its effectivity should properly retroact to the date of
the foreclosure on 27 August 1987 considering that the Deed
of Assignment was part of the APT-sponsored "friendly
foreclosure" of UPSUMCOs assets, entailing UPSUMCOs
waiver of its redemption right. Hence, the cut-off date for PNB
and/or APT to set-off UPSUMCO funds was 26 August 1987.
From 27 August 1987 onwards, all UPSUMCO funds under the
control or possession of respondents belonged wholly to
UPSUMCO. What PNB did here was (1) pay PHILSUCORs
deficiency claim against UPSUMCO; (2) transfer to APTs
account, upon the latters request, UPSUMCOs bank deposits
in PNB Dumaguete; (3) transfer to APT, through credit memos,
the proceeds of the sale of UPSUMCO sugar; and (4)
appropriate the bank deposit in UPSUMCOs account in PNB
Escolta on or after 27 August 1987. Similarly, Santos, as APT
comptroller, withdrew funds from UPSUMCOs bank accounts
in the Rural Banks of Bais City and Manjuyod and deposited
them to APTs bank account in PNB Dumaguete on and after
27 August 1987, respectively.
On the Monetary Awards UPSUMCO is Entitled
Accordingly, we affirm the trial courts ruling ordering PNB
and/or APT to pay UPSUMCO (1) the credit balance in
UPSUMCOs savings accounts in PNB Dumaguete, PNB
Escolta, and the Rural Banks of Bais City and Manjuyod,
Negros Oriental; (2) the deposits from UPSUMCOs savings
accounts in PNB Dumaguete PNB transferred to APT; (3) the
proceeds from the sale of UPSUMCO sugar from 27 August
1987 onwards which PNB credited to APT; and (4) the amounts
paid to PHILSUCOR. UPSUMCO did not include in its
Complaint the last item because it could not have done so,
having discovered the documentary evidence on this matter
only during the course of the trial after the trial court allowed
the examination of PNBs books. However, we agree with the
trial court that such falls under UPSUMCOs prayer in its
Amended Complaint for the payment of the proceeds of "sugar
[PNB] sold and/or liquidated" after the foreclosure on 27
August 1987 as PNB paid PHILSUCOR using funds taken from
such sale.39
For the other items awarded to UPSUMCO, the following
modifications are in order:
(1) On the trial courts order for APT to pay the cost for the
milling plants maintenance and operating expenses, ordinarily,
the mortgagor retains ownership of the foreclosed property
during the redemption period,40 and thus remains liable for the
maintenance expenses. However, in the present case,
UPSUMCO waived its redemption right. This had the effect of
consolidating ownership over the foreclosed properties to APT
effective 27 August 1987, the date of foreclosure. APTs
ownership continued until it sold the milling plant to URSUMCO
on 29 December 1987. Thus, APT is liable for the milling
plants maintenance and operating expenses only from 27
August 1987 to 29 December 1987.1wphi1
During the trial, UPSUMCO showed that it paid for the
maintenance and operating expenses from 3 September 1987
to "January 1988." UPSUMCO thus waived presenting
evidence on the expenses from 27 August 1987 to 3
September 1987. On the other hand, the expenses incurred
after 29 December 1987 cannot be charged to APT. Hence, in
the execution of this judgment, the trial court is ordered to
recompute the amount chargeable to APT covering the period
3 September 1987 to 29 December 1987 only. This does not
entail reception of new evidence but only a mathematical
computation to proportionately reduce the amount payable
taking into account the shortened period;41
(2) On the award of exemplary damages, we also find this
appropriate to set an example to creditor banks and their
assignees not to trifle with the funds of their depositors or
debtors, as the case may be.42 However, since exemplary
damages cannot be awarded by itself but must be given in
addition to moral, temperate, or actual damages, none of which
the trial court awarded,43 we further order respondents to jointly
and severally pay UPSUMCO nominal damages in the amount
of P100,000. This is but proper as respondents clearly violated
UPSUMCOs right to enjoy and have control over its deposited
funds and the proceeds of the sale of its sugar produce;44
(3) The award of attorneys fees is also in order because
UPSUMCO had to incur expenses to protect its interest and of
the award of exemplary damages.45 However, we reduce the
award to P500,000 for which respondents are solidarily liable.
If the trial courts order requiring respondents to pay 20%
attorneys fees on each of the obligations respondents are held
liable singly and solidarily (apparently the rate agreed between
UPSUMCO and its counsel), UPSUMCO stands to
receive P26,217,744.698, excluding interest and the adjusted
amount for the maintenance expenses. This, by any measure,
is exorbitant. Under the circumstances, we find the amount
of P500,000 as attorneys fees to be more appropriate;46
(4) On the payment of interest, the 12% rate the trial
court imposed applies only when the obligation
breached consists in the payment of a sum of
money i.e. forbearance of money, in the absence of a
stipulation. Otherwise the applicable rate is 6% per
annum.47 Thus, except for UPSUMCOs bank deposits
in (1) PNB Dumaguete and Escolta and (2) the Rural
Banks of Bais City and Manjuyod, which being
forbearance in money, are subject to interest rates of
10%48 and 12%49 per annum, respectively, the interest
rate on all the other monetary awards to UPSUMCO
should be reduced to 6% per annum. Upon the finality
of this ruling, the rate of interest shall be 12% per
annum for the entire judgment, until its satisfaction.50
WHEREFORE, we GRANT the petition. We SET ASIDE the
Decision dated 29 February 1996 and the Resolution dated 29
October 1996 of the Court of Appeals. We REINSTATE the
Decision dated 27 April 1992 of the Regional Trial Court of Bais
City, Branch 45, with the following MODIFICATIONS:
(1) APT, now the Privatization Management Office
("PMO"), is ORDERED to pay UPSUMCO the
maintenance and operating expenses of the milling
plant incurred from 3 September 1987 to 29
December 1987 only;
(2) PNB and APT, now the PMO, are ORDERED to
jointly and severally pay UPSUMCO nominal
damages in the amount of P100,000;
(3) PNB and APT, now the PMO, are ORDERED to
jointly and severally pay UPSUMCO attorneys fees in
the amount of P500,000; and
(4) The interest rates for the monetary awards relating
to UPSUMCOs bank accounts in (a) PNB Dumaguete
and Escolta Branches and (b) the Rural Banks of Bais
City and Manjuyod are 10% and 12% per annum,
respectively, computed from 13 March 1987. All the
other monetary awards due to UPSUMCO shall earn
interest at 6% per annum also computed from 13
March 1987. Upon the finality of this ruling, the rate of
interest for the entire judgment shall be 12% per
annum until its payment.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO DANTE O. TINGA
MORALES Associate Justice
Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
AT T E S TAT I O N
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the
Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1
Under Rule 45 of the Rules of Court.
2
Penned by Associate Justice Alfredo L. Benipayo with Associate
Justices Corona Ibay-Somera and Celia Lipana-Reyes, concurring.
3
Covered by Transfer Certificates of Title Nos. T-16701 and T-16700
and measuring 87,154 square meters and 125,804 square meters,
respectively.
4
Savings Account Nos. 5176994, 5188305, 5192639, 5197762, and
5208578.
5
Current Account No. 8300963.
6
No. 0120-011088-702.
7
The contracts provide:
"The CLIENTS shall open and/or maintain a deposit account with the
BANK, and the BANK shall have the right to apply any amount on
deposit with it or with any of its subsidiaries or affiliates to the
payment of any amount past due hereunder or under any other credit
accommodation granted to the CLIENTS by the BANK, including
amounts due for advances made by the BANK for insurance premiums,
taxes, fees, and other charges."
8
Dated 20 February 1987, 2 March 1987, 3 March 1987, 27 March
1987, 30 March 1987, 7 April 1987, 22 May 1987, and 30 July 1987
(Records, pp. 586-593).
9
UPSUMCO also executed trust receipts for sugar sold for PNB. Three
such trust receipts, dated 5 February 1987, 10 July1987 and 26 August
1987, are found in the records.
10
Under Presidential Decree No. 1890, dated 14 November 1983.
11
PHILSUCOR bailed out 13 other sugar millers with delinquent PNB
accounts. The Court of Appeals in United Planters and Sugar Milling
Corporation, Inc. v. Philippine Sugar Corporation (CA-G.R. CV No.
46957) had occasion to discuss in detail the set-up between PNB and
PHILSUCOR, thus: "For a clearer appreciation of the x x x agreement
[between PHILSUCOR and PNB], it is to be noted that [PHILSUCOR]
circulated government-backed indentures through the issuance of high-
yielding sugar bonds which are sold in primary markets or in
commercial banks to finance the "cash throw-off" in favor of the
indebted sugar mills. Under the [agreement], [PHILSUCOR] became a
new creditor of UPSUMCO for the principal amount of P262,420 Million
Pesos (representing 30% of UPSUMCOs loan outstanding to PNB as of
14 February 1984); the "cash throw-off" refunding of the distressed
loans lowered the principal loan outstanding of the sugar mills in PNB
but added a variation in the obligation. Under the re-structured loan
arrangement, UPSUMCO must continue to service the debt and repay
its remaining obligation with the PNB under the original terms and
conditions of the credit arrangement to prevent an acceleration of the
term-loan maturity and avoid a liquidation of the collectibles of PNB
through a recourse against the collateral, while UPSUMCO
simultaneously and separately repays its new loan with x x x
[PHILSUCOR]. In other words, UPSUMCO must pay two loans: (1)
repayment of the amount financed by [PHILSUCOR] for a 30% cash
throw-off; and, (2) repayment of the remaining balance on its secured
loan in PNB." (Rollo [G.R. No. 132731], pp. 58-59).
12
"Proclaiming and Launching a Program for the Expeditious
Disposition and Privatization of Certain Government Corporations
and/or Assets thereof, and Creating the Committee on Privatization and
the Asset Privatization Trust."
13
APTs term ended on 31 December 2000 as provided under Republic
Act No. 8758. It has since been replaced by the Privatization
Management Office ("PMO") created under Executive Order No. 323,
dated 6 December 2000.
14
Exh. "MM."
15
Signed by Johnny Araneta, Associate Executive Trustee of APT, and
Joaquin S. Montenegro, UPSUMCO President.
16
Records, p. 254.
17
UPSUMCO moved for the release of this amount, with interest. Over
respondents objections, the trial court, in its Order of 4 January 1990,
granted UPSUMCOs motion and directed PNB to release the deposits in
question. On 14 February 1990, PNB paid UPSUMCO P1,950,000.
18
Penned by Judge Ismael O. Baldado.
19
The dispositive portion of the trial courts ruling provides (Rollo, pp.
214-217):
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in
favor of the plaintiff UNITED PLANTERS SUGAR MILLING [COMPANY]
(UPSUMCO) and against the defendant[s] PHILIPPINE NATIONAL BANK
(PNB) and ASSET PRIVATIZATION TRUST (APT) and the aforesaid
defendants are hereby ordered to pay to the plaintiff in the following
manner:
1. Both defendant[s] Philippine National Bank and Asset Privatization
Trust are ordered jointly and severally to pay to plaintiff the following:
(a) the sum of FORTY SIX MILLION NINE HUNDRED EIGHTY SEVEN
THOUSAND FOUR HUNDRED FIFTY NINE & 49/100 (P46,987,459.49)
PESOS, representing [the] amount transferred by defendant PNB to APT
in credit memo dated August 27, 1987 (Exh. "QQ[]"), plus twelve
percent (12%) interest per annum computed from date of filing of the
complaint;
(b) the sum of FOURTEEN MILLION THREE HUNDRED SIXTEEN
THOUSAND FIVE HUNDRED NINETY THREE & 29/100 ([P]14,316,593.29)
PESOS, representing the total sum of money withdrawn from Savings
Account Nos. 5176994[,] 5188305, 5192639, 5197762, and 520857[8]
of plaintiff and transferred by defendant PNB to defendant APT as
shown in debit memo dated August 27, 1987 (Exh. "WW[]-1"), plus
twelve percent (12%) interest per annum computed from date of filing
of the complaint;
(c) the sum of EIGHTEEN MILLION EIGHT HUNDRED NINETY SIX
THOUSAND SEVEN HUNDRED FIFTY THREE & 63/100 (P18,896,753.63)
PESOS, representing the proceeds of the sale of plaintiffs sugar
credited by defendant PNB in favor of defendant APT as shown in a
credit memo dated August 28, 1987 (Exh. "XX"), plus twelve percent
(12%) interest computed from date of filing of the complaint;
(d) the sum of THREE MILLION THREE HUNDRED TWENTY THREE
THOUSAND SIX HUNDRED FORTY SEVEN & 48/100 (P3,323,647.48)
PESOS, representing proceeds of sale of plaintiffs sugar which was
credited by defendant PNB to the account of defendant APT as shown
by a credit memo dated September 4, 1987 (Exh. "YY"), plus twelve
percent interest (12%) per annum computed from date of filing of the
complaint;
(e) the sum of FOUR MILLION NINE THOUSAND FOUR HUNDRED THREE
& 37/100 (P4,009,403.37) PESOS representing the proceeds of sale of
plaintiffs sugar credited by defendant PNB in favor of defendant APT
as shown by a credit memo dated September 15, 1987 (Exh. "ZZ"),
plus twelve percent (12%) interest per annum computed from date of
filing of the complaint;
(f) the sum of THREE HUNDRED FORTY SIX THOUSAND FIVE HUNDRED
FIFTY NINE & 83/100 (P346,559.83) PESOS, representing final
differential of the sale of plaintiffs sugar for the year 1985-86 which
was credited by defendant PNB in favor of defendant APT as shown in a
credit memo dated December 4, 1987 (Exh. "AAA[]") plus twelve
percent (12%) interest per annum computed from date of filing of the
complaint;
(g) the sum of ONE MILLION (P1,000,000.00) PESOS, representing
partial payments to the 6,399.89 piculs of export "A" sugar credited by
defendant PNB in favor of defendant APT as shown by a credit memo
dated December 8, 1987, plus interest at twelve (12%) percentum per
annum computed from date of filing of the complaint; (Exh. "BBB")
2. Defendant Philippine National Bank is ordered to pay singly to
plaintiff the following:
(a) the sum of ELEVEN MILLION EIGHT HUNDRED THIRTY FOUR
THOUSAND FOUR HUNDRED NINETY EIGHT & 45/100 (P11,834,498.45)
PESOS, corresponding to the payment made by defendant PNB to the
Philippine Sugar Corporation as shown in Official Receipt No. 0160
dated September 2, 1987 (Exh. "LLL[L]") plus interest at twelve
percent (12%) per annum computed from date of filing of the
complaint;
(b) the sum of TWENTY NINE MILLION FIVE HUNDRED SEVENTY TWO
THOUSAND NINE HUNDRED FORTY SIX & 50/100 (P29,572,946.50)
PESOS, corresponding to payment made by defendant PNB to
Philippine Sugar Corporation as shown in Official Receipt No. 0109
dated October 20, 1987 (Exh. "LLL[L]-1"), plus interest at twelve
percent (12%) computed from date of filing of the complaint;
(c) the sum of THREE HUNDRED FIFTY TWO THOU[]SAND EIGHT
HUNDRED SIXTY NINE & 28/100 (P352,869.28) PESOS, corresponding
to the credit balance as of November 26, 1986 of plaintiffs Account No.
0120-011088-702 with defendant PNB (Escolta Branch), plus twelve
(12%) percent interest per annum computed from date of the filing of
the complaint;
(d) the sum of THIRTY FOUR THOUSAND TWENTY EIGHT & 29/100
(P34,028.29) PESOS, representing [the] balance of deposits of Savings
Account Nos. 5176994, 5188305, 5192639, 5197762, 5208578 of
plaintiff with defendant PNB as of February 13, 1990 plus twelve
percent (12%) interest per annum computed from date of filing of the
complaint;
3. Defendant Asset Privatization Trust is hereby ordered to pay singly
to plaintiff the following:
(a) the sum of THREE HUNDRED NINETY SEVEN THOU[]SAND NINE
HUNDRED SEVENTY SIX & 11/100 PESOS (P397,976.11), representing
the total balance of plaintiffs Savings Account No. 1196 with the Rural
Bank of Bais, Inc., and transferred to account of defendant APT plus
twelve (12%) percent x x x per annum computed from date of filing of
the complaint;
(b) the sum of FIFTEEN THOUSAND NINE HUNDRED EIGHTY SEVEN &
77/100 (P15,987.77) PESOS representing the total balance of plaintiffs
Savings Account No. 3642 with the Rural Bank of Manjuyod, Inc., which
was transferred to defendant APT, plus interest at twelve percentum
(12%) per annum computed from date of filing of the complaint;
(c) the total sum of FIVE MILLION THREE HUNDRED FIVE THOUSAND
SEVEN HUNDRED FIFTY SIX and 22/100 (P5,305,756.22) PESOS
representing the expenses incurred by plaintiff for the maintenance
and operations of the sugar central after September 3, 1987, plus
interest at twelve (12%) percent x x x per annum computed from date
of filing of the complaint;
4. Defendant[s] Philippine National Bank and Asset Privatization Trust
are hereby ordered to pay jointly and severally x x x attorneys fees x x
x equivalent to twenty (20%) percent of the total sum they are ordered
to pay jointly and severally;
5. Defendant Philippine National Bank is hereby ordered to pay singly
to plaintiff[] attorneys fees equivalent to twenty (20%) percent x x x of
the total sum it is ordered to pay x x x;
6. Defendant Asset Privatization Trust is hereby ordered to pay singly
to plaintiff attorneys fees equivalent to twenty (20%) percent x x x [of]
the total sum[] it is ordered to pay x x x;
7. Both defendants Asset Privatization Trust and Philippine National
Bank are ordered to pay jointly and severally to the plaintiff exemplary
damages in the amount of FIVE HUNDRED THOUSAND (P500,000.00)
PESOS;
8. Both defendants are hereby ordered jointly and severally to pay
costs.
Counterclaim[s] interposed by both defendants are hereby ordered
dismissed.
20
Rollo, pp. 204, 206-207.
21
Id. at 170, 175-176.
22
Id. at 52-55.
23
McDonalds Corporation v. L.C. Big Mak Burger, Inc., G.R. No. 143993,
18 August 2004, 437 SCRA 10.
24
This provision states: "Filing of petition with Supreme Court. A party
desiring to appeal by certiorari from a judgment or final order or
resolution of the Court of Appeals, the Sandiganbayan, the Regional
Trial Court or other courts whenever authorized by law, may file with
the Supreme Court a verified petition for review on certiorari. The
petition shall raise only questions of law which must be distinctly set
forth." Section 2, paragraph 2, Rule 45 of the Rules of Court similarly
requires that "[o]nly questions of law may be raised in the petition and
must be distinctly set forth." (Boldfacing supplied)
25
Twin Towers Condominium Corp. v. Court of Appeals, 446 Phil. 280
(2003).
26
This was the same amount PNB and APT indicated in the published
notices of foreclosure.
27
Having been made in the course of the proceedings, this is a judicial
admission conclusive on APT (See Solivio v. Court of Appeals, G.R. No.
83484, 12 February 1990, 182 SCRA 119).
28
Records, p. 106.
29
Id. at 254.
30
Exh. "GG."
31
TSN, 15 May 1991, pp. 12-13 (Romeo S. Geocadin).
32
TSN, 26 July 1991, pp. 8-10 (Joaquin Montenegro).
33
On 26 March 1988, UPSUMCO passed Resolution No. 6 seeking,
among others, APTs intervention in a case for voluntary insolvency
PHILSUCOR filed against UPSUMCO. PHILSUCOR filed the suit to recover
its alleged deficiency claim against UPSUMCO. Resolution No. 6
pertinently provides (Exh. "DDDD"):
WHEREAS, the Asset Privatization Trust or APT and the Philippine
National Bank or PNB and the United Planters Sugar Milling Company,
Inc., or UPSUMCO after a series of negotiations have agreed on the
"uncontested" or "friendly" foreclosure of the physical assets of
UPSUMCO as mentioned in the petition for extrajudicial foreclosure;
WHEREAS, in these negotiations and uncontested foreclosure, the
account of the Philippine Sugar Corporation or [PHILSUCOR] was
included in the foreclosure;
WHEREAS, before said foreclosure where APT won as the highest 50
Eastern Shipping Lines, Inc. v. Court of Appeals, supra.
bidder, [PHILSUCOR] was properly informed and did not interpose any
objection. In fact, the legal counsel/consultant of [PHILSUCOR], Atty.
Jose Sicangco, Jr., has rendered a legal opinion which has influenced
the Board of UPSUMCO to go ahead with the foreclosure by APT/PNB;
WHEREAS, after the public bidding where Universal Robina won as the
highest bidder, PSC made [a] series of demands to UPSUMCO x x x in
the amount of P199 million which demands shocked the Board of
Directors;
WHEREAS, APT exercising its powers and authority under Proclamation
No. 50 had executed a condonation agreement with UPSUMCO on any
deficiency that may arise out of the uncontested foreclosure, and this
was confirmed by the letter of the late MR. DAVID SYCIP, Chief
Executive Trustee of APT in a letter to Mr. John Gokongwei, copy
furnished UPSUMCO, after the award to Universal Robina was
confirmed by the COP;
WHEREAS, on February 12, 1988 [PHILSUCOR] filed a case for
involuntary insolvency against UPSUMCO before the Regional Trial
Court of Makati, Metro Manila docketed as S.P. Case No. M-1709
allegedly because of the non-payment of the deficiency amount;
WHEREAS, UPSUMCO had considered the matter of uncontested
foreclosure closed, except the payment of the 5% preference;
WHEREAS, in October, 1987 [PHILSUCOR] allegedly indorsed to APT all
its non-performing assets including the properties subject of the
uncontested foreclosure of UPSUMCO;
WHEREAS, the early acceptance of the aforesaid indorsement may
pave the avenue for the dismissal of the petition for involuntary
insolvency, which although frivolous[,] could trigger legal
complications;
xxxx
WHEREFORE, the UNITED PLANTERS SUGAR MILLING COMPANY, INC.,
through its Board of Directors hereunto resolved, as it hereby resolves
to appeal to the APT, the following;
1. That the reported non-performing assets of the Philippine Sugar
Corporation which were allegedly indorsed to APT be accepted or any
internal arrangement between APT/COP and the PSC be agreed at the
earliest convenience for the early dismissal of the involuntary
insolvency case; x x x x (Capitalization in the original; boldfacing
supplied)
34
Rollo (G.R. No. 132731), pp. 41-43, 46.
35
Penned by Associate Justice Ricardo P. Galvez with then Presiding
Justice Fidel P. Purisima and Associate Justice B.A. Adefuin-De la Cruz,
concurring.
36
Rollo (G.R. No. 132731), p. 63.
37
Negros Navigation Co., Inc. v. Court of Appeals, 346 Phil. 551 (1997).
38
Under Article 1279 of the Civil Code, compensation is proper, if
among others, the parties are creditor and debtor of each other. We
note that on 27 February 1987, PNB assigned its interests in UPSUMCO
to the Government/APT thus ceasing to be UPSUMCOs creditor.
39
TSN, 26 July 1991, pp. 45-48 (Joaquin Montenegro).
40
See Medida v. Court of Appeals, G.R. No. 98334, 8 May 1992, 208
SCRA 887 (1992).
41
We note that although in its Amended Complaint, UPSUMCO only
prayed for the reimbursement of expenses for the salaries of the mill
workers, UPSUMCO, during the trial, presented evidence for other
items of expense (e.g. for material and supplies, taxes, and utilities).
As respondents failed to object to the admission of such evidence for
not having been alleged in the Amended Complaint, the issue on the
payment of these other expenses are deemed to have been raised in
the pleadings as provided under Section 5, Rule 10 of the 1997 Rules of
Civil Procedure.
42
Article 2229 of the Civil Code provides: "Exemplary or corrective
damages are imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory
damages."
43
The sums of money awarded to UPSUMCO as payment for the funds
in its bank accounts and the proceeds of the sale of its sugar are not
actual damages as they are neither compensation for what UPSUMCO
suffered or lost (dao emergente) nor benefits to which UPSUMCO is
entitled (lucro cesante). Further, as a juridical entity, UPSUMCO is not
entitled to moral damages (ABS-CBN Broadcasting Corporation v. Court
of Appeals, 361 Phil. 499 [1999]).
44
Article 2221 of the Civil Code provides: "Nominal damages are
adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss
suffered by him."
45
Article 2208 (1) & (2), Civil Code.
46
As an item of damages, attorneys fees under Article 2208 of the
Civil Code is awarded to the litigant and not to his counsel (Quirante v.
Intermediate Appellate Court, G.R. No. 73886, 31 January 1989, 169
SCRA 769) thus any agreement between the client and his counsel is
not controlling (See Corpus v. Cuaderno, Sr., 121 Phil. 568 [1965]).
47
Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12
July 1994, 234 SCRA 78.
48
As stipulated in the deposit contracts.
49
UPSUMCO failed to present evidence on the stipulated rate of
interest for these bank accounts.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE
BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November
28, 1977 decision of the Court of Appeals in CA-G.R. No.
51771-R modifying the decision of the Court of First Instance
of Manila, Branch V, in Civil Case No. 74958 dated September
21, 1971 as modified by the Order of the lower court dated
December 8, 1971. The Court of Appeals in modifying the
decision of the lower court included an award of an additional
amount of P200,000.00 to the Philippine Bar Association to be
paid jointly and severally by the defendant United Construction
Co. and by the third-party defendants Juan F. Nakpil and Sons
and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower
court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the plaintiff,
jointly and severally, the sum of P989,335.68 with interest at
the legal rate from November 29, 1968, the date of the filing of
the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J.
Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants'
counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the costs in
equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p.
169).
The dispositive portion of the decision of the Court of Appeals
reads:
WHEREFORE, the judgment appealed from is modified to
include an award of P200,000.00 in favor of plaintiff-appellant
Philippine Bar Association, with interest at the legal rate from
November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third
party defendants (except Roman Ozaeta). In all other respects,
the judgment dated September 21, 1971 as modified in the
December 8, 1971 Order of the lower court is hereby affirmed
with COSTS to be paid by the defendant and third party
defendant (except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United
Construction Co., Inc. and Juan J. Carlos in L-47863 seek the
reversal of the decision of the Court of Appeals, among other
things, for exoneration from liability while petitioner Philippine
Bar Association in L-47896 seeks the modification of aforesaid
decision to obtain an award of P1,830,000.00 for the loss of
the PBA building plus four (4) times such amount as damages
resulting in increased cost of the building, P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of
First Instance of Manila were consolidated by this Court in the
resolution of May 10, 1978 requiring the respective
respondents to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No.
74958; Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-
47851, p. 169) and affirmed by the Court of Appeals are as
follows:
The plaintiff, Philippine Bar Association, a civic-non-profit
association, incorporated under the Corporation Law, decided
to construct an office building on its 840 square meters lot
located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the
United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general
manager of said corporation. The proposal was approved by
plaintiff's board of directors and signed by its president Roman
Ozaeta, a third-party defendant in this case. The plans and
specifications for the building were prepared by the other third-
party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in
question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward
dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at the cost
of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for
the recovery of damages arising from the partial collapse of the
building against United Construction, Inc. and its President and
General Manager Juan J. Carlos as defendants. Plaintiff
alleges that the collapse of the building was accused by
defects in the construction, the failure of the contractors to
follow plans and specifications and violations by the
defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the
architects who prepared the plans and specifications, alleging
in essence that the collapse of the building was due to the
defects in the said plans and specifications. Roman Ozaeta,
the then president of the plaintiff Bar Association was included
as a third-party defendant for damages for having included
Juan J. Carlos, President of the United Construction Co., Inc.
as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan
F. Nakpil & Sons and Juan F. Nakpil presented a written
stipulation which reads:
1. That in relation to defendants' answer with counterclaims
and third- party complaints and the third-party defendants
Nakpil & Sons' answer thereto, the plaintiff need not amend its
complaint by including the said Juan F. Nakpil & Sons and
Juan F. Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the
Court should find after the trial that the above-named
defendants Juan J. Carlos and United Construction Co., Inc.
are free from any blame and liability for the collapse of the PBA
Building, and should further find that the collapse of said
building was due to defects and/or inadequacy of the plans,
designs, and specifications p by the third-party defendants, or
in the event that the Court may find Juan F. Nakpil and Sons
and/or Juan F. Nakpil contributorily negligent or in any way
jointly and solidarily liable with the defendants, judgment may
be rendered in whole or in part. as the case may be, against
Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has
been duly amended by including the said Juan F. Nakpil &
Sons and Juan F. Nakpil as parties defendant and by alleging
causes of action against them including, among others, the
defects or inadequacy of the plans, designs, and specifications
prepared by them and/or failure in the performance of their
contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to
approve this stipulation. (Record on Appeal, pp. 274-275;
Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on
March 7, 1969, during which among others, the parties agreed
to refer the technical issues involved in the case to a
Commissioner. Mr. Andres O. Hizon, who was ultimately
appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following
issues:
1. Whether the damage sustained by the PBA building during
the August 2, 1968 earthquake had been caused, directly or
indirectly, by:
(a) The inadequacies or defects in the plans and specifications
prepared by third-party defendants;
(b) The deviations, if any, made by the defendants from said
plans and specifications and how said deviations contributed to
the damage sustained;
(c) The alleged failure of defendants to observe the requisite
quality of materials and workmanship in the construction of the
building;
(d) The alleged failure to exercise the requisite degree of
supervision expected of the architect, the contractor and/or the
owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose
from a combination of the above-enumerated factors, the
degree or proportion in which each individual factor contributed
to the damage sustained;
3. Whether the building is now a total loss and should be
completely demolished or whether it may still be repaired and
restored to a tenantable condition. In the latter case, the
determination of the cost of such restoration or repair, and the
value of any remaining construction, such as the foundation,
which may still be utilized or availed of (Record on Appeal, pp.
275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues
and non-technical issues. As aforestated the technical issues
were referred to the Commissioner. The non-technical issues
were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the
building on the ground that it may topple down in case of a
strong earthquake. The motions were opposed by the
defendants and the matter was referred to the Commissioner.
Finally, on April 30, 1979 the building was authorized to be
demolished at the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed by other
strong earthquakes on April 9, and 12, 1970, caused further
damage to the property. The actual demolition was undertaken
by the buyer of the damaged building. (Record on Appeal, pp.
278-280; Ibid.)
After the protracted hearings, the Commissioner eventually
submitted his report on September 25, 1970 with the findings
that while the damage sustained by the PBA building was
caused directly by the August 2, 1968 earthquake whose
magnitude was estimated at 7.3 they were also caused by the
defects in the plans and specifications prepared by the third-
party defendants' architects, deviations from said plans and
specifications by the defendant contractors and failure of the
latter to observe the requisite workmanship in the construction
of the building and of the contractors, architects and even the
owners to exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid findings
which in turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner
except as to the holding that the owner is charged with full nine
supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp.
309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the
assailed decision which was modified by the Intermediate
Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the
Intermediate Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the
Association of Civil Engineers, and the Philippine Institute of
Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the
liability of architects when a building collapses and to submit
likewise a critical analysis with computations on the divergent
views on the design and plans as submitted by the experts
procured by the parties. The motion having been granted,
the amicus curiae were granted a period of 60 days within
which to submit their position.
After the parties had all filed their comments, We gave due
course to the petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on
November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and
specifications of the Nakpils were not defective. But the
Commissioner, when asked by Us to comment, reiterated his
conclusion that the defects in the plans and specifications
indeed existed.
Using the same authorities availed of by the amicus
curiae such as the Manila Code (Ord. No. 4131) and the 1966
Asep Code, the Commissioner added that even if it can be
proved that the defects in the construction alone (and not in the
plans and design) caused the damage to the building, still the
deficiency in the original design and jack of specific provisions
against torsion in the original plans and the overload on the
ground floor columns (found by an the experts including the
original designer) certainly contributed to the damage which
occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the
following assignments of errors: Philippine Bar Association
claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of
six (6) months for loss of rentals while United Construction Co.,
Inc. and the Nakpils claimed that it was an act of God that
caused the failure of the building which should exempt them
from responsibility and not the defective construction, poor
workmanship, deviations from plans and specifications and
other imperfections in the case of United Construction Co., Inc.
or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils. Both UCCI
and the Nakpils object to the payment of the additional amount
of P200,000.00 imposed by the Court of Appeals. UCCI also
claimed that it should be reimbursed the expenses of shoring
the building in the amount of P13,661.28 while the Nakpils
opposed the payment of damages jointly and solidarity with
UCCI.
The pivotal issue in this case is whether or not an act of God-
an unusually strong earthquake-which caused the failure of the
building, exempts from liability, parties who are otherwise liable
because of their negligence.
The applicable law governing the rights and liabilities of the
parties herein is Article 1723 of the New Civil Code, which
provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within
fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damage if the edifice
fags within the same period on account of defects in the
construction or the use of materials of inferior quality furnished
by him, or due to any violation of the terms of the contract. If
the engineer or architect supervises the construction, he shall
be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply
waiver of any of the causes of action by reason of any defect
mentioned in the preceding paragraph.
The action must be brought within ten years following the
collapse of the building.
On the other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which
though foreseen, were inevitable (Article 1174, New Civil
Code).
An act of God has been defined as an accident, due directly
and exclusively to natural causes without human intervention,
which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus
Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a
fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the
Civil Code, for a breach of an obligation due to an "act of God,"
the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the
event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the debtor must
be free from any participation in, or aggravation of the injury to
the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553;
Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of
Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon
Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil.
657).
Thus, if upon the happening of a fortuitous event or an act of
God, there concurs a corresponding fraud, negligence, delay
or violation or contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by
the violence of nature and all human agencies are to be
excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation
of man, whether it be from active intervention or neglect, or
failure to act, the whole occurrence is thereby humanized, as it
were, and removed from the rules applicable to the acts of
God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability
for loss because of an act of God, he must be free from any
previous negligence or misconduct by which that loss or
damage may have been occasioned. (Fish & Elective Co. v.
Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594,
604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower
court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications. and to
have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of
supervision; while the third-party defendants were found to
have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the
defects in the construction and in the plans and specifications
were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this
reason the defendant and third-party defendants cannot claim
exemption from liability. (Decision, Court of Appeals, pp. 30-
31).
It is well settled that the findings of facts of the Court of
Appeals are conclusive on the parties and on this court (cases
cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs.
Sandiganbayan, January 17, 1985, 134 SCRA 105, 121),
unless (1) the conclusion is a finding grounded entirely on
speculation, surmise and conjectures; (2) the inference made
is manifestly mistaken; (3) there is grave abuse of discretion;
(4) the judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting , (6) the Court of Appeals went
beyond the issues of the case and its findings are contrary to
the admissions of both appellant and appellees (Ramos vs.
Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-
292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7)
the findings of facts of the Court of Appeals are contrary to
those of the trial court; (8) said findings of facts are conclusions
without citation of specific evidence on which they are based;
(9) the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondents
(Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs.
Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the
finding of fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by
evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33
SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the
exceptions above-mentioned. On the contrary, the records
show that the lower court spared no effort in arriving at the
correct appreciation of facts by the referral of technical issues
to a Commissioner chosen by the parties whose findings and
conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the
Supreme Court.
In any event, the relevant and logical observations of the trial
court as affirmed by the Court of Appeals that "while it is not
possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that
several buildings in the same area withstood the earthquake to
which the building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of damages to be
awarded to the PBA for the partial collapse (and eventual
complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court
based on the report of the Commissioner that the total amount
required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not
initially a total loss. However, while the trial court awarded the
PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by
awarding in favor of PBA an additional sum of P200,000.00
representing the damage suffered by the PBA building as a
result of another earthquake that occurred on April 7, 1970 (L-
47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-
47896, PBA's No. 1 Assignment of Error, p. 19), while both the
NAKPILS and UNITED question the additional award of
P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as
Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA
further urges that the unrealized rental income awarded to it
should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a
year until the judgment for the principal amount shall have
been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p.
19).
The collapse of the PBA building as a result of the August 2,
1968 earthquake was only partial and it is undisputed that the
building could then still be repaired and restored to its
tenantable condition. The PBA, however, in view of its lack of
needed funding, was unable, thru no fault of its own, to have
the building repaired. UNITED, on the other hand, spent
P13,661.28 to shore up the building after the August 2, 1968
earthquake (L-47896, CA Decision, p. 46). Because of the
earthquake on April 7, 1970, the trial court after the needed
consultations, authorized the total demolition of the building (L-
47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED
are liable for the damage resulting from the partial and
eventual collapse of the PBA building as a result of the
earthquakes.
We quote with approval the following from the erudite decision
penned by Justice Hugo E. Gutierrez (now an Associate
Justice of the Supreme Court) while still an Associate Justice
of the Court of Appeals:
There is no question that an earthquake and other forces of
nature such as cyclones, drought, floods, lightning, and perils
of the sea are acts of God. It does not necessarily follow,
however, that specific losses and suffering resulting from the
occurrence of these natural force are also acts of God. We are
not convinced on the basis of the evidence on record that from
the thousands of structures in Manila, God singled out the
blameless PBA building in Intramuros and around six or seven
other buildings in various parts of the city for collapse or severe
damage and that God alone was responsible for the damages
and losses thus suffered.
The record is replete with evidence of defects and deficiencies
in the designs and plans, defective construction, poor
workmanship, deviation from plans and specifications and
other imperfections. These deficiencies are attributable to
negligent men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and
third party defendants-appellants presented in their briefs are
premised on legal generalizations or speculations and on
theological fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary earthquakes and
unusually strong earthquakes and on ordinary fortuitous events
and extraordinary fortuitous events leads to its argument that
the August 2, 1968 earthquake was of such an overwhelming
and destructive character that by its own force and
independent of the particular negligence alleged, the injury
would have been produced. If we follow this line of speculative
reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of
Manila would have toppled down. Following the same line of
reasoning, Nakpil and Sons alleges that the designs were
adequate in accordance with pre-August 2, 1968 knowledge
and appear inadequate only in the light of engineering
information acquired after the earthquake. If this were so,
hundreds of ancient buildings which survived the earthquake
better than the two-year old PBA building must have been
designed and constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious and
prophetic. Fortunately, the facts on record allow a more down
to earth explanation of the collapse. The failure of the PBA
building, as a unique and distinct construction with no
reference or comparison to other buildings, to weather the
severe earthquake forces was traced to design deficiencies
and defective construction, factors which are neither
mysterious nor esoteric. The theological allusion of appellant
United that God acts in mysterious ways His wonders to
perform impresses us to be inappropriate. The evidence
reveals defects and deficiencies in design and construction.
There is no mystery about these acts of negligence. The
collapse of the PBA building was no wonder performed by
God. It was a result of the imperfections in the work of the
architects and the people in the construction company. More
relevant to our mind is the lesson from the parable of the wise
man in the Sermon on the Mount "which built his house upon a
rock; and the rain descended and the floods came and the
winds blew and beat upon that house; and it fen not; for it was
founded upon a rock" and of the "foolish upon the sand. And
the rain descended and man which built his house the floods
came, and the winds blew, and beat upon that house; and it fell
and great was the fall of it. (St. Matthew 7: 24-27)." The
requirement that a building should withstand rains, floods,
winds, earthquakes, and natural forces is precisely the reason
why we have professional experts like architects, and
engineers. Designs and constructions vary under varying
circumstances and conditions but the requirement to design
and build well does not change.
The findings of the lower Court on the cause of the collapse
are more rational and accurate. Instead of laying the blame
solely on the motions and forces generated by the earthquake,
it also examined the ability of the PBA building, as designed
and constructed, to withstand and successfully weather those
forces.
The evidence sufficiently supports a conclusion that the
negligence and fault of both United and Nakpil and Sons, not a
mysterious act of an inscrutable God, were responsible for the
damages. The Report of the Commissioner, Plaintiff's
Objections to the Report, Third Party Defendants' Objections to
the Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections, Plaintiffs'
Reply to the Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants' Reply,
and Third-Party Defendants' Reply to the Commissioner's
Report not to mention the exhibits and the testimonies show
that the main arguments raised on appeal were already raised
during the trial and fully considered by the lower Court. A
reiteration of these same arguments on appeal fails to
convince us that we should reverse or disturb the lower Court's
factual findings and its conclusions drawn from the facts,
among them:
The Commissioner also found merit in the allegations of the
defendants as to the physical evidence before and after the
earthquake showing the inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic)
inadequacy of design;
1. inadequate design was the cause of the failure of the
building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally
toward the Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all
exterior columns reduces the cross-sectional area of each of
the columns and the strength thereof.
4. Two front corners, A7 and D7 columns were very much less
reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy
of design;
1. Column A7 suffered the severest fracture and maximum
sagging. Also D7.
2. There are more damages in the front part of the building
than towards the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the
building.
4. Floors showed maximum sagging on the sides and toward
the front corner parts of the building.
5. There was a lateral displacement of the building of about 8",
Maximum sagging occurs at the column A7 where the floor is
lower by 80 cm. than the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or
defects in the design, plans and specifications of the PBA
building which involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks.
He conceded, however, that the fact that those deficiencies or
defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a
design for earthquake forces mitigates in a large measure the
responsibility or liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with
this portion of the Commissioner's report, voiced opposition to
the same on the grounds that (a) the finding is based on a
basic erroneous conception as to the design concept of the
building, to wit, that the design is essentially that of a heavy
rectangular box on stilts with shear wan at one end; (b) the
finding that there were defects and a deficiency in the design of
the building would at best be based on an approximation and,
therefore, rightly belonged to the realm of speculation, rather
than of certainty and could very possibly be outright error; (c)
the Commissioner has failed to back up or support his finding
with extensive, complex and highly specialized computations
and analyzes which he himself emphasizes are necessary in
the determination of such a highly technical question; and (d)
the Commissioner has analyzed the design of the PBA building
not in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in
the light of recent and current standards.
The Commissioner answered the said objections alleging that
third-party defendants' objections were based on estimates or
exhibits not presented during the hearing that the resort to
engineering references posterior to the date of the preparation
of the plans was induced by the third-party defendants
themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of
the highest degree. It involves questions not within the ordinary
competence of the bench and the bar to resolve by
themselves. Counsel for the third-party defendants has aptly
remarked that "engineering, although dealing in mathematics,
is not an exact science and that the present knowledge as to
the nature of earthquakes and the behaviour of forces
generated by them still leaves much to be desired; so much so
"that the experts of the different parties, who are all engineers,
cannot agree on what equation to use, as to what earthquake
co-efficients are, on the codes to be used and even as to the
type of structure that the PBA building (is) was (p. 29, Memo,
of third- party defendants before the Commissioner).
The difficulty expected by the Court if tills technical matter were
to be tried and inquired into by the Court itself, coupled with the
intrinsic nature of the questions involved therein, constituted
the reason for the reference of the said issues to a
Commissioner whose qualifications and experience have
eminently qualified him for the task, and whose competence
had not been questioned by the parties until he submitted his
report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this
issue, and the objections voiced to the same, the Court sees
no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the
design, plans and specifications prepared by third-party
defendants, and that said defects and deficiencies involved
appreciable risks with respect to the accidental forces which
may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the
plans and specifications, and how said deviations contributed
to the damage sustained by the building.
(b) The alleged failure of defendants to observe the requisite
quality of materials and workmanship in the construction of the
building.
These two issues, being interrelated with each other, will be
discussed together.
The findings of the Commissioner on these issues were as
follows:
We now turn to the construction of the PBA Building and the
alleged deficiencies or defects in the construction and
violations or deviations from the plans and specifications. All
these may be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario
M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars
in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used.
Specification requires no larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column,
eccentricity being 3" off when on one face the main bars are
only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on
Col. A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and
D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled
worst where there are no spirals or where spirals are cut.
Columns suffered worst displacement where the eccentricity of
the columnar reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio
Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 Spacing of spiral is changed from 2" to 5" on
centers,
(2) Column D5 No spiral up to a height of 22" from the
ground floor,
(3) Column D6 Spacing of spiral over 4 l/2,
(4) Column D7 Lack of lateral ties,
(5) Column C7 Absence of spiral to a height of 20" from the
ground level, Spirals are at 2" from the exterior column face
and 6" from the inner column face,
(6) Column B6 Lack of spiral on 2 feet below the floor
beams,
(7) Column B5 Lack of spirals at a
distance of 26' below the beam,
(8) Column B7 Spirals not tied to vertical
reinforcing bars, Spirals are uneven 2" to 4",
(9) Column A3 Lack of lateral ties,
(10) Column A4 Spirals cut off and welded
to two separate clustered vertical bars,
(11) Column A4 (second floor Column is
completely hollow to a height of 30"
(12) Column A5 Spirals were cut from the
floor level to the bottom of the spandrel
beam to a height of 6 feet,
 (13) Column A6 No spirals up to a height
of 30' above the ground floor level,
(14) Column A7 Lack of lateralties or
spirals,
c. Summary of alleged defects as reported
by the experts of the Third-Party defendants.
Ground floor columns.
(1) Column A4 Spirals are cut,
(2) Column A5 Spirals are cut,
(3) Column A6 At lower 18" spirals are
absent,
(4) Column A7 Ties are too far apart,
(5) Column B5 At upper fourth of column
spirals are either absent or improperly
spliced,
(6) Column B6 At upper 2 feet spirals are
absent,
(7) Column B7 At upper fourth of column
spirals missing or improperly spliced.
(8) Column C7 Spirals are absent at
lowest 18"
(9) Column D5 At lowest 2 feet spirals are
absent,
(10) Column D6 Spirals are too far apart
and apparently improperly spliced,
(11) Column D7 Lateral ties are too far
apart, spaced 16" on centers.
There is merit in many of these allegations. The explanations
given by the engineering experts for the defendants are either
contrary to general principles of engineering design for
reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-
resistant design and construction.
We shall first classify and consider defects which may have
appreciable bearing or relation to' the earthquake-resistant
property of the building.
As heretofore mentioned, details which insure ductility at or
near the connections between columns and girders are
desirable in earthquake resistant design and construction. The
omission of spirals and ties or hoops at the bottom and/or tops
of columns contributed greatly to the loss of earthquake-
resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the
bottom reinforcement of the deeper beam (p. 1, Specifications,
p. 970, Reference 11). There were several clear evidences
where this was not done especially in some of the ground floor
columns which failed.
There were also unmistakable evidences that the spacings of
the spirals and ties in the columns were in many cases greater
than those called for in the plans and specifications resulting
again in loss of earthquake-resistant strength. The assertion of
the engineering experts for the defendants that the improper
spacings and the cutting of the spirals did not result in loss of
strength in the column cannot be maintained and is certainly
contrary to the general principles of column design and
construction. And even granting that there be no loss in
strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or ductility in the
column and it is precisely this plastic range or ductility which is
desirable and needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the
column A4, second floor, and although this column did not fail,
this is certainly an evidence on the part of the contractor of
poor construction.
The effect of eccentricities in the columns which were
measured at about 2 1/2 inches maximum may be
approximated in relation to column loads and column and
beam moments. The main effect of eccentricity is to change
the beam or girder span. The effect on the measured
eccentricity of 2 inches, therefore, is to increase or diminish the
column load by a maximum of about 1% and to increase or
diminish the column or beam movements by about a maximum
of 2%. While these can certainly be absorbed within the factor
of safety, they nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the
subject of great contention between the parties and deserves
special consideration.
The proper placing of the main reinforcements and spirals in
column A5, ground floor, is the responsibility of the general
contractor which is the UCCI. The burden of proof, therefore,
that this cutting was done by others is upon the defendants.
Other than a strong allegation and assertion that it is the
plumber or his men who may have done the cutting (and this
was flatly denied by the plumber) no conclusive proof was
presented. The engineering experts for the defendants
asserted that they could have no motivation for cutting the bar
because they can simply replace the spirals by wrapping
around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was
sometimes done through the beam and girder reinforcements
which were already in place as in the case of column A4
second floor. If the reinforcement for the girder and column is
to subsequently wrap around the spirals, this would not do for
the elasticity of steel would prevent the making of tight column
spirals and loose or improper spirals would result. The proper
way is to produce correct spirals down from the top of the main
column bars, a procedure which can not be done if either the
beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert and
apparently believe that the cutting of the spirals did not
materially diminish the strength of the column. This belief
together with the difficulty of slipping the spirals on the top of
the column once the beam reinforcement is in place may be a
sufficient motivation for the cutting of the spirals themselves.
The defendants, therefore, should be held responsible for the
consequences arising from the loss of strength or ductility in
column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven
in the visible spirals of the columns where spalling of the
concrete cover had taken place. This lack of proper splicing
contributed in a small measure to the loss of strength.
The effects of all the other proven and visible defects although
nor can certainly be accumulated so that they can contribute to
an appreciable loss in earthquake-resistant strength. The
engineering experts for the defendants submitted an estimate
on some of these defects in the amount of a few percent. If
accumulated, therefore, including the effect of eccentricity in
the column the loss in strength due to these minor defects may
run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the
bottom and/or at the top of some of the ground floor columns
contributed greatly to the collapse of the PBA building since it
is at these points where the greater part of the failure occurred.
The liability for the cutting of the spirals in column A5, ground
floor, in the considered opinion of the Commissioner rests on
the shoulders of the defendants and the loss of strength in this
column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects,
deficiencies and violations of the plans and specifications of
the PBA building contributed to the damages which resulted
during the earthquake of August 2, 1968 and the vice of these
defects and deficiencies is that they not only increase but also
aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not
only tend to add but also to multiply the effects of the
shortcomings in the design of the building. We may say,
therefore, that the defects and deficiencies in the construction
contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in
the hands of the contractor is direct and positive, the presence
of existence of all the major defects and deficiencies noted and
proven manifests an element of negligence which may amount
to imprudence in the construction work. (pp. 42-49,
Commissioners Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections
to the same on the grounds that the Commissioner should
have specified the defects found by him to be "meritorious";
that the Commissioner failed to indicate the number of cases
where the spirals and ties were not carried from the floor level
to the bottom reinforcement of the deeper beam, or where the
spacing of the spirals and ties in the columns were greater
than that called for in the specifications; that the hollow in
column A4, second floor, the eccentricities in the columns, the
lack of proper length of splicing of spirals, and the cut in the
spirals in column A5, ground floor, did not aggravate or
contribute to the damage suffered by the building; that the
defects in the construction were within the tolerable margin of
safety; and that the cutting of the spirals in column A5, ground
floor, was done by the plumber or his men, and not by the
defendants.
Answering the said objections, the Commissioner stated that,
since many of the defects were minor only the totality of the
defects was considered. As regards the objection as to failure
to state the number of cases where the spirals and ties were
not carried from the floor level to the bottom reinforcement, the
Commissioner specified groundfloor columns B-6 and C-5 the
first one without spirals for 03 inches at the top, and in the
latter, there were no spirals for 10 inches at the bottom. The
Commissioner likewise specified the first storey columns where
the spacings were greater than that called for in the
specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and
B-7. The objection to the failure of the Commissioner to specify
the number of columns where there was lack of proper length
of splicing of spirals, the Commissioner mentioned groundfloor
columns B-6 and B-5 where all the splices were less than 1-1/2
turns and were not welded, resulting in some loss of strength
which could be critical near the ends of the columns. He
answered the supposition of the defendants that the spirals
and the ties must have been looted, by calling attention to the
fact that the missing spirals and ties were only in two out of the
25 columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4,
second floor, did not aggravate or contribute to the damage,
but averred that it is "evidence of poor construction." On the
claim that the eccentricity could be absorbed within the factor
of safety, the Commissioner answered that, while the same
may be true, it also contributed to or aggravated the damage
suffered by the building.
The objection regarding the cutting of the spirals in Column A-
5, groundfloor, was answered by the Commissioner by
reiterating the observation in his report that irrespective of who
did the cutting of the spirals, the defendants should be held
liable for the same as the general contractor of the building. The
Commissioner further stated that the loss of strength of the cut spirals
and inelastic deflections of the supposed lattice work defeated the
purpose of the spiral containment in the column and resulted in the
loss of strength, as evidenced by the actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on these
issues and fails to find any sufficient cause to disregard or modify the
same. As found by the Commissioner, the "deviations made by the
defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also
aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp.
128-142)

The afore-mentioned facts clearly indicate the wanton negligence of

both the defendant and the third-party defendants in effecting the
plans, designs, specifications, and construction of the PBA building
and We hold such negligence as equivalent to bad faith in the
performance of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49
O.G. 4379, 4380) which may be in point in this case reads:

One who negligently creates a dangerous condition cannot escape

liability for the natural and probable consequences thereof, although
the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God.

Truth to tell hundreds of ancient buildings in the vicinity were hardly
affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the
damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and

considering the special and environmental circumstances of this case,
We deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants
(with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil
Code, Supra, p. 10) indemnity in favor of the Philippine Bar Association
of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with
the exception of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's
fees, the total sum being payable upon the finality of this decision.
Upon failure to pay on such finality, twelve (12%) per cent interest per
annum shall be imposed upon afore-mentioned amounts from finality
until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

 Republic of the Philippines I The lower court erred in not holding that the
SUPREME COURT herein defendant-appellant had exercised the
Manila diligence required of it in the selection and
supervision of its personnel to prevent damage or
EN BANC injury to others.1awphl.nt

G.R. No. L-21749 September 29, 1967 II The lower court erred in not holding that the
ramming of the Nagtahan bailey bridge by barge L-
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, 1892 was caused by force majeure.
vs.
LUZON STEVEDORING CORPORATION, defendant- III The lower court erred in not holding that the
appellant. Nagtahan bailey bridge is an obstruction, if not a
menace, to navigation in the Pasig river.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant. IV The lower court erred in not blaming the
damage sustained by the Nagtahan bailey bridge to
the improper placement of the dolphins.

V The lower court erred in granting plaintiff's

motion to adduce further evidence in chief after it has
rested its case.
REYES, J.B.L., J.:

VI The lower court erred in finding the plaintiff

The present case comes by direct appeal from a decision of
entitled to the amount of P192,561.72 for damages
the Court of First Instance of Manila (Case No. 44572)
which is clearly exorbitant and without any factual
adjudging the defendant-appellant, Luzon Stevedoring
basis.
Corporation, liable in damages to the plaintiff-appellee
Republic of the Philippines.
However, it must be recalled that the established rule in this
jurisdiction is that when a party appeals directly to the
In the early afternoon of August 17, 1960, barge L-1892,
Supreme Court, and submits his case there for decision, he is
owned by the Luzon Stevedoring Corporation was being towed
deemed to have waived the right to dispute any finding of fact
down the Pasig river by tugboats "Bangus" and "Barbero"1 also
made by the trial Court. The only questions that may be raised
belonging to the same corporation, when the barge rammed
are those of law (Savellano vs. Diaz, L-17441, July 31, 1963;
against one of the wooden piles of the Nagtahan bailey bridge,
Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs.
smashing the posts and causing the bridge to list. The river, at
Cloribel, L-22236, June 22, 1965). A converso, a party who
the time, was swollen and the current swift, on account of the
resorts to the Court of Appeals, and submits his case for
heavy downpour of Manila and the surrounding provinces on
decision there, is barred from contending later that his claim
August 15 and 16, 1960.
was beyond the jurisdiction of the aforesaid Court. The reason
is that a contrary rule would encourage the undesirable
Sued by the Republic of the Philippines for actual and practice of appellants' submitting their cases for decision to
consequential damage caused by its employees, amounting to either court in expectation of favorable judgment, but with
P200,000 (Civil Case No. 44562, CFI of Manila), defendant intent of attacking its jurisdiction should the decision be
Luzon Stevedoring Corporation disclaimed liability therefor, on unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de
the grounds that it had exercised due diligence in the selection Seguros) et al., L-10096, Res. on Motion to Reconsider, March
and supervision of its employees; that the damages to the 23, 1966). Consequently, we are limited in this appeal to the
bridge were caused by force majeure; that plaintiff has no issues of law raised in the appellant's brief.
capacity to sue; and that the Nagtahan bailey bridge is an
obstruction to navigation.
Taking the aforesaid rules into account, it can be seen that the
only reviewable issues in this appeal are reduced to two:
After due trial, the court rendered judgment on June 11, 1963,
holding the defendant liable for the damage caused by its
1) Whether or not the collision of appellant's barge
employees and ordering it to pay to plaintiff the actual cost of
with the supports or piers of the Nagtahan bridge was
the repair of the Nagtahan bailey bridge which amounted to
in law caused by fortuitous event or force majeure,
P192,561.72, with legal interest thereon from the date of the
and
filing of the complaint.

2) Whether or not it was error for the Court to have

Defendant appealed directly to this Court assigning the
permitted the plaintiff-appellee to introduce additional
following errors allegedly committed by the court a quo, to wit:
evidence of damages after said party had rested its
case.
As to the first question, considering that the Nagtahan bridge
was an immovable and stationary object and uncontrovertedly
provided with adequate openings for the passage of water
craft, including barges like of appellant's, it is undeniable that
the unusual event that the barge, exclusively controlled by
appellant, rammed the bridge supports raises a presumption of
negligence on the part of appellant or its employees manning
the barge or the tugs that towed it. For in the ordinary course of
events, such a thing does not happen if proper care is used. In
Anglo American Jurisprudence, the inference arises by what is
known as the "res ipsa loquitur" rule (Scott vs. London Docks
Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena,
224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529,
149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269
Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on
the day in question: that it assigned two of its most powerful
tugboats to tow down river its barge L-1892; that it assigned to
the task the more competent and experienced among
its patrons, had the towlines, engines and equipment double-
checked and inspected; that it instructed its patrons to take
extra precautions; and concludes that it had done all it was
called to do, and that the accident, therefore, should be held
due to force majeure or fortuitous event.
These very precautions, however, completely destroy the
appellant's defense. For caso fortuito or force majeure (which
in law are identical in so far as they exempt an obligor from
liability)2 by definition, are extraordinary events not foreseeable
or avoidable, "events that could not be foreseen, or which,
though foreseen, were inevitable" (Art. 1174, Civ. Code of the
Philippines). It is, therefore, not enough that the event should
not have been foreseen or anticipated, as is commonly
believed, but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility
to foresee the same: "un hecho no constituye caso fortuito por
la sola circunstancia de que su existencia haga mas dificil o
mas onerosa la accion diligente del presento ofensor" (Peirano
Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569). The
very measures adopted by appellant prove that the possibility
of danger was not only foreseeable, but actually foreseen, and
was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring
Corporation, knowing and appreciating the perils posed by the
swollen stream and its swift current, voluntarily entered into a
situation involving obvious danger; it therefore assured the risk,
and can not shed responsibility merely because the
precautions it adopted turned out to be insufficient. Hence, the
lower Court committed no error in holding it negligent in not
suspending operations and in holding it liable for the damages
caused.
It avails the appellant naught to argue that the dolphins, like
the bridge, were improperly located. Even if true, these
circumstances would merely emphasize the need of even
higher degree of care on appellant's part in the situation
involved in the present case. The appellant, whose barges and
tugs travel up and down the river everyday, could not safely
ignore the danger posed by these allegedly improper
constructions that had been erected, and in place, for years.
On the second point: appellant charges the lower court with
having abused its discretion in the admission of plaintiff's
additional evidence after the latter had rested its case. There is
an insinuation that the delay was deliberate to enable the
manipulation of evidence to prejudice defendant-appellant.
We find no merit in the contention. Whether or not further
evidence will be allowed after a party offering the evidence has
rested his case, lies within the sound discretion of the trial
Judge, and this discretion will not be reviewed except in clear
case of abuse.3
In the present case, no abuse of that discretion is shown. What
was allowed to be introduced, after plaintiff had rested its
evidence in chief, were vouchers and papers to support an
item of P1,558.00 allegedly spent for the reinforcement of the
panel of the bailey bridge, and which item already appeared in
Exhibit GG. Appellant, in fact, has no reason to charge the trial
court of being unfair, because it was also able to secure, upon
written motion, a similar order dated November 24, 1962,
allowing reception of additional evidence for the said
defendant-appellant.4
WHEREFORE, finding no error in the decision of the lower
Court appealed from, the same is hereby affirmed. Costs
against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez,
Castro, Angeles and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.
Footnotes
1
The lead-tugboat "Bangus" was pulling the barge,
while the tugboat "Barbero" was holding or restraining
it at the back.
2
Lasam vs. Smith, 45 Phil. 661.
3
Lopez vs. Liboro, 81 Phil. 429.
4
p. 89, Record on Appeal.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25906 May 28, 1970
PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and
JUANITO LAUREANO, defendants-appellants.
Pedro D. Dioquino in his own behalf.
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova
for defendants-appellants.
FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be
called such, the use of a car owned by plaintiff Pedro D.
Dioquino by defendant Federico Laureano, clearly of a
character casual and temporary but unfortunately married by
an occurrence resulting in its windshield being damaged. A
stone thrown by a boy who, with his other companions, was
thus engaged in what undoubtedly for them must have been
mistakenly thought to be a none too harmful prank did not miss
its mark. Plaintiff would hold defendant Federico Laureano
accountable for the loss thus sustained, including in the action
filed the wife, Aida de Laureano, and the father, Juanito
Laureano. Plaintiff prevail in the lower court, the judgment
however going only against the principal defendant, his spouse
and his father being absolved of any responsibility.
Nonetheless, all three of them appealed directly to us, raising
two questions of law, the first being the failure of the lower
court to dismiss such a suit as no liability could have been
incurred as a result of a fortuitous event and the other being its
failure to award damages against plaintiff for the unwarranted
inclusion of the wife and the father in this litigation. We agree
that the lower court ought to have dismissed the suit, but it
does not follow that thereby damages for the inclusion of the
above two other parties in the complaint should have been
awarded appellants.
The facts as found by the lower court follow: "Attorney Pedro
Dioquino, a practicing lawyer of Masbate, is the owner of a car.
On March 31, 1964, he went to the office of the MVO,
Masbate, to register the same. He met the defendant Federico
Laureano, a patrol officer of said MVO office, who was waiting
for a jeepney to take him to the office of the Provincial
Commander, PC, Masbate. Attorney Dioquino requested the
defendant Federico Laureano to introduce him to one of the
clerks in the MVO Office, who could facilitate the registration of
his car and the request was graciously attended to. Defendant
Laureano rode on the car of Atty. Dioquino on his way to the
P.C. Barracks at Masbate. While about to reach their
destination, the car driven by plaintiff's driver and with
defendant Federico Laureano as the sole passenger was
stoned by some 'mischievous boys,' and its windshield was
broken. Defendant Federico Laureano chased the boys and he
was able to catch one of them. The boy was taken to Atty.
Dioquino [and] admitted having thrown the stone that broke the
car's windshield. The plaintiff and the defendant Federico
Laureano with the boy returned to the P.C. barracks and the
father of the boy was called, but no satisfactory arrangements
[were] made about the damage to the
windshield." 1
It was likewise noted in the decision now on appeal: "The
defendant Federico Laureano refused to file any charges
against the boy and his parents because he thought that the
stone-throwing was merely accidental and that it was due
to force majeure. So he did not want to take any action and
after delaying the settlement, after perhaps consulting a
lawyer, the defendant Federico Laureano refused to pay the
windshield himself and challenged that the case be brought to
court for judicial adjudication. There is no question that the
plaintiff tried to convince the defendant Federico Laureano just
to pay the value of the windshield and he even came to the
extent of asking the wife to convince her husband to settle the
matter amicably but the defendant Federico Laureano refused
to make any settlement, clinging [to] the belief that he could not
be held liable because a minor child threw a stone accidentally
on the windshield and therefore, the same was due to force
majeure." 2
1. The law being what it is, such a belief on the part of
defendant Federico Laureano was justified. The express
language of Art. 1174 of the present Civil Code which is a
restatement of Art. 1105 of the Old Civil Code, except for the
addition of the nature of an obligation requiring the assumption
of risk, compels such a conclusion. It reads thus: "Except in
cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible
for those events which could not be, foreseen, or which,
though foreseen were inevitable." Even under the old Civil
Code then, as stressed by us in the first decision dating back
to 1908, in an opinion by Justice Mapa, the rule was well-
settled that in the absence of a legal provision or an express
covenant, "no one should be held to account for fortuitous
cases." 3 Its basis, as Justice Moreland stressed, is the Roman
law principle major casus est, cui humana infirmitas resistere
non potest. 4 Authorities of repute are in agreement, more
specifically concerning an obligation arising from contract "that
some extraordinary circumstance independent of the will of the
obligor, or of his employees, is an essential element of a caso
fortuito." 5 If it could be shown that such indeed was the case,
liability is ruled out. There is no requirement of "diligence
beyond what human care and foresight can provide." 6
The error committed by the lower court in holding defendant
Federico Laureano liable appears to be thus obvious. Its own
findings of fact repel the motion that he should be made to
respond in damages to the plaintiff for the broken windshield.
What happened was clearly unforeseen. It was a fortuitous
event resulting in a loss which must be borne by the owner of
the car. An element of reasonableness in the law would be
manifestly lacking if, on the circumstances as thus disclosed,
legal responsibility could be imputed to an individual in the
situation of defendant Laureano. Art. 1174 of the Civil Code
guards against the possibility of its being visited with such a
reproach. Unfortunately, the lower court was of a different mind
and thus failed to heed its command.
It was misled, apparently, by the inclusion of the exemption
from the operation of such a provision of a party assuming the
risk, considering the nature of the obligation undertaken. A
more careful analysis would have led the lower court to a
different and correct interpretation. The very wording of the law
dispels any doubt that what is therein contemplated is the
resulting liability even if caused by a fortuitous event where the
party charged may be considered as having assumed the risk
incident in the nature of the obligation to be performed. It would
be an affront, not only to the logic but to the realities of the
situation, if in the light of what transpired, as found by the lower
court, defendant Federico Laureano could be held as bound to
assume a risk of this nature. There was no such obligation on
his part.
Reference to the leading case of Republic v. Luzon
Stevedoring Corp. 7 will illustrate when the nature of the
obligation is such that the risk could be considered as having
been assumed. As noted in the opinion of Justice J.B.L. Reyes,
speaking for the Court: "The appellant strongly stresses the
precautions taken by it on the day in question: that it assigned
two of its most powerful tugboats to tow down river its barge L-
1892; that it assigned to the task the more competent and
experienced among its patrons, had the towlines, engines and
equipment double-checked and inspected; that it instructed
its patrons to take extra-precautions; and concludes that it had
done all it was called to do, and that the accident, therefore,
should be held due to force majeure or fortuitous event." Its
next paragraph explained clearly why the defense of caso
fortuito or force majeure does not lie. Thus: "These very
precautions, however, completely destroy the appellant's
defense. For caso fortuito or force majeure (which in law are
identical in so far as they exempt an obligor from liability) by
definition, are extraordinary events not foreseeable or
avoidable, 'events that could not be foreseen, or which, though
foreseen, were inevitable' (Art. 1174, Civil Code of the
Philippines). It is, therefore, not enough that the event should
not have been foreseen or participated, as is commonly
believed, but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility
to foresee the same: un hecho no constituye caso fortuito por
la sola circunstancia de que su existencia haga mas dificil o
mas onerosa la accion diligente del presente ofensor' (Peirano
Facio, Responsibilidad Extra-contractual, p. 465;
Mazeaud, Traite de la Responsibilite Civile, Vol. 2, sec. 1569).
The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually
foreseen, and was not caso fortuito."
In that case then, the risk was quite evident and the nature of
the obligation such that a party could rightfully be deemed as
having assumed it. It is not so in the case before us. It is
anything but that. If the lower court, therefore, were duly
mindful of what this particular legal provision contemplates, it
could not have reached the conclusion that defendant Federico
Laureano could be held liable. To repeat, that was clear error
on its part.
2. Appellants do not stop there. It does not suffice for them that
defendant Federico Laureano would be freed from liability.
They would go farther. They would take plaintiff to task for his
complaint having joined the wife, Aida de Laureano, and the
father, Juanita Laureano. They were far from satisfied with the
lower court's absolving these two from any financial
responsibility. Appellants would have plaintiff pay damages for
their inclusion in this litigation. We are not disposed to view the
matter thus.
It is to be admitted, of course, that plaintiff, who is a member of
the bar, ought to have exercised greater care in selecting the
parties against whom he would proceed. It may be said that his
view of the law that would consider defendant Federico
Laureano liable on the facts as thus disclosed, while
erroneous, is not bereft of plausibility. Even the lower court,
mistakenly of course, entertained similar view. For plaintiff,
however, to have included the wife and the father would seem
to indicate that his understanding of the law is not all that it
ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion
in the suit filed by him was characterized by unorthodoxy. He
did attempt to lend some color of justification by explicitly
setting forth that the father was joined as party defendant in the
case as he was the administrator of the inheritance of an
undivided property to which defendant Federico Laureano
could lay claim and that the wife was likewise proceeded
against because the conjugal partnership would be made to
respond for whatever liability would be adjudicated against the
husband.
It cannot be said that such an attempt at justification is
impressed with a high persuasive quality. Far from it.
Nonetheless, mistaken as plaintiff apparently was, it cannot be
concluded that he was prompted solely by the desire to inflict
needless and unjustified vexation on them. Considering the
equities of the situation, plaintiff having suffered a pecuniary
loss which, while resulting from a fortuitous event, perhaps
would not have occurred at all had not defendant Federico
Laureano borrowed his car, we, feel that he is not to be
penalized further by his mistaken view of the law in including
them in his complaint. Well-worth paraphrasing is the thought
expressed in a United States Supreme Court decision as to the
existence of an abiding and fundamental principle that the
expenses and annoyance of litigation form part of the social
burden of living in a society which seeks to attain social control
through law. 8
WHEREFORE, the decision of the lower court of November 2,
1965 insofar as it orders defendant Federico Laureano to pay
plaintiff the amount of P30,000.00 as damages plus the
payment of costs, is hereby reversed. It is affirmed insofar as it
dismissed the case against the other two defendants, Juanita
Laureano and Aida de Laureano, and declared that no moral
damages should be awarded the parties. Without
pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,

Teehankee, Barredo and Villamor, JJ., concur.

Castro. J., is on leave.

Footnotes

1 Decision, Record on Appeal, pp. 29-30.

2 Ibid, pp. 36-37.

3 Crame Sy Panco v. Gonzaga, 10 Phil. 646, 648. Cf.

Chan Keep v. Chan Gioco, 14 Phil. 5 (1909) and
Novo & Co. v. Ainsworth, 26 Phil. 380 (1913).

4 Roman Catholic Bishop of Jaro v. De la Pena, 26

Phil. 144, 146 (1913).

5 Lasam v. Smith, 45 Phil. 657, 661-662 (1924). Cf.

Yap Kim Chuan v. Tiaoqui, 31 Phil. 433 (1955);
University of Santo Tomas v. Descals, 38 Phil. 267
(1918); Lizares v. Hernaez, 40 Phil. 981 (1920);
Garcia v. Escudero, 43 Phil. 437 (1922); Millan v. Rio
y Olabarrieta, 45 Phil. 718 (1924); Obejera v. Iga Sy,
76 Phil. 580 (1946).

6 Gillaco v. Manila Railroad Co., 97 Phil. 884 (1955).

7 L-21749, Sept. 29, 1967, 21 SCRA 279.

8 Cf. Petroleum Exploration v. Public Service

Commission, 304 US 209 (1938).
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO
ABAD and MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
REYES, J.B.L., J.:
Guillermo Austria petitions for the review of the decision
rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on
the sole issue of whether in a contract of agency (consignment
of goods for sale) it is necessary that there be prior conviction
for robbery before the loss of the article shall exempt the
consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad
acknowledged having received from Guillermo Austria one (1)
pendant with diamonds valued at P4,500.00, to be sold on
commission basis or to be returned on demand. On 1 February
1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by
two men, one of whom hit her on the face, while the other
snatched her purse containing jewelry and cash, and ran away.
Among the pieces of jewelry allegedly taken by the robbers
was the consigned pendant. The incident became the subject
of a criminal case filed in the Court of First Instance of Rizal
against certain persons (Criminal Case No. 10649, People vs.
Rene Garcia, et al.).
As Abad failed to return the jewelry or pay for its value
notwithstanding demands, Austria brought in the Court of First
Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages.
Answering the allegations of the complaint, defendants
spouses set up the defense that the alleged robbery had
extinguished their obligation.
After due hearing, the trial court rendered judgment for the
plaintiff, and ordered defendants spouses, jointly and severally,
to pay to the former the sum of P4,500.00, with legal interest
thereon, plus the amount of P450.00 as reasonable attorneys'
fees, and the costs. It was held that defendants failed to prove
the fact of robbery, or, if indeed it was committed, that
defendant Maria Abad was guilty of negligence when she went
home without any companion, although it was already getting
dark and she was carrying a large amount of cash and
valuables on the day in question, and such negligence did not
free her from liability for damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the
Court of Appeals, and there secured a reversal of the
judgment. The appellate court overruling the finding of the trial
court on the lack of credibility of the two defense witnesses
who testified on the occurrence of the robbery, and holding that
the facts of robbery and defendant Maria Abad's possesion of
the pendant on that unfortunate day have been duly published,
declared respondents not responsible for the loss of the
jewelry on account of a fortuitous event, and relieved them
from liability for damages to the owner. Plaintiff thereupon
instituted the present proceeding.
It is now contended by herein petitioner that the Court of
Appeals erred in finding that there was robbery in the case,
although nobody has been found guilty of the supposed crime.
It is petitioner's theory that for robbery to fall under the
category of a fortuitous event and relieve the obligor from his
obligation under a contract, pursuant to Article 1174 of the new
Civil Code, there ought to be prior finding on the guilt of the
persons responsible therefor. In short, that the occurrence of
the robbery should be proved by a final judgment of conviction
in the criminal case. To adopt a different view, petitioner
argues, would be to encourage persons accountable for goods
or properties received in trust or consignment to connive with
others, who would be willing to be accused in court for the
robbery, in order to be absolved from civil liability for the loss or
disappearance of the entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the
human will (or rather, of the debtor's or obligor's); (2) the
occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner; and that (3) the obligor must be
free of participation in or aggravation of the injury to the
creditor. 1 A fortuitous event, therefore, can be produced by
nature, e.g., earthquakes, storms, floods, etc., or by the act of
man, such as war, attack by bandits, robbery, 2etc., provided
that the event has all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were
indeed the victim of robbery, and if it were really true that the
pendant, which she was obliged either to sell on commission or
to return to petitioner, were taken during the robbery, then the
occurrence of that fortuitous event would have extinguished
her liability. The point at issue in this proceeding is how the fact
of robbery is to be established in order that a person may avail
of the exempting provision of Article 1174 of the new Civil
Code, which reads as follows:
 ART. 1174. Except in cases expressly WHEREFORE, finding no error in the decision of the Court of
specified by law, or when it is otherwise Appeals under review, the petition in this case is hereby
declared by stipulation, or when the nature of dismissed with costs against the petitioner.
the obligation requires the assumption of
risk, no person shall be responsible for those Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando,
events which could not be foreseen, or Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
which, though foreseen, were inevitable.
Castro, J., took no part.
It may be noted the reform that the emphasis of the provision is
on the events, not on the agents or factors responsible for
them. To avail of the exemption granted in the law, it is not
necessary that the persons responsible for the occurrence
Footnotes
should be found or punished; it would only be sufficient to
established that the enforceable event, the robbery in this case
did take place without any concurrent fault on the debtor's part, 1 Reyes & Puno, Outline of Philippine Civil
and this can be done by preponderant evidence. To require in Law, Vol. IV, pages 25-26, citing Lasam vs.
the present action for recovery the prior conviction of the Smith, 45 Phil. 657, 661.
culprits in the criminal case, in order to establish the robbery as
a fact, would be to demand proof beyond reasonable doubt to 2 Tolentino, Civil Code of the Philippines,
prove a fact in a civil case. Vol. IV, 1962 ed., page 117, citing 3 Salvat
83-84.
It is undeniable that in order to completely exonerate the
debtor for reason of a fortutious event, such debtor must, in 3 V. Lachica vs. Gayoso, 48 Off. Gaz. (No. 1)
addition to the cams itself, be free of any concurrent or 205, and cases cited; Lanaso Fruit SS Co.
contributory fault or negligence. 3 This is apparent from Article vs. Univ. Ins. Co., 82 L. Ed. 422.
1170 of the Civil Code of the Philippines, providing that:

ART. 1170. Those who in the performance of

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

It is clear that under the circumstances prevailing at present in

the City of Manila and its suburbs, with their high incidence of
crimes against persons and property that renders travel after
nightfall a matter to be sedulously avoided without suitable
precaution and protection, the conduct of respondent Maria G.
Abad, in returning alone to her house in the evening, carrying
jewelry of considerable value would be negligent per se and
would not exempt her from responsibility in the case of a
robbery. We are not persuaded, however, that the same rule
should obtain ten years previously, in 1961, when the robbery
in question did take place, for at that time criminality had not by
far reached the levels attained in the present day.

There is likewise no merit in petitioner's argument that to allow

the fact of robbery to be recognized in the civil case before
conviction is secured in the criminal action, would prejudice the
latter case, or would result in inconsistency should the accused
obtain an acquittal or should the criminal case be dismissed. It
must be realized that a court finding that a robbery has
happened would not necessarily mean that those accused in
the criminal action should be found guilty of the crime; nor
would a ruling that those actually accused did not commit the
robbery be inconsistent with a finding that a robbery did take
place. The evidence to establish these facts would not
necessarily be the same.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING
CONSTRUCTION, INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of
the respondent Court of Appeals which adjudged the National
Power Corporation liable for damages against Engineering
Construction, Inc. The appellate court, however, reduced the
amount of damages awarded by the trial court. Hence, both
parties filed their respective petitions: the National Power
Corporation (NPC) in G.R. No. 47379, questioning the decision
of the Court of Appeals for holding it liable for damages and the
Engineering Construction, Inc. (ECI) in G.R. No. 47481,
questioning the same decision for reducing the consequential
damages and attorney's fees and for eliminating the exemplary
damages.
The facts are succinctly summarized by the respondent Court
of Appeals, as follows:
On August 4, 1964, plaintiff Engineering
Construction, Inc., being a successful bidder,
executed a contract in Manila with the
National Waterworks and Sewerage
Authority (NAWASA), whereby the former
undertook to furnish all tools, labor,
equipment, and materials (not furnished by
Owner), and to construct the proposed 2nd
lpo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and
Appurtenant Features, at Norzagaray,
Bulacan, and to complete said works within
eight hundred (800) calendar days from the
date the Contractor receives the formal
notice to proceed (Exh. A).
The project involved two (2) major phases:
the first phase comprising, the tunnel work
covering a distance of seven (7) kilometers,
passing through the mountain, from the Ipo
river, a part of Norzagaray, Bulacan, where
the Ipo Dam of the defendant National
Power Corporation is located, to Bicti; the
other phase consisting of the outworks at
both ends of the tunnel.
By September 1967, the plaintiff corporation
already had completed the first major phase
of the work, namely, the tunnel excavation
work. Some portions of the outworks at the
Bicti site were still under construction. As
soon as the plaintiff corporation had finished
the tunnel excavation work at the Bicti site,
all the equipment no longer needed there
were transferred to the Ipo site where some
projects were yet to be completed.
The record shows that on November 4,1967,
typhoon 'Welming' hit Central Luzon, passing
through defendant's Angat Hydro-electric
Project and Dam at lpo, Norzagaray,
Bulacan. Strong winds struck the project
area, and heavy rains intermittently fell. Due
to the heavy downpour, the water in the
reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters
per hour. To prevent an overflow of water
from the dam, since the water level had
reached the danger height of 212 meters
above sea level, the defendant corporation
caused the opening of the spillway gates."
(pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that
the evidence preponlderantly established the fact that due to
the negligent manner with which the spillway gates of the
Angat Dam were opened, an extraordinary large volume of
water rushed out of the gates, and hit the installations and
construction works of ECI at the lpo site with terrific impact, as
a result of which the latter's stockpile of materials and supplies,
camp facilities and permanent structures and accessories
either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no
negligence or that the appellant exercised
extraordinary care in the opening of the
spillway gates of the Angat Dam. Maintainers
of the dam knew very well that it was far
more safe to open them gradually. But the
spillway gates were opened only when
 typhoon Welming was already at its height,
in a vain effort to race against time and
prevent the overflow of water from the dam
as it 'was rising dangerously at the rate of
sixty centimeters per hour. 'Action could
have been taken as early as November 3,
1967, when the water in the reservoir was
still low. At that time, the gates of the dam
could have been opened in a regulated
manner. Let it be stressed that the appellant
knew of the coming of the typhoon four days
before it actually hit the project area. (p. 53,
L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The
appellee submitted a list of estimated losses
and damages to the tunnel project (Ipo side)
caused by the instant flooding of the Angat
River (Exh. J-1). The damages were
itemized in four categories, to wit: Camp
Facilities P55,700.00; Equipment, Parts and
Plant P375,659.51; Materials
P107,175.80; and Permanent Structures and
accessories P137,250.00, with an
aggregate total amount of P675,785.31. The
list is supported by several vouchers which
were all submitted as Exhibits K to M-38 a, N
to O, P to U-2 and V to X- 60-a (Vide:
Folders Nos. 1 to 4). The appellant did not
submit proofs to traverse the aforementioned
documentary evidence. We hold that the
lower court did not commit any error in
awarding P 675,785.31 as actual or
compensatory damages.
However, We cannot sustain the award of
P333,200.00 as consequential damages.
This amount is broken down as follows:
P213,200.00 as and for the rentals of a
crane to temporarily replace the one
"destroyed beyond repair," and P120,000.00
as one month bonus which the appellee
failed to realize in accordance with the
contract which the appellee had with
NAWASA. Said rental of the crane allegedly
covered the period of one year at the rate of
P40.00 an hour for 16 hours a day. The
evidence, however, shows that the appellee
bought a crane also a crawler type, on
November 10, 1967, six (6) days after the
incident in question (Exh N) And according to
the lower court, which finding was never
assailed, the appellee resumed its normal
construction work on the Ipo- Bicti Project
after a stoppage of only one month. There is
no evidence when the appellee received the
crane from the seller, Asian Enterprise
Limited. But there was an agreement that the
shipment of the goods would be effected
within 60 days from the opening of the letter
of credit (Exh. N).<re||an1w> It
appearing that the contract of sale was
consummated, We must conclude or at least
assume that the crane was delivered to the
appellee within 60 days as stipulated. The
appellee then could have availed of the
services of another crane for a period of only
one month (after a work stoppage of one
month) at the rate of P 40.00 an hour for 16
hours a day or a total of P 19,200.00 as
rental.
But the value of the new crane cannot be
included as part of actual damages because
the old was reactivated after it was repaired.
The cost of the repair was P 77,000.00 as
shown in item No. 1 under the Equipment,
Parts and Plants category (Exh. J-1), which
amount of repair was already included in the
actual or compensatory damages. (pp. 54-
56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized
bonus from NAWASA in the amount of P120,000.00 (computed
at P4,000.00 a day in case construction is finished before the
specified time, i.e., within 800 calendar days), considering that
the incident occurred after more than three (3) years or one
thousand one hundred seventy (1,170) days. The court also
eliminated the award of exemplary damages as there was no
gross negligence on the part of NPC and reduced the amount
of attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate
court's decision as being erroneous on the ground that the
destruction and loss of the ECI's equipment and facilities were
due to force majeure. It argues that the rapid rise of the water
level in the reservoir of its Angat Dam due to heavy rains
brought about by the typhoon was an extraordinary occurrence
that could not have been foreseen, and thus, the subsequent
release of water through the spillway gates and its resultant
effect, if any, on ECI's equipment and facilities may rightly be
attributed to force majeure.
On the other hand, ECI assails the reduction of the
consequential damages from P333,200.00 to P19,000.00 on
the grounds that the appellate court had no basis in concluding
that ECI acquired a new Crawler-type crane and therefore, it
only can claim rentals for the temporary use of the leased
crane for a period of one month; and that the award of
P4,000.00 a day or P120,000.00 a month bonus is justified
since the period limitation on ECI's contract with NAWASA had
dual effects, i.e., bonus for earlier completion and liquidated
damages for delayed performance; and in either case at the
rate of P4,000.00 daily. Thus, since NPC's negligence
compelled work stoppage for a period of one month, the said
award of P120,000.00 is justified. ECI further assailes the
reduction of attorney's fees and the total elimination of
exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its
findings of fact and that of the trial court's, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of
the Angat Dam only at the height of typhoon "Welming" when it
knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew
of the coming typhoon at least four days before it actually
struck. And even though the typhoon was an act of God or
what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss
and damage. As we have ruled in Juan F. Nakpil & Sons v.
Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous
event or an act of God, there concurs a
corresponding fraud, negligence, delay or
violation or contravention in any manner of
the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results
in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God
doctrine strictly requires that the act must be
one occasioned exclusively by the violence
of nature and human agencies are to be
excluded from creating or entering into the
cause of the mischief. When the effect, the
cause of which is to be considered, is found
to be in part the result of the participation of
man, whether it be from active intervention
or neglect, or failure to act, the whole
occurrence is thereby humanized, as it was,
and removed from the rules applicable to the
acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the
negligence of a person concurs with an act
of God in producing a loss, such person is
not exempt from liability by showing that the
immediate cause of the damage was the act
of God. To be exempt from liability for loss
because of an act of God, he must be free
from any previous negligence or misconduct
by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan 49 O.G.
4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v.
Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was
negligence on the part of NPC is a question of fact which
properly falls within the jurisdiction of the Court of Appeals and
will not be disturbed by this Court unless the same is clearly
unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA
26, 36) we ruled:
Moreover, the findings of fact of the Court of
Appeals are generally final and conclusive
upon the Supreme Court (Leonardo v. Court
of Appeals, 120 SCRA 890 [1983]. In fact it is
settled that the Supreme Court is not
supposed to weigh evidence but only to
determine its substantially (Nuez v.
Sandiganbayan, 100 SCRA 433 [1982] and
will generally not disturb said findings of fact
when supported by substantial evidence
(Aytona v. Court of Appeals, 113 SCRA 575
[1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3
[1985]. On the other hand substantial
evidence is defined as such relevant
evidence as a reasonable mind might accept
as adequate to support a conclusion
(Philippine Metal Products, Inc. v. Court of
Industrial Relations, 90 SCRA 135 [1979];
Police Commission v. Lood, 127 SCRA 757
[1984]; Canete v. WCC, 136 SCRA 302
[1985])
Therefore, the respondent Court of Appeals did not err in
holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages
from P333,200.00 to P19,000.00. As shown by the records,
while there was no categorical statement or admission on the
part of ECI that it bought a new crane to replace the damaged
one, a sales contract was presented to the effect that the new
crane would be delivered to it by Asian Enterprises within 60
days from the opening of the letter of credit at the cost of
P106,336.75. The offer was made by Asian Enterprises a few
days after the flood. As compared to the amount of
P106,336.75 for a brand new crane and paying the alleged
amount of P4,000.00 a day as rental for the use of a temporary
crane, which use petitioner ECI alleged to have lasted for a
period of one year, thus, totalling P120,000.00, plus the fact
that there was already a sales contract between it and Asian
Enterprises, there is no reason why ECI should opt to rent a
temporary crane for a period of one year. The appellate court
also found that the damaged crane was subsequently repaired
and reactivated and the cost of repair was P77,000.00.
Therefore, it included the said amount in the award of of
compensatory damages, but not the value of the new crane.
We do not find anything erroneous in the decision of the
appellate court that the consequential damages should
represent only the service of the temporary crane for one
month. A contrary ruling would result in the unjust enrichment
of ECI.
The P120,000.00 bonus was also properly eliminated as the
same was granted by the trial court on the premise that it
represented ECI's lost opportunity "to earn the one month
bonus from NAWASA ... ." As stated earlier, the loss or damage
to ECI's equipment and facilities occurred long after the
stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that point
in time. The supposed liquidated damages for failure to finish
the project within the stipulated period or the opposite of the
claim for bonus is not clearly presented in the records of these
petitions. It is not shown that NAWASA imposed them.

As to the question of exemplary damages, we sustain the

appellate court in eliminating the same since it found that there
was no bad faith on the part of NPC and that neither can the
latter's negligence be considered gross. In Dee Hua Liong
Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
ruled:

Neither may private respondent recover

exemplary damages since he is not entitled
to moral or compensatory damages, and
again because the petitioner is not shown to
have acted in a wanton, fraudulent, reckless
or oppressive manner (Art. 2234, Civil Code;
Yutuk v. Manila Electric Co., 2 SCRA 377;
Francisco v. Government Service Insurance
System, 7 SCRA 577; Gutierrez v. Villegas, 8
SCRA 527; Air France v. Carrascoso, 18
SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v.
Mendoza, 24 SCRA 888).

We also affirm the reduction of attorney's fees from P50,000.00

to P30,000.00. There are no compelling reasons why we
should set aside the appellate court's finding that the latter
amount suffices for the services rendered by ECI's counsel.

WHEREFORE, the petitions in G.R. No. 47379 and G.R. No.

47481 are both DISMISSED for LACK OF MERIT. The decision
appealed from is AFFIRMED.

SO ORDERED.

Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 113003 October 17, 1997
ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners,
vs.
COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY
and JASMIN TUMBOY, respondents.
ROMERO, J.:
In this petition for review on certiorari of the decision of the
Court of Appeals, the issue is whether or not the explosion of a
newly installed tire of a passenger vehicle is a fortuitous event
that exempts the carrier from liability for the death of a
passenger.
On April 26, 1988, spouses Tito and Leny Tumboy and their
minor children named Ardee and Jasmin, bearded at
Mangagoy, Surigao del Sur, a Yobido Liner bus bound for
Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan
del Sur, the left front tire of the bus exploded. The bus fell into
a ravine around three (3) feet from the road and struck a tree.
The incident resulted in the death of 28-year-old Tito Tumboy
and physical injuries to other passengers.
On November 21, 1988, a complaint for breach of contract of
carriage, damages and attorney's fees was filed by Leny and
her children against Alberta Yobido, the owner of the bus, and
Cresencio Yobido, its driver, before the Regional Trial Court of
Davao City. When the defendants therein filed their answer to
the complaint, they raised the affirmative defense of caso
fortuito. They also filed a third-party complaint against
Philippine Phoenix Surety and Insurance, Inc. This third-party
defendant filed an answer with compulsory counterclaim. At the
pre-trial conference, the parties agreed to a stipulation of
facts. 1
Upon a finding that the third party defendant was not liable
under the insurance contract, the lower court dismissed the
third party complaint. No amicable settlement having been
arrived at by the parties, trial on the merits ensued.
The plaintiffs asserted that violation of the contract of carriage
between them and the defendants was brought about by the
driver's failure to exercise the diligence required of the carrier
in transporting passengers safely to their place of destination.
According to Leny Tumboy, the bus left Mangagoy at 3:00
o'clock in the afternoon. The winding road it traversed was not
cemented and was wet due to the rain; it was rough with
crushed rocks. The bus which was full of passengers had
cargoes on top. Since it was "running fast," she cautioned the
driver to slow down but he merely stared at her through the
mirror. At around 3:30 p.m., in Trento, she heard something
explode and immediately, the bus fell into a ravine.
For their part, the defendants tried to establish that the
accident was due to a fortuitous event. Abundio Salce, who
was the bus conductor when the incident happened, testified
that the 42-seater bus was not full as there were only 32
passengers, such that he himself managed to get a seat. He
added that the bus was running at a speed of "60 to 50" and
that it was going slow because of the zigzag road. He affirmed
that the left front tire that exploded was a "brand new tire" that
he mounted on the bus on April 21, 1988 or only five (5) days
before the incident. The Yobido Liner secretary, Minerva
Fernando, bought the new Goodyear tire from Davao Toyo
Parts on April 20, 1988 and she was present when it was
mounted on the bus by Salce. She stated that all driver
applicants in Yobido Liner underwent actual driving tests before
they were employed. Defendant Cresencio Yobido underwent
such test and submitted his professional driver's license and
clearances from the barangay, the fiscal and the police.
On August 29, 1991, the lower court rendered a
decision 2 dismissing the action for lack of merit. On the issue
of whether or not the tire blowout was a caso fortuito, it found
that "the falling of the bus to the cliff was a result of no other
outside factor than the tire blow-out." It held that the ruling in
the La Mallorca and Pampanga Bus Co. v. De Jesus 3 that a
tire blowout is "a mechanical defect of the conveyance or a
fault in its equipment which was easily discoverable if the bus
had been subjected to a more thorough or rigid check-up
before it took to the road that morning" is inapplicable to this
case. It reasoned out that in said case, it was found that the
blowout was caused by the established fact that the inner tube
of the left front tire "was pressed between the inner circle of the
left wheel and the rim which had slipped out of the wheel." In
this case, however, "the cause of the explosion remains a
mystery until at present." As such, the court added, the tire
blowout was "a caso fortuito which is completely an
extraordinary circumstance independent of the will" of the
defendants who should be relieved of "whatever liability the
plaintiffs may have suffered by reason of the explosion
pursuant to Article 1174 4 of the Civil Code."
Dissatisfied, the plaintiffs appealed to the Court of Appeals.
They ascribed to the lower court the following errors: (a) finding
that the tire blowout was a caso fortuito; (b) failing to hold that
the defendants did not exercise utmost and/or extraordinary
diligence required of carriers under Article 1755 of the Civil
Code, and (c) deciding the case contrary to the ruling
in Juntilla v. Fontanar, 5 and Necesito v. Paras. 6
On August 23, 1993, the Court of Appeals rendered the
Decision 7 reversing that of the lower court. It held that:
To Our mind, the explosion of the tire is not in itself a
fortuitous event. The cause of the blow-out, if due to a
 factory defect, improper mounting, excessive tire
pressure, is not an unavoidable event. On the other
hand, there may have been adverse conditions on the
road that were unforeseeable and/or inevitable, which
could make the blow-out a caso fortuito. The fact that
the cause of the blow-out was not known does not
relieve the carrier of liability. Owing to the statutory
presumption of negligence against the carrier and its
obligation to exercise the utmost diligence of very
cautious persons to carry the passenger safely as far
as human care and foresight can provide, it is the
burden of the defendants to prove that the cause of
the blow-out was a fortuitous event. It is not
incumbent upon the plaintiff to prove that the cause of
the blow-out is not caso-fortuito.
Proving that the tire that exploded is a new Goodyear
tire is not sufficient to discharge defendants' burden.
As enunciated in Necesito vs. Paras, the passenger
has neither choice nor control over the carrier in the
selection and use of its equipment, and the good
repute of the manufacturer will not necessarily relieve
the carrier from liability.
Moreover, there is evidence that the bus was moving
fast, and the road was wet and rough. The driver
could have explained that the blow-out that
precipitated the accident that caused the death of
Toto Tumboy could not have been prevented even if
he had exercised due care to avoid the same, but he
was not presented as witness.
The Court of Appeals thus disposed of the appeal as follows:
WHEREFORE, the judgment of the court a quo is set
aside and another one entered ordering defendants to
pay plaintiffs the sum of P50,000.00 for the death of
Tito Tumboy, P30,000.00 in moral damages, and
P7,000.00 for funeral and burial expenses.
SO ORDERED.
The defendants filed a motion for reconsideration of said
decision which was denied on November 4, 1993 by the Court
of Appeals. Hence, the instant petition asserting the position
that the tire blowout that caused the death of Tito Tumboy was
a caso fortuito. Petitioners claim further that the Court of
Appeals, in ruling contrary to that of the lower court,
misapprehended facts and, therefore, its findings of fact cannot
be considered final which shall bind this Court. Hence, they
pray that this Court review the facts of the case.
The Court did re-examine the facts and evidence in this case
because of the inapplicability of the established principle that
the factual findings of the Court of Appeals are final and may
not be reviewed on appeal by this Court. This general principle
is subject to exceptions such as the one present in this case,
namely, that the lower court and the Court of Appeals arrived at
diverse factual findings. 8 However, upon such re-examination,
we found no reason to overturn the findings and conclusions of
the Court of Appeals.
As a rule, when a passenger boards a common carrier, he
takes the risks incidental to the mode of travel he has taken.
After all, a carrier is not an insurer of the safety of its
passengers and is not bound absolutely and at all events to
carry them safely and without injury. 9 However, when a
passenger is injured or dies while travelling, the law presumes
that the common carrier is negligent. Thus, the Civil Code
provides:
Art. 1756. In case of death or injuries to passengers,
common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that
they observed extraordinary diligence as prescribed in
articles 1733 and 1755.
Article 1755 provides that "(a) common carrier is bound to
carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances."
Accordingly, in culpa contractual, once a passenger dies or is
injured, the carrier is presumed to have been at fault or to have
acted negligently. This disputable presumption may only be
overcome by evidence that the carrier had observed
extraordinary diligence as prescribed by Articles 1733, 10 1755
and 1756 of the Civil Code or that the death or injury of the
passenger was due to a fortuitous event. 11 Consequently, the
court need not make an express finding of fault or negligence
on the part of the carrier to hold it responsible for damages
sought by the passenger. 12
In view of the foregoing, petitioners' contention that they should
be exempt from liability because the tire blowout was no more
than a fortuitous event that could not have been foreseen,
must fail. A fortuitous event is possessed of the following
characteristics: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to comply
with his obligations, must be independent of human will; (b) it
must be impossible to foresee the event which constitutes
the caso fortuito, or if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the obliger must be free from any participation
in the aggravation of the injury resulting to the creditor. 13 As
Article 1174 provides, no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though
foreseen, was inevitable. In other words, there must be an
entire exclusion of human agency from the cause of injury or
loss. 14
Under the circumstances of this case, the explosion of the new
tire may not be considered a fortuitous event. There are human
factors involved in the situation. The fact that the tire was new
did not imply that it was entirely free from manufacturing
defects or that it was properly mounted on the vehicle. Neither
may the fact that the tire bought and used in the vehicle is of a
brand name noted for quality, resulting in the conclusion that it
could not explode within five days' use. Be that as it may, it is
settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for
damages. 15
Moreover, a common carrier may not be absolved from liability
in case of force majeure or fortuitous event alone. The
common carrier must still prove that it was not negligent in
causing the death or injury resulting from an accident. 16 This
Court has had occasion to state:
While it may be true that the tire that blew-up was still
good because the grooves of the tire were still visible,
this fact alone does not make the explosion of the tire
a fortuitous event. No evidence was presented to
show that the accident was due to adverse road
conditions or that precautions were taken by the
jeepney driver to compensate for any conditions liable
to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air
pressure injected into the tire coupled by the fact that
the jeepney was overloaded and speeding at the time
of the accident. 17
It is interesting to note that petitioners proved through the bus
conductor, Salce, that the bus was running at "60-50"
kilometers per hour only or within the prescribed lawful speed
limit. However, they failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned
the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the
presumption of negligence of the carrier in the law. Coupled
with this is the established condition of the road rough,
winding and wet due to the rain. It was incumbent upon the
defense to establish that it took precautionary measures
considering partially dangerous condition of the road. As stated
above, proof that the tire was new and of good quality is not
sufficient proof that it was not negligent. Petitioners should
have shown that it undertook extraordinary diligence in the
care of its carrier, such as conducting daily routinary check-ups
of the vehicle's parts. As the late Justice J.B.L. Reyes said:
It may be impracticable, as appellee argues, to
require of carriers to test the strength of each and
every part of its vehicles before each trip; but we are
of the opinion that a due regard for the carrier's
obligations toward the traveling public demands
adequate periodical tests to determine the condition
and strength of those vehicle portions the failure of
which may endanger the safety of the passengers. 18
Having failed to discharge its duty to overthrow the
presumption of negligence with clear and convincing evidence,
petitioners are hereby held liable for damages. Article 1764 19 in
relation to Article 2206 20 of the Civil Code prescribes the
amount of at least three thousand pesos as damages for the
death of a passenger. Under prevailing jurisprudence, the
award of damages under Article 2206 has been increased to
fifty thousand pesos (P50,000.00). 21
Moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven. However,
the same damages may be recovered when breach of contract
of carriage results in the death of a passenger, 22 as in this
case. Exemplary damages, awarded by way of example or
correction for the public good when moral damages are
awarded, 23 may likewise be recovered in contractual
obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner. 24 Because
petitioners failed to exercise the extraordinary diligence
required of a common carrier, which resulted in the death of
Tito Tumboy, it is deemed to have acted recklessly. 25 As such,
private respondents shall be entitled to exemplary damages.
WHEREFORE, the Decision of the Court of Appeals is hereby
AFFIRMED subject to the modification that petitioners shall, in
addition to the monetary awards therein, be liable for the award
of exemplary damages in the amount of P20,000.00. Costs
against petitioners.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1 Record, pp. 77-78.
2 Penned by Judge William M. Layague.
3 123 Phil. 875 (1966).
4 Art. 1174. Except in cases expressly
specified by the law, or when it is otherwise
declared by stipulation, or when the nature of
the obligation requires the assumption of
risk, no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.
5 L-45637, May 31, 1985, 136 SCRA 624.
6 104 Phil. 75 (1958).
7 Penned by Associate Justice Minerva P.
Gonzaga-Reyes and concurred in by
Associate Justices Vicente V. Mendoza and
Pacita Caizares-Nye.
8 Philippine Rabbit Bus Lines, Inc. v. IAC,
G.R. Nos. 66102-04, August 30, 1990, 189
SCRA 158, 159.
9 TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, Vol. V, 1992 ed., p. 312.
10 Art. 1733. Common carriers, from the
nature of their business and for reasons of
public policy, are bound to observe
extraordinary diligence in the vigilance over
the goods and for the safety of the
passengers transported by them, according
to all the circumstances of each case.
Such extraordinary diligence in the
vigilance over the goods is further
expressed in articles 1734, 1735,
and 1745, Nos. 5, 6, and 7, while
the extraordinary diligence for the
safety of the passengers is further
set forth in articles 1755 and 1756.
11 Phil. Rabbit Bus Lines, Inc. vs.
IAC, supra, at pp. 171-172 citing Lasam v.
Smith, Jr., 45 Phil. 657 (1924).
12 Batangas Trans. Co. v. Caguimbal, 130
Phil. 166, 171 (1968) citing Brito Sy v. Malate
Taxicab & Garage, Inc., 102 Phil. 482 (1957).
be at least three thousand pesos, even
though there may have been mitigating
circumstances. . . . .
21 Sulpicio Lines, Inc. v. Court of Appeals,
316 Phil. 455, 460 (1995) citing People v.
Flores, G.R. Nos. 103801-02, October 19,
1994, 237 SCRA 653.
22 Sulpicio Lines, Inc. v. Court of
Appeals, supra at pp. 460-461 citing Trans
World Air Lines v. Court of Appeals, G.R. No.
78656, August 30, 1988, 165 SCRA 143;
Philippine Rabbit Bus Lines, Inc. v. Esguerra,
203 Phil. 107 (1982) and Vasquez v. Court of
Appeals, supra.
23 Art. 2229, Civil Code.
24 Art. 2232, supra.
25 Sulpicio Lines, Inc. v. Court of
Appeals, supra at p. 461.

13 Metal Forming Corp. v. Office of the

President, 317 Phil. 853, 859 (1995);
Vasquez v. Court of Appeals, L-42926,
September 13, 1985, 138 SCRA 553,
557 citing Lasam v. Smith, supra at p. 661
and Austria v. Court of Appeals, 148-A Phil.
462 (1971); Estrada v. Consolacion, L-
40948, June 29, 1976, 71 SCRA 523, 530;
Republic of the Phil. v. Luzon Stevedoring
Corporation, 128 Phil. 313 (1967).

14 Vasquez v. Court of Appeals, supra, at p.

557.

15 Son v. Cebu Autobus Co., 94 Phil. 893,

896 (1954) citing Lasam v. Smith, supra.

16 Bachelor Express, Inc. v. Court of

Appeals, G.R. No. 85691, July 31, 1990, 188
SCRA 216, 222-223.

17 Juntilla v. Fontanar, supra, at p. 630.

18 Necesito v. Paras, supra at p. 82.

19 Art. 1764. Damages in cases comprised

in this Section shall be awarded in
accordance with Title XVIII of this Book,
concerning Damages. Article 2206 shall also
apply to the death of a passenger caused, by
the breach of contract by a common carrier.

20 Art. 2206. The amount of damages for

death caused by a crime or quasi-delict shall
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 81100-01 February 7, 1990
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS AND ALONSO
GATUSLAO, respondents.
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-
INDUSTRIAL DEVELOPMENT OF SILAY-SARAVIA
(AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL
COOPERATIVE MARKETING ASSOCIATION (BM-ACMA),
respondents.
Jalandoni, Herrera, Del Castillo & Associates for
petitioner.
Taada, Vico & Tan for respondent AIDSISA.
San Juan, Gonzalez, San Agustin & Sinense for
respondents Alfonso Gatuslao and BM-ACMA.
PARAS, J.:
This is a petition for review on certiorari of the decision of
the Court of Appeals in CA-G.R. CV Nos. 59716-59717
promulgated on September 11, 1987 affirming in toto the
decision of the Court of First Instance of Negros
Occidental in two consolidated civil cases, the dispositive
portion of which reads as follows:
PREMISES CONSIDERED, the decision
appealed from is hereby affirmed in toto.
The uncontroverted facts of the case 1 are as follows:
1. xxx xxx xxx
2. BMMC is the owner and operator of the
sugar central in Bacolod City, Philippines;
3. ALONSO GATUSLAO is a registered
planter of the Bacolod-Murcia Mill District
with Plantation Audit No. 3-79, being a
registered owner of Lot Nos. 310, 140, 141
and 101-A of the Cadastral Survey of
Murcia, Negros Occidental, otherwise
known as Hda. San Roque;
4. On May 24, 1957 BMMC and Alonso
Gatuslao executed an 'Extension and
Modification of Milling Contract (Annex
'A' of the complaint in both cases) which
was registered on September 17, 1962 in
the Office of the Register of Deeds of
Negros Occidental, and annotated on
Transfer Certificates of Title Nos. T-24207,
RT-2252, RT-12035, and RT-12036
covering said Lot Nos. 310, 140, 141 and
101-A;
5. That since the crop year 1957-1958 up
to crop year 1967-1968, inclusive, Alonso
Gatuslao has been milling all the
sugarcane grown and produced on said
Lot Nos. 310, 140, 141 and 101-A with the
Mill of BMMC;.
6. Since the crop year 1920-21 to crop
year 1967-1968, inclusive, the canes of
planters adhered to the mill of BMMC
were transported from the plantation to
the mill by means of cane cars and
through railway system operated by
BMMC;
7. The loading points at which planters
Alonso Gatuslao was and should deliver
and load all his canes produced in his
plantation, Hda. San Roque, were at the
Arimas Line, Switch 2, and from which
loading stations, BMMC had been hauling
planter Gatuslao's sugar cane to its mill
or factory continuously until the crop
year 1967-68;
8. BMMC had not been able to use its
cane cars and railway system for the
cargo crop year 1968-1969;
9. Planter Alonso Gatuslao on various
dates requested transportation facilities
of BMMC to be sent to his loading
stations or switches for purposes of
hauling and milling his sugarcane crops
of crop year 1968-1969;
10. The estimated gross production of
Hda. San Roque for the crop year 1968-
1969 is 4,500 piculs.
The records show that since the crop year 1920-1921 to
the crop year 1967-1968, the canes of the adhered planters
were transported from the plantation to the mill of BMMC
by means of cane cars and through a railway system
operated by BMMC which traversed the land of the
adherent planters, corresponding to the rights of way on
their lands granted by the planters to the Central for the
duration of the milling contracts which is for "un periodo
de cuarenta y cinco anos o cosechas a contar desde la
cosecha de 1920-1921" 2 (a period of 45 years or harvests,
beginning with a harvest of 1920-1921).
BMMC constructed the railroad tracks in 1920 and the
adherent planters granted the BMMC a right of way over
their lands as provided for in the milling contracts. The
owners of the hacienda Helvetia were among the
signatories of the milling contracts. When their milling
contracts with petitioner BMMC expired at the end of the
1964-1965 crop year, the corresponding right of way of the
owners of the hacienda Helvetia granted to the Central
also expired.
Thus, the BMMC was unable to use its railroad facilities
during the crop year 1968-1969 due to the closure in 1968
of the portion of the railway traversing the hacienda
Helvetia as per decision of the Court in Angela Estate, Inc.
and Fernando F. Gonzaga, Inc. v. Court of First Instance of
Negros Occidental, G.R. No. L-27084, (24 SCRA 500
[1968]). In the same case the Court ruled that the Central's
conventional right of way over the hacienda Helvetia
ceased with the expiration of its amended milling
contracts with the landowners of the hacienda at the end
of the 1964-1965 crop year and that in the absence of a
renewal contract or the establishment of a compulsory
servitude of right of way on the same spot and route
which must be predicated on the satisfaction of the
preconditions required by law, there subsists no right of
way to be protected.
Consequently, the owners of the hacienda Helvetia
required the Central to remove the railway tracks in the
hacienda occupying at least 3,245 lineal meters with a
width of 7 meters or a total of 22,715 square meters, more
or less. That was the natural consequence of the
expiration of the milling contracts with the landowners of
the hacienda Helvetia (Angela Estate, Inc. and Fernando
Gonzaga, Inc. v. Court of First Instance of Negros
Occidental, ibid). BMMC filed a complaint for legal
easement against the owners of the hacienda, with the
Court of First Instance of Negros Occidental which issued
on October 4, 1965 an ex parte writ of preliminary
injunction restraining the landowners from reversing
and/or destroying the railroad tracks in question and from
impeding, obstructing or in any way preventing the
passage and operation of plaintiffs locomotives and cane
cars over defendants' property during the pendency of the
litigation and maintained the same in its subsequent
orders of May 31, and November 26, 1966. The outcome of
the case, however, was not favorable to the plaintiff
BMMC. In the same case the landowners asked this Court
to restrain the lower court from enforcing the writ of
preliminary injunction it issued, praying that after the
hearing on the merits, the restraining order be made
permanent and the orders complained of be annulled and
set aside. The Court gave due course to the landowner's
petition and on August 10, 1967 issued the writ of
preliminary injunction enjoining the lower court from
enforcing the writ of preliminary injunction issued by the
latter on October 4, 1965.
The writ of preliminary injunction issued by the Court was
lifted temporarily on motion that through the mediation of
the President of the Philippines the Angela Estate and the
Gonzaga Estate agreed with the Central to allow the use of
the railroad tracks passing through the hacienda Helvetia
during the 1967-1968 milling season only, for the same
purpose for which they had been previously used, but it
was understood that the lifting of the writ was without
prejudice to the respective rights and positions of the
parties in the case and not deemed a waiver of any of their
respective claims and allegations in G.R. No. L-27084 or in
any other case between the same parties, future or
pending. The Court resolved to approve the motion only
up to and including June 30, 1968 to give effect to the
agreement but to be deemed automatically reinstated
beginning July 1, 1968 (Angela Estate, Inc. and Fernando
F. Gonzaga, Inc. v. Court of First Instance of Negros
Occidental, ibid.).
The temporary lifting of the writ of preliminary injunction
assured the milling of the 1967-1968 crop but not the
produce of the succeeding crop years which situation was
duly communicated by the President and General Manager
of the BMMC to the President of Bacolod-Murcia Sugar
Farmers Corporation (BMSFC) on January 2, 1968. 3
On October 30, 1968, Alonso Gatuslao, one of private
respondents herein, and his wife, Maria H. Gatuslao, filed
Civil Case No. 8719 in the Court of First Instance of
Negros Occidental, against petitioner herein, Bacolod-
Murcia Milling Co., Inc. (BMMC), for breach of contract,
praying among others, for the issuance of a writ of
preliminary mandatory injunction ordering defendant to
immediately send transportation facilities and haul the
already cut sugarcane to the mill site and principally
praying after hearing, that judgment be rendered declaring
the rescission of the milling contract executed by plaintiffs
and defendant in 1957 for seventeen (17) years or up to
crop year 1973-74, invoking as ground the alleged failure
and/or inability of defendant to comply with its specific
obligation of providing the necessary transportation
facilities to haul the sugarcane of Gatuslao from plaintiffs
plantation specifically for the crop year 1967-1968.
Plaintiffs further prayed for the recovery of actual and
compensatory damages as well as moral and exemplary
damages and attorney's fees. 4
In answer, defendant BMMC claimed that despite its
inability to use its railways system for its locomotives and
cane cars to haul the sugarcanes of all its adhered
planters including plaintiffs for the 1968-69 crop year
allegedly due to force majeure, in order to comply with its
obligation, defendant hired at tremendous expense,
private trucks as prime movers for its trailers to be used
for hauling of the canes, especially for those who applied
for and requested transportation facilities. Plaintiffs, being
one of said planters, instead of loading their cut canes for
the 1968-69 crop on the cargo trucks of defendant, loaded
their cut canes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-M
ACMA) which transported plaintiffs' canes of the 1968-69
sugarcanes crop. Defendant prayed in its counterclaim for
the dismissal of Civil Case No. 8719 for the recovery of
actual damages, moral and exemplary damages and for
attorney's fees. 5
On November 21, 1968, BMMC filed in the same court Civil
Case No. 8745 against Alonso Gatuslao, the Agro-
Industrial Development of Silay-Saravia (AIDSISA) and the
Bacolod-Murcia Agricultural Cooperative Marketing
Associations, Inc. (B-M ACMA), seeking specific
performance under the mining contract executed on May
24, 1957 between plaintiff and defendant Alonso Gatuslao
praying for the issuance of writs of preliminary mandatory
injunction to stop the alleged violation of the contract by
defendant Alonso Gatuslao in confederation, collaboration
and connivance with defendant BM-ACMA, AIDSISA, and
for the recovery of actual, moral and exemplary damages
and attorney's fees. 6
Defendant Alonso Gatuslao and the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. filed
their answer on January 27, 1969 with compulsory
counter-claims, stating by way of special and affirmative
defense, among others, that the case is barred by another
action pending between the same parties for the same
cause of action. 7
Defendant Agro-Industrial Development Corporation of
Silay-Saravia, Inc. filed its answer on February 8, 1969,
alleging among others by way of affirmative defense that
before it agreed to mill the sugarcane of its co-defendant
Alonso Gatuslao, it carefully ascertained and believed in
good faith that: (a) plaintiff was incapable of the
sugarcane of AIDSISA's co-defendant planters as well as
the sugarcane of other planters formerly adherent to
plaintiff, (b) plaintiff had in effect agreed to a rescission of
its milling contracts with its adhered planters, including
the defendant planter, because of inadequate means of
transportation. and had warned and advised them to mill
their sugarcane elsewhere, and had thus induced them to
believe and act on the belief, that it could not mill their
sugarcane and that it would not object to their milling with
other centrals; and (c) up to now plaintiff is incapable of
hauling the sugarcane of AIDSISA's co-defendants to
plaintiffs mill site for milling purposes.
The two cases, Civil Cases Nos. 8719 and 8745 were
consolidated for joint trial before Branch II of the Court of
First Instance of Negros Occidental. 8 On September 8,
1969, the parties in both civil cases filed their partial
stipulation of facts which included a statement of the
issues raised by the parties. 9
On February 6, 1976, the lower court rendered judgment
declaring the milling contract dated May 24, 1957
rescinded. The dispositive portion of the decision 10 reads:
WHEREFORE, judgment is hereby
rendered as follows:
(1) In Civil Case No. 8719 the milling
contract (Exh. "121") dated May 24, 1957
is hereby declared rescinded or resolved
and the defendant Bacolod-Murcia
Company, Inc. is hereby ordered to pay
plaintiffs Alonso Gatuslao and Maria H.
Gatuslao the amount of P2,625.00 with
legal interest from the time of the filing of
the complaint by way of actual damages;
P5,000.00 as attorney's fees and the costs
of the suit; defendant's counterclaim is
dismissed; and
(2) The complaint in Civil Case No. 8745
as well as the counterclaims therein are
ordered dismissed, without costs.
Bacolod-Murcia Milling Co., Inc. defendant in Civil Case
No. 8719 and plaintiff in Civil Case No. 8745 appealed the
case to respondent Court of Appeals which affirmed in
toto (Rollo, p. 81) the decision of the lower court. The
motion for reconsideration filed by defendant-appellant
Bacolod-Murcia Milling Company, petitioner herein, was
denied by the appellate court for lack of merit. 11 Hence,
this petition.
The issues 12 raised by petitioner are as follows:
I
WHETHER OR NOT THE CLOSURE OF
PETITIONER'S RAIL ROAD LINES
CONSTITUTE FORCE MAJEURE.
II
WHETHER OR NOT PRIVATE
RESPONDENT GATUSLAO HAS THE
RIGHT TO RESCIND THE MILLING
CONTRACT WITH PETITIONER UNDER
ARTICLE 1191 OF THE CIVIL CODE.
III
WHETHER OR NOT PRIVATE
RESPONDENT GATUSLAO WAS
JUSTIFIED IN VIOLATING HIS MILLING
CONTRACT WITH PETITIONER.
IV
 WHETHER OR NOT PRIVATE
RESPONDENTS GATUSLAO AND B-M
ACMA ARE GUILTY OF BAD FAITH IN THE
EXERCISE OF THEIR DUTIES AND ARE IN
ESTOPPEL TO QUESTION THE
ADEQUACY OF THE TRANSPORTATION
FACILITIES OF PETITIONER AND ITS
CAPACITY TO MILL AND HAUL THE
CANES OF ITS ADHERENT PLANTERS.
The crux of the issue is whether or not the termination of
petitioner's right of way over the hacienda Helvetia caused
by the expiration of its amended milling contracts with the
landowners of the lands in question is a fortuitous event
or force majeure which will exempt petitioner BMMC from
fulfillment of its contractual obligations.
It is the position of petitioner Bacolod-Murcia Milling Co.,
Inc. (BMMC) that the closure of its railroad lines
constitute force majeure, citing Article 1174 of the Civil
Code, exempting a person from liability for events which
could not be foreseen or which though foreseen were
inevitable.
This Court has consistently ruled that when an obligor is
exempted from liability under the aforecited provision of
the Civil Code for a breach of an obligation due to an act
of God, the following elements must concur: (a) the cause
of the breach of the obligation must be independent of the
wig of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such
as to render it impossible for the debtor to fulfill his
obligation in a normal manner; (d) the debtor must be free
from any participation in, or aggravation of the injury to
the creditor (Vasquez v. Court of Appeals, 138 SCRA 553
[1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144
SCRA 596 [1986]). Applying the criteria to the instant case,
there can be no other conclusion than that the closure of
the railroad tracks does not constitute force majeure.
The terms of the milling contracts were clear and
undoubtedly there was no reason for BAMC to expect
otherwise. The closure of any portion of the railroad track,
not necessarily in the hacienda Helvetia but in any of the
properties whose owners decided not to renew their
milling contracts with the Central upon their expiration,
was forseeable and inevitable.
Petitioner Central should have anticipated and should
have provided for the eventuality before committing itself.
Under the circumstances it has no one to blame but itself
and cannot now claim exemption from liability.
In the language of the law, the event must have been
impossible to foresee, or if it could be foreseen, must have
been impossible to avoid. There must be an entire
exclusion of human agency from the cause of the injury or
loss (Vasquez v. Court of Appeals, supra). In the case at
bar, despite its awareness that the conventional contract
of lease would expire in Crop Year 1964-1965 and that
refusal on the part of any one of the landowners to renew
their milling contracts and the corresponding use of the
right of way on their lands would render impossible
compliance of its commitments, petitioner took a
calculated risk that all the landowners would renew their
contracts. Unfortunately, the sugar plantation of Angela
Estate, Inc. which is located at the entrance of the mill was
the one which refused to renew its milling contract. As a
result, the closure of the railway located inside said
plantation paralyzed the entire transportation system.
Thus, the closure of the railway lines was not an act of
God nor does it constitute force majeure. It was due to the
termination of the contractual relationships of the parties,
for which petitioner is charged with knowledge. Verily, the
lower court found that the Angela Estate, Inc. notified
BMMC as far back as August or September 1965 of its
intention not to allow the passage of the railway system
thru its land after the aforesaid crop year. Adequate
measures should have been adopted by BMMC to forestall
such paralyzation but the records show none. All its
efforts were geared toward the outcome of the court
litigation but provided no solutions to the transport
problem early enough in case of an adverse decision.
The last three issues being inter-related will be treated as
one. Private respondent Gatuslao filed an action for
rescission while BMMC filed in the same court an action
against Gatuslao, the Agro Industrial Development Silay
Saravia (AIDSISA) and the Bacolod-Murcia Agricultural
Cooperative Marketing Associations, Inc. (B-M ACMA) for
specific performance under the milling contract.
There is no question that the contract in question involves
reciprocal obligations; as such party is a debtor and
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 (Boysaw v. Interphil Promotions, Inc., 148 SCRA 643
[1987]).
Under Article 1191 of the Civil Code, 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. In fact, it is well established that the party who deems
the contract violated may consider it revoked or rescinded
pursuant to their agreement and act accordingly, even
without previous court action (U.P. v. de los Angeles, 35
SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 43 SCRA 94 [1972]).
It is the general rule, however, 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. The question of whether a breach of a contract
is substantial depends upon the attendant circumstances
(Universal Food Corporation v. Court of Appeals, et al., 33
SCRA 1 [1970]).
The issue therefore, hinges on who is guilty of the breach
of the milling contract.
Both parties are agreed that time is of the essence in the
sugar industry; so that the sugarcanes have to be milled
at the right time, not too early or too late, if the quantity
and quality of the juice are to be assured. As found by the
trial court, upon the execution of the amended milling
contract on May 24, 1957 for a period of 17 crop years,
BMMC undertook expressly among its principal
prestations not only to mill Gatuslao's canes but to haul
them by railway from the loading stations to the mill. Atty.
Solidum, Chief Legal Counsel and in Charge of the Legal-
Crop Loan Department of the BMMC Bacolod City admits
that the mode of transportation of canes from the fields to
the mill is a vital factor in the sugar industry; precisely for
this reason the mode of transportation or hauling the
canes is embodied in the milling contract. 13 But BMMC is
now unable to haul the canes by railways as stipulated
because of the closure of the railway lines; so that
resolution of this issue ultimately rests on whether or not
BMMC was able to provide adequate and efficient
transportation facilities of the canes of Gatuslao and the
other planters milling with BMMC during the crop year
1968-1969. As found by both the trial court and the Court
of Appeals, the answer is in the negative.
Armando Guanzon, Dispatcher of the Transportation
Department of BMMC testified that when the Central was
still using the railway lines, it had between 900 to 1,000
cane cars and 10 locomotives, each locomotive pulling
from 30 to 50 cane cars with maximum capacity of 8 tons
each. 14 This testimony was corroborated by Rodolfo
Javelosa, Assistant Crop Loan Inspector in the Crop Loan
Department of petitioner. 15 After the closure of the railway
lines, petitioner on February 5, 1968 through its President
and General Manager, informed the National Committee of
the National Federation of Sugarcane Planters that the
trucking requirement for hauling adherent planters
produce with a milling average of 3,500 tons of canes daily
at an average load of 5 tons per truck is not less than 700
trucks daily plus another 700 empty trucks to be shuttled
back to the plantations to be available for loading the
same day. 16 Guanzon, however, testified that petitioner
had only 280 units of trailers, 20 tractors and 3 trucks plus
20 trucks more or less hired by the Central and given as
repartos (allotments) to the different planters. 17 The 180
trailers that the Central initially had were permanently
leased to some planters who had their own cargo trucks
while out of the 250 BMMC trailers existing during the
entire milling season only 70 were left available to the rest
of the planters pulled by 3 trucks. 18
It is true that BMMC purchased 20 units John Deere
Tractors (prime movers) and 230 units, Vanguard Trailers
with land capacity of 3 tons each but that was only on
October 1968 as registered in the Land Transportation
Commission, Bacolod City. 19
The evidence shows that great efforts had been exerted by
the planters to enter into some concrete understanding
with BMMC with a view of obtaining a reasonable
assurance that the latter would be able to haul and mill
their canes for the 1968-1969 crop year, but to no avail. 20
As admitted by BMMC itself, in its communications with
the planters, it is not in a position to provide adequate
transportation for the canes in compliance with its
commitment under the milling contract. Said
communications 21 were quoted by the Court of Appeals as
follows:
We are sorry to inform you that unless we
can work out a fair and equitable solution
to this problem of closure of our railroad
lines, the milling of your canes for the
crop year 1968-69 would be greatly
hampered to the great detriment of our
economy and the near elimination of the
means of livelihood of most planters and
the possible starvation of thousands of
laborers working in the sugar District of
Bacolod-Murcia Milling Co.
and
We are fully conscious of our contractual
obligations to our existing Milling
Contract. But, if prevented by judicial
order we will find ourselves unable to
serve you in the hauling of the canes
through our railroad lines. It is for this
reason that we suggest you explore other
solutions to the problem in the face of
such an eventuality so that you may be
able to proceed with the planting of your
canes with absolute peace of mind and
the certainty that the same will be
properly milled and not left to rot in the
fields.
also,
In the meantime, and before July 1, 1968,
the end of the temporary arrangement we
have with Fernando Gonzaga, Inc. and
the Angela Estate, Inc. for the use of the
rights of ways, our lawyers are studying
the possibility of getting a new injunction
from the Supreme Court or the Court of
First Instance of Negros Occidental
based on the new grounds interposed in
said memorandum not heretofore raised
previously nor in the Capitol Subdivision
case. And if we are doing this, it is
 principally to prevent any injury to your
crops or foreclosure of your property,
which is just in line with the object of
your plans.
On March 26, 1968 the President of the Bacolod-Murcia
Sugar Farmer's Corporation writing on behalf of its
planter-members demanded to know the plans of the
Central for the crop year 1968-1969, stating that if they fail
to hear from the Central on or before the 15th of April they
will feel free to make their own plans in order to save their
crops and the possibility of foreclosure of their
properties. 22
In its letter dated April 1, 1968, the president of BMMC
simply informed the Bacolod-Murcia Sugar Farmer's
Corporation that they were studying the possibility of
getting a new injunction from the court before expiration
of their temporary arrangement with Fernando Gonzaga,
Inc. and the Angela Estate, Inc. 23
Pressing for a more definite commitment (not a mere hope
or expectation), on May 30, 1968 the Bacolod-Murcia
Sugar Farmer's Corporation requested the Central to put
up a performance bond in the amount of P13 million within
a 5-day period to allay the fears of the planters that their
sugar canes can not be milled at the Central in the coming
milling season. 24
BMMC's reply was only to express optimism over the final
outcome of its pending cases in court.
Hence, what actually happened afterwards is that
petitioner failed to provide adequate transportation
facilities to Gatuslao and other adherent planters.
As found by the trial court, the experience of Alfonso
Gatuslao at the start of the 1968-1969 milling season is
reflective of the inadequacies of the reparto or trailer
allotment as well as the state of unpreparedness on the
part of BMMC to meet the problem posed by the closure of
the railway lines.
It was established that after Gatuslao had cut his
sugarcanes for hauling, no trailers arrived and when two
trailers finally arrived on October 20, 1968 after several
unheeded requests, they were left on the national highway
about one (1) kilometer away from the loading station.
Such fact was confirmed by Carlos Butog the driver of the
truck that hauled the trailers. 25
Still further, Javelosa, Assistant Crop Loan Inspector,
testified that the estimated production of Gatuslao for the
crop year 1968-1969 was 4,400 piculs hauled by 10 cane
cars a week with a maximum capacity of 8
tons. 26 Compared with his later schedule of only one
trailer a week with a maximum capacity of only 3 to 4
tons, 27 there appears to be no question that the means of
transportation provided by BMMC is very inadequate to
answer the needs of Gatuslao.
Undoubtedly, BMMC is guilty of breach of the conditions
of the milling contract and that Gatuslao is the injured
party. Under the same Article 1191 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. In fact, he may also seek rescission even
after he had chosen fulfillment if the latter should become
impossible.
Under the foregoing, Gatuslao has the right to rescind the
milling contract and neither the court a quo erred in
decreeing the rescission claimed nor the Court of Appeals
in affirming the same.
Conversely, BMMC cannot claim enforcement of the
contract. As ruled by this Court, by virtue of the violations
of the terms of the contract, the offending party has
forfeited any right to its enforcement (Boysaw v. Interphil
Promotions, Inc., 148 SCRA 645 [1987]).
Likewise, the Bacolod-Murcia Agricultural Cooperative
Marketing Association, Inc. (B-M ACMA) cannot be faulted
for organizing itself to take care of the needs of its
members. Definitely, it was organized at that time when
petitioner could not assure the planters that it could
definitely haul and mill their canes. More importantly, as
mentioned earlier in a letter dated January 12, 1968, J.
Araneta, President & General Manager of the Central itself
suggested to the Bacolod-Murcia Sugar Farmer's
Corporation that it explore solutions to the problem of
hauling the canes to the milling station in the face of the
eventuality of a judicial order permanently closing the
railroad lines so that the planters may be able to proceed
with their planting of the canes with absolute peace of
mind and the certainty that they will be properly milled and
not left to rot in the fields. As a result, the signing of the
milling contract between private respondents AIDSISA and
B-M-ACMA on June 19, 1968 28 was a matter of self-
preservation inasmuch as the sugarcanes were already
matured and the planters had crop loans to pay. Further
delay would mean tremendous losses. 29
In its defense AIDSISA stressed as earlier stated, that it
agreed to mill the sugarcanes of Gatuslao only after it had
carefully ascertained and believed in good faith that
BMMC was incapable of milling the sugarcanes of the
adherent planters because of inadequate transportation
and in fact up to now said Central is incapable of hauling
the sugarcanes of the said planters to its mill site for
milling purposes.
As an extra precaution, AIDSISA provided in paragraph
15 30 of its milling contract that
If any member of the planter has an
existing milling contract with other sugar
 central, then this milling contract with the 14 TSN, June 29, 1971, pp. 21-22.
Central shall be of no force and effect
with respect to that member or those 15 TSN, January 24, 1973, pp. 16-18.
members having such contract, if that
other sugar central is able, ready and 16 Exhibits, p. 51.
willing, to mill said member or members'
canes in accordance with their said
17 TSN, June 29, 1971, p, 13.
milling contract. (Emphasis supplied)

18 TSN, July 29, 1971, pp. 13-20.

The President of BANC himself induced the planters to
believe and to act on the belief that said Central would not
object to the milling of their canes with other centrals. 19 Exhibits, p. 34.

Under the circumstances, no evidence of bad faith on the 20 Rollo, pp. 97-98.
part of private respondents could be found much less any
plausible reason to disturb the findings and conclusions 21 Rollo, p. 108.
of the trial court and the Court of Appeals.
22 Exhibits, p. 17.
PREMISES CONSIDERED, the petition is hereby DENIED
for lack of merit and the decision of the Court of Appeals 23 Exhibits, p. 18.
is hereby AFFIRMED in toto.
24 Exhibits, p. 21.
SO ORDERED.
25 TSN, February 23, 1971, pp. 7-12.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and
Regalado, JJ., concur. 26 TSN, January 24, 1973, pp. 24, 30.

27 TSN, January 15, 1970, p. 25.

Footnotes 28 Exhibits, p. 30.

1 Record on Appeal, p. 234, Rollo. 29 TSN, September 9, 1969, pp. 36-37.

2 Milling Contract, par. 9, p. 335, Rollo. 30 Rollo, p. 91.

3 Exhibits, p. 13.

4 Rollo, p. 116.

5 Rollo, p. 148.

6 Rollo, p. 157.

7 Rollo, p. 293.

8 Rollo, p. 233.

9 Rollo, p. 234.

10 Rollo, p. 238.

11 Rollo, p. 113.

12 Rollo, p. 445.

13 Rollo, p. 97.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and
Radio Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE
CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing
the Decision of the Court of Appeals, dated 27 February 2001,
in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been
engaged in the coordination of the provision of various
communication facilities for the military bases of the United
States of America (US) in Clark Air Base, Angeles, Pampanga
and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its
personnel or those of American companies contracted by it to
operate said facilities. The USDCA contracted with said
American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on the
other hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation (Philcomsat)
for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five
(5) years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties
knew that the Military Bases Agreement between the Republic
of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the
Clark Air Base and Subic Naval Base in Cubi Point, was to
expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which
include those located at the US Naval Facility in Cubi Point,
shall not be allowed in the Philippines unless a new treaty is
duly concurred in by the Senate and ratified by a majority of
the votes cast by the people in a national referendum when the
Congress so requires, and such new treaty is recognized as
such by the US Government.
Subsequently, Philcomsat installed and established the earth
station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted
Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
that was supposed to extend the term of the use by the US of
Subic Naval Base, among others.5 The last two paragraphs of
the Resolution state:
FINDING that the Treaty constitutes a defective
framework for the continuing relationship between the
two countries in the spirit of friendship, cooperation
and sovereign equality: Now, therefore, be it Resolved
by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty
of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time
reaffirming its desire to continue friendly relations with
the government and people of the United States of
America.6
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy,
notifying it of the Philippines termination of the RP-US Military
Bases Agreement. The Note Verbale stated that since the RP-
US Military Bases Agreement, as amended, shall terminate on
31 December 1992, the withdrawal of all US military forces
from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of
its intention to discontinue the use of the earth station effective
08 November 1992 in view of the withdrawal of US military
personnel from Subic Naval Base after the termination of the
RP-US Military Bases Agreement. Globe invoked as basis for
the letter of termination Section 8 (Default) of the Agreement,
which provides:
Neither party shall be held liable or deemed to be in
default for any failure to perform its obligation under
this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event.
Either party is thus precluded from performing its
obligation until such force majeure or fortuitous event
shall terminate. For the purpose of this paragraph,
force majeure shall mean circumstances beyond the
control of the party involved including, but not limited
to, any law, order, regulation, direction or request of
the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe,
stating that "we expect [Globe] to know its commitment to pay
the stipulated rentals for the remaining terms of the Agreement
even after [Globe] shall have discontinue[d] the use of the
earth station after November 08, 1992."7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of
the earth station after it has been put into operation, a
written notice shall be served to PHILCOMSAT at
least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT
for the rental of the actual number of T1 circuits in
use, but in no case shall be less than the first two (2)
T1 circuits, for the remaining life of the agreement.
However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation
of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be
agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat
sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys
fees. However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial
Court of Makati a Complaint against Globe, praying that the
latter be ordered to pay liquidated damages under the
Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit. The case was raffled to Branch 59 of
said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the
RP-US Military Bases Agreement and the non-ratification by
the Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe
explained that the occurrence of said events exempted it from
paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff
the amount of Ninety Two Thousand Two
Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in
Philippine Currency (computed at the
exchange rate prevailing at the time of
compliance or payment) representing rentals
for the month of December 1992 with
interest thereon at the legal rate of twelve
percent (12%) per annum starting December
1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff
the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorneys
fees;
3. Ordering the DISMISSAL of defendants
counterclaim for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of
Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1)
the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from
complying with its obligations under the Agreement; (2) Globe
is not liable to pay the rentals for the remainder of the term of
the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.
Globe, on the other hand, contended that the RTC erred in
holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit
and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for
the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate
of the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine
Governments Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines
which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the
issuance of a formal order by Cdr. Walter Corliss of the US
Navy, the issuance of the letter notification from ATT and the
complete withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the earth
station under the Agreement.
However, the Court of Appeals ruled that although Globe
sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that the
US military forces and personnel completely withdrew from
Cubi Point only on 31 December 1992.10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED
IN ADOPTING A DEFINITION OF FORCE
MAJEURE DIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE
CIVIL CODE, PROVIDES, SO AS TO EXEMPT
GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
 B. THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS NOT LIABLE
TO PHILCOMSAT FOR RENTALS FOR THE
REMAINING TERM OF THE AGREEMENT, DESPITE
THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED
IN DELETING THE TRIAL COURTS AWARD OF
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS NOT LIABLE
TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military
Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8
should be deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties definition of force majeure in Section 8 of
the Agreement as "circumstances beyond the control of the
party involved including, but not limited to, any law, order,
regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be
deemed subject to Article 1174 which defines fortuitous events
as events which could not be foreseen, or which, though
foreseen, were inevitable.13
Philcomsat further claims that the Court of Appeals erred in
holding that Globe is not liable to pay for the rental of the earth
station for the entire term of the Agreement because it runs
counter to what was plainly stipulated by the parties in Section
7 thereof. Moreover, said ruling is inconsistent with the
appellate courts pronouncement that Globe is liable to pay
rentals for December 1992 even though it terminated
Philcomsats services effective 08 November 1992, because
the US military and personnel completely withdrew from Cubi
Point only in December 1992. Philcomsat points out that it was
Globe which proposed the five-year term of the Agreement,
and that the other provisions of the Agreement, such as
Section 4.114 thereof, evince the intent of Globe to be bound to
pay rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts
findings, it is entitled to attorneys fees and exemplary
damages.16
In its Comment to Philcomsats Petition, Globe asserts that
Section 8 of the Agreement is not contrary to Article 1174 of the
Civil Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be
exempt from fulfilling their contractual obligations. Globe also
claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from
complying with its obligations under the Agreement.17 On the
issue of the propriety of awarding attorneys fees and
exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay
rentals for the remainder of the term of the Agreement, Globe
only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends
that the Court of Appeals erred in finding it liable for the
amount of US$92,238.00, representing rentals for December
1992, since Philcomsats services were actually terminated on
08 November 1992.20
In its Comment, Philcomsat claims that Globes petition should
be dismissed as it raises a factual issue which is not
cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due
course to Philcomsats Petition in G.R. No.
147324 and required the parties to submit their respective
memoranda.22
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by Globe
in G.R. No. 147334 and required both parties to submit their
memoranda.23
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether
the termination of the RP-US Military Bases Agreement, the
non-ratification of the Treaty of Friendship, Cooperation and
Security, and the consequent withdrawal of US military forces
and personnel from Cubi Point constitute force majeure which
would exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat; (2) whether
Globe is liable to pay rentals under the Agreement for the
month of December 1992; and (3) whether Philcomsat is
entitled to attorneys fees and exemplary damages.
No reversible error was committed by the Court of Appeals in
issuing the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of
the Agreement cannot be given effect because the
enumeration of events constituting force majeure therein
unduly expands the concept of a fortuitous event under Article
1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be unforeseen in
order to exempt a party to a contract from complying with its
obligations therein. It insists that since the expiration of the RP-
US Military Bases Agreement, the non-ratification of the Treaty
of Friendship, Cooperation and Security and the withdrawal of
US military forces and personnel from Cubi Point were not
unforeseeable, but were possibilities known to it and Globe at
the time they entered into the Agreement, such events cannot
exempt Globe from performing its obligation of paying rentals
for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability
on account of fortuitous events or force majeure, refers not
only to events that are unforeseeable, but also to those
which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
 which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of
God," or natural occurrences such as floods or typhoons,24 or
an "act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement
that the following events shall be deemed events
constituting force majeure:
1. Any law, order, regulation, direction or request of
the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts
of God;
9. Other circumstances beyond the control of the
parties.
Clearly, the foregoing are either unforeseeable, or foreseeable
but beyond the control of the parties. There is nothing in the
enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not
run counter to the law, morals, good customs, public order or
public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations
arising from contracts have the force of law between the
contracting parties and should be complied with in good
faith."28 Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would
be to alter the real intent of the parties, and would run contrary
to the function of the courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order,
or public policy, Section 8 of the Agreement which Philcomsat
and Globe freely agreed upon has the force of law between
them.30
In order that Globe may be exempt from non-compliance with
its obligation to pay rentals under Section 8, the concurrence of
the following elements must be established: (1) the event must
be independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court
that the abovementioned requisites are present in the instant
case. Philcomsat and Globe had no control over the non-
renewal of the term of the RP-US Military Bases Agreement
when the same expired in 1991, because the prerogative to
ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the
subsequent withdrawal of the US military forces and personnel
from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the
RP-US Military Bases Agreement (and its
Supplemental Agreements) under its Resolution No.
141. (Exhibit "2") on September 16, 1991 is beyond
the control of the parties. This resolution was followed
by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government
to the US Government notifying the latter of the
formers termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and
that accordingly, the withdrawal of all U.S. military
forces from Subic Naval Base should be completed
by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II
Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate
the provision of T1s services (via an IBS Standard B
Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said
order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the
Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the
Government of the Philippines and circumstances
beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of
all the military forces and personnel from Cubi Point in
the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so
holds that the afore-narrated circumstances constitute
"force majeure or fortuitous event(s) as defined under
paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant
is exempted from paying the rentals for the facility for
the remaining term of the contract.
As a consequence of the termination of the RP-US
Military Bases Agreement (as amended) the
continued stay of all US Military forces and personnel
from Subic Naval Base would no longer be allowed,
hence, plaintiff would no longer be in any position to
render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military
forces and personnel left or withdrew from Cubi Point
in the year end December 1992, there was no longer
any necessity for the plaintiff to continue maintaining
the IBS facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation parties were sustained in part, an award of attorneys fees
of the Agreement until the end of its five-year term without fault would not be warranted.40
on the part of either party. The Court of Appeals was thus
correct in ruling that the happening of such fortuitous events Exemplary damages may be awarded in cases involving
rendered Globe exempt from payment of rentals for the contracts or quasi-contracts, if the erring party acted in a
remainder of the term of the Agreement. wanton, fraudulent, reckless, oppressive or malevolent
manner.41 In the present case, it was not shown that Globe
Moreover, it would be unjust to require Globe to continue acted wantonly or oppressively in not heeding Philcomsats
paying rentals even though Philcomsat cannot be compelled to demands for payment of rentals. It was established during the
perform its corresponding obligation under the Agreement. As trial of the case before the trial court that Globe had valid
noted by the appellate court: grounds for refusing to comply with its contractual obligations
after 1992.
We also point out the sheer inequity of
PHILCOMSATs position. PHILCOMSAT would like to WHEREFORE, the Petitions are DENIED for lack of merit. The
charge GLOBE rentals for the balance of the lease assailed Decision of the Court of Appeals in CA-G.R. CV No.
term without there being any corresponding 63619 is AFFIRMED.
telecommunications service subject of the lease. It will
be grossly unfair and iniquitous to hold GLOBE liable SO ORDERED.
for lease charges for a service that was not and could
not have been rendered due to an act of the
government which was clearly beyond GLOBEs Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr.,
control. The binding effect of a contract on both JJ., concur.
parties is based on the principle that the obligations
arising from contracts have the force of law between Footnotes
the contracting parties, and there must be mutuality
between them based essentially on their equality *
On Official Leave.
under which it is repugnant to have one party bound
by the contract while leaving the other party free 1
therefrom (Allied Banking Corporation v. Court of Philippine Communications Satellite Corporation v.
Appeals, 284 SCRA 357).33 Globe Telecom, Inc. [formerly Globe Mackay Cable
and Radio Corporation]. Penned by J. Candido V.
Rivera and concurred in by J. Jose L. Sabio, Jr. and J.
With respect to the issue of whether Globe is liable for Rebecca de Guia-Salvador.
payment of rentals for the month of December 1992, the Court
likewise affirms the appellate courts ruling that Globe should 2
pay the same. Agreement, G.R. No. 147324, Rollo, p. 65; G.R. No.
147334, Rollo, p. 79.
Although Globe alleged that it terminated the Agreement with 3
Philcomsat effective 08 November 1992 pursuant to the formal Section 11, Agreement, Id. at 73; Id. at 87.
order issued by Cdr. Corliss of the US Navy, the date when
they actually ceased using the earth station subject of the 4
Section 4, Agreement, Id. at 67-69; Id. at 82-83.
Agreement was not established during the trial.34 However, the
trial court found that the US military forces and personnel 5
Resolution No. 141, G.R. No. 147324, Rollo, pp. 75-
completely withdrew from Cubi Point only on 31 December
78; G.R. No. 147334, Rollo, pp. 98-101.
1992.35 Thus, until that date, the USDCA had control over the
earth station and had the option of using the same.
6
Furthermore, Philcomsat could not have removed or rendered Id. at 78; Id. at 101.
ineffective said communication facility until after 31 December
1992 because Cubi Point was accessible only to US naval 7
CA Decision, Id. at 28-29; Id. at 48-49.
personnel up to that time. Hence, the Court of Appeals did not
err when it affirmed the trial courts ruling that Globe is liable for 8
Id. at 71-72; Id. at 94-95.
payment of rentals until December 1992.
9
Id. at 100; Id. at 123.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorneys fees and exemplary
10
damages. Id. at 25-38; Id. at 45-58.

11
The award of attorneys fees is the exception rather than the Philippine Communications Satellite
rule, and must be supported by factual, legal and equitable Corporation, Petitioner, v. Globe Telecom (formerly
justifications.36 In previously decided cases, the Court awarded Globe Mackay Cable and Radio
attorneys fees where a party acted in gross and evident bad Corporation), Respondent.
faith in refusing to satisfy the other partys claims and
compelled the former to litigate to protect his rights;37 when the 12
G.R. No. 147324, Rollo, p. 8.
action filed is clearly unfounded,38 or where moral or exemplary
damages are awarded.39 However, in cases where both parties 13
have legitimate claims against each other and no party actually Id. at 9-16.
prevailed, such as in the present case where the claims of both
14
Said Section provides:
 In consideration of the use of facilities and
after taking into account the tax and duty
free provisions under the U.S. and R.P.
Military Base Agreement, GMCR [now
Globe] shall pay PHILCOMSAT the following
rates exclusive of space segment charges:
a. First two (2) t-1 circuits at US$
46,119 per circuit per month;
b. Third and fourth T-1 circuits at US$
30,333.00 per circuit per month;
c. Extension of the first two (2) T-1
circuits in (a) above, starting on the
61st month, at US$ 40,406.00 per
circuit per month;
d. Extension of the third and fourth
circuits in (b) above, starting on the
61st month, at US$ 22, 200.00 per
circuit per month;
The above-mentioned monthly lease of
circuits become due and payable within
fifteen (15) days from service establishment
date or availment of the service whichever
comes earlier and within the fifteenth day of
each month thereafter.
15
Id. at 16-20.
16
Id. at 20.
17
Id. at 53-61.
18
Id. at 61.
19
Globe Telecom, Inc., Petitioner v. Philippine
Communications Satellite Corporation, Respondent.
20
G.R. No. 147334, Rollo, pp.36-37.
21
Id. at 167-176.
22
Rollo, G.R. No. 147324, pp. 116-117.
23
Rollo, G.R. No. 147334, pp. 183-184.
24
Blacks Law Dictionary, Seventh Edition, p. 657.
25
Ibid.
26
The contracting parties may establish such
stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public
policy.
27
See Development Bank of the Philippines v. Court
of Appeals, G.R. No. 137557, 30 October 2000, 344
SCRA 492; Roman Catholic Archbishop of Manila v.
Court of Appeals, G.R. Nos. 77425 and 77450, 19
June 1991, 198 SCRA 300; De Luna v. Abrigo, G.R.
No. 57455, 18 January 1990, 181 SCRA 150;
Rocamora, et al. v. RTC- Cebu (Branch VIII), et
al., G.R. No. L-65037, 23 November 1988, 167 SCRA
615; Community Savings & Loan Association, G.R.
No. 75786, 31 August 1987, 153 SCRA 564.
28
See National Sugar Trading and/or the Sugar
Regulatory Administration v. Philippine National Bank,
G.R. No. 151218, 28 January 2003; Pilipinas Hino,
Inc. v. Court of Appeals, G.R. No. 126570, 18 August
2000, 338 SCRA 355.
29
Heirs of Juan San Andres v. Rodriguez, G.R. No.
135634, 31 May 2000, 332 SCRA 769.
30
Ibid.
31
Bacolod-Murcia Milling Co., Inc. v. Hon. Court of
Appeals and Gatuslao, G.R. Nos. 81100-01, 07
February 1990, 182 SCRA 24; Juan F. Nakpil & Sons
v. Court of Appeals, G.R. Nos. L-47851, 47863 and
47896, 03 October 1986, 144 SCRA 596; Vasquez v.
Court of Appeals, G.R. No. L-42926, 13 September
1985, 138 SCRA 553; Servando, et al. v. Philippine
Steam Navigation, Co., G.R. Nos. L-36481-2, 23
October 1982, 117 SCRA 832; Austria v. Court of
Appeals, G.R. No. L-29640, 10 June 1971, 39 SCRA
527; Lasam v. Smith, 45 Phil. 657 (1924).
32
CA Decision citing RTC Decision, G.R. No. 147324,
Rollo, pp. 32-33; G.R. No. 147334, Rollo, pp. 16-17.
33
Id. at 36.
34
See Id., at 37.
35
RTC Decision, Id. at 99.
36
GSIS v. Labung-Deang, G.R. No. 135644, 17
September 2001, 365 SCRA 341; SCC Chemicals
Corporation v. Court of Appeals, et al., G.R. No.
128538, 28 February 2001, 353 SCRA 70; Philippine
National Bank v. Court of Appeals, G.R. No. 107508,
25 April 1996, 256 SCRA 491; Scott Consultants &
Resource Development Corporation, Inc. v. Court of
Appeals, G.R. No. 112916, 16 March 1995, 242
SCRA 393.
37
Industrial Insurance Company, Inc. v. Bondad, G.R.
No. 136722, 12 April 2000, 330 SCRA 706; Sulpicio
Lines, Inc. v. Court of Appeals, G.R. No. 93291, 29
March 1999, 305 SCRA 478; Brahm Industries, Inc. v.
National Labor Relations Commission, G.R. No.
118853, 16 October 1997, 280 SCRA 828.
38
Union Motor Corporation v. Court of Appeals, G.R.
No. 117187, 20 July 2001, 361 SCRA 506; Lim v.
Court of Appeals, G.R. No. 118347, 24 October 1996,
263 SCRA 569.
39
Estanislao, Jr. v. Court of Appeals, G.R. No.
143687, 30 July 2001, 362 SCRA 229.
40
Sarmiento v. Court of Appeals, G.R. No. 110871, 02
July 1998, 291 SCRA 656.

41
Article 2232, Civil Code.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 110053 October 16, 1995
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and
ABNER MANGUBAT, respondents.
REGALADO, J.:
This appeal by certiorari sprouted from the judgment of
respondent Court of Appeals promulgated on September 9,
1992 in CA-G.R. CV No. 28311, and its resolution dated April
7, 1993 denying petitioner's motion for reconsideration. 1 Said
adjudgments, in turn, were rooted in the factual groundwork of
this case which is laid out hereunder.
On July 20, 1981, herein petitioner Development Bank of the
Philippines (DBP) executed a "Deed of Absolute Sale" in favor
of respondent spouses Celebrada and Abner Mangubat over a
parcel of unregistered land identified as Lot 1, PSU-142380,
situated in the Barrio of Toytoy, Municipality of Garchitorena,
Province of Camarines Sur, containing an area of 55.5057
hectares, more or less.
The land, covered only by a tax declaration, is known to have
been originally owned by one Presentacion Cordovez, who, on
February 4, 1937, donated it to Luciano Sarmiento. On June 8,
1964, Luciano Sarmiento sold the land to Pacifico Chica.
On April 27, 1965, Pacifico Chica mortgaged the land to DBP
to secure a loan of P6,000.00. However, he defaulted in the
payment of the loan, hence DBP caused the extrajudicial
foreclosure of the mortgage. In the auction sale held on
September 9, 1970, DBP acquired the property as the highest
bidder and was issued a certificate of sale on September 17,
1970 by the sheriff. The certificate of sale was entered in the
Book of Unregistered Property on September 23, 1970.
Pacifico Chica failed to redeem the property, and DBP
consolidated its ownership over the same.
On October 14, 1980, respondent spouses offered to buy the
property for P18,599.99. DBP made a counter-offer of
P25,500.00 which was accepted by respondent spouses. The
parties further agreed that payment was to be made within six
months thereafter for it to be considered as cash payment. On
July 20, 1981, the deed of absolute sale, which is now being
assailed herein, was executed by DBP in favor of respondent
spouses. Said document contained a waiver of the seller's
warranty against eviction. 2
Thereafter, respondent spouses applied for an industrial tree
planting loan with DBP. The latter required the former to submit
a certification from the Bureau of Forest Development that the
land is alienable and disposable. However, on October 29,
1981, said office issued a certificate attesting to the fact that
the said property was classified as timberland, hence not
subject to disposition. 3
The loan application of respondent spouses was nevertheless
eventually approved by DBP in the sum of P140,000.00,
despite the aforesaid certification of the bureau, on the
understanding of the parties that DBP would work for the
release of the land by the former Ministry of Natural
Resources. To secure payment of the loan, respondent
spouses executed a real estate mortgage over the land on
March 17, 1982, which document was registered in the
Registry of Deeds pursuant to Act No. 3344.
The loan was then released to respondent spouses on a
staggered basis. After a substantial sum of P118,540.00 had
been received by private respondents, they asked for the
release of the remaining amount of the loan. It does not appear
that their request was acted upon by DBP, ostensibly because
the release of the land from the then Ministry of Natural
Resources had not been obtained.
On July 7, 1983, respondent spouses, as plaintiffs, filed a
complaint against DBP in the trial court 4 seeking the
annulment of the subject deed of absolute sale on the ground
that the object thereof was verified to be timberland and,
therefore, is in law an inalienable part of the public domain.
They also alleged that petitioner, as defendant therein, acted
fraudulently and in bad faith by misrepresenting itself as the
absolute owner of the land and in incorporating the waiver of
warranty against eviction in the deed of sale. 5
In its answer, DBP contended that it was actually the absolute
owner of the land, having purchased it for value at an auction
sale pursuant to an extrajudicial foreclosure of mortgage; that
there was neither malice nor fraud in the sale of the land under
the terms mutually agreed upon by the parties; that
assuming arguendo that there was a flaw in its title, DBP can
not be held liable for anything inasmuch as respondent
spouses had full knowledge of the extent and nature of DBP's
rights, title and interest over the land.
It further averred that the annulment of the sale and the return
of the purchase price to respondent spouses would redound to
their benefit but would result in petitioner's prejudice, since it
had already released P118,540.00 to the former while it would
be left without any security for the P140,000.00 loan; and that
in the remote possibility that the land is reverted to the public
domain, respondent spouses should be made to immediately
pay, jointly and severally, the total amount of P118,540.00 with
interest at 15% per annum, plus charges and other expenses. 6
On May 25, 1990, the trial court rendered judgment annulling
the subject deed of absolute sale and ordering DBP to return
the P25,500.00 purchase price, plus interest; to reimburse to
respondent spouses the taxes paid by them, the cost of the
relocation survey, incidental expenses and other damages in
the amount of P50,000.00; and to further pay them attorney's
fees and litigation expenses in the amount of P10,000.00, and
the costs of suit. 7
In its recourse to the Court of Appeals, DBP raised the
following assignment of errors:
 1. The trial court erred in declaring the deed
of absolute sale executed between the
parties canceled and annulled on the ground
that therein defendant-appellant had no title
over the property subject of the sale.
2. The trial court erred in finding that
defendant-appellant DBP acted fraudulently
and in bad faith or that it had misrepresented
facts since it had prior knowledge that
subject property was part of the public
domain at the time of sale to therein
plaintiffs-appellees.
3. The trial court erred in finding said
plaintiffs-appellees' waiver of warranty
against eviction void.
4. The trial court erred awarding to therein
plaintiffs-appellees damages arising from an
alleged breach of contract.
5. The trial court erred in not ordering said
plaintiffs-appellees to pay their loan
obligation to defendant-appellant DBP in the
amount of P118,540. 8
As substantially stated at the outset, respondent Court of
Appeals rendered judgment modifying the disposition of the
court below by deleting the award for damages, attorney's
fees, litigation expenses and the costs, but affirming the same
in all its other aspects. 9 On April 7, 1993, said appellate court
also denied petitioner's motion for reconsideration. 10
Not satisfied therewith, DBP interposed the instant petition for
review on certiorari, raising the following issues:
1. Whether or not private respondent
spouses Celebrada and Abner Mangubat
should be ordered to pay petitioner DBP
their loan obligation due under the mortgage
contract executed between them and DBP;
and
2. Whether or not petitioner should
reimburse respondent spouses the purchase
price of the property and the amount of
P11,980.00 for taxes and expenses for the
relocation Survey. 11
Considering that neither party questioned the legality and
correctness of the judgment of the court a quo, as affirmed by
respondent court, ordering the annulment of the deed of
absolute sale, such decreed nullification of the document has
already achieved finality. We only need
The Court of Appeals, after an extensive discussion, found that
there had been no bad faith on the part of either party, and this
r, therefore, to dwell on the effects of that declaration of
nullity.emains uncontroverted as a fact in the case at bar.
Correspondingly, respondent court correctly applied the rule
that if both parties have no fault or are not guilty, the
restoration of what was given by each of them to the other is
consequently in order. 12 This is because the declaration of
nullity of a contract which is void ab initio operates to restore
things to the state and condition in which they were found
before the execution thereof. 13
We also find ample support for said propositions in American
jurisprudence. The effect of an application of the aforequoted
rule with respect to the right of a party to recover the amount
given as consideration has been passed upon in the case
of Leather Manufacturers National Bank vs. Merchants
National Bank 14 where it was held that: "Whenever money is
paid upon the representation of the receiver that he has either
a certain title in property transferred in consideration of the
payment or a certain authority to receive the money paid, when
in fact he has no such title or authority, then, although there be
no fraud or intentional misrepresentation on his part, yet there
is no consideration for the payment, the money remains, in
equity and good conscience, the property of the payer and may
be recovered back by him."
Therefore, the purchaser is entitled to recover the money paid
by him where the contract is set aside by reason of the mutual
material mistake of the parties as to the identity or quantity of
the land sold. 15 And where a purchaser recovers the purchase
money from a vendor who fails or refuses to deliver the title, he
is entitled as a general rule to interest on the money paid from
the time of payment. 16
A contract which the law denounces as void is necessarily no
contract whatever, and the acts of the parties in an effort to
create one can in no wise bring about a change of their legal
status. The parties and the subject matter of the contract
remain in all particulars just as they did before any act was
performed in relation thereto. 17
An action for money had and received lies to recover back
money paid on a contract, the consideration of which has
failed. 18 As a general rule, if one buys the land of another, to
which the latter is supposed to have a good title, and, in
consequence of facts unknown alike to both parties, he has no
title at all, equity will cancel the transaction and cause the
purchase money to be restored to the buyer, putting both
parties in status quo. 19
Thus, on both local and foreign legal principles, the return by
DBP to respondent spouses of the purchase price, plus
corresponding interest thereon, is ineluctably called for.
Petitioner likewise contends that the trial court and respondent
Court of Appeals erred in ordering the reimbursement of taxes
and the cost of the relocation survey, there being no factual or
legal basis therefor. It argues that private respondents merely
submitted a "list of damages" allegedly incurred by them, and
not official receipts of expenses for taxes and said survey.
Furthermore, the same list has allegedly not been identified or
even presented at any stage of the proceedings, since it was
vigorously objected to by DBP.
Contrary to the claim of petitioner, the list of damages was
presented in the trial court and was correspondingly marked as
"Exhibit P." 20 The said exhibit was, thereafter, admitted by the
trial court but only as part of the testimonial evidence for
private respondents, as stated in its Order dated August 16,
1988. 21
However, despite that admission of the said list of damages as
evidence, we agree with petitioner that the same cannot
constitute sufficient legal basis for an award of P4,000.00 and
P7,980.00 as reimbursement for land taxes and expenses for
the relocation survey, respectively. The list of damages was
prepared extrajudicially by respondent spouses by themselves
without any supporting receipts as bases thereof or to
substantiate the same. That list, per se, is necessarily self-
serving and, on that account, should have been declared
inadmissible in evidence as the factum probans.
In order that damages may be recovered, the best evidence
obtainable by the injured party must be presented. Actual or
compensatory damages cannot be presumed, but must be duly
proved, and so proved with a reasonable degree of certainty. A
court cannot rely on speculation, conjecture or guesswork as to
the fact and amount of damages, but must depend upon
competent proof that they have been suffered and on evidence
of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded. 22
Turning now to the issue of whether or not private respondents
should be made to pay petitioner their loan obligation
amounting to P118,540.00, we answer in the affirmative.
In its legal context, the contract of loan executed between the
parties is entirely different and discrete from the deed of sale
they entered into. The annulment of the sale will not have an
effect on the existence and demandability of the loan. One who
has received money as a loan is bound to pay to the creditor
an equal amount of the same kind and quality. 23
The fact that the annulment of the sale will also result in the
invalidity of the mortgage does not have an effect on the
validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor
may also be enforced by means of an ordinary action. Where a
mortgage is not valid, as where it is executed by one who is
not the owner of the
property, 24 or the consideration of the contract is
simulated 25 or false, 26 the principal obligation which it
guarantees is not thereby rendered null and void. That
obligation matures and becomes demandable in accordance
with the stipulations pertaining to it.
Under the foregoing circumstances, what is lost is only the
right to foreclose the mortgage as a special remedy for
satisfying or settling the indebtedness which is the principal
obligation. In case of nullity, the mortgage deed remains as
evidence or proof of a personal obligation of the debtor, and
the amount due to the creditor may be enforced in an ordinary
personal action. 27
It was likewise incorrect for the Court of Appeals to deny the
claim of petitioner for payment of the loan on the ground that it
failed to present the promissory note therefor. While
respondent court also made the concession that its judgment
was accordingly without prejudice to the filing by petitioner of a
separate action for the collection of that amount, this does not
detract from the adverse effects of that erroneous ruling on the
proper course of action in this case.
28
The fact is that a reading of the mortgage contract executed
by respondent spouses in favor of petitioner, dated March 17,
1982, will readily show that it embodies not only the mortgage
but the complete terms and conditions of the loan agreement
as well. The provisions of said contract, specifically paragraphs
16 and 28 thereof, are so precise and clear as to thereby
render unnecessary the introduction of the promissory note
which would merely serve the same purpose.
Furthermore, respondent Celebrada Mangubat expressly
acknowledged in her testimony that she and her husband are
indebted to petitioner in the amount of P118,000.00, more or
less. 29 Admissions made by the parties in the pleadings or in
the course of the trial or other proceedings do not require proof
and can not be contradicted unless previously shown to have
been made through palpable mistake. 30
Thus, the mortgage contract which embodies the terms and
conditions of the loan obligation of respondent spouses, as
well as respondent Celebrada Mangubat's admission in open
court, are more than adequate evidence to sustain petitioner's
claim for payment of private respondents' aforestated
indebtedness and for the adjudication of DBP's claim therefor
in the very same action now before us.
It is also worth noting that the adjustment and allowance of
petitioner's demand by counterclaim or set-off in the present
action, rather than by another independent action, is favored or
encouraged by law. Such a practice serves to avoid circuitry of
action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the time of the court. The trend of
judicial decisions is toward a liberal extension of the right to
avail of counterclaims or set-offs. 31
The rules on counterclaim are designed to achieve the
disposition of a whole controversy of the conflicting claims of
interested parties at one time and in one action, provided all
parties can be brought before the court and the matter decided
without prejudicing the rights of any party. 32
WHEREFORE, the judgment appealed from is hereby
MODIFIED, by deleting the award of P11,980.00 as
reimbursement for taxes and expenses for the relocation
survey, and ordering respondent spouses Celebrada and
Abner Mangubat to pay petitioner Development Bank of the
Philippines the amount of P118,540.00, representing the total
amount of the loan released to them, with interest of 15% per
annum plus charges and other expenses in accordance with
their mortgage contract. In all other respects, the said
judgment of respondent Court of Appeals is AFFIRMED.
SO ORDERED.
Narvasa, C.J., Puno, Mendoza and Francisco, JJ., concur.
Footnotes
1 Justice Cezar D. Francisco, ponente, with
Justices Pedro A. Ramirez and Pacita
Caizares-Nye, concurring.
2 Original Record, 6.
3 Ibid., 90.
4 Civil Case No. RTC 83-152, Regional Trial
Court, Branch 22, Naga City; Judge Angel S.
Malaya, presiding.
5 Ibid., 1-5.
6 Ibid., 9-17. These are alleged as defenses,
incorporated by reference in the
counterclaims, and sought as reliefs by DBP 28 Exhibit 2; Rollo, 104-108.
in its answer (Original Record, 9-16).
29 T.S.N., August 27, 1985, 36-37;
7 Ibid., 156-164. December 16, 1985, 35.

8 Rollo, CA-G.R. CV No. 28311, 35-C. 30 Section 2, Rule 129, Rules of Court.

9 Rollo, 26-40. 31 Am. Jur. 2d, Counterclaim, 237-

238, citing Parmelee vs. Chicago Eye Shield
10 Ibid., 41. Co. (CA8Mo) 157 F2d 582,168 ALR 1130;
Merchants National Bank of Los Angeles vs.
Clark-Parker Co., et al., 215 Cal. 296, 9 P2d
11 Ibid., 17. 826, 81 ALR 778.

12 Tolentino, A.M., Commentaries and 32 Kuenzel vs. Universal Carloading and

Jurisprudence on the Civil Code of the Distributing Co., Inc. (1939) 29 F. Supp. 407.
Philippines, Vol. IV, [1973], 594, citing Perez,
Gonzales & Alguer: 1-11 Enneccerus, Kipp &
Wolff 364-366; 3 Von Tuhr 311; 3 Fabres
231.

13 Labrador, et al. vs. De los Santos, et al.,

66 Phil. 579 (1938); Castro, et al. vs.
Orpiano, et al., 90 Phil. 491 (1951).

14 128 US 26, 9 S Ct, 5, 32 L ed 342.

15 Wolfinger vs. Thomas, et al., 22 SD 57,

115 NW 100.

16 Robinson, et al. vs. Bressler, et al., 122

Neb 461, 240 NW 564, 90 ALR 600; Davis
vs. Lee, et al., 52 Wash 330, 100 P 752.

17 Tate vs. Gaines, 25 Okla 141, 105 P 193.

18 17 Am. Jur. 2d, Contracts, 845.

19 Lee vs. Laprade, 106 Va 594, 56 SE 719;

77 Am. Jur. 2d, Mistakes as to Facts, 241.

20 Original Record, 93.

21 Ibid., 97.

22 Ching Sui Yong vs. Intermediate

Appellate Court, et al., G.R. No. 64398,
November 6, 1990, 191 SCRA 187.

23 Article 1953, Civil Code.

24 Article 2085, [2], id.

25 Articles 1345 and 1352, id.

26 Article 1353, id.

27 Compaia General de Tabacos de

Filipinas vs. Jeanjaquet, 12 Phil. 195 (1908)l;
Lozano vs. Tan Suico, 23 Phil. 16 (1912);
Lim Julian vs. Lutero, et al., 49 Phil. 703
(1926).
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO
N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ
AND REMARENE LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for
review on certiorari of the decision of the Court of Appeals
which reversed that of the Regional Trial Court of Iloilo City
directing petitioner to reconvey to private respondents the
property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]),
executed a deed of donation in favor of the latter of a parcel of
land identified as Lot No. 3174-B-1 of the subdivision plan Psd-
1144, then a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the
deed of donation
1. The land described shall be utilized by the
CPU exclusively for the establishment and
use of a medical college with all its buildings
as part of the curriculum;
2. The said college shall not sell, transfer or
convey to any third party nor in any way
encumber said land;
3. The said land shall be called "RAMON
LOPEZ CAMPUS", and the said college shall
be under obligation to erect a cornerstone
bearing that name. Any net income from the
land or any of its parks shall be put in a fund
to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for
improvements of said campus and erection
of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of
Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated
with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because it
never used the donated property for any other purpose than
that for which it was intended; and, that it did not sell, transfer
or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to execute
a deed of the reconveyance of the property in favor of the heirs
of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence, until
a period was fixed for the fulfillment of the condition, petitioner
could not be considered as having failed to comply with its part
of the bargain. Thus, the appellate court rendered its decision
reversing the appealed decision and remanding the case to the
court of origin for the determination of the time within which
petitioner should comply with the first condition annotated in
the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which
would render the donation revocable; (b) in holding that the
issue of prescription does not deserve "disquisition;" and, (c) in
remanding the case to the trial court for the fixing of the period
within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., gives us no alternative but to conclude that
his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the City
of Manila requiring the latter to erect schools, construct a
children's playground and open streets on the land was
considered an onerous donation. 3 Similarly, where Don Ramon
Lopez donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a medical
college thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of
the event which constitutes the condition. Thus, when a person
donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a resolutory
one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is,
before the donee could become the owner of the land,
otherwise, it would be invading the property rights of the donor.
The donation had to be valid before the fulfillment of the
condition. 5 If there was no fulfillment or compliance with the
condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee
may have acquired under it shall be deemed lost and
extinguished.
The claim of petitioner that prescription bars the instant action
of private respondents is unavailing.
The condition imposed by the donor, i.e., the building
of a medical school upon the land donated, depended
upon the exclusive will of the donee as to when this
condition shall be fulfilled. When petitioner accepted
the donation, it bound itself to comply with the
condition thereof. Since the time within which the
condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its
absolute acceptance and the acknowledgment of its
obligation provided in the deed of donation were
sufficient to prevent the statute of limitations from
barring the action of private respondents upon the
original contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for
the revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant case.
A cause of action arises when that which should have been
done is not done, or that which should not have been done is
done. 7 In cases where there is no special provision for such
computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding
action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the
computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and
opportunity for petitioner to fulfill what has been charged upon
it by the donor.
The period of time for the establishment of a medical college
and the necessary buildings and improvements on the property
cannot be quantified in a specific number of years because of
the presence of several factors and circumstances involved in
the erection of an educational institution, such as government
laws and regulations pertaining to education, building
requirements and property restrictions which are beyond the
control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil
Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case. More
than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its
favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the
obligation when such procedure would be a mere technicality
and formality and would serve no purpose than to delay or lead
to an unnecessary and expensive multiplication of
suits. 9 Moreover, under Art. 1191 of the Civil Code, when one
of the obligors cannot comply with what is incumbent upon
him, the obligee may seek rescission and the court shall
decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court
to determine the period of the compliance, there is no more
obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is
basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of
filing of the instant action, petitioner has failed to comply with
its obligation as donee. Petitioner has slept on its obligation for
an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that petitioner as
donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of
Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED,
and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to
reconvey to private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer Certificate of
Title No. T-3910-A within thirty (30) days from the finality of this
judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the donation in
question is onerous considering the conditions imposed by the
donor on the donee which created reciprocal obligations upon
both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority
opinion's description of the donation in question. In one part, it
says that the donation in question is onerous. Thus, on page 4
it states:
We find it difficult to sustain the petition. A
clear perusal of the conditions set forth in the
deed of donation executed by Don Ramon
 Lopez, Sr., give us no alternative but to
conclude that his donation was onerous, one
executed for a valuable consideration which
is considered the equivalent of the donation
itself, e.g., when a donation imposes a
burden equivalent to the value of the
donation . . . . (emphasis supplied)
Yet, in the last paragraph of page 8 it states that the
donation is basically a gratuitous one. The pertinent
portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a gratuitous one,
doubts referring to incidental circumstances
of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interest . . . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to speak of in
this case. It seems that the "conditions" imposed by the donor
and as the word is used in the law of donations is confused
with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo
M. Tolentino, citing the well-known civilists such as Castan,
Perez Gonzalez and Alguer, and Colin & Capitant, states
clearly the context within which the term "conditions" is used in
the law of donations, to wit:
The word "conditions" in this article does not
refer to uncertain events on which the birth
or extinguishment of a juridical relation
depends, but is used in the vulgar sense
of obligations or chargesimposed by the
donor on the donee. It is used, not in its
technical or strict legal sense, but in its
broadest sense. 1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of
"conditions" of a donation, what are referred to are actually the
obligations, charges or burdens imposed by the donor upon
the donee and which would characterize the donation as
onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal donation." A
modal donation is one in which the donor imposes a prestation
upon the donee. The establishment of the medical college as
the condition of the donation in the present case is one such
prestation.
The conditions imposed by the donor Don Ramon Lopez
determines neither the existence nor the extinguishment of the
obligations of the donor and the donee with respect to the
donation. In fact, the conditions imposed by Don Ramon Lopez
upon the donee are the very obligations of the donation to
build the medical college and use the property for the purposes
specified in the deed of donation. It is very clear that those
obligations are unconditional, the fulfillment, performance,
existence or extinguishment of which is not dependent on any
future or uncertain event or past and unknown event, as the
Civil Code would define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac 3 as cited
on page 5 of the majority opinion is erroneous in so far as the
latter stated that the condition in Parks is a resolutory one and
applied this to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case,
which also has a condition imposed to build a school and a
public park upon the property donated, is a resolutory
condition. 4It is incorrect to say that the "conditions" of the
donation there or in the present case are resolutory conditions
because, applying Article 1181 of the Civil Code, that would
mean that upon fulfillment of the conditions, the rights already
acquired will be extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in mind was that the
conditions are resolutory because if they are not complied with,
the rights of the donee as such will be extinguished and the
donation will be revoked. To my mind, though, it is more
accurate to state that the conditions here are not resolutory
conditions but, for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of
Article 1197 cannot be applied here. The conditions/obligations
imposed by the donor herein are subject to a period. I draw this
conclusion based on our previous ruling which, although made
almost 90 years ago, still finds application in the present case.
In Barretto vs. City of Manila, 5 we said that when the contract
of donation, as the one involved therein, has no fixed period in
which the condition should be fulfilled, the provisions of what is
now Article 1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor. Don
Ramon Lopez could not have intended his property to remain
idle for a long period of time when in fact, he specifically
burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There is
a need to fix the duration of the time within which the
conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the donation in
resolving the petitioner's claim that prescription has already
barred the present action. I disagree once more with the ruling
of the majority that the action of the petitioners is not barred by
the statute of limitations. There is misplaced reliance again on
a previous decision of this Court in Osmea vs. Rama. 6 That
case does not speak of a deed of donation as erroneously
quoted and cited by the majority opinion. It speaks of a
contract for a sum of money where the debtor herself imposed
a condition which will determine when she will fulfill her
obligation to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have here,
however, is not a contract for a sum of money but a donation
where the donee has not imposed any conditions on the
fulfillment of its obligations. Although it is admitted that the
fulfillment of the conditions/obligations of the present donation
may be dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition which the
donee itself imposed. It is believed that the donee was not
meant to and does not have absolute control over the time
within which it will perform its obligations. It must still do so
within a reasonable time. What that reasonable time is, under
the circumstances, for the courts to determine. Thus, the mere
fact that there is no time fixed as to when the conditions of the
donation are to be fulfilled does not ipso facto mean that the
statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts (Article 733)
and the case of Osmea, being one involving a contract, may
apply. But we must not lose sight of the fact that it is still a
donation for which this Court itself applied the pertinent law to
resolve situations such as this. That the action to revoke the
donation can still prescribe has been the pronouncement of
this Court as early as 1926 in the case of Parks which, on this
point, finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the
donation] is prescriptible, there is no doubt.
There is no legal provision which excludes
this class of action from the statute of
limitations. And not only this, the law itself
recognizes the prescriptibility of the action
for the revocation of a donation, providing a
special period of [four] years for the
revocation by the subsequent birth of
children [Art. 646, now Art. 763], and . . . by
reason of ingratitude. If no special period is
provided for the prescription of the action for
revocation for noncompliance of the
conditions of the donation [Art. 647, now Art.
764], it is because in this respect the
donation is considered onerous and is
governed by the law of contracts and the
general rules of prescription. 7
More recently, in De Luna v. Abrigo, 8 this Court reiterated the
ruling in Parks and said that:
It is true that under Article 764 of the New
Civil Code, actions for the revocation of a
donation must be brought within four (4)
years from the non-compliance of the
conditions of the donation. However, it is Our
opinion that said article does not apply to
onerous donations in view of the specific
provision of Article 733 providing that
onerous donations are governed by the rules
on contracts.
In the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on donations
are applicable in the case at bar.
The law applied in both cases is Article 1144(1). It refers to the
prescription of an action upon a written contract, which is what
the deed of an onerous donation is. The prescriptive period is
ten years from the time the cause of action accrues, and that
is, from the expiration of the time within which the donee must
comply with the conditions/obligations of the donation. As to
when this exactly is remains to be determined, and that is for
the courts to do as reposed upon them by Article 1197.
For the reasons expressed above, I register my dissent.
Accordingly, the decision of the Court of Appeals must be
upheld, except its ruling that the conditions of the donation are
resolutory.
Padilla, J., dissents
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the donation in
question is onerous considering the conditions imposed by the
donor on the donee which created reciprocal obligations upon
both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority
opinion's description of the donation in question. In one part, it
says that the donation in question is onerous. Thus, on page 4
it states:
We find it difficult to sustain the petition. A
clear perusal of the conditions set forth in the
deed of donation executed by Don Ramon
Lopez, Sr., give us no alternative but to
conclude that his donation was onerous, one
executed for a valuable consideration which
is considered the equivalent of the donation
itself, e.g., when a donation imposes a
burden equivalent to the value of the
donation . . . . (emphasis supplied)
Yet, in the last paragraph of page 8 it states that the
donation is basically a gratuitous one. The pertinent
portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a gratuitous one,
doubts referring to incidental circumstances
of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interest . . . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to speak of in
this case. It seems that the "conditions" imposed by the donor
and as the word is used in the law of donations is confused
with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo
M. Tolentino, citing the well-known civilists such as Castan,
Perez Gonzalez and Alguer, and Colin & Capitant, states
clearly the context within which the term "conditions" is used in
the law of donations, to wit:
The word "conditions" in this article does not
refer to uncertain events on which the birth
or extinguishment of a juridical relation
depends, but is used in the vulgar sense
of obligations or chargesimposed by the
donor on the donee. It is used, not in its
technical or strict legal sense, but in its
broadest sense. 1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of
"conditions" of a donation, what are referred to are actually the
obligations, charges or burdens imposed by the donor upon
the donee and which would characterize the donation as
onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal donation." A
modal donation is one in which the donor imposes a prestation
upon the donee. The establishment of the medical college as
the condition of the donation in the present case is one such
prestation.
The conditions imposed by the donor Don Ramon Lopez
determines neither the existence nor the extinguishment of the
obligations of the donor and the donee with respect to the
donation. In fact, the conditions imposed by Don Ramon Lopez
upon the donee are the very obligations of the donation to
build the medical college and use the property for the purposes
specified in the deed of donation. It is very clear that those
obligations are unconditional, the fulfillment, performance,
existence or extinguishment of which is not dependent on any
future or uncertain event or past and unknown event, as the
Civil Code would define a conditional obligation. 2
Reliance on the case of Parks vs. Province of Tarlac 3 as cited
on page 5 of the majority opinion is erroneous in so far as the
latter stated that the condition in Parks is a resolutory one and
applied this to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case,
which also has a condition imposed to build a school and a
public park upon the property donated, is a resolutory
condition. 4It is incorrect to say that the "conditions" of the
donation there or in the present case are resolutory conditions
because, applying Article 1181 of the Civil Code, that would
mean that upon fulfillment of the conditions, the rights already
acquired will be extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in mind was that the
conditions are resolutory because if they are not complied with,
the rights of the donee as such will be extinguished and the
donation will be revoked. To my mind, though, it is more
accurate to state that the conditions here are not resolutory
conditions but, for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of
Article 1197 cannot be applied here. The conditions/obligations
imposed by the donor herein are subject to a period. I draw this
conclusion based on our previous ruling which, although made
almost 90 years ago, still finds application in the present case.
In Barretto vs. City of Manila, 5 we said that when the contract
of donation, as the one involved therein, has no fixed period in
which the condition should be fulfilled, the provisions of what is
now Article 1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor. Don
Ramon Lopez could not have intended his property to remain
idle for a long period of time when in fact, he specifically
burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There is
a need to fix the duration of the time within which the
conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the donation in
resolving the petitioner's claim that prescription has already
barred the present action. I disagree once more with the ruling
of the majority that the action of the petitioners is not barred by
the statute of limitations. There is misplaced reliance again on
a previous decision of this Court in Osmea vs. Rama. 6 That
case does not speak of a deed of donation as erroneously
quoted and cited by the majority opinion. It speaks of a
contract for a sum of money where the debtor herself imposed
a condition which will determine when she will fulfill her
obligation to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have here,
however, is not a contract for a sum of money but a donation
where the donee has not imposed any conditions on the
fulfillment of its obligations. Although it is admitted that the
fulfillment of the conditions/obligations of the present donation
may be dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition which the
donee itself imposed. It is believed that the donee was not
meant to and does not have absolute control over the time
within which it will perform its obligations. It must still do so
within a reasonable time. What that reasonable time is, under
the circumstances, for the courts to determine. Thus, the mere
fact that there is no time fixed as to when the conditions of the
donation are to be fulfilled does not ipso facto mean that the
statute of limitations will not apply anymore and the action to
revoke the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts (Article 733)
and the case of Osmea, being one involving a contract, may
apply. But we must not lose sight of the fact that it is still a
donation for which this Court itself applied the pertinent law to
resolve situations such as this. That the action to revoke the
donation can still prescribe has been the pronouncement of
this Court as early as 1926 in the case of Parks which, on this
point, finds relevance in this case. There, this Court said,
[that] this action [for the revocation of the
donation] is prescriptible, there is no doubt.
There is no legal provision which excludes
this class of action from the statute of
limitations. And not only this, the law itself
recognizes the prescriptibility of the action
for the revocation of a donation, providing a
special period of [four] years for the
revocation by the subsequent birth of
children [Art. 646, now Art. 763], and . . . by
reason of ingratitude. If no special period is
provided for the prescription of the action for
revocation for noncompliance of the
conditions of the donation [Art. 647, now Art.
764], it is because in this respect the
donation is considered onerous and is
governed by the law of contracts and the
general rules of prescription. 7
More recently, in De Luna v. Abrigo, 8 this Court reiterated the
ruling in Parks and said that:
It is true that under Article 764 of the New
Civil Code, actions for the revocation of a
donation must be brought within four (4)
years from the non-compliance of the
conditions of the donation. However, it is Our
opinion that said article does not apply to
onerous donations in view of the specific
provision of Article 733 providing that
onerous donations are governed by the rules
on contracts.
In the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on donations
are applicable in the case at bar.
The law applied in both cases is Article 1144(1). It refers to the
prescription of an action upon a written contract, which is what
the deed of an onerous donation is. The prescriptive period is
ten years from the time the cause of action accrues, and that
is, from the expiration of the time within which the donee must
comply with the conditions/obligations of the donation. As to
when this exactly is remains to be determined, and that is for
the courts to do as reposed upon them by Article 1197.

For the reasons expressed above, I register my dissent.

Accordingly, the decision of the Court of Appeals must be
upheld, except its ruling that the conditions of the donation are
resolutory.

Padilla, J., dissents

Footnotes

1 Rollo, p. 23.

2 Rollo, p. 8.

3 City of Manila v. Rizal Park Co., 53 Phil.

515 (1929).

4 Parks v. Province of Tarlac, 49 Phil. 142

(1926).

5 Ibid.

6 Osmea v. Rama, 14 Phil. 99 (1909).

7 Arturo M. Tolentino, The Civil Code of the

Philippines, 1986 Ed., Vol. IV, p. 42.

8 Concepcion v. People, 74 Phil. 63 (1942).

9 Tiglao v. Manila Railroad Co., 52 O.G., p.

179.

10 Art. 1378, Civil Code.

DAVIDE, JR. J., dissenting:

1 ARTURO M. TOLENTINO, Commentaries

and Jurisprudence on the Civil Code of the
Philippines 535, vol. 2 [1983].

2 Article 1179.

3 49 Phil. 142 [1926].

4 Id. at 145-146.

5 7 Phil. 416 [1907].

6 14 Phil. 99 [1909].

7 Parks vs. Province of Tarlac, supra note 3,

at 146.

8 181 SCRA 150 [1990].

 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119255 April 9, 2003
TOMAS K. CHUA, petitioner,
vs.
COURT OF APPEALS and ENCARNACION VALDES-
CHOY, respondents.
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the
decision1 of the Court of Appeals in an action for specific
performance2 filed in the Regional Trial Court3 by petitioner
Tomas K. Chua ("Chua") against respondent Encarnacion
Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-
Choy to consummate the sale of her paraphernal house and lot
in Makati City. The Court of Appeals reversed the
decision4 rendered by the trial court in favor of Chua.
The Facts
Valdes-Choy advertised for sale her paraphernal house and lot
("Property") with an area of 718 square meters located at No.
40 Tampingco Street corner Hidalgo Street, San Lorenzo
Village, Makati City. The Property is covered by Transfer
Certificate of Title No. 162955 ("TCT") issued by the Register
of Deeds of Makati City in the name of Valdes-Choy. Chua
responded to the advertisement. After several meetings, Chua
and Valdes-Choy agreed on a purchase price of
P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check
for P100,000.00. The receipt ("Receipt") evidencing the
transaction, signed by Valdes-Choy as seller, and Chua as
buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom
Check No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as
EARNEST MONEY for the sale of the property
located at 40 Tampingco cor. Hidalgo, San Lorenzo
Village, Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED
THOUSAND (P10,700,000.00) is payable on or
before 155July 1989. Capital Gains Tax for the
account of the seller. Failure to pay balance on or
before 15 July 1989 forfeits the earnest money. This
provided that all papers are in proper order.6
CONFORME:
ENCARNACION VAL
Seller
TOMAS K. CHUA
Buyer
x x x.7
In the morning of 13 July 1989, Chua secured from Philippine
Bank of Commerce ("PBCom") a manager's check for
P480,000.00. Strangely, after securing the manager's check,
Chua immediately gave PBCom a verbal stop payment order
claiming that this manager's check for P480,000.00 "was lost
and/or misplaced."8 On the same day, after receipt of Chua's
verbal order, PBCom Assistant VicePresident Julie C. Pe
notified in writing9 the PBCom Operations Group of Chua's
stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met
with their respective counsels to execute the necessary
documents and arrange the payments.10 Valdes-Choy as
vendor and Chua as vendee signed two Deeds of Absolute
Sale ("Deeds of Sale"). The first Deed of Sale covered the
house and lot for the purchase price of P8,000,000.00.11 The
second Deed of Sale covered the furnishings, fixtures and
movable properties contained in the house for the purchase
price of P2,800,000.00.12 The parties also computed the capital
gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of Valdes-
Choy's counsel. Chua handed to Valdes-Choy the PBCom
manager's check for P485,000.00 so Valdes-Choy could pay
the capital gains tax as she did not have sufficient funds to pay
the tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the
advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check
No. 325851 in the amount of FOUR HUNDRED
EIGHTY FIVE THOUSAND PESOS ONLY
(P485,000.00) as Partial Payment for the sale of the
property located at 40 Tampingco Cor. Hidalgo St.,
San Lorenzo Village, Makati, Metro Manila (Area 718
sq. meters), covered by TCT No. 162955 of the
Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned
property is TEN MILLION EIGHT HUNDRED
THOUSAND PESOS only, broken down as follows:
 herself if the certificate of title is transferred in the name of the
buyer before she is fully paid. Valdes-Choy's counsel promised
SELLING PRICE to relay her suggestion to Chua and his counsel, but nothing
came out of it.

EARNEST MONEY On 17 July 1989, Chua filed a complaint for specific

performance against Valdes-Choy which the trial court
dismissed on 22 November 1989. On 29 November 1989,
Chua re-filed his complaint for specific performance with
damages. After trial in due course, the trial court rendered
PARTIAL PAYMENT
judgment in favor of Chua, the dispositive portion of which
reads:

Applying the provisions of Article 1191 of the new Civil

Code, since this is an action for specific performance
where the plaintiff, as vendee, wants to pursue the
sale, and in order that the fears of the defendant may
BALANCE DUE TO be allayed and still have the sale materialize,
ENCARNACION VALDEZ-CHOY judgment is hereby rendered:

I. 1. Ordering the defendant to deliver to the Court not

later than five (5) days from finality of this decision:
PLUS P80,000.00 for documentary stamps paid in
advance by seller a. the owner's duplicate copy of TCT No.
162955 registered in her name;

b. the covering tax declaration and the latest

tax receipt evidencing payment of real estate
taxes;

x x x.13 c. the two deeds of sale prepared by Atty.

Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the
On the same day, 14 July 1989, Valdes-Choy, accompanied by plaintiff, whether notarized or not; and
Chua, deposited the P485,000.00 manager's check to her
account with Traders Royal Bank. She then purchased a
Traders Royal Bank manager's check for P480,000.00 payable 2. Within five (5) days from compliance by the
to the Commissioner of Internal Revenue for the capital gains defendant of the above, ordering the plaintiff to deliver
tax. Valdes-Choy and Chua returned to the office of Valdes- to the Branch Clerk of Court of this Court the sum of
Choy's counsel and handed the Traders Royal Bank check to P10,295,000.00 representing the balance of the
the counsel who undertook to pay the capital gains tax. It was consideration (with the sum of P80,000.00 for stamps
then also that Chua showed to Valdes-Choy a PBCom already included);
manager's check for P10,215,000.00 representing the balance
of the purchase price. Chua, however, did not give this PBCom 3. Ordering the Branch Clerk of this Court or her duly
manager's check to Valdes-Choy because the TCT was still authorized representative:
registered in the name of Valdes-Choy. Chua required that the
Property be registered first in his name before he would turn
a. to make representations with the BIR for
over the check to Valdes-Choy. This angered Valdes-Choy who
the payment of capital gains tax for the sale
tore up the Deeds of Sale, claiming that what Chua required
of the house and lot (not to include the
was not part of their agreement.14
fixtures) and to pay the same from the funds
deposited with her;
On the same day, 14 July 1989, Chua confirmed his stop
payment order by submitting to PBCom an affidavit of loss15 of
b. to present the deed of sale executed in
the PBCom Manager's Check for P480,000.00. PBCom
favor of the plaintiff, together with the
Assistant Vice-President Pe, however, testified that the
owner's duplicate copy of TCT No. 162955,
manager's check was nevertheless honored because Chua
real estate tax receipt and proof of payment
subsequently verbally advised the bank that he was lifting the
of capital gains tax, to the Makati Register of
stop-payment order due to his "special arrangement" with the
Deeds;
bank.16

c. to pay the required registration fees and

On 15 July 1989, the deadline for the payment of the balance
stamps (if not yet advanced by the
of the purchase price, Valdes-Choy suggested to her counsel
defendant) and if needed update the real
that to break the impasse Chua should deposit in escrow the
estate taxes all to be taken from the funds
P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy
deposited with her; and
was willing to cause the issuance of a new TCT in the name of
Chua even without receiving the balance of the purchase price.
Valdes-Choy believed this was the only way she could protect
 d. surrender to the plaintiff the new Torrens
title over the property;
4. Should the defendant fail or refuse to surrender the
two deeds of sale over the property and the fixtures
that were prepared by Atty. Mark Bocobo and
executed by the parties, the Branch Clerk of Court of
this Court is hereby authorized and empowered to
prepare, sign and execute the said deeds of sale for
and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing
moral and compensatory damages for the
plaintiff; and
b. the sum of P50,000.00 as reimbursement
for plaintiff's attorney's fees and cost of
litigation.
6. Authorizing the Branch Clerk of Court of this Court
to release to the plaintiff, to be taken from the funds
said plaintiff has deposited with the Court, the
amounts covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the
defendant after deducting therefrom the following
amounts:
a. the capital gains tax paid to the BIR;
b. the expenses incurred in the registration
of the sale, updating of real estate taxes, and
transfer of title; and
c. the amounts paid under this judgment to
the plaintiff.
8. Ordering the defendant to surrender to the plaintiff
or his representatives the premises with the
furnishings intact within seventy-two (72) hours from
receipt of the proceeds of the sale;
9. No interest is imposed on the payment to be made
by the plaintiff because he had always been ready to
pay the balance and the premises had been used or
occupied by the defendant for the duration of this
case.
II. In the event that specific performance cannot be
done for reasons or causes not attributable to the
plaintiff, judgment is hereby rendered ordering the
defendant:
1. To refund to the plaintiff the earnest money in the
sum of P100,000.00, with interest at the legal rate
from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00
with interest at the legal rate from July 14, 1989 until
fully paid;
3. To pay to the plaintiff the sum of P700,000.00 in the
concept of moral damages and the additional sum of
P300,000.00 in the concept of exemplary damages;
and
4. To pay to the plaintiff the sum of P100,000.00 as
reimbursement of attorney's fees and cost of litigation.
SO ORDERED.18
Valdes-Choy appealed to the Court of Appeals which reversed
the decision of the trial court. The Court of Appeals handed
down a new judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby
REVERSED and SET ASIDE, and another one is
rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00,
representing earnest money as forfeited in
favor of defendant-appellant;
(3) Ordering defendant-appellant to
return/refund the amount of P485,000.00 to
plaintiff-appellee without interest;
(4) Dismissing defendant-appellant's
compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the
costs.19
Hence, the instant petition.
The Trial Court's Ruling
The trial court found that the transaction reached an impasse
when Valdes-Choy wanted to be first paid the full consideration
before a new TCT covering the Property is issued in the name
of Chua. On the other hand, Chua did not want to pay the
consideration in full unless a new TCT is first issued in his
name. The trial court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to
sell on 30 June 1989, as evidenced by the Receipt for the
P100,000.00 earnest money. The trial court pointed out that the
contract to sell was subject to the following conditions: (1) the
balance of P10,700,000.00 was payable not later than 15 July
1989; (2) Valdes-Choy may stay in the Property until 13 August
1989; and (3) all papers must be "in proper order" before full
payment is made.
The trial court held that Chua complied with the terms of the
contract to sell. Chua showed that he was prepared to pay
Valdes-Choy the consideration in full on 13 July 1989, two
days before the deadline of 15 July 1989. Chua even added
P80,000.00 for the documentary stamp tax. He purchased from
PBCom two manager's checks both payable to Valdes-Choy.
The first check for P485,000.00 was to pay the capital gains
tax. The second check for P10,215,000.00 was to pay the
balance of the purchase price. The trial court was convinced
that Chua demonstrated his capacity and readiness to pay the
balance on 13 July 1989 with the production of the PBCom
manager's check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did
not perform her correlative obligation under the contract to sell
to put all the papers in order. The trial court noted that as of 14
July 1989, the capital gains tax had not been paid because
Valdes-Choy's counsel who was suppose to pay the tax did not
do so. The trial court declared that Valdes-Choy was in a
position to deliver only the owner's duplicate copy of the TCT,
the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The trial court concluded that these
documents were all useless without the Bureau of Internal
Revenue receipt evidencing full payment of the capital gains
tax which is a pre-requisite to the issuance of a new certificate
of title in Chua's name.
The trial court held that Chua's non-payment of the balance of
P10,215,000.00 on the agreed date was due to Valdes-Choy's
fault.
The Court of Appeals' Ruling
In reversing the trial court, the Court of Appeals ruled that
Chua's stance to pay the full consideration only after the
Property is registered in his name was not the agreement of
the parties. The Court of Appeals noted that there is a whale of
difference between the phrases "all papers are in proper order"
as written on the Receipt, and "transfer of title" as demanded
by Chua.
Contrary to the findings of the trial court, the Court of Appeals
found that all the papers were in order and that Chua had no
valid reason not to pay on the agreed date. Valdes-Choy was
in a position to deliver the owner's duplicate copy of the TCT,
the signed Deeds of Sale, the tax declarations, and the latest
realty tax receipt. The Property was also free from all liens and
encumbrances.
The Court of Appeals declared that the trial court erred in
considering Chua's showing to Valdes-Choy of the PBCom
manager's check for P10,215,000.00 as compliance with
Chua's obligation to pay on or before 15 July 1989. The Court
of Appeals pointed out that Chua did not want to give up the
check unless "the property was already in his
name."20 Although Chua demonstrated his capacity to pay, this
could not be equated with actual payment which he refused to
do.
The Court of Appeals did not consider the non-payment of the
capital gains tax as failure by Valdes-Choy to put the papers "in
proper order." The Court of Appeals explained that the
payment of the capital gains tax has no bearing on the validity
of the Deeds of Sale. It is only after the deeds are signed and
notarized can the final computation and payment of the capital
gains tax be made.
The Issues
In his Memorandum, Chua raises the following issues:
1. WHETHER THERE IS A PERFECTED
CONTRACT OF SALE OF IMMOVABLE PROPERTY;
2. WHETHER VALDES-CHOY MAY RESCIND THE
CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592
OF THE NEW CIVIL CODE;
3. WHETHER THE WITHHOLDING OF PAYMENT
OF THE BALANCE OF THE PURCHASE PRICE ON
THE PART OF CHUA (AS VENDEE) WAS
JUSTIFIED BY THE CIRCUMSTANCES OBTAINING
AND MAY NOT BE RAISED AS GROUND FOR THE
AUTOMATIC RESCISSION OF THE CONTRACT OF
SALE;
4. WHETHER THERE IS LEGAL AND FACTUAL
BASIS FOR THE COURT OF APPEALS TO
DECLARE THE "EARNEST MONEY" IN THE
AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDES-CHOY;
5. WHETHER THE TRIAL COURT'S JUDGMENT IS
IN ACCORD WITH LAW, REASON AND EQUITY
DESERVING OF BEING REINSTATED AND
AFFIRMED.21
The issues for our resolution are: (a) whether the transaction
between Chua and Valdes-Choy is a perfected contract of sale
or a mere contract to sell, and (b) whether Chua can compel
Valdes-Choy to cause the issuance of a new TCT in Chua's
name even before payment of the full purchase price.
The Court's Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of
the Property which is registered in her name under TCT
No.162955, free from all liens and encumbrances. She was
ready, able and willing to deliver to Chua the owner's duplicate
copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. There is also no
dispute that on 13 July 1989, Valdes-Choy received PBCom
Check No. 206011 for P100,000.00 as earnest money from
Chua. Likewise, there is no controversy that the Receipt for the
P100,000.00 earnest money embodied the terms of the binding
contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the
Receipt, Valdes-Choy and Chua agreed on the following terms:
(1) the balance of P10,215,000.00 is payable on or before 15
July 1989; (2) the capital gains tax is for the account of Valdes-
Choy; and (3) if Chua fails to pay the balance of
P10,215,000.00 on or before 15 July 1989, Valdes-Choy has
the right to forfeit the earnest money, provided that "all papers
are in proper order." On 13 July 1989, Chua gave Valdes-Choy
the PBCom manager's check for P485,000.00 to pay the
capital gains tax.
Both the trial and appellate courts found that the balance of
P10,215,000.00 was not actually paid to Valdes-Choy on the
agreed date. On 13 July 1989, Chua did show to Valdes-Choy
the PBCom manager's check for P10,215,000.00, with Valdes-
Choy as payee. However, Chua refused to give this check to
Valdes-Choy until a new TCT covering the Property is
registered in Chua's name. Or, as the trial court put it, until
there is proof of payment of the capital gains tax which is a
pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with
Valdez-Choy, as evidenced by the Receipt, as a contract to sell
and not a contract of sale. This has been Chua's persistent
contention in his pleadings before the trial and appellate
courts.
Chua now pleads for the first time that there is a perfected
contract of sale rather than a contract to sell. He contends that
there was no reservation in the contract of sale that Valdes-
Choy shall retain title to the Property until after the sale. There
was no agreement for an automatic rescission of the contract
in case of Chua's default. He argues for the first time that his
payment of earnest money and its acceptance by Valdes-Choy
precludes the latter from rejecting the binding effect of the
contract of sale. Thus, Chua claims that Valdes-Choy may not
validly rescind the contract of sale without following Article
159222 of the Civil Code which requires demand, either
judicially or by notarial act, before rescission may take place.
Chua's new theory is not well taken in light of well-settled
jurisprudence. An issue not raised in the court below cannot be
raised for the first time on appeal, as this is offensive to the
basic rules of fair play, justice and due process.23 In addition,
when a party deliberately adopts a certain theory, and the case
is tried and decided on that theory in the court below, the party
will not be permitted to change his theory on appeal. To permit
him to change his theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter,
we hold that the agreement between Chua and Valdes-Choy,
as evidenced by the Receipt, is a contract to sell and not a
contract of sale. The distinction between a contract of sale and
contract to sell is well-settled:
In a contract of sale, the title to the property passes to
the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved
in the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the
contract is resolved or rescinded; whereas, in a
contract to sell, title is retained by the vendor until full
payment of the price. In the latter contract, payment of
the price is a positive suspensive condition, failure of
which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming
effective.25
A perusal of the Receipt shows that the true agreement
between the parties was a contract to sell. Ownership over the
Property was retained by Valdes-Choy and was not to pass to
Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be
forfeited in case the buyer fails to pay the balance of the
purchase price on or before 15 July 1989. In such event,
Valdes-Choy can sell the Property to other interested parties.
There is in effect a right reserved in favor of Valdes-Choy not to
push through with the sale upon Chua's failure to remit the
balance of the purchase price before the deadline. This is in
the nature of a stipulation reserving ownership in the seller until
full payment of the purchase price. This is also similar to giving
the seller the right to rescind unilaterally the contract the
moment the buyer fails to pay within a fixed period.26
Second, the agreement between Chua and Valdes-Choy was
embodied in a receipt rather than in a deed of sale, ownership
not having passed between them. The signing of the Deeds of
Sale came later when Valdes-Choy was under the impression
that Chua was about to pay the balance of the purchase price.
The absence of a formal deed of conveyance is a strong
indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the
purchase price.27
Third, Valdes-Choy retained possession of the certificate of title
and all other documents relative to the sale. When Chua
refused to pay Valdes-Choy the balance of the purchase price,
Valdes-Choy also refused to turn-over to Chua these
documents.28 These are additional proof that the agreement
did not transfer to Chua, either by actual or constructive
delivery, ownership of the Property.29
It is true that Article 1482 of the Civil Code provides that
"[W]henever earnest money is given in a contract of sale, it
shall be considered as part of the price and proof of the
perfection of the contract." However, this article speaks of
earnest money given in a contract of sale. In this case, the
earnest money was given in a contract to sell. The Receipt
evidencing the contract to sell stipulates that the earnest
money is a forfeitable deposit, to be forfeited if the sale is not
consummated should Chua fail to pay the balance of the
purchase price. The earnest money forms part of the
consideration only if the sale is consummated upon full
payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the
balance of the purchase price. Chua, however, has the right to
walk away from the transaction, with no obligation to pay the
balance, although he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest money was given in a
contract to sell, and thus Article 1482, which speaks of a
contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a
mere contract to sell, the full payment of the purchase price
partakes of a suspensive condition. The non-fulfillment of the
condition prevents the obligation to sell from arising and
ownership is retained by the seller without further remedies by
the buyer.30 Article 1592 of the Civil Code permits the buyer to
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 notarial act. However, Article 1592 does
not apply to a contract to sell where the seller reserves the
ownership until full payment of the price.31
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest
Money
Chua insists that he was ready to pay the balance of the
purchase price but withheld payment because Valdes-Choy did
not fulfill her contractual obligation to put all the papers in
"proper order." Specifically, Chua claims that Valdes-Choy
failed to show that the capital gains tax had been paid after he
had advanced the money for its payment. For the same
reason, he contends that Valdes-Choy may not forfeit the
earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers
are in proper order" as written in the Receipt. There is no
dispute though, that as long as the papers are "in proper
order," Valdes-Choy has the right to forfeit the earnest money if
Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the
capital gains tax, with the Bureau of Internal Revenue receipt
as proof of payment. The Court of Appeals held otherwise. We
quote verbatim the ruling of the Court of Appeals on this
matter:
The trial court made much fuss in connection with the
payment of the capital gains tax, of which Section 33
of the National Internal Revenue Code of 1977, is the
governing provision insofar as its computation is
concerned. The trial court failed to consider Section
34-(a) of the said Code, the last sentence of which
provides, that "[t]he amount realized from the sale or
other disposition of property shall be the sum of
money received plus the fair market value of the
property (other than money) received;" and that the
computation of the capital gains tax can only be finally
assessed by the Commission on Internal Revenue
upon the presentation of the Deeds of Absolute Sale
themselves, without which any premature
computation of the capital gains tax becomes of no
moment. At any rate, the computation and payment of
the capital gains tax has no bearing insofar as the
validity and effectiveness of the deeds of sale in
question are concerned, because it is only after the
contracts of sale are finally executed in due form and
have been duly notarized that the final computation of
the capital gains tax can follow as a matter of course.
Indeed, exhibit D, the PBC Check No. 325851, dated
July 13, 1989, in the amount of P485,000.00, which is
considered as part of the consideration of the sale,
was deposited in the name of appellant, from which
she in turn, purchased the corresponding check in the
amount representing the sum to be paid for capital
gains tax and drawn in the name of the Commissioner
of Internal Revenue, which then allayed any fear or
doubt that that amount would not be paid to the
Government after all.32
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive
condition. In this case, the suspensive condition is the full
payment of the purchase price by Chua. Such full payment
gives rise to Chua's right to demand the execution of the
contract of sale.
It is only upon the existence of the contract of sale that the
seller becomes obligated to transfer the ownership of the thing
sold to the buyer. Article 1458 of the Civil Code defines a
contract of sale as follows:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or
its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not
obligated to transfer ownership to the buyer, even if there is a
contract to sell between them. It is also upon the existence of
the contract of sale that the buyer is obligated to pay the
purchase price to the seller. Since the transfer of ownership is
in exchange for the purchase price, these obligations must be
simultaneously fulfilled at the time of the execution of the
contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified
in Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the
ownership of and deliver, as well as warrant the thing
which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the
buyer ownership of the thing sold. In the sale of real property,
the seller is not obligated to transfer in the name of the buyer a
new certificate of title, but rather to transfer ownership of the
real property. There is a difference between transfer of the
certificate of title in the name of the buyer, and transfer of
ownership to the buyer. The buyer may become the owner of
the real property even if the certificate of title is still registered
in the name of the seller. As between the seller and buyer,
ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution
of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of
the thing sold. As the noted civil law commentator Arturo M.
Tolentino explains it, -
Delivery is not only a necessary condition for the
enjoyment of the thing, but is a mode of acquiring
dominion and determines the transmission of
ownership, the birth of the real right. The delivery,
therefore, made in any of the forms provided in
articles 1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place.
The delivery of the thing constitutes an indispensable
requisite for the purpose of acquiring ownership. Our
law does not admit the doctrine of transfer of property
by mere consent; the ownership, the property right, is
derived only from delivery of the thing. x x
x.33 (Emphasis supplied)
In a contract of sale of real property, delivery is effected when
the instrument of sale is executed in a public document. When
the deed of absolute sale is signed by the parties and
notarized, then delivery of the real property is deemed made
by the seller to the buyer. Article 1498 of the Civil Code
provides that
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not
appear or cannot clearly be inferred.
x x x.
Similarly, in a contract to sell real property, once the seller is
ready, able and willing to sign the deed of absolute sale before
a notary public, the seller is in a position to transfer ownership
of the real property to the buyer. At this point, the seller
complies with his undertaking to sell the real property in
accordance with the contract to sell, and to assume all the
obligations of a vendor under a contract of sale pursuant to the
relevant articles of the Civil Code. In a contract to sell, the
seller is not obligated to transfer ownership to the buyer.
Neither is the seller obligated to cause the issuance of a new
certificate of title in the name of the buyer. However, the seller
must put all his papers in proper order to the point that he is in
a position to transfer ownership of the real property to the
buyer upon the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply
with all her obligations as a seller under the contract to sell.
First, she already signed the Deeds of Sale in the office of her
counsel in the presence of the buyer. Second, she was
prepared to turn-over the owner's duplicate of the TCT to the
buyer, along with the tax declarations and latest realty tax
receipt. Clearly, at this point Valdes-Choy was ready, able and
willing to transfer ownership of the Property to the buyer as
required by the contract to sell, and by Articles 1458 and 1495
of the Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom
manager's check for the balance of the purchase price. Chua
imposed the condition that a new TCT should first be issued in
his name, a condition that is found neither in the law nor in the
contract to sell as evidenced by the Receipt. Thus, at this point
Chua was not ready, able and willing to pay the full purchase
price which is his obligation under the contract to sell. Chua
was also not in a position to assume the principal obligation of
a vendee in a contract of sale, which is also to pay the full
purchase price at the agreed time. Article 1582 of the Civil
Code provides that
Art. 1582. The vendee is bound to accept delivery
and to pay the price of the thing sold at the time and
place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should
pay the balance of the purchase price "on or before 15 July
1989." The signed Deeds of Sale also stipulated that the buyer
shall pay the balance of the purchase price upon signing of the
deeds. Thus, the Deeds of Sale, both signed by Chua, state as
follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT
MILLION PESOS (P8,000,000.00), Philippine
Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE,
the VENDOR sells, transfers and conveys unto the
VENDEE, his heirs, successors and assigns, the said
parcel of land, together with the improvements
existing thereon, free from all liens and
encumbrances.34 (Emphasis supplied)
Deed of Absolute Sale covering the furnishings:
xxx
For and in consideration of the sum of TWO MILLION
EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which
in full is hereby acknowledged by the VENDOR from
the VENDEE, the VENDOR sells, transfers and
conveys unto the VENDEE, his heirs, successors and
assigns, the said furnitures, fixtures and other
movable properties thereon, free from all liens and
encumbrances.35 (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance
of the purchase price as required by the contract to sell, the
signed Deeds of Sale, and Article 1582 of the Civil Code. Chua
was therefore in default and has only himself to blame for the
rescission by Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-
Choy had all her papers "in proper order." Article 1376 of the
Civil Code provides that:
Art. 1376. The usage or custom of the place shall be
borne in mind in the interpretation of the ambiguities
of a contract, and shall fill the omission of stipulations
which are ordinarily established.
Customarily, in the absence of a contrary agreement, the
submission by an individual seller to the buyer of the following
papers would complete a sale of real estate: (1) owner's
duplicate copy of the Torrens title;36 (2) signed deed of absolute
sale; (3) tax declaration; and (3) latest realty tax receipt. The
buyer can retain the amount for the capital gains tax and pay it
upon authority of the seller, or the seller can pay the tax,
depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax
paid immediately since this is a pre-requisite to the issuance of
a new Torrens title in his name. Nevertheless, as far as the
government is concerned, the capital gains tax remains a
liability of the seller since it is a tax on the seller's gain from the
sale of the real estate. Payment of the capital gains tax,
however, is not a pre-requisite to the transfer of ownership to
the buyer. The transfer of ownership takes effect upon the
signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of
Deeds37 and the transfer of the certificate of title in the name of
the buyer are necessary only to bind third parties to the
transfer of ownership.38 As between the seller and the buyer,
the transfer of ownership takes effect upon the execution of a
public instrument conveying the real estate.39Registration of
the sale with the Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership on the buyer.
Such registration or issuance of a new certificate of title is not
one of the modes of acquiring ownership.40
In this case, Valdes-Choy was ready, able and willing to submit
to Chua all the papers that customarily would complete the
sale, and to pay as well the capital gains tax. On the other
hand, Chua's condition that a new TCT be first issued in his
name before he pays the balance of P10,215,000.00,
representing 94.58% of the purchase price, is not customary in
a sale of real estate. Such a condition, not specified in the
contract to sell as evidenced by the Receipt, cannot be
considered part of the "omissions of stipulations which are
ordinarily established" by usage or custom.41 What is
increasingly becoming customary is to deposit in escrow the
balance of the purchase price pending the issuance of a new
certificate of title in the name of the buyer. Valdes-Choy
 5
suggested this solution but unfortunately, it drew no response The typewritten figure "30" was corrected in ink to
from Chua. "15".

6
Chua had no reason to fear being swindled. Valdes-Choy was The italicized portions were also handwritten in ink
prepared to turn-over to him the owner's duplicate copy of the and initialed by Chua.
TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. There was no hindrance to paying the 7
Annex "A," Records, p. 7.
capital gains tax as Chua himself had advanced the money to
pay the same and Valdes-Choy had procured a manager's 8
check payable to the Bureau of Internal Revenue covering the TSN, 24 July 1990, pp. 20-28.
amount. It was only a matter of time before the capital gains
tax would be paid. Chua acted precipitately in filing the action 9
Exhibit "8," Records, p. 140.
for specific performance a mere two days after the deadline of
15 July 1989 when there was an impasse. While this case was 10
TSN, 25 January 1990, p. 87.
dismissed on 22 November 1989, he did not waste any time in
re-filing the same on 29 November 1989. 11
Exhibit "B," Records, pp. 107-109.
Accordingly, since Chua refused to pay the consideration in full 12
on the agreed date, which is a suspensive condition, Chua Exhibit "C," Records, pp. 110-112.
cannot compel Valdes-Choy to consummate the sale of the
Property. Article 1181 of the Civil Code provides that - 13
Records, p. 73.

ART. 1181. In conditional obligations, the acquisition 14

TSN, 25 January 1990, p. 226.
of rights, as well as the extinguishment or loss of
those already acquired shall depend upon the 15
Exhibit "9," Records, p. 141.
happening of the event which constitutes the
condition.
16
TSN, 24 July 1989, p. 37.
Chua acquired no right to compel Valdes-Choy to transfer
17
ownership of the Property to him because the suspensive TSN, 5 February 1990, pp. 37-38.
condition - the full payment of the purchase price - did not
happen. There is no correlative obligation on the part of 18
Rollo, pp. 71-72.
Valdes-Choy to transfer ownership of the Property to Chua.
There is also no obligation on the part of Valdes-Choy to cause 19
Ibid., p. 62.
the issuance of a new TCT in the name of Chua since unless
expressly stipulated, this is not one of the obligations of a
20
vendor. Rollo, p. 60.

WHEREFORE, the Decision of the Court of Appeals in CA-
G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in
toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and
Azcuna, JJ., concur.
21
Ibid., p. 203.
22
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.

23
Rivera v. Court of Appeals, G.R. No. 44111, 10
Footnotes August 1989, 176 SCRA 169.

24
1
In CA-G.R. CV No. 37652, dated 23 February 1995, FMIC v. Court of Appeals, G.R. No. 85141, 28
penned by Associate Justice Artemon D. Luna with November 1989, 179 SCRA 638.
Associate Justices Cancio C. Garcia and Godardo A.
Jacinto concurring. 25
Salazar v. Court of Appeals, G.R. No. 118203, 5
July 1996, 258 SCRA 317.
2
Civil Case No. 89-5772.
26
Philippine National Bank v. Court of Appeals, G.R.
3
Branch 142, Makati, National Capital Judicial No. 119580, 26 September 1996, 262 SCRA 464.
Region, presided by Judge Salvador P. De Guzman,
Jr. 27
Alfonso v. Court of Appeals, G.R. No. 63745, 8 June
1990, 186 SCRA 400.
4
Dated 29 August 1991.
28
TSN, 5 February 1990, pp. 33-34.

29
Salazar v. Court of Appeals, supra, see note 25.

30
Roque v. Lapuz, G.R. No. L-32811, 31 March 1980,
96 SCRA 741.

31
Alfonso v. Court of Appeals, supra, see note 27.

32
Rollo, pp. 60-61.

33
ARTURO M. TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, VOL. V, p. 51 (1992).

34
Exhibit "B," Records, pp. 51-53.

35
Exhibit "C," Records, pp. 54-54-(A).

36
Section 53 of PD No. 1529 provides:

Section 53. Presentation of owner's

duplicate upon entry of new certificate. No
voluntary instrument shall be registered by
the Register of Deeds, unless the owner's
duplicate certificate is presented with such
instrument, except in cases expressly
provided for in this Decree or upon order of
the court, for cause shown.

The production of the owner's duplicate

certificate, whenever any voluntary
instrument is presented for registration, shall
be conclusive authority from the registered
owner to the Register of Deeds to enter a
new certificate or to make a memorandum of
registration in accordance with such
instrument, and the new certificate or
memorandum shall be binding upon the
registered owner and upon all persons
claiming under him, in favor of every
purchaser for value and in good faith.

x x x.

37
Garcia v. Court of Appeals, G.R. Nos. L-48971 and
49011, 22 January 1980, 95 SCRA 380.

38
Sections 51 and 52, Property Registration Decree
(PD No.1529).

39
Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et
al. v. De Suazo, 124 Phil.1138 (1966); Philippine
Suburban Development Corp. v. Auditor General,
G.R. No. L-19545, 18 April 1975, 63 SCRA 397.

40
Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11
November 1987, 155 SCRA 506.

41
Mirasol v. Yusay, et al., 120 Phil. 407 (1964).
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and
on behalf of Florida C. Tupper, as attorney-in-fact),
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ,
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of a
parcel of land with its improvements located along Roosevelt
Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-appellants
Romulo Coronel, et al. (hereinafter referred
to as Coronels) executed a document
entitled "Receipt of Down Payment" (Exh.
"A") in favor of plaintiff Ramona Patricia
Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-
P1,190,000.00 Balance
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of
Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in
our names from our deceased father,
Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of
the down payment above-stated.
On our presentation of the TCT already in or
name, We will immediately execute the deed
of absolute sale of said property and Miss
Ramona Patricia Alcaraz shall immediately
pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the
sale are the following:
1. Ramona will make a down payment of
Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in
their names of the title of the property
registered in the name of their deceased
father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the
subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona
and the latter will pay the former the whole
balance of One Million One Hundred Ninety
Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985),
plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh.
"B", Exh. "2").
On February 6, 1985, the property originally
registered in the name of the Coronels'
father was transferred in their names under
TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the
property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has
paid Three Hundred Thousand
C")
For this reason, Coronels canceled and
rescinded the contract (Exh. "A") with
Ramona by depositing the down payment
paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al.,
filed a complaint for specific performance
against the Coronels and caused the
annotation of a notice of lis pendens at the
back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
 covering the same property with the Registry
of Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a
Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh.
"7").
On June 5, 1985, a new title over the subject
property was issued in the name of Catalina
under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch
83, RTC, Quezon City) the parties agreed to submit the case
for decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A"
through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as
Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding
comment or reply thereof, after which, the case would be
deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March
1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific
performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a
deed of absolute sale covering that parcel of
land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No.
331582) of the Registry of Deeds for Quezon
City, together with all the improvements
existing thereon free from all liens and
encumbrances, and once accomplished, to
immediately deliver the said document of
sale to plaintiffs and upon receipt thereof, the
said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to
pay defendants the whole balance of the
purchase price amounting to P1,190,000.00
in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon
City in the name of intervenor is hereby
canceled and declared to be without force
and effect. Defendants and intervenor and all
other persons claiming under them are
hereby ordered to vacate the subject
property and deliver possession thereof to
plaintiffs. Plaintiffs' claim for damages and
attorney's fees, as well as the counterclaims
of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City,
March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the
new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant
motion, i.e., to annul the decision and to
render anew decision by the undersigned
Presiding Judge should be denied for the
following reasons: (1) The instant case
became submitted for decision as of April 14,
1988 when the parties terminated the
presentation of their respective documentary
evidence and when the Presiding Judge at
that time was Judge Reynaldo Roura. The
fact that they were allowed to file
memoranda at some future date did not
change the fact that the hearing of the case
was terminated before Judge Roura and
therefore the same should be submitted to
him for decision; (2) When the defendants
and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case
prior to the rendition of the decision, when
they met for the first time before the
undersigned Presiding Judge at the hearing
of a pending incident in Civil Case No. Q-
46145 on November 11, 1988, they were
deemed to have acquiesced thereto and
they are now estopped from questioning said
authority of Judge Roura after they received
the decision in question which happens to be
adverse to them; (3) While it is true that
Judge Reynaldo Roura was merely a Judge-
on-detail at this Branch of the Court, he was
in all respects the Presiding Judge with full
authority to act on any pending incident
submitted before this Court during his
incumbency. When he returned to his Official
Station at Macabebe, Pampanga, he did not
lose his authority to decide or resolve such
cases submitted to him for decision or
resolution because he continued as Judge of
the Regional Trial Court and is of co-equal
rank with the undersigned Presiding Judge.
The standing rule and supported by
jurisprudence is that a Judge to whom a
case is submitted for decision has the
authority to decide the case notwithstanding
his transfer to another branch or region of
the same court (Sec. 9, Rule 135, Rule of
Court).
Coming now to the twin prayer for
reconsideration of the Decision dated March
1, 1989 rendered in the instant case,
resolution of which now pertains to the
undersigned Presiding Judge, after a
meticulous examination of the documentary
evidence presented by the parties, she is
convinced that the Decision of March 1,
 1989 is supported by evidence and,
therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion
for Reconsideration and/or to Annul Decision
and Render Anew Decision by the
Incumbent Presiding Judge" dated March 20,
1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December
16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad
Santos (P), JJ.) rendered its decision fully agreeing with the
trial court.
Hence, the instant petition which was filed on March 5, 1992.
The last pleading, private respondents' Reply Memorandum,
was filed on September 15, 1993. The case was, however, re-
raffled to undersigned ponente only on August 28, 1996, due to
the voluntary inhibition of the Justice to whom the case was
last assigned.
While we deem it necessary to introduce certain refinements in
the disquisition of respondent court in the affirmance of the trial
court's decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by
both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona
Patricia Alcaraz on the one hand, and the heirs of Constancio
P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the
Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds
between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.
While, it is the position of private respondents that the "Receipt
of Down Payment" embodied a perfected contract of sale,
which perforce, they seek to enforce by means of an action for
specific performance, petitioners on their part insist that what
the document signified was a mere executory contract to sell,
subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States
of America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available
on record, this, Court, as were the courts below, is now called
upon to adjudge what the real intent of the parties was at the
time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a
contract of sale are the following:
a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange
for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered
as a Contract of Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicity
reserves the transfer of title to the prospective buyer, meaning,
the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell
until the happening of an event, which for present purposes we
shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill is promise to
sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full
payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court
had occasion to rule:
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.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, the
prospective seller's obligation to sell the subject property by
entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil
Code which states:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from
the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract of
sale is thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although
the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench.
In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such
case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-seller's
title per se, but the latter, of course, may be used for damages
by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment
of the suspensive condition, the sale becomes absolute and
this will definitely affect the seller's title thereto. In fact, if there
had been previous delivery of the subject property, the seller's
ownership or title to the property is automatically transferred to
the buyer such that, the seller will no longer have any title to
transfer to any third person. Applying Article 1544 of the Civil
Code, such second buyer of the property who may have had
actual or constructive knowledge of such defect in the seller's
title, or at least was charged with the obligation to discover
such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer's title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to
the task of deciphering the real nature of the contract entered
into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words
used therein should be given their natural and ordinary
meaning unless a technical meaning was intended (Tan vs.
Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment"
that they
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the
entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its
entirety, it becomes more manifest that there was a clear intent
on the part of petitioners to transfer title to the buyer, but since
the transfer certificate of title was still in the name of
petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a
new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of
the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership
or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves
(the certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts
and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-
sellers at that time, there would have been no reason why an
absolute contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at
bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition. On
the contrary, having already agreed to sell the subject property,
they undertook to have the certificate of title changed to their
names and immediately thereafter, to execute the written deed
of absolute sale.
Thus, the parties did not merely enter into a contract to sell
where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the latter.
What may be perceived from the respective undertakings of
the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father,
completely willing to transfer full ownership of the subject
house and lot to the buyer if the documents were then in order.
It just happened, however, that the transfer certificate of title
was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance
of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As
soon as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed of
absolute sale. Only then will the obligation of the buyer to pay
the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a
buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects
full payment therefor, in the contract entered into in the case at
bar, the sellers were the one who were unable to enter into a
contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of an
contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment"
was prepared and signed by petitioners Romeo A. Coronel, et
al., the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful
transfer of the certificate of title from the name of petitioners'
father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on
said date, the conditional contract of sale between petitioners
and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed
of absolute sale in a public instrument, which petitioners
unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. 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 the moment, the parties may
reciprocally demand performance, subject to
the provisions of the law governing the form
of contracts.
Art. 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the
parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to
private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the
purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9
of their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our
names from our deceased father Constancio
P. Coronel, the transfer certificate of title
immediately upon receipt of the
downpayment above-stated". The sale was
still subject to this suspensive condition.
(Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with
this condition of first transferring the title to
the property under their names, there could
be no perfected contract of sale. (Emphasis
supplied.)
(Ibid.)
not aware that they set their own trap for themselves,
for Article 1186 of the Civil Code expressly provides
that:
Art. 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents
its fulfillment.
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is the
fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a
contract of sale subject only to the suspensive condition that
the sellers shall effect the issuance of new certificate title from
that of their father's name to their names and that, on February
6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides
Art. 1187. The effects of conditional
obligation to give, once the condition has
been fulfilled, shall retroact to the day of the
constitution of the obligation . . .
In obligation to do or not to do, the courts
shall determine, in each case, the retroactive
effect of the condition that has been
complied with.
the rights and obligations of the parties with respect to
the perfected contract of sale became mutually due
 and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February
6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose.
Petitioners also argue there could been no perfected contract
on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition
by virtue of which the property, rights and
obligations to be extent and value of the
inheritance of a person are transmitted
through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons
and daughters of the decedent Constancio P. Coronel
are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father
drew his last breath, petitioners stepped into his
shoes insofar as the subject property is concerned,
such that any rights or obligations pertaining thereto
became binding and enforceable upon them. It is
expressly provided that rights to the succession are
transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90
Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not
be declared unless the creditors have been paid is rendered
moot by the fact that they were able to effect the transfer of the
title to the property from the decedent's name to their names
on February 6, 1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon
the person making it, and cannot be denied
or disproved as against the person relying
thereon.
Having represented themselves as the true owners of
the subject property at the time of sale, petitioners
cannot claim now that they were not yet the absolute
owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when she
rendered impossible the consummation thereof by going to the
United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs
14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally
rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
that these supposed grounds for petitioners' rescission, are
mere allegations found only in their responsive pleadings,
which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11,
Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations
must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot
justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the
contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for
and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal check (Exh. "B"; Exh. "2") for
and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted
her personal check. Neither did they raise any objection as
regards payment being effected by a third person. Accordingly,
as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of
sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price
is concerned. Petitioners who are precluded from setting up
the defense of the physical absence of Ramona P. Alcaraz as
above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their
names and signified their willingness and readiness to execute
the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer)
never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be considered in
default, to wit:
Art. 1169. Those obliged to deliver or to do
something, incur in delay from the time the
obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
xxx xxx xxx
 In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not
ready to comply in a proper manner with
what is incumbent upon him. From the
moment one of the parties fulfill his
obligation, delay by the other begins.
(Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the person
who may have first taken possession thereof
in good faith, if it should be movable
property.
Should if be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in the possession; and, in
the absence thereof to the person who
presents the oldest title, provided there is
good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City
giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority
on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:
The governing principle is prius
tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the
second sale cannot defeat the first buyer's
rights except when the second buyer first
registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the
second buyer of the first sale defeats his
rights even if he is first to register, since
knowledge taints his registration with bad
faith (see also Astorga vs. Court of Appeals,
G.R. No. 58530, 26 December 1984).
In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that
it is essential, to merit the protection of Art.
1544, second paragraph, that the second
realty buyer must act in good faith in
registering his deed of sale (citing Carbonell
vs. Court of Appeals, 69 SCRA 99,
Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and
Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between
petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was
unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been annotated
on the transfer certificate of title in the names of petitioners,
whereas petitioner Mabanag registered the said sale sometime
in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title
to the same property. Petitioner Mabanag cannot close her
eyes to the defect in petitioners' title to the property at the time
of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that
sale after he has acquired knowledge that
there was a previous sale of the same
property to a third party or that another
person claims said property in a pervious
sale, the registration will constitute a
registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87
SCRA 349 [1978]; citing Palarca vs. Director
of Land, 43 Phil. 146; Cagaoan vs. Cagaoan,
43 Phil. 554; Fernandez vs. Mercader, 43
Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners
and Ramona P. Alcaraz, perfected on February 6, 1985, prior
to that between petitioners and Catalina B. Mabanag on
February 18, 1985, was correctly upheld by both the courts
below.
Although there may be ample indications that there was in fact
an agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition is

hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 129760 December 29, 1998
RICARDO CHENG, petitioner,
vs.
RAMON B. GENATO and ERNESTO R. DA JOSE &
SOCORRO DA JOSE, respondents.
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set
aside the Decision of the Court of Appeals (CA) 1 dated July 7,
1997 in CA-G.R. No. CV No. 44706 entitled "Ricardo Cheng,
plaintiff-appellee vs. Ramon B. Genato, defendant-appellant,
Ernesto R. Da Jose & Socorro B. Da Jose, Intervenors-
Appellants" which reversed the ruling of the Regional Trial
Court, Branch 96 of Quezon City dated January 18, 1994. The
dispositive portion of the CA Decision reads:
WHEREFORE, based on the foregoing,
appealed decision is hereby REVERSED
and SET ASIDE and judgment is rendered
ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the
defendant-appellant's Affidavit to Annul
Contract to Sell and plaintiff-appellee's
Notice of Adverse Claim in the subject
TCT's, namely, TCT No. T-76.196 (M) and
TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of
the remaining balance of the purchase price
pursuant to their agreement with the
defendant-appellant to suspend encashment
of the three post-dated checks issued since
1989.
4. Ordering the execution by the defendant-
appellant Genato of the Deed of Absolute
Sale over the subject two lots covered by
TCT No. T-76.196 (M) and TCT No. T-76.197
(M) in favor of intervenors-appellants
Spouses Da Jose;
5. The return by defendant-appellant Genato
of the P50,000.00 paid to him by the plaintiff-
appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of
moral damages to herein intervenors-
appellants Da Jose of P100,000.00,
exemplary damages of P50,000.00,
attorney's fees of P50,000.00, and costs of
suit; and to defendant-appellant, of
P100,000.00 in exemplary damages,
P50,000.00 in attorney's fees. The amounts
payable to the defendant-appellant may be
compensated by plaintiff appellee with the
amount ordered under the immediately
foregoing paragraph which defendant-
appellant has to pay the plaintiff-appellee.
SO ORDERED. 2
The antecedents of the case are as follows:
Respondent Ramon B. Genato (Genato) is the owner of two
parcels of land located at Paradise Farms, San Jose del
Monte, Bulacan covered by TCT No. T-76.196 (M) 3 and TCT
No. T-76.197 (M) 4 with an aggregate area of 35,821square
meters, more or less.
On September 6, 1989, respondent Genato entered into an
agreement with respondent-spouses Ernesto R. Da Jose and
Socorro B. Da Jose (Da Jose spouses) over the above-
mentioned two parcels of land. The agreement culminated in
the execution of a contract to sell for which the purchase price
was P80.00 per square meter. The contract was in a public
instrument and was duly annotated at the back of the two
certificates of title on the same day. Clauses 1and 3 thereof
provide:
1. That the purchase price shall be EIGHTY
(P80.00) PESOS, Philippine Currency per
square meter, of which the amount of FIFTY
THOUSAND (P50,000.00) PESOS shall be
paid by the VENDEE to the VENDOR as
partial down payment at the time of
execution of this Contract to Sell.
xxx xxx xxx
3. That the VENDEE, Thirty (30) DAYS after
the execution of this contract, and only after
having satisfactorily verified and confirmed
the truth and authenticity of documents, and
that no restrictions, limitations, and
developments imposed on and/or affecting
the property subject of this contract shall be
detrimental to his interest, the VENDEE shall
pay to the VENDOR, NINE HUNDRED
FIFTY THOUSAND (P950,00.00) PESOS.
Philippine Currency, representing the full
payment of the agreed Down Payment, after
which complete possession of the property
shall be given to the VENDEE to enable him
to prepare the premises and any
development therein.
On October 4, 1989, the Da Jose spouses, not having finished
verifying the titles mentioned in clause 3 as aforequoted, asked
for and was granted by respondent Genato an extension of
another 30 days or until November 5, 1989. However,
according to Genato, the extension was granted on condition
that a new set of documents is made seven (7) days from
October 4, 1989. 6 This was denied by the Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and
without due notice to the Da Jose spouses, Genato executed
an Affidavit to Annul the Contract to Sell, 7 on October 13,
1989. Moreover, no annotation of the said affidavit at the back
of his titles was made right away. The affidavit contained, inter
alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that
the agreed downpayment of P950,000.00
shall be paid thirty (30) days after the
execution of the Contract, that is on or
before October 6, 1989;
The supposed VENDEES failed to pay the
said full downpayment even up to this
writing, a breach of contract;
That this affidavit is being executed to Annul
the aforesaid Contract to Sell for the vendee
having committed a breach of contract for
not having complied with the obligation as
provided in the Contract to Sell; 8
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng)
went to Genato's residence and expressed interest in buying
the subject properties. On that occasion, Genato showed to
Ricardo Cheng copies of his transfer certificates of title and the
annotations at the back thereof of his contract to sell with the
Da Jose spouses. Genato also showed him the
aforementioned Affidavit to Annul the Contract to Sell which
has not been annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check for
P50,000.00 upon the assurance by Genato that the previous
contract with the Da Jose spouses will be annulled for which
Genato issued a handwritten receipt (Exh. "D"), written in this
wise:
10/24/89
Received from Ricardo
Cheng
the Sum of Fifty Thousand
Only (P50.000-)
as partial for T-76196 (M)
T-76197 (M) area 35.821
Sq.m.
Paradise Farm, Gaya-
Gaya, San Jose Del Monte
P70/m2 Bulacan
plus C. G. T. etc.
Check # 470393 (SGD.)
Ramon B. Genato
10/24/89 9
On October 25, 1989, Genato deposited Cheng's check. On
the same day, Cheng called up Genato reminding him to
register the affidavit to annul the contract to sell. 10
The following day, or on October 26, 1989, acting on Cheng's
request, Genato caused the registration of the Affidavit to
Annul the Contract to Sell in the Registry of Deeds,
Meycauayan, Bulacan as primary entry No. 262702. 11
While the Da Jose spouses were at the Office of the Registry
of Deeds of Meycauayan, Bulacan on October 27, 1989, they
met Genato by coincidence. It was only then that the Da Jose
spouses discovered about the affidavit to annul their contract.
The latter were shocked at the disclosure and protested
against the rescission of their contract. After being reminded
that he (Genato) had given them (Da Jose spouses) an
additional 30-day period to finish their verification of his titles,
that the period was still in effect, and that they were willing and
able to pay the balance of the agreed down payment, later on
in the day, Genato decided to continue the Contract he had
with them. The agreement to continue with their contract was
formalized in a conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his
decision to continue his contract with the Da Jose spouses and
the return of Cheng's P50,000.00 check. Consequently, on
October 30, 1989, Cheng's lawyer sent a letter 12 to Genato
demanding compliance with their agreement to sell the
property to him stating that the contract to sell between him
and Genato was already perfected and threatening legal
action.
On November 2, 1989, Genato sent a letter 13 to Cheng (Exh.
"6") enclosing a BPI Cashier's Check for P50,000.00 and
expressed regret for his inability to "consummate his
transaction" with him. After having received the letter of Genato
on November 4, 1989, Cheng, however, returned the said
check to the former via RCPI telegram 14 dated November 6,
1989, reiterating that "our contract to sell your property had
already been perfected."
Meanwhile, also on November 2, 1989, Cheng executed an
affidavit of adverse claim 15 and had it annotated on the subject
TCT's.
On the same day, consistent with the decision of Genato and
the Da Jose spouses to continue with their Contract to Sell of
September 6, 1989, the Da Jose spouses paid Genato the
complete down payment of P950,000.00 and delivered to him
three (3) postdated checks (all dated May 6, 1990, the
stipulated due date) in the total amount of P1,865,680.00 to
cover full payment of the balance of the agreed purchase price.
However, due to the filing of the pendency of this case, the
three (3) postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint 16 for
specific performance to compel Genato to execute a deed of
sale to him of the subject properties plus damages and prayer
for preliminary attachment. In his complaint, Cheng averred
that the P50,000.00 check he gave was a partial payment to
the total agreed purchase price of the subject properties and
considered as an earnest money for which Genato acceded.
Thus, their contract was already perfected.
In Answer 17 thereto, Genato alleged that the agreement was in Transfer Certificates of Title No. T-76-196
only a simple receipt of an option-bid deposit, and never stated (M) and T-76.197 (M) of the Registry of
that it was a partial payment, nor is it an earnest money and Deeds of Bulacan, Meycauayan Branch, at
that it was subject to condition that the prior contract with the the rate of P70.000/square meter, less the
Da Jose spouses be first cancelled. amount of P50,000.00 alreaddy paid to
defendant, which is considered as part of the
The Da Jose spouses, in their Answer in purchase price, with the plaintiff being liable
Intervention, 18 asserted that they have a superior right to the for payment of the capital gains taxes and
property as first buyers. They alleged that the unilateral other expenses of the transfer pursuant to
cancellation of the Contract to Sell was without effect and void. the agreement to sell dated October 24,
They also cited Cheng's bad faith as a buyer being duly 1989; and
informed by Genato of the existing annotated Contract to Sell
on the titles. 5 Ordering defendant to pay the plaintiff and
the intervenors as follows:
After trial on the merits, the lower court ruled that the receipt
issued by Genato to Cheng unerringly meant a sale and not a/
just a priority or an option to buy. It cannot be true that the P50,000
transaction was subjected to some condition or reservation, .00, as
like the priority in favor of the Da Jose spouses as first buyer nominal
because, if it were otherwise, the receipt would have provided damage
such material condition or reservation, especially as it was s, to
Genato himself who had made the receipt in his own hand. It plaintiff;
also opined that there was a valid rescission of the Contract to
Sell by virtue of the Affidavit to Annul the Contract to Sell. Time b/
was of the essence in the execution of the agreement between P50,000
Genato and Cheng, under this circumstance demand, .00, as
extrajudicial or judicial, is not necessary. It falls under the nominal
exception to the rule provided in Article 1169 19 of the Civil damage
Code. The right of Genato to unilaterally rescind the contract is s, to
said to be under Article 1191 20 of the Civil Code. Additionally, interven
after reference was made to the substance of the agreement ors;
between Genato and the Da Jose spouses, the lower court
also concluded that Cheng should be preferred over the
intervenors-Da Jose spouses in the purchase of the subject c/
properties. Thus, on January 18, 1994 the trial court rendered P20,000
its decision the decretal portion of which reads: .00, as
and for
attorney'
WHEREFORE, judgment is hereby s fees,
rendered: to
plaintiff;
1. Declaring the contract to sell dated
September 6, 1989 executed between d/
defendant Ramon Genato, as vendor, and P20,000
intervenors Spouses Ernesto and Socorro .00, as
Da Jose, as vendees, resolved and and for
rescinded in accordance with Art. 1191, Civil attorney'
Code, by virtue of defendant's affidavit to s fees,
annul contract to sell dated October 13, 1989 to
and as the consequence of intervenors' interven
failure to execute within seven (7) days from ors; and
October 4, 1989 another contract to sell
pursuant to their mutual agreement with
defendant; e/ Cost
of the
suit.
2. Ordering defendant to return to the
intervenors the sum of P1,000,000.00, plus
interest at the legal rate from November 2, xxx xxx xxx
1989 until full payment;
Not satisfied with the aforesaid decision, herein respondents
3. Directing defendant to return to the Ramon Genato and Da Jose spouses appealed to the court a
intervenors the three (3) postdated checks quo which reversed such judgment and ruled that the prior
immediately upon finality of this judgment; contract to sell in favor of the Da Jose spouses was not validly
rescinded; that the subsequent contract to sell between
Genato and Cheng, embodied in the handwritten receipt, was
4. Commanding defendant to execute with without force and effect due to the failure to rescind the prior
and in favor of the plaintiff Ricardo Cheng, contract; and that Cheng should pay damages to the
as vendee, a deed of conveyance and sale respondents herein being found to be in bad faith.
of the real properties described and covered
Hence this petition. 21
This petition for review, assails the Court of Appeals' Decision
on the following grounds: (1) that the Da Jose spouses'
Contract to Sell has been validly rescinded or resolved; (2) that
Ricardo Cheng's own contract with Genato was not just a
contract to sell but one of conditional contract of sale which
gave him better rights, thus precluding the application of the
rule on double sales under Article 1544, Civil Code; and (3)
that, in any case, it was error to hold him liable for damages.
The petition must be denied for failure to show that the Court of
Appeals committed a reversible error which would warrant a
contrary ruling.
No reversible error can be ascribed to the ruling of the Court of
Appeals that there was no valid and effective rescission or
resolution of the Da Jose spouses Contract to Sell, contrary to
petitioner's contentions and the trial court's erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force. 22 It is one where the happening of the event
gives rise to an obligation. Thus, for its non-fulfillment there will
be no contract to speak of, the obligor having failed to perform
the suspensive condition which enforces a juridical relation. In
fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet. 23 Emphasis should be made that the
breach contemplated in Article 1191 of the New Civil Code is
the obligor's failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. 24
Obviously, the foregoing jurisprudence cannot be made to
apply to the situation in the instant case because no default
can be ascribed to the Da Jose spouses since the 30-day
extension period has not yet expired. The Da Jose spouses'
contention that no further condition was agreed when they
were granted the 30-days extension period from October 7,
1989 in connection with clause 3 of their contract to sell dated
September 6, 1989 should be upheld for the following reason,
to wit; firstly, If this were not true, Genato could not have been
persuaded to continue his contract with them and later on
agree to accept the full settlement of the purchase price
knowing fully well that he himself imposed such sine qua
non condition in order for the extension to be valid; secondly,
Genato could have immediately annotated his affidavit to annul
the contract to sell on his title when it was executed on October
13, 1989 and not only on October 26, 1989 after Cheng
reminded him of the annotation; thirdly, Genato could have
sent at least a notice of such fact, there being no stipulation
authorizing him for automatic rescission, so as to finally clear
the encumbrance on his titles and make it available to other
would be buyers. It likewise settles the holding of the trial court
that Genato "needed money urgently."
Even assuming in gratia argumenti that the Da Jose spouses
defaulted, as claimed by Genato, in their Contract to Sell, the
execution by Genato of the affidavit to annul the contract is not
even called for. For with or without the aforesaid affidavit their
non-payment to complete the full downpayment of the
purchase price ipso facto avoids their contract to sell, it being
subjected to a suspensive condition. When a contract is
subject to a suspensive condition, its birth or effectivity can
take place only if and when the event which constitutes the
condition happens or is fulfilled.25 If the suspensive condition
does not take place, the parties would stand as if the
conditional obligation had never
existed. 26
Nevertheless, this being so Genato is not relieved from the
giving of a notice, verbal or written, to the Da Jose spouses for
his decision to rescind their contract. In many cases, 27 even
though we upheld the validity of a stipulation in a contract to
sell authorizing automatic rescission for a violation of its terms
and conditions, at least a written notice must be sent to the
defaulter informing him of the same. The act of a party in
treating a contract as cancelled should be made known to the
other. 28 For such act is always provisional. It is always subject
to scrutiny and review by the courts in case the alleged
defaulter brings the matter to the proper courts. In University of
the Philippines vs. De Los Angeles, 29 this Court stressed and
we quote:
In other words, the party who deems the
contract violated may 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. But the law
definitely does not require that the
contracting party who believes itself injured
must first file suit and wait for a judgment
before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the
other's breach will have to passively sit and
watch its damages accumulate during the
pendency of the suit until the final judgment
of rescission is rendered when the law itself
requires that he should exercise due
diligence to minimize its own damages (Civil
Code, Article 2203).
This rule validates, both in equity and justice, contracts such as
the one at bat, in order to avoid and prevent the defaulting
party from assuming the offer as still in effect due to the
obligee's tolerance for such non-fulfillment. Resultantly,
litigations of this sort shall be prevented and the relations
among would-be parties may be preserved. Thus, Ricardo
Cheng's contention that the Contract to Sell between Genato
and the Da Jose spouses was rescinded or resolved due to
Genato's unilateral rescission finds no support in this case.
Anent the issue on the nature of the agreement between
Cheng and Genato, the records of this case are replete with
admissions 30 that Cheng believed it to be one of a Contract to
Sell and not one of Conditional Contract of Sale which he, in a
transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate
court, thus:
At the outset, this Court notes that plaintiff-
appellee was inconsistent in characterizing
the contract he allegedly entered into. In his
complaint. 31 Cheng alleged that the
P50,000.00 down payment was earnest
money. And next, his testimony 32 was
offered to prove that the transaction between
him and Genato on October 24, 1989 was
actually a perfected contract to sell. 33
Settled is the rule that an issue which was not raised during the
trial in the court below cannot be raised for the first time on
appeal. 34 Issues of fact and arguments not adequately brought
to the attention of the trial court need not be and ordinarily will
not be considered by a reviewing court as they cannot be
raised for the first time on appeal. 35 In fact, both courts below
correctly held that the receipt which was the result of their
agreement, is a contract to sell. This was, in fact Cheng's
contention in his pleadings before said courts. This patent twist
only operates against Cheng's posture which is indicative of
the weakness of his claim.
But even if we are to assume that the receipt, Exh. "D," is to be
treated as a conditional contract of sale, it did not acquire any
obligatory force since it was subject to suspensive condition
that the earlier contract to sell between Genato and the Da
Jose spouses should first be cancelled or rescinded a
condition never met, as Genato, to his credit, upon realizing his
error, redeemed himself by respecting and maintaining his
earlier contract with the Da Jose spouses. In fact, a careful
reading of the receipt, Exh. "D," alone would not even show
that a conditional contract of sale has been entered by Genato
and Cheng. When the requisites of a valid contract of sale are
lacking in said receipt, therefore the "sale" is neither valid or
enfoceable. 36
To support his now new theory that the transaction was a
conditional contract of sale, petitioner invokes the case
of Coronel vs. Court of Appeals 37 as the law that should
govern their Petition. We do not agree. Apparently, the factual
milieu in Coronel is not on all fours with those in the case at
bar.
In Coronel, this Court found that the petitioners therein clearly
intended to transfer title to the buyer which petitioner
themselves admitted in their pleading. The agreement of the
parties therein was definitively outlined in the "Receipt of Down
Payment" both as to property, the purchase price, the delivery
of the seller of the property and the manner of the transfer of
title subject to the specific condition that upon the transfer in
their names of the subject property the Coronels will execute
the deed of absolute sale.
Whereas, in the instant case, even by a careful perusal of the
receipt, Exh. "D," alone such kind of circumstances cannot be
ascertained without however resorting to the exceptions of the
Rule on Parol Evidence.
To our mind, the trial court and the appellate court correctly
held that the agreement between Genato and Cheng is a
contract to sell, which was, in fact, petitioner connection in his
pleadings before the said courts. Consequently, both to mind,
which read:
Art. 1544. If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the person
who may have first taken possession thereof
in good faith, if it should be movable
property.
Should it be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in the Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in possession; and in the
absence thereof, to the person who presents
he oldest title, provided there is good faith.
However, a meticulous reading of the aforequoted provision
shows that said law is not apropos to the instant case. This
provision connotes that the following circumstances must
concur:
(a) The two (or more) sales transactions in
issue must pertain to exactly the same
subject matter, and must be valid sales
transactions.
(b) The two (or more) buyers at odds over
the rightful ownership of the subject matter
must each represent conflicting interests;
and
(c) The two (or more) buyers at odds over
the rightful ownership of the subject matter
must each have bought from the very same
seller.
These situations obviously are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction has
been consummated. The contract to be binding upon the
obligee or the vendor depends upon the fulfillment or non-
fulfillment of an event.
Notwithstanding this contrary finding with the appellate court,
we are of the view that the governing principle of Article 1544,
Civil Code, should apply in this situation.
Jurisprudence 38 teaches us that the governing principle is
PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in
right). For not only was the contract between herein
respondents first in time; it was also registered long before
petitioner's intrusion as a second buyer. This principle only
applies when the special rules provided in the aforcited article
of the Civil Code do not apply or fit the specific circumstances
mandated under said law or by jurisprudence interpreting the
article.
The rule exacted by Article 1544 of the Civil Code for the
second buyer to be able to displace the first buyer are:
(1) that the second buyer must show that he acted in good faith
(i.e. in ignorance of the first sale and of the first buyer's rights)
from the time of acquisition until title is transferred to him by
registration or failing registration, by delivery of possession; 39
(2) the second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his
contract ripens into full ownership through prior registration as
provided by law. 40
Thus, in the case at bar, the knowledge gained by the Da Jose
spouses, as first buyers, of the new agreement between
Cheng and Genato will not defeat their rights as first buyers
except where Cheng, as second buyer, registers or annotates
his transaction or agreement on the title of the subject
properties in good faith ahead of the Da Jose spouses.
Moreover, although the Da Jose spouses, as first buyers, knew
of the second transaction it will not bar them from availing of
their rights granted by law, among them, to register first their
agreement as against the second buyer.
In contrast, knowledge gained by Cheng of the first transaction
between the Da Jose spouses and Genato defeats his rights
even if he is first to register the second transaction, since such
knowledge taints his prior registration with bad faith.
"Registration", as defined by Soler and Castillo, means any
entry made in the books of the registry, including both
registration in its ordinary and strict sense, and cancellation,
annotation, and even marginal notes. 41 In its strict acceptation,
it is the entry made in the registry which records solemnly and
permanently the right of ownership and other real rights. 42 We
have ruled 43 before that when a Deed of Sale is inscribed in
the registry of property on the original document itself, what
was done with respect to said entries or annotations and
marginal notes amounted to a registration of the sale. In this
light, we see no reason why we should not give priority in right
the annotation made by the Da Jose spouses with respect to
their Contract to Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is
not sufficient. Good faith must concur with registration for such
prior right to be enforceable. In the instant case, the annotation
made by the Da Jose spouses on the titles of Genato of their
"Contract To Sell" more than satisfies this requirement.
Whereas in the case of Genato's agreement with Cheng such
is unavailing. For even before the receipt, Exh. "D," was issued
to Cheng information of such pre-existing agreement has been
brought to his knowledge which did not deter him from
pursuing his agreement with Genato. We give credence to the
factual finding of the appellate court that "Cheng himself
admitted that it was he who sought Genato in order to inquire
about the property and offered to buy the same. 44 And since
Cheng was fully aware, or could have been if he had chosen to
inquire, of the rights of the Da Jose spouses under the
Contract to Sell duly annotated on the transfer certificates of
titles of Genato, it now becomes unnecessary to further
elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement. As we have held in Leung Yee
vs. F.L. Strong Machinery Co.: 45
One who purchases real estate with
knowledge of a defect . . . of title in his
vendor cannot claim that he has acquired
title thereto in good faith as against . . . . an
interest therein; and the same rule must be
applied to one who has knowledge of facts
which should have put him upon such inquiry
and investigation as might be necessary to
acquaint him with the defects in the title of
his vendor. A purchaser cannot close his
eyes to facts which should put a reasonable
man upon his guard, and then claim that he
acted in good faith under the belief that there
was no defect in the title of the vendor. His
mere refusal to believe that such defect
exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his
vendor's title, will not make him an innocent
purchaser for value, if it afterwards develops
that the title was in fact defective, and it
appears that he had such notice of the
defect as would have led to its discovery had
he acted with that measure of precaution
which may reasonably be required of a
prudent man in a like situation. Good faith, or
lack of it, is in its last analysis a question of
intention; but in ascertaining the intention by
which one is actuated on a given occasion,
we are necessarily controlled by the
evidence as to the conduct and outward acts
by which alone the inward motive may with
safety, be determined. So it is that "the
honesty of intention," "the honest lawful
intent," which constitutes good faith implies a
"freedom from knowledge and circumstances
which ought to put a person on inquiry," and
so it is that proof of such knowledge
overcomes the presumption of good faith in
which the courts always indulge in the
absence of the proof to the contrary. "Good
faith, or the want of it, is not a visible,
tangible fact that can be seen or touched,
but rather a state or condition of mind which
can only be judge of by actual or fancied
tokens or signs." (Wilder vs. Gilman, 55 Vt.
504, 505; Cf. Cardenas vs. Miller, 108 Cal.,
250; Breaux-Renoudet, Cypress Lumber Co.
vs. Shadel, 52 La. Ann., 2094-2098;
Pinkerton Bros. Co. vs. Bromely, 119 Mich.,
8, 10, 17.) (Emphasis ours)
Damages were awarded by the appellate court on the basis of
its finding that petitioner "was in bad faith when he filed the suit
for specific performance knowing fully well that his agreement
with Genato did not push through. 46Such bad faith, coupled
with his wrongful interference with the contractual relations
between Genato and the Da Jose spouses, which culminated
in his filing of the present suit and thereby creating what the
counsel for the respondents describes as "a prolonged and
economically unhealthy gridlock 47 on both the land itself and
the respondents' rights provides ample basis for the damages
awarded. Based on these overwhelming evidence of bad faith
on the part of herein petitioner Ricardo Cheng, we find that the
award of damages made by the appellate court is in order.
WHEREFORE, premises considered, the instant petition for
review is DENIED and the assailed decision is hereby
AFFIRMED EN TOTO.
SO ORDERED.
Belosillo, Puno and Mendoza, JJ., concur.
Footnotes
1 Thirteenth Division.
2 Penned by Justice Demetrio G. Demetria
and concurred by Justices Jainal Rasul and
Godardo A. Jacinto.
3 Annex "A," Rollo, p. 105-106.
4 Annex "B," Rollo, p. 107-108.
5 Annex "I," Petition; Rollo, p. 142-143.
6 TSN, June 26, 1992, p. 16; Rollo, p. 77.
7 Annex "D," Petition; Rollo, p. 110.
8 Ibid.
9 Annex "C," Petition; Rollo, p. 109.
10 Annex "I," Petition p. 7; Rollo, p. 145.
11 Annex "B," Petition; Rollo, p. 106 & 108.
12 Annex "E," Petition; Rollo, p. 111.
13 Rollo, p. 115.
14 Rollo, p. 120.
15 Rollo, pp. 106 & 108.
16 Rollo, pp. 99-104.
17 Rollo, pp. 112-114.
18 Rollo, pp. 124-132.
19 Art. 1169. Those obliged to deliver or to
do something incur in delay from the time the
obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
However the demand by the
creditor shall not be necessary in
order that the delay may exist:
(1) . . . ; or
(2) When from the nature and the
circumstances of the obligation it
appears that the designation of the
time when the thing is to be
delivered or the service is to be
rendered was a controlling motive
for the establishment of the
contract, or
(3) . . . .
20 Art. 1191. The power to rescind
obligations is implied in reciprocal ones, in
case one of the obligators should not comply
with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the
obligation, with the payment of damages in
either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to
the rights of third persons who have acquired
the thing in accordance with articles 1385
and 1388 and the Mortgage Law. (1124)
21 Filed on September 4, 1997.
22 Odyssey Park, Inc. vs. CA, 280 SCRA
253.
23 Rillo vs. CA, 274 SCRA 461.
24 Odyssey Park, Inc. vs. CA, supra.
25 Javier vs. CA, 183 SCRA
171 citing Article 1181, Civil Code and
Araneta vs. Rural Progress Administration,
92 Phil. 98.
26 Javier vs. CA, supra. also citing Gaite vs.
Fonacier, et al., 2 SCRA 830.
27 Palay, Inc. vs. Clave, 124 SCRA
638 citing Torralba vs. De Los Angeles, 96
SCRA 69; Luzon Brokerage Co., Inc. vs.
Maritime Building Co., 43 SCRA 93 and 86
SCRA 305; Lopez vs. Commissioner of
Customs, 37 SCRA 327; U.P. vs. De Los
Angeles, 35 SCRA 102; Ponce Enrile vs. CA,
29 SCRA 504; Froilan vs. Pan Oriental
Shipping Co., 12 SCRA 276; Taylor vs. Uy
Tieng Piao, 43 Phil. 873.
28 Palay, Inc. vs. Clave, supra.
29 35 SCRA 102.
30 Rollo, p. 111; Annex "D" at pp. 1 & 2,
Petition, Rollo, pp. 116 & 117; RCPI
Telegram dated November 06, 1989, Rollo,
p. 120; CA Brief for Plaintiff-Appellee at p.
6, Rollo, p. 257.
31 Annex "A" at par. 5. p. 15, Petition; Rollo,
p. 87.
32 Ibid.
33 CA Decision at par. p. 5, p. 15, Annex "A,"
Petition; Rollo, p. 87.
34 Pangilinan vs. CA, 279 SCRA
590 citing Reparations Commission vs.
Visayan Packing Corporation, 193 SCRA
531.
35 Pangilinan vs. CA, supra, citing Berin vs.
CA, 194 SCRA 508.
36 Jovan Land, Inc. vs. CA, 268 SCRA 160.
37 263 SCRA 15.
38 Uraca vs. CA, 278 SCRA 702; Cruz vs.
Cabana , 129 SCRA 656; Carbonell vs. CA,
69 SCRA 99, concurring Separate Opinion of
then Associate Justice Claudio Teehankee,
later to be the Chief Justice.

39 See Uraca vs. CA, supra.

40 Ibid.

41 Tolentino, Arturo M. , "Commentaries and

Jurisprudence on the Civil Code, Vol. V,"
1992, pp. 97-98.

42 Ibid.

43 Veguillas vs. Jaucian, 25 Phil. 315.

44 Annex "A," Petition; Rollo, par. 2, p. 95.

45 37 Phil. 644.

46 Annex "A," Petition; Rollo, p. 95.

47 Comment of Da Jose spouses, p.

3; Rollo, p. 315.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-11827 July 31, 1961
FERNANDO A. GAITE, plaintiff-appellee,
vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP
MINES & SMELTING CO., INC., SEGUNDINA VIVAS,
FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for
defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First
Instance because the claims involved aggregate more than
P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or
holder, either by himself or in a representative capacity, of 11
iron lode mineral claims, known as the Dawahan Group,
situated in the municipality of Jose Panganiban, province of
Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit
"3"), Fonacier constituted and appointed plaintiff-appellee
Fernando A. Gaite as his true and lawful attorney-in-fact to
enter into a contract with any individual or juridical person for
the exploration and development of the mining claims
aforementioned on a royalty basis of not less than P0.50 per
ton of ore that might be extracted therefrom. On March 19,
1954, Gaite in turn executed a general assignment (Record on
Appeal, pp. 17-19) conveying the development and exploitation
of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the
same royalty basis provided for in Exhibit "3". Thereafter, Gaite
embarked upon the development and exploitation of the mining
claims in question, opening and paving roads within and
outside their boundaries, making other improvements and
installing facilities therein for use in the development of the
mines, and in time extracted therefrom what he claim and
estimated to be approximately 24,000 metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to
revoke the authority granted by him to Gaite to exploit and
develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document
entitled "Revocation of Power of Attorney and Contract" was
executed on December 8, 1954 (Exhibit "A"),wherein Gaite
transferred to Fonacier, for the consideration of P20,000.00,
plus 10% of the royalties that Fonacier would receive from the
mining claims, all his rights and interests on all the roads,
improvements, and facilities in or outside said claims, the right
to use the business name "Larap Iron Mines" and its goodwill,
and all the records and documents relative to the mines. In the
same document, Gaite transferred to Fonacier all his rights and
interests over the "24,000 tons of iron ore, more or less" that
the former had already extracted from the mineral claims, in
consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS
(P65,000.00) will be paid from and out of the first
letter of credit covering the first shipment of iron ores
and of the first amount derived from the local sale of
iron ore made by the Larap Mines & Smelting Co.
Inc., its assigns, administrators, or successors in
interests.
To secure the payment of the said balance of P65,000.00,
Fonacier promised to execute in favor of Gaite a surety bond,
and pursuant to the promise, Fonacier delivered to Gaite a
surety bond dated December 8, 1954 with himself (Fonacier)
as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico
Escandor, Francisco Dante, and Fernando Ty as sureties
(Exhibit "A-1"). Gaite testified, however, that when this bond
was presented to him by Fonacier together with the
"Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless
another bond under written by a bonding company was put up
by defendants to secure the payment of the P65,000.00
balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also dated December 8,
1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", with the Far Eastern Surety and Insurance
Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an
actual sale of iron ore by the Larap Mines & Smelting Co. for
an amount of not less then P65,000.00, and that, furthermore,
the liability of said surety company would automatically expire
on December 8, 1955. Both bonds were attached to the
"Revocation of Power of Attorney and Contract", Exhibit "A",
and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney
he gave to Gaite and the two executed and signed the
"Revocation of Power of Attorney and Contract", Exhibit "A",
Fonacier entered into a "Contract of Mining Operation", ceding,
transferring, and conveying unto the Larap Mines and Smelting
Co., Inc. the right to develop, exploit, and explore the mining
claims in question, together with the improvements therein and
the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties. Fonacier likewise transferred,
in the same document, the complete title to the approximately
24,000 tons of iron ore which he acquired from Gaite, to the
Larap & Smelting Co., in consideration for the signing by the
company and its stockholders of the surety bonds delivered by
Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired
with respect to the Far Eastern Surety and Insurance
Company, no sale of the approximately 24,000 tons of iron ore
had been made by the Larap Mines & Smelting Co., Inc., nor
had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount,
on the theory that they had lost right to make use of the period
given them when their bond, Exhibit "B" automatically expired
(Exhibits "C" to "C-24"). And when Fonacier and his sureties
failed to pay as demanded by Gaite, the latter filed the present
complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00
balance of the price of the ore, consequential damages, and
attorney's fees.
All the defendants except Francisco Dante set up the uniform
defense that the obligation sued upon by Gaite was subject to
a condition that the amount of P65,000.00 would be payable
out of the first letter of credit covering the first shipment of iron
ore and/or the first amount derived from the local sale of the
iron ore by the Larap Mines & Smelting Co., Inc.; that up to the
time of the filing of the complaint, no sale of the iron ore had
been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and
demandable. Defendant Fonacier also contended that only
7,573 tons of the estimated 24,000 tons of iron ore sold to him
by Gaite was actually delivered, and counterclaimed for more
than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the
presentation of evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties
to pay Gaite P65,000.00 become due and demandable when
the defendants failed to renew the surety bond underwritten by
the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"),
which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by
plaintiff Gaite to defendant Fonacier were actually in existence
in the mining claims when these parties executed the
"Revocation of Power of Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of
the defendants to pay plaintiff the P65,000.00 balance of the
price of the approximately 24,000 tons of iron ore was one with
a term: i.e., that it would be paid upon the sale of sufficient iron
ore by defendants, such sale to be effected within one year or
before December 8, 1955; that the giving of security was a
condition precedent to Gait's giving of credit to defendants; and
that as the latter failed to put up a good and sufficient security
in lieu of the Far Eastern Surety bond (Exhibit "B") which
expired on December 8, 1955, the obligation became due and
demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff
Gaite did have approximately 24,000 tons of iron ore at the
mining claims in question at the time of the execution of the
contract Exhibit "A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite
ordering defendants to pay him, jointly and severally,
P65,000.00 with interest at 6% per annum from December 9,
1955 until payment, plus costs. From this judgment,
defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions
were presented for resolution: a motion to declare the
appellants Larap Mines & Smelting Co., Inc. and George
Krakower in contempt, filed by appellant Fonacier, and two
motions to dismiss the appeal as having become academic
and a motion for new trial and/or to take judicial notice of
certain documents, filed by appellee Gaite. The motion for
contempt is unmeritorious because the main allegation therein
that the appellants Larap Mines & Smelting Co., Inc. and
Krakower had sold the iron ore here in question, which
allegedly is "property in litigation", has not been substantiated;
and even if true, does not make these appellants guilty of
contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the
price of the ore, and not the iron ore itself. As for the several
motions presented by appellee Gaite, it is unnecessary to
resolve these motions in view of the results that we have
reached in this case, which we shall hereafter discuss.
The main issues presented by appellants in this appeal are:
(1) that the lower court erred in holding that the obligation of
appellant Fonacier to pay appellee Gaite the P65,000.00
(balance of the price of the iron ore in question)is one with a
period or term and not one with a suspensive condition, and
that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only
10,954.5 tons in the stockpiles of iron ore sold by appellee
Gaite to appellant Fonacier.
The first issue involves an interpretation of the following
provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby
transfers to Isabelo F. Fonacier all his rights and
interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and
interests to operate the mine in consideration of the
sum of SEVENTY-FIVE THOUSAND PESOS
(P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid
upon the signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS
(P65,000.00)will be paid from and out of the first letter
of credit covering the first shipment of iron ore made
by the Larap Mines & Smelting Co., Inc., its assigns,
administrators, or successors in interest.
We find the court below to be legally correct in holding that the
shipment or local sale of the iron ore is not a condition
precedent (or suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy
or obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event;
so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never
existed. That the parties to the contract Exhibit "A" did not
intend any such state of things to prevail is supported by
several circumstances:
1) The words of the contract express no contingency in the
buyer's obligation to pay: "The balance of Sixty-Five Thousand
Pesos (P65,000.00) will be paid out of the first letter of credit
covering the first shipment of iron ores . . ." etc. There is no
uncertainty that the payment will have to be made sooner or
later; what is undetermined is merely the exact date at which it
will be made. By the very terms of the contract, therefore, the
existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not
only does each one of the parties assume a correlative
obligation (the seller to deliver and transfer ownership of the
thing sold and the buyer to pay the price),but each party
anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other
understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of
business to do so; hence, the contingent character of the
obligation must clearly appear. Nothing is found in the record to
evidence that Gaite desired or assumed to run the risk of
losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is
proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and the company's
stockholders, but also on one by a surety company; and the
fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the
balance of P65,000.00.
3) To subordinate the obligation to pay the remaining
P65,000.00 to the sale or shipment of the ore as a condition
precedent, would be tantamount to leaving the payment at the
discretion of the debtor, for the sale or shipment could not be
made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment
indefinitely. The desireability of avoiding such a construction of
the contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording
of the contract the parties indented a suspensive condition or a
suspensive period (dies ad quem) for the payment of the
P65,000.00, the rules of interpretation would incline the scales
in favor of "the greater reciprocity of interests", since sale is
essentially onerous. The Civil Code of the Philippines, Article
1378, paragraph 1, in fine, provides:
If the contract is onerous, the doubt shall be settled in
favor of the greatest reciprocity of interests.
and there can be no question that greater reciprocity obtains if
the buyer' obligation is deemed to be actually existing, with
only its maturity (due date) postponed or deferred, that if such
obligation were viewed as non-existent or not binding until the
ore was sold.
The only rational view that can be taken is that the sale of the
ore to Fonacier was a sale on credit, and not an aleatory
contract where the transferor, Gaite, would assume the risk of
not being paid at all; and that the previous sale or shipment of
the ore was not a suspensive condition for the payment of the
balance of the agreed price, but was intended merely to fix the
future date of the payment.
This issue settled, the next point of inquiry is whether
appellants, Fonacier and his sureties, still have the right to
insist that Gaite should wait for the sale or shipment of the ore
before receiving payment; or, in other words, whether or not
they are entitled to take full advantage of the period granted
them for making the payment.
We agree with the court below that the appellant have forfeited
the right court below that the appellants have forfeited the right
to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure
to renew the bond of the Far Eastern Surety Company or else
replace it with an equivalent guarantee. The expiration of the
bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as
creditor for the unpaid P65,000.00, a security that Gaite
considered essential and upon which he had insisted when he
executed the deed of sale of the ore to Fonacier (Exhibit "A").
The case squarely comes under paragraphs 2 and 3 of Article
1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make
use of the period:
(1) . . .
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised.
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's
bond upon its expiration plainly impaired the securities given to
the creditor (appellee Gaite), unless immediately renewed or
replaced.
There is no merit in appellants' argument that Gaite's
acceptance of the surety company's bond with full knowledge
that on its face it would automatically expire within one year
was a waiver of its renewal after the expiration date. No such
waiver could have been intended, for Gaite stood to lose and
had nothing to gain barely; and if there was any, it could be
rationally explained only if the appellants had agreed to sell the
ore and pay Gaite before the surety company's bond expired
on December 8, 1955. But in the latter case the defendants-
appellants' obligation to pay became absolute after one year
from the transfer of the ore to Fonacier by virtue of the deed
Exhibit "A.".
All the alternatives, therefore, lead to the same result: that
Gaite acted within his rights in demanding payment and
instituting this action one year from and after the contract
(Exhibit "A") was executed, either because the appellant
debtors had impaired the securities originally given and
thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than
one year, and the balance of P65,000.00 became due and
payable thereafter.
Coming now to the second issue in this appeal, which is
whether there were really 24,000 tons of iron ore in the
stockpiles sold by appellee Gaite to appellant Fonacier, and
whether, if there had been a short-delivery as claimed by
appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things: first, that this is a case of
a sale of a specific mass of fungible goods for a single price or
a lump sum, the quantity of "24,000 tons of iron ore, more or
less," stated in the contract Exhibit "A," being a mere estimate
by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties
had actually measured of weighed the mass, so that they both
tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the
estimated weight per ton of each cubic meter.
The sale between the parties is a sale of a specific mass or
iron ore because no provision was made in their contract for
the measuring or weighing of the ore sold in order to complete
or perfect the sale, nor was the price of P75,000,00 agreed
upon by the parties based upon any such measurement.(see
Art. 1480, second par., New Civil Code). The subject matter of
the sale is, therefore, a determinate object, the mass, and not There was, consequently, no short-delivery in this case as
the actual number of units or tons contained therein, so that all would entitle appellants to the payment of damages, nor could
that was required of the seller Gaite was to deliver in good faith Gaite have been guilty of any fraud in making any
to his buyer all of the ore found in the mass, notwithstanding misrepresentation to appellants as to the total quantity of ore in
that the quantity delivered is less than the amount estimated by the stockpiles of the mining claims in question, as charged by
them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield appellants, since Gaite's estimate appears to be substantially
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the correct.
Louisiana Civil Code). There is no charge in this case that
Gaite did not deliver to appellants all the ore found in the WHEREFORE, finding no error in the decision appealed from,
stockpiles in the mining claims in questions; Gaite had, we hereby affirm the same, with costs against appellants.
therefore, complied with his promise to deliver, and appellants
in turn are bound to pay the lump price.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera,
Paredes, Dizon, De Leon and Natividad, JJ., concur.
But assuming that plaintiff Gaite undertook to sell and
appellants undertook to buy, not a definite mass, but
approximately 24,000 tons of ore, so that any substantial
difference in this quantity delivered would entitle the buyers to
recover damages for the short-delivery, was there really a
short-delivery in this case?

We think not. As already stated, neither of the parties had

actually measured or weighed the whole mass of ore cubic
meter by cubic meter, or ton by ton. Both parties predicate their
respective claims only upon an estimated number of cubic
meters of ore multiplied by the average tonnage factor per
cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375

cubic meters in the stockpiles of ore that he sold to Fonacier,
while appellants contend that by actual measurement, their
witness Cirpriano Manlagit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average
weight in tons per cubic meter, the parties are again in
disagreement, with appellants claiming the correct tonnage
factor to be 2.18 tons to a cubic meter, while appellee Gaite
claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most

reliable estimate of the tonnage factor of iron ore in this case to
be that made by Leopoldo F. Abad, chief of the Mines and
Metallurgical Division of the Bureau of Mines, a government
pensionado to the States and a mining engineering graduate of
the Universities of Nevada and California, with almost 22 years
of experience in the Bureau of Mines. This witness placed the
tonnage factor of every cubic meter of iron ore at between 3
metric tons as minimum to 5 metric tons as maximum. This
estimate, in turn, closely corresponds to the average tonnage
factor of 3.3 adopted in his corrected report (Exhibits "FF" and
FF-1") by engineer Nemesio Gamatero, who was sent by the
Bureau of Mines to the mining claims involved at the request of
appellant Krakower, precisely to make an official estimate of
the amount of iron ore in Gaite's stockpiles after the dispute
arose.

Even granting, then, that the estimate of 6,609 cubic meters of

ore in the stockpiles made by appellant's witness Cipriano
Manlagit is correct, if we multiply it by the average tonnage
factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons,
which is not very far from the estimate of 24,000 tons made by
appellee Gaite, considering that actual weighing of each unit of
the mass was practically impossible, so that a reasonable
percentage of error should be allowed anyone making an
estimate of the exact quantity in tons found in the mass. It must
not be forgotten that the contract Exhibit "A" expressly stated
the amount to be 24,000 tons, more or less. (ch. Pine River
Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
 Republic of the Philippines (1) Ordering the dismissal
SUPREME COURT of the case;
Manila
(2) Sentencing the
THIRD DIVISION plaintiffs, jointly and
severally, the sum of
P20,000.00 as moral
damages and the other
sum of P10,000.00 as and
G.R. No. 131784 September 16, 1999 for attorney's fees; and

FELIX I. GONZALES, petitioner, (3) To pay the costs. 6

vs.
THE HEIRS OF THOMAS and PAULA CRUZ, herein
represented by ELENA C. TALENS, respondents. The Facts

We hereby reproduce, unedited, the Court of Appeals'

summary of the facts of this case as follows:
PANGANIBAN, J.:
On December 1, 1983, Paula Ao Cruz
together with the plaintiffs heirs of Thomas
If a stipulation in a contract admits of several meanings, it shall and Paula Cruz, namely Ricardo A. Cruz,
be understood as bearing that import most adequate to render Carmelita M. Cruz, Salome A Cruz, Irenea C.
it effectual. An obligation cannot be enforced unless the plaintiff Victoria, Leticia C. Salvador and Elena C.
has fulfilled the condition upon which it is premised. Hence, an Talens, entered into a Contract of
obligation to purchase cannot be implemented unless and until Lease/Purchase with the defendant, Felix L.
the sellers have shown their title to the specific portion of the Gonzales, the sole proprietor and manager
property being sold. of Felgon Farms, of a half-portion of a
"parcel of land containing an area 12
The Case hectares, more or less, and an accretion of 2
hectares, more or less, situated in Rodriguez
Before us is a Petition for Review on Certiorari assailing the Town, Province of Rizal" and covered by
August 13, 1997 Decision 1 of the Court of Appeals 2 in CA-GR Transfer Certificate of Title No. 12111
CV No. 303754, which disposed as follows: (Exhibit A, p. 157, Records). The contract of
Lease/Purchase contains the following
provisions:
WHEREFORE, the decision of the trial court
dated November 16, 1990 is hereby
REVERSED. The appellee FELIX 1. The
GONZALES is hereby ordered to surrender terms of
possession of the property covered by the this
Contract of Lease/Purchase to the Contract
appellants, Heirs of Thomas and Paula Cruz, is for a
and to pay to the appellants the following period of
amounts: one year
upon the
signing
1. P15,000.00 per annum as rentals counted thereof.
from December 1, 1984 until the appellants After the
shall have recovered possession of the period of
property subject of the Contract of this
Lease/Purchase; Contract
, the
2. P5,000.00 as attorney's fees; and LESSEE
shall
purchas
3. Costs of suit. 3
e the
property
On the other hand, the trial court 4 Decision, 5 which was by the on the
CA, ruled as follows: agreeabl
e price
WHEREFORE, premises considered, this of One
Court hereby renders judgment in favor of Million
the defendant, Felix Gonzales, and against Pesos
the plaintiffs, as follows: (P1,000,
000.00)
payable
within
Two (2) signing
years of this
period contract
with an on Dec.
interest 1, 1983.
of
12% per xxx xxx xxx
annum s
ubject to
the 9. The
devalue LESSO
d RS
amount hereby
of the commit
Philippin themsel
e Peso, ves and
accordin shall
g to the undertak
following e to
schedul obtain a
e of separate
payment and
: distinct
T.C.T.
over the
Upon the herein
executio leased
n of the portion
Deed of to the
Sale LESSEE
50% within a
and reasona
thereafte ble
r 25% period of
every six time
(6) which
months shall not
thereafter in any
, payable case
within the exceed
first ten four (4)
(10) days years,
of the after
beginnin which a
g of each new
period of Contract
six (6) shall be
months. execute
d by the
2. The herein
LESSEE parties
shall pay which
by way shall be
of the
annual same in
rental an all
amount respects
equivale with this
nt to Contract
Two of
Thousan Lease/P
d Five urchase
Hundred insofar
(P2,500. as the
00) terms
Pesos and
per conditio
hectare, ns are
upon the
 concern
ed.
xxx xxx xxx
(Exhibits
A, A-1;
pp. 157-
158.
Records
) Contract of Lease/Purchase, the plaintiffs
The defendant Gonzales paid the P2,500.00
per hectare of P15,000.00 annual rental on
the half-portion of the property covered by
Transfer Certificate of Title No. 12111 in
accordance with the second provision of the
Contract of Lease/Purchase (p. 12, TSN,
September 14, 1989) and thereafter took
possession of the property, installing thereon
the defendant Jesus Sambrano as his
caretaker (pp. 16-17, 27 TSN, December 12,
1989). The defendant Gonzales did not,
however, exercise his option to purchase the
property immediately after the expiration of
the one-year lease on November 30, 1984
(pp. 19-20, TSN, September 14, 1989). He
remained in possession of the property
without paying the purchase price provided
for in the Contract of Lease/Purchase (Ibid.)
and without paying any further rentals
thereon (p. 36, TSN, November 7, 1989).
The property subject of the Contract of
Lease/Purchase is currently the subject of an
Extra-Judicial Partition (Exhibits G and G-1;
pp. 168-169, Records). Title to the property
remains in the name of the plaintiffs'
predecessors-in-interest, Bernardina Calixto
and Severo Cruz (Exhibit B; p. 160,
Records).
Alleging breach of the provisions of the
filed a complaint for recovery of possession
of the property subject of the contract with
damages, both moral and compensatory and
attorney's fees and litigation expenses (p. 3,
Records).
Alleging breach of paragraph nine of the
Contract of Lease/Purchase, and payment of
only P50,000.00 of the P500,000.00 agreed
down payment on the purchase price of
P1,000,000.00, the defendant Gonzales filed
his answer on November 23, 1987 praying
for a dismissal of the complaint filed against
him and an award of moral, exemplary and
actual damages, as well as litigation
expenses (pp. 19-22, Records).
The defendant Sambrano was, upon motion,
declared in default for failure to file an
answer despite valid service of summons (p.
30, Records).

A letter was sent by one of the plaintiffs-heirs The parties limited the issues to be resolved
Ricardo Cruz to the defendant Gonzales to:
informing him of the lessors' decision to
rescind the Contract of Lease/Purchase due (1)
to a breach thereof committed by the Whether
defendant (Exhibit C; p. 162, Records) The or not
letter also served as a demand on the paragra
defendant to vacate the premises within 10 ph 9 of
days from receipt of said letter (Ibid.). the
contract
The defendant Gonzales refused to vacate is a
the property and continued possession conditio
thereof (p. 2, Record). The matter was n
therefore brought before the barangay precede
captain of San Isidro, but owing to the nt before
defendant's refusal to appear before the the
barangay, a certification allowing the case to defenda
be brought to Court was issued on March 18, nt is to
1987 (Exhibit E; p. 165, Records). pay the
down
The lessor, Paula Ao Cruz died the payment
following day, March 19, 1987 (p. 9, TSN, ;
September 14, 1989).
(2)
A final demand letter to vacate the premises Whether
was sent by the remaining lessors who are or not
also the heirs of the deceased lessor Paula plaintiffs
Ao Cruz, through their counsel on August can
24, 1987 which the defendant Gonzales rescind
received but did not heed (Exhibits D and D- the
1; pp. 163-164, Records). Contract
of
Lease/P
 urchase;
and
(3)
Whether
or not
plaintiffs
can
terminat
e the
Contract
of
Lease.
(p. 4,
Decision
; p. 262,
Records
).
After the termination of the pre-trial
conference, the trial court proceeded to hear
the case on the merits and arrived at its
appealed decision based on the following
findings and conclusions:
Paragraph 9 of the
contract clearly indicates
that the lessors-plaintiffs
shall obtain a Transfer
Certificate of Title in the
name of the lessee within
4 years before a new
contract is to be entered
into under the same terms
and conditions as the
original Contract of
Lease/Purchase. Thus,
before a deed of Sale can
be entered into between
the plaintiffs and the
defendant, the plaintiffs
have to obtain the Transfer
Certificate of Title in favor
of the defendant. Article
1181 of the New Civil
Code states that: "In
conditional obligations, the
acquisition of rights, as
well as the extinguishment
or loss of those already
acquired, shall depend
upon the happening of the
event which constitutes
the condition." When the
obligation assumed by a
party to a contract is
expressly subjected to a
condition, the obligation
cannot be enforced
against him unless the
condition is complied with
(Wise & Co. vs. Kelly, 37
Phil. 695; PNB vs.
Philippine Trust Co., 68.
Phil. 48).
The failure of the plaintiffs
to secure the Transfer
Certificate of Title, as
provided for in the
contract, does not entitle
them to rescind the
contract[.] Article 1191 of
the New Civil Code states
that: "The power to rescind
obligations is implied in
reciprocal ones, in case
one of the obligers should
not comply with what is
incumbent upon him. The
injured party may choose
between the fulfillment of
the obligation, with the
payment of damages in
either case. He may seek
rescission, even after he
has chosen fulfillment, if
the latter should become
impossible. . . ." The
power to rescind is given
to the injured party. Where
the plaintiff is the party
who did not perform, he is
not entitled to insist upon
the performance of the
contract by the defendant
or recover damages by
reason of his own breach
(Mateos vs. Lopez, 6 Phil.
206; Borque vs. Yu
Chipco, 14 Phil. 95). An
action for specific
performance of a contract
is an equitable proceeding,
and he who seeks to
enforce it must himself be
fair and reasonable, and
do equity (Seva vs.
Berwin, 48 Phil. 581). In
this case, plaintiffs failed to
comply with the conditions
precedent after 2-1/2
years from the execution
of the contract so as to
entitle them to rescind the
contract. Although the
contract stated that the
same be done within 4
years from execution, still,
the defendant has to be
assured that the land
subject of the case will be
transferred in his name
without any
encumbrances, as the
Extra-Judicial Partition
dated July 17, 1989 was
being processed, and
continues to be in process
to this date. The failure to
secure the Transfer
Certificate of Title in favor
of the defendant entitles
not the plaintiffs but,
rather, the defendant to
either rescind or to ask for
specific performances.
Are the plaintiffs entitled to Article 1682 of the New Civil Code states
terminate the Contract of that:
Lease? Article 1670 of the
New Civil Code states The
that: lease of
a piece
If at the of rural
end of land,
the when its
contract duration
the has not
lessee been
should fixed, is
continue understo
enjoying od to
the thing have
leased been
for made for
fifteen all the
days time
with the necessa
acquies[ ry for the
c]ence gatherin
of the g of the
lessor fruits
and which
unless a the
notice to whole
the estate
contrary leased
by either may
party yield in
has one
previous year, or
ly been which it
given, it may
is yield
understo once,
od that although
there is two or
an more
implied years
new may
lease, have to
not for elapse
the for the
period of purpose.
the
original The plaintiffs filed the
contract, complaint on October 12,
but for 1987 after making an
the time extra-judicial demand on
establish July 2, 1986. The contract
ed in was entered into on
Articles December 1, 1983. The
1682 demand was thus made
and more than a year and a
1687. half from the expiry date of
The the original lease
other considering that there was
terms of no payment made for the
the second year of the lease.
original If one has to consider the
contract fact that the defendant
shall be was given the option to
revived. purchase the property
after two years, then, the
lease would presumably
 run for at least two years.
If that is so, then, the
demand was made seven
months after the expiration
of the two-year lease. Still,
this demand by the
plaintiffs will come under
the implied new lease of
Articles 1682 and 1670 so
that the plaintiffs are not
entitled to terminate the
Contract of Lease.
In sum, the plaintiffs
cannot terminate the
Contract of Lease due to
their failure to notify the
defendant in due time of
their intention to that
effect. Nor can they
rescind the Contract of
Purchase in view of the
fact that there is a
condition precedent which
the plaintiffs have not
fulfilled. It is the defendant
now who has the option to
either rescind or demand
the performance of the
contract. Moreover,
according to Article 1654
of the New Civil Code, the
lessor is obliged to deliver
the thing which is the
object of the contract in
such condition as to
render it fit for the use
intended. Considering that
the lessors-plaintiffs have
not delivered the property
in whole over the protest
of the defendant, the latter
suffered damages therefor.
(p. 4-6, Decision; pp. 262-
264, Records)
Their complaint thus dismissed, the plaintiffs,
now appellants, assign the trial court of
having committed the following errors:
I Contract of Lease/Purchase. They had
THE TRIAL COURT
GRAVELY ERRED IN
HOLDING THAT
PLAINTIFFS-
APPELLANTS COULD
NOT VALIDLY RESCIND
AND TERMINATE THE
LEASE/PURCHASE
CONTRACT (EXHIBIT
"A") AND THEREAFTER
TO TAKE POSSESSION
OF THE LAND IN
QUESTION AND EJECT
THEREFROM
DEFENDANTS-
APPELLEES.
II
THE TRIAL COURT
EQUALLY ERRED IN NOT
GRANTING THE RELIEFS
PLEADED AND PRAYED
FOR BY PLAINTIFFS-
APPELLANTS IN THEIR
COMPLAINT. (p.
42, Rollo)
The case was submitted for decision without
the appellee's brief as per the Court's
resolution dated July 8, 1992 (p. 71, Rollo).
Ruling of the Court of Appeals
The Court of Appeals reversed the trial court in this wise:
The trial court, in its decision interpreted the
ninth provision of the Contract of
Lease/Purchase to mean that before the
appellee exercises his option to purchase
the property by paying the 50% plus interest
on the P1,000,000.00 purchase price, the
appellants must first transfer the title to the
property in the appellee's name. The Court
finds this interpretation of the provision
strained if not altogether absurd. The transfer
of title to the property in the appellee's name
cannot be interpreted as a condition
precedent to the payment of the agreed
purchase price because such interpretation
not only runs counter [to] the explicit
provisions of the contract but also is contrary
to the normal course of things anent the sale
of real properties. The terms of the contract
[are] explicit and require no interpretation.
Upon the expiration of the lease, the lessee
shall purchase the property. Besides, the
normal course of things anent the sale of
real properties dictates that there
must first be payment of the agreed
purchase price before transfer of title to the
vendee's name can be made.
This was precisely what the appellants and
Paula Ao Cruz had in mind when they had
the ninth provision incorporated in the
asked for a period of 4 years from the time
they receive the downpayment of 50% within
which to have [the] title to the property
transferred in the name of the appellee The
reason for this four (4) year period is [that]
title to the property still remains in the name
of the original owners, the predecessors-in-
interest of the herein appellants and
[transferring] the title to their names and
eventually to the lessee-purchaser, appellee
herein, would take quite some time.
The appellee wanted to have the title to the
property transferred in his name first before
he exercises his option to purchase allegedly
in accordance with the ninth provision of the
contract. But the ninth provision does not
 give him this right. A reading of the contract
in its entirety shows that the 4 year period
asked for by the appellants within which to
have title to the property transferred in the
appellee's name will only start to run when
the appellee exercises his option to
purchase. Since the appellee never
exercised his option to purchase, then
appellee is not entitled to have the title to the
property transferred in his name.
Attributing reversible errors to the appellate court, petitioner
elevated the case to this Court. 7
The Issues
In his Memorandum, 8 petitioner submits the "following main
issues":
I. Whether or not the Court of Appeals has
gravely erred and committed grave abuse of
discretion in the interpretation of [the] law
between the parties.
II. Whether or not the Court of Appeals
committed serious mistakes in the finding of
facts which resulted [in] departing from the
usual course of judicial proceedings.
For these issues to be resolved, petitioner asks this Court to
answer the following questions:
1. Is there a conflict between the statement
in paragraph 1 of the Lease/Purchase
Contract and that [in] paragraph No. 9
thereof?
2. Is paragraph 9 of the Lease/Purchase
Contract a condition precedent before
petitioner could exercise his option to buy
the property?
3. Can plaintiff rescind or terminate the
Contract of Lease after the one-year period?
In fine, the resolution of this case depends upon the proper
interpretation of paragraph nine of the Contract.
The Court's Ruling
The Petition is meritorious.
Main Issue:
Interpretation of Paragraph Nine
In its first paragraph, the disputed agreement provides that
petitioner shall lease the property for one year, after which he
"shall purchase" it. Paragraph nine, on the other hand, requires
herein respondents to obtain a separate and distinct Transfer
Certificate of Title (TCT) over the property, viz.:
9. The LESSORS hereby commit themselves
and shall undertake to obtain a separate and
distinct T.C.T. over the lease portion to the
LESSEE within a reasonable period of time
which shall not in any case exceed four (4)
years, after which a new Contract shall be
executed by the herein parties which shall be
the same in all respects with this Contract of
Lease/Purchase insofar as the terms and
conditions are concerned.
Alleging that petitioner has not purchased the property after the
lapse of one year, respondents seek to rescind the Contract
and to recover the property. Petitioner, on the other hand,
argues that he could not be compelled to purchase the
property, because respondents have not complied with
paragraph nine, which obligates them to obtain a separate and
distinct title in their names. He contends that paragraph nine
was a condition precedent to the purchase of the property.
To be sure, this paragraph and the entire agreement, for
that matter is not a model of how a contract should be
worded. It is an invitation to a litigation, as in fact the parties
had to go all to way up to this Court to plead for a resolution of
their conflict which is rooted in their failure to express
themselves clearly. Small wonder, even the two lower courts
gave contradictory understanding of this provision, thereby
necessitating the intervention of the highest court of the land.
Both the trial court: and the Court of Appeals (CA) interpreted
this provision to mean that the respondents had obliged
themselves to obtain a TCT in the name of petitioner-lessee.
The trial court held that this obligation was a condition
precedent to petitioner's purchase of the property. Since
respondents had not performed their obligation, they could not
compel petitioner to buy the parcel of land. The CA took the
opposite view, holding that the property should be purchased
first before respondents may be obliged to obtain a TCT in the
name of petitioner-lessee-buyer.
As earlier noted, petitioner disagrees with the interpretation of
the two courts and maintains that respondents were obligated
to procure a TCT in their names before he could be obliged to
purchase the property in question.
Basic is the rule in the interpretation of contracts that if some
stipulation therein should admit of several meanings, it shall be
understood as bearing that import most adequate to render it
effectual. 9Considering the antecedents of the ownership of the
disputed lot, it appears that petitioner's interpretation renders
clause nine most effectual.
The record shows that at the time the contract was executed,
the land in question was still registered in the name of
Bernardina Calixto and Severo Cruz, respondents'
predecessors-in-interest. There is no showing whether
respondents were the only heirs of Severo Cruz or whether the
other half of the land in the name of Bernardina Calixto was
adjudicated to them by any means. In fact, they admit that
extrajudicial proceedings were still ongoing. Hence, when the
Contract of Lease/Purchase was executed, there was no
assurance that the respondents were indeed the owners of the
specific portion of the lot that petitioner wanted to buy, and if
so, in what concept and to what extent.
Thus, the clear intent of the ninth paragraph was for
respondents to obtain a separate and distinct TCT in their
names. This was necessary to enable them to show their
ownership of the stipulated portion of the land and their
concomitant right to dispose of it. Absent any title in their
names, they could not have sold the disputed parcel of land.
It is well-settled principle in law that no one can five what one
does not have nemo dat quod non habet. Accordingly, one
can sell only what one owns or is authorized to sell, and the
buyer can acquire no more than what the seller can transfer
legally. 10
Because the property remained registered in the names of
their predecessors-in-interest, private respondents could
validly sell only their undivided interest in the estate of Severo
Cruz, the extent of which was however not shown in the
records. There being no partition of the estate thus, far, there
was no guarantee as to how much and which portion would be
adjudicated to respondents.
In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold. 11 In this case, the
respondent could not deliver ownership or title to
a specific portion of the yet undivided property. True, they
could have intended to sell their hereditary interest, but in the
context of the Contract of Lease/Purchase, the parties under
paragraph nine wanted the specific portion of the land to be
segregated, identified and specifically titled. Hence, by the said
Contract, the respondents as sellers were given a maximum of
four years within which to acquire a separate TCT in their
names, preparatory to the execution of the deed of sale and
the payment of the agreed price in the manner described in
paragraph nine.
This interpretation is bolstered by the P50,000 petitioner
advanced to respondents in order to help them expedite the
transfer of the TCT to their names. Ineluctably, the intention of
the parties was to have the title transferred first to respondents'
names as a condition for the completion of the purchase.
In holding that clause nine was not a condition precedent to the
purchase of the property, the CA relied on a literal
interpretation to the effect that the TCT should be obtained in
the name of the petitioner-vendee. It reasoned that the title
could be transferred to the name of the buyer only after the
completion of the purchase. Thus, petitioner should first
purchase the property before respondents could be obliged to
transfer the TCT to his name.
We disagree. The literal interpretation not only ignores the
factual backdrop of the case; it also utilizes a faulty parsing of
paragraph nine, which should purportedly read as follows: "The
lessors . . . shall undertake to obtain a separate and distinct
TCT . . . to the LESSEE within a reasonable period of time
which shall not in any case exceed four (4) years . . .. " Read in
its entirety, however, paragraph nine does not say that the TCT
should be obtain in the name of the lessee. In fact, paragraph
nine requires respondents to obtain a "TCT over the herein
leased portion to the LESSEE," thereby showing that the
crucial phrase "to the LESSEE" adverts to "the leased portion"
and not to the name which should appear in the new TCT.
Furthermore, the CA interpretation ignores the other part of
paragraph nine, stating that after a separate TCT had been
obtained, "a new contract shall be executed by the herein
parties which shall be the same in all respects with this
Contract of Lease/Purchase insofar as the terms and
conditions are concerned."
If, as the CA held, petitioner should purchase the property first
before the title can be transferred to his name, why should
there be a waiting period of four years before the parties can
execute the new contract evidencing the sale? Why should the
petitioner still be required to pay rentals after it purchases and
pays for the property? The Contract could not have envisioned
this absurd scenario.
Clearly, the appellate court's literal interpretation of the first
portion of paragraph nine renders the latter portion thereof
ineffectual. In other words, that portion can only mean that the
respondents should first obtain a TCT in their names, after
which petitioner is given time to purchase and pay for the
property.
Respondents insist that "the obligation of petitioner to buy the
disputed land immediately after the termination of the one year
lease period is
explicit." 12 However, it is more reasonable to state that the first
paragraph was effectively modified by the ninth. To repeat,
petitioner can be compelled to perform his obligation under the
first paragraph, only after respondents have complied with the
ninth. Unless and until respondents have done so, the first
paragraph cannot be enforced against the petitioner.
In sum, we hold that the ninth provision was intended to ensure
that respondents would have a valid title over the specific
portion they were selling to petitioner. Only after the title is
assured may the obligation to buy the land and to pay the
sums stated in the Contract be enforced within the period
stipulated. Verily, the petitioner's obligation to purchase has not
yet ripened and cannot be enforced until and unless
respondents can prove their title to the property subject of the
Contract.
Secondary Issues
Ninth Clause Was
a Condition Precedent
Because the ninth clause required respondents to obtain a
separate and distinct TCT in their names and not in the name
of petitioner, it logically follows that such undertaking was
a condition precedent to the latter's obligation to purchase and
pay for the land. Put differently, petitioner's obligation to
purchase the land is a conditional one and is governed by
Article 1181 of the Civil
Code. 13
Condition has been defined as "every future and uncertain
event upon which an obligation or provision is made to depend.
It is a future and uncertain event upon which the acquisition or
resolution of rights is made to depend by those who execute
the juridical act." 14 Without it, the sale of the property under the
Contract cannot be perfected, and petitioner cannot be obliged
to purchase the property. "When the consent of a party to a
contract is given subject to the fulfillment of a suspensive
condition, the contract is not perfected unless that condition is
first complied with." 15
The Court has held that "[w]hen the obligation assumed by a
party to a contract is expressly subjected to a condition, the
obligation cannot be enforced against him unless the condition
is complied with." 16Furthermore, "[t]he obligatory force of a
conditional obligation is subordinated to the happening of a
future and uncertain event, so that if that event does not take
place, the parties would stand as if the conditional obligation
had never existed." 17
In this case, the obligation of the petitioner to buy the land
cannot be enforced unless respondents comply with the
suspensive condition that they acquire first a separate and
distinct TCT in their names. The suspensive condition not
having been fulfilled, then the obligation of the petitioner to
purchase the land has not arisen.
Respondents Cannot
Rescind the Contract
In the same vein, respondents cannot rescind the contract,
they have not caused the transfer of the TCT to their names,
which is a condition precedent to petitioner's obligation. This
Court has held that "there can be no rescission (or more
properly, resolution) of an obligation as yet non-existent,
because the suspensive condition has not happened." 18
Since the reversal of the CA Decision is inevitable, the trial
court's judgment should be reinstated. However, we find no
sufficient factual or legal justifications for the award of moral
damages and attorney's fees.
WHEREFORE, the petition is GRANTED and the appealed
Decision is REVERSED and SET ASIDE. The Decision of the
trial court is REINSTATED, but the award of moral damages
and attorney's fees is DELETED for lack of basis. No costs.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., took no part.
Footnotes
1 Penned by Justice Ramon A. Barcelona; concurred
in by Justices Jesus M. Elbinias (chairman) and
Artemio G. Tuquero (member).
9 Art. 1373, Civil Code.
10 Segura v. Segura, 165 SCRA 368, September 19,
1988.
11 Dawson v. Register of Deeds, GR No. 120600,
September 22, 1998, per Panganiban, J.; Salazar v.
Court of Appeals, 258 SCRA 317, July 5, 1996; Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., 46
SCRA 381, August 18, 1972; Pingol v. Court of
Appeals, 226 SCRA 118, September 6, 1993.
12 Respondents' Memorandum, p. 11; rollo, p. 123.
13 The provision reads:
Art. 1181. In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of
the event which constitutes the condition.
14 Arturo Tolentino, Civil Code of the Philippines, Vol.
IV, p. 144; citing Brugi, p. 108; 1 Rugigiero 289; 1
Colin & Capitant 194.
15 Ruperto v. Kosea, 26 Phil 227, December 4, 1913,
per Torres, J.
16 Wise & Co. v. Kelly, 37 Phil 696, February 21,
1918, per Fisher J.; PNB v. Philippine Trust Co., 68
Phil 48, May 12, 1939, per Diaz, J.; Roque v. Lapuz,
96 SCRA 741.
17 Rose Packing Company, Inc. v. Court of Appeals,
167 SCRA 309, November 14, 1988, per Paras, J.;
Gaite v. Fonacier, 2 SCRA 831.
18 Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 46 SCRA 381, August 18, 1972, per Reyes,
J.B.L., J.

2 Eleventh Division.

3 CA Decision, p. 14; rollo, p. 59.

4 Regional Trial Court of San Mateo, Rizal, Branch

75.

5 Written by Judge Cipriano D. Roma.

6 RTC Decision, pp. 6-7; rollo, pp. 43-44.

7 This case was deemed submitted for decision on

January 6, 1999, upon receipt by this Court of
respondents' Memorandum. Petitioner's
Memorandum was filed earlier.

8 See pp. 10-11; rollo, pp. 103-104.

 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and
on behalf of Florida C. Tupper, as attorney-in-fact),
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and
CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ,
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of a
parcel of land with its improvements located along Roosevelt
Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-appellants
Romulo Coronel, et al. (hereinafter referred
to as Coronels) executed a document
entitled "Receipt of Down Payment" (Exh.
"A") in favor of plaintiff Ramona Patricia
Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-
P1,190,000.00 Balance
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of
Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in
our names from our deceased father,
Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of
the down payment above-stated.
On our presentation of the TCT already in or
name, We will immediately execute the deed
of absolute sale of said property and Miss
Ramona Patricia Alcaraz shall immediately
pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the
sale are the following:
1. Ramona will make a down payment of
Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in
their names of the title of the property
registered in the name of their deceased
father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the
subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona
and the latter will pay the former the whole
balance of One Million One Hundred Ninety
Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985),
plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh.
"B", Exh. "2").
On February 6, 1985, the property originally
registered in the name of the Coronels'
father was transferred in their names under
TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the
property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has
paid Three Hundred Thousand
C")
For this reason, Coronels canceled and
rescinded the contract (Exh. "A") with
Ramona by depositing the down payment
paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al.,
filed a complaint for specific performance
against the Coronels and caused the
annotation of a notice of lis pendens at the
back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
 covering the same property with the Registry
of Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a
Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh.
"7").
On June 5, 1985, a new title over the subject
property was issued in the name of Catalina
under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch
83, RTC, Quezon City) the parties agreed to submit the case
for decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A"
through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as
Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding
comment or reply thereof, after which, the case would be
deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March
1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific
performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a
deed of absolute sale covering that parcel of
land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No.
331582) of the Registry of Deeds for Quezon
City, together with all the improvements
existing thereon free from all liens and
encumbrances, and once accomplished, to
immediately deliver the said document of
sale to plaintiffs and upon receipt thereof, the
said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to
pay defendants the whole balance of the
purchase price amounting to P1,190,000.00
in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon
City in the name of intervenor is hereby
canceled and declared to be without force
and effect. Defendants and intervenor and all
other persons claiming under them are
hereby ordered to vacate the subject
property and deliver possession thereof to
plaintiffs. Plaintiffs' claim for damages and
attorney's fees, as well as the counterclaims
of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City,
March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the
new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant
motion, i.e., to annul the decision and to
render anew decision by the undersigned
Presiding Judge should be denied for the
following reasons: (1) The instant case
became submitted for decision as of April 14,
1988 when the parties terminated the
presentation of their respective documentary
evidence and when the Presiding Judge at
that time was Judge Reynaldo Roura. The
fact that they were allowed to file
memoranda at some future date did not
change the fact that the hearing of the case
was terminated before Judge Roura and
therefore the same should be submitted to
him for decision; (2) When the defendants
and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case
prior to the rendition of the decision, when
they met for the first time before the
undersigned Presiding Judge at the hearing
of a pending incident in Civil Case No. Q-
46145 on November 11, 1988, they were
deemed to have acquiesced thereto and
they are now estopped from questioning said
authority of Judge Roura after they received
the decision in question which happens to be
adverse to them; (3) While it is true that
Judge Reynaldo Roura was merely a Judge-
on-detail at this Branch of the Court, he was
in all respects the Presiding Judge with full
authority to act on any pending incident
submitted before this Court during his
incumbency. When he returned to his Official
Station at Macabebe, Pampanga, he did not
lose his authority to decide or resolve such
cases submitted to him for decision or
resolution because he continued as Judge of
the Regional Trial Court and is of co-equal
rank with the undersigned Presiding Judge.
The standing rule and supported by
jurisprudence is that a Judge to whom a
case is submitted for decision has the
authority to decide the case notwithstanding
his transfer to another branch or region of
the same court (Sec. 9, Rule 135, Rule of
Court).
Coming now to the twin prayer for
reconsideration of the Decision dated March
1, 1989 rendered in the instant case,
resolution of which now pertains to the
undersigned Presiding Judge, after a
meticulous examination of the documentary
evidence presented by the parties, she is
convinced that the Decision of March 1,
 1989 is supported by evidence and,
therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion
for Reconsideration and/or to Annul Decision
and Render Anew Decision by the
Incumbent Presiding Judge" dated March 20,
1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December
16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad
Santos (P), JJ.) rendered its decision fully agreeing with the
trial court.
Hence, the instant petition which was filed on March 5, 1992.
The last pleading, private respondents' Reply Memorandum,
was filed on September 15, 1993. The case was, however, re-
raffled to undersigned ponente only on August 28, 1996, due to
the voluntary inhibition of the Justice to whom the case was
last assigned.
While we deem it necessary to introduce certain refinements in
the disquisition of respondent court in the affirmance of the trial
court's decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by
both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona
Patricia Alcaraz on the one hand, and the heirs of Constancio
P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the
Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds
between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.
While, it is the position of private respondents that the "Receipt
of Down Payment" embodied a perfected contract of sale,
which perforce, they seek to enforce by means of an action for
specific performance, petitioners on their part insist that what
the document signified was a mere executory contract to sell,
subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States
of America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available
on record, this, Court, as were the courts below, is now called
upon to adjudge what the real intent of the parties was at the
time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to
transfer the ownership of and to deliver a
determinate thing, and the other to pay
therefor a price certain in money or its
equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a
contract of sale are the following:
a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange
for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered
as a Contract of Sale because the first essential element is
lacking. In a contract to sell, the prospective seller explicity
reserves the transfer of title to the prospective buyer, meaning,
the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell
until the happening of an event, which for present purposes we
shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill is promise to
sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full
payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court
had occasion to rule:
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.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, the
prospective seller's obligation to sell the subject property by
entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil
Code which states:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promissor if the promise is
supported by a consideration distinct from
the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract of
sale is thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer
by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although
the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench.
In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such
case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-seller's
title per se, but the latter, of course, may be used for damages
by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment
of the suspensive condition, the sale becomes absolute and
this will definitely affect the seller's title thereto. In fact, if there
had been previous delivery of the subject property, the seller's
ownership or title to the property is automatically transferred to
the buyer such that, the seller will no longer have any title to
transfer to any third person. Applying Article 1544 of the Civil
Code, such second buyer of the property who may have had
actual or constructive knowledge of such defect in the seller's
title, or at least was charged with the obligation to discover
such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer's title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to
the task of deciphering the real nature of the contract entered
into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words
used therein should be given their natural and ordinary
meaning unless a technical meaning was intended (Tan vs.
Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment"
that they
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the sum
of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the
entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its
entirety, it becomes more manifest that there was a clear intent
on the part of petitioners to transfer title to the buyer, but since
the transfer certificate of title was still in the name of
petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a
new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of
the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership
or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves
(the certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts
and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-
sellers at that time, there would have been no reason why an
absolute contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at
bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition. On
the contrary, having already agreed to sell the subject property,
they undertook to have the certificate of title changed to their
names and immediately thereafter, to execute the written deed
of absolute sale.
Thus, the parties did not merely enter into a contract to sell
where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the latter.
What may be perceived from the respective undertakings of
the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father,
completely willing to transfer full ownership of the subject
house and lot to the buyer if the documents were then in order.
It just happened, however, that the transfer certificate of title
was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance
of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As
soon as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed of
absolute sale. Only then will the obligation of the buyer to pay
the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a
buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects
full payment therefor, in the contract entered into in the case at
bar, the sellers were the one who were unable to enter into a
contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of an
contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment"
was prepared and signed by petitioners Romeo A. Coronel, et
al., the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful
transfer of the certificate of title from the name of petitioners'
father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on
said date, the conditional contract of sale between petitioners
and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed
of absolute sale in a public instrument, which petitioners
unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. 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 the moment, the parties may
reciprocally demand performance, subject to
the provisions of the law governing the form
of contracts.
Art. 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the
parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to
private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the
purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9
of their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our
names from our deceased father Constancio
P. Coronel, the transfer certificate of title
immediately upon receipt of the
downpayment above-stated". The sale was
still subject to this suspensive condition.
(Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with
this condition of first transferring the title to
the property under their names, there could
be no perfected contract of sale. (Emphasis
supplied.)
(Ibid.)
not aware that they set their own trap for themselves,
for Article 1186 of the Civil Code expressly provides
that:
Art. 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents
its fulfillment.
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is the
fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a
contract of sale subject only to the suspensive condition that
the sellers shall effect the issuance of new certificate title from
that of their father's name to their names and that, on February
6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides
Art. 1187. The effects of conditional
obligation to give, once the condition has
been fulfilled, shall retroact to the day of the
constitution of the obligation . . .
In obligation to do or not to do, the courts
shall determine, in each case, the retroactive
effect of the condition that has been
complied with.
the rights and obligations of the parties with respect to
the perfected contract of sale became mutually due
 and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February
6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose.
Petitioners also argue there could been no perfected contract
on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition
by virtue of which the property, rights and
obligations to be extent and value of the
inheritance of a person are transmitted
through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons
and daughters of the decedent Constancio P. Coronel
are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father
drew his last breath, petitioners stepped into his
shoes insofar as the subject property is concerned,
such that any rights or obligations pertaining thereto
became binding and enforceable upon them. It is
expressly provided that rights to the succession are
transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90
Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not
be declared unless the creditors have been paid is rendered
moot by the fact that they were able to effect the transfer of the
title to the property from the decedent's name to their names
on February 6, 1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon
the person making it, and cannot be denied
or disproved as against the person relying
thereon.
Having represented themselves as the true owners of
the subject property at the time of sale, petitioners
cannot claim now that they were not yet the absolute
owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when she
rendered impossible the consummation thereof by going to the
United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs
14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
petitioners conclude, they were correct in unilaterally
rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
that these supposed grounds for petitioners' rescission, are
mere allegations found only in their responsive pleadings,
which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11,
Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations
must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot
justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the
contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for
and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal check (Exh. "B"; Exh. "2") for
and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted
her personal check. Neither did they raise any objection as
regards payment being effected by a third person. Accordingly,
as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of
sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price
is concerned. Petitioners who are precluded from setting up
the defense of the physical absence of Ramona P. Alcaraz as
above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their
names and signified their willingness and readiness to execute
the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer)
never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be considered in
default, to wit:
Art. 1169. Those obliged to deliver or to do
something, incur in delay from the time the
obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
xxx xxx xxx
 In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not
ready to comply in a proper manner with
what is incumbent upon him. From the
moment one of the parties fulfill his
obligation, delay by the other begins.
(Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the person
who may have first taken possession thereof
in good faith, if it should be movable
property.
Should if be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first recorded it
in Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person who in
good faith was first in the possession; and, in
the absence thereof to the person who
presents the oldest title, provided there is
good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City
giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority
on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:
The governing principle is prius
tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the
second sale cannot defeat the first buyer's
rights except when the second buyer first
registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the
second buyer of the first sale defeats his
rights even if he is first to register, since
knowledge taints his registration with bad
faith (see also Astorga vs. Court of Appeals,
G.R. No. 58530, 26 December 1984).
In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that
it is essential, to merit the protection of Art.
1544, second paragraph, that the second
realty buyer must act in good faith in
registering his deed of sale (citing Carbonell
vs. Court of Appeals, 69 SCRA 99,
Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and
Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between
petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was
unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been annotated
on the transfer certificate of title in the names of petitioners,
whereas petitioner Mabanag registered the said sale sometime
in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title
to the same property. Petitioner Mabanag cannot close her
eyes to the defect in petitioners' title to the property at the time
of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that
sale after he has acquired knowledge that
there was a previous sale of the same
property to a third party or that another
person claims said property in a pervious
sale, the registration will constitute a
registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87
SCRA 349 [1978]; citing Palarca vs. Director
of Land, 43 Phil. 146; Cagaoan vs. Cagaoan,
43 Phil. 554; Fernandez vs. Mercader, 43
Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners
and Ramona P. Alcaraz, perfected on February 6, 1985, prior
to that between petitioners and Catalina B. Mabanag on
February 18, 1985, was correctly upheld by both the courts
below.
Although there may be ample indications that there was in fact
an agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition is

hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24190 July 13, 1926
GEORGE L. PARKS, plaintiff-appellant,
vs.
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC,
CONCEPCION CIRER, and JAMES HILL, her
husband, defendants-appellees.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and
Municipality of Tarlac.
No appearance for the other appellees.
AVANCEA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the
owners of parcel of land No. 2 referred to in the complaint,
donated it perpetually to the municipality of Tarlac, Province of
Tarlac, under certain conditions specified in the public
document in which they made this donation. The donation was
accepted by Mr. Santiago de Jesus in the same document on
behalf of the municipal council of Tarlac of which he was the
municipal president. The parcel thus donated was later
registered in the name of the donee, the municipality of Tarlac.
On January 15, 1921, Concepcion Cirer and James Hill sold
this parcel to the herein plaintiff George L. Parks. On August
24, 1923, the municipality of Tarlac transferred the parcel to the
Province of Tarlac which, by reason of this transfer, applied for
and obtained the registration thereof in its name, the
corresponding certificate of title having been issued to it.
The plaintiff, George L. Parks, alleging that the conditions of
the donation had not been complied with and invoking the sale
of this parcel of land made by Concepcion Cirer and James Hill
in his favor, brought this action against the Province of Tarlac,
the municipality of Tarlac, Concepcion Cirer and James Hill
and prayed that he be declared the absolute owner entitled to
the possession of this parcel, that the transfer of the same by
the municipality of Tarlac to the Province of Tarlac be annulled,
and the transfer certificate issued to the Province of Tarlac
cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by
virtue of the sale of this parcel made by Concepcion Cirer and
James Hill in his favor on January 15, 1921, but that sale
cannot have any effect. This parcel having been donated by
Concepcion Cirer and James Hill to the municipality of Tarlac,
which donation was accepted by the latter, the title to the
property was transferred to the municipality of Tarlac. It is true
that the donation might have been revoked for the causes, if
any, provided by the law, but the fact is that it was not revoked
when Concepcion Cirer and James Hill made the sale of this
parcel to the plaintiff. Even supposing that causes existed for
the revocation of this donation, still, it was necessary, in order
to consider it revoked, either that the revocation had been
consented to by the donee, the municipality of Tarlac, or that it
had been judicially decreed. None of these circumstances
existed when Concepcion Cirer and James Hill sold this parcel
to the plaintiff. Consequently, when the sale was made
Concepcion Cirer and James Hill were no longer the owners of
this parcel and could not have sold it to the plaintiff, nor could
the latter have acquired it from them.
But the appellant contends that a condition precedent having
been imposed in the donation and the same not having been
complied with, the donation never became effective. We find
no merit in this contention. The appellant refers to the condition
imposed that one of the parcels donated was to be used
absolutely and exclusively for the erection of a central school
and the other for a public park, the work to commence in both
cases within the period of six months from the date of the
ratification by the partes of the document evidencing the
donation. It is true that this condition has not been complied
with. The allegation, however, that it is a condition precedent is
erroneous. The characteristic of a condition precedent is that
the acquisition of the right is not effected while said condition is
not complied with or is not deemed complied with. Meanwhile
nothing is acquired and there is only an expectancy of right.
Consequently, when a condition is imposed, the compliance of
which cannot be effected except when the right is deemed
acquired, such condition cannot be a condition precedent. In
the present case the condition that a public school be erected
and a public park made of the donated land, work on the same
to commence within six months from the date of the ratification
of the donation by the parties, could not be complied with
except after giving effect to the donation. The donee could not
do any work on the donated land if the donation had not really
been effected, because it would be an invasion of another's
title, for the land would have continued to belong to the donor
so long as the condition imposed was not complied with.
The appellant also contends that, in any event, the condition
not having been complied with, even supposing that it was not
a condition precedent but subsequent, the non-compliance
thereof is sufficient cause for the revocation of the donation.
This is correct. But the period for bringing an action for the
revocation of the donation has prescribed. That this action is
prescriptible, there is no doubt. There is no legal provision
which excludes this class of action from the statute of
limitations. And not only this, the law itself recognizes the
prescriptibility of the action for the revocation of a donation,
providing a special period of five years for the revocation by
the subsequent birth of children (art. 646, Civil Code), and one
year for the revocation by reason of ingratitude. If no special
period is provided for the prescription of the action for
revocation for noncompliance of the conditions of the donation
(art. 647, Civil Code), it is because in this respect the donation
is considered onerous and is governed by the law of contracts
and the general rules of prescription. Under the law in force
(sec. 43, Code of Civ. Proc.) the period of prescription of this
class of action is ten years. The action for the revocation of the
donation for this cause arose on April 19, 1911, that is six
months after the ratification of the instrument of donation of
October 18, 1910. The complaint in this action was presented
July 5, 1924, more than ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is
affirmed, with the costs against the appellant. So ordered.
Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real,
JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126444 December 4, 1998
ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA
QUIJADA, DEMETRIO QUIJADA, ELIUTERIA QUIJADA,
EULALIO QUIJADA, and WARLITO QUIJADA, petitioners,
vs.
COURT OF APPEALS, REGALADO MONDEJAR, RODULFO
GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO
GOLORAN, CELSO ABISO, FERNANDO BAUTISTA,
ANTONIO MACASERO, and NESTOR
MAGUINSAY, respondents.
MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a
complaint against private respondents for quieting of title,
recovery of possession and ownership of parcels of land with
claim for attorney's fees and damages. The suit was premised
on the following facts found by the court of Appeals which is
materially the same as that found by the trial court:
Plaintiffs-appellees (petitioners) are the
children of the late Trinidad Corvera Vda, de
Quijada. Trinidad was one of the heirs of the
late Pedro Corvera and inherited from the
latter the two-hectare parcel of land subject
of the case, situated in the barrio of San
Agustin, Talacogon, Agusan del Sur. On April
5, 1956, Trinidad Quijada together with her
sisters Leonila Corvera Vda. de Sequea
and Paz Corvera Cabiltes and brother
Epapiadito Corvera executed a conditional
deed of donation (Exh. C) of the two-hectare
parcel of land subject of the case in favor of
the Municipality of Talacogon, the condition
being that the parcel of land shall be used
solely and exclusively as part of the campus
of the proposed provincial high school in
Talacogon. Apparently, Trinidad remained in
possession of the parcel of land despite the
donation. On July 29, 1962, Trinidad sold
one (1) hectare of the subject parcel of land
to defendant-appellant Regalado Mondejar
(Exh. 1). Subsequently, Trinidad verbally sold
the remaining one (1) hectare to defendant-
appellant (respondent) Regalado Mondejar
without the benefit of a written deed of sale
and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that
time was already dead, filed a complaint for
forcible entry (Exh. E) against defendant-
appellant (respondent) Regalado Mondejar,
which complaint was, however, dismissed for
failure to prosecute (Exh. F). In 1987, the
proposed provincial high school having failed
to materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a
resolution reverting the two (2) hectares of
land donated back to the donors (Exh. D). In
the meantime, defendant-appellant
(respondent) Regalado Mondejar sold
portions of the land to defendants-appellants
(respondents) Fernando Bautista (Exh. 5),
Rodolfo Goloran (Exh. 6), Efren Guden (Exh.
7) and Ernesto Goloran (Exh. 8).
On July 5, 1988, plaintiffs-appellees
(petitioners) filed this action against
defendants-appellants (respondents). In the
complaint, plaintiffs-appellees (petitioners)
alleged that their deceased mother never
sold, conveyed, transferred or disposed of
the property in question to any person or
entity much less to Regalado Mondejar save
the donation made to the Municipality of
Talacogon in 1956; that at the time of the
alleged sale to Regalado Mondejar by
Trinidad Quijada, the land still belongs to the
Municipality of Talacogon, hence, the
supposed sale is null and void.
Defendants-appellants (respondents), on the
other hand, in their answer claimed that the
land in dispute was sold to Regalado
Mondejar, the one (1) hectare on July 29,
1962, and the remaining one (1) hectare on
installment basis until fully paid. As
affirmative and/or special defense,
defendants-appellants (respondents) alleged
that plaintiffs action is barred by laches or
has prescribed.
The court a quo rendered judgment in favor
of plaintiffs-appellees (petitioners): firstly
because "Trinidad Quijada had no legal title
or right to sell the land to defendant
Mondejar in 1962, 1966, 1967 and 1968, the
same not being hers to dispose of because
ownership belongs to the Municipality of
Talacogon (Decision, p. 4; Rollo, p. 39) and,
secondly, that the deed of sale executed by
Trinidad Quijada in favor of Mondejar did not
carry with it the conformity and acquiescence
of her children, more so that she was already
63 years old at the time, and a widow
(Decision, p. 6; Rollo, p. 41)." 1
The dispositive portion of the trial court's decision reads:
WHEREFORE, viewed from the above
perceptions, the scale of justice having tilted
in favor of the plaintiffs, judgment is, as it is
hereby rendered:
1)
ordering
the
Defenda
nts to
return
and
vacate Mondeja
the two r in favor
(2) of the
hectares other
of land Defenda
to nts;
Plaintiffs
as 4)
describe ordering
d in Tax Defenda
Declarati nts to
on No. remove
1209 in their
the improve
name of ments
Trinidad construc
Quijada; ted on
the
2) question
ordering ed lot;
any
person 5)
acting in ordering
Defenda the
nts' Defenda
behalf to nts to
vacate pay
and Plaintiffs
restore , jointly
the and
peaceful severally
possessi , the
on of the amount
land in of
question P10,000
to .00
Plaintiffs represen
; ting
attorney'
3) s fees;
ordering
the 6)
cancellat ordering
ion of Defenda
the nts to
Deed of pays the
Sale amount
execute of
d by the P8,000.
late 00 as
Trinidad expense
Quijada s of
in favor litigation;
of and
Defenda
nt
Regalad 7)
o ordering
Mondeja Defenda
r as well nts to
as the pay the
Deeds sum of
of P30,000
Sale/Rel .00
inquish represen
ments ting
execute moral
d by damage
s.
 SO ORDERED. 2
On appeal, the Court of Appeals reversed and set aside the
judgment a quo 3 ruling that the sale made by Trinidad Quijada
to respondent Mondejar was valid as the former retained an
inchoate interest on the lots by virtue of the automatic
reversion clause in the deed of donation. 4 Thereafter,
petitioners filed a motion for reconsideration. When the CA
denied their motion, 5 petitioners instituted a petition for review
to this Court arguing principally that the sale of the subject
property made by Trinidad Quijada to respondent Mondejar is
void, considering that at that time, ownership was already
transferred to the Municipality of Talacogon. On the contrary,
private respondents contend that the sale was valid, that they
are buyers in good faith, and that petitioners' case is barred by
laches. 6
We affirm the decision of the respondent court.
The donor may have an inchoate interest in the donated
property during the time that ownership of the land has not
reverted to her. Such inchoate interest may be the subject of
contracts including a contract of sale. In this case, however,
what the donor sold was the land itself which she no longer
owns. It would have been different if the donor-seller sold her
interests over the property under the deed of donation which is
subject to the possibility of reversion of ownership arising from
the non-fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet barred thereby.
Laches presupposes failure or neglect for an unreasonable
and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier; 14 "it is
negligence or omission to assert a right within a reasonable
time, thus, giving rise to a presumption that the party entitled to
assert it either has abandoned or declined to assert it." 15 Its
essential elements of:

The donation made on April 5, 1956 by Trinidad Quijada and a)

her brother and sisters 7 was subject to the condition that the Conduct
donated property shall be "used solely and exclusively as a on the
part of the campus of the proposed Provincial High School in part of
Talacogon." 8 The donation further provides that should "the the
proposed Provincial High School be discontinued or if the defenda
same shall be opened but for some reason or another, the nt, or of
same may in the future be closed" the donated property shall one
automatically revert to the donor. 9 Such condition, not being under
contrary to law, morals, good customs, public order or public whom
policy was validly imposed in the donation. 10 he
claims,
giving
When the Municipality's acceptance of the donation was made rise to
known to the donor, the former became the new owner of the the
donated property donation being a mode of acquiring and situation
transmitting ownership 11 notwithstanding the condition complai
imposed by the donee. The donation is perfected once the ned of;
acceptance by the donee is made known to the
donor. 12 According, ownership is immediately transferred to the
latter and that ownership will only revert to the donor if the b) Delay
resolutory condition is not fulfilled. in
assertin
g
In this case, that resolutory condition is the construction of the complai
school. It has been ruled that when a person donates land to nant's
another on the condition that the latter would build upon the right
land a school, the condition imposed is not a condition after he
precedent or a suspensive condition but a resolutory had
one. 13 Thus, at the time of the sales made in 1962 towards knowled
1968, the alleged seller (Trinidad) could not have sold the lots ge of the
since she had earlier transferred ownership thereof by virtue of defenda
the deed of donation. So long as the resolutory condition nt's
subsists and is capable of fulfillment, the donation remains conduct
effective and the donee continues to be the owner subject only and after
to the rights of the donor or his successors-in-interest under he has
the deed of donation. Since no period was imposed by the an
donor on when must the donee comply with the condition, the opportun
latter remains the owner so long as he has tried to comply with ity to
the condition within a reasonable period. Such period, sue;
however, became irrelevant herein when the donee-
Municipality manifested through a resolution that it cannot
comply with the condition of building a school and the same c) Lack
was made known to the donor. Only then when the non- of
fulfillment of the resolutory condition was brought to the donor's knowled
knowledge that ownership of the donated property reverted ge or
to the donor as provided in the automatic reversion clause of notice
the deed of donation. on the
part of
the
defenda
 nt that
the
complai
nant
would
assert
the right
on which
he
bases
his suit;
and,
d) Injury
or
prejudic
e to the
defenda
nt in the
event
relief is
accorde
d to the
complai
nant. 16
are absent in this case. Petioners' cause of action to
quiet title commenced only when the property
reverted to the donor and/or his successors-in-interest
in 1987. Certainly, when the suit was initiated the
following year, it cannot be said that petioners had
slept on their rights for a long time. The 1960's sales
made by Trinidad Quijada cannot be the reckoning
point as to when petitioners' cause of action arose.
They had no interest over the property at that time
except under the deed of donation to which private
respondents were not privy. Moreover, petitioners had
previously filed an ejectment suit against private
respondents only that it did not prosper on a
technicality.
Be that at it may, there is one thing which militates against the
claim of petitioners. Sale, being a consensual contract, is
perfected by mere consent, which is manifested the moment
there is a meeting of the minds 17 as to the offer and
acceptance thereof on three (3) elements: subject matter, price
and terms of payment of the price. 18 Ownership by the seller
on the thing sold at the time of the perfection of the contract of
sale is not an element for its perfection. What the law requires
is that the seller has the right to transfer ownership at the time
the thing sold is delivered. 19 Perfection per se does not
transfer ownership which occurs upon the actual or
constructive delivery of the thing sold. 20 A perfected contract of
sale cannot be challenged on the ground of non-ownership on
the part of the seller at the time of its perfection; hence, the
sale is still valid.
The consummation, however, of the perfected contract is
another matter. It occurs upon the constructive or actual
delivery of the subject matter to the buyer when the seller or
her successors-in-interest subsequently acquires ownership
thereof. Such circumstance happened in this case when
petitioners who are Trinidad Quijada's heirs and successors-
in-interest became the owners of the subject property upon
the reversion of the ownership of the land to them.
Consequently, ownership is transferred to respondent
Mondejar and those who claim their right from him. Article 1434
of the New Civil Code supports the ruling that the seller's "title
passes by operation of law to the buyer." 21 This rule applies
not only when the subject matter of the contract of sale is
goods, 22 but also to other kinds of property, including real
property. 23
There is also no merit in petitioners' contention that since the
lots were owned by the municipality at the time of the sale,
they were outside the commerce of men under Article 1409 (4)
of the NCC; 24 thus, the contract involving the same is
inexistent and void from the beginning. However, nowhere in
Article 1409 (4) is it provided that the properties of a
municipality, whether it be those for public use or its
patrimonial property 25 are outside the commerce of men.
Besides, the lots in this case were conditionally owned by the
municipality. To rule that the donated properties are outside the
commerce of men would render nugatory the unchallenged
reasonableness and justness of the condition which the donor
has the right to impose as owner thereof. Moreover, the objects
referred to as outsides the commerce of man are those which
cannot be appropriated, such as the open seas and the
heavenly bodies.
With respect to the trial court's award of attorney's fees,
litigation expenses and moral damages, there is neither factual
nor legal basis thereof. Attorney's fees and expenses of
litigation cannot, following the general rule in Article 2208 of the
New Civil Code, be recovered in this case, there being no
stipulation to that effect and the case does not fall under any of
the
exceptions. 26 It cannot be said that private respondents had
compelled petitioners to litigate with third persons. Neither can
it be ruled that the former acted in "gross and evident bad faith"
in refusing to satisfy the latter's claims considering that private
respondents were under an honest belief that they have a legal
right over the property by virtue of the deed of sale. Moral
damages cannot likewise be justified as none of the
circumstances enumerated under Articles 2219. 27 and
2220 28 of the New Civil Code concur in this case
WHEREFORE, by virtue of the foregoing, the assailed decision
of the Court of Appeals is AFFIRMED.
SO ORDERED.
Melo, Puno and Mendoza, JJ., concur.
Footnotes
1 Decision of Court of Appeals in CA-G.R.
CV No. 44016 promulgated on May 31,
1996. pp. 2-5; Rollo, pp. 41-44.
2 Regional Trial Court (Bayugan, Agusan del
Sur) Decision dated July 16, 1993 penned by
Judge Zenaida Placer, p. 6; Annex "A" of
Petition; Rollo, p. 21.
3 The decretal portion of the CA's decision
states: "WHEREFORE, premises
considered, the decision appealed from is
hereby REVERSE and SET ASIDE, and
judgment rendered declaring the defendants-
appellants as the rightful and lawful owners
and possessors of the subject land. There is
no pronouncement as to costs."
4 CA Decision, pp. 6-7; Rollo, pp. 45-16.
5 CA Resolution promulgated August 26,
1996; Rollo, p. 55.
6 Comment of Private Respondents, pp. 7-
8: Rollo, pp. 67-68.
7 Her sisters were Leonila Corvera Vda. de
Sequea and Paz Corvera Cabiltes and the
brother was Epapiadito Corvera.
8 RTC Decision, p. 1; Rollo, p. 16.
9 CA Decision. pp. 5-6; Rollo, pp. 44-45.
10 City of Angeles v. CA, 261 SCRA 90.
11 Art. 712, New Civil Code provides:
"Ownership is acquired by occupation and by
intellectual creation.
"Ownership and other real rights over
property are acquired and transmitted by
law, by donation, by testate and instate
succession, and in consequence of certain
contracts, by tradition.
"They may also be acquired by means of
prescription." (Emphasis supplied).
12 Art. 734, New Civil Code (NCC) reads:
"The donation is perfected from the moment
the donor knows of the acceptance by the
donee."
13 Central Philippine University v. CA, 246
SCRA 511.
14 Reyes v. CA, 264 SCRA 35; Republic v.
Sandiganbayan, 255 SCRA 438; PAL
Employees Savings & Loan Association, Inc.
v. NLRC, 260 SCRA 758.
15 Catholic Bishop of Balanga v. CA, 264
SCRA 181; Chavez v. Bonto-Perez, 242
SCRA 73; Rivera v. CA, 244 SCRA 218;
Cormero v. CA, 317 Phil. 348.
16 Santiago v. CA, 278 SCRA 98 (1997);
Catholic Bishop of Balanga v. CA, 264 SCRA
181; Claveria v. Quinco, 207 SCRA 66
(1992); Perez v. Ong Cho, 116 SCRA 732
(1982); Yusingco v. Ong Hing Lian, 42 SCRA
589 (1971); LE Lotho, Inc. v. Ice and cold
Storage Industries, Inc., 3 SCRA 744; Go
Chi Gun, et. al. v. Co Cho, et. al., 96 Phil.
622.
17 Art. 1475, New Civil Code (NCC). "The
contact of sale is perfected at the moment
there is a meeting of the minds upon the
thing which is the object of the contract and
upon the price. . . ."
18 Leabres v. CA, 146 SCRA 158
(1986); See also Navarro v. Sugar
Producer's Corporation, 1. SCRA 1180.
19 Art. 1459, NCC "The thing must be licit
and the vendor must have a right to transfer
the ownership thereof at the time it is
delivered."
20 Art. 712, NCC. ". . . . Ownership and other
real rights over property are acquired and
transmitted . . . in consequence of certain
contracts, by tradition."
21 Art. 1431, NCC provides: "When a person
who is not the owner of a thing sells or
alienates and delivers it, and later the seller
or grantor acquires title thereto, such title
passes by operation of law to the buyer or
grantee".
22 Art. 1505 of the NCC provides: "Subject
to the provisions of this Title,
where goods are sold by a person who is not
the owner thereof, and who does not sell
them under authority or with the consent of
the owner, the buyer acquires no better title
to the goods than the seller had, unless the
owner of the goods is by his conduct
precluded from denying the seller's authority
to sell.
xxx xxx xxx (Emphasis supplied)
Other exceptions to the foregoing includes:
(a) when the contrary is provided in
recording laws, (b) sales made under
statutory power of sale or pursuant to a valid
order from a court of competent jurisdiction,
and (c) sales made in a merchant's store in
accordance with the Code of commerce and
special laws.
23 See Articles 1434, NCC, supra.; Estoque
v. Pajimula, 133 Phil. 55; 24 SCRA 59
(1968); Bucton v. Gabar, 55 SCRA 499.
24 Art. 1409 (4), NCC: "The following
contracts are inexistent and void from the
beginning:
xxx xxx xxx
(4) Those whose object is outside
the commerce of men;
xxx xxx xxx
25 Art. 423, NCC: "The properties of
provinces, cities and municipalities, is
divided into properties for public use and
patrimonial properties."
Art. 424 provides: "Property for public use, in (8) malicious
the provinces, cities and municipalities, prosecution;
consist of the provincial roads, city streets,
municipal streets, the squares, fountains, (9) acts
public waters, promenades, and public works mentioned in
for public service paid for by said provinces, Article 309;
cities, or municipalities.
(10) acts and
"All other property possessed by any of them actions referred
is patrimonial and shall be governed by this to in Articles 21,
Code, without prejudice to the provisions of 26, 27, 28, 29,
special laws." 30, 32, 34 and
35.
26 In the absence of stipulation, attorney's
fees and expenses of litigation, other than The parents of the female seduced,
judicial costs, cannot be recovered except: abducted, raped or abused referred
to in no. 3 of this Article, may also
xxx xxx xxx recover moral damages.

(2) when the defendant's act or omission has The spouse, ascendants, descendants and
compelled the plaintiff to litigate with third brothers and sisters may bring the action
persons or to incur expenses to protect his mentioned in no. 9 of this Article, in the order
interest. named.

xxx xxx xxx 29 Art. 2220. Willful injury to property may be

(5) where the defendant acted in gross and
evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable
claim.
xxx xxx xxx
a legal ground for awarding moral damages
if the court should find that, under the
circumstances, such damages are justly due.
The same rule applies to breaches of
contracts where the defendant acted
fraudulently or in bad faith.

27 Moral damages may be recovered in the

following and analogous cases:

(1) a criminal
offense resulting
in physical
injuries;

(2) quasi-
delicts causing
physical injuries;

(3) seduction,
abduction, rape
or other
lascivious acts;

(4) adultery or
concubinage;

(5) illegal or
arbitrary
detention or
arrests;

(6) illegal search;

(7) libel, slander

or any other form
or defamation;
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM, petitioner,
vs.
COURT OF APPEALS and BENITO VILLAVICENCIO
DY, respondents.
Gener E. Asuncion for petitioner.
Natividad T. Perez for private respondent.
REGALADO, J.:
Respondent Court of Appeals having affirmed in toto on June
30, 1988 in CA-G.R. SP No. 13925, 1 the decision of the
Regional Trial Court of Manila, Branch XLVI in Civil Case No.
87-42719, entitled "Francisco Lao Lim vs. Benito Villavicencio
Dy," petitioner seeks the reversal of such affirmance in the
instant petition.
The records show that private respondent entered into a
contract of lease with petitioner for a period of three (3) years,
that is, from 1976 to 1979. After the stipulated term expired,
private respondent refused to vacate the premises, hence,
petitioner filed an ejectment suit against the former in the City
Court of Manila, docketed therein as Civil Case No. 051063-
CV. The case was terminated by a judicially approved
compromise agreement of the parties providing in part:
3. That the term of the lease shall be
renewed every three years retroacting from
October 1979 to October 1982; after which
the abovenamed rental shall be raised
automatically by 20% every three years for
as long as defendant needed the premises
and can meet and pay the said increases,
the defendant to give notice of his intent to
renew sixty (60) days before the expiration of
the term; 2
By reason of said compromise agreement the lease continued
from 1979 to 1982, then from 1982 to 1985. On April 17, 1985,
petitioner advised private respondent that he would no longer
renew the contract effective October, 1985.3 However, on
August 5, 1985, private respondent informed petitioner in
writing of his intention to renew the contract of lease for
another term, commencing November, 1985 to October,
1988. 4 In reply to said letter, petitioner advised private
respondent that he did not agree to a renewal of the lease
contract upon its expiration in October, 1985. 5
On January 15, 1986, because of private respondent's refusal
to vacate the premises, petitioner filed another ejectment suit,
this time with the Metropolitan Trial Court of Manila in Civil
Case No. 114659-CV. In its decision of September 24, 1987,
said court dismissed the complaint on the grounds that (1) the
lease contract has not expired, being a continuous one the
period whereof depended upon the lessee's need for the
premises and his ability to pay the rents; and (2) the
compromise agreement entered into in the aforesaid Civil Case
No. 051063-CV constitutes res judicata to the case before it. 6
Petitioner appealed to the Regional Trial Court of Manila which,
in its decision of January 28, 1988 in Civil Case No. 87-42719,
affirmed the decision of the lower court. 7
As stated at the outset, respondent Court of Appeals affirmed
in full said decision of the Regional Trial Court and held that (1)
the stipulation in the compromise agreement which, in its
formulation, allows the lessee to stay on the premises as long
as he needs it and can pay rents is valid, being a resolutory
condition and, therefore, beyond the ambit of Article 1308 of
the Civil Code; and (2) that a compromise has the effect of res
judicata. 8
Petitioner's motion for reconsideration having been denied by
respondent Court of Appeals, this present petition is now
before us. We find the same to be meritorious.
Contrary to the ruling of respondent court, the disputed
stipulation "for as long as the defendant needed the premises
and can meet and pay said increases" is a purely potestative
condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee. It is
likewise a suspensive condition because the renewal of the
lease, which gives rise to a new lease, depends upon said
condition. It should be noted that a renewal constitutes a new
contract of lease although with the same terms and conditions
as those in the expired lease. It should also not be overlooked
that said condition is not resolutory in nature because it is not a
condition that terminates the lease contract. The lease contract
is for a definite period of three (3) years upon the expiration of
which the lease automatically terminates.
The invalidity of a condition in a lease contract similar to the
one at bar has been resolved in Encarnacion vs. Baldomar, et
al. 9 where we ruled that in an action for ejectment, the defense
interposed by the lessees that the contract of lease authorized
them to continue occupying the premises as long as they paid
the rents is untenable, because it would leave to the lessees
the sole power to determine whether the lease should continue
or not. As stated therein, "(i)f this defense were to be allowed,
so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never
be able to discontinue it; conversely, although the owner
should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate
the contract by the simple expedient of stopping payment of
the rentals. This, of course, is prohibited by the aforesaid
article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627;
Cuyugan vs. Santos, 34 Phil. 100.)
The continuance, effectivity and fulfillment of a contract of
lease cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner
of any say in the matter. Mutuality does not obtain in such a
contract of lease and no equality exists between the lessor and
the lessee since the life of the contract is dictated solely by the
lessee.
The interpretation made by respondent court cannot, therefore,
be upheld. Paragraph 3 of the compromise agreement, read
and interpreted in its entirety, is actually to the effect that the
last portion thereof, which gives the private respondent sixty
(60) days before the expiration of the term the right to give
notice of his intent to renew, is subject to the first portion of
said paragraph that "the term of the lease shall be renewed
every three (3) years," thereby requiring the mutual agreement
of the parties. The use of the word "renew" and the designation
of the period of three (3) years clearly confirm that the contract
of lease is limited to a specific period and that it is not a
continuing lease. The stipulation provides for a renewal of the
lease every three (3) years; there could not be a renewal if said
lease did not expire, otherwise there is nothing to renew.
Resultantly, the contract of lease should be and is hereby
construed as providing for a definite period of three (3) years
and that the automatic increase of the rentals by twenty
percent (20%) will take effect only if the parties decide to
renew the lease. A contrary interpretation will result in a
situation where the continuation and effectivity of the contract
will depend only upon the will of the lessee, in violation of
Article 1308 of the Civil Code and the aforesaid doctrine
in Encarnacion. The compromise agreement should be
understood as bearing that import which is most adequate to
render it effectual. 10 Where the instrument is susceptible of two
interpretations, one which will make it invalid and illegal and
another which will make it valid and legal, the latter
interpretation should be adopted. 11
Moreover, perpetual leases are not favored in law, nor are
covenants for continued renewals tending to create a
perpetuity, and the rule of construction is well settled that a
covenant for renewal or for an additional term should not be
held to create a right to repeated grants in perpetuity, unless by
plain and unambiguous terms the parties have expressed such
intention. 12 A lease will not be construed to create a right to
perpetual renewals unless the language employed indicates
dearly and unambiguously that it was the intention and
purpose of the parties to do so. 13 A portion in a lease giving
the lessee and his assignee the right to perpetual renewals is
not favored by the courts, and a lease will be construed as not
making such a provision unless it does so clearly. 14
As we have further emphasized:
It is also important to bear in mind that in a
reciprocal contract like a lease, the period of
the lease must be deemed to have been
agreed upon for the benefit of both parties,
absent language showing that the term was
deliberately set for the benefit of the lessee
or lessor alone. We are not aware of any
presumption in law that the term of a lease is
designed for the benefit of the lessee
alone. Koh and Cruz in effect rested upon
such a presumption. But that presumption
cannot reasonably be indulged in casually in
an era of rapid economic change, marked
by, among other things, volatile costs of
living and fluctuations in the value of the
domestic currency. The longer the period the
more clearly unreasonable such a
presumption would be. In an age like that we
live in, very specific language is necessary to
show an intent to grant a unilateral faculty to
extend or renew a contract of lease to the
lessee alone, or to the lessor alone for that
matter. We hold that the above-quoted
rulings in Koh v. Ongsiaco and Cruz v.
Alberto should be and are overruled. 15
In addition, even assuming that the clause "for as long as the
defendant needed the premises and can meet and pay, said
increases" gives private respondent an option to renew the
lease, the same will be construed as providing for but one
renewal or extension and, therefore, was satisfied when the
lease was renewed in 1982 for another three (3) years. A
general covenant to renew is satisfied by one renewal and will
not be construed to confer the right to more than one renewal
unless provision is clearly and expressly made for further
renewals. 16 Leases which may have been intended to be
renewable in perpetuity will nevertheless be construed as
importing but one renewal if there is any uncertainty in that
regard. 17
The case of Buccat vs. Dispo et al., 18 relied upon by
responddent court, to support its holding that respondent
lessee can legally stay on the premises for as long as he
needs it and can pay the rents, is not in point. In said case, the
lease contract provides for an indefinite period since it merely
stipulates "(t)hat the lease contract shall remain in full force
and effect as long as the land will serve the purpose for which
it is intended as a school site of the National Business Institute,
but the rentals now stipulated shall be subject to review every
after ten (10) years by mutual agreement of the parties." This is
in clear contrast to the case at bar wherein, to repeat, the lease
is fixed at a period of three (3) years although subject to
renewal upon agreement of the parties, and the clause "for as
long as defendant needs the premises and can meet and pay
the rents" is not an independent stipulation but is controlled by
said fixed term and the option for renewal upon agreement of
both parties.
On the second issue, we agree with petitioner that respondent
court erred in holding that the action for ejectment is barred
by res judicata. While it is true that a compromise agreement
has the effect of res judicata this doctrine does not apply in the
present case. It is elementary that for a judgment to be a bar to
a subsequent case, (1) it must be a final judgment, (2) the
court which rendered it had jurisdiction over the subject matter
and the parties, (3) it must be a judgment on the merits, and
(4) there must be identity between the two cases as to parties,
subject matter and cause of action. 19
In the case at bar, the fourth requisite is lacking. Although there
is identity of parties, there is no identity of subject matter and
cause of action. The subject matter in the first ejectment case
is the original lease contract while the subject matter in the
case at bar is the lease created under the terms provided in
the subsequent compromise agreement. The lease executed in
1978 is one thing; the lease constituted in 1982 by the
compromise agreement is another.
There is also no identity, in the causes of action. The test
generally applied to determine the identity of causes of action
is to consider the identity of facts essential to their
maintenance, or whether the same evidence would sustain
both causes of action. 20 In the case at bar, the delict or the
wrong in the first case is different from that in the second, and
the evidence that will support and establish the cause of action
in the former will not suffice to support and establish that in the
latter.
In the first ejectment case, the cause of action was private
respondent's refusal to comply with the lease contract which
expired on December 31, 1978. In the present case, the cause
of action is a similar refusal but with respect to the lease which
expired in October, 1985 under the compromise agreement.
While the compromise agreement may be res judicata as far
as the cause of action and issues in the first ejectment case is
concerned, any cause of action that arises from the application
or violation of the compromise agreement cannot be said to
have been settled in said first case. The compromise
agreement was meant to settle, as it did only settle, the first
case. It did not, as it could not, cover any cause of action that
might arise thereafter, like the present case which was founded
on the expiration of the lease in 1985, which necessarily
requires a different set of evidence. The fact that the
compromise agreement was judicially approved does not
foreclose any cause of action arising from a violation of the
terms thereof.
WHEREFORE, the decision of respondent Court of Appeals is
REVERSED and SET ASIDE. Private respondent is hereby
ordered to immediately vacate and return the possession of the
leased premises subject of the present action to petitioner and
to pay the monthly rentals due thereon in accordance with the
compromise agreement until he shall have actually vacated the
same. This judgment is immediately executory.
SO ORDERED.
14 50 Am. Jur. 2d 53.
15 Fernandez vs. Court of Appeals, 166
SCRA 577 (1988).
16 51 C.J.S. 605-606.
17 Becker vs. Submarine Oil Co., 55 Cal App
698, 204 P. 245.
18 160 SCRA 240 (1988).
19 Aroc, etc. vs. People's Homesite and
Housing Corporation, et al., 81 SCRA 350
(1978); Gitgano vs Borromeo, etc., et al.,
133 SCRA 437 (1984); Santos vs.
Intermediate Appellate Court, et al., 145
SCRA 592 (1986).
20 Pagsisihan, et al. vs. Court of Appeals, et
al., 95 SCRA 540 (1980); Aroc vs. People's
Homesite and Housing Corporation, et
al., ante, as cited in Angela Estate, Inc. vs.
Bacolod-Murcia Milling Co, Inc., et al. 144
SCRA 482 (1986).

Melencio-Herrera (Chairperson), Paras, Padilla and

Sarmiento, JJ., Concur.

Footnotes

1 Per Justice Emeterio C. Cui, with Justices

Luis A. Javellana and Jesus M. Elbinias
concurring.

2 Original Record, 19.

3 Ibid., 7.

4 Ibid., 63.

5 Ibid., 8.

6 Rollo, 68-70.

7 Ibid., 61-67.

8 Ibid., 39-42.

9 77 Phil. 470 (1946).

10 Art. 1373, Civil Code.

11 De Luna, et al. vs. Linatoc, 74 Phil. 15

(1942).

12 51 C.J.S. 606.

13 50 Am. Jur. 2d 56.

 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO
M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II
ELECTRIC COOPERATIVE, INC. (CASURECO
II), respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.
NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the
doctrine that where a person by his contract charges himself
with an obligation possible to be performed, he must perform it,
unless its performance is rendered impossible by the act of
God, by the law, or by the other party, it being the rule that in
case the party desires to be excused from performance in the
event of contingencies arising thereto, it is his duty to provide
the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision
was included therein, namely, Article 1267 which provides:
When the service has become so difficult as
to be manifestly beyond the contemplation of
the parties, the obligor may also be released
therefrom, in whole or in part.
In the report of the Code Commission, the rationale behind this
innovation was explained, thus:
The general rule is that impossibility of
performance releases the obligor. However,
it is submitted that when the service has
become so difficult as to be manifestly
beyond the contemplation of the parties, the
court should be authorized to release the
obligor in whole or in part. The intention of
the parties should govern and if it appears
that the service turns out to be so difficult as
to have been beyond their contemplation, it
would be doing violence to that intention to
hold their contemplation, it would be doing
violence to that intention to hold the obligor
still responsible. 2
In other words, fair and square consideration underscores the
legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the
application by the Court of Appeals of Article 1267 in favor of
Camarines Sur II Electric Cooperative, Inc. in the case before
us. Stated differently, the former insists that the complaint
should have been dismissed for failure to state a cause of
action.
The antecedent facts, as narrated by respondent Court of
Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone
company rendering local as well as long distance telephone
service in Naga City while private respondent Camarines Sur II
Electric Cooperative, Inc. (CASURECO II) is a private
corporation established for the purpose of operating an electric
power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh.
"A") for the use by petitioners in the operation of its telephone
service the electric light posts of private respondent in Naga
City. In consideration therefor, petitioners agreed to install, free
of charge, ten (10) telephone connections for the use by
private respondent in the following places:
(a) 3 units The Main Office of (private
respondent);
(b) 2 Units The Warehouse of (private
respondent);
(c) 1 Unit The Sub-Station of (private
respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private
respondent's) President;
(e) 1 Unit The Residence of (private
respondent's) Acting General Manager; &
(f) 2 Units To be determined by the
General Manager. 3
Said contract also provided:
(a) That the term or period of this contract
shall be as long as the party of the first part
has need for the electric light posts of the
party of the second part it being understood
that this contract shall terminate when for
any reason whatsoever, the party of the
second part is forced to stop, abandoned
[sic] its operation as a public service and it
becomes necessary to remove the electric
lightpost; (sic) 4
It was prepared by or with the assistance of the other
petitioner, Atty. Luciano M. Maggay, then a member of the
Board of Directors of private respondent and at the same time
the legal counsel of petitioner.
After the contract had been enforced for over ten (10) years,
private respondent filed on January 2, 1989 with the Regional
Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against
petitioners for reformation of the contract with damages, on the
ground that it is too one-sided in favor of petitioners; that it is
not in conformity with the guidelines of the National
Electrification Administration (NEA) which direct that the
reasonable compensation for the use of the posts is P10.00
per post, per month; that after eleven (11) years of petitioners'
use of the posts, the telephone cables strung by them thereon
have become much heavier with the increase in the volume of
their subscribers, worsened by the fact that their linemen bore
holes through the posts at which points those posts were
broken during typhoons; that a post now costs as much as
P2,630.00; so that justice and equity demand that the contract
be reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that
starting with the year 1981, petitioners have used 319 posts in
the towns of Pili, Canaman, Magarao and Milaor, Camarines
Sur, all outside Naga City, without any contract with it; that at
the rate of P10.00 per post, petitioners should pay private
respondent for the use thereof the total amount of P267,960.00
from 1981 up to the filing of its complaint; and that petitioners
had refused to pay private respondent said amount despite
demands.
And as third cause of action, private respondent complained
about the poor servicing by petitioners of the ten (10)
telephone units which had caused it great inconvenience and
damages to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they averred
that it should be dismissed because (1) it does not sufficiently
state a cause of action for reformation of contract; (2) it is
barred by prescription, the same having been filed more than
ten (10) years after the execution of the contract; and (3) it is
barred by estoppel, since private respondent seeks to enforce
the contract in the same action. Petitioners further alleged that
their utilization of private respondent's posts could not have
caused their deterioration because they have already been in
use for eleven (11) years; and that the value of their expenses
for the ten (10) telephone lines long enjoyed by private
respondent free of charge are far in excess of the amounts
claimed by the latter for the use of the posts, so that if there
was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that
private respondent had asked for telephone lines in areas
outside Naga City for which its posts were used by them; and
that if petitioners had refused to comply with private
respondent's demands for payment for the use of the posts
outside Naga City, it was probably because what is due to
them from private respondent is more than its claim against
them.
And with respect to the third cause of action, petitioners
claimed, inter alia, that their telephone service had been
categorized by the National Telecommunication Corporation
(NTC) as "very high" and of "superior quality."
During the trial, private respondent presented the following
witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the
contract in its behalf, declared that it was petitioner Maggay
who prepared the contract; that the understanding between
private respondent and petitioners was that the latter would
only use the posts in Naga City because at that time,
petitioners' capability was very limited and they had no
expectation of expansion because of legal squabbles within the
company; that private respondent agreed to allow petitioners to
use its posts in Naga City because there were many
subscribers therein who could not be served by them because
of lack of facilities; and that while the telephone lines strung to
the posts were very light in 1977, said posts have become
heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line
Operation and Maintenance Department, declared that the
posts being used by petitioners totalled 1,403 as of April 17,
1989, 192 of which were in the towns of Pili, Canaman, and
Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger
than those in November, 1977; that in 1987, almost 100 posts
were destroyed by typhoon Sisang: around 20 posts were
located between Naga City and the town of Pili while the posts
in barangay Concepcion, Naga City were broken at the middle
which had been bored by petitioner's linemen to enable them
to string bigger telephone lines; that while the cost per post in
1977 was only from P700.00 to P1,000.00, their costs in 1989
went up from P1,500.00 to P2,000.00, depending on the size;
that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building
Code, so that there were cases in 1988 where, because of the
low clearance of the cables, passing trucks would accidentally
touch said cables causing the posts to fall and resulting in
brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General
Manager of private respondent and Manager of Region V of
NEA, declared that according to NEA guidelines in 1985 (Exh.
"C"), for the use by private telephone systems of electric
cooperatives' posts, they should pay a minimum monthly rental
of P4.00 per post, and considering the escalation of prices
since 1985, electric cooperatives have been charging from
P10.00 to P15.00 per post, which is what petitioners should
pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the
Office of Services of private respondent, testified on the poor
service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out of
order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it
would take two to three hours for petitioners to reactivate them
notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel,
testified that the Board of Directors asked him to study the
contract sometime during the latter part of 1982 or in 1983, as
it had appeared very disadvantageous to private respondent.
Notwithstanding his recommendation for the filing of a court
action to reform the contract, the former general managers of
private respondent wanted to adopt a soft approach with
petitioners about the matter until the term of General Manager
Henry Pascual who, after failing to settle the matter amicably
with petitioners, finally agreed for him to file the present action
for reformation of contract.
On the other hand, petitioner Maggay testified to the following
effect:
(1) It is true that he was a member of the Board of Directors of
private respondent and at the same time the lawyer of
petitioner when the contract was executed, but Atty. Gaudioso
Tena, who was also a member of the Board of Directors of
private respondent, was the one who saw to it that the contract
was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use
ten (10) telephone units of petitioners for as long as it wishes
without paying anything therefor except for long distance calls
through PLDT out of which the latter get only 10% of the
charges.
(b) In most cases, only drop wires and not telephone cables
have been strung to the posts, which posts have remained
erect up to the present;
(c) Petitioner's linemen have strung only small messenger
wires to many of the posts and they need only small holes to
pass through; and
(d) Documents existing in the NTC show that the stringing of
petitioners' cables in Naga City are according to standard and
comparable to those of PLDT. The accidents mentioned by
private respondent involved trucks that were either overloaded
or had loads that protruded upwards, causing them to hit the
cables.
(3) Concerning the second cause of action, the intention of the
parties when they entered into the contract was that the
coverage thereof would include the whole area serviced by
petitioners because at that time, they already had subscribers
outside Naga City. Private respondent, in fact, had asked for
telephone connections outside Naga City for its officers and
employees residing there in addition to the ten (10) telephone
units mentioned in the contract. Petitioners have not been
charging private respondent for the installation, transfers and
re-connections of said telephones so that naturally, they use
the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has
found petitioners' cable installations to be in accordance with
engineering standards and practice and comparable to the
best in the country.
On the basis of the foregoing countervailing evidence of the
parties, the trial court found, as regards private respondent's
first cause of action, that while the contract appeared to be fair
to both parties when it was entered into by them during the first
year of private respondent's operation and when its Board of
Directors did not yet have any experience in that business, it
had become disadvantageous and unfair to private respondent
because of subsequent events and conditions, particularly the
increase in the volume of the subscribers of petitioners for
more than ten (10) years without the corresponding increase in
the number of telephone connections to private respondent
free of charge. The trial court concluded that while in an action
for reformation of contract, it cannot make another contract for
the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities
therein. Thus, said court ruled that the contract should be
reformed by ordering petitioners to pay private respondent
compensation for the use of their posts in Naga City, while
private respondent should also be ordered to pay the monthly
bills for the use of the telephones also in Naga City. And taking
into consideration the guidelines of the NEA on the rental of
posts by telephone companies and the increase in the costs of
such posts, the trial court opined that a monthly rental of
P10.00 for each post of private respondent used by petitioners
is reasonable, which rental it should pay from the filing of the
complaint in this case on January 2, 1989. And in like manner,
private respondent should pay petitioners from the same date
its monthly bills for the use and transfers of its telephones in
Naga City at the same rate that the public are paying.
On private respondent's second cause of action, the trial court
found that the contract does not mention anything about the
use by petitioners of private respondent's posts outside Naga
City. Therefore, the trial court held that for reason of equity, the
contract should be reformed by including therein the provision
that for the use of private respondent's posts outside Naga
City, petitioners should pay a monthly rental of P10.00 per
post, the payment to start on the date this case was filed, or on
January 2, 1989, and private respondent should also pay
petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989.
And with respect to private respondent's third cause of action,
the trial court found the claim not sufficiently proved.
Thus, the following decretal portion of the trial court's decision
dated July 20, 1990:
WHEREFORE, in view of all the foregoing,
decision is hereby rendered ordering the
reformation of the agreement (Exh. A);
ordering the defendants to pay plaintiff's
electric poles in Naga City and in the towns
of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where
defendant NATELCO uses plaintiff's electric
poles, the sum of TEN (P10.00) PESOS per
plaintiff's pole, per month beginning January,
1989 and ordering also the plaintiff to pay
defendant NATELCO the monthly dues of all
its telephones including those installed at the
residence of its officers, namely; Engr.
Joventino Cruz, Engr. Antonio Borja, Engr.
Antonio Macandog, Mr. Jesus Opiana and
Atty. Luis General, Jr. beginning January,
1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants'
counterclaim are both hereby ordered
dismissed. Without pronouncement as to
costs.
Disagreeing with the foregoing judgment, petitioners appealed
to respondent Court of Appeals. In the decision dated May 28,
1992, respondent court affirmed the decision of the trial
court, 5 but based on different grounds to wit: (1) that Article
1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered
said condition void. The motion for reconsideration was denied
in the resolution dated September 10, 1992. 6Hence, the
present petition.
Petitioners assign the following pertinent errors committed by
respondent court:
1) in making a contract for the parties by
invoking Article 1267 of the New Civil Code;
 2) in ruling that prescription of the action for
reformation of the contract in this case
commenced from the time it became
disadvantageous to private respondent; and
3) in ruling that the contract was subject to a
potestative condition in favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil
Code is not applicable primarily because the contract does not
involve the rendition of service or a personal prestation and it is
not for future service with future unusual change. Instead, the
ruling in the case of Occea, et al. v. Jabson, etc., et
al., 7 which interpreted the article, should be followed in
resolving this case. Besides, said article was never raised by
the parties in their pleadings and was never the subject of trial
and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an
action for reformation of contract would lie
and may prosper, there must be sufficient
allegations as well as proof that the contract
in question failed to express the true
intention of the parties due to error or
mistake, accident, or fraud. Indeed, in
embodying the equitable remedy of
reformation of instruments in the New Civil
Code, the Code Commission gave its
reasons as follows:
Equity dictates the
reformation of an
instrument in order that the
true intention of the
contracting parties may be
expressed. The courts by
the reformation do not
attempt to make a new
contract for the parties, but
to make the instrument
express their real
agreement. The rationale
of the doctrine is that it
would be unjust and
inequitable to allow the
enforcement of a written
instrument which does not
reflect or disclose the real
meeting of the minds of
the parties. The rigor of the
legalistic rule that a written
instrument should be the
final and inflexible criterion
and measure of the rights
and obligations of the
contracting parties is thus
tempered to forestall the
effects of mistake, fraud,
inequitable conduct, or
accident. (pp. 55-56,
Report of Code
Commission)
Thus, Articles 1359, 1361, 1362, 1363 and
1364 of the New Civil Code provide in
essence that where through mistake or
accident on the part of either or both of the
parties or mistake or fraud on the part of the
clerk or typist who prepared the instrument,
the true intention of the parties is not
expressed therein, then the instrument may
be reformed at the instance of either party if
there was mutual mistake on their part, or by
the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its
complaint, nor does its evidence prove, that
there was a mistake on its part or mutual
mistake on the part of both parties when they
entered into the agreement Exh. "A", and
that because of this mistake, said agreement
failed to express their true intention. Rather,
plaintiff's evidence shows that said
agreement was prepared by Atty. Luciano
Maggay, then a member of plaintiff's Board
of Directors and its legal counsel at that time,
who was also the legal counsel for
defendant-appellant, so that as legal counsel
for both companies and presumably with the
interests of both companies in mind when he
prepared the aforesaid agreement, Atty.
Maggay must have considered the same fair
and equitable to both sides, and this was
affirmed by the lower court when it found
said contract to have been fair to both
parties at the time of its execution. In fact,
there were no complaints on the part of both
sides at the time of and after the execution of
said contract, and according to 73-year old
Justino de Jesus, Vice President and
General manager of appellant at the time
who signed the agreement Exh. "A" in its
behalf and who was one of the witnesses for
the plaintiff (sic), both parties complied with
said contract "from the very beginning" (p. 5,
tsn, April 17, 1989).
That the aforesaid contract has become
inequitous or unfavorable or
disadvantageous to the plaintiff with the
expansion of the business of appellant and
the increase in the volume of its subscribers
in Naga City and environs through the years,
necessitating the stringing of more and
bigger telephone cable wires by appellant to
plaintiff's electric posts without a
corresponding increase in the ten (10)
telephone connections given by appellant to
plaintiff free of charge in the agreement Exh.
"A" as consideration for its use of the latter's
electric posts in Naga City, appear, however,
undisputed from the totality of the evidence
on record and the lower court so found. And
it was for this reason that in the later (sic)
part of 1982 or 1983 (or five or six years
after the subject agreement was entered into
by the parties), plaintiff's Board of Directors
already asked Atty. Luis General who had
become their legal counsel in 1982, to study
said agreement which they believed had
become disadvantageous to their company
and to make the proper recommendation,
which study Atty. General did, and thereafter,
he already recommended to the Board the
filing of a court action to reform said contract,
but no action was taken on Atty. General's
recommendation because the former general
managers of plaintiff wanted to adopt a soft
approach in discussing the matter with
appellant, until, during the term of General
Manager Henry Pascual, the latter, after
failing to settle the problem with Atty. Luciano
Maggay who had become the president and
general manager of appellant, already
agreed for Atty. General's filing of the present
action. The fact that said contract has
become inequitous or disadvantageous to
plaintiff as the years went by did not,
however, give plaintiff a cause of action for
reformation of said contract, for the reasons
already pointed out earlier. But this does not
mean that plaintiff is completely without a
remedy, for we believe that the allegations of
its complaint herein and the evidence it has
presented sufficiently make out a cause of
action under Art. 1267 of the New Civil Code
for its release from the agreement in
question.
xxx xxx xxx
The understanding of the parties when they
entered into the Agreement Exh. "A" on
November 1, 1977 and the prevailing
circumstances and conditions at the time,
were described by Dioscoro Ragragio, the
President of plaintiff in 1977 and one of its
two officials who signed said agreement in its
behalf, as follows:
Our understanding at that
time is that we will allow
NATELCO to utilize the
posts of CASURECO II
only in the City of Naga
because at that time the
capability of NATELCO
was very limited, as a
matter of fact we do [sic]
not expect to be able to
expand because of the
legal squabbles going on
in the NATELCO. So, even
at that time there were so
many subscribers in Naga
City that cannot be served
by the NATELCO, so as a
mater of public service we
allowed them to sue (sic)
our posts within the Naga
City. (p. 8, tsn April 3,
1989)
Ragragio also declared that while the
telephone wires strung to the electric posts
of plaintiff were very light and that very few
telephone lines were attached to the posts of
CASURECO II in 1977, said posts have
become "heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower
court, despite the increase in the volume of
appellant's subscribers and the
corresponding increase in the telephone
cables and wires strung by it to plaintiff's
electric posts in Naga City for the more 10
years that the agreement Exh. "A" of the
parties has been in effect, there has been no
corresponding increase in the ten (10)
telephone units connected by appellant free
of charge to plaintiff's offices and other
places chosen by plaintiff's general manager
which was the only consideration provided
for in said agreement for appellant's use of
plaintiffs electric posts. Not only that,
appellant even started using plaintiff's
electric posts outside Naga City although this
was not provided for in the agreement Exh.
"A" as it extended and expanded its
telephone services to towns outside said city.
Hence, while very few of plaintiff's electric
posts were being used by appellant in 1977
and they were all in the City of Naga, the
number of plaintiff's electric posts that
appellant was using in 1989 had jumped to
1,403,192 of which are outside Naga City
(Exh. "B"). Add to this the destruction of
some of plaintiff's poles during typhoons like
the strong typhoon Sisang in 1987 because
of the heavy telephone cables attached
thereto, and the escalation of the costs of
electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the
agreement Exh. "A" has already become too
one-sided in favor of appellant to the great
disadvantage of plaintiff, in short, the
continued enforcement of said contract has
manifestly gone far beyond the
contemplation of plaintiff, so much so that it
should now be released therefrom under Art.
1267 of the New Civil Code to avoid
appellant's unjust enrichment at its
(plaintiff's) expense. As stated by Tolentino in
his commentaries on the Civil Code citing
foreign civilist Ruggiero, "equity demands a
certain economic equilibrium between the
prestation and the counter-prestation, and
does not permit the unlimited
impoverishment of one party for the benefit
of the other by the excessive rigidity of the
principle of the obligatory force of
contracts (IV Tolentino, Civil Code of the
Philippines, 1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the
ruling of the trial court, although based on a
different and wrong premise (i.e., reformation
of contract), that from the date of the filing of
this case, appellant must pay for the use of
plaintiff's electric posts in Naga City at the
reasonable monthly rental of P10.00 per
post, while plaintiff should pay appellant for
the telephones in the same City that it was
formerly using free of charge under the
terms of the agreement Exh. "A" at the same
rate being paid by the general public. In
affirming said ruling, we are not making a
new contract for the parties herein, but we
 find it necessary to do so in order not to
disrupt the basic and essential services
being rendered by both parties herein to the
public and to avoid unjust enrichment by
appellant at the expense of plaintiff, said
arrangement to continue only until such time
as said parties can re-negotiate another
agreement over the same
subject-matter covered by the agreement
Exh. "A". Once said agreement is reached
and executed by the parties, the aforesaid
ruling of the lower court and affirmed by us
shall cease to exist and shall be substituted
and superseded by their new
agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult.
Taking into consideration the rationale behind this
provision, 9 the term "service" should be understood as
referring to the "performance" of the obligation. In the present
case, the obligation of private respondent consists in allowing
petitioners to use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a bare reading of
this article reveals that it is not a requirement thereunder that
the contract be for future service with future unusual change.
According to Senator Arturo M. Tolentino, 10 Article 1267 states
in our law the doctrine of unforseen events. This is said to be
based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the
light of certain prevailing conditions, and once these conditions
cease to exist the contract also ceases to exist. Considering
practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a
complaint against petitioner before the trial court praying
for modification of the terms and conditions of the contract that
they entered into by fixing the proper shares that should
pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint
therein for failure to state a sufficient cause of action. We
rationalized that the Court of Appeals misapplied Article 1267
because:
. . . respondent's complaint
seeks not release from the subdivision
contract but that the court "render
judgment modifying the terms and conditions
of the contract . . . by fixing the proper
shares that should pertain to the herein
parties out of the gross proceeds from the
sales of subdivided lots of subject
subdivision". The cited article (Article 1267)
does not grant the courts (the) authority to
remake, modify or revise the contract or to
fix the division of shares between the parties
as contractually stipulated with the force of
law between the parties, so as to substitute
its own terms for those covenanted by the
parties themselves. Respondent's complaint
for modification of contract manifestly has no
basis in law and therefore states no cause of
action. Under the particular allegations of
respondent's complaint and the
circumstances therein averred, the courts
cannot even in equity grant the relief
sought. 11
The ruling in the Occea case is not applicable because we
agree with respondent court that the allegations in private
respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We,
therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present
controversy does not end here. We have to take into account
the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in
the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance
with the contract 12 will return all the telephone units to
petitioners, causing prejudice to its business. We shall not
allow such eventuality. Rather, we require, as ordered by the
trial court: 1) petitioners to pay private respondent for the use
of its posts in Naga City and in the towns of Milaor, Canaman,
Magarao and Pili, Camarines Sur and in other places where
petitioners use private respondent's posts, the sum of ten
(P10.00) pesos per post, per month, beginning January, 1989;
and 2) private respondent to pay petitioner the monthly dues of
all its telephones at the same rate being paid by the public
beginning January, 1989. The peculiar circumstances of the
present case, as distinguished further from the Occea case,
necessitates exercise of our equity jurisdiction. 13 By way of
emphasis, we reiterate the rationalization of respondent court
that:
. . . In affirming said ruling, we are not
making a new contract for the parties herein,
but we find it necessary to do so in order not
to disrupt the basic and essential services
being rendered by both parties herein to the
public and to avoid unjust enrichment by
appellant at the expense of plaintiff . . . .14
Petitioners' assertion that Article 1267 was never raised by the
parties in their pleadings and was never the subject of trial and
evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:
First, we do not agree with defendant-
appellant that in applying Art. 1267 of the
New Civil Code to this case, we have
changed its theory and decided the same on
an issue not invoked by plaintiff in the lower
court. For basically, the main and pivotal
issue in this case is whether the continued
enforcement of the contract Exh. "A"
between the parties has, through the years
(since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-
sided in favor of defendant-appellant, so that
a solution must be found to relieve plaintiff
from the continued operation of said
agreement and to prevent defendant-
appellant from further unjustly enriching itself
at plaintiff's expense. It is indeed unfortunate
that defendant had turned deaf ears to
plaintiffs requests for renegotiation,
constraining the latter to go to court. But
although plaintiff cannot, as we have held,
correctly invoke reformation of contract as a
proper remedy (there having been no
showing of a mistake or error in said contract
on the part of any of the parties so as to
result in its failure to express their true
intent), this does not mean that plaintiff is
absolutely without a remedy in order to
relieve itself from a contract that has gone
far beyond its contemplation and has
become so highly inequitous and
disadvantageous to it through the years
because of the expansion of defendant-
appellant's business and the increase in the
volume of its subscribers. And as it is the
duty of the Court to administer justice, it
must do so in this case in the best way and
manner it can in the light of the proven facts
and the law or laws applicable thereto.
It is settled that when the trial court decides
a case in favor of a party on a certain
ground, the appellant court may uphold the
decision below upon some other point which
was ignored or erroneously decided by the
trial court (Garcia Valdez v. Tuazon, 40 Phil.
943; Relativo v. Castro, 76 Phil. 563; Carillo
v. Salak de Paz, 18 SCRA 467).
Furthermore, the appellate court has the
discretion to consider an unassigned error
that is closely related to an error properly
assigned (Paterno v. Jao Yan, 1 SCRA 631;
Hernandez v. Andal, 78 Phil. 196). It has also
been held that the Supreme Court (and this
Court as well) has the authority to review
matters, even if they are not assigned as
errors in the appeal, if it is found that their
consideration is necessary in arriving at a
just decision of the case (Saura Import &
Export Co., Inc. v. Phil. International Surety
Co. and PNB, 8 SCRA 143). For it is the
material allegations of fact in the complaint,
not the legal conclusion made therein or the
prayer, that determines the relief to which the
plaintiff is entitled, and the plaintiff is entitled
to as much relief as the facts warrant
although that relief is not specifically prayed
for in the complaint (Rosales v. Reyes and
Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50
Phil. 844; Baguioro v. Barrios, 77 Phil. 120).
To quote an old but very illuminating decision
of our Supreme Court through the pen of
American jurist Adam C. Carson:
"Under our system of
pleading it is the duty of
the courts to grant the
relief to which the parties
are shown to be entitled by
the allegations in their
pleadings and the facts
proven at the trial, and the
mere fact that they
themselves misconstrue
the legal effect of the facts
thus alleged and proven
will not prevent the court
from placing the just
construction thereon and
adjudicating the issues
accordingly." (Alzua v.
Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil.,
Inc. v IAC, 176 SCRA 741, the Honorable
Supreme Court also held:
We rule that the
respondent court did not
commit any error in taking
cognizance of the
aforesaid issues, although
not raised before the trial
court. The presence of
strong consideration of
substantial justice has led
this Court to relax the well-
entrenched rule that,
except questions on
jurisdiction, no question
will be entertained on
appeal unless it has been
raised in the court below
and it is within the issues
made by the parties in
their pleadings (Cordero v.
Cabral, L-36789, July 25,
1983, 123 SCRA 532). . . .
We believe that the above authorities suffice
to show that this Court did not err in applying
Art. 1267 of the New Civil Code to this case.
Defendant-appellant stresses that the
applicability of said provision is a question of
fact, and that it should have been given the
opportunity to present evidence on said
question. But defendant-appellant cannot
honestly and truthfully claim that it (did) not
(have) the opportunity to present evidence
on the issue of whether the continued
operation of the contract Exh. "A" has now
become too one-sided in its favor and too
inequitous, unfair, and disadvantageous to
plaintiff. As held in our decision, the
abundant and copious evidence presented
by both parties in this case and summarized
in said decision established the following
essential and vital facts which led us to apply
Art. 1267 of the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for
reformation of contract, petitioners allege that respondent
court's ruling that the right of action "arose only after said
contract had already become disadvantageous and unfair to it
due to subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 . . ." 16 is
erroneous. In reformation of contracts, what is reformed is not
the contract itself, but the instrument embodying the contract. It
follows that whether the contract is disadvantageous or not is
irrelevant to reformation and therefore, cannot be an element
in the determination of the period for prescription of the action
to reform.
Article 1144 of the New Civil Code provides, inter alia, that an
action upon a written contract must be brought within ten (10)
years from the time the right of action accrues. Clearly, the ten
(10) year period is to be reckoned from the time the right of
action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the latter
part of 1982 or in 1983 when according to Atty. Luis General,
Jr. . . ., he was asked by (private respondent's) Board of
Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8,
1989). (Private respondent's) cause of action to ask for
reformation of said contract should thus be considered to have
arisen only in 1982 or 1983, and from 1982 to January 2, 1989
when the complaint in this case was filed, ten (10) years had
not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing
purely potestative about the prestations of either party because
petitioner's permission for free use of telephones is not made
to depend purely on their will, neither is private respondent's
permission for free use of its posts dependent purely on its will.
Apart from applying Article 1267, respondent court cited
another legal remedy available to private respondent under the
allegations of its complaint and the preponderant evidence
presented by it:
. . . we believe that the
provision in said
agreement
(a) That the term or period
of this contract shall be as
long as the party of the
first part [herein appellant]
has need for the electric
light posts of the party of
the second part [herein
plaintiff] it being
understood that this
contract shall terminate
when for any reason
whatsoever, the party of
the second part is forced
to stop, abandoned [sic] its
operation as a public
service and it becomes
necessary to remove the
electric light post [sic]";
(Emphasis supplied)
is invalid for being purely potestative on the
part of appellant as it leaves the continued
effectivity of the aforesaid agreement to the
latter's sole and exclusive will as long as
plaintiff is in operation. A similar provision in
a contract of lease wherein the parties
agreed that the lessee could stay on the
leased premises "for as long as the
defendant needed the premises and can
meet and pay said increases" was recently
held by the Supreme Court in Lim v. C.A.,
191 SCRA 150, citing the much earlier case
of Encarnacion v. Baldomar, 77 Phil. 470, as
invalid for being "a purely potestative
condition because it leaves the effectivity
and enjoyment of leasehold rights to the sole
and exclusive will of the lessee." Further held
the High Court in the Lim case:
The continuance,
effectivity and fulfillment of
a contract of lease cannot
be made to depend
exclusively upon the free
and uncontrolled choice of
the lessee between
continuing the payment of
the rentals or not,
completely depriving the
owner of any say in the
matter. Mutuality does not
obtain in such a contract of
lease of no equality exists
between the lessor and
the lessee since the life of
the contract is dictated
solely by the lessee.
The above can also be said of the
agreement Exh. "A" between the parties in
this case. There is no mutuality and equality
between them under the afore-quoted
provision thereof since the life and continuity
of said agreement is made to depend as
long as appellant needs plaintiff's electric
posts. And this is precisely why, since 1977
when said agreement was executed and up
to 1989 when this case was finally filed by
plaintiff, it could do nothing to be released
from or terminate said agreement
notwithstanding that its continued effectivity
has become very disadvantageous and
inequitous to it due to the expansion and
increase of appellant's telephone services
within Naga City and even outside the same,
without a corresponding increase in the ten
(10) telephone units being used by plaintiff
free of charge, as well as the bad and
inefficient service of said telephones to the
prejudice and inconvenience of plaintiff and
its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A
potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to
wit:
(a) That the term or period of this contract
shall be as long as the party of the first part
(petitioner) has need for the electric light
posts of the party of the second part (private
respondent) . . ..
is a potestative condition, is correct. However, it must have
overlooked the other conditions in the same provision, to wit:
. . . it being understood that this contract
shall terminate when for any reason
whatsoever, the party of the second part
(private respondent) is forced to stop,
abandoned (sic) its operation as a public
service and it becomes necessary to remove
the electric light post (sic);
which are casual conditions since they depend on chance,
hazard, or the will of a third person. 20 In sum, the contract is
subject to mixed conditions, that is, they depend partly on the
will of the debtor and partly on chance, hazard or the will of a
third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the
first and second issues raised by petitioners, there is no reason 20 Civil Code of the Philippines Annotated by
to set aside the questioned decision and resolution of Edgardo L. Paras, 1985 Edition,
respondent court. p. 171.

WHEREFORE, the petition is hereby DENIED. The decision of 21 Ibid.

the Court of Appeals dated May 28, 1992 and its resolution
dated September 10, 1992 are AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

#Footnotes

1 84 Phil. 654.

2 Report of the Code Commission, p. 133;

cited in Rollo, p. 57.

3 Records, p. 6.

4 Ibid, pp. 6-7.

5 Rollo, p. 62.

6 Rollo, p. 71.

7 G.R. No. L-44349, October 29, 1976, 73

SCRA 637.

8 Rollo, pp. 54-59.

9 Supra.

10 Commentaries and Jurisprudence on the

Civil Code of the Philippines, 1991 Edition p.
347.

11 At p. 641.

12 Records, p. 7.

13 Agne, et al. v. Director of Lands, et al.,

G.R. No. L-40399, February 9, 1990, 181
SCRA 793.

14 Rollo, p.59.

15 Rollo, pp. 66-69.

16 Rollo, pp. 53-54.

17 Rollo, pp. 53-54.

18 Rollo, pp. 59-61.

19 Article 1182 of the New Civil Code.

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 4437 September 9, 1909
TOMAS OSMEA, plaintiff-appellee,
vs.
CENONA RAMA, defendant-appellant.
Filemon Sotto for appellant.
J. H. Junquera for appellee.
JOHNSON, J.:
It appears from the record that upon the 15th day of November,
1890, the defendant herein executed and delivered to
Victoriano Osmea the following contract:
EXHIBIT A.
P200.00.
CEBU, November 15, 1890.
I, Doa Cenona Rama, a resident of this city, and of
legal age, have received from Don Victoriano
Osmea the sum of two hundred pesos in cash which
I will pay in sugar in the month of January or February
of the coming year, at the price ruling on the day of
delivering the sugar into his warehouse, and I will pay
him interest at the rate of half a cuartillo per month on
each peso, beginning on this date until the day of the
settlement; and if I can not pay in full, a balance shall
be struck, showing the amount outstanding at the end
of each June, including interest, and such as may be
outstanding against me shall be considered as capital
which I will always pay in sugar, together with the
interest mentioned above. I further promise that I will
sell to the said Seor Osmea all the sugar that I may
harvest, and as a guarantee, pledge as security all of
my present and future property, and as special
security the house with tile roof and ground floor of
stone in which I live in Pagina; in proof whereof, I sign
this document, and he shall be entitled to make claim
against me at the expiration of the term stated in this
document.
(Signed) CENON RAMA.
Witnesses:
FAUSTO PEALOSA.
FRANCISCO MEDALLE.
On the 27th day of October, 1891, the defendant executed and
delivered to the said Victoriano Osmea the following contract:
EXHIBIT B.
CEBU, October 27, 1891.
On this date I have asked for further loan and have
received from Don Victoriano Osmea the sum of
seventy pesos in cash, fifty pesos of which I have
loaned to Don Evaristo Peares, which we will pay in
sugar in the month of January of the coming year
according to the former conditions.
(Signed) CENONA RAMA.
From Don Evaristo Peares P50
Doa Cenona Rama 20
P70
Received Evaristo Peares.
Some time after the execution and delivery of the above
contracts, the said Victoriano Osmea died. In the settlement
and division of the property of his estate the above contracts
became the property of one of his estate the above contracts
became the property of one of his heirs, Agustina Rafols. Later,
the date does not appear, the said Agustina Rafols ceded to
the present plaintiff all of her right and interest in said
contracts.
On the 15th day of March, 1902 the plaintiff presented the
contracts to the defendant for payment and she acknowledged
her responsibility upon said contracts by an indorsement upon
them in the following language:
EXHIBIT C.
CEBU, March 15, 1902.
On this date I hereby promise, in the presence of two
witness, that if the house of strong materials in which I
live in Pagina is sold, I will pay my indebtedness to
Don Tomas Osmea as set forth in this document.
(Signed) CENONA RAMA.
The defendant not having paid the amount due on said
contracts; the plaintiff, upon the 26th day of June, 1906,
commenced the present action in the Court of First Instance of
the Province of Cebu. The complaint filed in said cause alleged
the execution and delivery of the above contracts, the demand
for payment, and the failure to pay on the part of the
defendant, and the prayer for a judgment for the amount due
on the said contracts. The defendant answered by filing a
general denial and setting up the special defense of
prescription.
The case was finally brought on to trial in the Court of First
Instance, and the only witness produced during the trial was
the plaintiff himself. The defendant did not offer any proof
whatever in the lower court.

After hearing the evidence adduced during the trial, the lower
court rendered a judgment in favor of the plaintiff and against
the defendant for the sum of P200 with interest at the rate of
18 3/4 per cent per annum, from the 15th day of November,
1890, and for the sum of P20 with interest at the rate of 18 3/4
per cent per annum, from the 27th day of October, 1891, until
the said sums were paid. From this judgment the defendant
appealed.

The lower court found that P50 of the P70 mentioned in Exhibit
B had been borrowed by the defendant, but by one Evaristo
Peares; therefore the defendant had no responsibility for the
payment of the said P50.

The only questions raised by the appellant were questions of

fact. The appellant alleges that the proof adduced during the
trial of the cause was not sufficient to support the findings of
the lower court. It was suggested during the discussion of the
case in this court that, in the acknowledgment above quoted of
the indebtedness made by the defendant, she imposed the
condition that she would pay the obligation if she sold her
house. If that statement found in her acknowledgment of the
indebtedness should be regarded as a condition, it was a
condition which depended upon her exclusive will, and is
therefore, void. (Art. 1115, Civil Code.) The acknowledgment,
therefore, was an absolute acknowledgment of the obligation
and was sufficient to prevent the statute of limitation from
barring the action upon the original contract.

We are satisfied, from all of the evidence adduced during the

trial, that the judgment of the lower court should be affirmed.
So ordered.

Arellano, C. J., Torres, Carson, and Moreland, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-5267 October 27, 1953

LUZ HERMOSA, as administratrix of the Intestate Estate of

Fernando Hermosa, Sr., and FERNANDO HERMOSA, JR.,
petitioners,
vs.
EPIFANIO M. LONGARA, respondent.

Manuel O. Chan for petitioners.

Jacinto R. Bohol for respondent.

LABRADOR, J.:

This is an appeal by way of certiorari against a decision of the

Court of Appeals, fourth division, approving certain claims
presented by Epifanio M. Longara against the testate estate of
Fernando Hermosa, Sr. The claims are of three kinds, namely,
P2,341.41 representing credit advances made to the intestate
from 1932 to 1944, P12,924.12 made to his son Francisco
Hermosa, and P3,772 made to his grandson, Fernando
Hermosa, Jr. from 1945 to 1947, after the death of the
intestate, which occurred in December, 1944. The claimant
presented evidence and the Court of Appeals found, in
accordance therewith, that the intestate had asked for the said
credit advances for himself and for the members of his family
"on condition that their payment should be made by Fernando
Hermosa, Sr. as soon as he receive funds derived from the
sale of his property in Spain." Claimant had testified without
opposition that the credit advances were to be "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold
and he receive money derived from the sale." The Court of
Appeals held that payment of the advances did not become
due until the administratrix received the sum of P20,000 from
the buyer of the property. Upon authorization of the probate
court in October, 1947, and the same was paid for
subsequently. The Claim was filed on October 2, 1948.

It is contended on this appeal that the obligation contracted by

the intestate was subject to a condition exclusively dependent
upon the will of the debtor (a condicion potestativa) and
therefore null and void, in accordance with article 1115 of the
old Civil Code. The case of Osmea vs. Rama, (14 Phil. 99) is
cited to support appellants contention. In this case, this court
seems to have filed that a promise to pay an indebtedness "if a
house of strong materials is sold" is an obligation the
performance of which depended on the will of the debtor. We
have examined this case and we find that the supposed ruling
was merely an assumption and the same was not the actual
ruling of the case.

A careful consideration of the condition upon which payment of

the sums advanced was made to depend, "as soon as he
(intestate) receive funds derived from the sale of his property in
Spain," discloses the fact that the condition in question does
not depend exclusively upon the will of the debtor, but also
upon other circumstances beyond his power or control. If the
condition were "if he decides to sell his house." or "if he likes to
pay the sums advanced," or any other condition of similar
import implying that upon him (the debtor) alone payment
would depend, the condition would be protestativa, dependent
exclusively upon his will or discretion. In the form that the
condition was found by the Court of Appeals however the
condition implies that the intestate had already decided to sell
his house, or at least that he had made his creditors believe
that he had done so, and that all that we needed to make his
obligation (to pay his indebtedness) demandable is that the
sale be consummated and the price thereof remitted to the
islands. Note that if the intestate would prevent or would have
prevented the consummation of the sale voluntarily, the
condition would be or would have been deemed or considered
complied with (article 1119, old Civil Code).The will to sell on
the part of the intestate was, therefore, present in fact, or
presumed legally to exist, although the price and other
conditions thereof were still within his discretion and final
approval. But in addition of the sale to him (the intestate-
vendor), there were still other conditions that had no concur to
effect the sale, mainly that of the presence of a buyer, ready,
able and willing to purchase the property under the conditions
demanded by the intestate. Without such a buyer the sale
could not be carried out or the proceeds thereof sent to the
islands. It is evident, therefore sent to the islands. It is evident,
therefore, that the condition of the obligation was not a purely
protestative one, depending exclusively upon the will of the
intestate, but a mixed one, depending partly upon the will of
intestate and partly upon chance, i.e., the presence of a buyer
of the property for the price and under the conditions desired
by the intestate. The obligation is clearly governed by the
second sentence of article 1115 of the old Civil Code (8
Manresa, 126). The condition is, besides, a suspensive
condition, upon the happening of which the obligation to pay is
made dependent. And upon the happening of the condition, the
debt became immediately due and demandable. (Article 1114,
old Civil Code; 8 Manresa, 119).
One other point needs to be considered, and this is the fact
that the sale was not effected in the lifetime of the debtor (the
intestate), but after his death and by his administrator, the very
wife of the claimant. On this last circumstance we must bear in
mind that the Court of Appeals found no evidence to show that
the claim was the product of a collusion or connivance
between the administratrix and the claimant. That there was
really a promise made by the intestate to pay for the credit
advances maybe implied from the fact that the receipts thereof
had been preserved. Had the advances been made without
intention of demanding their payment later, said receipts would
not have been preserved. Regularity of the advances and the
close relationship between the intestate and the claimant also
support this conclusion.
As to the fact that the suspensive condition took place after the
death of the debtor, and that advances were made more than
ten years before the sale, we supported in our conclusion that
the same is immaterial by Sanchez Roman, who says, among
other things, as to conditional obligations:
1a La obligacion contractual afectada por condicion
suspensiva. no es exigible hasta que se cumpla la
condicion, . . .
2 a El cumplimiento de la condicion suspensiva
retrotae los efectos del acto juridico originario de la
obligacion a que aquella afecta, al tiempo de
lacelebracion de este;
3 a La referida retroaccion, no solo tiene lugar cuando
el cumplimiento de la condicion se verifica en vida de
los contrayentes, que tambien se produce cuando
aquel se realiza despues de la muerte de estos. (4
Sanchez Roman, p. 122) (Emphasis supplied.)
As the obligation retroacts to the date when the contract was
entered into, all amounts advanced from the time of the
agreement became due, upon the happening of the
suspensive condition. As the obligation to pay became due and
demandable only when the house was sold and the proceeds
received in the islands, the action to recover the same only
accrued, within the meaning of the statute of limitations, on
date the money became available here hence the action to
recover the advances has not yet prescribed.
The above considerations dispose of the most important
questions raised on this appeal. It is also contended that the
third group of claims, i.e., credits furnished the intestate's
grandson after his (intestate's) death in 1944, should have
been allowed. We find merit in this contention. Even if
authorization to furnish necessaries to his grandson may have
been given, this authorization could not be made to extend
after his death, for two obvious reasons. First because the
obligation to furnish support is personal and is extinguished
upon the death of the person obliged to give support(article
150, old Civil Code), and second because upon the death of a
principal (the intestate in this case), his agent's authority or
authorization is deemed terminated (article 1732, old Civil
Code). That part of the decision allowing this group of claims,
amounting to P3,772 should be reversed.
One last contention of the appellant is that the claims are
barred by the statute of non-claims. It does not appear from the
record that this question was ever raised in any of the courts
below. We are, therefore, without authority under our rules to
consider this issue at this stage of the proceedings.
The judgment appealed from is hereby affirmed in so far as it
approves the claims of appellee in the amounts of P2,341 and
P12,942.12, and reversed as to that of P3,772. Without costs.
Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and
Bautista Angelo, JJ., concur.
Separate Opinions
PARAS, C. J., concurring and dissenting:
I concur in the majority decision insofar as it reverses the
appealed judgment allowing the claim for P3,772, but dissent
therefrom insofar as it affirms the appealed judgment
approving appellee's other claims.
The principal question is whether the stipulation to pay the
advances "on condition that their payment should be made by
Fernando Hermosa, Sr. as soon as he receives funds derived
from the sale of his property in Spain, and making said
advances "payable as soon as Fernando Hermosa, Sr.'s
property in Spain was sold and he received money derived
from the sale," condicion potestativa and therefore null and
void in accordance with article 1115 of the old Civil Code. My
answer is in the affirmative, because it is very obvious that the
matter of the sale of the house rested on the sole will of the
debtor, unaffected by any outside consideration or influence.
The majority admit that if the condition were "if he decides to
sell his house" or "if he likes to pay the sums advanced, the
same would be potestative. I think a mere play or words is
invoked, as I cannot see any substantial difference. Under the
condition imposed by Fernando Hermosa, Sr., it is immaterial
whether or not he had already decided to sell his house, since
there is no pretence that acceptable conditions of the sale had
been made the subject of an agreement, such that if such
conditions presented themselves the debtor would be bound to
proceed with the sale. In the case at bar, the terms are still
subject to the sale judgment if not whims and caprice of
Fernando Hermosa, Sr. In fact no sale was effected during his
lifetime.

As the condition above referred to is null and void, the debt

resulting from the advances made to Fernando Hermosa, Sr.
became either immediately demandable or payable within a
term to be fixed by the court. In both cases the action has
prescribed after the lapse of ten years. In the case of
Gonzales vs. De Jose (66 Phil., 369, 371), this court already
held as follows:

We hold that the two promissory notes are governed

by article 1128 because under the terms thereof the
plaintiff intended to grant the defendant a period
within which to pay his debts. As the promissory notes
do not affix this period, it is for the court to fix the
same. (Citing cases.) The action to ask the court to fix
the period has already prescribed in accordance with
section 43 (1) of the Code of Civil Procedure. This
period of prescription is ten years, which has already
elapsed from the execution of the promissory notes
until the filing of the action on June 1, 1934. The
action which should be brought in accordance with
articles 1128 is different from the action for the
recovery of the amount of the notes, although the
effects of both are the same, being, like other civil
actions, subject to the rules of prescription.

The majority also contend that the condition in question

depended on other factors than the sole will of the debtor, and
cite the presence of a buyer, ready, able and willing to
purchase the property. This is of no moment, because, as
already stated, in the absence of any contract setting forth the
minimum or maximum terms which would be acceptable to the
debtor, nobody could legally compel Fernando Hermosa, Sr. to
make any sale.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
Cohn, Fisher and DeWitt and William C. Brady for plaintiff-
appellant.
Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.
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.
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.
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 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.
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.
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.
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.
Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand,
Johns and Romualdez, JJ., concur.
 Republic of the Philippines The generative facts of the controversy, as gathered from the
SUPREME COURT pleadings, are fairly simple.
Manila
Sometime in 1966, petitioner Rustan established a pulp and
THIRD DIVISION paper mill in Baloi, Lano del Norte. On March 20, 1967,
respondent Lluch, who is a holder of a forest products license,
transmitted a letter to petitioner Rustan for the supply of raw
materials by the former to the latter. In response thereto,
petitioner Rustan proposed, among other things, in the letter-
G.R. No. 70789 October 19, 1992 reply:

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R.
TANTOCO, SR., and ROMEO S. VERGARA, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ILIGAN
DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and
ROBERTO G. BORROMEO, respondents.
MELO, J.:
When petitioners informed herein private respondents to stop
the delivery of pulp wood supplied by the latter pursuant to a
contract of sale between them, private respondents sued for
breach of their covenant. The court of origin dismissed the
complaint but at the same time enjoined petitioners to respect
the contract of sale if circumstances warrant the full operation
in a commercial scale of petitioners' Baloi plant and to continue
accepting and paying for deliveries of pulp wood products from
Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to
the then Intermediate Appellate Court, Presiding Justice
Ramon G. Gaviola, Jr., who spoke for the First Civil Cases
Division, with Justices Caguioa, Quetulio-Losa, and Luciano,
concurring, modified the judgment by directing herein
petitioners to pay private respondents, jointly and severally, the
sum of P30,000.00 as moral damages and P15,000.00 as
attorney's fees (pages 48-58, Rollo).
In the petition at bar, it is argued that the Appellate Court erred;
A. . . . IN HOLDING PERSONALLY LIABLE
UNDER THE CONTRACT OF SALE
PETITIONER TANTOCO WHO SIGNED
MERELY AS REPRESENTATIVE OF
PETITIONER RUSTAN, AND PETITIONER
VERGARA WHO DID NOT SIGN AT ALL;
B. . . . IN HOLDING THAT PETITIONER
RUSTAN'S DECISION TO SUSPEND
TAKING DELIVERY OF PULP WOOD
FROM RESPONDENT LLUCH, WHICH
WAS PROMPTED BY SERIOUS AND
UNFORESEEN DEFECTS IN THE MILL,
WAS NOT IN THE LAWFUL EXERCISE OF
ITS RIGHTS UNDER THE CONTRACT OF
SALE; and
C. . . . IN AWARDING MORAL DAMAGES
AND ATTORNEY'S FEES IN THE ABSENCE
OF FRAUD OR BAD FAITH.
(page 18, Petition; page 24, Rollo)
2. That the contract to supply is not exclusive
because Rustan shall have the option to buy
from other suppliers who are qualified and
holder of appropriate government authority
or license to sell and dispose pulp wood.
These prefatory business proposals culminated in the
execution, during the month of April, 1968, of a contract of sale
whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and
Paper Mill, Inc. undertook to pay the price of P30.00 per cubic
meter of pulp wood raw materials to be delivered at the buyer's
plant in Baloi, Lanao del Norte. Of pertinent significance to the
issue at hand are the following stipulations in the bilateral
undertaking:
3. That BUYER shall have the option to buy
from other SELLERS who are equally
qualified and holders of appropriate
government authority or license to sell or
dispose, that BUYER shall not buy from any
other seller whose pulp woods being sold
shall have been established to have
emanated from the SELLER'S lumber and/or
firewood concession. . . .
And that SELLER has the priority to supply
the pulp wood materials requirement of the
BUYER;
xxx xxx xxx
7. That the BUYER shall have the right to
stop delivery of the said raw materials by the
seller covered by this contract when supply
of the same shall become sufficient until
such time when need for said raw materials
shall have become necessarily provided,
however, that the SELLER is given sufficient
notice.
(pages 8-9, Petition; pages 14-15, Rollo)
In the installation of the plant facilities, the technical staff of
Rustan Pulp and Paper Mills, Inc. recommended the
acceptance of deliveries from other suppliers of the pulp wood
materials for which the corresponding deliveries were made.
But during the test run of the pulp mill, the machinery line
thereat had major defects while deliveries of the raw materials
piled up, which prompted the Japanese supplier of the
machinery to recommend the stoppage of the deliveries. The
suppliers were informed to stop deliveries and the letter of
similar advice sent by petitioners to private respondents reads:
 September 30, 1968
Iligan Diversified Projects, Inc.
Iligan City
Attention: Mr. Romeo A. Lluch
Dear Mr. Lluch:
This is to inform you that the supply of raw
materials to us has become sufficient and we
will not be needing further delivery from you.
As per the terms of our contract, please stop
delivery thirty (30) days from today.
Very truly yours,
RUSTAN PULP AND PAPER
By:
DR. ROMEO S. VERGARAand could not therefore afford to absorb
Resident Manager
Private respondent Romeo Lluch sought to clarify the tenor of
the letter as to whether stoppage of delivery or termination of
the contract of sale was intended, but the query was not
answered by petitioners. This alleged ambiguity
notwithstanding, Lluch and the other suppliers resumed
deliveries after the series of talks between Romeo S. Vergara
and Romeo Lluch.
On January 23, 1969, the complaint for contractual breach was
filed which, as earlier noted, was dismissed. In the process of
discussing the merits of the appeal interposed therefrom,
respondent Court clarified the eleven errors assigned below by
herein petitioners and it seems that petitioners were quite
satisfied with the Appellate Court's in seriatim response since
petitioners trimmed down their discourse before this Court to
three basic matters, relative to the nature of liability, the
propriety of the stoppage, and the feasibility of awarding moral
damages including attorney's fees.
Respondent Court found it ironic that petitioners had to
exercise the prerogative regarding the stoppage of deliveries
via the letter addressed to Iligan Diversified Project, Inc. on
September 30, 1968 because petitioners never really stopped
accepting deliveries from private respondents until December
23, 1968. Petitioner's paradoxial stance portrayed in this
manner:
. . . We cannot accept the reasons given by
appellees as to why they were stopping
deliveries of pulp wood materials. First, We
find it preposterous for a business company
like the appellee to accumulate stockpiles of
cut wood even after its letter to appellants
dated September 30, 1968 stopping the
deliveries because the supply of raw
materials has become sufficient. The fact
that appellees were buying and accepting
pulp wood materials from other sources
other than the appellants even after
September 30, 1968 belies that they have
more than sufficient supply of pulp wood
materials, or that they are unable to go into
full commercial operation or that their
machineries are defective or even that the
pulp wood materials coming from appellants
are sub-standard. Second, We likewise find
the court a quo's finding that "even with one
predicament in which defendant Rustan
found itself wherein commercial operation
was delayed, it accommodated all its
suppliers of raw materials, including plaintiff,
Romeo Lluch, by allowing them to deliver all
its stockpiles of cut wood" (Decision, page
202, Record on Appeal) to be both illogical
and inconsistent. Illogical, because as
appellee Rustan itself claimed "if the plant
could not be operated on a commercial
scale, it would then be illogical for defendant
Rustan to continue accepting deliveries of
raw materials." Inconsistent because this
kind of "concern" or "accommodation" is not
usual or consistent with ordinary business
practice considering that this would mean
adequate losses to the company. More so, if
We consider that appellee is a new company
more losses than it already allegedly
incurred by the consequent defects in the
machineries.
Clearly therefore, this is a breach of the
contract entered into by and between
appellees and appellants which warrants the
intervention of this Court.
xxx xxx xxx
. . . The letter of September 30, 1968, Exh.
"D" shows that defendants were terminating
the contract of sale (Exh. "A"), and refusing
any future or further delivery whether on
the ground that they had sufficient supply of
pulp wood materials or that appellants
cannot meet the standard of quality of pulp
wood materials that Rustan needs or that
there were defects in appellees' machineries
resulting in an inability to continue full
commercial operations.
Furthermore, there is evidence on record
that appellees have been accepting
deliveries of pulp wood materials from other
sources, i.e. Salem Usman, Fermin
Villanueva and Pacasum even after
September 30, 1968.
Lastly, it would be unjust for the court a
quo to rule that the contract of sale be
temporarily suspended until Rustan, et al.,
are ready to accept deliveries from
appellants. This would make the resumption
of the contract purely dependent on the will
of one party the appellees, and they could
always claim, as they did in the instant case,
that they have more than sufficient supply of
pulp wood when in fact they have been
accepting the same from other sources.
 Added to this, the court a quo was imposing
a new condition in the contract, one that was
not agreed upon by the parties.
(Pages B-10, Decision; Pages 55-57, Rollo)
The matter of Tantoco's and Vergara's joint and several liability
as a result of the alleged breach of the contract is dependent,
first of all, on whether Rustan Pulp and Paper Mills may legally
exercise the right of stoppage should there be a glut of raw
materials at its plant.
And insofar as the express discretion on the part of petitioners
is concerned regarding the right of stoppage, We feel that
there is cogent basis for private respondent's apprehension on
the illusory resumption of deliveries inasmuch as the
prerogative suggests a condition solely dependent upon the
will of petitioners. Petitioners can stop delivery of pulp wood
from private respondents if the supply at the plant is sufficient
as ascertained by petitioners, subject to re-delivery when the
need arises as determined likewise by petitioners. This is Our
simple understanding of the literal import of paragraph 7 of the
obligation in question. A purely potestative imposition of this
character must be obliterated from the face of the contract
without affecting the rest of the stipulations considering that the
condition relates to the fulfillment of an already existing
obligation and not to its inception (Civil Code Annotated, by
Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a
truism in legal jurisprudence that a condition which is both
potestative (or facultative) and resolutory may be valid, even
though the saving clause is left to the will of the obligor like
what this Court, through Justice Street, said in Taylor vs. Uy
Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in
Commentaries and Jurisprudence on the Civil Code, by
Tolentino, Volume 4, 1991 edition, page 152). But the
conclusion drawn from the Taylor case, which allowed a
condition for unilateral cancellation of the contract when the
machinery to be installed on the factory did not arrive in
Manila, is certainly inappropriate for application to the case at
hand because the factual milieu in the legal tussle dissected by
Justice Street conveys that the proviso relates to the birth of
the undertaking and not to the fulfillment of an existing
obligation.
In support of the second ground for allowance of the petition,
petitioners are of the impression that the letter dated
September 30, 1968 sent to private respondents is well within
the right of stoppage guaranteed to them by paragraph 7 of the
contract of sale which was construed by petitioners to be a
temporary suspension of deliveries. There is no doubt that the
contract speaks loudly about petitioners' prerogative but what
diminishes the legal efficacy of such right is the condition
attached to it which, as aforesaid, is dependent exclusively on
their will for which reason, We have no alternative but to treat
the controversial stipulation as inoperative (Article 1306, New
Civil Code). It is for this same reason that We are not inclined
to follow the interpretation of petitioners that the suspension of
delivery was merely temporary since the nature of the
suspension itself is again conditioned upon petitioner's
determination of the sufficiency of supplies at the plant.
Neither are We prepared to accept petitioners' exculpation
grounded on frustration of the commercial object under Article
1267 of the New Civil Code, because petitioners continued
accepting deliveries from the suppliers. This conduct will estop
petitioners from claiming that the breakdown of the machinery
line was an extraordinary obstacle to their compliance to the
prestation. It was indeed incongruous for petitioners to have
sent the letters calling for suspension and yet, they in effect
disregarded their own advice by accepting the deliveries from
the suppliers. The demeanor of petitioners along this line was
sought to be justified as an act of generous accommodation,
which entailed greater loss to them and "was not motivated by
the usual businessman's obsession with profit" (Page 34,
Petition; Page 40, Rollo). Altruism may be a noble gesture but
petitioners' stance in this respect hardly inspires belief for such
an excuse is inconsistent with a normal business enterprise
which takes ordinary care of its concern in cutting down on
expenses (Section 3, (d), Rule 131, Revised Rules of Court).
Knowing fully well that they will encounter difficulty in
producing output because of the defective machinery line,
petitioners opted to open the plant to greater loss, thus
compounding the costs by accepting additional supply to the
stockpile. Verily, the petitioner's action when they
acknowledged that "if the plant could not be operated on a
commercial scale, it would then be illogical for defendant
Rustan to continue accepting deliveries of raw materials."
(Page 202, Record on Appeal; Page 8, Decision; Page 55,
Rollo).
Petitioners argue next that Tantoco and Vergara should not
have been adjudged to pay moral damages and attorney's fees
because Tantoco merely represented the interest of Rustan
Pulp and Paper Mills, Inc. while Romeo S. Vergara was not
privy to the contract of sale. On this score, We have to agree
with petitioners' citation of authority to the effect that the
President and Manager of a corporation who entered into and
signed a contract in his official capacity, cannot be made liable
thereunder in his individual capacity in the absence of
stipulation to that effect due to the personality of the
corporation being separate and distinct from the person
composing it (Bangued Generale Belge vs. Walter Bull and
Co., Inc., 84 Phil. 164). And because of this precept, Vergara's
supposed non-participation in the contract of sale although he
signed the letter dated September 30, 1968 is completely
immaterial. The two exceptions contemplated by Article 1897
of the New Civil Code where agents are directly responsible
are absent and wanting.
WHEREFORE, the decision appealed from is hereby
MODIFIED in the sense that only petitioner Rustan Pulp and
Paper Mills is ordered to pay moral damages and attorney's
fees as awarded by respondent Court.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA.
DE ONGSIONG, respondents.

VITUG, J.:

The parties pose this question: May the vendor demand the
rescission of a contract for the sale of a parcel of land for a
cause traceable to his own failure to have the squatters on the
subject property evicted within the contractually-stipulated
period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in

the business of production, manufacture and exportation of
perlite filter aids, permalite insulation and processed perlite
ore. In 1988, petitioner and his foreign partners decided to put
up a central warehouse in Metro Manila on a land area of
approximately 2,000 square meters. The project was made
known to several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his

wife, accompanied by a broker, offered a parcel of land
measuring 1,952 square meters. Located in Barangay San
Dionisio, Paraaque, Metro Manila, the lot was covered by
TCT No. 361402 in the name of private respondent Enriqueta
Chua vda. de Ongsiong. Petitioner visited the property and,
except for the presence of squatters in the area, he found the
place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal

that should he advance the amount of P50,000.00 which could
be used in taking up an ejectment case against the squatters,
private respondent would agree to sell the property for only
P800.00 per square meter. Petitioner expressed his
concurrence. On 09 June 1988, a contract, denominated
"Deed of Conditional Sale," was executed between petitioner
and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the

Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:

ENRIQUETA CHUA VDA.

DE ONGSIONG, of legal
age, widow, Filipino and
residing at 105 Simoun
St., Quezon City, Metro
 Manila, hereinafter
referred to as the
VENDOR;
-and-
VIRGILIO R. ROMERO,
married to Severina L. Lat,
of Legal age, Filipino, and
residing at 110 San Miguel
St., Plainview Subd.,
Mandaluyong Metro
Manila, hereinafter
referred to as the
VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of
One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY
TWO (1,952) SQUARE METERS, more or
less, located in Barrio San Dionisio,
Municipality of Paraaque, Province of Rizal, made by the buyer shall be
covered by TCT No. 361402 issued by the
Registry of Deeds of Pasig and more
particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has
offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to
the terms and conditions hereinafter
stipulated:
NOW, THEREFORE, for and in
consideration of the sum of ONE MILLION
FIVE HUNDRED SIXTY ONE THOUSAND
SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by
VENDEE to in to (sic) manner set forth, the
VENDOR agrees to sell to the VENDEE,
their heirs, successors, administrators,
executors, assign, all her rights, titles and
interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to
the following terms and conditions:
1. That the sum of FIFTY
THOUSAND PESOS
(P50,000.00) ONLY
Philippine Currency, is to
be paid upon signing and
execution of this
instrument.
2. The balance of the
purchase price in the
amount of ONE MILLION
FIVE HUNDRED ELEVEN
THOUSAND SIX
HUNDRED PESOS
(P1,511,600.00) ONLY
shall be paid 45 days after
the removal of all
squatters from the above
described property.
3. Upon full payment of the
overall purchase price as
aforesaid, VENDOR
without necessity of
demand shall immediately
sign, execute,
acknowledged (sic) and
deliver the corresponding
deed of absolute sale in
favor of the VENDEE free
from all liens and
encumbrances and all
Real Estate taxes are all
paid and updated.
It is hereby agreed, covenanted and
stipulated by and between the parties hereto
that if after 60 days from the date of the
signing of this contract the VENDOR shall
not be able to remove the squatters from the
property being purchased, the downpayment
returned/reimbursed by the VENDOR to the
VENDEE.
That in the event that the VENDEE shall not
be able to pay the VENDOR the balance of
the purchase price of ONE MILLION FIVE
HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY
after 45 days from written notification to the
VENDEE of the removal of the squatters
from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be
forfeited in favor of the VENDOR.
Expenses for the registration such as
registration fees, documentary stamp,
transfer fee, assurances and such other fees
and expenses as may be necessary to
transfer the title to the name of the VENDEE
shall be for the account of the VENDEE
while capital gains tax shall be paid by the
VENDOR.
IN WITNESS WHEREOF, the parties
hereunto signed those (sic) presents in the
City of Makati MM, Philippines on this 9th
day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO
ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
 (Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent,
forthwith received and acknowledged a check for
P50,000.002 from petitioner. 3
Pursuant to the agreement, private respondent filed a
complaint for ejectment (Civil Case No. 7579) against Melchor
Musa and 29 other squatter families with the Metropolitan Trial
Court of Paraaque. A few months later, or on 21 February
1989, judgment was rendered ordering the defendants to
vacate the premises. The decision was handed down beyond
the 60-day period (expiring 09 August 1988) stipulated in the
contract. The writ of execution of the judgment was issued, still
later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to
return the P50,000.00 she received from petitioner since, she
said, she could not "get rid of the squatters" on the lot. Atty.
Sergio A.F. Apostol, counsel for petitioner, in his reply of 17
April 1989, refused the tender and stated:.
Our client believes that with the exercise of
reasonable diligence considering the
favorable decision rendered by the Court
and the writ of execution issued pursuant
thereto, it is now possible to eject the
squatters from the premises of the subject
property, for which reason, he proposes that
he shall take it upon himself to eject the
squatters, provided, that expenses which
shall be incurred by reason thereof shall be
chargeable to the purchase price of the
land. 4
Meanwhile, the Presidential Commission for the Urban Poor
("PCUD"), through its Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of Paraaque for a
grace period of 45 days from 21 April 1989 within which to
relocate and transfer the squatter families. Acting favorably on
the request, the court suspended the enforcement of the writ of
execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent
on the expiry of the 45-day grace period and his client's
willingness to "underwrite the expenses for the execution of the
judgment and ejectment of the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel
for private respondent, advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null and void by virtue of
his client's failure to evict the squatters from the premises
within the agreed 60-day period. He added that private
respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was
perfected from the very moment that there
was a meeting of the minds of the parties
upon the subject lot and the price in the
amount of P1,561,600.00. Moreover, the
contract had already been partially fulfilled
and executed upon receipt of the
downpayment of your client. Ms. Ongsiong is
precluded from rejecting its binding effects
relying upon her inability to eject the
squatters from the premises of subject
property during the agreed period. Suffice it
to state that, the provision of the Deed of
Conditional Sale do not grant her the option
or prerogative to rescind the contract and to
retain the property should she fail to comply
with the obligation she has assumed under
the contract. In fact, a perusal of the terms
and conditions of the contract clearly shows
that the right to rescind the contract and to
demand the return/reimbursement of the
downpayment is granted to our client for his
protection.
Instead, however, of availing himself of the
power to rescind the contract and demand
the return, reimbursement of the
downpayment, our client had opted to take it
upon himself to eject the squatters from the
premises. Precisely, we refer you to our
letters addressed to your client dated April
17, 1989 and June 8, 1989.
Moreover, it is basic under the law on
contracts that the power to rescind is given
to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied
with her obligation under their contract in
good faith. It is undeniable that Ms.
Ongsiong deliberately refused to exert efforts
to eject the squatters from the premises of
the subject property and her decision to
retain the property was brought about by the
sudden increase in the value of realties in
the surrounding areas.
Please consider this letter as a tender of
payment to your client and a demand to
execute the absolute Deed of Sale. 7
A few days later (or on 27 June 1989), private respondent,
prompted by petitioner's continued refusal to accept the return
of the P50,000.00 advance payment, filed with the Regional
Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for
rescission of the deed of "conditional" sale, plus damages, and
for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court
issued an alias writ of execution in Civil Case No. 7579 on
motion of private respondent but the squatters apparently still
stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the
Regional Trial Court of Makati 8 rendered decision holding that
private respondent had no right to rescind the contract since it
was she who "violated her obligation to eject the squatters from
the subject property" and that petitioner, being the injured
party, was the party who could, under Article 1191 of the Civil
Code, rescind the agreement. The court ruled that the
provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to
fail in her obligation to free the property from squatters within
the stipulated period or (b), upon the other hand, the sum's
forfeiture by the vendor if the vendee were to fail in paying the
agreed purchase price, amounted to "penalty clauses". The
court added:
This Court is not convinced of the ground
relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of
the squatters; and (2) she has spent so
much to eject them from the premises (p. 6,
tsn, ses. Jan. 3, 1990). Militating against her
profession of good faith is plaintiffs conduct
which is not in accord with the rules of fair
play and justice. Notably, she caused the
issuance of an alias writ of execution on
August 25, 1989 (Exh. 6) in the ejectment
suit which was almost two months after she
filed the complaint before this Court on June
27, 1989. If she were really afraid of the
squatters, then she should not have pursued
the issuance of an alias writ of execution.
Besides, she did not even report to the
police the alleged phone threats from the
squatters. To the mind of the Court, the so-
called squatter factor is simply factuitous
(sic). 9
The lower court, accordingly, dismissed the complaint
and ordered, instead, private respondent to eject or
cause the ejectment of the squatters from the
property and to execute the absolute deed of
conveyance upon payment of the full purchase price
by petitioner.
Private respondent appealed to the Court of Appeals. On 29
May 1992, the appellate court rendered its decision. 10It opined
that the contract entered into by the parties was subject to a
resolutory condition, i.e., the ejectment of the squatters from
the land, the non-occurrence of which resulted in the failure of
the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was
petitioner who was not ready to pay the purchase price and
fulfill his part of the contract, and that the provision requiring a
mandatory return/reimbursement of the P50,000.00 in case
private respondent would fail to eject the squatters within the
60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from
is REVERSED and SET ASIDE, and a new
one entered declaring the contract of
conditional sale dated June 9, 1988
cancelled and ordering the defendant-
appellee to accept the return of the
downpayment in the amount of P50,000.00
which was deposited in the court below. No
pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition
for review on certiorari raising issues that, in fine, center on the
nature of the contract adverted to and the P50,000.00
remittance made by petitioner.
A perfected contract of sale may either be absolute or
conditional 12 depending on whether the agreement is devoid
of, or subject to, any condition imposed on the passing of title
of the thing to be conveyed or on the obligation of a party
thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory
force. If the condition is imposed on an obligation of a party
which is not complied with, the other party may either refuse to
proceed or waive said condition (Art. 1545, Civil Code). Where,
of course, the condition is imposed upon the perfection of the
contract itself, the failure of such condition would prevent the
juridical relation itself from coming into existence. 13
In determining the real character of the contract, the title given
to it by the parties is not as much significant as its substance.
For example, a deed of sale, although denominated as a deed
of conditional sale, may be treated as absolute in nature, if title
to the property sold is not reserved in the vendor or if the
vendor is not granted the right to unilaterally rescind the
contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the
prescribed condition. 14
The term "condition" in the context of a perfected contract of
sale pertains, in reality, to the compliance by one party of an
undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party.
The reciprocal obligations referred to would normally be, in the
case of vendee, the payment of the agreed purchase price
and, in the case of the vendor, the fulfillment of certain express
warranties (which, in the case at bench is the timely eviction of
the squatters on the property).
It would be futile to challenge the agreement here in question
as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a
price certain, to deliver and to transfer ownership of a specified
thing or right to another (the buyer) over which the latter
agrees. 15
The object of the sale, in the case before us, was specifically
identified to be a 1,952-square meter lot in San Dionisio,
Paraaque, Rizal, covered by Transfer Certificate of Title No.
361402 of the Registry of Deeds for Pasig and therein
technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the
execution of the document of sale and the balance of
P1,511,600.00 payable "45 days after the removal of all
squatters from the above described property."
From the moment the contract is perfected, the parties are
bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
Under the agreement, private respondent is obligated to evict
the squatters on the property. The ejectment of the squatters is
a condition the operative act of which sets into motion the
period of compliance by petitioner of his own obligation, i.e., to
pay the balance of the purchase price. Private respondent's
failure "to remove the squatters from the property" within the
stipulated period gives petitioner the right to either refuse to
proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code. 16 This option
clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the
undertaking required of private respondent does not constitute
a "potestative condition dependent solely on his will" that
might, otherwise, be void in accordance with Article 1182 of the
Civil Code 17 but a "mixed" condition "dependent not on the will
of the vendor alone but also of third persons like the squatters
and government agencies and personnel concerned." 18 We
must hasten to add, however, that where the so-called
"potestative condition" is imposed not on the birth of the
obligation but on its fulfillment, only the obligation is avoided,
leaving unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code,
aforementioned, allows the obligee to choose between
proceeding with the agreement or waiving the performance of
the condition. It is this provision which is the pertinent rule in
the case at bench. Here, evidently, petitioner has waived the
performance of the condition imposed on private respondent to
free the property from squatters. 20
In any case, private respondent's action for rescission is not
warranted. She is not the injured party. 21 The right of resolution
of a party to an obligation under Article 1191 of the Civil Code
is predicated on a breach of faith by the other party that
violates the reciprocity between them. 22 It is private respondent
who has failed in her obligation under the contract. Petitioner
did not breach the agreement. He has agreed, in fact, to
shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to
effect such execution. In his letter of 23 June 1989, counsel for
petitioner has tendered payment and demanded forthwith the
execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for
rescission, assuming for the sake of argument that such a
demand is proper under Article 1592 23 of the Civil Code, would
likewise suffice to defeat private respondent's prerogative to
rescind thereunder.
There is no need to still belabor the question of whether the
P50,000.00 advance payment is reimbursable to petitioner or
forfeitable by private respondent, since, on the basis of our
foregoing conclusions, the matter has ceased to be an issue.
Suffice it to say that petitioner having opted to proceed with the
sale, neither may petitioner demand its reimbursement from
private respondent nor may private respondent subject it to
forfeiture.
WHEREFORE, the questioned decision of the Court of
Appeals is hereby REVERSED AND SET ASIDE, and another
is entered ordering petitioner to pay private respondent the
balance of the purchase price and the latter to execute the
deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Panganiban, JJ., concur.
Footnotes
1 Records, pp. 60-61.
2 Exh. 9.
3 Exh. 2.
4 Records, p. 116.
5 Exh. 8-B.
6 Exh. D.
7 Records, pp. 74-75.
8 Presided by Judge Buenaventura J.
Guerrero.
9 Records, p. 205.
10 Penned by Associate Justice Fermin A.
Martin, Jr. and concurred in by Associate
Justices Emeterio C. Cui and Cezar D.
Francisco.
11 Rollo, p. 46.
12 Art. 1458, second paragraph, Civil Code
of the Philippines.
13 See Ang Yu Asuncion, et al., vs. Court of
Appeals, 238 SCRA 602.
14 Ibid., Vol. V, p. 3 citing Dignos v. Court of
Appeals, No. L-59266, February 29, 1988,
158 SCRA 375.
15 Art. 1475. 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 contracts.
16 Art. 1545. Where the obligation of either
party to a contract of sale is subject to any
condition which is not performed, such party
may refuse to proceed with the contract or
he may waive performance of the condition.
If the other party has promised that the
condition should happen or be performed,
such first mentioned party may also treat the
nonperformance of the condition as a breach
of warranty.
Where the ownership in the thing has not
passed, the buyer may treat the fulfillment by
the seller of his obligation to deliver the
same as described and as warranted
expressly or by implication in the contract of
sale as a condition of the obligation of the
buyer to perform his promise to accept and
pay for the thing.
17 Art. 1182. When the fulfillment of the
condition depends upon the sole will of the
debtor, the conditional obligation shall be
void. If it depends upon chance or upon the
will of a third person, the obligation shall take
effect in conformity with the provisions of this
Code.
18 Decision, p. 17.
19 See Osmea vs. Rama, 14 Phil. 99.

20 See: Intestate Estate of the Late Ricardo

P. Presbitero, Sr. v. Court of Appeals, 217
SCRA 372.

21 In Boysaw v. Interphil. Promotions, Inc.

(148 SCRA 635, 643), the Court has said:
"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, he is not entitled to insist upon the
performance of the contract by the
defendant, or recover damages by reason of
his own breach.'"

22 Deiparine, Jr. v. Court of Appeals, 221

SCRA 503, 513 citing Universal Food
Corporation v. Court of Appeals, 33 SCRA 1.

23 See Ocampo v. Court of Appeals, supra.

Art. 1592 states: "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."
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
Severino C. Dominguez for petitioner Roman Catholic Bishop
of Imus, Cavite.
Dolorfino and Dominguez Law Offices for Sps. Ignao.
Joselito R. Enriquez for private 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 donations inter 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.1wphi1 Under 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.
Melencio-Herrera and Paras, JJ., concur.
Padilla, J., took no part.
Sarmiento, J., is on leave.
Footnotes
1
G.R. No. 77425 was filed by petitioner Roman
Catholic Bishop of Imus, and G.R. No. 77450 by
petitioners Florencio and Soledad C. Ignao.
2
Penned by Justice Felipe B. Kalalo, with the
concurrence of Justices Floreliana Castro-Bartolome
and Esteban M. Lising.
3
Original Record, 1-9.
4
Rollo, G.R. No. 77425, 20.
5
Original Record, 71-74.
6
Rollo, G.R. No. 77425, 27-28.

7
Ibid., Id., 30.

8
Ibid., Id., 32.

9
Ibid., Id., 28.

10
Lopez vs. Commissioner of Customs, et al., 37
SCRA 327 (1971).

11
Froilan vs. Pan Oriental Shipping Co., et al., 12
SCRA 276 (1964).

12
De la Rama Steamship Co., Inc. vs. Tan, etc., et al.,
99 Phil. 1034(1956).

13
181 SCRA 150 (1990).

14
University of the Philippines vs. Angeles, etc., et al.,
35 SCRA 102 (1970).

15
Art. 1144(1), Civil Code.

16
Insular Life Assurance Co., Ltd. Employees-NATU
vs. Insular Life Assurance Co., Ltd., et al., 76 SCRA
50 (1977).

17
Philippine Commercial and International Bank vs.
Court of Appeals, et al, 159 SCRA 24 (1988).

18
Soco vs. Militante, etc., et al., 123 SCRA 160
(1983); Ortigas, Jr. vs, Lufthansa German Airlines, 64
SCRA 610 (1975).

19
Escudero, et al. vs. Dulay, etc., et al., 158 SCRA 69
(1988); Lianga Bay Logging Co., Inc. vs. Court of
Appeals, et al., 157 SCRA 357 (1988).
 Republic of the Philippines
SUPREME COURT
SPECIAL SECOND DIVISION
G.R. No. 156273. August 9, 2005
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, 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., Petitioners,
vs.
MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY, Respondent.
RESOLUTION
CALLEJO, SR., J.:
This is a Motion for Reconsideration dated November 10, 2003
filed by respondent Mactan-Cebu International Airport Authority
(MCIAA), through the Office of the Solicitor General (OSG),
seeking the reversal of the Decision1dated October 15,
2003,2 the dispositive portion of which reads:
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 Rotea-
Villegas, 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 Lot 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 Lot 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 from them;
(d) ORDERING petitioners TO PAY the amount so determined
under letter (b) of this dispositive portion as consideration for
the reconveyance of Lot 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 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 Lot Nos. 916
and 920 and/or the improvements shall be DEEMED
FORFEITED and the ownership of those parcels of land
shall VEST ABSOLUTELY upon the respondent MCIAA;
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City
for purposes of determining the amount of compensation for
Lot 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 Lot Nos. 916 and 920.
No costs.
SO ORDERED.3
A review of the factual milieu of the case reveals that in 1949,
the National Airport Corporation (NAC), as the predecessor of
herein respondent MCIAA, sought to acquire Lot No. 916,
having a total area of 2,355 square meters under Transfer
Certificate of Title (TCT) No. RT-7543 (106) T-13694, and Lot
No. 920 containing an area of 3,097 square meters covered by
TCT No. RT-7544 (107) T-13695 for the proposed expansion of
the Lahug Airport. The two parcels of land located in Lahug,
Cebu City were owned by the spouses Timoteo Moreno and
Maria Rotea.4The spouses refused to sell their properties
because the proposed price was unacceptably way below the
market value of the lands at that time. As an incentive for the
other owners to cede their lots adjoining the then existing
Lahug Airport, NAC guaranteed them or their successors-in-
interest the right to repurchase their properties for the same
price paid by the government in the event that these properties
were no longer used for purposes of the airport.5 Some
landowners executed deeds of conveyance while others who
refused to cede their properties became defendants in an
action for expropriation filed by the Republic of the Philippines
before the Court of First Instance (CFI) of Cebu, docketed as
Civil Case No. R-1881.6 Lot Nos. 916 and 920 were among
those included in the expropriation case.
In a Decision7 rendered by the trial court on December 29,
1961, Lot Nos. 916 and 920, along with the other adjoining
lands, were condemned for public use after payment of just
compensation.8 The trial court fixed the price at P3.00 per
square meter for the two lots and ordered the payment thereof
to the owners in the sum of P7,065.00 for Lot No. 916
and P9,291.00 for Lot No. 920, with payment of consequential
damages by way of legal interest from November 16,
1947.9 Thereafter, the subject lands were transferred in the
name of the Republic of the Philippines under TCT No.
5869110 for Lot No. 916 and TCT No. 5869211 for Lot No. 920
and subsequently turned over to MCIAA under Republic Act
(Rep. Act) No. 6958 in 1990.12
Subsequently, the Lahug Airport was abandoned and all its
functions and operations were transferred to the Mactan
Airport. In two various letters sent on different dates, the heirs
of Timoteo Moreno and Maria Rotea, the petitioners herein,
wrote then President Fidel V. Ramos13 and the MCIAA General
Manager,14 requesting for the exercise of their supposed right
to repurchase Lot Nos. 916 and 920 considering that the said
lots intended for the expansion of the Lahug Airport were not
utilized. Their written and verbal demands were ignored by the
respondent.
Consequently, the petitioners filed a complaint for
reconveyance and damages with the Regional Trial Court of
Cebu City docketed as Civil Case No. CEB-20015, against the
respondent asserting their right to reacquire the subject
properties. In the complaint, the petitioners claimed that
assurances were given by the NAC officials regarding the
entitlement of the landowners to repurchase their properties for
the same price paid by NAC in the event that the lots were no
longer used for airport purposes.15 The petitioners further
added that the guaranty of right to repurchase was the
propelling factor that persuaded the registered owners to
continue with the expropriation proceedings. The same reason
was given by the petitioners for not opposing and appealing
the case later on.16
During the pendency of the case, one Richard E. Unchuan filed
a Motion for Transfer of Interest,17 alleging that some of the
petitioners had already assigned to him their respective rights,
interests, participation, and ownership over the subject
properties. Thereafter, the Department of Public Works and
Highways (DPWH), likewise, sought to intervene alleging that it
is the lessee of Lot No. 920 and would be adversely affected
by the outcome of the litigation.18
At the start of the trial, the petitioners presented two witnesses
to support their allegations in the complaint. The first witness
was Esperanza Rotea Edjec, who testified that when she was
just 22 years old, the airport authority representatives called for
a meeting with the landowners affected by the expropriation.
The witness was present during the gathering and attested that
the registered owners of the lots were assured of the return of
the expropriated lands should the same be no longer utilized
as an airport.19
The next witness was Asterio Uy, a retired government
employee of the Civil Aeronautics Administration (CAA), who
attested that in 1957, he was sent as part of the legal team to
Mactan, Cebu City, tasked to acquire certain lots for the
extension of the Lahug Airport. He added that when the
negotiations broke down, the legal contingent resorted to
expropriation proceedings. Upon instructions from the central
office of CAA in Manila, Atty. Ocampo, the head of the legal
corps which undertook the procurement of the subject lands,
gave the assurance to the landowners that if the airport is
transferred to Mactan, the lots will be returned to their previous
owners.20
The respondent, on the other hand, presented on the witness
stand Michael M. Bacarisas, a legal assistant of the MCIAA.
The witness testified that as a consequence of the
expropriation proceedings, the TCTs of Lot Nos. 916 and 920
were cancelled and in lieu thereof, new ones were issued in
the name of the Republic of the Philippines in 1962. He
pronounced that the decision in Civil Case No. R-1881 did not
expressly impart that the landowners were guaranteed the
reconveyance of the lots to them if the lands expropriated
would not be used for the purpose. On cross-examination, the
witness admitted that he had no personal knowledge of any
agreement between the airport officials and the previous
registered owners of the disputed properties. His research
likewise revealed that a total of 65 lots were expropriated by
the government; 19 lots were the subject of court litigations
concerning their reconveyance; and that out of the 19 lots, 15
lots were already returned to their former owners. Moreover,
Bacarisas alleged that some of the expropriated lots were
recovered by their previous landowners because they were
acquired through negotiated sale wherein the standard
contract had an express provision that should the proposed
expansion of the Lahug Airport not materialize, the landowners
may recover their properties.21
On April 12, 1999, the trial court rendered judgment22 in favor
of the petitioners, granting them the right to repurchase the
properties at the amount originally paid by the respondent in
Civil Case No. R-1881, including consequential damages. The
trial court ruled that the public purpose for which the lands
were expropriated had ceased to exist, therefore, it is but
logical and in the higher interest of substantial justice to give
back the right of ownership of the subject lots to the former
owners.
Aggrieved, the respondent appealed the decision to the Court
of Appeals (CA). On December 20, 2001, the CA reversed the
trial courts decision on the premise that the judgment affirming
the states right to exercise its power of eminent domain was
unconditional. In maintaining a contrary view, the CA cited Fery
v. Municipality of Cabanatuan,23 which held that when a land
has been acquired for public use unconditionally and in fee
simple, the previous owner retains no right in the land and the
title obtained will not, in any way, be impaired. Another case
relied upon by the appellate court was Mactan-Cebu
International Airport Authority v. Court of Appeals24 which is
allegedly stare decisis to the 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; hence, the
same questions relating to the same event have already been
previously litigated and decided by a competent court.
On February 11, 2002, the petitioners filed a motion for
reconsideration before the CA, which was denied in a
Resolution dated November 28, 2002.
Expectedly, the petitioners filed before this Court a petition for
review of the decision of the CA.
In reversing the decision of the CA, the Court ratiocinated that
the attendance in the case at bar of standing admissible
evidence validating the claim of the petitioners right to
repurchase the expropriated properties took away the instant
case from the ambit of Mactan-Cebu International Airport
Authority v. Court of Appeals, but still within the principles
enunciated in the Fery case.25 This Court moreover added:
Mactan-Cebu International Airport Authority 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 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 Lot 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.26
Respondent MCIAA filed a Motion for Reconsideration27 dated
November 10, 2003 praying that the Courts decision be
reconsidered and set aside. In the said motion, the respondent
reiterated its earlier claim that: (a) the decision of the trial court
in Civil Case No. R-1881, which granted to MCIAA the titles to
Lot Nos. 916 and 920 in fee simple, has long become final and
executory; (b) this Courts October 15, 2003 Decision, granting
the petitioners right of repurchase, effectively overturns the
rulings in Fery v. Municipality of Cabanatuan,28 MCIAA v. Court
of Appeals,29and Reyes v. National Housing Authority;30 (c) the
petitioners are not entitled to reconveyance or repurchase of
the questioned lots after the closure of the Lahug Airport; (d)
Lot Nos. 916 and 920, which were expropriated in Civil Case
No. R-1881, should not be treated like those lots sold through
negotiated sale with a stipulation for reconveyance or
repurchase; and (e) granting arguendo that petitioners have a
right to repurchase Lot Nos. 916 and 920, the repurchase price
should be the fair market value of the lands.
Additionally, MCIAA filed a Motion to Resolve the Motion for
Reconsideration by the Honorable Court En Banc dated
November 11, 2003, alleging that the present case involves
novel questions of law.
On November 20, 2003, the petitioners filed an Opposition to
the respondents Motion for Reconsideration stating that no
new arguments have been proffered by the respondent to
warrant the reversal of the Courts decision.
We remain unpersuaded by the respondents assertions. The
merits of the case have already been discussed at length in the
challenged decision and to linger further on them herein would
be inordinate. Suffice it to say that the Court considered the
rulings in Fery v. Municipality of Cabanatuan and Mactan-Cebu
International Airport Authority v. Court of Appeals which defined
the rights and obligations of landowners, whose properties
were expropriated, "when the public purpose for which the
eminent domain was exercised no longer subsists."31
The respondent insists that the decision effectively overturned
the ruling in the Fery case which requires that for an
expropriation to be conditional, the judgment must clearly spell
out said condition. The respondent is mistaken. We reiterate
what we stated in our decision, to wit:
In Fery, which was cited in the recent case of Reyes v.
National Housing Authority, 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, 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 x32
It must be pointed out that nothing in the Fery case bespeaks
that there should foremost be an express condition in the
dispositive portion of the decision before the condemned
property can be returned to its former owner after the purpose
for its taking has been abandoned or ended. The indisputable
certainty in the present case is that there was a prior promise
by the predecessor of the respondent that the expropriated
properties may be recovered by the former owners once the
airport is transferred to Mactan, Cebu. In fact, the witness for
the respondent testified that 15 lots were already reconveyed
to their previous owners. Intervenor DPWH, likewise,
manifested that Lot No. 920 is the subject of a memorandum of
agreement33 with the respondents predecessor-in-interest
wherein the property was leased to DPWH. This belated news
further bolsters the fact that the purpose for which the
properties were condemned has been abandoned.
A more pressing discovery unearthed by this Court is that a
significant portion of the subject properties had been
purchased by the Cebu Property Ventures, Inc. for the
development of a commercial complex.34 The respondent, in its
answer, did not deny this allegation in the petitioners
complaint. Section 10, Rule 8 of the Revised Rules of Court
provides:
Specific denial. A defendant must specify each material
allegation of fact the truth of which he does not admit and,
whenever practicable, shall set forth the substance of the
matters upon which he relies to support his denial. Where a
defendant desires to deny only a part of an averment, he shall
specify so much of it as is true and material and shall deny
only the remainder. Where a defendant is without knowledge or
information sufficient to form a belief as to the truth of a
material averment made in the complaint, he shall so state,
and this shall have the effect of a denial.
Section 11 of the same Rule likewise states that "[m]aterial
averment in the complaint, shall be deemed admitted when
not specifically denied." The predominant precept is that upon
abandonment of real property condemned for public purpose,
the party who originally condemned the property recovers
control of the land if the condemning party continues to use the
property for public purpose; however, if the condemning
authority ceases to use the property for a public purpose,
property reverts to the owner in fee simple.35 The governments
taking of private property, and then transferring it to private
persons under the guise of public use or purpose is the
despotism found in the immense power of eminent
domain.36 Moreover, the direct and unconstitutional states
power to oblige a landowner to renounce his productive and
invaluable possession to another citizen, who will use it
predominantly for his own private gain, is offensive to our
laws.37
Next, the respondent asseverates that the Court departed from
the ruling enunciated in Mactan-Cebu International Airport
Authority v. Court of Appeals. We are not convinced. Clearly,
the respondents contention can prevail only if the facts of the
present case are accurately in point with those in the other
case. We recapitulate our rulings that in MCIAA v. CA,
respondent Virginia Chiongbian proffered "inadmissible and
inconclusive evidence, while in the present case we have
preponderant proof as found by the trial court of the existence
of the right of repurchase in favor of the petitioners." No less
than Asterio Uy, one of the members of the CAA Mactan Legal
Team, which interceded for the acquisition of the lots for the
Lahug Airports expansion, affirmed that persistent assurances
were given to the landowners to the effect that as soon as the
Lahug Airport is abandoned or transferred to Mactan, the lot
owners would be able to reacquire their properties. Unlike in
the case of MCIAA v. CA, where respondent Chiongbian
offered inadmissible evidence for being hearsay in nature, the
petitioners in this case presented a witness whose testimony
was based on his own personal knowledge. Surely, Uy is a
credible witness inasmuch as he was even tasked by the
negotiating panel to directly communicate to the landowners
the instructions from the CAA main office that the properties
will be returned to the original owners once the Lahug Airport is
transferred to Mactan. Likewise, he cannot be considered as a
biased witness as he was a former employee of the
respondents predecessor-in-interest and was merely recalling
and informing the court of the events that transpired during the
negotiations for the expropriations of the lots. Part of Uys
testimony is as follows:
Atty. Jacinto
Q: Lahug Airport. In what capacity or what position were you
holding at the time when you were assigned to Cebu for the
purpose of conducting negotiations with the landowners?
Witness
A: I was a member of the CAA Legal Team.
Q: I see, CAA Legal Team. Can you tell the court who were the
members, if you still remember, of that team?
A: I will mention Atty. Ocampo, Atty. Lansang, Atty. Sarigumba
and myself.
Q: You stated that you were sent to Cebu as a member of the
CAA Legal Team to negotiate with the landowners for the
acquisition of lots for purposes, for airport purposes, you are
referring of course to the acquisition of lot in Mactan?
A: Yes, sir.
Q: Now what was the purpose of your negotiations also in
Lahug, what was the purpose of those negotiations?
A: The purpose there was to purchase or buy the property
affected by the Lahug extension.
Q: When you say affected, did you have any specific
instructions as to what Lahug airport would be devoted to? I
will reform Your Honor. Since Lahug airport was already in
existence, why did you still have to negotiate with the adjacent
landowners?
A: For the Lahug airport expansion.
Q: Now, how did you conduct the negotiations, in what
manner?
A: We convinced the landowners affected by the expansion to
sell their properties and if they refuse, there is another right of
eminent domain of the government to acquire the properties
through expropriation. And with the assurance that these
properties, I am referring to the properties in Lahug, as soon
as Lahug airport will be transferred to Mactan, that will be the
time that these properties will be returned to the landowners at
the same price.
Q: Why do you say that there was an assurance given, how did
you come to know about this?
A: The assurance was from the Chief of the team, Atty.
Ocampo, through him and accordingly per instruction from the
Central Office in Manila.
grossly unfair considering that the petitioners were paid just
compensation and the lots are now millions of pesos in value.
Our stand on the amount of repurchase price remains
unperturbed. When the State reconveys land, it should not
profit from sudden appreciations in land values. Any increase
or decrease in market value due to the proposed improvement
may not be considered in determining the market value. Thus,
reconveyance to the original owner shall be for whatever
amount he was paid by the government, plus legal interest,
whether or not the consideration was based on the lands
highest and best use when the sale to the State occurred.41

Q: As a member of the legal team, did you gave [sic] the WHEREFORE, the motion for reconsideration is DENIED.
assurance to the landowners or was it Atty. Ocampo?
SO ORDERED.
A: We, because I was made as the spokesman considering
that I am a Boholano who knows the dialect, Cebuano, and
my companions were Tagalogs, they dont know Cebuano so Quisumbing, (Chairman), Austria-Martinez, and Tinga, JJ.,
I participated in the negotiations. concur.

Q: In short, you were the one who conducted the negotiations? Corona, J., on official leave.

A: Together with the members of the team, I was there

assisting.38

Moreover, we do not subscribe to the respondents contention Footnotes

that since the possibility of the Lahug Airports closure was
actually considered by the trial court, a stipulation on reversion 1
Penned by Associate Justice Josue N. Bellosillo
or repurchase was so material that it should not have been (retired), with Associate Justices Leonardo A.
discounted by the court a quo in its decision in Civil Case No. Quisumbing, Ma. Alicia Austria-Martinez, Romeo J.
R-1881, if, in fact, there was one. We find it proper to cite, once Callejo, Sr. and Dante O. Tinga, concurring.
more, this Courts ruling that the fallo of the decision in Civil
Case No. R-1881 must be read in reference to the other 2
portions of the decision in which it forms a part. A reading of G.R. No. 156273, 15 October 2003, 413 SCRA 502.
the Courts judgment must not be confined to the dispositive
3
portion alone; rather, it should be meaningfully construed in Rollo, pp. 260-263.
unanimity with the ratio decidendi thereof to grasp the true
intent and meaning of a decision.39 4
Rollo, pp. 75-78.

On the other hand, we agree with the respondent in asserting 5

Id. at 67-68.
that Lot Nos. 916 and 920 should not be treated like those
lands acquired through negotiated sale with a proviso in their 6
contracts for reconveyance or repurchase. Be that as it may, Id. at 84.
we however find that there is historic as well as rational bases
7
for affording the petitioners the right of repurchase. We are Penned by Judge Mateo Canonoy.
cognizant of the incontestable fact that some landowners
immediately sold their properties upon the assurance that they 8
Rollo, p. 244.
could repurchase them at the cessation of the Lahug Airports
operations. And, indeed, these landowners who chose to cede 9
their properties were fortunate to have a stipulation in their Id. at 104-108.
contract of sale vouching for their right of repurchase.
Meanwhile, the landowners who found it burdensomely difficult 10
Id. at 79.
to part with their cherished lands underwent the costly
expropriation proceedings which lasted for a number of years. 11
Id. at 81.
Inevitably, justice and equity dictates the reconveyance of the
expropriated lots to their previous owners. One must never fail 12
to overlook the reality that the power to condemn property is an Id. at 244.
awesome power of the State40 and that to compel a citizen to
forcibly surrender his precious property to the enormous 13
Id. at 82.
governmental power is too much a sacrifice which deserves
more consideration than those landowners, who, from the very 14
Id. at 83.
beginning voluntarily relinquished their ownership.
15
Rollo, p. 68.
We now come to the discussion of the amount of repurchase
price. The respondent maintains that the sum to be paid by the
16
petitioners for Lot Nos. 916 and 920 should be their prevailing Id. at 120.
market price, and not the expropriation price which would be
17
Id. at 123. Republic of the Philippines
SUPREME COURT
18
Id. at 138-139. Manila

19
Rollo, p. 151. EN BANC

20
Id. at 152. G.R. No. L-16109 October 2, 1922

21
Rollo, p. 153. M. D. TAYLOR, plaintiff-appellant,
vs.
22
UY TIENG PIAO and TAN LIUAN, doing business under the
Penned by Judge Ramon G. Codilla, Jr. firm name and style of Tan Liuan & Company, defendants.
Uy TIENG PIAO, defendant-appellant.
23
42 Phil 28 (1921).
Cohn, Fisher and DeWitt and William C. Brady for plaintiff-
24
G.R. No. 139495, 27 November 2000, 346 SCRA appellant.
126. Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.
25
Rollo, p. 252.

26
Heirs of Timoteo Moreno and Maria Rotea v.
Mactan-Cebu International Airport Authority, G.R. No. STREET, J.:
156273, 15 October 2003, 413 SCRA 502.
This case comes by appeal from the Court of First Instance of
27
Rollo, pp. 265-284. the city of Manila, in a case where the court awarded to the
plaintiff the sum of P300, as damages for breach of contract.
28
Supra. The plaintiff appeals on the ground that the amount of
damages awarded is inadequate; while the defendant Uy Tieng
29
Piao appeals on the ground that he is not liable at all. The
Supra. judgment having been heretofore affirmed by us in a brief
opinion, we now avail ourselves of the occasion of the filing of
30
G.R. No. 147511, 20 January 2003, 395 SCRA 494. a motion to rehear by the attorneys for the plaintiff to modify
the judgment in a slight measure and to state more fully the
31 reasons underlying our decision.
Rollo, p. 248. (Emphasis supplied)

32 It appears that on December 12, 1918, the plaintiff contracted

Rollo, pp. 248-249.
his services to Tan Liuan and Co., as superintendent of an oil
factory which the latter contemplated establishing in this city.
33
Rollo, pp. 145-146. The period of the contract extended over two years from the
date mentioned; and the salary was to be at the rate of P600
34
See Complaint, Id. at 71. per month during the first year and P700 per month during the
second, with electric light and water for domestic consumption,
35 and a residence to live in, or in lieu thereof P60 per month.
City of Louisville v. Louisville Scrap Material
Company, 932 S.W.2d 352 (1996).
At the time this agreement was made the machinery for the
36 contemplated factory had not been acquired, though ten
Decker v. City of Somerset, 838 S.W.2d 417 (1992).
expellers had been ordered from the United States; and among
the stipulations inserted in the contract with the plaintiff was a
37
City of Owensboro v. McCormick, 581 S.W.2d 3, 5 provision to the following effect:
(1979).
It is understood and agreed that should the machinery
38
TSN, 21 January 1998, pp. 14-18. (Emphasis to be installed in the said factory fail, for any reason,
supplied.) to arrive in the city of Manila within a period of six
months from date hereof, this contract may be
39
Republic v. De Los Angeles, G.R. No. L-26112, 4 cancelled by the party of the second part at its option,
October 1971, 41 SCRA 422. such cancellation, however, not to occur before the
expiration of such six months.
40
Mary A. Miles v. C. Leslie Dawson, 830 S.W.2d 368
(1992). The machinery above referred to did not arrive in the city of
Manila within the six months succeeding the making of the
41 contract; nor was other equipment necessary for the
See First American National Bank v. State of establishment of the factory at any time provided by the
Minnesota, 322 N.W.3d 344 (1982). 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.
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.
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 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.
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.
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.
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.
Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand,
Johns and Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-55744 February 28, 1985
JOSE V. HERRERA, petitioner
vs.
L.P. LEVISTE & CO., INC., JOSE T. MARCELO,
GOVERNMENT SERVICE IN- INSURANCE SYSTEM,
PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS
OF RIZAL and THE HON. COURT OF
APPEALS, respondents.
Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.
Benjamin Aquino for respondent J.T. Marcelo, Jr.
RESOLUTION
MELENCIO-HERRERA, J.:
Before the Court is petitioner's Motion, dated July 3, 1981, for
the reconsideration of the Resolution of this Court, dated April
1, 1981, denying due course to this Petition for Review on
certiorari for lack of merit.
The Motion for Reconsideration was set for oral argument on
June 13, 1984, after which, the Court required the parties to
submit simultaneously concise memoranda in amplification of
their oral arguments. All parties have complied with the Court's
directive.
Briefly, the antecedent facts may be summarized as follows:
On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had
obtained a loan from the Government Service Insurance
System (GSIS) in the amount of P1,854,311.50. As security
therefore, Leviste mortgaged two (2) lots, one located at
Paraaque (the Paraaque Property), and the other located at
Buendia Avenue, Makati, with an area of approximately 2,775
square meters, together with the 3-story building thereon (the
Buendia Property).
On November 3, 1971, Leviste sold to Petitioner, Jose V.
Herrera, the Buendia Property for the amount of
P3,750,000.00. The conditions were that petitioner would: (1)
pay Leviste P11,895,688.50; (2) assume Leviste's
indebtedness of P1854,311.50 to the GSIS; and (3) substitute
the Paranaque property with his own within a period of six (6)
months.
For his part, Leviste undertook to arrange for the conformity of
the GSIS to petitioner's assumption of the obligation.
It was further stipulated in the Contract to Sell that "failure to
comply with any of the conditions contained therein,
particularly the payment of the scheduled amortizations on the
dates herein specified shall render this contract automatically
cancelled and any and all payments made shall be forfeited in
favor of the vendor and deemed as rental and/or liquidated
damages."
Petitioner took possession of the Buendia property, received
rentals of P21,000.00 monthly, and collected approximately
P800,000.00 from December, 1971, up to March, 1975.
However, petitioner remitted a total of only P300,000.00 to the
GSIS.
On April 15, 1973, petitioner requested the GSIS for the
restructuring of the mortgage obligation because of his own
arrearages in the payment of the amortizations. GSIS replied
that as a matter of policy, it could not act on his request unless
he first made proper substitution of property, updated the
account, and paid 20% thereof to the GSIS. There was no
requirement by the GSIS for the execution of a final deed of
sale by Leviste in favor of petitioner.
On June 2, 1974, GSIS sent notice to Leviste of its intention to
foreclose the mortgaged properties by reason of default in the
payment of amortizations. An application for foreclosure was
thereafter filed by the GSIS with the Provincial Sheriff of Rizal,
and on February 15, 1975, the foreclosed properties were sold
at public auction and a Certificate of Sale in favor of the GSIS,
as the highest bidder, was issued.
On March 3, 1975, Leviste assigned its right to redeem both
foreclosed properties to respondent Jose Marcelo, Jr. (Marcelo
for brevity). Later, on November 20, 1975, Marcelo redeemed
the properties from the GSIS by paying it the sum of
P3,232,766.94 for which he was issued a certificate of
redemption. The Paranaque property was turned over by
Marcelo to Leviste upon payment by the latter of approximately
P250,000.00 as disclosed at the hearing. Leviste needed the
Paraque Property as it had sold the same and suit had been
filed against it for its recovery.
On May 6, 1975, petitioner wrote the GSIS (Exhibit "V")
informing the latter of his right to redeem the foreclosed
properties and asking that he be allowed to do so in
installments. Apparently, the GSIS had not favorably acted
thereon.
On May 13, 1975, petitioner instituted suit against Leviste
before the Court of First Instance of Rizal for "Injunction,
Damages, and Cancellation of Annotation."
On December 20, 1977, the Trial Court rendered its
Decision discussing petitioner's Complaint for lack of basis in
fact and in law, and ordering an payments made by petitioner
to Leviste forfeited in favor of the latter pursuant to their
contract providing for automatic forfeiture "in the event of
failure to comply with any of the conditions contained therein,
particularly the payment of the scheduled amortizations."
On appeal, the Appellate Court affirmed the judgment in toto,
stating in part:
It is to be noted that appellee L. P. Leviste
and Co., Inc. was not in a financial position
to redeem the foreclosed property and there
was no assurance that appellant would
redeem the property within the period. In this
situation, appellee has no other alternative,
but to assign the right of redemption to a
person willing and capable to assume the
same, if only to protect his interest in the
said property. Likewise, when the equity to
redeem was assigned, appellant could have
preserved and protected whatever right he
may have to the property by tendering the
redemption price to Marcelo. He had up to
February 24, 1976, to do so, but he did not.
The record established further that appellant
did not redeem the property. ... 1
Reconsideration sought by petitioner was met with denial by
respondent Appellate Court. Hence, the instant Petition
seeking review by certiorari before this instance.
As hereinbefore stated, we denied the Petition for lack of merit.
Petitioner seeks reconsideration essentially on the contention
that affirmance of the Appellate Court's Decision would result in
patent injustice as he would not only forfeit the Buendia
Property to Marcelo, but would also lose the amount of
P1,895,688.50 and P300,000.00, which he paid to Leviste and
the GSIS, respectively; that it would result in the unjust
enrichment of Leviste; and that Leviste as well the GSIS and
Marcelo would be benefiting at petitioner's expense.
Considering the grounds of petitioner's Motion for
Reconsideration, the arguments adduced during the oral
argument and in the parties' respective Memoranda, we
resolve to deny reconsideration upon the following
considerations:
1. (a) The GSIS has not benefited in any way at the expense of
petitioner. What it received, by way of redemption from
respondent Marcelo, was the mortgage loan it had extended
plus interest and sundry charges.
(b) Neither has Marcelo benefited at the expense of petitioner.
Said respondent had paid to GSIS the amount P 3,232,766.94,
which is not far below the sum of P 3,750,000.00, which was
the consideration petitioner would have paid to Leviste had his
contract been consummated.
(c) Leviste had neither profited at the expense of petitioner, For
Losing his Buendia Property, all he had received was P
1,854,311.50 from GSIS less amounts he had paid, plus P
1,895,688.00 paid to him by petitioner, the total of which is
substantially a reasonable value of the Buendia Property.
2. It is quite true that petitioner had lost the P 1,895,688.00 he
had paid to Leviste, plus P 300,000.00 he had paid to GSIS,
less the rentals he had received when in possession of the
Buendia Property. That loss is attributable to his fault in:
(a) Not having been able to submit collateral to GSIS in
substitution of the Paranaque Property;
(b) Not paying off the mortgage debt when GSIS decided to
foreclose; and
(c) Not making an earnest effort to redeem the property as a
possible redemptioner.
3. It cannot be validly said that petitioner had fully complied
with all the conditions of his contract with Leviste. For one
thing, he was not able to substitute the Paraaque Property
with another collateral for the GSIS loan. Moreover, as stated
by the Court of Appeals, "nowhere in the letter (of the GSIS)
was mentioned that a final deed of sale must first be executed
and presented before the assumption may be considered. For
if it was really the intention of GSIS, the requirement of Deed of
Sale should have been stated in its letter."
ACCORDINGLY, petitioner's Motion for Reconsideration is
hereby denied.
SO ORDERED.
Plana, Relova, De la Fuente and Cuevas, JJ., concur.
Gutierrez, Jr.* and Alampay, JJ.,took no part.
Separate Opinions
TEEHANKEE, J., dissenting:
I vote to grant petitioner's motion for reconsideration of the
Court's earlier Resolution denying the petition and instead to
grant the relief sought therein by petitioner, for the grounds and
considerations hereinafter stated.
It can be inferred from the antecedent facts that respondent
Leviste & Co., Inc. (Leviste) was guilty of bad faith and of
violating the terms and conditions of its Contract to Sell with
petitioner Jose V. Herrera.
On June 10, 1969, Leviste had secured a loan from the
Government Service Insurance System in the amount of
P1,854,311.50, mortgaging two parcels of land, one located at
Paranaque and the other located at Buendia Avenue, Makati,
with an area of 2,775 square meters and the building and other
improvements thereon (covered by TCT No. 9811 of the
Registry of Deeds of the Province of Rizal).
Later, or on November 3, 1971, Leviste sold to Herrera the
Buendia property for the sum of P3,750,000.00. Herrera
agreed that (1) he would assume Leviste's indebtedness of
P1,854,311.50 to the GSIS; (2) that he would pay Leviste the
balance of P1,895,688.50 within two (2) years from the date of
the contract, with interest thereon at 12% per annum; and (3)
that he would substitute the Paraaque property with his own
within a period of six months.
On the other hand, Leviste undertook that it would arrange for
the conformity of the GSIS to Herrera's assumption of its
mortgage obligation.
The parties further stipulated that "failure to comply with any of
the conditions contained therein, particularly the payment of
the scheduled amortization on the dates herein specified shall
render this contract automatically cancelled and any and all
payments made shall be forfeited in favor of the vendor and
deemed as rental and/or unliquidated damages.
About the first week of December, 1971, Herrera took
possession of the Buendia property and received the monthly
rentals of around P21,000.00.
On December 20, 1971, Herrera notified GSIS of the Contract
to Sell executed by Leviste providing for his assumption of
Leviste's mortgage obligation. When no action was taken
thereon by the GSIS and Leviste failed to take any action to
facilitate the assumption of the mortgage by Herrera, the latter
sent his administrator, Mr. Isidro Cavestany, to follow it up with
the GSIS. In the course thereof, Cavestany found that Leviste
was in arrears in its amortization payments for 14 months,
which Herrera did not know at the time of the sale.
The GSIS required Herrera to submit papers to support his
assumption of the mortgage until finally he was informed that
the assumption could not be approved until Herrera could
submit a final deed of sale (the original contract being merely a
contract to sell or a conditional sale) and that he has no
personality to represent Leviste in connection with the
restructuring of the mortgage. But nevertheless, the GSIS
received payments from Herrera for the account of Leviste,
suggesting that this was necessary for "further actions" to be
taken on the assumption of mortgage. The Manager of the
Collection Department even suggested to Cavestany to
continue the payments as a gesture of good faith. Herrera
remitted a total of P300,000.00 to the GSIS, credited against
Leviste's account.
Meanwhile, Leviste continued to receive payments from
Herrera under the Contract to Sell. Upon full payment,
Cavestany then requested Leviste to execute the final deed of
sale for submission to the GSIS but Leviste refused, alleging
as an excuse Herrera's failure to assume the mortgage (which
Leviste itself had blocked).
Unknown to Herrera, Leviste alone was notified on June 21,
1974 by the GSIS of its intention to foreclose the mortgage.
Herrera came to know about it only on January 17, 1975. He
immediately wrote an urgent appeal to the GSIS reminding the
GSIS that he had already paid in full the principal of
P1,895,688.50 to Leviste and P300.000.00 to the GSIS and
asked that the foreclosure be held in abeyance pending efforts
to settle Leviste's account which Leviste had undertaken to
have Herrera assume. Nonetheless, the GSIS proceeded with
the auction sale and itself bidded for the property.
On March 3, 1975, Leviste (notwithstanding its having received
full payment of P1,895,688.50 from Herrera) yet sold for
undisclosed amount and considerations the equity of
redemption (which in justice and equity pertained to Herrera) to
its co-respondent Jose T. Marcelo and eventually, Herrera was
ousted from the property in dispute.
On May 13, 1975, Herrera filed a complaint against Leviste
before the Court of First Instance of Rizal for injunction,
damages and cancellation of annotation. The trial court
dismissed the complaint for alleged lack of basis in fact and in
law, and ordered all payments made by Herrera forfeited in
favor of Leviste. Herrera appealed to the Court of Appeals
which affirmed the lower court's decision and denied
reconsideration.
On January 23,1981, Herrera filed the petition for review on
certiorari which was denied by this Court in a minute resolution
dated April 1, 1981. Hence, Herrera's motion for
reconsideration, which was heard and argued before the Court
on June 13, 1984. Herrera reiterated the main issues, thus:
Can respondent Leviste lawfully refuse to
issue a final deed of sale to the petitioner
even after it had already received full
payment of what was due it under the
Contract to Sell?
Can respondent Leviste lawfully refuse to
comply with its obligation under the Contract
to Sell to secure the conformity of
respondent GSIS to the assumption of the
mortgage obligation by petitioner?
Can respondent Leviste automatically
cancel the Contract to Sell and forfeit all the
sums paid by petitioner thereunder when
respondent Leviste was the one that
voluntarily prevented the petitioner from
fulfilling his obligations under the Contract to
Sell and by otherwise making it legally or
physically impossible for the petitioner to
fulfill such obligations?
Can respondent Leviste lawfully assign its
equity of redemption over the Buendia
property to respondent Marcelo, and can the
latter's redemption of said property from
respondent GSIS be considered lawful?
Can respondent Leviste be lawfully
awarded damages and attorney's fees in the
instant case?
Leviste patently had no justification to refuse to execute the
final deed of sale to Herrera, after receiving full payment of the
stipulated amount, and thereby prevent fulfillment of the
remaining condition for Herrera's assumption of its mortgage
obligation with GSIS, which it had expressly undertaken to
secure from GSIS. There was constructive fulfillment on
Herrera's part of his obligations under the Contract and under
Article 1186 of the Civil Code, "(T)he condition shall be
deemed fulfilled when the obligor voluntarily prevents its
fulfillment."
The motion for reconsideration should be granted and the
petition granted to obviate a carriage of justice. While it is true
that under paragraph No. 11 of the Contract to Sell, failure to
comply with any of the conditions therein enumerated would
render the contract automatically cancelled and all the sums
paid by petitioner forfeited, Herrera was prevented from
fulfilling the condition of assuming the GSIS mortgage because
of Leviste's own non-compliance with its obligation of securing
the consent of GSIS thereto. The contract expressly obligated
Leviste to work out with the GSIS Herrera's assumption of the
mortgage. But obviously because of selfish and self-serving
motives and designs, as borne out by the events, Leviste made
no effort to assist and arrange for Herrera's assumption of its
mortgage obligation. In spite of the fact that Herrera had
already paid Leviste the full amount of P1,895.688.50, Leviste
refused to execute the final deed of sale in favor of Herrera as
required by GSIS.
The substitution of Leviste's Paranaque property with Herrera's
own property as additional security for Leviste's indebtedness
could not be worked out and agreed upon by Herrera with
GSIS, which refused to deal with him without such final deed of
sale from Leviste. Indeed, Herrera was verily squeezed in this
pincer movement Herrera could not assume Leviste's
mortgage obligation and restructure the same with GSIS which
refused to recognize and deal with him without a final deed of
sale from Leviste. But Leviste refused to execute such final
deed of sale notwithstanding that he had been paid by Herrera
the full amount of P1,895,688.50 due to him and what was left
was Leviste's outstanding mortgage indebtedness to GSIS.
The GSIS, in turn, notwithstanding Herrera's payment on
account thereof directly to it of some P300,000.00 and the
more than sufficient security in its favor of the Buendia property
alone, refused (abetted by Leviste's absolute non-cooperation,
contrary to his contractual obligation) to have Herrera assume
the mortgage obligation. Instead, GSIS without notice to
Herrera foreclose the mortgage and completely shut off
Herrera-even from his right of redemption as Leviste's vendee.
If a party charges himself with an obligation possible to be
performed, he must abide by it unless performance is rendered
impossible by the act of God, the law, or the other party.
(Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By
Leviste's unjustifiable act, it virtually prevented Herrera from
complying with his obligation to assume the GSIS mortgage
and Leviste cannot now in equity and justice insist on
rescission of the contract because of Herrera's failure which
Leviste itself had brought about.
The situation is analogous to that contemplated in Article 1266
of the Civil Code which provides that "(T)he debtor in
obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of
the obligor ." Leviste's non-compliance with its own
undertaking which prevented Herrera from assuming the GSIS
mortgage bars it from invoking the rescission clause.
Under par. 4 of the Contract to Sell, it was expressly
undertaken by Leviste that "the assumption of mortgage shall
be arranged and conformity thereto by GSIS obtained by the
Vendor with the full cooperation of the Vendee." But
notwithstanding its having received the full amount due it,
Leviste did not fulfill the essential condition required by GSIS
for Herrera's assumption of the mortgage the execution by
Leviste of the final deed of sale. Article 1169 of the Civil Code
expressly provides, in this regard, that "(I)n reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins."
As documented by Herrera in his memorandum in amplification
of oral argument (Record, pp. 314-315), "Leviste has clearly
not complied with (its) obligation. Thus, when asked repeatedly
by this Honorable Court what definitive steps it took to arrange
and secure such conformity of respondent GSIS, respondent
Leviste could not readily answer, as it could not point to any
definitive step that it had actually undertaken. Indeed, if
respondent Leviste was acting in good faith and was sincere in
complying with its obligation, it could have at least done the
following:
1. Officially inform respondent GSIS about its
execution of the Contract to Sell and officially
request GSIS to approve petitioner's
assumption of its mortgage obligation,
 subject to the condition stated in the
contract.
2. Officially inform respondent GSIS that
petitioner had already paid to it the full
amount due under the Contract to Sell, and
for this reason, it was willing to transfer the
title of the Buendia property to the petitioner,
and for this purpose, issue a final Deed of
Sale, even if subject to certain conditions.
3. If petitioner had indeed failed to comply
with his obligations under the Contract to
Sell, during the period covering the years
1972 and 1973, then why did respondent
Leviste continue receiving payments from
petitioner? It must be noted that respondent
Leviste was paid the full amount of the
consideration (P1,895,688.50) due to it on
installment basis, the last of which was on
July 2, 1974 (Exhs. "E", "F", "G", "H", "I", "J",
"K", and "L").
4. Respondent Leviste could also have
formally complained to petitioner or even
respondent GSIS about petitioner's alleged
nonfulfillment of his obligations under the
Contract to Sell, or advise respondent GSIS
not to receive any more payments from
petitioner made in its name.
Why did respondent Leviste keep quiet and
allow respondent GSIS to continue receiving
said payments? It must be noted that
Petitioner made the following payments to
respondent GSIS, for the account of
respondent Leviste:
100,000.00 1973
50,000.00 May 10, 1974
50,000.00 May 24, 1974
50, 000.00 Nov. 5, 1974
50,000.00 Jan. 22, 1975
[Exh."'Y"]
From the above, it will be seen that
respondent Leviste not only was the one that
clearly failed to comply with its obligations
under the Contract to Sell, but also it was the
one that prevented the petitioner from
fulfilling his obligation under said contract.
Even as to the restructuring of Leviste's mortgage obligation
which Herrera had requested (since Leviste's documented
arrearages before the execution of the contract amounted to
around P800,000.00), GSIS had declined to entertain the same
for lack of the final deed of sale, stating in a letter to Herrera
that
We wish to inform you that we cannot go on
processing your papers in view of the fact
that as of this date L. P. Leviste and Co. is
still the registered owner of the mortgaged
property, hence, we cannot entertain your
request. (Exhibit 0; underscoring supplied)
It also appears that respondent GSIS inexplicably did not
sympathize with the plight of Herrera (brought about by Leviste
itself) as may be seen by the following circumstances:
(1) It required Herrera to submit supporting
papers which led him to believe that the
assumption of the mortgage would be
properly acted upon;
(2) It accepted payments from Herrera for
the account of Leviste;
(3) It did not inform Herrera of its intention to
foreclose the property knowing that Herrera
had purchased the same and hence had the
right to redeem the property as Leviste's
vendee, notwithstanding its knowledge and
that Herrera was directly making payments
to it on account of Leviste's mortgage
indebtedness;
(4) It proceeded with the auction sale,
notwithstanding the letter-appeal of Herrera,
that he had already paid in full the principal
amount to Leviste and P300,000.00 to the
GSIS and asking that he be given a chance
to settle Leviste's account;
(5) It allowed and recognized the sale of
equity of redemption to a total stranger,
Marcelo, notwithstanding the offer of Herrera
as Leviste's vendee and successor to
redeem the property within the period of
redemption, as was Herrera's right in law
and equity;
(6) The total stranger Marcelo was allowed to
redeem the property, and returned the
Paranaque property to Leviste; and
(7) It departed from the established policy of
government financial institutions of allowing
the restructuring of debtor's mortgage
accounts, unless they were in extremis and
violated its own settled policy of giving due
preference to the owner and vendee Herrera
of redeeming and/or reacquiring the
foreclosed property. As the late Chief Justice
Castro stated in his separate opinion in DBP
vs. Mirang, 66 SCRA 141, in taking notice of
such policy and urging the DBP to extend
such assistance to the hapless respondent
debtor therein. "(I)t is well remember that
uncompromising or mechanical application
of the letter of the law has resulted not
infrequently, in the denial of moral justice, "
after laying the premise that
Justice Makasiar makes the pertinent
suggestion that the DBP restructure the
account of Mirang. Like Justice Makasiar, I
personally know that the DBP and similar
Government financial institutions (the
Philippine National Bank, the Government
Service Insurance System, and the Social
Security System) have restructured accounts
 of debtor Considering the inordinate
appreciation of land values everywhere,
there appears to be no insuperable obstacle
to the DBP restructuring the account of
Mirang, not only to enable him to pay his
indebtedness in easy terms over a period of
years but as well to make available
additional funds to be utilized by him in the
development of his 18--hectare land. It is
not too late in the day in this, our
compassionate society for the DBP to do
so.
Respondent Marcelo was equally not in good faith when he
purchased the equity of redemption. Marcelo knew of the
Contract to Sell with Herrera at the time the equity was
assigned to him by Leviste. Moreover, Herrera was still in
material possession of the property then.
In iniquitous automatic rescission of the contract be sustained,
Leviste would be unjustly enriched by (1) P1,895,688.50, the
principal amount directly paid to it by Herrera; (2) P300,000.00,
the amount paid by Herrera to GSIS for Leviste's arrearages
the Paraaque property, which was returned to him by
Marcelo; (4) the undisclosed proceeds of the sale of equity of
redemption to Marcelo (in effect a double payment to Leviste
for the same property); and (5) moreover, GSIS foreclosed the
mortgage for Leviste's total outstanding indebtedness to GSIS
in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this
was a total gain to Leviste, for it was thereby discharged and
relieved entirely of its said mortgage debt of P3,232,766.94 at
the loss of only the Buendia property, which it had already sold
to and had been fully paid by, Herrera in the agreed amount of
P1,895,688.50. This constitutes unjust enrichment at the
expense of Herrera whose payments to Leviste and the GSIS,
totalling almost P2.2 million were declared forfeited.
Basic principles of justice and equity cry out against such
unjust enrichment and inequity. As we held in Air Manila, Inc.
vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal
jurisdiction seeks to reach and do complete justice where
courts of law, through the inflexibility of their rules and want of
power to adapt their judgments to the special circumstances of
cases, are incompetent to do so. 'Equity regards the spirit and
not the letter, the intent and not the form, the substance rather
than the circumstance, as it is variously expressed by different
courts.' " Herrera is entitled to the relief sought by him under
these basic principles of law, justice and equity, as was
extended by this Court under analogous circumstances to the
debtor in its recent decision in Republic of the Phil. (NEDA) vs.
Court of Appeals (G.R. No. 52774, Nov. 29,1984)
notwithstanding that the debtor in "evident good faith" had
incurred in delay in discharging its obligations to another
government agency, the NEDA, which had shown "clear
procrastination and indecision" in seeking afterwards to reject
the payments made and cancel the previous authorization it
had given for the sale of the debtor's attached real property.
The unkindest blow is that the Court has upheld even the
award of P5,000. nominal damages and P75,000.
attorney's fees against Herrera for seeking the just vindication
in court of his rights.
Separate Opinions
TEEHANKEE, J., dissenting:
I vote to grant petitioner's motion for reconsideration of the
Court's earlier Resolution denying the petition and instead to
grant the relief sought therein by petitioner, for the grounds and
considerations hereinafter stated.
It can be inferred from the antecedent facts that respondent
Leviste & Co., Inc. (Leviste) was guilty of bad faith and of
violating the terms and conditions of its Contract to Sell with
petitioner Jose V. Herrera.
On June 10, 1969, Leviste had secured a loan from the
Government Service Insurance System in the amount of
P1,854,311.50, mortgaging two parcels of land, one located at
Paranaque and the other located at Buendia Avenue, Makati,
with an area of 2,775 square meters and the building and other
improvements thereon (covered by TCT No. 9811 of the
Registry of Deeds of the Province of Rizal).
Later, or on November 3, 1971, Leviste sold to Herrera the
Buendia property for the sum of P3,750,000.00. Herrera
agreed that (1) he would assume Leviste's indebtedness of
P1,854,311.50 to the GSIS; (2) that he would pay Leviste the
balance of P1,895,688.50 within two (2) years from the date of
the contract, with interest thereon at 12% per annum; and (3)
that he would substitute the Paraaque property with his own
within a period of six months.
On the other hand, Leviste undertook that it would arrange for
the conformity of the GSIS to Herrera's assumption of its
mortgage obligation.
The parties further stipulated that "failure to comply with any of
the conditions contained therein, particularly the payment of
the scheduled amortization on the dates herein specified shall
render this contract automatically cancelled and any and all
payments made shall be forfeited in favor of the vendor and
deemed as rental and/or unliquidated damages.
About the first week of December, 1971, Herrera took
possession of the Buendia property and received the monthly
rentals of around P21,000.00.
On December 20, 1971, Herrera notified GSIS of the Contract
to Sell executed by Leviste providing for his assumption of
Leviste's mortgage obligation. When no action was taken
thereon by the GSIS and Leviste failed to take any action to
facilitate the assumption of the mortgage by Herrera, the latter
sent his administrator, Mr. Isidro Cavestany, to follow it up with
the GSIS. In the course thereof, Cavestany found that Leviste
was in arrears in its amortization payments for 14 months,
which Herrera did not know at the time of the sale.
The GSIS required Herrera to submit papers to support his
assumption of the mortgage until finally he was informed that
the assumption could not be approved until Herrera could
submit a final deed of sale (the original contract being merely a
contract to sell or a conditional sale) and that he has no
personality to represent Leviste in connection with the
restructuring of the mortgage. But nevertheless, the GSIS
received payments from Herrera for the account of Leviste,
suggesting that this was necessary for "further actions" to be
taken on the assumption of mortgage. The Manager of the
Collection Department even suggested to Cavestany to
continue the payments as a gesture of good faith. Herrera
remitted a total of P300,000.00 to the GSIS, credited against
Leviste's account.
Meanwhile, Leviste continued to receive payments from
Herrera under the Contract to Sell. Upon full payment,
Cavestany then requested Leviste to execute the final deed of
sale for submission to the GSIS but Leviste refused, alleging
as an excuse Herrera's failure to assume the mortgage (which
Leviste itself had blocked).
Unknown to Herrera, Leviste alone was notified on June 21,
1974 by the GSIS of its intention to foreclose the mortgage.
Herrera came to know about it only on January 17, 1975. He
immediately wrote an urgent appeal to the GSIS reminding the
GSIS that he had already paid in full the principal of
P1,895,688.50 to Leviste and P300.000.00 to the GSIS and
asked that the foreclosure be held in abeyance pending efforts
to settle Leviste's account which Leviste had undertaken to
have Herrera assume. Nonetheless, the GSIS proceeded with
the auction sale and itself bidded for the property.
On March 3, 1975, Leviste (notwithstanding its having received
full payment of P1,895,688.50 from Herrera) yet sold for
undisclosed amount and considerations the equity of
redemption (which in justice and equity pertained to Herrera) to
its co-respondent Jose T. Marcelo and eventually, Herrera was
ousted from the property in dispute.
On May 13, 1975, Herrera filed a complaint against Leviste
before the Court of First Instance of Rizal for injunction,
damages and cancellation of annotation. The trial court
dismissed the complaint for alleged lack of basis in fact and in
law, and ordered all payments made by Herrera forfeited in
favor of Leviste. Herrera appealed to the Court of Appeals
which affirmed the lower court's decision and denied
reconsideration.
On January 23,1981, Herrera filed the petition for review on
certiorari which was denied by this Court in a minute resolution
dated April 1, 1981. Hence, Herrera's motion for
reconsideration, which was heard and argued before the Court
on June 13, 1984. Herrera reiterated the main issues, thus:
Can respondent Leviste lawfully refuse to
issue a final deed of sale to the petitioner
even after it had already received full
payment of what was due it under the
Contract to Sell?
Can respondent Leviste lawfully refuse to
comply with its obligation under the Contract
to Sell to secure the conformity of
respondent GSIS to the assumption of the
mortgage obligation by petitioner?
Can respondent Leviste automatically
cancel the Contract to Sell and forfeit all the
sums paid by petitioner thereunder when
respondent Leviste was the one that
voluntarily prevented the petitioner from
fulfilling his obligations under the Contract to
Sell and by otherwise making it legally or
physically impossible for the petitioner to
fulfill such obligations?
Can respondent Leviste lawfully assign its
equity of redemption over the Buendia
property to respondent Marcelo, and can the
latter's redemption of said property from
respondent GSIS be considered lawful?
Can respondent Leviste be lawfully
awarded damages and attorney's fees in the
instant case?
Leviste patently had no justification to refuse to execute the
final deed of sale to Herrera, after receiving full payment of the
stipulated amount, and thereby prevent fulfillment of the
remaining condition for Herrera's assumption of its mortgage
obligation with GSIS, which it had expressly undertaken to
secure from GSIS. There was constructive fulfillment on
Herrera's part of his obligations under the Contract and under
Article 1186 of the Civil Code, "(T)he condition shall be
deemed fulfilled when the obligor voluntarily prevents its
fulfillment."
The motion for reconsideration should be granted and the
petition granted to obviate a carriage of justice. While it is true
that under paragraph No. 11 of the Contract to Sell, failure to
comply with any of the conditions therein enumerated would
render the contract automatically cancelled and all the sums
paid by petitioner forfeited, Herrera was prevented from
fulfilling the condition of assuming the GSIS mortgage because
of Leviste's own non-compliance with its obligation of securing
the consent of GSIS thereto. The contract expressly obligated
Leviste to work out with the GSIS Herrera's assumption of the
mortgage. But obviously because of selfish and self-serving
motives and designs, as borne out by the events, Leviste made
no effort to assist and arrange for Herrera's assumption of its
mortgage obligation. In spite of the fact that Herrera had
already paid Leviste the full amount of P1,895.688.50, Leviste
refused to execute the final deed of sale in favor of Herrera as
required by GSIS.
The substitution of Leviste's Paranaque property with Herrera's
own property as additional security for Leviste's indebtedness
could not be worked out and agreed upon by Herrera with
GSIS, which refused to deal with him without such final deed of
sale from Leviste. Indeed, Herrera was verily squeezed in this
pincer movement Herrera could not assume Leviste's
mortgage obligation and restructure the same with GSIS which
refused to recognize and deal with him without a final deed of
sale from Leviste. But Leviste refused to execute such final
deed of sale notwithstanding that he had been paid by Herrera
the full amount of P1,895,688.50 due to him and what was left
was Leviste's outstanding mortgage indebtedness to GSIS.
The GSIS, in turn, notwithstanding Herrera's payment on
account thereof directly to it of some P300,000.00 and the
more than sufficient security in its favor of the Buendia property
alone, refused (abetted by Leviste's absolute non-cooperation,
contrary to his contractual obligation) to have Herrera assume
the mortgage obligation. Instead, GSIS without notice to
Herrera foreclose the mortgage and completely shut off
Herrera-even from his right of redemption as Leviste's vendee.
If a party charges himself with an obligation possible to be
performed, he must abide by it unless performance is rendered
impossible by the act of God, the law, or the other party.
(Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By
Leviste's unjustifiable act, it virtually prevented Herrera from
complying with his obligation to assume the GSIS mortgage
and Leviste cannot now in equity and justice insist on
rescission of the contract because of Herrera's failure which
Leviste itself had brought about.
The situation is analogous to that contemplated in Article 1266
of the Civil Code which provides that "(T)he debtor in
obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of
the obligor ." Leviste's non-compliance with its own
undertaking which prevented Herrera from assuming the GSIS
mortgage bars it from invoking the rescission clause.
Under par. 4 of the Contract to Sell, it was expressly
undertaken by Leviste that "the assumption of mortgage shall
be arranged and conformity thereto by GSIS obtained by the
Vendor with the full cooperation of the Vendee." But
notwithstanding its having received the full amount due it,
Leviste did not fulfill the essential condition required by GSIS
for Herrera's assumption of the mortgage the execution by
Leviste of the final deed of sale. Article 1169 of the Civil Code
expressly provides, in this regard, that "(I)n reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins."
As documented by Herrera in his memorandum in amplification
of oral argument (Record, pp. 314-315), "Leviste has clearly
not complied with (its) obligation. Thus, when asked repeatedly
by this Honorable Court what definitive steps it took to arrange
and secure such conformity of respondent GSIS, respondent
Leviste could not readily answer, as it could not point to any
definitive step that it had actually undertaken. Indeed, if
respondent Leviste was acting in good faith and was sincere in
complying with its obligation, it could have at least done the
following:
1. Officially inform respondent GSIS about its
execution of the Contract to Sell and officially
request GSIS to approve petitioner's
assumption of its mortgage obligation,
subject to the condition stated in the
contract.
2. Officially inform respondent GSIS that
petitioner had already paid to it the full
amount due under the Contract to Sell, and
for this reason, it was willing to transfer the
title of the Buendia property to the petitioner,
and for this purpose, issue a final Deed of
Sale, even if subject to certain conditions.
3. If petitioner had indeed failed to comply
with his obligations under the Contract to
Sell, during the period covering the years
1972 and 1973, then why did respondent
Leviste continue receiving payments from
petitioner? It must be noted that respondent
Leviste was paid the full amount of the
consideration (P1,895,688.50) due to it on
installment basis, the last of which was on
July 2, 1974 (Exhs. "E", "F", "G", "H", "I", "J",
"K", and "L").
4. Respondent Leviste could also have
formally complained to petitioner or even
respondent GSIS about petitioner's alleged
nonfulfillment of his obligations under the
Contract to Sell, or advise respondent GSIS
not to receive any more payments from
petitioner made in its name.
Why did respondent Leviste keep quiet and
allow respondent GSIS to continue receiving
said payments? It must be noted that
Petitioner made the following payments to
respondent GSIS, for the account of
respondent Leviste:
100,000.00 1973
50,000.00 May 10, 1974
50,000.00 May 24, 1974
50, 000.00 Nov. 5, 1974
50,000.00 Jan. 22, 1975
[Exh."'Y"]
From the above, it will be seen that
respondent Leviste not only was the one that
clearly failed to comply with its obligations
under the Contract to Sell, but also it was the
one that prevented the petitioner from
fulfilling his obligation under said contract.
Even as to the restructuring of Leviste's mortgage obligation
which Herrera had requested (since Leviste's documented
arrearages before the execution of the contract amounted to
around P800,000.00), GSIS had declined to entertain the same
for lack of the final deed of sale, stating in a letter to Herrera
that
We wish to inform you that we cannot go on
processing your papers in view of the fact
that as of this date L. P. Leviste and Co. is
still the registered owner of the mortgaged
property, hence, we cannot entertain your
request. (Exhibit 0; underscoring supplied)
It also appears that respondent GSIS inexplicably did not
sympathize with the plight of Herrera (brought about by Leviste
itself) as may be seen by the following circumstances:
(1) It required Herrera to submit supporting
papers which led him to believe that the
assumption of the mortgage would be
properly acted upon;
(2) It accepted payments from Herrera for
the account of Leviste;
(3) It did not inform Herrera of its intention to
foreclose the property knowing that Herrera
had purchased the same and hence had the
right to redeem the property as Leviste's
vendee, notwithstanding its knowledge and
that Herrera was directly making payments
to it on account of Leviste's mortgage
indebtedness;
(4) It proceeded with the auction sale,
notwithstanding the letter-appeal of Herrera,
that he had already paid in full the principal
amount to Leviste and P300,000.00 to the
GSIS and asking that he be given a chance
to settle Leviste's account;
 (5) It allowed and recognized the sale of
equity of redemption to a total stranger,
Marcelo, notwithstanding the offer of Herrera
as Leviste's vendee and successor to
redeem the property within the period of
redemption, as was Herrera's right in law
and equity;
(6) The total stranger Marcelo was allowed to
redeem the property, and returned the
Paranaque property to Leviste; and
(7) It departed from the established policy of
government financial institutions of allowing
the restructuring of debtor's mortgage
accounts, unless they were in extremis and
violated its own settled policy of giving due
preference to the owner and vendee Herrera
of redeeming and/or reacquiring the
foreclosed property. As the late Chief Justice
Castro stated in his separate opinion in DBP
vs. Mirang, 66 SCRA 141, in taking notice of
such policy and urging the DBP to extend
such assistance to the hapless respondent
debtor therein. "(I)t is well remember that
uncompromising or mechanical application
of the letter of the law has resulted not
infrequently, in the denial of moral justice, "
after laying the premise that
Justice Makasiar makes the pertinent
suggestion that the DBP restructure the
account of Mirang. Like Justice Makasiar, I
personally know that the DBP and similar
Government financial institutions (the
Philippine National Bank, the Government
Service Insurance System, and the Social
Security System) have restructured accounts
of debtor Considering the inordinate
appreciation of land values everywhere,
there appears to be no insuperable obstacle
to the DBP restructuring the account of
Mirang, not only to enable him to pay his
indebtedness in easy terms over a period of
years but as well to make available
additional funds to be utilized by him in the
development of his 18--hectare land. It is
not too late in the day in this, our
compassionate society for the DBP to do
so.
Respondent Marcelo was equally not in good faith when he
purchased the equity of redemption. Marcelo knew of the
Contract to Sell with Herrera at the time the equity was
assigned to him by Leviste. Moreover, Herrera was still in
material possession of the property then.
In iniquitous automatic rescission of the contract be sustained,
Leviste would be unjustly enriched by (1) P1,895,688.50, the
principal amount directly paid to it by Herrera; (2) P300,000.00,
the amount paid by Herrera to GSIS for Leviste's arrearages
the Paraaque property, which was returned to him by
Marcelo; (4) the undisclosed proceeds of the sale of equity of
redemption to Marcelo (in effect a double payment to Leviste
for the same property); and (5) moreover, GSIS foreclosed the
mortgage for Leviste's total outstanding indebtedness to GSIS
in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this
was a total gain to Leviste, for it was thereby discharged and
relieved entirely of its said mortgage debt of P3,232,766.94 at
the loss of only the Buendia property, which it had already sold
to and had been fully paid by, Herrera in the agreed amount of
P1,895,688.50. This constitutes unjust enrichment at the
expense of Herrera whose payments to Leviste and the GSIS,
totalling almost P2.2 million were declared forfeited.
Basic principles of justice and equity cry out against such
unjust enrichment and inequity. As we held in Air Manila, Inc.
vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal
jurisdiction seeks to reach and do complete justice where
courts of law, through the inflexibility of their rules and want of
power to adapt their judgments to the special circumstances of
cases, are incompetent to do so. 'Equity regards the spirit and
not the letter, the intent and not the form, the substance rather
than the circumstance, as it is variously expressed by different
courts.' " Herrera is entitled to the relief sought by him under
these basic principles of law, justice and equity, as was
extended by this Court under analogous circumstances to the
debtor in its recent decision in Republic of the Phil. (NEDA) vs.
Court of Appeals (G.R. No. 52774, Nov. 29,1984)
notwithstanding that the debtor in "evident good faith" had
incurred in delay in discharging its obligations to another
government agency, the NEDA, which had shown "clear
procrastination and indecision" in seeking afterwards to reject
the payments made and cancel the previous authorization it
had given for the sale of the debtor's attached real property.
The unkindest blow is that the Court has upheld even the
award of P5,000. nominal damages and P75,000.
attorney's fees against Herrera for seeking the just vindication
in court of his rights.
Footnotes
1 Rollo, P. 67.
* Justice Serafin Cuevas was designated to
sit in the First Division per Special Order No.
293, dated October 5, 1984, vice Justice
Hugo E. Gutierrez, Jr., who did not take part.
Justice Nestor B. Alampay took no part.