Republic of the Philippines and collectors, and collecting from stallholders and
SUPREME COURT merchants (biyaheros) doing business in the market.
Manila
SECOND DIVISION
G.R. No. 72313 December 29, 1989
RICARDO CRUZ, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and
ROMAN LEGARDA SO, respondents.
G.R. No. 72326. December 29,1989.*
ROMAN LEGARDA SO, petitioner vs. RICARDO
CRUZ, respondent.
Armando M. Pulgado for petitioner/respondent.
Ruben F. Balane Bautista for respondent/petitioner.
REGALADO, J.:
Before us are two separate petitions filed by Ricardo
Cruz (G.R. No. 72313) and Roman Legarda So. (G.R.
No. 72326) to review on certiorari the decision of the
Court of Appeals in AC-G.R. CV No. 03291 entitled
"Ricardo Cruz vs. Roman Legarda So," dated May 28,
1985, 1 the dispositive portion of which provides:
WHEREFORE, the decision appealed from is hereby
MODIFIED as follows:
1. The lease contract is extended for a period of 57
months to be reckoned from March 31, 1982.
2. The compensatory damages and actual damages
awarded to the petitioner are eliminated.
3. The writ of preliminary injunction is granted only for
a period of the extension of the lease.
4. The counterclaim of the respondent is hereby
dismissed.
No costs. 2
Called from the decision of respondent Court of
Appeals are the following factual findings:
It is not disputed in the record that the Padre Rada
market consisted of six parcels of land belonging to
different person, one parcel of which with an area of
651.80 square meters is owned by Roman Legarda
So.
The petitioners evidence shows that the Padre Rada
Market Operators Association, an unregistered
partnership, constructed the market with leasehold
right from the owners of the lots (Exhs. L & L-1). The
lease with respondent So was of an indefinite duration
at a monthly rent of P 3,500 (Exhs. E to E-14 & G).
Petitioner has been the manager of said association
supervising the market, assigning market inspectors
He also takes charge of rental payments of the market
so that rental receipts issued by So were all made out
in his name. (Exhibits 'E' to 'E-14'). Communications
intended for the association are also addressed by So
to him. And when So demanded the liquidation of the
alleged rental arrearages of the association, a letter to
this effect was sent to Cruz by the lawyer of So
(Exhibit 'A'), and other letters by So himself (Exhibits
'B', 'G', 'G-l' and 'H').
On April 18, 1977 Cruz received a letter from
respondent advising him to pay the rentals in arrears
and to vacate the premises on or before April 30, 1977
(Exh. B). The petitioner, nevertheless, continued
operating the market and paid the monthly rental to
respondent for May 1977 without any protest.
Sometime in June, the petitioner was suddenly served
a copy of a temporary restraining order issued by the
then Court of First Instance of Manila, Branch XXII in
its Civil Case No. 109218, which was an action
commenced against Cruz by So and one Antonio
Barredo, Jr. to prohibit his market operation and
collection of rentals (t.s.n., March 1, 1983, p. 4).
It turned out that respondent So leased out a portion of
the Padre Rada market to Antonio Barredo, Jr. for a
period of five years. So also entered into a lease
agreement with Antonio Gonzales, Jr. and Milagros de
Leon for a three year period ending March 31, 1982. 3
By virtue of said injunction proceeding commenced by
So and Barredo, Ricardo Cruz was compelled to stop
his market operations and collection of market fees
from June, 1977 to March, 1982 or a period of fifty-
seven (57) months.
After the expiration of the lease contract between
Roman So and Milagros de Leon, Ricardo Cruz
immediately filed Civil Case No. 82-8098 in the
Regional Trial Court of Manila 4 on March 31, 1982 to
enjoin Roman So from leasing out the market to third
parties. Upon application of Ricardo Cruz, a writ of
preliminary injunction was issued on May 4, 1982,
enjoining Roman So from leasing the market to third
parties, renewing his contract with Antonio Gonzales,
Jr. and/or Milagros de Leon and from collecting rentals
from stallholders thereat during the existence of the
lease agreement with Cruz and his association.
On May 13, 1983, the trial court rendered a decision
the dispositive portion of which decrees:
WHEREFORE, judgment is hereby rendered as
follows:
1) Declaring petitioner as the lawful representative of
the Padre Rada Market Association or as one of the
members thereof;
2) Declaring the lease contract over the Padre Rada
Market entered into by the petitioner's association with
the respondent as having lawfully expired on March
31, 1982;
3) Declaring petitioner as no longer without any right to
continue occupying, possessing and enjoying the
MARKET starting April 1, 1982, and ordering said
petitioner to forthwith vacate the premises and
surrender possession to the respondent;
4) Ordering the petitioner to make an accounting of all
the collections and expenses made for the
administration of the property from April 1, 1982 until
petitioner shall have surrendered possession thereof
to respondent;
5) Ordering petitioner to pay a monthly rental of P
3,500.00 to the respondent up to March 31, 1982;
6) Ordering respondent in turn to make an immediate
accounting of receipts from stallholders paid to him
during the present controversy without the knowledge
of the petitioner, and to credit the petitioner for such
collections. If the collections exceed P 3,500 monthly,
the excess thereof shall be paid the petitioner;
7) The writ of preliminary injunction issued in this case
is hereby lifted and set aside;
8) The claim for other damages by one party against
the other, including respondent's counterclaim, are
both dismissed. Petitioner shall pay the costs of suit.
This decision was, however, reconsidered upon motion
of Ricardo Cruz, as a consequence of which the court
a quo rendered a new decision on February 6, 1984,
the decretal portion of which reads:
WHEREFORE, judgment is hereby rendered as
follows:
1. The Decision of May l3, 1983 reiterated insofar as it
is not inconsistent with the following dispositions;
2. It is declared that the lease contract of the parties is
still good and subsisting, and with an extended term of
fifteen (15) years, reckoned from the date this New
Decision shall have become final, under the same
terms and conditions of their agreement, including the
amount of rental which is P 3,500 per month, unless
the parties mutually agree on other terms, conditions
and stipulations;
3. Making permanent the writ of preliminary injunction
previously granted therein;
4. Ordering respondent to pay the petitioner the sum of
P 285,000 (P 5,000 x 57 months) as compensatory
and actual damages in the form of losses suffered
and/or loss of profit; and
5. Respondent's counterclaim is denied and dismiss
Respondent is ordered to pay the costs. 6
On appeal, respondent court rendered the decision
hereinbefore mentioned, hence, the instant petitions
which were consolidated by the resolution of this Court
on October 6, 1986.
In G.R. No. 72313, Ricardo Cruz avers that
respondent Court of Appeals erred in reducing the
lease period fixed by the trial court, and in eliminating
the compensation award to him for losses arising from
his unlawful dispossession of the Padre Rada Market.
On the other hand, Roman Legarda So alleges, in
G.R. No. 72326, that respondent court erred: (1) in not
declaring the lease to have been validly terminated for
non-payment of rentals; (2) in not holding that the
lease, being on a month-to-month basis, could be
terminated at the end of every month; (3) in applying
Article 1687 of the Civil Code to extend the lease of
Cruz to December, 1986; and (4) in not ordering Cruz
to pay rentals up to the time of actual relinquishment of
the premises.
The main issue for resolution in this case is whether or
not Roman Legarda So could validly terminate his
contract of lease with Ricardo Cruz and enter into a
new contract with third persons. A corollary issue is
whether Ricardo Cruz is entitled to have the term of
his lease fixed for another and longer period of time.
We hold that there was a valid termination of the lease
contract executed between Ricardo Cruz and Roman
Legarda So for several reasons.
Firstly, the applicable provision of the Civil Code
states:
5 Art. 1687. If the period for the lease has not been
fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it
is monthly; from week to week, if the rent is weekly;
and from day to day, if the rent is to be paid daily....
In the case at bar, there is no debate that Ricardo Cruz
pays his rent monthly which thus makes his lease
contract terminable at the end of every month without
need of any special notice to vacate. 7 Roman Legarda
So may exercise his right to terminate the contract at
the end of any month even if any of the conditions of
the contract had not been violated, 8 and such right
cannot be defeated by the lessee's timely payment of
the rent or by his willingness to continue doing so. 9
Furthermore, the contract of lease being on a month-
to-month basis, Ricardo Cruz cannot validly claim that
the lease is for an indefinite period. Article 1687
specifically provides that the term is month to month if
the rent is paid monthly, hence it is a lease with a
definite term. Such lease contract expires at the end of
every month unless there is an implied or tacit renewal
thereof as when the lessee is allowed to continue
enjoying the leased premises for fifteen (15) days at
the end of every month with the acquiescence of the
lessor. Such exception, however, cannot be invoked
when notice to vacate is given to the lessee in which
case the contract of lease expires at the end of the
month.
In the case at bar, Ricardo Cruz does not refute, and in
fact he even admits, that a notice to vacate was issued
to him on April 18, 1977 by Roman Legarda So
informing him that their lease contract would expire on
April 30, 1977. Although payment of rental was made
for the month of May, 1977 and accepted by Roman
Legarda So, this does not by itself curtail the latter's
right to terminate the lease contract at the end of every
succeeding month. Besides, the lessor is entitled to
payment for the occupancy of his premises even after
the contract has expired.
Secondly, without explicitly admitting the breach, Cruz
offers the flimsy and unsubstantiated excuse that there
is a pre-existing remittance arrangement between the
parties over the settlement of his rental arrearages and
erroneously postulates that, by virtue of said
arrangement, he cannot now be considered as in
default. 10 For all intents and purposes, the fact
remains that the failure of Cruz to pay the rents when
due constitutes a breach of the contract of lease which
gives rise to So's right of rescission under Article 1191
of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
We are convinced that So acted well within his rights
in terminating his contract with Cruz and in entering
into a new one with third persons, without need of
resorting to judicial action. This finds support in our
ruling in the case of University of the Philippines vs.
De los Angeles, etc., et al. 11 which involved the
question of whether the injured party may consider the
contract as rescinded even before any judicial
pronouncement has been made to that effect. This
Court, in holding in the affirmative, ruled that:
Of course, it must be understood that the act of a party
in treating a contract as cancelled or resolved on
account of infractions by the other contracting party
must be made known to the other and is always
provisional, being ever subject to scrutiny and review
by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deed 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).
We see no conflict between this ruling and the
previous jurisprudence of this Court invoked by
respondent declaring that judicial action is necessary
for the resolution of a reciprocal obligation, since in
every case where the extrajudicial resolution is
contested only the final award of the court of
competent jurisdiction can conclusively settle whether
the resolution was proper or not. It is in this sense that
judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel or
prescription. (Emphasis supplied)
Ricardo Cruz further maintains that the lease contract
with Roman Legarda So is one with an indefinite
period, no specific term having been agreed upon by
the parties, hence the court can legally fix a longer
term. He invokes the second sentence of Article 1687
of the Civil Code which states that even though a
monthly rental is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease
after the lessee has occupied the premises for over
one year.
We reject such proposition.
As earlier stated, the contract of Ricardo Cruz, being
on a month-to- month basis, is a lease with a definite
period. Since the contract of lease is for a definite
term, the lessee cannot avail of the benefits under
Article 1687 which applies only if there is no definite
term. And, even assuming arguendo that Article 1687
applies, Ricardo Cruz would still not be entitled to have
the term fixed for a longer period since his action was
filed only after the contract had expired.
12
As held in Vda. de Prieto us. Santos, et al.
Under this provision, if the period of a lease contract
has not been specified by the parties therein, it is
understood to be from month to month, if the rent
agreed upon is monthly, as in the cases at bar.
Consequently, the contract expires at the end of such
month, unless, prior thereto, the extension of said term
has been sought by appropriate action and judgment
is, eventually, rendered therein granting said relief.
Defendants herein maintain that their lease contracts
did not, and could not, come to an end until after the
court has fixed its lifetime and the term thus fixed has
expired. This view, is, to our mind, untenable. To begin
with, defendants assume that their contracts are
without term, prior to the judicial action authorized in
said Article 1687, whereas the same provides that the
duration of lease contracts shall be yearly, monthly,
weekly, or daily depending upon whether the rental
agreed upon is annual, monthly, weekly, or daily. In
other words, said contracts have a term fixed by law,
and are not indefinite in duration, before said judicial
intervention. Secondly, said Article 1687 merely gives
the court discretion to extend the period of the lease.
The court is not bound to extend said term. It may
legally refuse to do so, if the circumstances
surrounding the case warrants such action. ...
(Emphasis reproduced)
Additionally, under the factual features of this case,
there is nothing in the law which confers upon the
lessee the preferential right to occupy the premises
over other prospective lessees when his lease contract
has been terminated. To require otherwise will unduly
deprive the lessor of his ownership rights without due
process of law.

Lastly, if Ricardo Cruz actually believed that he had

every right to continue with the lease of the subject
premises, we find no plausible reason for his
inscrutable silence on and apparent acquiescence to
the lease contract executed by Roman Legarda So
with third persons in 1977. His inexplicable inaction
when ordinary reason and prudence dictate that he
should have done something about it operates as an
admission that his lease contract had been validly
terminated.

While we are inclined, on equitable considerations, to

allow the period of extension provided for the Court of
Appeals, the grant thereof has been rendered moot by
the fact that Ricardo Cruz had recovered and has
been in possession of the premises since May 4, 1982
when a writ of preliminary injunction was issued by the
trial court. In fact, it appears that he continues to do so
up to the present, which is clearly beyond the 57-
month period fixed by the Court of Appeals, without
paying the corresponding rentals for his occupancy.
Under the circumstances, the legal imperative is that
Ricardo Cruz should pay Roman Legarda So a
monthly rent of P 3,500.00 starting May 4,1982 until
Cruz surrenders possession of the leased premises to
So. Correlatively, Ricardo Cruz should immediately
desist from operating the market and from collecting Republic of the Philippines
rentals from stallholders occupying the premises of SUPREME COURT
Roman Legarda So and to peaceably surrender the Manila
said premises to So or the latter's authorized
representatives. FIRST DIVISION

WHEREFORE, the judgment of the Court of Appeals is G.R. No. 75096 October 23, 1990
hereby MODIFIED as follows:
SATURNINO SONGCUAN, petitioner,
1. Ricardo Cruz is hereby ordered to forthwith desist vs.
from operating the market and from collecting rentals Hon. INTERMEDIATE APPELLATE COURT,
from stallholders occupying the premises of Roman MARIANO ALVIAR BELEN ALVIAR and LUZ
Legarda So; ALVIAR PINLAC respondents.

2. Ricardo Cruz is further ordered to pay a monthly
rental of P3,500.00 to Roman Legarda So from May
4,1982 until he fully surrenders possession of the
entire leased premises to Roman Legarda So.
HON. GENARO C. GINES, in his capacity as Judge
3. The writ of preliminary injunction issued by the court
a quo is hereby dissolved.
SO ORDERED.
G.R. No. 80851 October 23, 1990
SATURNINO SONGCUAN, petitioner,
vs.
of the Regional Trial Court, Branch 26, San
Fernando, La Union, ATTY. ALFREDO A.
TALAVERA, in his capacity as Clerk of Court,
Regional Trial Court of San Fernando, La Union,
MARIANO ALVIAR, BELEN ALVIAR and LUZ
ALVIAR PINLAC respondents.

Arcadio G. De la Cruz for petitioner.

Alfredo F. Tadiar for private respondents.

MEDIALDEA, J.:

Victoriano Alviar was the owner of two parcels of land

located at San Fernando, La Union. On the land
stands a building owned by his son, Mariano, and his
wife, Belen. On September 29, 1966, the Alviars sold
these realties to Saturnino Songcuan for P34,026.09.
On October 10, 1966 Songcuan executed an
instrument entitled "Deed of Repurchase of Two
Parcels of Land and a Residential-Commercial
Building" (pp. 5-6, Records [Exhibit]) wherein he gave
the Alviars, or any one of them or "their respective
heirs and assigns, the right and privilege to repurchase
[the realties they had previously sold to him] ... at the
price of P34,026.09 ... for, during and within the period
of 10 years counted from the date of execution of [the]
instrument" provided that the redemptioner also pays
the cost of improvements.
Appearing at the dorsal portion of the instrument below
the notarial subscription is an undated additional
condition which reads, to wit:
P.S. (Additional condition)
In the event the said Victoriano Alviar, Mariano S.
Alviar and Belen F. Alviar or either of them, exercise or
exercises the right to repurchase the above described
properties and they or either of them become the
owner and possessor of the premises, they shall or
either of them be obliged to give me (Saturnino A.
Songcuan) the right of lease and are or is obliged to
execute a lease contract with me for a period of twenty
five (25) years from the time of exercising the right to
repurchase the premises, at a monthly rental of three
hundred ninety pesos (P390.00), for the premises
actually occupied by me (Saturnino Songcuan) at the
time of the execution of this instrument. (p. 6, Records
[Exhibit])
The signatures of the Alviars appear at the bottom of
the paragraph. At the time of the execution of the
instrument, Songcuan, though then already the owner
of the realties, was admittedly actually occupying only
one-third portion of the ground floor of the 3 storey
building, apparently having leased the remaining
portion to third persons.
Sometime in March, 1969 the mentioned building was
razed by fire and Songcuan erected another at his own
expense. Subsequently, Songcuan had the realties
registered in his name and was issued OCT No. 0-
1029 sometime in 1969.
In 1974, the Alviars filed a complaint against
Songcuan, docketed as Civil Case No. 2621, for
"Redemption with Consignation" to compel the
defendant to effect the redemption to them of the
subject realties. Victoriano Alviar having died at this
time, he was represented by his heirs. Songcuan
refused to sell back to the Alviars the properties
because the latter was tendering only the price of
P34,026.00 whereas Songcuan wanted
reimbursement for the cost of the building he erected
and also for the cost of the registration of the realties.
The Alviars, on the other hand, claimed that the
transactions between them and Songcuan were one of
equitable mortgage and, therefore, Songcuan cannot
compel them to pay for the cost of the building he had
erected without their permission.
In his Answer, Songcuan prays, in the alternative, that
in the event the Alviars be allowed to repurchase the
realties the latter be also compelled to lease the
properties to him pursuant to the "P.S. (Additional
Condition)" embodied in the instrument dated October
10, 1966 as above quoted.
On July 29, 1977, the then Court of First Instance of
La Union rendered its decision decreeing the following:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered
(a) Declaring that the true and real agreement or
contract of the parties Exhs. C, D, E & F for plaintiffs;
(Exhs. 1, 2, 3 and 4 for the defendant) on the two
parcels of land with the commercial building is that of a
deed of sale with right to repurchase and hereby
enjoins the parties to comply and abide by the terms of
their contract;
(b) Declaring that plaintiffs' right to repurchase the
property as admitted by the defendant for a period of
10 years from October 10, 1966 to October 10, 1976,
as stipulated in their contracts, have been suspended
by the filing of the complaint on November 22, 1974.
Said redemption period is suspended during the
pendency of this case. Plaintiffs-vendor-a-retro may
exercise their right to repurchase the properties within
the remaining period of one (1) year, 10 months and
18 days from the finality of this decision (Ong Chua v.
CARR, 53 Phil. 975) or within the period of 30 days
from finality of this decision as provided for under Art.
1606 of the New Civil Code;
(c) The plaintiffs in exercising their right to repurchase
the properties should pay the defendant the necessary
and useful improvement in putting up the building in
the amount of P30,000.00, in addition to the
repurchase price of P34,026.09, and the additional
expenses of P1,000.00 for the registration of the land
under Act 496; otherwise, the defendant may retain
possession of the parcels of land and building until
reimbursement is fully made;
(d) No damages, including attorney's fees and
litigation expenses is awarded to both parties.
Without pronouncement as to costs. (P. 57, Record
[Exhibits]
From this decision Songcuan appealed alleging
among others that "[the [lower court] erred in refusing
to make a finding as to the appellants' right to lease
the property for 25 years ... "
On July 15, 1980 the Court of Appeals, in CA-G.R. No.
62934, affirmed in toto the appealed decision. With
respect to Songcuan's alleged right to lease, the
appellate court stated that the lower court had already
upheld the validity of the deeds executed by the
parties and, therefore, "such pronouncement regarding
appellant's right to lease the premises for 25 years is
unnecessary. The condition is already there in the
contract itself which is the law between the parties."
This decision became final and executory on March 9,
1981, the petition for its review having been denied in
our resolution, in G.R. No. 55196 dated January 26,
1981.
The writ of execution was issued on April 1, 1981 but
was returned unsatisfied because Songcuan refused
to accept the manager's check tendered to him
claiming that it was not legal tender and for the further
reason that the Alviars refused to execute a lease
contract in his favor as embodied in their October 10,
1966 contract. An alias writ of execution was issued on
June 1, 1981 but also was not satisfied.
On July 7, 1981, Songcuan filed a complaint with the
same Court of First Instance of La Union for
Rescission of Right to Repurchase which was
docketed as Civil Case No. 3213 and which gave rise
to this petition. Songcuan was of the opinion that the
Alviars' forfeited their right to repurchase the realties
for having failed to redeem them within 30 days from
the finality of the decision in Civil Case No. 2621
contrary to the mandate of Article 1606 of the Civil
Code.
On July 9, 1981, the trial court in Civil Case No. 2621
issued an order for its Clerk of Court to issue a Deed
of Reconveyance in behalf of Songcuan and in favor of
the Alviars.
On July 11, 1981, Songcuan amended his complaint
alleging that rescission lies for the further reason that
the Alviars failed to execute in his favor a lease
contract citing Article 1191 of the Civil Code, and that if
the Deed of Reconveyance had already been
executed by the Clerk of Court it be declared null since
the Alviars had already forfeited their right to redeem
the realties. Songcuan's amended complaint further
added an alternative prayer that in the event the court
decides to compel him to reconvey the properties, the
Alviars be also compelled to lease the realties to him
for 25 years according to the terms of their contract.
On July 17, 1981, the Clerk of Court of the Court of
First Instance of La Union issued a Deed of
Reconveyance transferring ownership of the properties
to the Alviars. Possession of the properties, however,
was retained by Songcuan as the trial court granted
his prayer for a writ of preliminary injunction in Civil
Case No. 3213 to enjoin the Alviars from taking
possession of the realties.
In their Answer, the Alviars alleged that their tender to
Songcuan of a manager's check was a valid tender of
payment and that Songcuan is no longer entitled to
lease the premises because the subject matter of the
contract was burned in 1969 citing Article 1655 of the
Civil Code.
On March 19, 1984, the trial court rendered its
decision, the dispositive portion of which reads, to wit:
WHEREFORE judgment is hereby rendered as
follows:
1. That defendants exercised (sic) their right of
redemption within the specific period of one (1) year,
ten (10) months and eighteen (18) days from March 9,
1981 as provided for in the decision of Civil Case No.
2621;
2. That the Deed of Reconveyance executed by the
Clerk of Court and Ex-Officio Provincial Sheriff dated
July 17, 1981 is valid and cannot be rescinded;
3. That plaintiff is the lessee of the defendant on the
entire properties mentioned in the Deed of
Reconveyance for a period of twenty-five (25) years to
be counted from July 17, 1981 at the monthly rental of
THREE HUNDRED NINETY (P390.00) PESOS;
4. That the preliminary injunction restraining
defendants or any of their representatives or agents or
persons acting on their behalf from committing acts of
dispossession against plaintiff on the premises of this
complaint is now made PERMANENT during the
existence of the lease contract, ...;
5. That defendants shall maintain the plaintiff in the
peaceful and adequate enjoyment of the lease for the
entire duration of the lease;
6. That defendants shall pay plaintiff the amount of
P50,000.00 by way of attorney's fees as damages with
interest at the legal rate of 12% per year until fully
paid; and
7. That defendants pay costs of this suit.
SO ORDERED. (pp. 363-386, Records)
Both parties appealed, Songcuan pressing for
rescission while the Alviars disclaiming any obligation
to lease the premises to Songcuan. The Alviars, in the
alternative countered, that if Songcuan was entitled to
lease the premises, the lease should cover only 1/3 of
the building.
On June 27, 1986 the Court of Appeals in AC G.R. CV
No. 04325 rendered its decision (pp. 58-69, Rollo)
modifying that of the trial court's by limiting the area
Songcuan is entitled to lease to only 1/3 of the
building; declaring the Alviars entitled to a writ of
possession with regard the rest of the premises;
deleting the award of attorney's fees and ordering the
parties to each bear the cost of litigation.
From this decision Songcuan appealed by certiorari to
this Court (G.R. No. 75096). The principal issue here
is the same as that presented in the lower court and
the Court of Appeals, which is, whether or not the
Alviars had forfeited their right to repurchase, or
whether the right may be rescinded under the grounds
advanced by Songcuan. After deliberating on the
arguments raised, this Court rules in the negative.
We do not find merit in Songcuan's argument that the
Alviars had forfeited their right to repurchase the
subject premises for having failed to exercise it within
thirty days from the finality of the decision in Civil Case
No. 2621 citing the third paragraph of Article 1606 of
the Civil Code which provides that a vendor-a-retro
may still exercise his right to repurchase "within thirty
days from the time the final judgment was rendered in
a civil action on the basis that the contract was a true
sale with right to repurchase."
The judgment in Civil Case No. 2621 which had
become final on March 9, 1981, had ordained that the
running of the period within which the Alviars could
repurchase the premises had been suspended during
the pendency of the case and they were given the
option either to repurchase the premises within 30-
days from the finality of the judgment, as provided by
the law, or within the remaining period of one year, ten
months and 18 days therefrom.
It is axiomatic that a final judgment may no longer be
amended and to limit now to 30 days the period within
which the Alviars may repurchase the premises would
be an open violation of the rule. A final judgment is the
law between the parties to a case and controls their
relation with respect to the controversy there
presented. We thus fully agree with the
pronouncement of the appellate court on this matter
that:
There is no merit in Songcuan's claim that the Alviars'
failure to abide by Article 1606 of the New Civil Code
foreclosed their right to repurchase. Indeed, Art. 1606
provides that the vendors-a-retro may repurchase
within 30 days from the finality of the judgment ...
However, it is noted that the final decision in Case
2621, which became final on March 9, 1981, gave the
Alviars two alternative periods within which to exercise
the right to repurchase either within 30 days as
prescribed in Article 1606, or within 1 year, 10 months
and 18 days from March 9, 1981, ... Accordingly,
whichever of the alternative periods the Alviars may
avail of, would still constitute a valid exercise of their
right. (pp. 64-65, Rollo)
Neither do We agree that the right of the Alviars to
repurchase may be rescinded under Article 1191 of the
Civil Code. Songcuan asserts that the October 10,
1966 contract he entered into with the Alviars created
a reciprocal obligation between them for him to
reconvey the subject premises and for the Alviars to
lease the realties to him and the refusal of the latter to
fulfill their obligation giving him the right, under Article
1191, to rescind "the right of [the Alviars] to
repurchase" the realties. The law provides in part:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
xxx xxx xxx
The cited law is not applicable in this case. Although
the parties are each obligor and obligee of the other,
their corresponding obligation can hardly be called
reciprocal. In reciprocal obligations the obligation of
one is a resolutory condition of the obligation of the
other, the non-fulfillment of which entitles the other
party to rescind the contract. In the case at bar, there
are two separate and distinct obligations, each
independent of the other. The obligation of Songcuan
to reconvey the property is not dependent on the
obligation of the Alviars to lease the premises to the
former. The obligation of the Alviars is not an essential
part of the contract.
This is evident in the wordings of the "P.S. (Additional
Condition)" itself which states that "in the event [the
Alviars] exercised the right to repurchase ... and
becomes the owner and possessor of the premises,
they shall ... be obliged to give [Songcuan] the right of
lease and are ... obliged to execute a lease contract ....
" In other words, the obligation of the Alviars to lease
to Songcuan the subject premises arises only after the
latter had reconveyed the realties to them. We quote
with approval the following statements of the
respondent appellate court:
For the stipulation imposes on them the obligation to
execute the lease only at such time when the Alviars
or any one among them exercises the right and
becomes the possessor of the properties in question ...
Otherwise stated, the obligation to execute the lease
emerges only if the Alviars had already repurchased
and obtained possession of the repurchased
properties. (p. 66, Rollo)
Should the Alviars fail to lease the subject premises to
Songcuan after reconveyance, then the latter's remedy
is not for rescission but for specific performance, which
in fact he asked for in the alternative and was granted
by the trial court and the Court of Appeals.
Thus, the right of the Alviars to repurchase must be
upheld notwithstanding the fact that such right had not
been annotated at the back of Songcuan's certificate
of title. The purpose of annotation is only to serve
notice to third persons and not to lend validity or nullity
to an instrument.
The next question to be resolved is how much area
Songcuan is entitled to lease. The trial court, awarded
Songcuan the whole premises, based on the "P.S.
(Additional Condition)" which speaks of "the premises
actually occupied by [Songcuan]" and there was no
evidence presented by the Alviars on the area
Songcuan was actually occupying. Further, the trial
court said that the right of Songcuan to lease the
whole premises is strengthened by the fact that he
became the registered owner of the realties and
hence, has complete dominion over the properties.
We rule, however, that the P.S. clause refers to the
area Songcuan was actually occupying and not to
what he constructively may possess as the owner of
the premises at the time of the execution of the
October 10, 1966 contract. Further, as pointed out by
private respondents, there was no need to present any
evidence as to the area Songcuan was actually
occupying since at the pre-trial conference in the trial
court, Songcuan had admitted that he was occupying
only one-third of the single story Alviar building.
Under the parties' agreement, Songcuan's lease was
to start from the time the Alviars exercised their right to
repurchase. Songcuan should therefore be deemed to
have become the Alviar's lessee on July 17, 1981 and
should pay rent in the amount agreed upon from said
date.
As regards the deletion by the respondent court of the
award to Songcuan of attorney's fees, We fully agree
and quote its pronouncement that:
We find no justification for the exorbitant award in
Songcuan's favor of attorney's fees of P50,000.00
considered as damages. Attorney's fees in concept of
damages may be awarded only if the defendant acted
in gross and evident bad faith in refusing plaintiffs just
and demandable claim. (Art. 2208, New Civil Code). In
the case at bar, there is no showing that the Alviars
acted in bad faith in refusing Songcuan's claim to a 25-
year lease of the entire premises. The stipulation to
that effect merely refers to the premises Songcuan
was occupying at the execution of the deed on
October 10, 1966, which admittedly, was only 1/3 of
the ground floor of the Alviar building, not the entire
building. .... " (p. 68, Rollo)
With respect to G.R. No. 80851, which is a petition to
enjoin the implementation of the writ of possession in
favor of the Alviars, there is no need to discuss the
issues therein, as the same has become moot and
academic, this Court having pronounced that
Songcuan is entitled to lease only one-third of the
ground floor of the subject building, with the Alviars
being entitled to a writ of possession as to the rest.
ACCORDINGLY, the decision under review in G.R. No.
75096 is hereby AFFIRMED, and the petition in G.R.
No. 80851 is DISMISSED for having become moot
and academic.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 70310-11 June 1, 1993
MASSIVE CONSTRUCTION, INC., ENRIQUE P.
SYQUIA, RAMON P. SYQUIA, JOSE MA.
MENDIETA, JAIME SANTAMARIA, and JESUS P.
SYQUIA, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE
COURT and JAIME C. UY, respondents.
Syquia Law Offices for petitioners.
R.A. V. Saguisag for private respondent.
BELLOSILLO, J.:
This is an appeal by certiorari under Rule 45, Revised
Rules of Court, from the consolidated decision of the
Court of Appeals in AC-G. R. No. 64077-CV, entitled
"Massive Construction Inc. v. Jaime C. Uy," and AC-G.
R. No. 65234-CV, entitled "Jaime Uy v. Enrique P.
Syquia, et al."
In AC-G. R. NO. 64077-CV, the Court of Appeals
reversed the decision of the Court of First Instance of
Manila in Civil Code No. 87006, which ordered
defendant Jaime C. Uy, (UY for brevity) to pay plaintiff
(MASSIVE for brevity) a sum of money for unrealized
profits resulting from UY's violation of the Agreement
dated December 16, 1971 (AGREEMENT for brevity),
attorney's fees and costs.
In AC-G. R. No. 65234-CV, the Court of Appeals
reversed the decision of the Court of First Instance of
Manila in Civil Case No. 87511, which declared the
AGREEMENT as rescinded due to the breach thereof
by both UY and defendants Enrique Syquia, et al.
(stockholders of MASSIVE).
The two cases arose from a common background.
MASSIVE was engaged in the construction business
in the Greater Manila Area while UY was connected
with Super Highway Lumber and Construction Supply,
Inc. (SUPER HIGHWAY for brevity), a business run by
his wife and engaged in the business of supplying
construction materials.
In the latter part of 1971, MASSIVE suffered financial
reverses, resulting in its corporate reorganization.
Ramon P. Syquia, the general manager of MASSIVE,
asked his relatives to help bail out the company from
its financial difficulties. Enrique P. Syquia, Jose Ma.
Mendieta, Jaime Sta. Maria, and Jesus P. Syquia were
thus elected directors.
In the course of operation, MASSIVE became indebted
to SUPER HIGHWAY for purchase of construction
materials in an amount exceeding P100,000.00. In
order to settle this obligation, negotiations were started
between the stockholders of MASSIVE on one hand
and UY on the other. After several meetings, the
parties signed on 16 December 1972 their
AGREEMENT, particularly entered into by and among
JAIME C. UY as First Party, RAMON P. SYQUIA as
Second Party, and JOSE MA. MENDIETA, JAIME
STA. MARIA, ROMEO ALMARIO, JESUS P. SYQUIA
and ENRIQUE P. SYQUIA jointly as Third Party, with
Jose Ma. Mendieta signing his CONFORME in behalf
of MASSIVE, the pertinent terms of which follow:
1. That the SECOND PARTY and the THIRD PARTY
are the complete stockholders and directors of
MASSIVE CONSTRUCTION, INC., a corporation duly
organized and existing under the laws of the
Philippines.
2. That the FIRST PARTY is desirous of buying the
entire shares of stock of said corporation;
3. That the FIRST PARTY, SECOND PARTY and
THIRD PARTY have agreed that the FIRST PARTY
will purchase the entire shares of stock of the
corporation belonging to the SECOND PARTY for
P250,000.00, under the following terms and
conditions:
a) That the FIRST PARTY will pay to the SECOND
PARTY and THIRD PARTY as earnest money,
P20,000.00 upon the signing of this Agreement, and
which will constitute as down payment after which the
FIRST PARTY complies with this Agreement, but
which will be forfeited in favor of the SECOND and
THIRD PARTY in case of failure to comply with this
Agreement;
b) That aside from the P20,000.00 earnest money, the
FIRST PARTY will pay P30,000.00 on or before
January 5, 1973 and the balance of P200,000.00 shall
be paid in monthly installments of P50,000.00 every
5th day of the month thereafter until the entire amount
of P250,000.00 is paid;
c) That the corporation has monies due it from its
receivable and collections; and the corporation has
also a pending obligation with the FIRST PARTY; and
all parties agree that from this date, 50% of the
receivable collected and 30% of the collections
received by the corporation shall be applied to the
balance of P230,000.00 owing from the FIRST PARTY
to the SECOND PARTY and THIRD PARTY; and these
amounts, in turn, shall be paid by the FIRST PARTY to
the corporation by the reduction and partial payment of
the obligation of the corporation to the FIRST PARTY;
d) That upon payment of the FIRST PARTY of
P20,000.00 to the SECOND PARTY and THIRD
PARTY, the SECOND PARTY and THIRD PARTY will
give P25,000.00 worth of shares to the FIRST PARTY,
and said FIRST PARTY shall also be elected as
director of the Corporation; and upon succeeding
payments made by the FIRST PARTY, shares of stock
will be transferred to him until the total of P100,000.00
worth of shares have been transferred to the name of
the FIRST PARTY; and once the entire amount of
P250,000.00 is paid by the FIRST PARTY to the
SECOND PARTY and THIRD PARTY, then the
remaining balance of the shares of stock shall be
transferred to him immediately;
e) That until the FIRST PARTY has fully paid said
amount of P250,000.00, the corporate structure and
management at the present time shall be maintained,
and all the stockholders and directors shall continue
with their present rights, privileges, and prerogatives;
f) That upon payment by the FIRST PARTY to the
SECOND PARTY and THIRD PARTY of the said
amount of P250,000.00, all the obligations of the
corporation to the SECOND and THIRD PARTY, which
are purely personal in nature, shall be considered fully
liquidated; but this shall not exceed P4,650.00 a
month;
g) That said P250,000.00 shall be utilized in paying
primarily to the SECOND and THIRD PARTY the
monies they have advanced and loaned to the
corporation;
h) That immediately upon the singing of this
agreement, the FIRST PARTY shall make available to
the corporation such materials and capital as the
corporation may need for its projects as determined by
the SECOND PARTY, but this shall be considered as
an obligation of the corporation to the FIRST PARTY.
4.) That as soon as the FIRST PARTY has paid
P250,000.00 to the SECOND and THIRD PARTY, and
the entire shares of the corporation are transferred to
him, it is agreed that the FIRST PARTY, in turn, will
transfer half of these shares to the SECOND PARTY;
and the FIRST PARTY and SECOND PARTY shall
manage and control the corporation in equal shares, in
equal proportion and with equal participation in the
profits. 1
At the signing of the AGREEMENT, the stockholders of
MASSIVE informed UY that the company had several
on-going construction projects, including those of
Queen's Row Subdivision, Republic Flour Mills, and B.
F. Homes. On the same occasion, Uy issued to
Enrique P. Syquia a check postdated 22 December
1971 which bounced for lack of funds. UY, however,
made good the check by paying Syquia P20,000.00 in
cash on 29 December 1971. 2
Out of the P20,000 paid by UY to Enrique P. Syquia,
UY borrowed P2,000.00 payable on or before 5 July
1972. UY failed to pay this amount, which compelled
Syquia to file a collection suit against him in the City
Court of Manila (Civil Case No. 209298). The latter
Court rendered judgment against UY, who appealed
the decision to the Court of First Instance of Manila
(Civil Case No. 87310).
Immediately after the signing of the AGREEMENT, UY
was made a co-manager of MASSIVE, pursuant to the
AGREEMENT. Ramon P. Syquia also asked Uy for his
promised contribution of materials and funds. Out of
P100,000.00 worth of materials needed for the
projects, UY was able to deliver only P6,085.69. He
gave as an excuse the non-payment by his relatives of
the dividends which he intended to invest in MASSIVE.
MASSIVE made three demands for payment of the
damages caused by UY's failure to comply with his
obligation under the AGREEMENT: the first, addressed
to UY dated 14 January 1972, 3 the second, addressed
to UY's counsel dated 18 January 1972, 4 and the third,
addressed to UY himself dated 18 January 1972. 5
In his answer to the letter dated 14 January 1972 of
MASSIVE, 6 UY wrote that he had been relieved from
payment of the P30,000.00 required under paragraph
3(b) of the AGREEMENT because of the failure of the
stockholders of MASSIVE to deliver to him the
company's share of stock worth P25,000.00 upon his
payment to them of the sum of P20,000.00. 7
While Uy received the letters dated 17 and 18 January
1972, he did not reply to them.
Because of the lack of fresh capital and construction
materials, MASSIVE aborted all its projects.
In Civil Case No. 87006, the trial court found that UY
failed to make available to MASSIVE the construction
materials and funds needed for its projects; that the
construction materials delivered by UY to MASSIVE
valued at P6,085.69 were inadequate to carry out its
various projects; that UY's claim that he did not
understand the import of the AGREEMENT was
unbelievable; and, that it was UY who reneged on his
obligations under the AGREEMENT. 8
The trial court, after finding that it was UY who had
violated the terms of the contract, particularly
paragraph 3(h) thereof, held him liable to pay
MASSIVE P20,000.00 as damages for the Republic
Flour Mills project, P80,000.00 for the Queen's Row
Subdivision project, and P10,000.00 as attorneys'
fees. The trial court denied MASSIVE's claim for
damages with respect to the B. F. Homes project.
The trial court did not resolve the issue on the right of
UY to rescind the contract, saying that this issue would
have to be resolved in Civil Case No. 87511.
In Civil Case No. 87511, the trial court found that Uy
entered into the contract freely and even with the
assistance and advice of counsel; that there was no
undue influence or fraud exerted on him by
MASSIVE's stockholders as to justify the nullification
of the contract; and, that the said stockholders did not
conceal from Uy the financial status of MASSIVE. 9
The trial court however did not award any damages
after finding that all the parties had defaulted in the
fulfillment of their obligations but it could not determine
who of the parties first violated the contract. 10
Uy appealed to the Court of Appeals from the
decisions in both cases. The Court of Appeals, viewing
the evidence in a different light, found that the
stockholders of MASSIVE were the ones who first
violated the terms of the AGREEMENT when they
failed to assign to UY the P25,000.00 worth of the
company's shares of stock and to elect him a director
of the company upon his payment of P20,000.00. 11
In both AC-G.R. No. 64977-CV and AC-G.R. No.
65234-CV, the Court of Appeals reversed the
decisions of the Court of First Instance. In addition, in
AC-G.R. No. 65234-CV, the Court of Appeals ordered
MASSIVE to refund to Uy the sum of P20,000.00 and
to pay P6,085.69, representing the cost of materials
delivered by UY to MASSIVE, P5,000.00 as attorney's
fees and costs. In AC-G.R. No. 65234-CV, the Court of
Appeals made the stockholders of MASSIVE
subsidiarily liable to pay UY the amounts adjudged in
AC-G.R. No. 64077-CV to be paid by MASSIVE. 12
The Court of Appeals, however, did not sustain UY's
claim that his consent to the contract was obtained by
fraud. 13
The Court of Appeals sustained the trial court in its
finding that MASSIVE was a proper party to ask for
specific performance of the contract. The appellate
court noted that the contract was signed by all the
directors-stockholders of MASSIVE and even had the
conformity of said company. 14
This Court can review the findings of facts of the Court
of Appeals when the same are contrary to the findings
of the trial court 15 and to the stipulation of facts of the
parties. 16
Inasmuch as the AGREEMENT imposed reciprocal
obligations, the question to resolve is who of the
parties breached the contract first. The starting point of
the inquiry is the contract itself.
Under the AGREEMENT, UY, as First Party, agreed to
buy all the outstanding shares of stock of MASSIVE
and the stockholders of MASSIVE, as Second and
Third Parties, agreed to sell to him the said shares for
P250,000.00, under the following terms:
1) Upon the signing of the contract, Uy, would pay
Ramon P. Syquia and the other stockholders of
Massive the sum of P20,000.00 as earnest money;
2) Immediately upon the signing of the contract, Uy
would "make available to Massive such materials and
capital as the company may need for its projects as
determined by Ramon P. Syquia. All the materials and
capital given by Uy would be considered an obligation
of Massive;
3) On or before January 5, 1973, Uy would pay the
stockholders of Massive the sum of P30,000.00;
4) Every 5th day of the month beginning February 5,
1973, Uy would pay the amount of P50,000.00 until
the balance of P200,000.00 was paid;
5) Upon the payment of the P20,000.00 to the
stockholders of Massive the latter would give him
P25,000.00 worth of shares and would elect him a
director of the company.
The party required to act first in compliance with the
terms of the contract is no other than UY.
While UY issued a postdated check for P20,000.00 on
16 December 1972 in payment of the earnest money
required under paragraph 3 (a) of the AGREEMENT,
the check bounced when it was deposited for
collection. True, UY made good the check on 29
December 1971 but he had to borrow P2,000.00 out of
his payment of P20,000.00. Having failed to pay this
amount by 5 July 1972 as promised, UY was sued in
the City Court of Manila for its collection. Effectively,
UY was able to pay only P18,000.00 out of the
P20,000.00 he was supposed to pay as earnest
money. This aspect of the case showed the financial
difficulties besetting UY and reflecting poorly on his
ability to meet his financial commitments.
In addition to his obligation to pay the earnest money
of P20,000.00 Uy was required under paragraph 3(h)
of the AGREEMENT to make available to MASSIVE
immediately upon the signing of the contract, such
"materials and capital as the corporation may need for
its projects as determined by" Ramon P. Syquia. Uy
was able to deliver to MASSIVE materials valued at
only P6,085.69 out of the P100,000.00 worth as
required by the on-going projects.
The infusion of fresh capital was the lifeblood of the
projects and the essence of his being brought in as an
investor. Without his capital contribution, the company
could not possibly operate.
Lastly, UY failed to pay on or before 5 January 1972
the P30,000.00 required under paragraph 3(b) of the
AGREEMENT. UY cannot claim that he was relieved
from the payment of the monthly installment of
P50,000.00 beginning 5 January 1973. When the
parties agreed that the monthly installments should be
paid out of the receivables and collections of
MASSIVE (paragraph 3[c], AGREEMENT), it was
implied that there was actual cash received or
collected.
The Court of Appeals held that UY was relieved of his
obligation to pay the P30,000.00 after the stockholders
of MASSIVE failed to deliver the P20,000.00 worth of
shares of stock of the company. The thinking of the
Court of Appeals was that after UY had paid the
P20,000.00 earnest money, it became the seller's turn
to assign the shares of stock to UY.
The Court of Appeals erred in concluding that the
stockholders of MASSIVE were the first to default on
their obligations because it overlooked the fact that
under paragraph 3(h) of the AGREEMENT, UY was
also obligated "immediately upon the signing of the
contract" to contribute materials and funds needed for
the on-going projects.
Uy was aware of these twin-obligations of his, so much
so that his complaint in Civil Case No. 87511 against
the stockholders of MASSIVE was anchored on his
alleged compliance with the provisions of paragraph
3(a) and (h) of the AGREEMENT. 17
The failure of the stockholders to deliver to UY the
P25,000.00 worth of shares is not as substantial a
breach as that accorded it by the appellate court. As a
matter of fact, Uy did not set up such default as a
defense in his answer in Civil Case No. 87006, leading
one to conclude that such contention was a mere
after-thought.
Under Art. 1191 of the Civil Code, the power to rescind
or the right to resolve is not absolute and must be
based on a serious breach of an obligation as to
defeat the object of the parties in making the
agreement. 18 The non-delivery of the certificates of
stock to Uy and his non-election to the board of
director were not serious breaches, particularly
considering that he has not shown the necessity or
urgency for the transfer of the shares in his name or
his election as director. Besides, the trial court is given
the discretion to allow a period within which a party in
default may be permitted to perform the stipulation
upon which the claim for rescission of the contract is
based, especially when the breach is not substantial. 19
WHEREFORE, the decision of the Court of Appeals is
reversed and, in lieu thereof, the decision of the trial
court in Civil Case No. 87006 is AFFIRMED in toto,
and the decision in Civil Case No. 87511 is likewise
AFFIRMED but only insofar as it dismissed the
monetary reliefs including attorney's fees sought by
both parties.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 101762 July 6, 1993
VERMEN REALTY DEVELOPMENT
CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and SENECA
HARDWARE CO., INC., respondents.
Ramon P. Gutierrez for petitioner.
Adriano Velasco for private respondent.
BIDIN, J.:
Petitioner seeks a review of the decision of the Court
of Appeals in CA-G.R. CV No. 15730, which set aside
the decision of the Regional Trial Court of Quezon
City, Branch 92 in Civil Case No. Q-45232. The
dispositive portion of the assailed decision reads as
follows:
WHEREFORE, the decision a quo is set aside. As
prayed for by plaintiff-appellant, the "Offsetting
Agreement" (Exhibit "E" or "2") is hereby rescinded.
Room 601 of Phase I of the Vermen Pines
Condominium should be returned by plaintiff-appellant
to defendant-appellee upon payment by the latter of
the sum of P330,855.25 to the former, plus damages
in the sum of P5,000.00 and P50.00 for the furnishings
of Phase I of Condo (sic) Units Nos. 601 and 602, and
three (3) day rental of Room 402 during the Holy Week
of 1982, respectively. In addition, defendant-appellee
is hereby ordered to pay plaintiff-appellant, who was
compelled to litigate and hire the services of counsel to
protect its interests against defendant-appellee's
violation of their Offsetting Agreement, the sum of
P10,000.00 as an award for attorney's fee (sic) and
other expenses of litigation. The claim for unrealized
profits in a sum equivalent to 10% to 20% percent or
P522,000.00 not having been duly proved, is therefore
DENIED. No costs. (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and
Development Corporation, as First Party, and private
respondent Seneca Hardware Co., Inc., as Second
Party, entered into a contract denominated as
"Offsetting Agreement". The said agreement contained
the following stipulations:
1. That the FIRST PARTY is the owner/developer of
VERMEN PINES CONDOMINIUM located at
Bakakeng Road, Baguio City;
2. That the SECOND PARTY is in business of
construction materials and other hardware items;
3. That the SECOND PARTY desires to buy from the
FIRST PARTY two (2) residential condominium units,
studio type, with a total floor area of 76.22 square
meter (sic) more or less worth TWO HUNDRED
SEVENTY SIX THOUSAND (P276,000.00) PESOS
only;
4. That the FIRST PARTY desires to but from the
SECOND PARTY construction materials mostly steel
bars, electrical materials and other related items worth
FIVE HUNDRED FIFTY TWO THOUSAND
(P552,000.00) PESOS only;
5. That the FIRST PARTY shall pay the SECOND
PARTY TWO HUNDRED SEVENTY SIX THOUSAND
(P276,000.00) PESOS in cash upon delivery of said
construction materials and the other TWO HUNDRED
SEVENTY SIX THOUSAND (P276,000.00) PESOS
shall be paid in the form of two (2) residential
condominium units, studio type, with a total floor area
of 76.22 square meter (sic) more or less also worth
P276,000.00;
6. That, for every staggered delivery of construction
materials, fifty percent (50%) shall be paid by the
FIRST PARTY to the SECOND PARTY C.O.D. and,
fifty percent (50%) shall be credited to the said
condominium unit in favor of the SECOND PARTY;
7. That the SECOND PARTY shall deliver to the
FIRST PARTY said construction materials under the
agreed price and conditions stated in the price
quotation approved by both parties and made an
integral part of this document;
8. That the SECOND PARTY is obliged to start
delivering to the FIRST PARTY all items in the
purchase order seven (7) days from receipt of said
purchase order until such time that the whole amount
of P552,000.00 is settled;
9. That the place of delivery shall be Vermen Pines
Condominium at Bakakeng Road, Baguio City;
10. That the freight cost of said materials shall be
borne fifty percent (50%) by the FIRST PARTY and
fifty percent (50%) by the SECOND PARTY;
11. That the FIRST PARTY pending completion of the
VERMEN PINES CONDOMINIUM PHASE II which is
the subject of this contract, shall deliver to the
SECOND PARTY the possession of residential
condominium, Phase I, Unit Nos. 601 and 602, studio
type with a total area of 76.22 square meters or less,
worth P276,000.00;
12. That after the completion of Vermen Pines
Condominium Phase II, the SECOND PARTY shall be
given by the FIRST PARTY the first option to transfer
from Phase I to Phase II under the same price, terms
and conditions. (Rollo, pp. 26-28).
As found by the appellate court and admitted by both
parties, private respondent had paid petitioner the
amount of P110,151.75, and at the same time
delivered construction materials worth P219,727.00.
Pending completion of Phase II of the Vermen Pines
Condominiums, petitioner delivered to private
respondent units 601 and 602 at Phase I of the
Vermen Pines Condominiums (Rollo, p. 28). In 1982,
the petitioner repossessed unit 602. As a consequence
of the repossession, the officers of the private
respondent corporation had to rent another unit for
their use when they went to Baguio on April 8, 1982.
On May 10, 1982, the officers of the private
respondent corporation requested for a clarification of
the petitioner's action of preventing them and their
families from occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner
corporation averred that Room 602 was leased to
another tenant because private respondent
corporation had not paid anything for purchase of the
condominium unit. Petitioner corporation demanded
payment of P27,848.25 representing the balance of
the purchase price of Room 601.
In 1983, the loan application for the construction of the
Vermen Pines Condominium Phase II was denied.
Consequently, construction of the condominium project
stopped and has not been resumed since then.
On June 21, 1985, private respondent filed a complaint
with the Regional Trial Court of Quezon City (Branch
92) for rescission of the Offsetting Agreement with
damages. In said complaint, private respondent
alleged that petitioner Vermen Realty Corporation had
stopped issuing purchase orders of construction
materials after April, 1982, without valid reason, thus
resulting in the stoppage of deliveries of construction
materials on its (Seneca Hardware) part, in violation of
the Offsetting Agreement.
In its Answer filed on August 15, 1985, petitioner
alleged that the fault lay with private respondent
(plaintiff therein): although petitioner issued purchase
orders, it was private respondent who could not deliver
the supplies ordered, alleging that they were out of
stock. (However, during a hearing on January 28,
1987, the Treasurer of petitioner corporation, when
asked where the purchase orders were, alleged that
she was going to produce the same in court, but the
same was never produced (Rollo, p. 30). Moreover,
private respondent quoted higher prices for the
construction materials which were available. Thus,
petitioner had to resort to its other suppliers. Anent the
query as to why Unit 602 was leased to another
tenant, petitioner averred that this was done because
private respondent had not paid anything for it.
As of December 16, 1986, private respondent had paid
petitioner P110,151.75 in cash, made deliveries of
construction materials worth P219,727.00, leaving a
balance of P27,848.25 representing the purchase
price of unit 601 (Rollo, p. 28). The price of one
condominium unit was P138,000.00.
After conducting hearings, the trial court rendered a
decision dismissing the complaint and ordering the
plaintiff (private respondent in this petition) to pay
defendant (petitioner in this petition) on its
counterclaim in the amount of P27,848.25
representing the balance due on the purchase price of
condominium unit 601.
On appeal, respondent court reversed the trial court's
decision as adverted to above.
Petitioner now comes before us with the following
assignment of errors:
 1. THE RESPONDENT COURT OF APPEALS
ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT
SUPPLANTED CONTRARY TO THE EVIDENCE
ON RECORD, THE TRIAL COURT'S
CONCLUSIONS THAT PETITIONER DID NOT
VIOLATE THE "OFFSETTING AGREEMENT" IT
ENTERED INTO WITH THE SENECA HARDWARE
CO., INC. WITH ITS TOTALLY BASELESS
"PERCEPTION" THAT IT WAS PETITIONER
WHICH DISCONTINUED TO ISSUE PURCHASE
ORDERS DUE TO THE STOPPAGE OF THE
CONSTRUCTION OF PHASE II OF THE
CONDOMINIUM PROJECT WHEN THE LOAN ON
THE SAID PROJECT WAS STOPPED.
2. THE RESPONDENT COURT OF APPEALS
ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT
CONCLUDED THAT IT WAS PETITIONER WHICH
BREACHED THE "OFFSETTING AGREEMENT"
BECAUSE IT DID NOT SEND PURCHASE
ORDERS TO PRIVATE RESPONDENT AND
DISCONTINUED THE CONSTRUCTION OF THE
CONDOMINIUM PROJECT DESPITE THE FACT
THAT THE EXHIBITS ATTESTING TO THIS FACT
WAS FORMALLY OFFERED IN EVIDENCE IN
COURT AND MENTIONED BY IT IN ITS
DECISION.
3. THE RESPONDENT COURT OF APPEALS
ERRED, AND ITS ERROR IS REVIEWABLE BY
THIS HONORABLE COURT, WHEN IT
CONCLUDED THAT IT WAS PETITIONER WHICH
BREACHED THE "OFFSETTING AGREEMENT"
DESPITE THE ADMISSION MADE BY PRIVATE
RESPONDENT'S OWN WITNESS THAT
PETITIONER HAD THE DISCRETION TO ORDER
OR NOT TO ORDER THE CONSTRUCTION
MATERIAL (SIC) FROM THE FORMER. (Rollo, p. )
The issue presented before the Court is whether or not
the circumstances of the case warrant rescission of
the Offsetting Agreement as prayed for by Private
Respondent when he instituted the case before the
trial court.
We rule in favor of private respondent. There is no
controversy that the provisions of the Offsetting
Agreement are reciprocal in nature. Reciprocal
obligations are those created or established at the
same time, out of the same cause, and which results
in a mutual relationship of creditor and debtor between
parties. In reciprocal obligations, the performance of
one is conditioned on the simultaneous fulfillment of
the other obligation (Abaya vs. Standard Vacuum Oil
Co., 101 Phil. 1262 [1957]).
Under the agreement, private respondent shall deliver
to petitioner construction materials worth P552,000.00
under the conditions set forth in the Offsetting
Agreement. Petitioner's obligation under the
agreement is three-fold: he shall pay private
respondent P276,000.00 in cash; he shall deliver
possession of units 601 and 602, Phase I, Vermen
Pines Condominiums (with total value of P276,000.00)
to private respondent; upon completion of Vermen
Pines Condominiums Phase II, private respondent
shall be given option to transfer to similar units therein.
Article 1191 of the Civil Code provides the remedy of
rescission in (more appropriately, the term is
"resolution") in case of reciprocal obligations, where
one of the obligors fails to comply with that is
incumbent upon him.
The general rule is that rescission of a contract will not
be permitted for a slight or causal breach, but only for
such substantial and fundamental breach as would
defeat the very object of the parties in executing the
agreement. The question of whether a breach of
contract is substantial depends upon the attendant
circumstances (Universal Food Corp. vs. Court of
Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private
respondent who failed to perform its obligation in the
Offsetting Agreement. It averred that contrary to the
appellate court's ruling, the mere stoppage of the loan
for the construction of Phase II of the Vermen Pines
Condominiums should not have had any effect on the
fulfillment of the obligations set forth in the Offsetting
Agreement.
Petitioner moreover stresses that contrary to private
respondent's averments, purchase orders were sent,
but there was failure to deliver the materials ordered
because they were allegedly out of stock. Petitioner
points out that, as admitted by private respondent's
witness, petitioner had the discretion to order or not to
order constructions materials, and that it was only after
petitioner approved the price, after making a canvass
from other suppliers, that the latter would issue a
purchase order. Petitioner argues that this was the
agreement, and therefore the law between the parties,
hence, when no purchase orders were issued, no
provision of the agreement was violated.
Private respondent, on the other hand, points out that
the subject of the Offsetting Agreement is Phase II of
the Vermen Pines Condominiums. It alleges that since
construction of Phase II of the Vermen Pines
Condominiums has failed to begin (Rollo, p. 104), it
has reason to move for rescission of the Offsetting
Agreement, as it cannot forever wait for the delivery of
the condominium units to it.
It is evident from the facts of the case that private
respondent did not fail to fulfill its obligation in the
Offsetting Agreement. The discontinuance of delivery
of construction materials to petitioner stemmed from
the failure of petitioner to send purchase orders to
private respondent. The allegation that petitioner had
been sending purchase orders to private respondent,
which the latter could not fill, cannot be given
credence. Perhaps in the beginning, it would send
purchase orders to private respondent (as evidenced
by the purchase orders presented in court), and the
latter would deliver the construction materials ordered.
However, according to private respondent, after April,
1982, petitioner stopped sending purchase orders.
Petitioner failed to refute this allegation. When
petitioner's witness, Treasurer of the petitioner
corporation, was asked to produce the purchase
orders in court, the latter promised to do so, but this
was never complied with.
On the other hand, petitioner would never able to fulfill
its obligation in allowing private respondent to exercise
the option to transfer from Phase I to Phase II, as the
construction of Phase II has ceased and the subject
condominium units will never be available.
The impossibility of fulfillment of the obligation on the
part of petitioner necessitates resolution of the contract
for indeed, the non-fulfillment of the obligation
aforementioned constitutes substantial breach of the
Offsetting Agreement. The possibility of exercising the
option of whether or not to transfer to condominium
units in Phase II was one of the factors which were
considered by private respondent when it entered into
the agreement. Since the construction of the Vermen
Pines Condominium Phase II has stopped, petitioner
would be in no position to perform its obligation to give
private respondent the option to transfer to Phase II. It
would be the height of injustice to make private
respondent wait for something that may never come.
WHEREFORE, the petition is DENIED for lack of
merit. Costs against petitioner.
SO ORDERED.
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, covered
by TCT No. 361402 issued by the Registry of Deeds of
Pasig and more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy
a parcel of land and the VENDOR has accepted the
offer, subject to the terms and conditions hereinafter
stipulated:
NOW, THEREFORE, for and in consideration of the
sum of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by VENDEE to in
to (sic) manner set forth, the VENDOR agrees to sell
to the VENDEE, their heirs, successors,
administrators, executors, assign, all her rights, titles
and interest in and to the property mentioned in the
FIRST WHEREAS CLAUSE, subject to the following
terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS
(P50,000.00) ONLY Philippine Currency, is to be paid
upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of
ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY shall be paid 45 days after the removal of all
squatters from the above described property.
3. Upon full payment of the overall purchase price as
aforesaid, VENDOR without necessity of demand shall
immediately sign, execute, acknowledged (sic) and
deliver the corresponding deed of absolute sale in
favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid
and updated.
It is hereby agreed, covenanted and stipulated by and
between the parties hereto that if after 60 days from
the date of the signing of this contract the VENDOR
shall not be able to remove the squatters from the
property being purchased, the downpayment made by
the buyer shall be returned/reimbursed by the
VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to
pay the VENDOR the balance of the purchase price of
ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY after 45 days from written notification to the
VENDEE of the removal of the squatters from the
property being purchased, the FIFTY THOUSAND
PESOS (P50,000.00) previously paid as downpayment
shall be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees,
documentary stamp, transfer fee, assurances and
such other fees and expenses as may be necessary to
transfer the title to the name of the VENDEE shall be
for the account of the VENDEE while capital gains tax
shall be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed
those (sic) presents in the City of Makati MM,
Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent,
forthwith received and acknowledged a check for
P50,000.00 2 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. 10 It 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.
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.

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, Republic of the Philippines
evidently, petitioner has waived the performance of the SUPREME COURT
condition imposed on private respondent to free the Manila
property from squatters. 20
SECOND DIVISION
In any case, private respondent's action for rescission
is not warranted. She is not the injured party. 21 The G.R. No. 129760 December 29, 1998
right of resolution of a party to an obligation under
Article 1191 of the Civil Code is predicated on a RICARDO CHENG, petitioner,
breach of faith by the other party that violates the vs.
reciprocity between them. 22 It is private respondent RAMON B. GENATO and ERNESTO R. DA JOSE &
who has failed in her obligation under the contract. SOCORRO DA JOSE, respondents.
Petitioner did not breach the agreement. He has
agreed, in fact, to shoulder the expenses of the MARTINEZ, J.:
execution of the judgment in the ejectment case and to
make arrangements with the sheriff to effect such
This petition for review on certiorari seeks to annul and
execution. In his letter of 23 June 1989, counsel for
set aside the Decision of the Court of Appeals (CA) 1
petitioner has tendered payment and demanded
dated July 7, 1997 in CA-G.R. No. CV No. 44706
forthwith the execution of the deed of absolute sale.
entitled "Ricardo Cheng, plaintiff-appellee vs. Ramon
Parenthetically, this offer to pay, having been made
B. Genato, defendant-appellant, Ernesto R. Da Jose &
prior to the demand for rescission, assuming for the
Socorro B. Da Jose, Intervenors-Appellants" which
sake of argument that such a demand is proper under
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 only a simple receipt of an option-bid
deposit, and never stated that it was a partial payment,
nor is it an earnest money and that it was subject to
condition that the prior contract with the Da Jose
spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention,
18
asserted that they have a superior right to the
property as first buyers. They alleged that the
unilateral cancellation of the Contract to Sell was
without effect and void. They also cited Cheng's bad
faith as a buyer being duly informed by Genato of the
existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the
receipt issued by Genato to Cheng unerringly meant a
sale and not just a priority or an option to buy. It cannot
be true that the transaction was subjected to some
condition or reservation, like the priority in favor of the
Da Jose spouses as first buyer because, if it were
otherwise, the receipt would have provided such
material condition or reservation, especially as it was
Genato himself who had made the receipt in his own
hand. It 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 was of the essence in the execution of the
agreement between Genato and Cheng, under this
circumstance demand, extrajudicial or judicial, is not
necessary. It falls under the exception to the rule
provided in Article 1169 19 of the Civil Code. The right
of Genato to unilaterally rescind the contract is said to
be under Article 1191 20 of the Civil Code. Additionally,
after reference was made to the substance of the
agreement 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 properties. Thus, on January
18, 1994 the trial court rendered its decision the
decretal portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6,
1989 executed between defendant Ramon Genato, as
vendor, and intervenors Spouses Ernesto and Socorro
Da Jose, as vendees, resolved and rescinded in
accordance with Art. 1191, Civil Code, by virtue of
defendant's affidavit to annul contract to sell dated
October 13, 1989 and as the consequence of
intervenors' failure to execute within seven (7) days
from October 4, 1989 another contract to sell pursuant
to their mutual agreement with defendant;
2. Ordering defendant to return to the intervenors the
sum of P1,000,000.00, plus interest at the legal rate
from November 2, 1989 until full payment;
3. Directing defendant to return to the intervenors the
three (3) postdated checks immediately upon finality of
this judgment;
4. Commanding defendant to execute with and in favor
of the plaintiff Ricardo Cheng, as vendee, a deed of
conveyance and sale of the real properties described
and covered in Transfer Certificates of Title No. T-76-
196 (M) and T-76.197 (M) of the Registry of Deeds of
Bulacan, Meycauayan Branch, at the rate of
P70.000/square meter, less the amount of P50,000.00
alreaddy paid to defendant, which is considered as
part of the purchase price, with the plaintiff being liable
for payment of the capital gains taxes and other
expenses of the transfer pursuant to the agreement to
sell dated October 24, 1989; and
5 Ordering defendant to pay the plaintiff and the
intervenors as follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to intervenors;
c/ P20,000.00, as and for attorney's fees, to plaintiff;
d/ P20,000.00, as and for attorney's fees, to
intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein
respondents Ramon Genato and Da Jose spouses
appealed to the court a quo which reversed such
judgment and ruled that the prior 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 without force and effect due
to the failure to rescind the prior contract; and that
Cheng should pay damages to the respondents herein
being found to be in bad faith.
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 Republic of the Philippines
which the courts always indulge in the absence of the SUPREME COURT
proof to the contrary. "Good faith, or the want of it, is Manila
not a visible, tangible fact that can be seen or touched,
but rather a state or condition of mind which can only FIRST DIVISION
be judge of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. G.R. No. 133491 October 13, 1999
Miller, 108 Cal., 250; Breaux-Renoudet, Cypress
Lumber Co. vs. Shadel, 52 La. Ann., 2094-2098; ALEXANDER G. ASUNCION, petitioner,
Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10, 17.) vs.
(Emphasis ours) EDUARDO B. EVANGELISTA and COURT OF
APPEALS, respondents.
Damages were awarded by the appellate court on the
basis of its finding that petitioner "was in bad faith PUNO, J.:
when he filed the suit for specific performance knowing
fully well that his agreement with Genato did not push
This is a petition for review of the Decision of the
through. 46 Such bad faith, coupled with his wrongful
respondent Court of Appeals 1 rescinding the
interference with the contractual relations between
Memorandum of Agreement of the parties and
Genato and the Da Jose spouses, which culminated in
assessing against the petitioner damages in the
his filing of the present suit and thereby creating what
amount of P32,644,420.55.
the counsel for the respondents describes as "a
prolonged and economically unhealthy gridlock 47 on
both the land itself and the respondents' rights These are the relevant facts.
provides ample basis for the damages awarded.
Based on these overwhelming evidence of bad faith on Since 1970, private respondent has been operating a
the part of herein petitioner Ricardo Cheng, we find piggery on his landholdings in Barangay Loma de
that the award of damages made by the appellate Gato, Marilao, Bulacan. 2 Until 1980, he operated the
court is in order. piggery under the trade name Embassy Farms as a
single proprietorship. 3 In October 1981, private
WHEREFORE, premises considered, the instant respondent, his wife, Epifania C. Evangelista, and
petition for review is DENIED and the assailed three (3) others, namely, Angel L. Santos, Jr., Amando
decision is hereby AFFIRMED EN TOTO. C. Martin and Teofilo J. Mesina, organized Embassy
Farms, Inc. and registered it with the Securities and
Exchange Commission. 4
SO ORDERED.

Private respondent was the majority stockholder of the

corporation, with ninety percent (90%) of the shares in
his name. He also served as its president and chief
executive officer. Its principal office was established at
the piggery facility that had been existing on the
landholdings of private respondent in Barangay Loma
de Gato, Marilao, Bulacan, consisting of about
104,447 sq. m. 5

On September 9, 1980, private respondent borrowed

five hundred thousand pesos (P500,000.00) from
Paluwagan ng Bayan Savings and Loan Association to
use as working capital for Embassy Farms. He
executed a real estate mortgage on three of his
properties in Barangay Loma de Gato, Marilao,
Bulacan as security for the loan. 6
On November 4, 1981, private respondent mortgaged
ten (10) titles more in favor of PAIC Savings and
Mortgage Bank, formerly First Summa Savings and
Mortgage Bank, as security for a loan he obtained
from it in the amount of one million seven hundred
twelve thousand pesos (P1,712,000.00). 7
On February 16, 1982, private respondent obtained
another loan in the amount of eight hundred forty four
thousand six hundred twenty five and seventy eight
centavos (P844,625.78) from Mercator Finance
Corporation. The loan was secured by a real estate
mortgage 8 on five (5) other landholdings of private
respondent, all situated in Bulacan.
Private respondent obtained these personal loans to
provide himself working capital to run the farm and
sustain its operations. His aggregate debt exposure
totaled three million fifty six thousand six hundred
twenty five and seventy eight centavos
(P3,056,625.78).
Private respondent defaulted in his loan payments. Of
the PAIC loan that should have been paid on an equal
quarterly amortization basis for three (3) years from
October 31, 1981, eight (8) quarterly amortizations
totaling one million five hundred one thousand nine
hundred eighty eight and eight centavos
(P1,501,988.08) fell due by January 12, 1984. Against
this overdue amount, only two hundred eighty
thousand seven hundred forty eight and fifty one
centavos (P280,748.51) was remitted by private
respondent. 9
By June 1984, private respondent's aggregate debt
had ballooned to almost six million pesos
(P6,000,000.00) 10 in overdue principal payments,
interests, penalties and other financial charges.
On August 2, 1984, petitioner and private respondent
executed a Memorandum of Agreement containing the
following terms and conditions:
MEMORANDUM OF AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and executed
this __ day of July, 1984, here in ______, Metro
Manila, by and between
ALEXANDER G. ASUNCION, of legal age, Filipino,
married to Perlita Asuncion, and resident of No. 7 A.
Lake Street, San Juan, Metro Manila, hereinafter
referred to as AGA;
and
EDUARDO B. EVANGELISTA, of legal age, Filipino,
married to Epifania C. Evangelista, and resident of No.
113 R. Terona Street, BF Homes, Paranaque, Metro
Manila, hereinafter referred to as EBE.
WITNESSETH:
WHEREAS, EBE is the registered and absolute owner
of nineteen (19) parcels of agricultural lands with an
aggregate area of 104,447 square meters more or
less, all situated in LOMA DE GATO, Marilao, Bulacan,
hereinbelow enumerated by the covering certificates of
title and the corresponding area as follows:
xxx xxx xxx
WHEREAS, EBE is likewise the controlling interest of
90% to 100% of the paid-in equity of EMBASSY
FARMS, INC., which corporation is the registered
owner of a piggery, situated in the above enumerated
real properties, with stocks, equipment and facilities as
shown in the inventory thereof as of July 4, 1984,
hereto attached as Schedule "A" and made an integral
part hereof;
WHEREAS, EBE has personal loans with the
institutions herein below enumerated correspondingly
with the amount of indebtedness, inclusive of interest,
up to June 30, 1984:
a) PAIC BANK P2,758,968.49
b) PALUWAGAN SAVINGS BANK
1. CB-IBRD P558,110.44
2. Comm'l loan P835,863.76 P1,393,974.20
c) MERCATOR FINANCE CORP. 1,846,012.96
TOTAL P5,998,955.65
WHEREAS, EBE has offered to AGA and the latter has
accepted the transfer to him by EBE, of the whole of
EBE's controlling interest in EMBASSY FARMS, INC.
as well as all of his above enumerated parcels of real
property together with any and all improvements
thereon subject to the following terms and conditions:
NOW, THEREFORE, for and in consideration of the
foregoing, the parties herein agree as follows:
1) That EBE hereby cedes, transfers and conveys unto
AGA all of his above enumerated parcels of real
property together with any and all improvements
thereon, and in connection with such transfer, hereby
undertakes to execute, sign and deliver any and all
documents appropriate for the same, either in favor of
AGA or his nominees;
2) That EBE hereby likewise cedes, transfers and
conveys in a manner absolute and irrevocable any and
all of his shares [of] stocks in the aforesaid EMBASSY
FARMS, INC., outstanding [in] his name in the books
of incorporation, as well as any and all rights, interests
and participation in the said corporation by reason of
such shares [of] stocks or otherwise, EBE shall, within
a reasonable time, from signing hereof, cause to be so
transferred to AGA or his nominee such shares of
stocks in said corporation as are held on record by 3rd
parties, until the total of such shares so transferred
shall constitute 90% of the paid-in equity of said
corporation;
3) That upon signing hereof, AGA shall pay EBE the
sum of P1,000,000.00 and the further amount of
P500,000.00 within a period of 90 days from and after
such signing;
4) That AGA shall upon signing hereof, make
available, as and for operating expenses of the farm or
piggery the sum of P300,000.00 to be followed by
amount of P300,000.00 within 30 days from such
signing and 60 days thereafter, the amount of
P150,000.00;
5) AGA shall assume all of the aforestated obligations
of EBE with the institution aforementioned and in
connection therewith, he shall make available for
payment to PALUWAGAN SAVINGS BANK, upon
signing of this "MEMORANDUM OF AGREEMENT",
the amount of P100,000.00, representing 50% of the
amount required by the said bank for the restructuring
of the aforestated loan of EBE therewith;
6) That also upon signing of these presents, AGA shall
make available for payment to MERCATOR FINANCE
CORPORATION the amount of P100,000.00
representing 50% of the amount required by the latter
for restructuring of the aforesaid obligation to it of EBE;
7) That upon signing of this agreement, EBE shall
make available for payment to PALUWAGAN
SAVINGS BANK the amount of P100,000.00 and the
same amount to MERCATOR FINANCE
CORPORATION corresponding to the other halves of
the aforestated amount called for by the said institution
in the preceding paragraphs 5 and 6 hereof;
8) That upon signing hereof, EBE shall cause the turn-
over to AGA of the effective control and management
of the aforesaid piggery, from EMBASSY FARMS, over
which EBE hereby warrants to have effective control
up to and until such turnover to AGA;
9) EBE hereby warrants not only free and marketable
titles to the shares (of) stock of EMBASSY FARMS,
INC. that he transfers hereby but also effective control,
amounting to ownership of the other shares of stock of
such corporation which are outstanding in the books of
said corporation in the name of 3rd parties, which
shares of stock he could always dispose of therefore
[sic] any time and in any manner he may deem proper;
10) EBE shall secure supplier's credit and feed
ingredients, veterinary supplies, etc. up to
P500,000.00 and over a period of three (3) months in
order to be able to augment the effective operation of
the farm;
11) Within 90 days from signing of this agreement,
AGA shall make available for the farm P250,000.00,
payable to him within one year from and after the grant
of the same, with stated interest of 24% per annum,
the proceeds of which to be utilized exclusively for the
operation of the farm;
12) That within a reasonable time from signing of this
agreement, AGA shall organize and register a
corporation (thereafter referred to as new corporation)
with authorized capital stock of exactly
P10,000,000.00 with P1,000,000.00 worth of paid-in
shares of stock thereof, to be allocated or assigned to
EBE [sic] said corporation shall, upon its registration
take over all the rights and liabilities of AGA hereunder
saving the one stipulated in paragraph no. ___ hereof;
13) On or before November 1984, AGA shall pay EBE
P144,941.88 plus interest at 24% per annum in
payment of the feed ingredients, mixed feeds and
veterinary supplies mentioned in Schedule "A" which
EBE makes available to aforesaid piggery. He shall
likewise reimburse to EBE on or before January 1985,
the amount of P200,000.00 with interest at 24% per
annum representing advances of the latter to
PALUWAGAN SAVINGS BANK and MERCATOR
FINANCE CORPORATION pursuant to paragraph 7
above;
14) That in connection with the aforesaid
P1,000,000.00 worth of shares [of] stock in the new
corporation, stipulated above to be allocated or
assigned to EBE, the parties hereby agree that within
eighteen (18) months from and after such assignment
or allotment, AGA shall acquire, at par from EBE 50%
thereof, with reservation to acquire the other 50%
within a period of 30 months after such allotment, with
premium of 50% of par value, if the commitments or
targets mentioned in paragraph 17 herein shall have
been met;
15) That for the operation of the farm or piggery, the
parties hereby agree that EBE shall serve as President
and Chief Executive thereof, at a stated monthly salary
P15,000.00; Alberto M. Ladores as General Manager
at P10,000.00 a month, V. Gregorio as Comptroller at
P3,500.00 a month;
16) The parties herein likewise agree to pay, when
able, compensation to the following the amounts
correspondingly indicated.
Thus
a) V.S. Abadia Chairperson of the Board at
P10,000.00
b) A.G. Asuncion
c) V.M. de Vera
d) E. LI. Umali
17) Being senior operating officers of the farm, EBE
and A.M. Ladores, shall submit to AGA, their
respective position charter plans and programs for the
farm for the next three (3) years, within 30 to 45 days
after signing hereof, substantially in the form hereto
attached as Schedule "B";
18) That within the next three (3) months, an
Agribusiness Management Company which includes a
feedmilling operations shall be established. The
officers thereof shall be Alexander G. Asuncion as
Chairman, Vicente M. de Vera as Vice-Chairman,
Edgardo LI. Umali as Treasurer, Eduardo B.
Evangelista as President and General Manager, and
Alberto M. Ladores as Executive Vice-President. This
management company shall be contracted for
providing the over-all management of EMBASSY
FARMS. EDUARDO B. EVANGELISTA and ALBERTO
M. LADORES will have shares in the company and
shall form the executive management team of said
company, for which they will be remunerated in terms
of salary and profit sharing.1wphi1.nt
IN WITNESS WHEREOF, the parties have hereunto
affixed their signatures this 2nd day of August, 1984.
(Sgd.) (Sgd.)
ALEXANDER G. ASUNCION EDUARDO B.
EVANGELISTA
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
VIOLETA S. ABADIA ALBERTO M. LADORES
xxx xxx xxx 11
Upon the execution of the Memorandum of
Agreement, petitioner paid private respondent one
million pesos (P1,000,000.00) in compliance with
paragraph 3 thereof. Although this was unreceipted,
private respondent admitted receiving the same when
he testified in open court. 12
In further compliance with paragraph 3, petitioner paid
to private respondent the amount of five hundred
thousand pesos (P500,000.00) within a ninety-day (90)
period in four (4) disbursements, to wit:
Date of Actual Recipient Amount
Payment Voucher No. of the Money Paid
13
Aug. 15, 3468 Victoria Gregorio P100,000.00
1984 (for private respondent)
Aug. 23, 3504 14 Victoria Gregorio P100,000.00
1984 (for private respondent)
Aug. 29, 3547 15 Victoria Gregorio P100,000.00
1984 (for private respondent)
Sept. 26, 3765 16
Private Respondent P200,000.00
1984
Total P500,000.00
In compliance with paragraph 4 of the Memorandum of
Agreement, petitioner paid private respondent three
hundred thousand pesos
(P300,000.00), 17 upon its signing on August 2, 1984.
The second installment, in the like amount of three
hundred thousand pesos (P300,000.00) which became
due between August 2, 1984 and September 2, 1984,
was supposed to be remitted by petitioner to private
respondent for the purpose of financing the operations
of the piggery pursuant to the Memorandum. Instead,
petitioner agreed to pay to PAIC Savings & Mortgage
Bank the following amounts, to wit:
Date of Actual Recipient Amount
Payment Voucher No. of the Money Paid
Aug. 8, 3224 18 PAIC Savings & P200,000.00 19
1984 Mortgage Bank
Aug. 27, 3310 20 PAIC Savings and P100,000.00 21
1984 Mortgage Bank
in order to facilitate the restructuring of private
respondent's loans with said bank. It is significant to
note that under the Memorandum of Agreement,
petitioner agreed to shoulder only the loan restructing
fees required by Paluwagan ng Bayan Savings and
Loan Association Bank and Mercator Finance
Corporation. 22 Nonetheless, petitioner made the
above payment in view of the letter of PAIC Savings &
Mortgage Bank dated July 6, 1984 approving private
respondent's request for the restructuring of his loan.
A third installment in the amount of one hundred fifty
thousand pesos (P150,000.00) which was due
between September 2, 1984 and November 2, 1984
was paid by petitioner to private respondent in the
following tranches:
Date of Actual Recipient Amount
Payment Voucher No. of the Money Paid
Sept. 19, DV No. 3707 23 Victoria Gregorio P20,000.00
1984 (for Embassy Farms)
Sept. 26, DV No. 3770 24 Private Respondent
P30,000.00
1984
Oct. 16, DV No. 3878 25 Private Respondent
P100,000.00
1984.
Aside from paying the aforesaid amount of three
hundred thousand pesos (P300,000.00) to PAIC
Savings & Mortgage Bank in compliance with
paragraph 5 of the Memorandum of Agreement
requiring petitioner to assume the loan obligations of
private respondent, petitioner also paid four hundred
thousand pesos (P400,000.00) in favor of Paluwagan
ng Bayan Savings and Loan Association for the
restructuring of private respondent's 26 loan and one
hundred thousand pesos (P100,000.00) 27 for the
restructuring of his loan with Mercator Finance
Corporation.
In substantial compliance with paragraph 11 wherein
petitioner was further obligated to provide credit in the
amount of two hundred fifty thousand pesos
(P250,000.00) to be exclusively spent for the
operations of the piggery but payable to him within one
(1) year from the grant thereof with stated interest of
24% per annum, petitioner made available two
hundred thousand pesos (P200,000.00). 28
Under paragraph 13, petitioner paid one hundred forty
four thousand nine hundred forty one pesos and eighty
eight centavos (P144,941.88) for feed ingredients,
mixed feeds and veterinary supplies included in the
inventory turned over by private respondent to
petitioner. Petitioner made the payment in the following
tranches:
Date of Disbursement/ Actual Recipient Amount
Payment Cash Voucher of the Money Paid
March 28, DV No. 4760 29 private respondent
P37,000.00
1985
July 30, DV No. 266 30 private respondent P30,000.00
1985
Aug. 9, DV No. 337 31 R. Tamaliga P30,000.00
1985 (for private respondent)
Aug. 16, DV No. 379 32 R. Tamaliga P30,000.00
1985 (for private respondent)
Aug. 23, DV No. 411 33 R. Tamaliga P17,941.88
1985 (for private respondent) the Mercator Finance Corporation amounting in the
TOTAL P144,941.88
Over and above all the foregoing amounts paid by
petitioner to private respondent in accordance with his
undertakings under the Memorandum of Agreement,
he also paid management bonuses to private
respondent, Vicente M. de Vera and Edgardo LI.
Umali, in the amounts of fifty thousand pesos
(P50,000.00), thirty thousand pesos (P30,000.00), and
twenty thousand pesos (P20,000.00), respectively. 34
The total amount thus paid by petitioner to private
respondent and invested in Embassy Farms, Inc. as of
August 1985, or in a span of a year from the time that
they executed the Memorandum of Agreement, was
three million one hundred ninety four thousand nine
hundred forty one and eighty eight centavos
(P3,194,941.88).
For his part, private respondent was obligated under
the Memorandum of Agreement to "execute, sign and
deliver any and all documents" necessary for the
transfer and conveyance of several parcels of land he
owned but mortgaged with the banks and financial
institutions and to "cede, transfer and convey in a
manner absolute and irrevocable any and all of his
shares of stocks in Embassy Farms, Inc." as well as
"cause to be transferred to petitioner or his nominee
such shares of stock until they constitute 90% of the
paid-in equity of said corporation" 35. By December
1985, however, more than a year after the signing of
the Memorandum of Agreement, the landholdings of
private respondent which were mortgaged to
Paluwagan ng Bayan Savings and Loan Association,
PAIC Savings and Mortgage Bank and Mercator
Finance Corporation still remained titled in his name.
Neither did he inform said mortgagees of the transfer
of his lands. As to the shares of stock, it was
incumbent upon private respondent to endorse and
deliver them to petitioner so he could also have them
transferred in his name, but private respondent never
did. He refused to honor his obligations under the
Memorandum of Agreement and even countered with
a demand letter of his own. He accused petitioner of
having failed to restructure his loans with Paluwagan
ng Bayan Savings and Loan Association, PAIC
Savings Mortgage Bank and Mercator Finance
Corporation and blamed him for the foreclosure of his
landholdings, including the piggery site of Embassy
Farms, Inc.
On April 10, 1986, petitioner filed in the Regional Trial
Court a complaint for recission of the Memorandum of
Agreement with a prayer for damages. 36
On July 1, 1994, the trial court rendered judgment in
favor of private respondent. It ruled:
The principal issue in this case is whether it is
[petitioner] or [private respondent] who reneged on
their obligations under the Memorandum of
Agreement.
Based upon the pleadings and the evidence, it is clear
that [petitioner] failed to comply with his undertaking
under paragraph 5 of the Memorandum of Agreement
to assume all of the obligations of [private respondent]
with the PAIC Bank, the Paluwagan Savings Bank and
aggregate to P5,998,955.65. In addition [petitioner]
also failed to comply with his obligations under
paragraph 12 and 18 of the Agreement . . . .
xxx xxx xxx
The Memorandum of Agreement is essentially a
contract of sale where [private respondent] agreed to
sell his nineteen parcels of land and his shares in
Embassy Farms, in consideration, among others, of
the assumption by [petitioner] of [private respondent's]
loans with three financial institutions. As a matter of
law and practice, it is incumbent upon the vendee to
first comply with his obligations under the contract of
sale before he can demand performance by the
vendor. In a contract of sale, the vendor is not required
to deliver the thing sold until the price is paid . . . .
Consequently, since [petitioner], at the time of the
commencement of the action, had admittedly not
complied with his obligations under the Agreement, he
had no right to demand compliance on the part of
[private respondent] with the latter's obligations or to
ask rescission with damages. If there is anybody who
has the right to seek rescission and ask for damages,
it is certainly [private respondent] the injured party
who in fact has opted for rescission. Accordingly,
the Court holds that [private respondent] is entitled to
rescission of the Agreement.
xxx xxx xxx
Since it was [petitioner] who failed to perform his
obligations as vendee under the Agreement and there
is no showing that [private respondent] refused or was
not in a position to comply with is own undertakings,
the latter is entitled to recover damages. The evidence
shows that [private respondent] actually formally
demanded compliance by [petitioner] with his
obligations in a letter dated January 31, 1986. 37
[Emphasis ours.]
The dispositive portion of the foregoing decision reads
as follows:
WHEREFORE, this Court hereby declares the
Memorandum of Agreement dated 2 August 1984
rescinded and of no further force and effect.
This Court likewise orders the payment by the plaintiff
to the defendant of the following:
(1) P32,644,420.55 as actual or compensatory
damages arising from the rescission of the
Memorandum of Agreement with legal rate of interest
at 6% per annum until fully paid;
(2) P887,300.00 for the repayment of the loan granted
by the defendant to the plaintiff, with interest at the
stipulated rate of 36% per annum until fully paid; and
(3) P100,000.00 as attorney's fees.
No pronouncement as to costs.
SO ORDERED. 38
On July 12, 1994, a copy of the decision of the trial
court was sent by registered mail to petitioner's
counsel of record, Atty. Romeo Z. Comia.
However, unknown to petitioner, Atty. Comia died while
the case was still pending in the trial court.
On August 25, 1994, private respondent filed in the
trial court a Notice of Death of petitioner's counsel,
with a request that a copy of its decision be personally
served on petitioner.
On August 31, 1994, the trial court issued an Order
stating that the registry receipt evidencing the mailing
of a copy of its decision to petitioner did not bear any
date. It nonetheless denied the motion of private
respondent for personal service of a copy of its
decision on petitioner.
On September 12, 1994, private respondent filed by
registered mail a Motion for Execution.
On September 28, 1994, the trial court granted said
motion.
On October 3, 1994, private respondent filed an Ex
Parte Motion for Appointment of Special Sheriff.
Accordingly, Deputy Sheriff Solminio de las Armas was
appointed by the trial court.
On October 6, 1994, the trial court issued a writ of
execution against petitioner.
October 20, 1994, petitioner filed in the trial court a
Notice of Appeal, Substitution of Counsel, and an
Urgent Motion to Recall the Order of Execution and
Quash the Writ of Execution.
On October 28, 1994, the trial court issued an Order
suspending the execution of its decision.
On November 9, 1994, the trial court issued an Order
stopping the execution proceedings and approving
petitioner's appeal.
Both petitioner and private respondent repaired to the
Court of Appeals. Petitioner prayed for the reversal of
the decision of the trial court while private respondent
assailed the last two orders of the trial court dated
October 28 and November 9, 1994.
On February 2, 1998, respondent Court of Appeals
affirmed the decision of the trial court and ordered its
immediate execution. The orders dated October 28
and November 9, 1994 halting execution proceedings
were nullified. The respondent Court of Appeals held,
first, as concerns the undated registry receipt:
The rule that if no date appears in the registry receipt
there is no period within which to reckon the fifteen-
day reglementary period to appeal is however subject
to waiver. The motion for a writ of execution and the
corresponding order for the enforcement of the writ of
execution were duly served upon [petitioner] yet he
failed to question the irregularity before filing a notice
of appeal. 39
and second, as concerns the nature of the
Memorandum of Agreement:
[Petitioner] contended that the MOA is actually a joint
venture agreement.
xxx xxx xxx
The element that there be mutual right of control is
wanting in the MOA entered into between [petitioner]
and [private respondent]. Under Condition No. 9,
[private respondent] shall transfer the effective control,
amounting to ownership of the Embassy Farms, Inc. to
[petitioner]. The creation of a new company by
[petitioner] under Conditions No. 12 and 15 wherein
[private respondent] was to be appointed as President
and Chief Executive does not partake of the nature of
joint venture by [petitioner] as the absolute owner and
[private respondent] who is to be remunerated only in
terms of salaries and profit sharing, the later being a
usual fringe benefit in private associations.
Instead, the MOA is akin to a contract of sale as
correctly held by the trial court . . ..
xxx xxx xxx 40
On February 2, 1998, petitioner filed a Motion for
Reconsideration of the foregoing decision.
On March 17, 1998, private respondent filed an
Opposition thereto with an Ex-parte Motion for
Issuance of a Writ of Attachment.
On April 17, 1998, respondent Court of Appeals issued
a Resolution 41 denying petitioner's Motion for
Reconsideration and noting private respondent's Ex-
Parte Motion for Issuance of a Writ of Attachment.
Hence this petition raising the following issues:
1. WHETHER OR NOT THE JULY 1, 1994 DECISION
OF THE REGIONAL TRIAL COURT WAS ALREADY
FINAL AND EXECUTORY WHEN ASUNCION FILED
HIS NOTICE OF APPEAL.
2. WHETHER OR NOT THE MEMORANDUM OF
AGREEMENT EXECUTED BETWEEN ASUNCION
AND EVANGELISTA WAS IN THE NATURE OF A
CONTRACT OF SALE OR A JOINT VENTURE.
3. WHETHER IT WAS ASUNCION OR EVANGELISTA
WHO FIRST RENEGED OR FAILED TO COMPLY
WITH HIS CORRESPONDING OBLIGATIONS
UNDER THE MEMORANDUM OF AGREEMENT. 42
The petition is meritorious.
One. The respondent Court of Appeals erred in holding
that the decision of the trial court dated July 1, 1994
had become final and executory. It is established that
petitioner was not aware of his counsel's death while
the case was pending in the trial court. He could not
have known, therefore, that a copy of the trial court's
decision was sent by registered mail to his counsel.
Indeed, it was private respondent who notified the trial
court of the death of petitioner's counsel and who
requested that a copy of the decision be served
personally to petitioner. His request was, however,
denied.
While petitioner was furnished a copy of the decision
by mail, the registry receipt evidencing its date of
mailing did not bear a date. There was, therefore, no
date from which to reckon the reglementary period to
appeal. That petitioner received a copy of the motion
and order for writ of execution should not be taken as
a waiver of his right to appeal. Not only is petitioner a
non-lawyer who could not be expected to know the
legal consequences of the motion and the order, but
the case is of such merit that it deserves a liberal
interpretation of the rules in the interest of justice.
Two. The respondent Court of Appeals ruled that the
Memorandum of Agreement was a contract of sale
whereby private respondent sold his piggery, Embassy
Farms, Inc., with the land on which it stood and his
shares of stock therein, in consideration of the
monetary equivalent of his aggregate debt obligations
to be assumed and paid by petitioner. It found that
petitioner failed to assume private respondent's loans
with Paluwagan ng Bayan Savings & Loan
Association, PAIC Savings & Mortgage Bank and
Mercator Finance Corporation. Consequently,
rescission of the Memorandum of Agreement was
ordered and private respondent was awarded more
than thirty two million pesos (P32,000,000.00) in
compensatory damages, which included the alleged
proceeds from the sale of hogs during the period of
time that private respondent was replaced as president
and chief executive officer as well as the value of his
landholdings which were foreclosed because of his
failure to pay his debt obligations with the said banks.
After a meticulous perusal of the voluminous records
of this case, we hold that the respondent Court of
Appeals grossly misappreciated the facts and the
applicable law. Under the Memorandum of Agreement,
it was the obligation of private respondent to cede and
convey, in a manner absolute and irrevocable, his real
properties and stockholdings in the farm in favor of
petitioner in exchange for, among others, the outright
payment by petitioner of a lump sum, the continuous
operation of the piggery at his the expense and the
assumption by petitioner of all the financial obligations
of private respondent upon their restructuring. The
records show that while petitioner paid private
respondent the stipulated lump sum and gave more
money for the restructing of private respondent's loans
and for the continued operation of Embassy Farms,
Inc., private respondent never executed a deed of sale
with assumption of mortgage over his landholdings,
and although he endorsed in blank his certificates of
stock, he never delivered them to petitioner to
effectuate their valid transfer.
Private respondent admitted in open court that he
refused to comply with his twin obligations to execute
the necessary documents of conveyance for the
mortgaged parcels of land and to deliver the
certificates of stock in Embassy Farms in favor of
petitioner. He stated on the witness stand, thus:
ATTY. MECIAS:
Q Now, there is also a mention of nineteen (19)
parcels of land as being owned by you as situated in
Don Marigato, Marilao, Bulacan and do you know
where are the certificates of title over these parcels of
land?
WITNESS:
A This certificate of title mentioned these are all in the
possession of PAEC Bank and MERCATOR Finance
Corporation.
ATTY. MECIAS:
Q Were there any titles given or delivered to
Paluwagan Savings Bank?
A There was one (1), but when I was about to pay the
loan they were returned to me.
Q In paragraph 1 of Exhibit "C" you undertook to cede,
transfer and convey to Asuncion, the plaintiff the
execution of said parcels of property together with
improvements in connection with such transfer you
undertook to execute, sign and deliver the whole
document appropriate on the same in favor of the
plaintiff Asuncion or his nominees. Did you actually
execute and sign, deliver that document as mentioned
here?
A May I have an [sic] specific document. What kind of
document?
Q Appropriate conveyance of sale?
A The only document I know which mention (sic) here
is the memorandum of agreement which we sign
together with the plaintiff.
ATTY. MECIAS:
Q I am referring to the document which you have to
execute in favor of Alexander G. Asuncion to cede,
transfer and convey those property. Did you execute
the document?
WITNESS:
A I did not.
Q What was your reason for not executing those
documents?
A I did hold on to convey those documents particularly
the stock certificate because I was waiting for the
plaintiff Asuncion to comply with his obligation to
assume all my loan with the three (3) financial
institutions. 43
It is specious for private respondent to justify his
refusal to execute the deed of conveyance on the
alleged petitioner's failure to assume his loans with the
three financial institutions. It is an established fact that
petitioner made, in behalf of private respondent, loan
payments in the amount of four hundred thousand
pesos (P400,000.00) to Paluwagan ng Bayan Savings
and Loan Association, one hundred thousand pesos
(P100,000.00) to Mercator Finance Corporation and
three hundred thousand pesos (P300,000.00) to PAIC
Savings & Mortgage Bank. These payments, which
were made in addition to outright sums of money given
by petitioner to private respondent and to the farm for
its operation, prove petitioner's willingness and
readiness to assume private respondent's obligations.
It is true that petitioner stopped making further loan
payments to the banks, causing them to foreclose
private respondent's mortgaged properties. He could
hardly, however, be faulted for stopping his further
exposure, considering that private respondent has
reneged with his obligation to cede his lands and his
shareholdings.
Private respondent is clearly obliged under the
Memorandum of Agreement to execute the deed of
conveyance with assumption of mortgage in favor of
petitioner. Had such deed been executed, the interests
of both petitioner and private respondent would have
been simultaneously secured, the former, as regards
his ownership rights over the subject lands sold to him,
and the latter, as regards the substitution, in his place,
of petitioner as the new debtor in his loan obligations
with Paluwagan ng Bayan Savings and Loan
Association, PAIC Savings and Mortgage Bank and
Mercator Finance Corporation. Private respondent,
however, failed and refused, despite demands, to
execute this legal document. It follows that petitioner
could not be faulted when he desisted from further
paying private respondent's debts.
It strikes us as strange that the respondent court failed
to appreciate these facts which were established by
overwhelming evidence. The very evidence of the
private respondent showed that petitioner did make
the payments for the restructuring of the former's
debts. In light of these payments, private respondent
errs in insisting that petitioner cannot be said to have
assumed his loan obligations because petitioner never
executed a formal assumption of mortgage. It is
private respondent's obligation under the
Memorandum of Agreement to execute a deed of sale
with assumption of mortgage, and he cannot insist that
it was petitioner's obligation to execute a formal
assumption of mortgage independent of and distinct
from the deed of sale. Under private respondent's
inequitous thesis, petitioner would have shelled out
millions of pesos to pay his loans and save his lands
from foreclosure, only to leave him with nothing in
exchange therefor.1wphi1.nt
Three. The impugned Decision rests on the conclusion
that the parties' Memorandum of Agreement is a
contract of sale where a price certain is paid in
exchange for a determinate thing that is sold and
delivered. An examination of the Memorandum of
Agreement, however, will show that it constitutes not a
mere isolated, simple, short-term business deal calling
for the outright sale and purchase of land and shares
of stocks belonging to private respondent, but a set of
chronological, reciprocal and conditional obligations
that both petitioner and private respondent must
faithfully comply with to ensure the full enforcement of
all its stipulations.
The Memorandum of Agreement does not merely
stipulate that petitioner has purchased private
respondent's landholdings and shares of stock in
Embassy Farms, Inc. for the price equivalent to private
respondent's total outstanding loans which petitioner
shall assume. The Memorandum of Agreement spells
out a much more complicated, long-term business
arrangement involving the transfer of Embassy Farms,
Inc. to petitioner, the restructuring of private
respondent's loans, the financing by petitioner of the
continued operations of the piggery, the organization
of a new corporation to replace Embassy Farms, Inc.
as well as an agribusiness management company, all
at the expense of petitioner, and the payment of
specified compensation packages to certain officers of
Embassy Farms, Inc. In fine, petitioner and private
respondent entered into what the law regards as
reciprocal obligations. Of such specie of legal
contracts, Tolentino says:
. . . Reciprocity arises from identity of cause, and
necessarily the two obligations are created at the
same time.
Reciprocal obligations, therefore, are those which
arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously, so
that the performance of one is conditioned upon the
simultaneous fulfillment of the other. 44
Art. 1191 of the Civil Code governs the situation where
there is non-compliance by one party in case of
reciprocal obligations. It provides:
The power to rescind the obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 2388 and the
Mortgage Law.
elementary principle in civil law that a real mortgage
subsists notwithstanding changes of ownership and all
subsequent purchases of the property must respect
the mortgage, whether the transfer to them be with or
without the consent of the mortgagee. 46
Four. Prescinding from these premises, we
hold that the award of thirty two million six
hundred forty-four thousand four hundred
twenty pesos and fifty five centavos
(P32,644,420.55) in damages to private
respondent is totally baseless. The trial court
and the respondent court computed the award
in the following manner:
. . . [T]his Court finds that [private respondent] is
entitled to the following actual damages:

The effect of rescission is also provided in the Civil I. LAND

Code in Article 1385:
Value of Land
Rescission creates the obligation to return the things
which were the object of the contract, together with Mortgaged to and
their fruits, and the price with its interest, consequently,
it can be carried out only when he who demands Foreclosed by Mercator P2,726,100.00
rescission can return whatever he may be obligated to
restore. Less: Mortgage

Neither shall rescission take place when the things as of 8/2/84 1,846,012.96 P880,087.04
which are the object of the contract are legally in the
possession of third persons who did not act in bad
Value of Land
faith.
Mortgaged to and
In this case, indemnity for damages may be demanded
from the persons causing the loss.
Foreclosed by PAIC 6,736,180.00
Private respondent admitted in open court that
Less: Mortgage
petitioner paid him the initial sum of one million pesos
(P1,000,000.00) upon the signing of the Memorandum
of Agreement as well as various sums of money as as of 8/2/84 2,758,968.49 P3,977,211.04
fees for the restructuring of his loans. Thereupon,
private respondent was obligated to execute a deed of II. STOCKS AND FACILITIES
sale with assumption of mortgage, both in compliance
with the Memorandum of Agreement and to ensure the Livestock P2,889,998.00
legal efficacy of petitioner's promise to assume his
loan obligations. Feedmill

We find that private respondent failed to perform his Machinery 70,000.00

substantial obligations under the Memorandum of
Agreement. Hence, petitioner sought the rescission of Feed Ingredients 144,941.88
the Memorandum of Agreement and ceased infusing
capital into the piggery business of private respondent. Less: Payments
Private respondent later justified his refusal to execute
any deed of sale and deliver the certificates of stock by
made 103,941.88 41,000.00
accusing petitioner of having failed to assume his
debts. We hold that private respondent's insistence
that petitioner execute a formal assumption of Feed Mixer 2,128.00
mortgage independent and separate from his own
execution of a deed of sale is legally untenable, Drugs Inventory 35,258.00
considering that a recorded real estate mortgage is a
lien inseparable from the property mortgaged and until III. EARNINGS OF
discharged, if follows the property. 45 In his testimony,
private respondent stated that he would be committing EMBASSY FARMS 27,748,738.00
economic suicide if he execute a deed of sale because
he would then be transferring his lands to petitioner
without the latter first assuming his loan obligations.
This posturing is puerile. Even without a formal P35,644,420.55
assumption of mortgage, the mortgage follows the
property whoever the possessor may be. It is an
From the aforesaid aggregate amount of
P35,644,420.55 should be deducted the payments
made by [petitioner] totaling P3,000,000.00. Thus, the
net effect is that [private respondent] is entitled to the
amount of P32,644,420.55, with interest at the legal
rate of 6% until fully paid.
In addition, [private respondent] is entitled to be paid
the amount of P500,000.00 which he granted as a loan
to [petitioner] outside of the Memorandum of
Agreement. What is due to [private respondent] after
deducting the payments made by [petitioner] and
adding the interest is as follows:
Loan of [private respondent]
to [petitioner] P500,000.00
Less: Payments made 270,000.00 P230,000.00
Add: Stipulated interest
(36% p.a. up to 1/31/93 540,000.00
Add: Stipulated interest
up to 6/30/94 117,300.00
657,300.00
P887,300.00
The circumstances of this case indicate that
[petitioner] acted in a wanton, fraudulent, reckless or
malevolent manner within the purview of Article 2232
of the Civil Code. Despite the fact that [petitioner] had
not performed his obligations as a vendee, he pre-
empted [private respondent] by filing this action for
rescission, ousted [private respondent] as a director of
Embassy Farms, Inc., transferred the shares of
[private respondent] to himself and his nominees, and
assumed full control and management of Embassy
Farms, Inc. until he was enjoined by Court in an order
issued by then Presiding Judge Zenaida Baltazar
dated July 30, 1987. Considering the bad faith and
malevolence shown by [petitioner] in his conduct
towards [private respondent] in the performance of his
obligations under the Memorandum of Agreement, this
Court, by way of example and correction for the public
good, holds that [private respondent] is entitled to
exemplary damages in the amount of P500,000.00.
This Court likewise finds that [private respondent] is
entitled to attorney's fees and expenses of litigation.
Considering the complexity and difficulty of this case
and the protracted proceedings, this Court awards
attorney's fees and expenses of litigation in the
amount of P350,000.00, 47 summarized in the following
dispositive portion:
WHEREFORE, this Court hereby declares the
Memorandum of Agreement dated 2 August 1984
rescinded and of no further force and effect.
This Court likewise orders the payment by the plaintiff
to the defendant of the following:
(1) P32,644,420.55 as actual or compensatory
damages arising from the rescission of the
Memorandum of Agreement with legal rate of interest
at 6% per annum until fully paid;
(2) P887,300.00 for the repayment of the loan granted
by the defendant to the plaintiff, with interest at the
stipulated rate of 36% per annum until fully paid; and
(3) P100,000.00 as attorney's fees.
No pronouncement as to costs.
SO ORDERED. 48
We, therefore, strike down the foregoing award of
actual or compensatory damages and attorney's fees.
Petitioner was further ordered to pay twenty seven
million seven hundred forty-eight thousand seven
hundred thirty eight pesos (P27,718,738.00)
representing earnings of Embassy Farms, Inc. as
additional compensatory damages. The only piece of
evidence supporting the award is private respondent's
Exh. "29" 49 which was signed as certified correct by
no one else but private respondent. It bore no
reference to any receipt, voucher or any other
document signed by petitioner or anyone in his behalf,
and it even states that it was Vicky Gregorio, not
private respondent, who was present during the
alleged sales of hogs at the piggery. Exh. "29" was
duly objected to and its contents vehemently denied by
petitioner but to no avail. This Court cannot
countenance the grant of such an unjustified and
unconscionable amount of damages on the basis of
nothing but a self-serving and hearsay document. As
we have ruled in the case of Lufthansa German
Airlines vs. CA, et al.: 50
Actual or compensatory damages cannot be
presumed, but must be duly proved and proved with
reasonable degree of certainty. A court cannot rely on
speculations, conjectures or guesswork as to the fact
and the amount of damages, but must depend upon
competent proof that they have (been) suffered and on
evidence of the actual amount thereof.
Neither may this Court allow the grant of damages
corresponding to the value of the land foreclosed by
private respondent's creditors upon the latter's failure
to make his loan payments. Private respondent, in his
amended counterclaim, prayed for the rescission of
the Memorandum of Agreement. In case of rescission,
while damages may be assessed in favor of the
prejudiced party, only those kinds of damages
consistent with the remedy of rescission may be
granted, keeping in mind that had the parties opted for
specific performance, other kinds of damages would
have been called for which are absolutely distinct from
those kinds of damages accruing in the case of
rescission. The vintage but still sound teaching of the
case of Rios and Reyes v. Jacinto, Palma y
Hermanos, S.C., 51 a 1926 case, is apropos:
. . . [A]n obligation may be resolved if one of the
obligors fails to comply with that which is incumbent
upon him; and it is declared that the person prejudiced
may elect between exacting the fulfillment of the
obligation (specific performance) and its resolution,
with compensation for damage and payment of
interest in either case . . . . It will be noted that he is
not entitled to pursue both of these inconsistent
remedies; and slight advertence to the logic of the
situation will teach us that, in estimating the damages
to be awarded in case of rescission, those elements of
damages only can be admitted that are compatible
with the idea of rescission; and of course in estimating
the damages to be awarded in case the lessor elects
for specific performance only those elements of
damages can be admitted which are compatible with
the conception of specific performance. It follows that
damages which would only be consistent with the
conception of specific performance cannot be awarded
in an action where rescission is sought.
. . . Now it is an inseparable incident of resolution or
rescission that the parties are bound to restore to each
the thing which has been the subject matter of the
contract, precisely as in the situation where a decree
of nullity is granted. In the common case of the
resolution of a contract of sale for failure of the
purchaser to pay the stipulated price, the seller is
entitled to be restored to the possession of the thing
sold, if it has already been delivered. But he cannot
have both the thing sold and the price which was
agreed to be paid, for the resolution of the contract has
the effect of destroying the obligation to pay the price.
Similarly, in the case of the resolution, or rescission of
a contract of lease, the lessor is entitled be restored to
the possession of the leased premises, but he cannot
have both the possession of the leased premises for
the remainder of the term and the rent which the other
party had contracted to pay. The termination of the
lease has the effect of destroying the obligation to pay
rent for the future.
Compensatory damages consisting of the value of
private respondent's foreclosed landholdings would
have been proper in case he resorted to remedy of
specific performance, not rescission. Since his
counterclaim prayed for the rescission of the
Memorandum of Agreement, it was grave error on the
part of the respondent court to have enforced said
agreement by ordering petitioner to pay him the value
of the landholdings.
This Court holds, in fine, that the Memorandum of
Agreement entered into by petitioner and private
respondent should indeed be rescinded. As
aforediscussed, the respondent appellate court erred
in assessing damages against petitioner for his refusal
to fully pay private respondent's overdue loans. Such
refusal was justified, considering that private
respondent was the first to refuse to deliver to
petitioner the lands and certificates of stock that were
the consideration for the almost six million pesos in
debt that petitioner was to assume and pay.
Five. Nevertheless, neither is petitioner entitled to
recover the amount of P3,194,941.88 that he spent as
lump sum payment, as feeds and veterinary costs for
the continued operation of the piggery and as loan
restructuring fees. Mutual restitution is required in
rescission, but this presupposes that both parties may
be restored in their original situation. 52 In this case, it
cannot be gainsaid that an essential part of the
consideration of the amount of P3,194,941.88 paid by
the petitioner was taking over the effective
management of Embassy Farms, Inc. Mutual
restitution would require, thus, that petitioner restore
private respondent in the effective management of
said corporation and that private respondent return
said amount to petitioner. This, however, has been
rendered impossible by the foreclosure of the
landholdings of private respondent and the shutdown
of the piggery's operations. Private respondent has
lost in his venture, and while he is not blameless for
his unfortunate fate, to still order him to remit a
considerable amount of money without receiving
anything in return would certainly run counter to the
essence of rescission as a remedy in equity. 53
WHEREFORE, the instant petition for review is hereby
GRANTED. The Decision of the Court of Appeals
dated February 2, 1998 is REVERSED and SET
ASIDE. The Memorandum of Agreement entered into
by petitioner and private respondent on August 2, 1984
is hereby DECLARED RESCINDED. No damages. No
costs.1wphi1.nt
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 202079 June 10, 2013
FIL-ESTATE GOLF AND DEVELOPMENT, INC. and
FILESTATE LAND, INC., Petitioners,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on
certiorari1 under Rule 45 of the Rules of Court, filed by
petitioners Fil-Estate Golf and Development, Inc.
(FEGDI) and Fil-Estate Land, Inc. (FELl), assailing the
decision2 dated February 22, 2012 and the
resolution3 dated May 31, 2012 of the Court of Appeals
(CA) in CA-G.R. CV No. 89296. The assailed CA
rulings reversed the decision dated March 1, 2007 of
the Regional Trial Court (RTC) of Pasig City, Branch
161, in Civil Case No. 68791.4
THE FACTS
FEGDI is a stock corporation whose primary business
is the development of golf courses. FELI is also a
stock corporation, but is engaged in real estate
development. FEGDI was the developer of the Forest
Hills Golf and Country Club (Forest Hills) and, in
consideration for its financing support and construction
efforts, was issued several shares of stock of Forest
Hills.
Sometime in August 1997, FEGDI sold, on installment,
to RS Asuncion Construction Corporation (RSACC)
one Class "C" Common Share of Forest Hills
for P1,100,000.00. Prior to the full payment of the
purchase price, RSACC sold, on February 11,
1999,5 the Class "C" Common Share to respondent
Vertex Sales and Trading, Inc. (Vertex). RSACC
advised FEGDI of the sale to Vertex and FEGDI, in
turn, instructed Forest Hills to recognize Vertex as a
shareholder. For this reason, Vertex enjoyed
membership privileges in Forest Hills.
Despite Vertexs full payment, the share remained in
the name of FEGDI. Seventeen (17) months after the
sale (or on July 28, 2000), Vertex wrote FEDGI a letter
demanding the issuance of a stock certificate in its
name. FELI replied, initially requested Vertex to first
pay the necessary fees for the transfer. Although
Vertex complied with the request, no certificate was
issued. This prompted Vertex to make a final demand
on March 17, 2001. As the demand went unheeded,
Vertex filed on January 7, 2002 a Complaint for
Rescission with Damages and Attachment against
FEGDI, FELI and Forest Hills. It averred that the
petitioners defaulted in their obligation as sellers when
they failed and refused to issue the stock certificate
covering the subject share despite repeated demands.
On the basis of its rights under Article 1191 of the Civil
Code, Vertex prayed for the rescission of the sale and
demanded the reimbursement of the amount it paid
(or P1,100,000.00), plus interest. During the pendency
of the rescission action (or on January 23, 2002), a
certificate of stock was issued in Vertexs name, but
Vertex refused to accept it.
RULING OF THE RTC
The RTC dismissed the complaint for insufficiency of
evidence. It ruled that delay in the issuance of stock
certificates does not warrant rescission of the contract
as this constituted a mere casual or slight breach. It
also observed that notwithstanding the delay in the
issuance of the stock certificate, the sale had already
been consummated; the issuance of the stock
certificate is just a collateral matter to the sale and the
stock certificate is not essential to "the creation of the
relation of shareholder."6
RULING OF THE CA
Vertex appealed the dismissal of its complaint. In its
decision, the CA reversed the RTC and rescinded the
sale of the share. Citing Section 63 of the Corporation
Code, the CA held that there can be no valid transfer
of shares where there is no delivery of the stock
certificate. It considered the prolonged issuance of the
stock certificate a substantial breach that served as
basis for Vertex to rescind the sale. 7 The CA ordered
the petitioners to return the amounts paid by Vertex by
reason of the sale.
THE PARTIES ARGUMENTS
FEGDI and FELI filed the present petition for review on
certiorari to assail the CA rulings. They contend that
the CA erred when it reversed the RTCs dismissal of
Vertexs complaint, declaring that the delay in the
issuance of a stock certificate constituted as
substantial breach that warranted a rescission.
FEGDI argued that the delay cannot be considered a
substantial breach because Vertex was unequivocally
recognized as a shareholder of Forest Hills. In fact,
Vertexs nominees became members of Forest Hills
and fully enjoyed and utilized all its facilities. It added
that RSACC also used its shareholder rights and
eventually sold its share to Vertex despite the absence
of a stock certificate. In light of these circumstances,
delay in the issuance of a stock certificate cannot be
considered a substantial breach.
For its part, FELI stated that it is not a party to the
contract sought to be rescinded. It argued that it was
just recklessly dragged into the action due to a mistake
committed by FEGDIs staff on two instances. The first
was when their counsel used the letterhead of FELI
instead of FEGDI in its reply-letter to Vertex; the
second was when they used the receipt of FELI for
receipt of the documentary stamp tax paid by Vertex.
In its comment to the petition,8 Vertex alleged that the
fulfillment of its obligation to pay the purchase price
called into action the petitioners reciprocal obligation
to deliver the stock certificate. Since there was delay in
the issuance of a certificate for more than three years,
then it should be considered a substantial breach
warranting the rescission of the sale. Vertex further
alleged that its use and enjoyment of Forest Hills
facilities cannot be considered delivery and transfer of
ownership.
THE ISSUE
Given the parties arguments, the sole issue for the
Court to resolve is whether the delay in the issuance of
a stock certificate can be considered a substantial
breach as to warrant rescission of the contract of sale.
THE COURTS RULING
The petition lacks merit.
Physical delivery is necessary to
transfer ownership of stocks
The factual backdrop of this case is similar to that of
Raquel-Santos v. Court of Appeals,9 where the Court
held that in "a sale of shares of stock, physical delivery
of a stock certificate is one of the essential requisites
for the transfer of ownership of the stocks purchased."
In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil)
and Roland Garcia bought Piltel shares from Finvest
Securities Co., Inc. (Finvest Securities) in February
1997. Since Finvest Securities failed to deliver the
stock certificates, Trans-Phil and Garcia filed an action
first for specific performance, which was later on
amended to an action for rescission. The Court ruled
that Finvest Securities failure to deliver the shares of
stock constituted substantial breach of their contract
which gave rise to a right on the part of Trans-Phil and
Garcia to rescind the sale.
Section 63 of the Corporation Code provides:
SEC. 63. Certificate of stock and transfer of shares. receipt for the payment of transfer taxes. Thus FELl
The capital stock of stock corporations shall be divided should be absolved from any liability.
into shares for which certificates signed by the
president or vice-president, countersigned by the WHEREFORE, we hereby DENY the petition. The
secretary or assistant secretary, and sealed with the decision dated February 22, 2012 and the resolution
seal of the corporation shall be issued in accordance dated May 31, 2012 of the Court of Appeals in CA-
with the by-laws. Shares of stock so issued are G.R. CV No. 89296 are AFFIRMED with the
personal property and may be transferred by delivery MODIFICATION that Fil-Estate Land, Inc. is
of the certificate or certificates indorsed by the owner ABSOLVED from any liability.
or his attorney-in-fact or other person legally
authorized to make the transfer.1wphi1 No transfer, SO ORDERED.
however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the
corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates and the number of shares
transferred.

No shares of stock against which the corporation holds

any unpaid claim shall be transferable in the books of
the corporation.

In this case, Vertex fully paid the purchase price by

February 11, 1999 but the stock certificate was only
delivered on January 23, 2002 after Vertex filed an
action for rescission against FEGDI.

Under these facts, considered in relation to the

governing law, FEGDI clearly failed to deliver the stock
certificates, representing the shares of stock
purchased by Vertex, within a reasonable time from
the point the shares should have been delivered. This
was a substantial breach of their contract that entitles
Vertex the right to rescind the sale under Article 1191
of the Civil Code. It is not entirely correct to say that a
sale had already been consummated as Vertex
already enjoyed the rights a shareholder can exercise.
The enjoyment of these rights cannot suffice where the
law, by its express terms, requires a specific form to
transfer ownership.

"Mutual restitution is required in cases involving

rescission under Article 1191" of the Civil Code; such
restitution is necessary to bring back the parties to
their original situation prior to the inception of the
contract.10 Accordingly, the amount paid to FEGDI by
reason of the sale should be returned to Vertex. On
the amount of damages, the CA is correct in not
awarding damages since Vertex failed to prove by
sufficient evidence that it suffered actual damage due Republic of the Philippines
to the delay in the issuance of the certificate of stock. SUPREME COURT
Manila
Regarding the involvement of FELI in this case, no
privity of contract exists between Vertex and FELI. "As THIRD DIVISION
a general rule, a contract is a meeting of minds
between two persons.1wphi1 The Civil Code upholds G.R. No. 81158 May 22, 1992
the spirit over the form; thus, it deems an agreement to
exist, provided the essential requisites are present. A OSCAR A. JACINTO and LIBRADA FRANCO-
contract is upheld as long as there is proof of consent, JACINTO, petitioners,
subject matter and cause. Moreover, it is generally vs.
obligatory in whatever form it may have been entered ROGELIO KAPARAZ, RAUL KAPARAZ and ROSE
into. From the moment there is a meeting of minds MARIET KAPARAZ, respondents.
between the parties, [the contract] is perfected." 11
Garcia, Iigo & Ledesma Law Office for petitioners.
In the sale of the Class "C" Common Share, the
parties are only FEGDI, as seller, and Vertex, as
buyer. As can be seen from the records, FELl was only
dragged into the action when its staff used the wrong
DAVIDE, JR, J.:p
letterhead in replying to Vertex and issued the wrong
Petitioners urge this Court to review and set aside the sell, cede, transfer, and convey absolutely to the
decision of the respondent Court of Appeals of 30 July PARTY OF THE SECOND PART SIX HUNDRED
1987 in C.A.-G.R. CV No. 69357, 1 the dispositive (600) SQUARE METERS portion of the property
portion of which reads: covered by TRANSFER CERTIFICATE OF TITLE NO.
T-3694 together with all the improvements thereon,
WHEREFORE, the appealed decision is hereby which portion is situated along the national highway
REVERSED and SET ASIDE and judgment is hereby and shown as the shaded area in the sketch at the
rendered as follows: back hereof; the total consideration of the sale of the
said SIX HUNDRED (600) SQUARE METERS shall be
1. The Complaint/Amended Complaint is hereby ONE THOUSAND EIGHT HUNDRED PESOS
dismissed. (P1,800.00), including the amount of EIGHT
HUNDRED PESOS (P800.00) advanced by the
PARTY OF THE SECOND PART upon the execution
2. The agreement between the parties dated March
of this document;
11, 1966 (Exhibit "A"; also marked as Exhibit "1" ) is
hereby declared extinguished.
That the unpaid balance of the total consideration of
the sale amounting to ONE THOUSAND (P1,000.00)
3. To prevent unjust enrichment at the expense of
PESOS shall be paid by the PARTY OF THE
another, the defendants-appellants are hereby ordered
SECOND PART directly to the DEVELOPMENT BANK
to reimburse to the plaintiffs-appellees the sum of
OF THE PHILIPPINES, DAVAO BRANCH, in ten (10)
P500.00 paid by the latter to the Development Bank of
equal monthly installments of ONE HUNDRED
the Philippines for the defendants-appellants'
(P100.00) PESOS each not later than the 15th day
P2,600.00 loan account.
following the end of each month beginning May 10,
1966;
No pronouncement as to costs.
That the PARTY OF THE SECOND PART has the right
SO ORDERED. 2
and privilege by virtue of this (sic) presents to take
possession of the area of SIX HUNDRED (600)
The undisputed antecedent facts are as follows: SQUARE METERS subject of this agreement and to
appropriate for himself all the improvements existing
On 11 March 1966, herein petitioners and private thereon effective from the date of execution of this
respondents entered into an agreement (hereinafter agreement; 3
referred to as Agreement) under which the private
respondents agreed to sell and convey to petitioners a Paragraph 9 thereof reads:
portion consisting of six hundred (600) square meters
of a lot located in Matiao, Mati, Davao Oriental and
That the PARTY OF THE FIRST PART agrees and
covered by Transfer Certificate of Title No. T-3694 for
binds himself to acknowledge receipt of every and all
a total consideration of P1,800.00 of downpayment of
monthly payments remitted to the DEVELOPMENT
P800.00 was paid upon execution of the Agreement.
BANK OF THE PHILIPPINES by the PARTY OF THE
The balance of P1,000.00 was to be paid by
SECOND PART and further agrees and binds himself
petitioners on installment at the rate of P100.00 a
to execute the final deed of absolute sale of the SIX
month to the Development Bank of the Philippines
HUNDRED (600) SQUARE METERS herein above
(DBP) to be applied to private respondents' loan
referred to in favor of the PARTY OF THE SECOND
accounts. Paragraphs 5, 6, 7 and 8 of the Agreement
PART as soon as the settlement or partition of the
read as follows:
estate of the deceased NARCISA R. KAPARAZ shall
have been consummated and effected, but not later
That the PARTY OF THE FIRST PART is very much in than March 31, 1967; 4
need of cash to pay the loan to the DEVELOPMENT
BANK OF THE PHILIPPINES herein abovementioned
Upon the execution of the agreement, petitioners paid
which is very much in arrears and the PARTY OF THE
the downpayment of P800.00 and were placed in
SECOND PART is agreeable to advance the sum of
possession of the portion described therein. As to the
EIGHT HUNDRED (P800.00) PESOS as partial
P1,000.00 which was to be paid directly to the DBP,
payment of the said loan to the Development Bank of
petitioners claim that they had even made an excess
the Philippines provided that the PARTY OF THE
payment of P100.00.
FIRST PARTY (sic) shall sell, transfer, cede and
convey absolutely to the party of the SECOND PART
In view of the refusal of private respondents to execute
an area of SIX HUNDRED (600) SQUARE METERS
the deed of sale, petitioners filed against them a
with a frontage of twenty (20) METERS along the
complaint for specific performance with the then Court
present national highway, at the corner of the
of First Instance (now Regional Trial Court) of Davao
aforementioned land bordering a proposed five-meter
Oriental. The complaint was docketed as Civil Case
subdivision road adjacent to the property of the PARTY
No. 586 and was amended on 23 January 1979. In
OF THE SECOND PART;
their Answer filed on 28 June 1977, later amended on
19 December 1979 as a consequence of the filing of
That for and in consideration of the foregoing premises
the amended complaint, private respondents alleged
and of the sum of EIGHT HUNDRED (800.00) PESOS
that the sale did not materialize because of the failure
which the PARTY OF THE FIRST PARTY (sic) hereby
of petitioners to fulfill their promise to make timely
acknowledges to have received from the PARTY OF
payments on the stipulated price to the DBP; as a
THE SECOND PART, THE PARTY OF THE FIRST
result of such failure, they (private respondents) failed
PART hereby agrees, promises and binds himself to
to secure the release of the mortgage on the property.
They then prayed for the dismissal of the case and a
declaration that the agreement is null and void.
After due trial, the court below rendered on 19
November 1981 a decision in favor of the petitioners,
the dispositive portion of which reads as follows:
FOR ALL THE FOREGOING, judgment is hereby
rendered in favor of the plaintiffs and against the
defendants
(1) Declaring the plaintiffs to be the owners of the
property consisting of six hundred (600) square
meters, more or less, denominated as Lot H-12, Psd-
11-000576, which was formerly a portion of the
property covered by Transfer Certificate of Title No. T-
3694, and now covered by Transfer Certificate of Title
No. T-5824 in the name of defendant Rogelio Kaparaz;
(2) Ordering defendant Rogelio Kaparaz to reconvey
this property to the plaintiffs herein;
(3) Ordering defendants to pay plaintiffs reasonable
attorney's fees in the amount of P3,000.00 and to pay
the costs.
SO ORDERED. 5
The facts as found by the trial court are as follows:
xxx xxx xxx
The adduced evidence will show that the parties
herein above executed a certain agreement (Exh. "A"
for the plaintiffs; Exhibit "1" for the defendants) dated
March 11, 1966, the pertinent portions of which are
hereunder quoted, to wit:
xxx xxx xxx
From the foregoing provisions of the said agreement,
the defendants herein have bound themselves to sell
and convey a portion of the property covered by
Transfer Certificate of Title No. T-3694, consisting of
SIX HUNDRED (600) SQUARE METERS, to the
plaintiffs for a consideration of P1,800.00, P800.00 of
which had been received by the defendants upon the
execution of the document and the remaining balance
of P1,000.00 shall be paid by the plaintiffs directly to
the Development Bank of the Philippines in "ten (10)
equal monthly installments of ONE HUNDRED
(P100.00) PESOS EACH not later than the 15th day
following the end of each month beginning May 10,
1966". The defendants, on the other hand, have also
bound themselves to execute the final deed of
absolute sale of the portion above-mentioned in favor
of the plaintiffs "as soon as the settlement or partition
of the estate of the deceased NARCISA R. KAPARAZ
shall have been consummated and effected, but not
later than March 31, 1967."
It appears that plaintiffs had paid defendant Domingo
Kaparaz the amount of P400.00 (Exh. "B"), the
P200.00 which was paid by plaintiffs to the
development Bank of the Philippines for the account of
the late Domingo Kaparaz and the P200.00 was given
to said defendant. Plaintiff Oscar Jacinto made
another payment to the Development Bank of the
Philippines for the account of Domingo and Narcisa
Kaparaz covered by Official Receipt No. 1113990,
dated November 29, 1966, in the amount of P200.00
(Exh. "F"). Another payment was again made to the
Development Bank of the Philippines for the same
account by plaintiff Oscar Jacinto covered by Official
Receipt No. 1334193, dated December 5, 1968, in the
amount of P300.00 (Exh. "C") and another payment
also was made on December 9, 1968 in the amount of
P200.00 covered by Official Receipt No. 1334196
(Exh. ''H''). All of these payments are certified by the
Development Bank of the Philippines (Exh. "E") to
have been made by plaintiff Oscar Jacinto and applied
to the accounts of Domingo and Narcisa Kaparaz. For
the subdivision survey of the lot of six (600) square
meters involved in this case, plaintiffs contributed the
amount of P80.00 (Exh. "J") and another amount of
P350.00 was paid also to Engr. Ladera (Exh. "I")
plaintiffs, all in all, aside from the payments that they
made to the Surveyor, have paid the Development
Bank of the Philippines for the account of the late
Domingo Kaparaz in the total amount of P700.00
which in already in excess of the price consideration of
P1,800.00 after defendants had received the amount
of P1,200.00. Plaintiff Oscar Jacinto explained that the
payment was in excess of P100.00 because the
balance of P600.00 which was originally intended to
be paid for the surveyor was instead paid by him to the
bank plus P100.00 to cover the accumulated interests.
Thus (sic), making the total payments to the
Development Bank of the Philippines in the amount of
P700.00.
On the other (hand), defendant Rogelio Kaparaz
testified that plaintiffs did not comply with the terms of
the agreement (Exh. "A") by having failed to pay the
ten (10) equal monthly installments. For failure of
plaintiffs to pay the monthly installments, as agreed
(sic) in the agreement (Exh. "A" ), he decided to pay
the Development Bank of the Philippines of (sic) their
accounts. The partial payment was made on July 3,
1967 in the amount of P3,000.00 covered by Official
Receipt No. 1160314 (Exh. "2") and another payment
for the balance was made on August 15, 1967 in the
amount of 73,124.11 covered by Official Receipt No.
1160831 (Exh. "4").
It is likewise admitted that the estate of the late
Narcisa R. Kaparaz had already been settled and that
six hundred (600) square meters portion of the lot
covered by Transfer Certificate of Title No. T-3694, or
Lot No. H-12, Psd-11-000576, has already been
adjudicated to defendant Rogelio Kaparaz and is now
registered in his name under Transfer Certificate of
Title No. T-5824. 6
Private respondents appealed from said decision to
the Court of Appeals which docketed the case as C.A.-
G.R. CV No. 69357. In their Brief, they contended that
the trial court erred in: (a) finding that petitioners had
fully paid the consideration for the property subject of
the agreement, (b) ruling that the delay in the
payments to the DBP is only a slight breach of the
agreement, (c) holding private respondents' failure to
protest petitioners' delay of payment amounted to
implied waiver to rescind the agreement, (d) declaring
that laches did not operate against petitioners
considering that the prescriptive period has not even
expired, (e) not holding that the parties are in pari
delicto, and (f) ordering Rogelio Kaparaz to reconvey
the property in question to petitioners.
As earlier adverted to, in its decision of 30 July 1987,
the respondent Court of Appeals reversed the decision
of the trial court. The respondent Court was of the
opinion that: (a) The petitioners had not fully
discharged their obligation under the agreement
considering that their last payments to DBP of
P300.00 7 and P200.00 8 were "several months
delayed beyond the date/s agreed upon by the
parties," and that the agricultural loan to which the
amortizations of the unpaid balance of P1,000.00 of
the purchase price were to be applied had in fact been
fully settled by the private respondents. The
application of these payments by the DBP to another
account of the private respondents was of no moment
because the agreement of the parties specifically
referred to the agricultural loan. (b) No evidence
supports the .conclusion of the trial court that private
respondents failed to protest the delay in the
payments. On the contrary, the evidence discloses that
private respondents demanded from the petitioners the
balance of the obligation after the latter had defaulted;
having received no response, private respondents
themselves paid .the agricultural loan. (c) The delay in
the payments was not a slight breach. The dates of the
payments were so essential that they were specifically
stipulated upon by the parties. The primary importance
of timely payments sprang from the nature of the
subject bank account consisting of a loan secured by a
real estate mortgage which demanded up-to-date
amortization to prevent foreclosure. (d) While the trial
court was correct in holding that both parties defaulted
in the performance of their respective obligations,
petitioners were the first to incur in delay. There is,
therefore, greater justification to decree rescission.
Moreover, even granting that there was no evidence
as to who violated the agreement first, then the
contract is deemed extinguished pursuant to the
second sentence of Article 1192 of the Civil Code. This
Article provides that:
In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damage.
Unable to accept the above verdict, petitioner
commenced this petition wherein they allege that
respondent Court erred in not finding that: (a)
petitioners had fully paid the consideration for the 600
square meters of Lot H; (b) private respondents' failure
to protest the delay of payments can be considered as
estoppel on their part and an implied waiver of their
right to rescind the sale; (c) assuming that the last two
payments to the DBP were not valid as they were
applied to another account, there was at least
substantial performance by the petitioners of their
obligation; (d) the breach on the part of petitioners was
only slight or casual and would not warrant rescission
of the sale; (e) under the circumstances, it was
necessary for the respondents to make a notarial
demand or obtain prior judicial approval to effect
rescission of the sale; and finally, (e) the agreement
was extinguished.
After the filing of the Comments by private
respondents, the reply thereto by petitioners and the
rejoinder to the latter by private respondents, the Court
gave due course to the petition and required the
parties to submit simultaneously their respective
Memoranda, 9 which they subsequently complied
with. 10
The petition is impressed with merit.
Vital to the resolution of the controversy is the
determination of the true nature of the questioned
agreement. Is it a contract of sale or a contract to sell?
The two are not, of course, the same. In the latter
case, ownership is retained by the seller and is not to
pass until full payment of the price. Such payment is a
positive suspensive condition the failure of which is not
a broach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey title
from acquiring binding force. In such a situation, to
argue that there was only a casual breach is to
proceed from the assumption that the contract is one
of absolute sale, where non-payment is a resolutory
question. 11 Otherwise stated, as capsulized in Luzon
Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., 12"there can be no rescission or resolution of an
obligation as yet non-existent, because the suspensive
condition did not happen." Expanding on this point,
this Court, in said case, made the following
disquisitions:
. . . The upshot of all these stipulations is that in
seeking the ouster of Maritime for failure to pay the
price as agreed upon, Myers was not rescinding (or
more properly, resolving) the contract, but
precisely enforcing it according to its express terms. In
its suit Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never
disposed of), such restoration being the logical
consequence of the fulfillment of
a resolutory condition, express or implied (article
1190); neither was it seeking a declaration that its
obligation to sell was extinguished. What it sought was
a judicial declaration that because
the suspensive condition (full and punctual payment)
had not been fulfilled, its obligation to sell to
Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the
property object of the contract, possession being a
mere incident to its right of ownership. It is elementary
that, as stated by Castan,
b) Si la condicion suspensive Ilega a faltar, la
obligacion se tiene por no existente, y el acreedor
pierde todo derecho, incluso el de utilizar las medidas
conservativas. (3 Catan Derecho Civil, 7a Ed., p. 107).
(Also Puig Pea, Der. Civ., T. IV (1), p. 113).
On the other hand, since in a contract of sale, the non-
payment of the price is a resolutory condition, 13 the
remedy of the seller under Article 1191 of the Civil
Code is to exact fulfillment or to rescind the contract.
In respect, however, to the sale of immovable property,
this Article must be read together with Article 1592 of
the same Code:
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.
This Article applies to instances where no stipulation
for automatic rescission is made because it says "even
though". 14
The agreement in the instant case has all the
earmarks of a contract of sale. The possession of the
portion sold was immediately delivered to the
petitioners. They were granted the right to enjoy all the
improvements therein effective from the date of the
execution of the agreement. Private respondents
unqualifiedly bound themselves to execute the final
deed of sale "as soon as the settlement or partition of
the estate of the deceased Narcisa R. Kaparaz shall
have been consummated and effected, but not later
than March 31, 1967" and only upon full payment of
the unpaid portion of the purchase price. The private
respondents did not reserve unto themselves the
ownership of the property until full payment of the
unpaid balance of P1,000.00. Finally, there is no
stipulation giving the private respondents the right to
unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period. In reality, the
agreement was an absolute sale which allowed the
petitioners to pay the remaining balance of the
purchase price in installment. We agree with the
submission of
petitioners 15 that Dignos vs. Court of
Appeals 16 applies in this case. In said case, this Court
stated:
Thus, it has been held that a deed of sale is absolute
in nature although denominated as a "Deed of
Conditional Sale" where nowhere in the contract in
question is a proviso or stipulation to the effect that
title to the property sold is reserved in the vendor until
full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to
pay within a fixed period (Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime
Building Co., Inc., 86 SCRA 305).
As stated earlier, in a contract of sale, the remedy of
an unpaid seller is either specific performance or
rescission. The latter, with respect to the sale of
immovables, is specifically governed by Article 1592 of
the Civil Code. 17 In the case at bar, there was non-
compliance with the requirements prescribed in these
provisions. It is not controverted that private
respondents had neither filed an action for specific
performance nor demanded the rescission of the
agreement either judicially or by a notarial act before
the filing of the complaint in Civil Case No. 586. It is
only in their Answer that they belatedly raised the
defense of resolution of the contract pursuant to Article
1191 by reason of petitioners' breach of their
obligation.
Even if the general law on resolution, Article 1191 of
the Civil Code, is to be applied, Our decision would still
be for the petitioners. The third paragraph of this
Article reads:
xxx xxx xxx
The Court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
It is not denied that petitioners made two (2) payments
in the sums of P200.00 and P300.00 at a time when
what remained unsettled under the agreement was
only P400.00. There was then an excess payment of
P100.00. These payments were made to the DBP
which applied them to an outstanding account of the
private respondents. Private respondents neither
complained of the delay in these payments nor
rejected their application to their account. They were,
undoubtedly, benefited by the application because it
either satisfied their account or correspondingly
reduced it. The claim that the account to which it was
applied was not the account stipulated in the
agreement is without merit. In the first place, the
agreement fails to disclose an express agreement that
the monthly amortizations on the P1,000.00 unpaid
balance of the purchase price to be made to the DBP
should be applied exclusively to the agricultural loan
indicated in the exordium of the agreement. The loan
was mentioned only to lay the basis for private
respondents' need for the downpayment. In the
second place, to allow private respondents to reject
the payment of P400.00, plus the excess of P100.00
after they benefited therefrom, would be unjust.
Then too, at no time before the filing of their Answer
did private respondents declare their intention to
rescind the agreement, or if they did, communicate
such intention to the petitioners. It was necessary for
private respondents to have done so. As this Court
held in University of the Philippines vs. De los
Angeles: 18
Of course, it must be understood that the act of a party
in treating a contract as cancelled or resolved on
account of infractions by the other contracting party
must be made known to the other and is always
provisional, being ever subject to scrutiny and review
by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract
violated 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 others'
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).
Finally, the delay incurred by petitioners was but a
casual or slight breach of the agreement, which did not
defeat the object of the parties in entering into the
agreement. A mere casual breach does not justify
rescission. 19 The prompt payment of the monthly
amortizations of the unpaid balance of P1,000.00 was
not a condition precedent to the execution of the final
deed of sale. Besides, petitioners had already paid
P1,400.00 of the total consideration of P1,800.00, or
exactly 77.77% of the purchase price within the period
stipulated. Moreover, they had in fact overpaid the
private respondents by P100.00.

Accordingly, We rule that rescission of the agreement Republic of the Philippines

was not available to private respondents. SUPREME COURT
Manila
We further rule that the respondent Court erred in FIRST DIVISION
declaring the agreement extinguished pursuant to the G.R. No. 172652 November 26, 2014
second sentence of Article 1192 of the Civil Code. METROPOLITAN BANK AND TRUST
Having concluded, although erroneously, that COMPANY, Petitioner,
vs.
petitioners were the first to breach the agreement, it
WILFRED N. CHIOK, Respondent.
should have applied the first sentence thereof by
x-----------------------x
equitably tempering petitioners' liability. The second G.R. No. 175302
sentence applies only to cases where it cannot be BANK OF THE PHILIPPINE ISLANDS, Petitioner,
determined which of the parties first violated the vs.
contract. WILFRED N. CHIOK, Respondent.
x-----------------------x
The foregoing disquisitions render unnecessary any G.R. No. 175394
discussion on the other issues raised by petitioners. GLOBAL BUSINESS BANK, INC., Petitioner,
vs.
WILFRED N. CHIOK, Respondent.
WHEREFORE, the petition is GRANTED. The
DECISION
challenged decision of the Court of Appeals is
LEONARDO-DE CASTRO, J.:
REVERSED and the judgment of the lower court is
hereby REINSTATED and AFFIRMED. Costs against
The three consolidated petitions herein all assail the
private respondents.
Decision1 of the Court of Appeals in CA-G.R. CV No.
77508 dated May 5, 2006, and the Resolution2 in the
SO ORDERED. same case dated November 6, 2006.

Respondent Wilfred N. Chiok (Chiok) had been

engaged in dollar trading for several years. He usually
buys dollars from Gonzalo B. Nuguid (Nuguid) at the
exchange rate prevailing on the date of the sale. Chiok
pays Nuguid either in cash or managers check, to be
picked up by the latter or deposited in the latters bank
account. Nuguid delivers the dollars either on the
same day or on a later date as may be agreed upon
between them, up to a week later. Chiok and Nuguid
had been dealing in this manner for about six to eight
years, with their transactions running into millions of
pesos. For this purpose, Chiok maintained accounts
with petitioners Metropolitan Bank and Trust Company
(Metrobank) and Global Business Bank, Inc. (Global
Bank), the latter being then referred to as the Asian
Banking Corporation (Asian Bank). Chiok likewise
entered into a Bills Purchase Line Agreement (BPLA)
with Asian Bank. Under the BPLA, checks drawn in
favor of, or negotiated to, Chiok may be purchased by
Asian Bank. Upon such purchase, Chiok receives a
discounted cash equivalent of the amount of the check
earlier than the normal clearing period.

On July 5, 1995, pursuant to the BPLA, Asian Bank

"bills purchased" Security Bank & Trust Company
(SBTC) Managers Check (MC) No. 037364 in the
amount of P25,500,000.00 issued in the name of
Chiok, and credited the same amount to the latters
Savings Account No. 2-007-03-00201-3.

On the same day, July 5, 1995, Asian Bank issued MC

No. 025935 in the amount of P7,550,000.00 and MC
No. 025939 in the amount of P10,905,350.00 to
Gonzalo Bernardo, who is the same person as
Gonzalo B. Nuguid. The two Asian Bank managers
checks, with a total value of P18,455,350.00 were
issued pursuant toChioks instruction and was debited
from his account. Likewise upon Chioks application,
Metrobank issued Cashiers Check (CC) No. 003380
in the amount of P7,613,000.00 in the name of
Gonzalo Bernardo. The same was debited from
Chioks Savings Account No. 154-42504955. The
checks bought by Chiok for payee Gonzalo Bernardo
are therefore summarized as follows:
Drawee Bank/Check No. Amount (P) Source of fund
Asian Bank MC No. 025935 7,550,000.00 Chioks Asian Bank Savings
10,905,350.00 Account No. 2-007-03-00201-3,
which had been credited with the
Asian Bank MC No. 025939 (aggregate value of
Asian Bank MCs:
value of SBTC MC No. 037364
(P25,500,000.00) when the latter
18,455,350.00) was purchased by Asian Bank
from Chiok pursuant to their
BPLA.
Metrobank CC No. 003380 7,613,000.00 Chioks Metrobank Savings
Account No. 154-425049553
26,068,350.00
TOTAL
Chiok then deposited the three checks (Asian Bank
MC Nos. 025935 and 025939, and Metrobank CC No.
003380), with an aggregate value of P26,068,350.00
in Nuguids account with Far East Bank & Trust
Company (FEBTC), the predecessor-in-interest of
petitioner Bank of the Philippine Islands (BPI). Nuguid
was supposed to deliver US$1,022,288.50,4 the dollar
equivalent of the three checks as agreed upon, in the
afternoon of the same day. Nuguid, however, failed to
do so, prompting Chiok to request that payment on the
three checks be stopped. Chiok was allegedly advised
to secure a court order within the 24-hour clearing
period. On the following day, July 6, 1995, Chiok filed
a Complaint for damages with application for ex parte
restraining order and/or preliminary injunction with the
Regional Trial Court (RTC) of Quezon City against the
spouses Gonzalo and Marinella Nuguid, and the
depositary banks, Asian Bank and Metrobank,
represented by their respective managers, Julius de la
Fuente and Alice Rivera. The complaint was docketed
as Civil Case No. Q-95-24299 and was raffled to
Branch 96. The complaint was later amended5 to
include the prayer of Chiok to be declared the legal
owner of the proceeds of the subject checks and to be
allowed to withdraw the entire proceeds thereof.
On the same day, July 6, 1995, the RTC issued a
temporary restraining order (TRO) directing the
spouses Nuguid to refrain from presenting the said
checks for payment and the depositary banks from
honoring the sameuntil further orders from the court. 6
Asian Bank refused to honor MC Nos. 025935 and
025939 in deference to the TRO. Metrobank claimed
that when it received the TRO on July 6, 1995, it
refused to honor CC No. 003380 and stopped
payment thereon. However, in a letter also dated July
6, 1995, Ms. Jocelyn T. Paz of FEBTC, Cubao-Araneta
Branch informed Metrobank that the TRO was issued
a day after the check was presented for payment.
Thus, according to Paz, the transaction was already
consummated and FEBTC had already validly
accepted the same. In another letter, FEBTC informed
Metrobank that "the restraining order indicates the
name of the payee of the check as GONZALO
NUGUID, but the check isin fact payable to GONZALO
BERNARDO. We believe there is a defect in the
restraining order and as such should not bind your
bank."7 Alice Rivera of Metrobank replied to said
letters, reiterating Metrobanks position tocomply with
the TRO lest it be cited for contempt by the trial court.
However, as would later be alleged in Metrobanks
Answer before the trial court, Metrobank eventually
acknowledged the check when it became clear that
nothing more can be done to retrieve the proceeds of
the check. Metrobank furthermore claimed that since it
is the issuer of CC No. 003380, the check is its
primary obligation and should not be affected by any
prior transaction between the purchaser (Chiok) and
the payee (Nuguid).
In the meantime, FEBTC, as the collecting bank, filed
a complaint against Asian Bank before the Philippine
Clearing House Corporation (PCHC) Arbitration
Committee for the collection of the value of Asian Bank
MC No. 025935 and 025939, which FEBTC had
allegedly allowed Nuguid to withdraw on July 5, 1995,
the same day the checks were deposited. The case
was docketed as Arbicom Case No. 95-082. The
PCHC Arbitration Committee later relayed, in a letter
dated August 4, 1995, its refusal to assume jurisdiction
over the case on the ground that any step it may take
might be misinterpreted as undermining the jurisdiction
of the RTC over the case or a violation of the July 6,
1995 TRO.
On July 25, 1995, the RTC issued an Order directing
the issuance of a writ of preliminary prohibitory
injunction:
WHEREFORE, upon filing by the plaintiff of a sufficient
bond in the amount of P26,068,350.00, to be executed
in favor of the defendants under the condition that the
same shall answer for whatever damages they may
sustain by reason of this injunction should the Court
ultimately determine that he was not entitled thereto,
let a writ of preliminary prohibitory injunction issue
restraining and preventing during the pendency of the
case:
a) Defendant Asian Bank frompaying
Managers Checks No. 025935 in the amount
of P7,550,000.00 and No. 025939 in the
amount of P10,905,350.00; and
b) Defendant Metro Bank frompaying
Cashiers Check No. 003380 in the amount
of P7,613,000.00.
The application for preliminary mandatory injunctionis
hereby denied and the order issued on July 7, 1995
directing defendant Metro Bank (Annapolis, Greenhills
Branch) to allow the plaintiff to withdraw the proceeds
of Cashiers Check No. 003380 in the amount
of P7,613,000.00 is hereby set aside.
The plaintiffs urgent motion todeclare defendants
Asian Bank and Metro Bank in contempt of court filed
last July 13, 1995 is hereby denied for lack of legal
basis.
The writ of preliminary prohibitory injunction and a
copy of this order shall be served on the defendants by
Deputy Sheriff Jose Martinez of this Branch.8
Upon the filing by Chiok of the requisite bond, the Writ
was subsequently issued on July 26, 1995.
Before the RTC, Asian Bank pointed out that SBTC
returned and issued a Stop Payment Order on SBTC
MC No. 037364 (payable to Chiok in the amount
of P25,500,000.00) on the basis of an Affidavit of Loss
& Undertaking executed by a certain Helen Tan. Under
said Affidavit of Loss & Undertaking, Tan claims that
she purchased SBTC MC No. 037364 from SBTC, but
the managers check got lost on that day. Asian Bank
argued that Chiok would therefore be liable for the
dishonor of the managers check under the terms of
the BPLA, which provides for recourse against the
seller (Chiok) of the check when it is dishonored by the
drawee (SBTC) for any reason, whether valid or not.
On October 18, 1995, FEBTC filed a Complaint-in-
Intervention in Civil Case No. Q-95-24299. On
February6, 1996, the RTC initially denied FEBTCs
intervention in the case. On Motion for
Reconsideration, however, the RTC, on April 15, 1996,
reversed itself and allowed the same.
In the Complaint-in-Intervention, FEBTC claimed that it
allowed the immediate withdrawal of the proceeds of
Asian Bank MC Nos. 025935 and 025939 on the
ground that, as managerschecks, they were the direct
obligations of Asian Bank and were accepted in
advance by Asian Bank by the mere issuance thereof.
FEBTC presented the checks for payment on July 5,
1995 through the PCHC. Asian Bank, as admitted in its
Answer before the RTC, received the same on that
day. Consequently, Asian Bank was deemed to have
confirmed and booked payment of the subject checks
in favor of FEBTC or, at the latest, during the first
banking hour of July 6, 1995, when payment should
have been made. FEBTC claimed that Asian Bank
exhibited bad faith when, in anticipation of the TRO, it
opted to float the checks until it received the TRO at
12:00 noon of July 6, 1995 to justify the nonpayment
thereof.
In their own Answer, the spouses Nuguid claimed that
Gonzalo Nuguid had delivered much more dollars than
what was required for the three checks at the time of
payment. By way of special affirmative defense, the
spouses Nuguid also claims that since the subject
checks had already been paid to him, Chiok is no
longer entitled to an injunction (to hold the payment of
the subject checks), and Civil Case No. Q-95-24299
has already become moot.
On August 29, 2002, the RTC rendered its Decision,
the dispositive portion of which states:
WHEREFORE, judgment is rendered:
1. Declaring as permanent the writ of preliminary
injunction issued under the Order of July 25, 1995;
2. Ordering Global Business Bank, Inc.to pay the
plaintiff [Chiok]:
a.) The amount of P34,691,876.71 (less the attorneys
fees of P255,000.00 which shall remain with Global
Business Bank, Inc.), plus interest at the legal rate of
12%/p.a. from September 30, 1999 until fully paid;
b.) The amount of P215,000.00, representing the
excess amount debited from the plaintiffs deposit in
his account with Global Business Bank, Inc. on July 7,
1995, plus interest of 12%/p.a. from July 7, 1995, until
fully paid;
c.) Attorneys fees equivalentof 5% of the total amount
due; and
3. Ordering Metropolitan Bank & Trust Companyto pay
the plaintiff:
a. The amount of his deposit of P7,613,000.00, plus
interest of 12%/p.a. from July 5, 1995 until said
amount is fully paid; and
b. Attorneys fees of 5%of the total
amount due;
4. Ordering Spouses Gonzalo B. Nuguid and Marinella
O. Nuguid liable jointly and severally with Global
Business Bank, Inc. and Metropolitan Bank & Trust
Company, Inc. for the respective attorneys fees;
5. Dismissing the complaint-in-interventionof BPI for
lack of merit;
6. Ordering the defendantsand the intervenorto pay,
jointly and severally, the costs of suit.9
(Emphases supplied.)
The RTC held that Nuguid failed to prove the delivery
of dollars to Chiok. According to the RTC, Nuguids
claim that Chiok was still liable for seven dishonored
China Banking Corporation (CBC) checks with a total
worth of P72,984,020.00 is highly doubtful since such
claim was not presented as a counterclaim in the case.
Furthermore, the court ruled that the certification of
CBC stating the reasons10 for the stop payment order
"are indicative of Chioks non-liability to Nuguid." The
RTC further noted that there was a criminal case filed
by Chiok against Nuguid on March 29, 1996 for estafa
and other deceit on account of Nuguids alleged failure
to return the originals of the seven CBC checks.11
The RTC went on to rule that managers checks and
cashiers checks may be the subject of a Stop
Payment Order from the purchaser on the basis of the
payees contractual breach. As explanation for this
ruling, the RTC adopted its pronouncements when it
issued the July 25, 1995 Order:
Defendant Nuguids argument that the injunction could
render managers and cashierschecks unworthy of the
faith they should have and could impair their nature as
independent undertakings of the issuing banks is
probably an undistinguished simplification. While the
argument may be applicable to such checks in
general, it does not adequately address the situation,
as here, when specific managers and cashiers
checks are already covered by reciprocal undertakings
between their purchaser and their payee, in which the
latter allegedly failed to perform. The agreement
herein was supposedly one in which Nuguid would
deliver the equivalent amount in US dollars
($1,022,288.23) "on the same date" that the plaintiff
purchased and delivered the managers and cashiers
checks (P26,068,350.00). Assuming that such a
reciprocity was true, the purchaser should have the
legal protection of the injunctive writ (which, after all,
the legal departments of the issuing banks themselves
allegedly advised the plaintiff to obtain), since the
usual order or instruction to stop payment available in
case of ordinary checks did not avail. This was
probably the reason that Asian Bank has expressly
announced in its own comment/opposition of July 14,
1995 that it was not opposing the application for the
prohibitory injunction.
The dedication of such checks pursuantto specific
reciprocal undertakings between their purchasers and
payees authorizes rescission by the former to prevent
substantial and material damage to themselves, which
authority includes stopping the payment of the
checks.12 According to the RTC, both managers and
cashiers checks are still subject to regular clearing
under the regulations of the Bangko Sentral ng
Pilipinas. Since managers and cashiers checks are
the subject of regular clearing, they may consequently
be refused for cause by the drawee, which refusal is in
fact provided for in the PCHC Rule Book.
The RTC found the argument by BPI that the
managers and cashiers checks are pre-cleared
untenable under Section 60 of the New Central Bank
Act and Article 1249 of the Civil Code, which
respectively provides:
Section 60. Legal Character. Checks representing
demand deposits do not have legal tender power and
their acceptance in the payment of debts, both public
and private, is at the option of the creditor; Provided,
however, that a check which has been cleared and
credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
Art. 1249. The payment of debts inmoney shall be
made in the currency stipulated, and if it is not possible
to deliver such currency, then in the currency which is
legal tender in the Philippines. The delivery of
promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect
of payment only when they have been cashed, or
when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original
obligation shall be held in the abeyance. The RTC
went on to rule that due to the timely service of the
TRO and the injunction, the value of the three checks
remained with Global Bank and Metrobank.13 The RTC
concluded that since Nuguid did not have a valid title
to the proceeds of the managers and cashiers
checks, Chiok is entitled to be paid back everything he
had paid to the drawees for the checks.14
With respect to Global Bank, the RTC ruled that the
entire amount of P34,691,876.71 it recovered from
SBTC from the September 15, 1997 PCHC Decision,
as reflected in the September 29, 1999 Charge Slip
No. 114977, less the sum of P225,000.00 awarded by
the arbitration committees decision as attorneys fees,
should be paidto Chiok, with interest at 12% per
annum from September 30, 1999 until full payment.
The RTC likewise ordered Global Bank to pay Chiok
the amount of P215,390.00, an amount debited from
Chioks account as payment for outstanding bills
purchase.15
With respect to Metrobank, the RTC ruled that it
should pay Chiok P7,613,000.00, the amount paid by
Chiok to purchase the CC, plus interest of 12 percent
per annum from July 5,1995 until full payment. The
RTC explained this finding as follows:
The same conclusion is true with respect to Metro
Bank, with whom the funds amounting
to P7,613,000.00 for the purchase of CC No. 003380
has remained. According to Chiok, Metro Bank used
such funds in its operations.
In the hearing on May 17, 2001, Lita Salonga Tan was
offered as a witness for Metro Bank, but in lieu ofher
testimony, the parties agreed to stipulate on the
following as her testimony, to wit:
1. That Metro Bank paid the amount of CC No.
003280;
2. That the payment on July 12, 1995 was
made while the TRO of July 5, 1995 was in
force;
3. [That] the payment on July 12, 1995 was on
the third clearing of CC No. 003380; and
4. That the PCHC Rule book was the authority
on the rules and regulations on the clearing
operations of banks.
The payment to FEBTC by Metro Bank of CC No.
003380 on July 12, 1995 was an open defiance of the
TRO of July 6, 1995. Metro Banks Branch Manager
Alice Rivera, through her letter of July 10, 1995 to
FEBTC as the collecting bank, returned the CC to
FEBTC in compliance with the TRO which was
received about 12:10 noon of July 6, 1999. Hence,
Metro Bank should not have paid because the TRO
was served within the 24-hour period to clear checks.
Moreover, the payment, being made on third clearing,
was unjustified for violating existing regulations,
particularly paragraph 1 of the Clearing House
Operating Memo (CHOM), effective September 1,
1984, which prohibited the reclearing of a check after
its first presentation if it was returned for the reason of
"stop payment" or "closed account."
It also seems that Metro Bank paid the CC without first
checking whether, in fact, any actual payment of the 3
checks had been made on July 5, 1995 to the payee
when the checks were deposited in payees account
with FEBTC on July 5, 1995. The records show no
such payment was ever made to render the TRO of
July 6, 1995 or the writ of preliminary injunction
applied for moot and academic.
Jessy A. Degaos adopted by Metro Bank as its own
witness in injunction hearing of July 24, 1995 stated
that the payment of the 3 checks consisted of the
accounting entry made at the PCHC during the
presenting process by debiting the respective
accounts of the drawees and crediting the account of
collecting bank FEBTC. Yet, as already found
hereinabove, such process was reversed due to the
return by the drawees of the checks which they
dishonored on account of the TRO.
Also, Degaos, testifying on January 17, 2002 for
intervenor BPI, was asked in what form was the
withdrawal of the amounts of the checks made by
Nuguid on July 5, 1995, that is, whether:- 1) cash
withdrawal; or 2) credit to Nuguids account; or 3) draft
issued to Nuguid. His reply was that only the banks
branch which serviced the payees account could
provide the answer. Yet, BPI did not present any
competent personnel from the branch concerned to
enlighten the Court on this material point.
This amount of P7,613,000.00, having remained with
Metro Bank since the service of the TRO of July 6,
1995 and the writ of preliminary injunction issued
under the Order of July 25, 1998, should be returned
to Chiok with interest of 12%/p.a. from July 7, 1995
until full payment.16
(Citations omitted.)
The RTC likewise denied BPIs complaint-in-
intervention to recover the value of the three checks
from drawees Global Bank and Metrobank for lack of
merit. The RTC, after reprimanding Global Bank and
Metrobank for siding with BPI on this issue, held that
BPI, as a mere collecting bank of the payee with a void
title to the checks, had no valid claim as to the
amounts of such checks. The RTC explained:
Firstly: BPI, being a collecting bankin relation to the 3
checks, was merely performing collection services as
an agent of Nuguid, the payee. If, as found
hereinbefore, Nuguid could not have legal title to the 3
checks, it follows that BPI could not stake any claim for
title better than Nuguids own void title. Consequently,
BPI has no right to claim the amounts of the 3 checks
from the drawee-banks.
Secondly: The purpose of the delivery of the 3 checks
to BPI which was not even accompanied by Nuguids
endorsement was solely for deposit in the account of
payee Nuguid. Assuming, for the sake of argument,
that BPI as the collecting bank paid the value of the
checks of which fact there has been no proof
whatsoever BPI was nonetheless, at best, a mere
transferee whose title was no better than the void title
of the transferor, payee Nuguid. Under such
circumstance, BPI has no legal basis to demand
payment of the amounts of the 3 checks from the
draweebanks.
Thirdly: Under Sec. 49, Negotiable Instruments Law,
BPI, as transferee without indorsement, was not
considered a holder of the instrument since it was
neither a payee nor an indorsee. It would become so
only when and if the indorsement is actually made,
and only as of then, but not before, is the issue
whether BPI was a holder in due course or not is
determined.
Consequently, any alleged payment by BPI as the
collecting bank, through the supposed though
unproved withdrawal of the amounts of the 3 checks
by Nuguid upon the deposit of the checks on July 5,
1995, is not the payment which discharges liability
under the 3 checks because BPI is neither the party
primarily liable northe drawee.
Such a payment, if true, is akin to, if it is not, drawing
against uncollected deposits (DAUD). In such a case,
BPI was in duty bound to send the 3 checks to the
PCHC for clearing pursuant to Section 1603.c.1 of the
BSP Manual of Regulations and Sec. 60, R.A. No.
7653. It serves well to note herein that Global Bank
and Metro Bank returned the checks through the
PCHC on July 6, 1995, well within the 24-hour clearing
period, in compliance with the TRO of July 6, 1995.
Finally: As earlier noted and discussed, there is no
evidence of any prior valid payment by the collecting
bank to support its claim of the amounts of the 3
checks against the defendant banks.17 (Citation
omitted.)
The RTC held Global Bank and Metrobank liable for
attorneys fees equivalent to 5% of the total
amountdue them, while the spouses Nuguid were held
solidarily liable for said fees.
Defendants Global Bank, Metrobank, and the spouses
Nuguid, and intervenor BPI filed separate notices of
appeal, which were approved in the Order18 dated April
3, 2003. Chiok filed a Motion to Dismiss against the
appeal of Global Bank, on the ground that the latter
had ceased to operate as a banking institution.
On May 26, 2004, the Court of Appeals dismissed the
appeal of the spouses Nuguid pursuant to Section
1(e), Rule 50 of the Rules of Court, on account of their
failure to file their appellants brief. In the same
Resolution, the Court of Appeals denied Chioks
Motion to Dismiss.
On May 5, 2006, the Court of Appeals rendered the
assailed Decision affirming the RTC Decision with
modifications. The fallo of the Decision reads:
WHEREFORE, premises considered, the Decision
dated August 29, 2000 of the RTC, Branch 96, Quezon
City is AFFIRMED with the following
MODIFICATIONS:
1.) The contract to buy foreign currency in the amount
of $1,022,288.50 between plaintiff-appellee Wilfred N.
Chiok and defendant Gonzalo B. Nuguid is hereby
rescinded. Corollarily, Managers Check Nos. 025935
and 025939 and Cashiers Check No. 003380 are
ordered cancelled.
2.) Global Business Holdings, Inc. is ordered to credit
Savings Account No. 2-007-03-00201-3 with:
a) The amount of P25,500,000.00, plus interest at 4%
from September 29, 1999 until withdrawn by plaintiff-
appellee;
b) The amount of P215,390.00, plus interest at 4%
from July 7, 1995 until withdrawn by plaintiff-appellee.
3.) Metropolitan Bank & Trust Company is ordered to
credit Savings Account No. 154-42504955 the amount
of P7,613,000.00, with interest at 6% [per annum] from
July 12, 1995 until the same is withdrawn;
4.) The Spouses Gonzalo B. Nuguid and Marinella O.
Nuguid are ordered to pay attorneys fees equivalent
to 5% of the total amount due to plaintiff-appellee from
both depository banks, as well as the costs of suit. 19
According to the Court of Appeals, Article 1191 of the
Civil Code provides a legal basis of the right of
purchasers of MCs and CCs to make a stop payment
order on the ground of the failure of the payee to
perform his obligation to the purchaser. The appellate
court ruled that such claim was impliedly incorporated
in Chioks complaint. The Court of Appeals held:
By depositing the subject checks to the account of
Nuguid, Chiok had already performed his obligation
under the contract, and the subsequent failure of
Nuguid to comply with what was incumbent upon him
gave rise to an action for rescission pursuant to Article
1191 of the Civil Code, which states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
xxxx
Although the complaint a quowas entitled "DAMAGES,
W/ EX PARTE RESTRAINING ORDER/INJUNCTION"
when the action was really one for rescission and
damages, it is an elementary rule of procedure that
what controls or determines the nature of the action is
not the caption of the complaint but the allegations
contained therein. And even without the prayer for a
specific remedy, proper relief may nevertheless be
granted by the court if the facts alleged in the
complaint and the evidence introduced so warrant.
That Chiok had intended rescission isevident from his
prayer to be declared the legal owner of the proceeds
of the subject checks and to be allowed to withdraw
the same. Therefore, the argument of BPI that the
obligation on the part of Nuguid to deliver the dollars
still subsists is untenable. Article 1385 of the same
Code provides that rescission creates the obligation to
return the things which were the object of the contract,
together with their fruits, and the price with its interest.
The object of the contract herein to buy foreign
currency is the peso-value of the dollars bought but in
the form of negotiable instruments Managers
Check/Cashiers Check. Hence, respecting the
negotiation thereof, and in order to afford complete
relief to Chiok, there arose the necessity for the
issuance of the injunction restraining the payment of
the subject checks with the end in view of the eventual
return of the proceeds to give effect to Article 1385. In
other words, the injunctive relief was necessary in
order not to render ineffectual the judgment in the
instant case. We quote with approval the following
disquisition of the trial court, to wit:
xxxx
There is no question about the nature of managers
and cashiers checks being as good as cash, being
primary obligations of the issuing bank and accepted
in advanceby their mere issuance. But even as such
nature of unconditional commitment to pay on the part
of the issuing bank may be conceded, the Court
opines that the injunctive relief cannot be denied to a
party who purchased the managers or cashiers check
to stop its payment to the payee in a suit against the
payee and the issuing banks upon a claim that the
payee himself had not performed his reciprocal
obligation for which the issuance and delivery of the
self-same managersor cashiers check were, in the
first place, made x x x.
It bears stressing that the subject checks would not
have been issued were it not for the contract between
Chiok and Nuguid. Therefore, they cannot be
disassociated from the contract and given a distinct
and exclusive signification, as the purchase thereof is
part and parcel of the series of transactions necessary
to consummate the contract. Taken in this light, it
cannot be argued that the issuing banks are bound to
honor only their unconditional undertakings on the
subject checks vis--vis the payee thereof regardless
of the failed transaction between the purchaser of the
checks and the payee on the ground that the banks
were not privy to the said transaction.
Lest it be forgotten, the purchase of the checks was
funded by the account of Chiok with the banks. As
such, the banks were equally obligated to treat the
account of their depositor with meticulous care bearing
in mind the fiduciary nature of their relationship with
the depositor. Surely, the banks would not allow their
depositor to sit idly by and watch the dissipation of his
livelihood considering that the business of foreign
currency exchange is a highly volatile undertaking
where the probability of losing or gaining is counted by
the ticking of the clock. With the millions of money
involved in this transaction, Chiok could not afford to
be complacent and his vigilance for his rights could not
have been more opportune under the
circumstances.20 (Citations omitted.)
The Court of Appeals proceeded to sustain the
dismissal of BPIs complaint-in-intervention, which
sought to recover from Global Bank the amounts
allegedly paid to Nuguid. The Court of Appeals pointed
out that BPI failed to prove the alleged withdrawal by
Nuguid of the proceeds of the two managers checks,
as BPIs representative, Jessy A. Degaos, failed to
answer the question on the form of the alleged
withdrawal. Furthermore, BPI failed to prove that it was
a holder in due course of the subject managers
checks, for two reasons: (1) the checks were not
indorsed to it by Nuguid; and (2) BPI never presented
its alleged bills purchase agreement with Nuguid.21
The Court of Appeals likewise modified the order by
the RTC for Global Bank and Metrobank to pay Chiok.
The Court of Appeals held that Chioks cause of action
against Global Bank is limited to the proceeds of the
two managers checks. Hence, Global Bank was
ordered to credit Chioks Savings Account No. 2-007-
03-00201-3 with the amount of P25,500,000.00, the
aggregate value of the two managers checks, instead
of the entire P34,691,876.71 recovered from SBTC
from the September 15, 1997 PCHC Decision. The
interest was also reduced from 12% per annum to that
imposed upon savings deposits, which was
established during the trial as 4% per annum.22
As regards Metrobank, the appellate court noted that
there was no evidence as to the interest rate imposed
upon savings deposits at Metrobank. Metrobank was
ordered to credit the amount of P7,613,000.00 to
Chioks Savings Account No. 154-42504955, with
interest at 6% per annum.23
Global Bank and BPI filed separate Motions for
Reconsideration of the May 5, 2006 Court of Appeals
Decision. On November 6, 2006, the Court of Appeals
denied the Motions for Reconsideration.
Metrobank (G.R. No. 172652), BPI (G.R. No. 175302),
and Global Bank (G.R. No. 175394) filed with this
Court separate Petitions for Review on Certiorari. In
Resolutions dated February 21, 200724 and March 12,
2007,25 this Court resolved to consolidate the three
petitions. Metrobank submitted the following issues for
the consideration of this Court:
(A) WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN RULING
 THAT "IT IS LEGALLY POSSIBLE FOR A
PURCHASER OF A MANAGERS CHECK OR
CASHIERS CHECK TO STOP PAYMENT
THEREON THROUGH A COURT ORDER ON
THE GROUND OF THE PAYEES ALLEGED
BREACH OF CONTRACTUAL OBLIGATION
AMOUNTING TO AN ABSENCE OF
CONSIDERATION THEREFOR."
(B) GRANTING ARGUENDO THAT A
MANAGERS CHECK OR CASHIERS
CHECK, "IN VIEW OF THE PECULIAR
CIRCUMSTANCES OF THIS CASE" MAY BE
SUBJECT TO A STOP PAYMENT ORDER BY
THE PURCHASER THEREOF THROUGH A
COURT ORDER, WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED
IN CONCLUDING THAT PETITIONER
HEREIN "HAD KNOWLEDGE OF
CIRCUMSTANCES THAT WOULD DEFEAT
THE TITLE OF THE PAYEE TO THE
CHECKS" WITHOUT, HOWEVER, CITING
ANY SPECIFIC EVIDENCE WHICH WOULD
PROVE THE EXISTENCE OF SUCH
KNOWLEDGE. (C) WHETHER OR NOT THE
HONORABLE COURT OF APPEALS ERRED
IN SUSTAINING THE TRIAL COURTS
ORDER FOR PETITIONER HEREIN "TO PAY
(TO CHIOK) THE VALUE OF CASHIERS
CHECK NO. 003380 IN THE AMOUNT
OF P7,613,000.00, WHICH WAS DEBITED
AGAINST CHIOKS SAVINGS ACCOUNT #
154-42504955 ON THE OBSERVATION THAT
THE PAYMENT TO FEBTC BY METROBANK
OF CC NO. 003380ON JULY 12, 1995 WAS
AN OPEN DEFIANCE OF THE TRO OF JULY
6, 1995."26
BPI, on the other hand, presented the following issues:
1. Whether or not the Court of Appeals detracted
from well-settled concepts and principles in
commercial law regarding the nature, causes,
and effects of a managers check and
cashiers checkin ruling that [the] power of the
court can be invoked by the purchaser [Chiok]
in a proper action, which the Court
su[b]stantially construed as a rescissory action
or the power to rescind obligations under
Article 1191 of the Civil Code.
2. Whether or not the Honorable Court of
Appeals erred in ruling that where a purchaser
invokes rescission due to an alleged breach of
the payees contractual obligation, it is
deemed as "peculiar circumstance" which
justifies a stop payment order issued by the
purchaser or a temporary restraining
order/injunction from a Court to prevent
payment of a Managers Check or a Cashiers
Check.
3. Whether or not the Honorable Court of
Appeals erred in ruling that judicial admissions
in the pleadings of Nuguid, BPI, Asian Bank,
Metrobank and even Chiok himself that
Nuguid had withdrawn the proceeds of the
checks will not defeat Chioks "substantial
right" to restrain the drawee bank from paying
BPI, the collecting bank or presenting bank in
this case who paid the value of the
Cashiers/Managers Checks to the payee.27
Finally, Global Bank rely upon the following grounds in
its petition with this Court:
A. THE COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PETITIONER GLOBAL BANK HAD NO
JUSTIFICATION FOR ITS RIGHT OF RECOURSE
AGAINST RESPONDENT CHIOK
NOTWITHSTANDING THE CLEAR AND
UNMISTAKABLE PROVISIONS OF THE BILLS
PURCHASE AGREEMENT.
B. THE COURT OF APPEALS GRAVELY ERRED IN
MAKING PETITIONER GLOBAL BANK LIABLE FOR
INTEREST OF 4% PER ANNUM DESPITE THE FACT
THAT:
1. RESPONDENT DID NOT ASK FOR SUCH
RELIEF IN HIS COMPLAINT;
2. RESPONDENT HAD WAIVED HIS RIGHT
TO ANY INTEREST; AND
3. THERE IS NO EVIDENCE ON RECORD
AS THE BASIS FOR ANY INTEREST.28
Before delving into the merits of these cases, we shall
first dispose of a procedural development during their
pendency with the Court.
Joint Manifestation and Motion allegedly
filed by Metrobank, Global Bank and
respondent Chiok
On May 28, 2013, this Court received a Joint
Manifestation and Motion allegedly filed by petitioners
Metrobank, Global Bank, and respondent Chiok, which
reads:
PETITIONERS METROPOLITAN BANK & TRUST
COMPANY & GLOBAL BUSINESS BANK, INC., and
RESPONDENT WILFRED N. CHIOK, by their
respective counsels, unto this Honorable Court,
respectfully state that after a thorough consideration,
the parties herein have decided to forego their
respective claims against each other, including, past,
present and/or contingent, in relation to the above
referenced cases.
P R AY E R
WHEREFORE, it is respectfully prayed that no further
action be taken by this Honorable Court on the
foregoing petitions, that the instant proceedings be
declared CLOSED and TERMINATED, and that an
Order be rendered dismissing the above-referenced
cases with prejudice.
In the above Joint Manifestation and Motion,
respondent Chiok was not represented by his counsel
of record, Cruz Durian Alday and Cruz-Matters, but
was assisted by Espiritu Vitales Espiritu Law Office,
with Atty. Cesar D. Vitales as signatory, by way of
special appearance and assistance.
On June 19, 2013, this Court issued a Resolution
requiring petitioner BPI to comment on the Joint
Manifestation and Motion filed by its copetitioners
Metrobank, Global Bank, and respondent Chiok. The
Resolution reads:
Considering the joint manifestation and motion of
petitioners Metropolitan Bank and Trust Company and
Global Business Bank, Inc., and respondent, that after
a thorough consideration, they have decided to forego
their respective claims against each other, including
past, present and/or contingent, in these cases and
praying that the instant proceedings in G.R. Nos.
172652 and 175394 be declared closed and
terminated, the Court resolves to require petitioner
Bank of the Philippine Islands to COMMENT thereon
within ten (10) days from notice thereof x x x.
On September 12, 2013, respondent Chiok, this time
assisted by his counsel of record, Cruz Durian Alday &
Cruz-Matters, filed a Motion for Reconsideration of our
Resolution dated June 19, 2013. The signatory to the
Motion for Reconsideration, Atty. Angel Cruz, grossly
misread our Resolution requiring BPI to comment on
the Joint Manifestation and Motion, and apparently
contemplated that we are already granting said
Motion. Atty. Cruz objected to the Joint Manifestation
and Motion, labeling the same as tainted with fraud.
According to Atty. Cruz, Espiritu Vitales and Espiritus
failure to give prior notice to him is in violation of
Canon 8 of the Code of Professional Responsibility.
Atty. Cruz prays that Metrobank and Global Bank be
ordered to submit a document of their settlement
showing the amounts paid to Chiok, and for the
June19, 2013 Resolution of this Court be reconsidered
and set aside.
On October 9, 2013, BPI filed its comment to the Joint
Manifestation and Motion, opposing the samefor being
an implied procedural shortcut to a Compromise
Agreement. It averred that while the courts encourage
parties to amicably settle cases, such settlements are
strictly scrutinized by the courts for approval. BPI also
pointed out that the Joint Manifestation and Motion
was not supported by any required appropriate Board
Resolution of Metrobank and Global Bank granting the
supposed signatories the authority to enter into a
compromise. BPI prayed that the Joint Manifestation
and Motion of Metrobank, Global Bank, and Chiok be
denied, and to render a full Decision on the merits
reversing the Decision of the Court of Appeals.
On January 20, 2014, Global Bank filed a Comment to
Atty. Cruzs Motion for Reconsideration on behalf of
Chiok, praying that said Motion be expunged from the
records for failure of Atty. Cruz to indicate the number
and date of issue of his MCLE Certificate of
Compliance or Certificate of Exemption for the
immediately preceding compliance period.
As far as this Court is concerned, the counsel of
record of respondent Chiok is still Cruz Durian Alday &
Cruz-Matters. The requisites of a proper substitution of
counsel of record are stated and settled in
jurisprudence:
No substitution of counsel of record is allowed unless
the following essential requisites of a valid substitution
of counsel concur: (1) there must be a written request
for substitution; (2) it must be filed with the written
consent of the client; (3) it must be with the written
consent of the attorney to be substituted; and (4) in
case the consent of the attorney to be substituted
cannot be obtained, there must be at least a proof of
notice that the motion for substitution was served on
him in the manner prescribed by the Rules of
Court.29 (Citation omitted.)
Therefore, while we should indeed require Atty. Cruz to
indicate the number and date of issue of his MCLE
Certificate of Compliance or Certificate of Exemption
for the immediately preceding compliance period, he is
justified in pointing out the violation of Canon 8 30 of the
Code of Professional Responsibility, Rule 8.02 of
which provides:
Rule 8.02. A lawyer shall not, directly or indirectly,
encroach upon the professional employment of
another lawyer; however, it is the right of any lawyer,
without fear or favor, to give proper advice and
assistance to those seeking relief against unfaithful or
neglectful counsel.
We should also give weight to the opposition of BPI to
the supposed compromise agreement. As stated
above, the consolidated petitions filed by Metrobank,
BPI, and Global Bank all assail the Decision of the
Court of Appeals in CA-G.R. CV No. 77508 dated May
5, 2006, and the Resolution on the same case dated
November 6, 2006. BPI itself has a claim against
Global Bank, which appear to be intimately related to
issues brought forth in the other consolidated petitions.
Furthermore, the failure of the parties to the Joint
Manifestation and Motion to declare with particularity
the terms of their agreement prevents us from
approving the same so as to allow it to attain the effect
of res judicata. A judicial compromise is not a mere
contract between the parties. Thus, we have held that:
A compromise agreement intended to resolve a matter
already under litigation is a judicial compromise.
Having judicial mandate and entered as its
determination of the controversy, such judicial
compromise has the force and effect of a judgment. It
transcends its identity as a mere contract between the
parties, as it becomes a judgment that is subject to
execution in accordance with the Rules of Court. Thus,
a compromise agreement that has been made and
duly approved by the court attains the effect and
authority of res judicata, although no execution may be
issued unless the agreement receives the approval of
the court where the litigation is pending and
compliance with the terms of the agreement is
decreed.31 (Citation omitted.)
We are therefore constrained to deny the Joint
Manifestation and Motion filed with this Court on May
28, 2013 and to hereby decide the consolidated
petitions on their merits.
The Courts ruling on the merits of these
consolidated petitions
Whether or not payment of managers
and cashiers checks are subject to the
condition that the payee thereof should
comply with his obligations to the
purchaser of the checks
The legal effects of a managers check and a cashiers
check are the same. A managers check, like a
cashiers check, is an order of the bank to pay, drawn
upon itself, committing in effect its total resources,
integrity, and honor behind its issuance. By its peculiar
character and general use in commerce, a managers
check or a cashiers check is regarded substantially to
be as good as the money it represents.32 Thus, the
succeeding discussions and jurisprudence on
managers checks, unless stated otherwise, are
applicable to cashiers checks, and vice versa. The
RTC effectively ruled that payment of managers and
cashiers checks are subject to the condition that the
payee thereof complies with his obligations to the
purchaser of the checks:
The dedication of such checks pursuant to specific
reciprocal undertakings between their purchasers and
payees authorizes rescission by the former to prevent
substantial and material damage to themselves, which
authority includes stopping the payment of the checks.
Moreover, it seems to be fallacious to hold that the
unconditional payment of managers and cashiers
checks is the rule. To begin with, both managersand
cashiers checks are still subject to regular clearing
under the regulations of the Bangko Sentral ng
Pilipinas, a fact borne out by the BSP manual for
banks and intermediaries, which provides, among
others, in its Section 1603.1, c, as follows:
xxxx
c. Items for clearing. All checks and documents
payable on demand and drawn against a bank/branch,
institution or entity allowed to clear may be exchanged
through the Clearing Office inManila and the Regional
Clearing Units in regional clearing centers designated
by the Central Bank x x x.33
The RTC added that since managers and cashiers
checks are the subject of regular clearing, they may
consequently be refused for cause by the drawee,
which refusal is in fact provided for in Section 20 of the
Rule Book of the PCHC:
Sec. 20 REGULAR RETURN ITEM PROCEDURE
20.1 Any check/item sent for clearing through the
PCHC on which payment should be refused by the
Drawee Bank in accordance with long standing and
accepted banking practices, such as but not limited to
the fact that:
(a) it bears the forged or unauthorized
signature of the drawer(s); or
(b) it is drawn against a closed account; or
(c) it is drawn against insufficient funds; or
(d) payment thereof has been stopped; or
(e) it is post-dated or stale-dated; and
(f) it is a cashiers/managers/treasurers check
of the drawee which has been materially
altered;
shall be returned through the PCHC not later than the
next regular clearing for local exchanges and the
acceptance of said return by the Sending Bank shall
be mandatory.
It goes without saying that under the aforecited
clearing rule[,] the enumeration of causes to return
checks is not exclusive but may include other causes
which are consistent with long standing and accepted
banking practices. The reason of plaintiffs can well
constitute such a justifiable cause to enjoin payment. 34
The RTC made an error at this point. While indeed, it
cannot be said that managers and cashiers checks
are pre-cleared, clearing should not be confused with
acceptance. Managers and cashiers checks are still
the subject of clearing to ensure that the same have
not been materially altered or otherwise completely
counterfeited. However, managers and cashiers
checks are pre-accepted by the mere issuance thereof
by the bank, which is both its drawer and drawee.
Thus, while managers and cashiers checks are still
subject to clearing, they cannot be countermanded for
being drawn against a closed account, for being drawn
against insufficient funds, or for similar reasons such
as a condition not appearing on the face of the check.
Long standing and accepted banking practicesdo not
countenance the countermanding of managers and
cashiers checks on the basis of a mere allegation of
failure of the payee to comply with its obligations
towards the purchaser. On the contrary, the accepted
banking practice is that such checks are as good as
cash. Thus, in New Pacific Timber & Supply Company,
Inc. v. Hon. Seneris,35 we held:
It is a well-known and accepted practice in the
business sector that a Cashier's Check is deemed as
cash. Moreover, since the said check had been
certified by the drawee bank, by the certification, the
funds represented by the check are transferred from
the credit of the maker to that of the payee or holder,
and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and
duties of one in such situation. Where a check is
certified by the bank on which it is drawn, the
certification is equivalent to acceptance. Said
certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that they
have been set apart for its satisfaction, and that they
shall be so applied whenever the check is presented
for payment. It is an understanding that the check is
good then, and shall continue good, and this
agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order
of the depositor, or any other obligation it can assume.
The object of certifying a check, as regards both
parties, is to enable the holder to use it as money."
When the holder procures the check to be certified,
"the check operates as an assignment of a part of the
funds to the creditors." Hence, the exception to the
rule enunciated under Section 63 of the Central Bank
Act to the effect "that a check which has been cleared
and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an
amount equal to the amount credited to his account"
shall apply in this case. x x x. (Emphases supplied,
citations omitted.)
Even more telling is the Courts pronouncement in Tan
v. Court of Appeals,36 which unequivocally settled the
unconditional nature of the credit created by the
issuance of managers or cashiers checks:
A cashiers check is a primary obligation of the issuing
bank and accepted in advanceby its mere issuance.
By its very nature, a cashiers check is the banks
order to pay drawn upon itself, committing in effect its
total resources, integrity and honor behind the check.
A cashiers check by its peculiar character and general
use in the commercial world is regarded substantially
to be as good asthe money which it represents. In this
case, therefore, PCIB by issuing the check created an
unconditional creditin favor of any collecting bank.
(Emphases supplied, citations omitted.)
Furthermore, under the principle of ejusdem generis,
where a statute describes things of a particular class
or kind accompanied by words of a generic character,
the generic word willusually be limited to things of a
similar nature with those particularly enumerated,
unless there be something in the context of the statute
which would repel such inference.37 Thus, any long
standing and accepted banking practice which can be
considered as a valid cause to return managers or
cashiers checks should be of a similar nature to the
enumerated cause applicable to managers or
cashiers checks: material alteration. As stated above,
an example ofa similar cause is the presentation of a
counterfeit check.
Whether or not the purchaser of
managers and cashiers checks has the
right to have the checks cancelled by
filing an action for rescission of its
contract with the payee
The Court of Appeals affirmed the order of the RTC for
Global Bank and Metrobank to pay Chiok for the
amounts of the subject managers and cashiers
checks. However, since it isclear to the appellate court
that the payment of managers and cashiers checks
cannot be considered to be subject to the condition the
payee thereof complies with his obligations to the
purchaser of the checks, the Court of Appeals
provided another legal basis for such liability
rescission under Article 1191 of the Civil Code:
WHEREFORE, premises considered, the Decision
dated August 29, 2000 of the RTC, Branch 96, Quezon
City is AFFIRMED with the following
MODIFICATIONS:
1.) The contract to buy foreign currency in the amount
of $1,022,288.50 between plaintiff-appellee Wilfred N.
Chiok and defendant Gonzalo B. Nuguid is hereby
rescinded. Corollarily, Managers Check Nos. 025935
and 025939 and Cashiers Check No. 003380 are
ordered cancelled.38
According to the Court of Appeals, while such
rescission was not mentioned in Chioks Amended
Complaint, the same was evident from his prayer to be
declared the legal owner of the proceeds of the subject
checks and to be allowed to withdraw the same. Since
rescission creates the obligation to return the things
which are the object of the contract, together with the
fruits, the price and the interest,39 injunctive relief was
necessary to restrain the payment of the subject
checks with the end in view of the return of the
proceeds to Chiok.40
Thus, as it was construed by the Court of Appeals, the
Amended Complaint of Chiok was in reality an action
for rescission of the contract to buy foreign currency
between Chiok and Nuguid. The Court of Appeals then
proceeded to cancel the managers and cashiers
checks as a consequence of the granting of the action
for rescission, explaining that "the subject checks
would not have been issued were it not for the contract
between Chiok and Nuguid. Therefore, they cannot be
disassociated from the contract and given a distinct
and exclusive signification, as the purchase thereof is
part and parcel of the series of transactions necessary
to consummate the contract."41
We disagree with the above ruling.
The right to rescind invoked by the Court of Appeals is
provided by Article 1191 of the Civil Code, which
reads:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
The cause of action supplied by the above article,
however, is clearly predicated upon the reciprocity of
the obligations of the injured party and the guilty party.
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are
to be performed simultaneously such that the
performance of one is conditioned upon the
simultaneous fulfillment of the other.42 When Nuguid
failed to deliver the agreed amount to Chiok, the latter
had a cause of action against Nuguid to ask for the
rescission of their contract. On the other hand, Chiok
did not have a cause of action against Metrobank and
Global Bank that would allow him to rescind the
contracts of sale of the managers or cashiers checks,
which would have resulted in the crediting of the
amounts thereof back to his accounts.
Otherwise stated, the right of rescission43 under Article
1191 of the Civil Code can only be exercised in
accordance with the principle of relativity of contracts
under Article 1131 of the same code, which provides:
Art. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation or by
provision of law. x x x.
In several cases, this Court has ruled that under the
civil law principle of relativity of contracts under Article
1131, contracts can only bind the parties who entered
into it, and it cannot favor or prejudice a third person,
even if he is aware of such contract and has acted with
knowledge thereof.44 Metrobank and Global Bank are
not parties to the contract to buy foreign currency
between Chiok and Nuguid. Therefore, they are not
bound by such contract and cannot be prejudiced by
the failure of Nuguid to comply with the terms thereof.
Neither could Chiok be validly granted a writ of
injunction against Metrobank and Global Bank to
enjoin said banks from honoring the subject managers
and cashiers checks. It is elementary that "(a)n
injunction should never issue when an action for
damages would adequately compensate the injuries
caused. The very foundation of the jurisdiction to issue
the writ of injunction rests in the fact that the damages
caused are irreparable and that damages would not
adequately compensate."45 Chiok could have and
should have proceeded directly against Nuguid to
claim damages for breach of contract and to have the
very account where he deposited the subject checks
garnished under Section 7(d)46 and Section 8,47 Rule
57 of the Rules of Court. Instead, Chiok filed an action
to enjoin Metrobank and Global Bank from complying
with their primary obligation under checks in which
they are liable as both drawer and drawee.
It is undisputed that Chiok personally deposited the
subject managers and cashiers checks to Nuguids
account.1wphi1 If the intention of Chiok was for
Nuguid to be allowed to withdraw the proceeds of the
checks after clearing, he could have easily deposited
personal checks, instead of going through the trouble
of purchasing managers and cashiers checks. Chiok
therefore knew, and actually intended, that Nuguid will
be allowed to immediately withdraw the proceeds of
the subject checks. The deposit of the checks which
were practically as good as cash was willingly and
voluntarily made by Chiok, without any assurance that
Nuguid will comply with his end of the bargain on the
same day. The explanation for such apparently
reckless action was admitted by Chiok in the Amended
Complaint itself:
That plaintiff [Chiok] due to the numberof years (five to
seven years) of business transactions with defendant
[Nuguid] has reposed utmost trust and confidence on
the latterthat their transactions as of June 1995
reaches millions of pesos. x x x.48 (Emphases
supplied.)
As between two innocent persons, one of whom must
suffer the consequences of a breach of trust, the one
who made it possible by his act of confidence must
bear the loss.49 Evidently, it was the utmost trust and
confidence reposed by Chiok to Nuguid that caused
this entire debacle, dragging three banks into the
controversy, and having their resources threatened
because of an alleged default in a contract they were
not privy to.
Whether or not the peculiar
circumstances of this case justify the
deviation from the general principles on
causes and effects of managers and
cashiers checks
The Court of Appeals, while admitting that the general
principles on the causes and effects of managers and
cashiers checks do not allow the countermanding of
such checks on the basis of an alleged failure of
consideration of the payee to the purchaser,
nevertheless held that the peculiar circumstances of
this case justify a deviation from said general
principles, applying the aforementioned case of
Mesina. The Court of Appeals held:
At the core of the appeal interposed by the intervenor
BPI, as well as the depository banks, Global Bank and
Metrobank, is the issue of whether or not it is legally
possible for a purchaser of a Managers Check or
Cashiers Check to stop payment thereon through a
court order on the ground of the payees alleged
breach of contractual obligation amounting to an
absence of consideration therefor.
In view of the peculiar circumstances of this case, and
in the interest of substantial justice, We are
constrained to rule in the affirmative.
xxxx
In the case of Mesina v. Intermediate Appellate Court,
cited by BPI in its appeal brief, the Supreme Court had
the occasion to rule that general principles on causes
and effects of a cashiers check, i.e., that it cannot be
countermanded in the hands of a holder in due course
and that it is a bill of exchange drawn by the bank
against itself, cannot be applied without considering
that the bank was aware of facts (in this case, the
cashiers check was stolen) that would not entitle the
payee thereof to collect on the check and,
consequently, the bank has the right to refuse payment
when the check is presented by the payee.
While the factual milieu of the Mesinacase is different
from the case at bench, the inference drawn therein by
the High Court is nevertheless applicable. The refusal
of Nuguid to deliver the dollar equivalent of the three
checks in the amount of $1,022,288.50 in the
afternoon of July 5, 1995 amounted to a failure of
consideration that would not entitle Nuguid to collect
on the subject checks.
xxxx
Let it be emphasized that in resolving the matter
before Us, We do not detract from well-settled
concepts and principles in commercial law regarding
the nature, causes and effects of a managers check
and cashiers check. Such checks are primary
obligations of the issuing bank and accepted in
advance by the mere issuance thereof. They are a
banks order to pay drawn upon itself, committing in
effect its total resources, integrity, and honor. By their
peculiar character and general use in the commercial
world, they are regarded substantially as good as the
money they represent. However, in view of the peculiar
circumstances of the case at bench, We are
constrained to set aside the foregoing concepts and
principles in favor of the exercise of the right to rescind
a contract upon the failure of consideration
thereof.50 (Emphases ours, citations omitted.)
In deviating from general banking principles and
disposing the case on the basis of equity, the courts a
quo should have at least ensured that their
dispositions were indeed equitable. This Court
observes that equity was not served in the dispositions
below wherein Nuguid, the very person found to have
violated his contract by not delivering his dollar
obligation, was absolved from his liability, leaving the
banks who are not parties to the contract to suffer the
losses of millions of pesos.
The Court of Appeals reliance in the 1986 case of
Mesina was likewise inappropriate. In Mesina,
respondent Jose Go purchased from Associated Bank
a cashiers check for P800,000.00, payable to
bearer.51 Jose Go inadvertently left the check on the
top desk of the bank manager
when he left the bank. The bank manager entrusted
the check for safekeeping to a certain bank official
named Albert Uy, who then had a certain Alexander
Lim as visitor. Uy left his deskto answer a phone call
and to go to the mens room. When Uy returned to his
desk, Lim was gone. Jose Go inquired for his check
from Uy, but the check was nowhereto be found. At the
advice of Uy, Jose Go accomplished a Stop Payment
Order and executed an affidavit of loss. Uy reported
the loss to the police. Petitioner Marcelo Mesina tried
to encash the check with Prudential Bank, but the
check was dishonored by Associated Bank by sending
it back to Prudential Bank with the words "Payment
Stopped" stamped on it. When the police asked
Mesina how he came to possess the check, he said it
was paid to him by Alexander Lim in a "certain
transaction"but refused to elucidate further. Associated
Bank filed an action for Interpleader against Jose Go
and Mesina to determine which of them is entitled to
the proceeds of the check. It was in the appeal on said
interpleader case that this Court allowed the deviation
from the general principles on cashiers checks on
account of the banks awareness of certain facts that
would prevent the payee to collect on the check.
There is no arguing that the peculiar circumstances in
Mesina indeed called for such deviation on account of
the drawee banks awareness of certain relevant facts.
There is, however, no comparable peculiar
circumstance in the case at bar that would justify
applying the Mesina disposition. In Mesina, the
cashiers check was stolen while it was in the
possession of the drawee bank. In the case at bar, the
managers and cashiers checks were personally
deposited by Chiok in the account of Nuguid. The only
knowledge that can be attributed to the drawee banks
is whatever was relayed by Chiok himself when he
asked for a Stop Payment Order. Chiok testified on
this matter, to wit:
Q: Now, Mr. witness, since according to you
the defendant failed to deliver [this] amount
of P1,023,288.23 what action have you
undertaken to protect yourinterest Mr.
witness?
A: I immediately call my lawyer, Atty. Espiritu
to seek his legal advise in this matter.
Q: Prior to that matter that you soughtthe
advise of your lawyer, Atty. Espiritu insofar as
the issuing bank is concerned, namely, Asian
Bank, what did you do in order to protect your
interest? A: I immediately call the bank asking
them if what is the procedure for stop payment
and the bank told me that you have to secure
a court order as soon as possible before the
clearing of these checks.52 (Emphasis
supplied.)
Asian Bank, which is now Global Bank, obeyed the
TRO and denied the clearing of the managers checks.
As such, Global Bank may not be held liable on
account of the knowledge of whatever else Chiok told
them when he asked for the procedure to secure a
Stop Payment Order. On the other hand, there was no
mention that Metrobank was ever notified of the
alleged failure of consideration. Only Asian Bank was
notified of such fact. Furthermore, the mere allegation
of breach on the part of the payee of his personal
contract with the purchaser should not be considered a
sufficient cause to immediately nullify such checks,
thereby eroding their integrity and honor as being as
good as cash.
In view of all the foregoing, we resolve that Chioks
complaint should be denied insofar as it prayed for the
withdrawal of the proceeds of the subject managers
and cashiers checks. Accordingly, the writ of
preliminary prohibitory injunction enjoining Metrobank
and Global Bank from honoring the subject managers
and cashiers checks should be lifted.
Since we have ruled that Chiok cannot claim the
amounts of the checks from Metrobank and Global
Bank, the issue concerning the setting off of Global
Banks judgment debt to Chiok with the outstanding
obligations of Chiok is hereby mooted. We furthermore
note that Global Bank had not presented53 such issue
as a counterclaim in the case at bar, preventing us
from ruling on the same.
BPIs right to the proceeds of the
managers checks from Global Bank
While our ruling in Mesinais inapplicable to the case at
bar, a much more relevant case as regards the effect
of a Stop Payment Order upon a managers check
would be Security Bank and Trust Company v. Rizal
Commercial Banking Corporation,54 which was
decided by this Court in 2009. In said case, SBTC
issued a managers check for P8 million, payable to
"CASH," as proceeds of the loan granted to Guidon
Construction and Development Corporation (GCDC).
On the same day, the managers check was deposited
by Continental Manufacturing Corporation (CMC) in its
current account with Rizal Commercial Banking
Corporation (RCBC). RCBC immediately honored the
managers check and allowed CMC to withdraw the
same. GCDC issued a Stop Payment Order to SBTC
on the next day, claiming that the check was released
to a third party by mistake. SBTC dishonored and
returned the managers check to RCBC. The check
was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks
clearing balance. RCBC filed a complaint for damages
against SBTC. When the case reached this Court, we
held:
At the outset, it must be noted that the questioned
check issued by SBTC is not just an ordinary check
but a managers check. A managers check is one
drawn by a banks manager upon the bank itself. It
stands on the same footing as a certified check, which
is deemed to have been accepted by the bank that
certified it. As the banks own check, a managers
check becomes the primary obligation of the bank and
is accepted in advance by the act of its issuance.
In this case, RCBC, in immediately crediting the
amount of P8 million to CMCs account, relied on the
integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check,
which was payable to"Cash," appeared regular on its
face, and the bank found nothing unusual in the
transaction, as the drawer usually issued checks in big
amounts made payable to cash, RCBC cannot be
faulted in paying the value of the questioned check.
In our considered view, SBTC cannot escape liability
by invoking Monetary Board Resolution No. 2202
dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out
that the Central Bank at that timeissued a
Memorandum dated July 9, 1980, which interpreted
said Monetary Board Resolution No. 2202. In its
pertinent portion, saidMemorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board
Resolution No. 2202 dated December 31, 1979
prohibiting, as a matter of policy, drawing against
uncollected deposit effective July 1, 1980, uncollected
deposits representing
managers/cashiers/treasurerschecks, treasury
warrants, postal money orders and duly funded "on us"
checks which may be permitted at the discretion of
each bank, covers drawings against demand deposits
as well as withdrawals from savings deposits.
Thus, it is clear from the July 9, 1980 Memorandum
that banks were given the discretion to allow
immediate drawings on uncollected deposits of
managers checks, among others. Consequently,
RCBC, in allowing the immediate withdrawal against
the subject managers check, only exercised a
prerogative expressly granted to it bythe Monetary
Board.
Moreover, neither Monetary Board Resolution No.
2202 nor the July 9, 1980 Memorandum alters the
extraordinary nature of the managers check and the
relativerights of the parties thereto. SBTCs liability as
drawer remains the same by drawing the instrument,
it admits the existence of the payee and his then
capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid,
or both, according to its tenor.55 (Emphases supplied,
citations omitted.)
As in SBTC, BPI in the case at bar relied on the
integrity and honor of the managers and cashiers
checks asthey are regarded in commercial
transactions when it immediately credited their
amounts to Nuguids account.
The Court of Appeals, however, sustained the
dismissal of BPIs complaint-in-intervention to recover
the amounts of the managers checks from Global
Bank on account of BPIs failure to prove the
supposed withdrawal by Nuguid of the value of the
checks:
BPIs cause of action against Asian Bank (now Global
Bank) is derived from the supposed withdrawal by
Nuguid of the proceeds of the two Managers Checks
it issued and the refusal of Asian Bank to make good
the same. That the admissions in the pleadings to the
effect that Nuguid had withdrawn the said proceeds
failed to satisfy the trial court is understandable. Such
withdrawal is anessential fact that, if properly
substantiated, would have defeated Chioks right toan
injunction. BPI could so easily have presented
withdrawal slips or, with Nuguids consent, statements
of account orthe passbook itself, which would
indubitably show that money actually changed hands
at the crucial period before the issuance of the TRO.
But it did not.56
We disagree with this ruling. As provided for in Section
4, Rule 129 of the Rules of Court, admissions in
pleadings are judicial admissions and do not require
proof:
Section 4. Judicial admissions. An admission, verbal
or written, made by a party in the course of the
proceedings in the same case, does not require proof.
The admission may be contradicted only by showing
that it was made through palpable mistake or that no
such admission was made.
Nuguid has admitted that FEBTC (now BPI) has paid
him the value of the subject checks.57 This statement
by Nuguid is certainly against his own interest as he
can be held liable for said amounts. Unfortunately,
Nuguid allowed his appeal with the Court of Appeals to
lapse, without taking steps to have it reinstated. This
course of action, which is highly unlikely if Nuguid had
not withdrawn the value of the managers and
cashiers checks deposited into his account, likewise
prevents us from ordering Nuguid to deliver the
amounts of the checks to Chiok. Parties who did not
appeal will not be affected by the decision of an
appellate court rendered to appealing parties.58
Another reason given by the Court of Appeals for
sustaining the dismissal of BPIs complaint-in-
intervention was that BPI failed to prove that it was a
holder in due course with respect to the managers
checks.59
We agree with the finding of the Court of Appeals that
BPI is not a holder in due course with respect to
managers checks. Said checks were never indorsed
by Nuguid to FEBTC, the predecessor-in-interest of
BPI, for the reason that they were deposited by Chiok
directly to Nuguids account with FEBTC. However,
inview of our ruling that Nuguid has withdrawn the
value of the checks from his account, BPI has the
rights of an equitable assignee for value under Section
49 of the Negotiable Instruments Law, which provides:
Section 49. Transfer without indorsement; effect of.
Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer
vests in the transferee suchtitle as the transferor had
therein, and the transferee acquires in addition, the
right to have the indorsement of the transferor. But for
the purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of
the time when the indorsement is actually made.
As an equitable assignee, BPI acquires the instrument
subject to defenses and equities available among prior
parties60 and, in addition, the right to have the
indorsement of Nuguid. Since the checks in question
are managers checks, the drawer and the drawee
thereof are both Global Bank. Respondent Chiok
cannot be considered a prior party as he is not the
checks drawer, drawee, indorser, payee or indorsee.
Global Bank is consequently primarily liable upon the
instrument, and cannot hide behind respondent
Chioks defenses. As discussed above, managers
checks are pre-accepted. By issuing the managers
check, therefore, Global Bank committed in effect its
total resources, integrity and honor towards its
payment.61
Resultantly, Global Bank should pay BPI the amount
of P18,455,350.00, representing the aggregate face
value ofMC No. 025935 and MC No. 025939. Since
Global Bank was merely following the TRO and
preliminary injunction issued by the RTC, it cannot be
held liable for legal interest during the time said
amounts are in its possession. Instead, we are
adopting the formulation of the Court of Appeals that
the amounts be treated as savings deposits in Global
Bank. The interest rate, however, should not be fixed
at 4% as determined by the Court of Appeals, since
said rates have fluctuated since July 7, 1995, the date
Global Bank refused to honor the subject managers
checks. Thus, Global Bank should pay BPI interest
based on the rates it actually paid its depositors from
July 7, 1995 until the finality of this Decision, in
accordance with the same compounding rules it
applies to its depositors. The legal rate of6% per
annum shall apply after the finality of this Decision.62
We have to stress that respondent Chiok is not left
without recourse. Respondent Chioks cause of action
to recover the value of the checks is against Nuguid.
Unfortunately, Nuguid allowed his appeal with the
Court of Appeals to lapse, without taking steps tohave
it reinstated. As stated above, parties who did not
appeal will not be affected by the decision of the
appellate court rendered to appealing
parties.63 Moreover, since Nuguid was not impleaded
as a party to the present consolidated cases, he
cannot be bound by our judgment herein. Respondent
Chiok should therefore pursue his remedy against
Nuguid in a separate action to recover the amounts of
the checks.
Despite the reversal of the Court of Appeals Decision,
the liability of Nuguid therein to respondent Chiok for
attorneys fees equivalent to 5% of the total amount
due remains valid, computed from the amounts stated
in said Decision. This is a consequence of the finality
of the Decision of the Court of Appeals with respect to
him.
WHEREFORE, the Court resolves to DENY the Joint
Manifestation and Motion filed with this Court on May
28, 2013.
The petitions in G.R. No. 172652 and G.R. No. 175302
are GRANTED. The Decision of the Court of Appeals
in CA-G.R. CV No. 77508 dated May 5, 2006, and the
Resolution on the same case dated November 6, 2006
are hereby REVERSED AND SET ASIDE, and a new
one is issued ordering the DENIAL of the Amended
Complaint in Civil Case No. Q-95-24299 in Branch 96
of the Regional Trial Court of Quezon City for lack of
merit. The Writ of Preliminary Prohibitory Injunction
enjoining Asian Banking Corporation (now Global
Business Bank, Inc.) from honoring MC No. 025935
and MC No. 025939, and Metropolitan Bank & Trust
Company from honoring CC No. 003380, is hereby
LIFTED and SET ASIDE.
Global Business Bank, Inc. is ORDERED TO PAY the
Bank of the Philippine Islands, as successor-in-interest
of Far East Bank & Trust Company, the amount
of P18,455,350.00, representing the aggregate face
value of MC No. 025935 and MC No. 025939, with
interest based on the rates it actually paid its
depositors from July 7, 1995 until the finality of this
Decision, in accordance with the same compounding
rules it applies to its depositors.
The petition in G.R. No. 175394 is hereby rendered
MOOT.
The liabilities of spouses Gonzalo B. Nuguid and
Marinella O. Nuguid under the Decision and
Resolution of the Court of Appeals in CAG.R. CV No.
77508 remain VALID and SUBSISTING, computed
from the amounts adjudged by the Court of Appeals,
without prejudice to any further action that may be filed
by Wilfred N. Chiok.
SO ORDERED.