Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149734 November 19, 2004
DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,
vs.
AYALA CORPORATION, respondent.

DECISION

TINGA, J.:
The rise in value of four lots in one of the country's prime residential developments,
Ayala Alabang Village in Muntinlupa City, over a period of six (6) years only, represents
big money. The huge price difference lies at the heart of the present controversy.
Petitioners insist that the lots should be sold to them at 1984 prices while respondent
maintains that the prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari2
dated October 11, 2001 assailing the Decision3 of the Court of Appeals dated September
6, 2001 which reversed the Decision4 of the Regional Trial Court (RTC) and dismissed
their complaint for specific performance and damages against Ayala Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following
antecedents:5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala
Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of
the latter's shares of stock in Conduit Development, Inc. (hereafter, Conduit). The main
asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa, which was
then being developed by Conduit under a development plan where the land was divided
into Villages 1, 2 and 3 of the "Don Vicente Village." The development was then being
undertaken for Conduit by G.P. Construction and Development Corp. (hereafter, GP
Construction).
Under the MOA, Ayala was to develop the entire property, less what was defined as the
"Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be
retained by the Vazquez spouses. The area to be developed by Ayala was called the
"Remaining Area". In this "Remaining Area" were 4 lots adjacent to the "Retained Area"
and Ayala agreed to offer these lots for sale to the Vazquez spouses at the prevailing price
at the time of purchase. The relevant provisions of the MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a
first class residential subdivision of the same class as its New Alabang Subdivision, and
that it intends to complete the first phase under its amended development plan within
three (3) years from the date of this Agreement. x x x"
5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed
lots next to the "Retained Area" at the prevailing market price at the time of the
purchase."
The parties are agreed that the development plan referred to in paragraph 5.7 is not
Conduit's development plan, but Ayala's amended development plan which was still to be
formulated as of the time of the MOA. While in the Conduit plan, the 4 lots to be offered
for sale to the Vasquez Spouses were in the first phase thereof or Village 1, in the Ayala
plan which was formulated a year later, it was in the third phase, or Phase II-c.
Under the MOA, the Vasquez spouses made several express warranties, as follows:
"3.1. The SELLERS shall deliver to the BUYER:
xxx
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company
showing:
xxx
D. A list of all persons and/or entities with whom the Company has pending contracts, if
any.
xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or
at the Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement
shall be true and correct at the time of Closing as though such representations and
warranties were made at such time; and
xxx
6. Representation and Warranties by the SELLERS
The SELLERS jointly and severally represent and warrant to the BUYER that at the time
of the execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the
SELLERS, threatened against or affecting the SELLERS with respect to the Shares or the
Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing
in accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the
BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the "Remaining Property", free from all liens and encumbrances and
that the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date
thereof, has no liabilities of any nature whether accrued, absolute, contingent or
otherwise, including, without limitation, tax liabilities due or to become due and whether
incurred in respect of or measured in respect of the Company's income prior to Closing or
arising out of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any
assertion against the Company as at closing or any liability of any nature and in any
amount not fully reflected or reserved against such Audited Financial Statements referred
to above, and those disclosed to BUYER.
 xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing,
the Company is not engaged in or a party to, or to the best of the knowledge of the
SELLERS, threatened with, any legal action or other proceedings before any court or
administrative body, nor do the SELLERS know or have reasonable grounds to know of
any basis for any such action or proceeding or of any governmental investigation relative
to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due
performance and observance by the Company of any term, covenant or condition of any
instrument or agreement to which the company is a party or by which it is bound, and no
condition exists which, with notice or lapse of time or both, will constitute such default or
breach."
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the
Don Vicente Project. Ayala then received a letter from one Maximo Del Rosario of
Lancer General Builder Corporation informing Ayala that he was claiming the amount of
P1,509,558.80 as the subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March
22, 1982, Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First
Instance of Manila in Civil Case No. 82-8598. G.P. Construction in turn filed a cross-
claim against Ayala. G.P. Construction and Lancer both tried to enjoin Ayala from
undertaking the development of the property. The suit was terminated only on February
19, 1987, when it was dismissed with prejudice after Ayala paid both Lancer and GP
Construction the total of P4,686,113.39.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained
Area" within 3 years from the date of the MOA, the Vasquez spouses sent several
"reminder" letters of the approaching so-called deadline. However, no demand after April
23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the
contrary, one of the letters signed by their authorized agent, Engr. Eduardo Turla,
categorically stated that they expected "development of Phase 1 to be completed by
February 19, 1990, three years from the settlement of the legal problems with the
previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered
for sale. The four lots were then offered to be sold to the Vasquez spouses at the
prevailing price in 1990. This was rejected by the Vasquez spouses who wanted to pay at
1984 prices, thereby leading to the suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering defendant to sell to plaintiffs the relevant lots described in the Complaint in the
Ayala Alabang Village at the price of P460.00 per square meter amounting to
P1,349,540.00; ordering defendant to reimburse to plaintiffs attorney's fees in the sum of
P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to
disclose the potential claims of GP Construction, Lancer and Del Rosario; Ayala's
accountants should have opened the records of Conduit to find out all claims; the
warranty against suit is with respect to "the shares of the Property" and the Lancer suit
does not affect the shares of stock sold to Ayala; Ayala was obligated to develop within 3
years; to say that Ayala was under no obligation to follow a time frame was to put the
Vasquezes at Ayala's mercy; Ayala did not develop because of a slump in the real estate
market; the MOA was drafted and prepared by the AYALA who should suffer its
ambiguities; the option to purchase the 4 lots is valid because it was supported by
consideration as the option is incorporated in the MOA where the parties had prestations
to each other. [Emphasis supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that
petitioners did not breach their warranties under the MOA6 dated April 23, 1981; that it
was obliged to develop the land where the four (4) lots subject of the option to purchase
are located within three (3) years from the date of the MOA; that it was in delay; and that
the option to purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to petitioners embodied
in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to
the appellate court, Ayala Corporation was never informed beforehand of the existence of
the Lancer claim. In fact, Ayala Corporation got a copy of the Lancer subcontract only on
May 29, 1981 from G.P. Construction's lawyers. The Court of Appeals thus held that
petitioners violated their warranties under the MOA when they failed to disclose Lancer's
claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell
the four (4) lots in question within three (3) years from the date of the MOA, the
obligation was suspended during the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala
Corporation committed to develop the first phase of its own amended development plan
and not Conduit's development plan. Nowhere does the MOA provide that Ayala
Corporation shall follow Conduit's development plan nor is Ayala Corporation prohibited
from changing the sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as
petitioners never made a demand for Ayala Corporation to sell the subject lots to them.
According to the appellate court, what petitioners sent were mere reminder letters the last
of which was dated prior to April 23, 1984 when the obligation was not yet demandable.
At any rate, the Court of Appeals found that petitioners in fact waived the three (3)-year
period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they
"expect that the development of Phase I will be completed by 19 February 1990, three
years from the settlement of the legal problems with the previous contractor."7
The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option
contract but a right of first refusal there being no separate consideration therefor. Since
petitioners refused Ayala Corporation's offer to sell the subject lots at the reduced 1990
price of P5,000.00 per square meter, they have effectively waived their right to buy the
same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they
violated their warranties under the MOA; that Ayala Corporation was not obliged to
develop the "Remaining Property" within three (3) years from the execution of the MOA;
that Ayala was not in delay; and that paragraph 5.15 of the MOA is a mere right of first
refusal. Additionally, petitioners insist that the Court should review the factual findings of
the Court of Appeals as they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition8 dated March 26, 2002, contending
that the petition raises questions of fact and seeks a review of evidence which is within
the domain of the Court of Appeals. Ayala Corporation maintains that the subcontract
between GP Construction, with whom Conduit contracted for the development of the
property under a Construction Contract dated October 10, 1980, and Lancer was not
disclosed by petitioners during the negotiations. Neither was the liability for Lancer's
claim included in the Audited Financial Statements submitted by petitioners after the
signing of the MOA. These justify the conclusion that petitioners breached their
warranties under the afore-quoted paragraphs of the MOA. Since the Lancer suit ended
only in February 1989, the three (3)-year period within which Ayala Corporation
committed to develop the property should only be counted thence. Thus, when it offered
the subject lots to petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding against them
at the time of the execution of the MOA on April 23, 1981, Ayala Corporation avers that
the facts and circumstances which gave rise to the Lancer claim were already extant then.
Petitioners warranted that their representations under the MOA shall be true and correct at
the time of "Closing" which shall take place within four (4) weeks from the signing of the
MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the
third week of May 1981. Hence, Lancer's claims, articulated in a letter which Ayala
Corporation received on May 4, 1981, are among the liabilities warranted against under
paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just
against suits but against all kinds of liabilities not reflected in the Audited Financial
Statements. It cannot be faulted for relying on the express warranty that except for
billings payable to GP Construction and advances made by petitioner Daniel Vazquez in
the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot
claim that Ayala Corporation should have examined and investigated the Audited
Financial Statements of Conduit and should now assume all its obligations and liabilities
including the Lancer suit and the cross-claim of GP Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the
development of the first phase of the property within three (3) years from the execution of
the MOA. The provision refers to a mere declaration of intent to develop the first phase
of its (Ayala Corporation's) own development plan and not Conduit's. True to its
intention, Ayala Corporation did complete the development of the first phase (Phase II-A)
of its amended development plan within three (3) years from the execution of the MOA.
However, it is not obliged to develop the third phase (Phase II-C) where the subject lots
are located within the same time frame because there is no contractual stipulation in the
MOA therefor. It is free to decide on its own the period for the development of Phase II-
C. If petitioners wanted to impose the same three (3)-year timetable upon the third phase
of the amended development plan, they should have filed a suit to fix the time table in
accordance with Article 119710 of the Civil Code. Having failed to do so, Ayala
Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance
of its alleged obligation. The letter dated October 4, 1983 sent when petitioners were
already aware of the Lancer suit did not demand the delivery of the subject lots by April
23, 1984. Instead, it requested Ayala Corporation to keep petitioners posted on the status
of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as to the date
when the development of Phase 1 will be completed. More importantly, their letter dated
June 27, 1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase
1 will be completed by February 19, 1990.
Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first
refusal and not an option contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their
Petition and contending further that they did not violate their warranties under the MOA
because the case was filed by Lancer only on April 1, 1982, eleven (11) months and eight
(8) days after the signing of the MOA on April 23, 1981. Ayala Corporation admitted that
it received Lancer's claim before the "Closing" date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself
did not consider the matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed
an acquisition audit to be conducted by Ayala Corporation. Thus, the latter bought
Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending case against
Conduit at the time of the execution of the MOA. Further, the MOA makes Ayala
Corporation liable for the payment of all billings of GP Construction. Since Lancer's
claim was actually a claim against GP Construction being its sub-contractor, it is Ayala
Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of
its development plan, it is obliged under the MOA to develop the entire area where the
subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their
obligation under the MOA. Apart from their reminder letters dated January 24, February
18 and March 5, 1984, they also sent a letter dated March 4, 1984 which they claim is a
categorical demand for Ayala Corporation to comply with the provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution12
dated November 18, 2002. In compliance with this directive, petitioners submitted their
Memorandum13 dated February 14, 2003 on even date, while Ayala Corporation filed its
Memorandum14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of
Appeals by way of petition for review under Rule 45 is limited to reviewing or revising
errors of law imputed to it, its findings of fact being conclusive on this Court as a matter
of general principle. However, since in the instant case there is a conflict between the
factual findings of the trial court and the appellate court, particularly as regards the issues
of breach of warranty, obligation to develop and incurrence of delay, we have to consider
the evidence on record and resolve such factual issues as an exception to the general
rule.15 In any event, the submitted issue relating to the categorization of the right to
purchase granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their warranties under
the MOA when they failed to disclose the Lancer claim. The trial court declared they did
not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly
breached when they failed to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction
for P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had
no other liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of
any value not reflected or reserved in the financial statements, and those disclosed to
Ayala;
d) Clause 7.6.3. that Conduit is not threatened with any legal action or other
proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any
instrument or agreement to which it is a party or by which it is bound.16
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners
substantially apprised Ayala Corporation of the Lancer claim or the possibility thereof
during the period of negotiations for the sale of Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala
Corporation's Mr. Adolfo Duarte (Mr. Duarte) that prior to the completion of the sale of
Conduit, Ayala Corporation asked for and was given information that GP Construction
sub-contracted, presumably to Lancer, a greater percentage of the project than it was
allowed. Petitioners gave this information to Ayala Corporation because the latter
intimated a desire to "break the contract of Conduit with GP." Ayala Corporation did not
deny this. In fact, Mr. Duarte's letter18 dated March 6, 1984 indicates that Ayala
Corporation had knowledge of the Lancer subcontract prior to its acquisition of Conduit.
Ayala Corporation even admitted that it "tried to explorelegal basis to discontinue the
contract of Conduit with GP" but found this "not feasible when information surfaced
about the tacit consent of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the date of
Closing of the MOA. Lancer's letter19 dated April 30, 1981 informing Ayala Corporation
of its unsettled claim with GP Construction was received by Ayala Corporation on May 4,
1981, well before the "Closing"20 which occurred four (4) weeks after the date of signing
of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that
certain matters pertaining to the liabilities of Conduit were disclosed by petitioners to
Ayala Corporation although the specifics thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the
Company shall own the "Remaining Property", free from all liens and encumbrances and
that the Company shall have no obligation to any party except for billings payable to GP
Construction & Development Corporation and advances made by Daniel Vazquez for
which BUYER shall be responsible in accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date
hereof, has no liabilities of any nature whether accrued, absolute, contingent or otherwise,
including, without limitation, tax liabilities due or to become due and whether incurred in
respect of or measured in respect of the Company's income prior to Closing or arising out
of transactions or state of facts existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any
assertion against the Company as at Closing of any liability of any nature and in any
amount not fully reflected or reserved against such Audited Financial Statements referred
to above, and those disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing,
the Company is not engaged in or a party to, or to the best of the knowledge of the
SELLERS, threatened with, any legal action or other proceedings before any court or
administrative body, nor do the SELLERS know or have reasonable grounds to know of
any basis for any such action or proceeding or of any governmental investigation relative
to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due
performance and observance by the Company of any term, covenant or condition of any
instrument or agreement to which the Company is a party or by which it is bound, and no
condition exists which, with notice or lapse of time or both, will constitute such default or
breach."21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with
any legal action or proceeding is qualified by Ayala Corporation's actual knowledge of
the Lancer claim which was disclosed to Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction
and the advances made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of
the MOA referred to in paragraph 7.1.1, Ayala Corporation undertook responsibility "for
the payment of all billings of the contractor GP Construction & Development Corporation
after the first billing and any payments made by the company and/or SELLERS shall be
reimbursed by BUYER on closing which advances to date is P1,159,012.87."22
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer
claim for which GP Construction is liable. Proof of this is Ayala Corporation's letter23 to
GP Construction dated before "Closing" on May 4, 1981, informing the latter of Ayala
Corporation's receipt of the Lancer claim embodied in the letter dated April 30, 1981,
acknowledging that it is taking over the contractual responsibilities of Conduit, and
requesting copies of all sub-contracts affecting the Conduit property. The pertinent
excerpts of the letter read:

In this connection, we wish to inform you that this morning we received a letter from Mr.
Maximo D. Del Rosario, President of Lancer General Builders Corporation apprising us
of the existence of subcontracts that they have with your corporation. They have also
furnished us with a copy of their letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc.,
we believe that it is necessary, at this point in time, that you furnish us with copies of all
your subcontracts affecting the property of Conduit, not only with Lancer General
Builders Corporation, but all subcontracts with other parties as well24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief25 dated July 9,
1992 a copy of the letter26dated May 28, 1981 of GP Construction's counsel addressed to
Conduit furnishing the latter with copies of all sub-contract agreements entered into by
GP Construction. Since it was addressed to Conduit, it can be presumed that it was the
latter which gave Ayala Corporation a copy of the letter thereby disclosing to the latter
the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the
MOA. The Lancer sub-contract and claim were substantially disclosed to Ayala
Corporation before the "Closing" date of the MOA. Ayala Corporation cannot disavow
knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention
the filing of the Lancer suit as an obstacle to its development of the property, it never
actually brought up nor sought redress for petitioners' alleged breach of warranty for
failure to disclose the Lancer claim until it filed its Answer27 dated February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this
paragraph express a commitment or a mere intent on the part of Ayala Corporation to
develop the property within three (3) years from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first
class residential subdivision of the same class as its New Alabang Subdivision, and that it
intends to complete the first phase under its amended development plan within three (3)
years from the date of this Agreement.28
Notably, while the first phrase of the paragraph uses the word "commits" in reference to
the development of the "Remaining Property" into a first class residential subdivision, the
second phrase uses the word "intends" in relation to the development of the first phase of
the property within three (3) years from the date of the MOA. The variance in wording is
significant. While "commit"29 connotes a pledge to do something, "intend"30 merely
signifies a design or proposition.
Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division
who assisted in drafting the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Don't talk about standard.
WITNESS
A Well, the word intent here, your Honor, was used to emphasize the tentative character
of the period of development because it will be noted that the sentence refers to and I
quote "to complete the first phase under its amended development plan within three (3)
years from the date of this agreement, at the time of the execution of this agreement, your
Honor." That amended development plan was not yet in existence because the buyer had
manifested to the seller that the buyer could amend the subdivision plan originally
belonging to the seller to conform with its own standard of development and second, your
Honor, (interrupted)31
It is thus unmistakable that this paragraph merely expresses an intention on Ayala
Corporation's part to complete the first phase under its amended development plan within
three (3) years from the execution of the MOA. Indeed, this paragraph is so plainly
worded that to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear reference to the
first phase of Ayala Corporation's amended development plan as the subject of the three
(3)-year intended timeframe for development. Even petitioner Daniel Vazquez admitted
on cross-examination that the paragraph refers not to Conduit's but to Ayala Corporation's
development plan which was yet to be formulated when the MOA was executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows:
"The Buyer hereby commits that to develop the remaining property into a first class
residential subdivision of the same class as New Alabang Subdivision, and that they
intend to complete the first phase under its amended development plan within three years
from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended
development plan here is the amended development plan of Ayala?
A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?
A: No, it is not.
Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.
Q: And point of fact during your direct examination as of the date of the agreement, this
amended development plan was still to be formulated by Ayala?
A: Yes, sir.32
As correctly held by the appellate court, this admission is crucial because while the
subject lots to be sold to petitioners were in the first phase of the Conduit development
plan, they were in the third or last phase of the Ayala Corporation development plan.
Hence, even assuming that paragraph 5.7 expresses a commitment on the part of Ayala
Corporation to develop the first phase of its amended development plan within three (3)
years from the execution of the MOA, there was no parallel commitment made as to the
timeframe for the development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to
offer the subject lots for sale to petitioners within three (3) years from the execution of
the MOA. It is not that Ayala Corporation committed or intended to develop the first
phase of its amended development plan within three (3) years. Whether it did or did not is
actually beside the point since the subject lots are not located in the first phase anyway.
We now come to the issue of default or delay in the fulfillment of the obligation.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially.33
Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has
been fixed shall be demandable only when that day comes. However, no such day certain
was fixed in the MOA. Petitioners, therefore, cannot demand performance after the three
(3) year period fixed by the MOA for the development of the first phase of the property
since this is not the same period contemplated for the development of the subject lots.
Since the MOA does not specify a period for the development of the subject lots,
petitioners should have petitioned the court to fix the period in accordance with Article
119734 of the Civil Code. As no such action was filed by petitioners, their complaint for
specific performance was premature, the obligation not being demandable at that point.
Accordingly, Ayala Corporation cannot likewise be said to have delayed performance of
the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the
subject lots within three (3) years from date thereof, Ayala Corporation could still not be
held to have been in delay since no demand was made by petitioners for the performance
of its obligation.
As found by the appellate court, petitioners' letters which dealt with the three (3)-year
timetable were all dated prior to April 23, 1984, the date when the period was supposed to
expire. In other words, the letters were sent before the obligation could become legally
demandable. Moreover, the letters were mere reminders and not categorical demands to
perform. More importantly, petitioners waived the three (3)-year period as evidenced by
their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three
(3)-year period should be counted from the termination of the case filed by Lancer. The
letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by
your goodselves to complete the development of Phase I within three (3) years. Dr. &
Mrs. Vazquez were made to understand that you were unable to accomplish this because
of legal problems with the previous contractor. These legal problems were resolved as of
February 19, 1987, and Dr. & Mrs. Vazquez therefore expect that the development of
Phase I will be completed by February 19, 1990, three years from the settlement of the
legal problems with the previous contractor. The reason for this is, as you know, that
security-wise, Dr. & Mrs. Vazquez have been advised not to construct their residence till
the surrounding area (which is Phase I) is developed and occupied. They have been
anxious to build their residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez
to exercise their option to purchase the two lots on each side (a total of 4 lots) adjacent to
their "Retained Area". They are concerned that although over a year has elapsed since the
settlement of the legal problems, you have not presented them with the size,
configuration, etc. of these lots. They would appreciate being provided with these at your
earliest convenience.35
Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in
the development of Phase I was due to the legal problems with GP Construction, but also
their acquiescence to the completion of the development of Phase I at the much later date
of February 19, 1990. More importantly, by no stretch of semantic interpretation can it be
construed as a categorical demand on Ayala Corporation to offer the subject lots for sale
to petitioners as the letter merely articulates petitioners' desire to exercise their option to
purchase the subject lots and concern over the fact that they have not been provided with
the specifications of these lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23,
198436 and February 18, 198437 can also not be considered categorical demands on
Ayala Corporation to develop the first phase of the property within the three (3)-year
period much less to offer the subject lots for sale to petitioners. The letter dated January
23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we
cannot develop it till you have constructed the same. Allow us to remind you of our
Memorandum of Agreement, as per which you committed to develop the roads to our
property "as per the original plans of the company", and that
1. The back portion should have been developed before the front portion which has not
been the case.
2. The whole project front and back portions be completed by 1984.38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum
of Agreement which states respectively:39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a
categorical demand for Ayala Corporation to offer the subject lots for sale on or before
April 23, 1984. The letter reads in part:
and that we expect from your goodselves compliance with our Memorandum of
Agreement, and a definite date as to when the road to our property and the development
of Phase I will be completed.41
At best, petitioners' letters can only be construed as mere reminders which cannot be
considered demands for performance because it must appear that the tolerance or
benevolence of the creditor must have ended.42
The petition finally asks us to determine whether paragraph 5.15 of the MOA can
properly be construed as an option contract or a right of first refusal. Paragraph 5.15
states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed
lots next to the "Retained Area" at the prevailing market price at the time of the
purchase.43
The Court has clearly distinguished between an option contract and a right of first refusal.
An option is a preparatory contract in which one party grants to another, for a fixed
period and at a determined price, the privilege to buy or sell, or to decide whether or not
to enter into a principal contract. It binds the party who has given the option not to enter
into the principal contract with any other person during the period designated, and within
that period, to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate and distinct contract from that
which the parties may enter into upon the consummation of the option. It must be
supported by consideration.44
In a right of first refusal, on the other hand, while the object might be made determinate,
the exercise of the right would be dependent not only on the grantor's eventual intention
to enter into a binding juridical relation with another but also on terms, including the
price, that are yet to be firmed up.45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and
not an option contract. Although the paragraph has a definite object, i.e., the sale of
subject lots, the period within which they will be offered for sale to petitioners and,
necessarily, the price for which the subject lots will be sold are not specified. The phrase
"at the prevailing market price at the time of the purchase" connotes that there is no
definite period within which Ayala Corporation is bound to reserve the subject lots for
petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable
price at which the subject lots will be offered for sale. The price is considered certain if it
may be determined with reference to another thing certain or if the determination thereof
is left to the judgment of a specified person or persons.46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to
buy the subject lots at the price which Ayala Corporation would be willing to accept when
it offers the subject lots for sale. It is not supported by an independent consideration. As
such it is not governed by Articles 1324 and 1479 of the Civil Code, viz:
Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.
Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal
to the other party.47
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price
of P6,500.00/square meter, the prevailing market price for the property when the offer
was made on June 18, 1990.48 Insisting on paying for the lots at the prevailing market
price in 1984 of P460.00/square meter, petitioners rejected the offer. Ayala Corporation
reduced the price to P5,000.00/square meter but again, petitioners rejected the offer and
instead made a counter-offer in the amount of P2,000.00/square meter.49 Ayala
Corporation rejected petitioners' counter-offer. With this rejection, petitioners lost their
right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first
refusal and should be compelled by an action for specific performance to sell the subject
lots to petitioners at the prevailing market price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 117190 January 2, 1997

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.

BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente
Herce Jr. to construct a windmill system for him. After some negotiations they agreed on
the construction of the windmill for a consideration of P60,000.00 with a one-year
guaranty from the date of completion and acceptance by respondent Herce Jr. of the
project. Pursuant to the agreement respondent paid petitioner a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court
respondent denied the claim saying that he had already paid this amount to the San Pedro
General Merchandising Inc. (SPGMI) which constructed the deep well to which the
windmill system was to be connected. According to respondent, since the deep well
formed part of the system the payment he tendered to SPGMI should be credited to his
account by petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place. 1

Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project. He also disowned any obligation to repair or reconstruct the system and
insisted that he delivered it in good and working condition to respondent who accepted
the same without protest. Besides, its collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project as evidenced clearly by the letter proposals submitted by
petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the
construction of the deep well in the project, the same should be stated in the proposals. In
the absence of such an agreement, it could be safely concluded that the construction of
the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to the
repair of the windmill, the trial court found that "there is no clear and convincing proof
that the windmill system fell down due to the defect of the construction." 4

The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was
mentioned in both proposals. It also gave credence to the testimony of respondent's
witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that
petitioner Tanguilig told him that the cost of constructing the deep well would be
deducted from the contract price of P60,000.00. Upon these premises the appellate court
concluded that respondent's payment of P15,000.00 to SPGMI should be applied to his
remaining balance with petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim of force majeure and ordered the latter
to reconstruct the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well and, secondly,
whether petitioner is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation
of a deep well was not included in the proposals of petitioner to construct a windmill
system for respondent. There were in fact two (2) proposals: one dated 19 May 1987
which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May 1987 which
contained more specifications but proposed a lower contract price of P60,000.00 (Exh.
"A"). The latter proposal was accepted by respondent and the construction immediately
followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder
In connection with your Windmill System and Installation, we would like to quote to you
as follows:
One (1) Set Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet
in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism which is not
advisable to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and Installation,
operated water pump, we would like to quote to you as
follows
One (1) set Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14
feet diameter, 1-lot blade materials, 40 feet Tower complete with standard appurtenances
up to Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee
coupling.
One (1) lot Float valve.
One (1) lot Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that
a deep well pump is a component of the proposed windmill system. The contract prices
fixed in both proposals cover only the features specifically described therein and no other.
While the words "deep well" and "deep well pump" are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely describe the type of
deep well pump for which the proposed windmill would be suitable. As correctly pointed
out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable
for" were meant only to convey the idea that the proposed windmill would be appropriate
for a deep well pump with a diameter of 2 to 3 inches. For if the real intent of petitioner
was to include a deep well in the agreement to construct a windmill, he would have used
instead the conjunctions "and" or "with." Since the terms of the instruments are clear and
leave no doubt as to their meaning they should not be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration 5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally considered. 6
An examination of such contemporaneous and subsequent acts of respondent as well as
the attendant circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not
have the capacity to install the pump the latter agreed to have a third party do the work
the cost of which was to be deducted from the contract price. To prove his point, he
presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached
him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part
of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by
private respondent for reasons known only to him. But granting that this written
communication existed, it could not have simply contained a request for Pili to install a
deep well; it would have also mentioned the party who would pay for the undertaking. It
strains credulity that respondent would keep silent on this matter and leave it all to
petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill
construction and that its payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere
representation of petitioner, whom he had never met before, without a written
commitment at least from the former. For if indeed the deep well were part of the
windmill project, the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the obligation to pay the
price. That it was respondent Herce Jr. himself who paid for the deep well by handing
over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well
was not part of the windmill project but a separate agreement between respondent and
Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked
why he tendered payment directly to Pili and not to petitioner, respondent explained,
rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money
in his possession." 8

Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While
the law is clear that "payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to receive it," 9
it does not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person." 10 The Civil Code provisions do not apply in the instant case because no
creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has
been established regarding the construction of the deep well. Specifically, witness Pili did
not testify that he entered into a contract with petitioner for the construction of
respondent's deep well. If SPGMI was really commissioned by petitioner to construct the
deep well, an agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well
by SPGMI was for the sole account of respondent and that petitioner merely supervised
the installation of the well because the windmill was to be connected to it. There is no
legal nor factual basis by which this Court can impose upon petitioner an obligation he
did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently
held that in order for a party to claim exemption from liability by reason of fortuitous
event under Art. 1174 of the Civil Code the event should be the sole and proximate cause
of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12
four (4) requisites must concur: (a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; and, (d) the debtor must be free from any participation
in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on
the day the windmill collapsed. Petitioner merely stated that there was a "strong wind."
But a strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On
the contrary, a strong wind should be present in places where windmills are constructed,
otherwise the windmills will not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in it which
could only be attributable to the appellee."13 It emphasized that respondent had in his
favor the presumption that "things have happened according to the ordinary course of
nature and the ordinary habits of life." 14 This presumption has not been rebutted by
petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.
15 When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall
be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE
JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00
with interest at the legal rate from the date of the filing of the complaint. In return,
petitioner is ordered to "reconstruct subject defective windmill system, in accordance
with the one-year guaranty" 16 and to complete the same within three (3) months from
the finality of this decision.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 176868 July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision1 dated September 21,
2006 and Resolution2dated February 23, 2007, which denied petitioners motion for
reconsideration. The assailed Decision denied petitioners claim for reimbursement for
the amount it paid to respondent for the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton
boxes, specifically designed for petitioners business of exporting fresh bananas, at
US$1.10 each. The agreement was not reduced into writing. To get the production
underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondents US
Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January
3, 2001, petitioner wrote a demand letter for reimbursement of the amount paid.3 On
February 19, 2001, respondent replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30
days from completion, as agreed upon. Respondent mentioned that petitioner even placed
an additional order of 24,000 boxes, out of which, 14,000 had been manufactured without
any advanced payment from petitioner. Respondent then demanded petitioner to remove
the boxes from the factory and to pay the balance of US$15,400.00 for the additional
boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages against
respondent. The Complaint averred that the parties agreed that the boxes will be delivered
within 30 days from payment but respondent failed to manufacture and deliver the boxes
within such time. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of the
ordered boxes, but every time, defendant [would] only show samples of boxes and
ma[k]e repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d]
to cancel the same and demand payment and/or refund from the defendant but the latter
refused to pay and/or refund the US$40,150.00 payment made by the former for the
ordered boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted that, as early as April 3, 1998, it
had already completed production of the 36,500 boxes, contrary to petitioners allegation.
According to respondent, petitioner, in fact, made an additional order of 24,000 boxes,
out of which, 14,000 had been completed without waiting for petitioners payment.
Respondent stated that petitioner was to pick up the boxes at the factory as agreed upon,
but petitioner failed to do so. Respondent averred that, on October 8, 1998, petitioners
representative, Bobby Que (Que), went to the factory and saw that the boxes were ready
for pick up. On February 20, 1999, Que visited the factory again and supposedly advised
respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes,
because petitioners transaction to ship bananas to China did not materialize. Respondent
claimed that the boxes were occupying warehouse space and that petitioner should be
made to pay storage fee at P60.00 per square meter for every month from April 1998. As
counterclaim, respondent prayed that judgment be rendered ordering petitioner to pay
$15,400.00, plus interest, moral and exemplary damages, attorneys fees, and costs of the
suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that
respondent already completed the initial order of 36,500 boxes and 14,000 boxes out of
the second order. It maintained that
respondent only manufactured a sample of the ordered boxes and that respondent could
not have produced 14,000 boxes without the required pre-payments.6
During trial, petitioner presented Que as its sole witness. Que testified that he ordered the
boxes from respondent and deposited the money in respondents account.7 He
specifically stated that, when he visited respondents factory, he saw that the boxes had
no print of petitioners logo.8 A few months later, he followed-up the order and was told
that the company had full production, and thus, was promised that production of the order
would be rushed. He told respondent that it should indeed rush production because the
need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the
order because it was already late for them to meet their commitment to ship the bananas
to China.9 On cross-examination, Que further testified that China Zero Food, the Chinese
company that ordered the bananas, was sending a ship to Davao to get the bananas, but
since there were no cartons, the ship could not proceed. He said that, at that time, bananas
from Tagum Agricultural Development Corporation (TADECO) were already there. He
denied that petitioner made an additional order of 24,000 boxes. He explained that it took
three years to refer the matter to counsel because respondent promised to pay.10
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in
October 1998 to inspect the boxes and that the latter got samples of them. In February
2000, they inspected the boxes again and Que got more samples. Estanislao said that
petitioner did not pick up the boxes because the ship did not arrive.11 Jaime Tan (Tan),
president of respondent, also testified that his company finished production of the 36,500
boxes on April 3, 1998 and that petitioner made a second order of 24,000 boxes. He said
that the agreement was for respondent to produce the boxes and for petitioner to pick
them up from the warehouse.12 He also said that the reason why petitioner did not pick
up the boxes was that the ship that was to carry the bananas did not arrive.13According to
him, during the last visit of Que and Estanislao, he asked them to withdraw the boxes
immediately because they were occupying a big space in his plant, but they, instead, told
him to sell the cartons as rejects. He was able to sell 5,000 boxes at P20.00 each for a
total of P100,000.00. They then told him to apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did
not commit any breach of faith that would justify rescission of the contract and the
consequent reimbursement of the amount paid by petitioner. The RTC said that
respondent was able to produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus dismissed the complaint and
respondents counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant
and against the plaintiff and, accordingly, plaintiffs complaint is hereby ordered
DISMISSED without pronouncement as to cost. Defendants counterclaims are similarly
dismissed for lack of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit.15 The appellate court
held that petitioner failed to discharge its burden of proving what it claimed to be the
parties agreement with respect to the delivery of the boxes. According to the CA, it was
unthinkable that, over a period of more than two years, petitioner did not even demand
for the delivery of the boxes. The CA added that even assuming that the agreement was
for respondent to deliver the boxes, respondent would not be liable for breach of contract
as petitioner had not yet demanded from it the delivery of the boxes.16
Petitioner moved for reconsideration,17 but the motion was denied by the CA in its
Resolution of February 23, 2007.18
In this petition, petitioner insists that respondent did not completely manufacture the
boxes and that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this
petition.
Petitioners claim for reimbursement is actually one for rescission (or resolution) of
contract under 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 right to rescind a contract arises once the other party defaults in the performance of
his obligation. In determining when default occurs, Art. 1191 should be taken in
conjunction with Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of
the parties respective obligations should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the other party does not fulfill
his, the latter automatically incurs in delay. But when different dates for performance of
the obligations are fixed, the default for each obligation must be determined by the rules
given in the first paragraph of the present article,19 that is, the other party would incur in
delay only from the moment the other party demands fulfillment of the formers
obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the
obligation is fixed, demand upon the obligee is still necessary before the obligor can be
considered in default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver
the boxes. The Complaint only alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a demand for the fulfillment of the
obligation. Petitioners witness also testified that they made a follow-up of the boxes, but
not a demand. Note is taken of the fact that, with respect to their claim for
reimbursement, the Complaint alleged and the witness testified that a demand letter was
sent to respondent. Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission against respondent as the latter
would not yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the present case,
petitioners claim for reimbursement would still fail, as the circumstances would show
that respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in a petition
for review under Rule 45.20 The Court, in petitions for review, limits its inquiry only to
questions of law. After all, it is not a trier of facts, and findings of fact made by the trial
court, especially when reiterated by the CA, must be given great respect if not considered
as final.21 In dealing with this petition, we will not veer away from this doctrine and will
thus sustain the factual findings of the CA, which we find to be adequately supported by
the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes and the
production report thereof, there is ample showing that the boxes had already been
manufactured by respondent. There is the testimony of Estanislao who accompanied Que
to the factory, attesting that, during their first visit to the company, they saw the pile of
petitioners boxes and Que took samples thereof. Que, petitioners witness, himself
confirmed this incident. He testified that Tan pointed the boxes to him and that he got a
sample and saw that it was blank. Ques absolute assertion that the boxes were not
manufactured is, therefore, implausible and suspicious.
In fact, we note that respondents counsel manifested in court, during trial, that his client
was willing to shoulder expenses for a representative of the court to visit the plant and see
the boxes.22 Had it been true that the boxes were not yet completed, respondent would
not have been so bold as to challenge the court to conduct an ocular inspection of their
warehouse. Even in its Comment to this petition, respondent prays that petitioner be
ordered to remove the boxes from its factory site,23 which could only mean that the
boxes are, up to the present, still in respondents premises.
We also believe that the agreement between the parties was for petitioner to pick up the
boxes from respondents warehouse, contrary to petitioners allegation. Thus, it was due
to petitioners fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for respondent to
deliver the boxes within 30 days from payment, as alleged in the Complaint. Its sole
witness, Que, was not even competent to testify on the terms of the agreement and,
therefore, we cannot give much credence to his testimony. It appeared from the testimony
of Que that he did not personally place the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr.
Tan.
Q. So, your first statement that you were the one who placed the order is not true?
A. Thats true. The Solar Harvest made a contact with Mr. Tan and I deposited the money
in the bank.
Q. You said a while ago [t]hat you were the one who called Mr. Tan and placed the order
for 36,500 boxes, isnt it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
Q. Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent was obliged to deliver the boxes, it could not have
complied with such obligation. Que, insisting that the boxes had not been manufactured,
admitted that he did not give respondent the authority to deliver the boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A. No, sir. As I have said, before the delivery, we must have to check the carton, the
quantity and quality. But I have not seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only after the boxes are completed,
will you give authority to Mr. Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to
rush the carton but not26
Q. Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You dont have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have allowed respondent to deposit
the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for rescission,
the evidence having shown that respondent did not commit any breach of its contractual
obligation. As previously stated, the subject boxes are still within respondents premises.
To put a rest to this dispute, we therefore relieve respondent from the burden of having to
keep the boxes within its premises and, consequently, give it the right to dispose of them,
after petitioner is given a period of time within which to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals
Decision dated September 21, 2006 and Resolution dated February 23, 2007 are
AFFIRMED. In addition, petitioner is given a period of 30 days from notice within which
to cause the removal of the 36,500
boxes from respondents warehouse. After the lapse of said period and petitioner fails to
effect such removal, respondent shall have the right to dispose of the boxes in any manner
it may deem fit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 188064 June 1, 2011
MILA A. REYES, Petitioner,
vs.
VICTORIA T. TUPARAN, Respondent.
DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13, 2009 Decision1 of the Court of
Appeals (CA) which affirmed with modification the February 22, 2006 Decision2 of the
Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92,
an action for Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274
square meter residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130; that on that property, she put up a three-storey commercial
building known as RBJ Building and a residential apartment building; that since 1990,
she had been operating a drugstore and cosmetics store on the ground floor of RBJ
Building where she also had been residing while the other areas of the buildings
including the sidewalks were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of the
RBJ Building for her pawnshop business for a monthly rental of 4,000.00. A close
friendship developed between the two which led to the respondent investing thousands of
pesos in petitioners financing/lending business from February 7, 1990 to May 27, 1990,
with interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings
Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of 2,000,000.00 payable in
installments. On November 15, 1990, petitioners outstanding account on the mortgage
reached 2,278,078.13. Petitioner then decided to sell her real properties for at least
6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a
gesture of friendship, respondent verbally offered to conditionally buy petitioners real
properties for 4,200,000.00 payable on installment basis without interest and to assume
the bank loan. To induce the petitioner to accept her offer, respondent offered the
following conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer
of said properties for the amount of 6,500,000.00 within the next three (3) months
provided all amounts received by the plaintiff from the defendant (respondent) including
payments actually made by defendant to Farmers Savings and Loan Bank would be
refunded to the defendant with additional interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and drugstore and
cosmetics store without any rentals for the duration of the installment payments;
3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space
for drugstore and cosmetics store at a monthly rental of only 8,000.00 after full payment
of the stipulated installment payments are made by the defendant;
4. That the defendant will undertake the renewal and payment of the fire insurance
policies on the two (2) subject buildings following the expiration of the then existing fire
insurance policy of the plaintiff up to the time that plaintiff is fully paid of the total
purchase price of 4,200,000.00.3
After petitioners verbal acceptance of all the conditions/concessions, both parties worked
together to obtain FSL Banks approval for respondent to assume her (petitioners)
outstanding bank account. The assumption would be part of respondents purchase price
for petitioners mortgaged real properties. FSL Bank approved their proposal on the
condition that petitioner would sign or remain as co-maker for the mortgage obligation
assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of
Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close
personal friendship and business relationship, both parties chose not to reduce into
writing the other terms of their agreement mentioned in paragraph 11 of the complaint.
Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real
Properties with Assumption of Mortgage any other side agreement between petitioner and
respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage,
respondent was bound to pay the petitioner a lump sum of 1.2 million pesos without
interest as part of the purchase price in three (3) fixed installments as follows:
a) 200,000.00 due January 31, 1991
b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their due dates.
Instead of paying the amounts due in lump sum on their respective maturity dates,
respondent paid petitioner in small amounts from time to time. To compensate for her
delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of
August 31, 1992, respondent had only paid 395,000.00, leaving a balance of
805,000.00 as principal on the unpaid installments and 466,893.25 as unpaid
accumulated interest.
Petitioner further averred that despite her success in finding a prospective buyer for the
subject real properties within the 3-month period agreed upon, respondent reneged on her
promise to allow the cancellation of their deed of conditional sale. Instead, respondent
became interested in owning the subject real properties and even wanted to convert the
entire property into a modern commercial complex. Nonetheless, she consented because
respondent repeatedly professed friendship and assured her that all their verbal side
agreement would be honored as shown by the fact that since December 1990, she
(respondent) had not collected any rentals from the petitioner for the space occupied by
her drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused the
petitioner to lose rental income in the amount of 8,000.00 a month since April 1992.
Respondent neglected to renew the fire insurance policy on the subject buildings.
Since December 1990, respondent had taken possession of the subject real properties and
had been continuously collecting and receiving monthly rental income from the tenants of
the buildings and vendors of the sidewalk fronting the RBJ building without sharing it
with petitioner.
On September 2, 1992, respondent offered the amount of 751,000.00 only payable on
September 7, 1992, as full payment of the purchase price of the subject real properties
and demanded the simultaneous execution of the corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that the tripartite agreement erroneously designated
by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of
Mortgage was actually a pure and absolute contract of sale with a term period. It could
not be considered a conditional sale because the acquisition of contractual rights and the
performance of the obligation therein did not depend upon a future and uncertain event.
Moreover, the capital gains and documentary stamps and other miscellaneous expenses
and real estate taxes up to 1990 were supposed to be paid by petitioner but she failed to
do so.
Respondent further averred that she successfully rescued the properties from a definite
foreclosure by paying the assumed mortgage in the amount of 2,278,078.13 plus interest
and other finance charges. Because of her payment, she was able to obtain a deed of
cancellation of mortgage and secure a release of mortgage on the subject real properties
including petitioners ancestral residential property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the purchase price of the subject real properties was
baseless and unwarranted because the full amount of the purchase price had already been
paid, as she did pay more than 4,200,000.00, the agreed purchase price of the subject
real properties, and she had even introduced improvements thereon worth more than
4,800,000.00. As the parties could no longer be restored to their original positions,
rescission could not be resorted to.
Respondent added that as a result of their business relationship, petitioner was able to
obtain from her a loan in the amount of 400,000.00 with interest and took several pieces
of jewelry worth 120,000.00. Petitioner also failed and refused to pay the monthly rental
of 20,000.00 since November 16, 1990 up to the present for the use and occupancy of
the ground floor of the building on the subject real property, thus, accumulating
arrearages in the amount of 470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that respondent failed
to pay in full the 4.2 million total purchase price of the subject real properties leaving a
balance of 805,000.00. It stated that the checks and receipts presented by respondent
refer to her payments of the mortgage obligation with FSL Bank and not the payment of
the balance of 1,200,000.00. The RTC also considered the Deed of Conditional Sale of
Real Property with Assumption of Mortgage executed by and among the two parties and
FSL Bank a contract to sell, and not a contract of sale. It was of the opinion that although
the petitioner was entitled to a rescission of the contract, it could not be permitted
because her non-payment in full of the purchase price "may not be considered as
substantial and fundamental breach of the contract as to defeat the object of the parties in
entering into the contract."4 The RTC believed that the respondents offer stated in her
counsels letter dated September 2, 1992 to settle what she thought was her unpaid
balance of 751,000.00 showed her sincerity and willingness to settle her obligation.
Hence, it would be more equitable to give respondent a chance to pay the balance plus
interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award damages and
attorneys fees because there was no proof that either party acted fraudulently or in bad
faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality
hereof the amount of 805,000.00, representing the unpaid purchase price of the subject
property, with interest thereon at 2% a month from January 1, 1992 until fully paid.
Failure of the defendant to pay said amount within the said period shall cause the
automatic rescission of the contract (Deed of Conditional Sale of Real Property with
Assumption of Mortgage) and the plaintiff and the defendant shall be restored to their
former positions relative to the subject property with each returning to the other whatever
benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the space occupied by
her for drugstore and cosmetic store without any rental pending payment of the aforesaid
balance of the purchase price.
3. Ordering the defendant, upon her full payment of the purchase price together with
interest, to execute a contract of lease for fifteen (15) years in favor of the plaintiff over
the space for the drugstore and cosmetic store at a fixed monthly rental of 8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price
together with interest, to execute the necessary deed of sale, as well as to pay the Capital
Gains Tax, documentary stamps and other miscellaneous expenses necessary for securing
the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990,
all necessary to transfer ownership of the subject property to the defendant.
No pronouncement as to damages, attorneys fees and costs.
SO ORDERED.5
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with modification the RTC
Decision. The CA agreed with the RTC that the contract entered into by the parties is a
contract to sell but ruled that the remedy of rescission could not apply because the
respondents failure to pay the petitioner the balance of the purchase price in the total
amount of 805,000.00 was not a breach of contract, but merely an event that prevented
the seller (petitioner) from conveying title to the purchaser (respondent). It reasoned that
out of the total purchase price of the subject property in the amount of 4,200,000.00,
respondents remaining unpaid balance was only 805,000.00. Since respondent had
already paid a substantial amount of the purchase price, it was but right and just to allow
her to pay the unpaid balance of the purchase price plus interest. Thus, the decretal
portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order
dated 22 December 2006 of the Regional Trial Court of Valenzuela City, Branch 172 in
Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that defendant-
appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant
Mila A. Reyes, within 30 days from finality of this Decision, the amount of 805,000.00
representing the unpaid balance of the purchase price of the subject property, plus interest
thereon at the rate of 6% per annum from 11 September 1992 up to finality of this
Decision and, thereafter, at the rate of 12% per annum until full payment. The ruling of
the trial court on the automatic rescission of the Deed of Conditional Sale with
Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive
portion of the trial courts decision is AFFIRMED in all other respects.
SO ORDERED.6
After the denial of petitioners motion for reconsideration and respondents motion for
partial reconsideration, petitioner filed the subject petition for review praying for the
reversal and setting aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF THE
SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH
ASSUMPTION OF MORTGAGE ON THE GROUND THAT RESPONDENT
TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE
PURCHASE PRICE OF 805,000.00 IS NOT A BREACH OF CONTRACT DESPITE
ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND
TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENTS
REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE PRICE OF
805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF
4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF
1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF
APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION
THAT THE RESPONDENTS NON-PAYMENT OF THE 805,000.00 IS ONLY A
SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE
SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY
THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF
THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE 805,000.00 PLUS INTEREST THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO
THE RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS
STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE
INTEREST ON THE 805,000.00 TO ONLY "6% PER ANNUM STARTING FROM
THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992" DESPITE
THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT
BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE
805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF
DELINQUENCY ON DECEMBER 31, 1991.
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR
ACTUAL DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF
RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT
TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH
THE UNPAID BALANCE OF 805,000.00 AND DESPITE THE FACT THAT
RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS
CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR THE 29,609.00 BACK RENTALS
THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD
TENANTS OF THE PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DENYING THE PETITIONERS EARLIER "URGENT MOTION
FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY
INJUNCTION" DATED JULY 7, 2008 AND THE "SUPPLEMENT" THERETO
DATED AUGUST 4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN
(11) YEARS THE PETITIONERS THREE (3) SEPARATE "MOTIONS FOR
PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER,
ACCOUNTING AND DEPOSIT OF RENTAL INCOME" DATED MARCH 17, 1995,
AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING THE
RESPONDENT TO UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY
COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED
RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION TO DIRECT
DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID
REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES"
DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL
PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OF
VALENZUELA CITY.
G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS
DISCRETION IN DENYING THE PETITIONERS CLAIM FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE
RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in
ruling that there was no legal basis for the rescission of the Deed of Conditional Sale with
Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the rescission of the
subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage for the
following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose outstanding
characteristic is reciprocity arising from identity of cause by virtue of which one
obligation is correlative of the other.
2. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale
pursuant to Article 1191 of the Civil Code because of the respondents failure/refusal to
pay the 805,000.00 balance of the total purchase price of the petitioners properties
within the stipulated period ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent because she
(respondent) deliberately failed to comply with her contractual obligations with the
petitioner by violating the terms or manner of payment of the 1,200,000.00 balance and
unjustly enriched herself at the expense of the petitioner by collecting all rental payments
for her personal benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate
of 6% per month on her unpaid installment of 805,000.00 from the date of the
delinquency, December 31, 1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well as for the
back rentals in the amount of 29,609.00 has been fully substantiated and, therefore,
should have been granted by the CA. Her claim for moral and exemplary damages and
attorneys fees has been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with Assumption of
Mortgage entered into between the parties is a contract to sell and not a contract of sale
because the title of the subject properties still remains with the petitioner as she failed to
pay the installment payments in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full balance on the
purchase price may not be considered as a substantial and fundamental breach of the
subject contract and it would be more equitable if she would be allowed to pay the
balance including interest within a certain period of time. She claims that as early as
1992, she has shown her sincerity by offering to pay a certain amount which was,
however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly provides that
the installment payments shall not bear any interest. Moreover, petitioner failed to prove
that she was entitled to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by and among the two parties and FSL
Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject
contract was correctly classified as a contract to sell based on the following pertinent
stipulations:
8. That the title and ownership of the subject real properties shall remain with the First
Party until the full payment of the Second Party of the balance of the purchase price and
liquidation of the mortgage obligation of 2,000,000.00. Pending payment of the balance
of the purchase price and liquidation of the mortgage obligation that was assumed by the
Second Party, the Second Party shall not sell, transfer and convey and otherwise
encumber the subject real properties without the written consent of the First and Third
Party.
9. That upon full payment by the Second Party of the full balance of the purchase price
and the assumed mortgage obligation herein mentioned the Third Party shall issue the
corresponding Deed of Cancellation of Mortgage and the First Party shall execute the
corresponding Deed of Absolute Sale in favor of the Second Party.7
Based on the above provisions, the title and ownership of the subject properties remains
with the petitioner until the respondent fully pays the balance of the purchase price and
the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the
corresponding deed of cancellation of mortgage and the petitioner shall execute the
corresponding deed of absolute sale in favor of the respondent.
Accordingly, the petitioners obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is the
respondents full payment of the purchase price. Without respondents full payment, there
can be no breach of contract to speak of because petitioner has no obligation yet to turn
over the title. Respondents failure to pay in full the purchase price is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather just an event
that prevents the petitioner from being bound to convey title to the respondent. The 2009
case of Nabus v. Joaquin & Julia Pacson8is enlightening:
The Court holds that the contract entered into by the Spouses Nabus and respondents was
a contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by mere consent.
The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for
the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective seller
explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take
as the full payment of the purchase price. What the seller agrees or obliges himself to do
is to fulfill his promise to sell the subject property when the entire amount of the purchase
price is delivered to him. In other words, the full payment of the purchase price partakes
of a suspensive condition, the non-fulfillment of which prevents the obligation to sell
from arising and, thus, ownership is retained by the prospective seller without further
remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, the prospective sellers obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional
contract of sale where the seller may likewise reserve title to the property subject of the
sale until the fulfillment of a suspensive condition, because in a conditional contract of
sale, the first element of consent is present, although it is conditioned upon the happening
of a contingent event which may or may not occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale is completely abated. However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property subject of the sale to the buyer,
ownership thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by entering into a contract of absolute
sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a
contract to sell:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract, payment of
the price is a positive suspensive condition, failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title from becoming effective.
It is not the title of the contract, but its express terms or stipulations that determine the
kind of contract entered into by the parties. In this case, the contract entitled "Deed of
Conditional Sale" is actually a contract to sell. The contract stipulated that "as soon as the
full consideration of the sale has been paid by the vendee, the corresponding transfer
documents shall be executed by the vendor to the vendee for the portion sold." Where the
vendor promises to execute a deed of absolute sale upon the completion by the vendee of
the payment of the price, the contract is only a contract to sell." The aforecited stipulation
shows that the vendors reserved title to the subject property until full payment of the
purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in
their favor was merely a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive condition. The full payment of
the purchase price is the positive suspensive condition, the failure of which is not a
breach of contract, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to perform the suspensive condition which
enforces a juridical relation. With this circumstance, there can be no rescission or
fulfillment of an obligation that is still non-existent, the suspensive condition not having
occurred as yet. Emphasis should be made that the breach contemplated in Article 1191
of the New Civil Code is the obligors failure to comply with an obligation already
extant, not a failure of a condition to render binding that obligation. [Emphases and
underscoring supplied]
Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza
v. Espidol, 9 where it was written:
Regarding the right to cancel the contract for non-payment of an installment, there is need
to initially determine if what the parties had was a contract of sale or a contract to sell. In
a contract of sale, the title to the property passes to the buyer upon the delivery of the
thing sold. In a contract to sell, on the other hand, the ownership is, by agreement,
retained by the seller and is not to pass to the vendee until full payment of the purchase
price. In the contract of sale, the buyers non-payment of the price is a negative resolutory
condition; in the contract to sell, the buyers full payment of the price is a positive
suspensive condition to the coming into effect of the agreement. In the first case, the
seller has lost and cannot recover the ownership of the property unless he takes action to
set aside the contract of sale. In the second case, the title simply remains in the seller if
the buyer does not comply with the condition precedent of making payment at the time
specified in the contract. Here, it is quite evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land
until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell
due in December 2002. That payment, said both the RTC and the CA, was a positive
suspensive condition failure of which was notregarded a breach in the sense that there can
be no rescission of an obligation (to turn over title) that did not yet exist since the
suspensive condition had not taken place. x x x. [Emphases and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that
the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out
of the total purchase price of the subject property in the amount of 4,200,000.00, the
remaining unpaid balance of Tuparan (respondent) is only 805,000.00, a substantial
amount of the purchase price has already been paid. It is only right and just to allow
Tuparan to pay the said unpaid balance of the purchase price to Reyes."10
Granting that a rescission can be permitted under Article 1191, the Court still cannot
allow it for the reason that, considering the circumstances, there was only a slight or
casual breach in the fulfillment of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach of the contract
is substantial and fundamental to the fulfillment of the obligation. Whether the breach is
slight or substantial is largely determined by the attendant circumstances.11 In the case at
bench, the subject contract stipulated the following important provisions:
2. That the purchase price of 4,200,000.00 shall be paid as follows:
a) 278,078.13 received in cash by the First Party but directly paid to the Third Party as
partial payment of the mortgage obligation of the First Party in order to reduce the
amount to 2,000,000.00 only as of November 15, 1990;
b) 721,921.87 received in cash by the First Party as additional payment of the Second
Party;
c) 1,200,000.00 to be paid in installments as follows:
1. 200,000.00 payable on or before January 31, 1991;
2. 200,000.00 payable on or before June 30, 1991;
3. 800,000.00 payable on or before December 31, 1991;
Note: All the installments shall not bear any interest.
d) 2,000,000.00 outstanding balance of the mortgage obligation as of November 15,
1990 which is hereby assumed by the Second Party.
xxx
3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13
as partial payment of the loan obligation of First Party in order to reduce the account to
only 2,000,000.00 as of November 15, 1990 to be assumed by the Second Party
effective November 15, 1990.12
From the records, it cannot be denied that respondent paid to FSL Bank petitioners
mortgage obligation in the amount of 2,278,078.13, which formed part of the purchase
price of the subject property. Likewise, it is not disputed that respondent paid directly to
petitioner the amount of 721,921.87 representing the additional payment for the
purchase of the subject property. Clearly, out of the total price of 4,200,000.00,
respondent was able to pay the total amount of 3,000,000.00, leaving a balance of
1,200,000.00 payable in three (3) installments.
Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first
and second installments of 200,000.00 each. She, however, failed to pay the third and
last installment of 800,000.00 due on December 31, 1991. Nevertheless, on August 31,
1992, respondent, through counsel, offered to pay the amount of 751,000.00, which was
rejected by petitioner for the reason that the actual balance was 805,000.00 excluding
the interest charges.
Considering that out of the total purchase price of 4,200,000.00, respondent has already
paid the substantial amount of 3,400,000.00, more or less, leaving an unpaid balance of
only 805,000.00, it is right and just to allow her to settle, within a reasonable period of
time, the balance of the unpaid purchase price. The Court agrees with the courts below
that the respondent showed her sincerity and willingness to comply with her obligation
when she offered to pay the petitioner the amount of 751,000.00.
On the issue of interest, petitioner failed to substantiate her claim that respondent made a
personal commitment to pay a 6% monthly interest on the 805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned from the contract, there was a
stipulation stating that: "All the installments shall not bear interest." The CA was,
however, correct in imposing interest at the rate of 6% per annum starting from the filing
of the complaint on September 11, 1992.1avvphi1
Finally, the Court upholds the ruling of the courts below regarding the non-imposition of
damages and attorneys fees. Aside from petitioners self-serving statements, there is not
enough evidence on record to prove that respondent acted fraudulently and maliciously
against the petitioner. In the case of Heirs of Atienza v. Espidol,13 it was stated:
Respondents are not entitled to moral damages because contracts are not referred to in
Article 2219 of the Civil Code, which enumerates the cases when moral damages may be
recovered. Article 2220 of the Civil Code allows the recovery of moral damages in
breaches of contract where the defendant acted fraudulently or in bad faith. However, this
case involves a contract to sell, wherein full payment of the purchase price is a positive
suspensive condition, the non-fulfillment of which is not a breach of contract, but merely
an event that prevents the seller from conveying title to the purchaser. Since there is no
breach of contract in this case, respondents are not entitled to moral damages.
In the absence of moral, temperate, liquidated or compensatory damages, exemplary
damages cannot be granted for they are allowed only in addition to any of the four kinds
of damages mentioned.
WHEREFORE, the petition is DENIED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167213 October 31, 2006
DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION
BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO and BELEN
CORDERO, petitioners,
vs.
F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No.
66198, Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the
Regional Trial Court (RTC) of Paraaque in Civil Case No. 97-067, and Resolution dated
February 21, 2005 denying petitioners motion for reconsideration.
On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her own behalf and
as attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay
Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn Cordero, entered into a
contract to sell3 with respondent, F.S. Management and Development Corporation,
through its chairman Roberto P. Tolentino over five (5) parcels of land located in
Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695
and 20987. The contract to sell contained the following terms and conditions:
1. That the BUYER will buy the whole lots above described from the OWNER consisting
of 50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00;
2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money
which will entitle the latter to enter the property and relocate the same, construct the
necessary paths and roads with the help of the necessary parties in the area;
3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED
THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the
remaining balance will be paid within 18 mons. (sic) from the date of payment of P3.5
Million pesos in 6 equal quarterly payments or P1,411,000.00 every quarter;
4. The title will be transferred by the OWNER to the BUYER upon complete payment of
the agreed purchase price. Provided that any obligation by the OWNER brought about by
encumbrance or mortgage with any bank shall be settled by the OWNER or by the
BUYER which shall be deducted the total purchase price;
5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete
payment if the BUYER can provide post dated checks which shall be in accordance with
the time frame of payments as above stated and which shall be guaranteed by a reputable
bank;
6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos
the BUYER can occupy and introduce improvements in the properties as owner while
owner is guaranteeing that the properties will have no tenants or squatters in the
properties and cooperate in the development of any project or exercise of ownerships by
the BUYER;
7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER
for the legal interest.4
Pursuant to the terms and conditions of the contract to sell, respondent paid earnest
money in the amount ofP500,000 on October 27, 1994.5 She likewise paid P1,000,000 on
June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made
thereafter.6
Petitioners thus sent respondent a demand letter dated November 28, 19967 informing her
that they were revoking/canceling the contract to sell and were treating the payments
already made as payment for damages suffered as a result of the breach of contract, and
demanding the payment of the amount of P10 Million Pesos for actual damages suffered
due to loss of income by reason thereof. Respondent ignored the demand, however.
Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact
of her co-petitioners, filed before the RTC of Paraaque a complaint for rescission of
contract with damages8 alleging that respondent failed to comply with its obligations
under the contract to sell, specifically its obligation to pay the downpayment ofP3.5
Million by April 30, 1995, and the balance within 18 months thereafter; and that
consequently petitioners are entitled to rescind the contract to sell as well as demand the
payment of damages.
In its Answer,9 respondent alleged that petitioners have no cause of action considering
that they were the first to violate the contract to sell by preventing access to the properties
despite payment of P2.5 Million Pesos; petitioners prevented it from complying with its
obligation to pay in full by refusing to execute the final contract of sale unless additional
payment of legal interest is made; and petitioners refusal to execute the final contract of
sale was due to the willingness of another buyer to pay a higher price.
In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July
8, 1997 during which neither respondents representative nor its counsel failed to appear.
And respondent did not submit a pre-trial brief, hence, it was declared as in default by the
trial court which allowed the presentation of evidence ex parte by petitioners.11
Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen
testified on the execution of the contract to sell; the failure of respondent to make the
necessary payments in compliance with the contract; the actual and moral damages
sustained by petitioners as a result of the breach, including the lost opportunity to sell the
properties for a higher price to another buyer, Ma. Cristina Cleofe; and the attorneys fees
incurred by petitioners as a result of the suit.12 Ma. Cristina Cleofe, on the other hand,
testified on the offer she made to petitioners to buy the properties at P35.00/sq.m.13
which was, however, turned down in light of the contract to sell executed by petitioners
in favor of the respondent.14
Respondent filed a motion to set aside the order of default15 which was denied by the
trial court by Order dated September 12, 1997.16 Via petition for certiorari, respondent
challenged the said order, but it was denied by the Court of Appeals.17
Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for
petitioners and ordering respondent to pay damages and attorneys fees. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the
Defendant is herebydeclared as rescinded and the defendant is likewise ordered to pay the
plaintiff:
(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and
P2,000,000.00 in moral and exemplary damages, less defendants previous payment of
P2,500,000.00 under the contract to sell; and
(2) P800,000.00 by way of attorneys fees as well as the costs of suit.
SO ORDERED. (Underscoring supplied)
Before the Court of Appeals to which respondent appealed the trial courts decision, it
raised the following errors:
3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million
Pesos (P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court
erred in declaring defendant-appellant to have acted in wanton disregard of its obligations
under the Contract to Sell.
3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million
Pesos (P2,000,000.00) as moral and exemplary damages.
3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred
Thousand Pesos (P800,000.00) as attorneys fees.19
In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding
that petitioners obligation thereunder did not arise for failure of respondent to pay the
full purchase price. It also set aside the award to petitioners of damages for not being duly
proven. And it ordered petitioners to return "the amount received from [respondent]."
Thus the dispositive portion of the appellate courts decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court,
Branch 260 of Paraaque City in Civil Case No. 97-067 is hereby VACATED. A NEW
DECISION is ENTERED ordering the SETTING-ASIDE of the Contract to Sell
WITHOUT payment of damages. Plaintiffs-appellees are further ORDERED TO
RETURN THE AMOUNTS RECEIVED from defendant-appellant. (Underscoring
supplied)
SO ORDERED.
Their motion for reconsideration having been denied, petitioners filed the present petition
for review which raises the following issues:
1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the
fact that it was not raised on appeal.
2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the
Civil Code.
3. Whether or not the Court of Appeals erred in setting aside the award of damages.
Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract
to sell and the propriety of the remedy of rescission under Article 1191 of the Civil Code,
these matters not having been raised by respondents in the assigned errors. In any event,
petitioners claim that the contract to sell involves reciprocal obligations, hence, it falls
within the ambit of Article 1191.21
While a party is required to indicate in his brief an assignment of errors and only those
assigned shall be considered by the appellate court in deciding the case, appellate courts
have ample authority to rule on matters not assigned as errors in an appeal if these are
indispensable or necessary to the just resolution of the pleaded issues.22 Thus this Court
has allowed the consideration of other grounds or matters not raised or assigned as errors,
to wit: 1) grounds affecting jurisdiction over the subject matter; 2) matters which are
evidently plain or clerical errors within the contemplation of the law; 3) matters the
consideration of which is necessary in arriving at a just decision and complete resolution
of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4)
matters of record which were raised in the trial court and which have some bearing on the
issue submitted which the parties failed to raise or which the lower court ignored; 5)
matters closely related to an error assigned; and 6) matters upon which the determination
of a question properly assigned is dependent.23
In the present case, the nature as well as the characteristics of a contract to sell is
determinative of the propriety of the remedy of rescission and the award of damages. As
will be discussed shortly, the trial court committed manifest error in applying Article
1191 of the Civil Code to the present case, a fundamental error which "lies at the base and
foundation of the proceeding, affecting the judgment necessarily," or, as otherwise
expressed, "such manifest error as when removed destroys the foundation of the
judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if they
were not raised in the appeal briefs.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser
fully pays the agreed purchase price. The full payment is a positive suspensive condition,
the non-fulfillment of which is not a breach of contract but merely an event that prevents
the seller from conveying title to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and effect.25
Since the obligation of petitioners did not arise because of the failure of respondent to
fully pay the purchase price, Article 1191 of the Civil Code would have no application.
Rayos v. Court of Appeals26 explained:
Construing the contracts together, it is evident that the parties executed a contract to sell
and not a contract of sale. The petitioners retained ownership without further remedies by
the respondents until the payment of the purchase price of the property in full. Such
payment is a positive suspensive condition, failure of which is not really a breach, serious
or otherwise, but an event that prevents the obligations of the petitioners to convey title
from arising, in accordance with Article 1184 of the Civil Code. x x x
The non-fulfillment by the respondent of his obligation to pay, which is a suspensive
condition to the obligation of the petitioners to sell and deliver the title to the property,
rendered the contract to sell ineffective and without force and effect. The parties stand as
if the conditional obligation had never existed. Article 1191 of the New Civil Code will
not apply because it presupposes an obligation already extant. There can be no rescission
of an obligation that is still non-existing, the suspensive condition not having happened.
[Emphasis and underscoring supplied; citations omitted]
The subject contract to sell clearly states that "title will be transferred by the owner
(petitioners) to the buyer (respondent) upon complete payment of the agreed purchase
price."27 Since respondent failed to fully pay the purchase price, petitioners obligation to
convey title to the properties did not arise. While rescission does not apply in this case,
petitioners may nevertheless cancel the contract to sell, their obligation not having
arisen.28This brings this Court to Republic Act No. 6552 (THE REALTY
INSTALLMENT BUYER PROTECTION ACT). InRamos v. Heruela29 this Court held:
Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts
to sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared:
x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from acquiring binding force. It also
provides the right of the buyer on installments in case he defaults in the payment of
succeeding installments x x x. [Emphasis supplied]
The properties subject of the contract having been intended for commercial, and not for
residential, purposes,31petitioners are entitled to retain the payments already made by
respondent. RA 6552 expressly recognizes the vendors right to cancel contracts to sell on
installment basis industrial and commercial properties with full retention of previous
payments.32 But even assuming that the properties were not intended for commercial or
industrial purpose, since respondent paid less than two years of installments, it is not
entitled to any refund.33 It is on this score that a modification of the challenged issuances
of the appellate court is in order.
Respecting petitioners claim for damages, failure to make full payment of the purchase
price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated,
an event that prevents the obligation of the vendor to convey title to the property from
arising.34 Consequently, the award of damages is not warranted in this case.
With regard to attorneys fees, Article 220835 of the Civil Code provides that subject to
certain exceptions, attorneys fees and expenses of litigation, other than judicial costs,
cannot be recovered in the absence of stipulation. None of the enumerated exceptions in
Article 2208 is present in this case. It bears stressing that the policy of the law is to put no
premium on the right to litigate.36
WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the
Resolution dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the
MODIFICATION that petitioners are entitled to retain the payments already received
from respondent.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 137909 December 11, 2003
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,
vs.
Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT,
respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto
grant the seller the right to rescind the agreement. Unless otherwise stipulated by the
parties, rescission is allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to
nullify the October 31, 1997 Decision2 and the February 23, 1999 Resolution3 of the
Court of Appeals (CA) in CA-GR CV No. 51067. The assailed Decision disposed as
follows:
"WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is
hereby AFFIRMED."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
"Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of
land located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to
[Respondent Bernardino Naguiat] sometime in 1970.
"On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent
Bernardino Naguiat] over a portion of the aforementioned lot containing an area of 200
square meters. This agreement was reduced to writing in a document entitled Kasulatan
sa Pagbibilihan which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na
nasa Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang
kabuuan sukat at mga kahangga nito gaya ng sumusunod:
xxx xxx xxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00)
Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang
bahagi o sukat na DALAWANG DAAN (200) METROS PARISUKAT, sa lupang
nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod:
xxx xxx xxx
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang
DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang
kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang
Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa
araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g]
BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran
hanggang sa itoy mabayaran tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon
ika 5 ng Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed)
(signed)
BERNARDINO
EULALIO MISTICA
NAGUIAT
Nagbibili'
Bumibili
"Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of
P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed
to make any payments thereafter. Eulalio Mistica died sometime in October 1986.
"On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that
the failure and refusal of [respondents] to pay the balance of the purchase price
constitutes a violation of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion and they should be ordered
to vacate and surrender possession of the same to [petitioner] ; that the reasonable amount
of rental for the subject land is P200.00 a month; that on account of the unjustified
actuations of [respondents], [petitioner] has been constrained to litigate where she
incurred expenses for attorneys fees and litigation expenses in the sum ofP20,000.00.
"In their answer and amended answer, [respondents] contended that the contract cannot
be rescinded on the ground that it clearly stipulates that in case of failure to pay the
balance as stipulated, a yearly interest of 12% is to be paid. [Respondent Bernardino
Naguiat] likewise alleged that sometime in October 1986, during the wake of the late
Eulalio Mistica, he offered to pay the remaining balance to [petitioner] but the latter
refused and hence, there is no breach or violation committed by them and no damages
could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said
document; that he is presently the owner in fee simple of the subject lot having acquired
the same by virtue of a Free Patent Title duly awarded to him by the Bureau of Lands;
and that his title and ownership had already become indefeasible and incontrovertible. As
counterclaim, [respondents] pray for moral damages in the amount of P50,000.00;
exemplary damages in the amount ofP30,000.00; attorneys fees in the amount of
P10,000.00 and other litigation expenses.
"On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the
court on 29 July 1992. The motion for reconsideration was likewise denied per its Order
of 17 March 1993.
"After the presentation of evidence, the court on 27 January 1995 rendered the now
assailed judgment, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents]
attorneys fee in the amount of P10,000.00 and costs of the suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price in
the amount of P17,000.00, with interest thereon at the rate of 12% per annum computed
from April 5, 1989 until full payment is made, subject to the application of the consigned
amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square
meters from the land covered by OCT No. 4917 (M), the corresponding price therefor
based on the prevailing market price thereof."5 (Citations omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not breach the Contract of Sale.
It explained that the conclusion of the ten-year period was not a resolutory term, because
the Contract had stipulated that payment -- with interest of 12 percent -- could still be
made if respondents failed to pay within the period. According to the appellate court,
petitioner did not disprove the allegation of respondents that they had tendered payment
of the balance of the purchase price during her husbands funeral, which was well within
the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already
transferred the land title to their names. The proper recourse, the CA held, was to order
them to pay the balance of the purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no
longer feasible, because it had been included in the title issued to them. The appellate
court ruled that the only remedy available was to order them to pay petitioner the fair
market value of the usurped portion.
Hence, this Petition.6
Issues
In her Memorandum,7 petitioner raises the following issues:
"1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191
of the New Civil Code, as it ruled that there is no breach of obligation inspite of the lapse
of the stipulated period and the failure of the private respondents to pay.
"2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the
contract is no longer feasible considering that a certificate of title had been issued in favor
of the private respondents.
"3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m.
portion in question is covered by a certificate of title in the names of private respondents
reconveyance is no longer feasible and proper."8
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the
Civil Code, because respondents committed a substantial breach when they did not pay
the balance of the purchase price within the ten-year period. She further avers that the
proviso on the payment of interest did not extend the period to pay. To interpret it in that
way would make the obligation purely potestative and, thus, void under Article 1182 of
the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by
the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in
nature when there is neither a stipulation in the deed that title to the property sold is
reserved to the seller until the full payment of the price; nor a stipulation giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period.9
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.10 Under Article 1191 of the Civil Code, the right to rescind an obligation is
predicated on the violation of the reciprocity between parties, brought about by a breach
of faith by one of them.11 Rescission, however, is allowed only where the breach is
substantial and fundamental to the fulfillment of the obligation.12
In the present case, the failure of respondents to pay the balance of the purchase price
within ten years from the execution of the Deed did not amount to a substantial breach. In
the Kasulatan, it was stipulated that payment could be made even after ten years from the
execution of the Contract, provided the vendee paid 12 percent interest. The stipulations
of the contract constitute the law between the parties; thus, courts have no alternative but
to enforce them as agreed upon and written.13
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased
husband never made any demand for the balance of the purchase price. Petitioner even
refused the payment tendered by respondents during her husbands funeral, thus showing
that she was not exactly blameless for the lapse of the ten-year period. Had she accepted
the tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she
has to show competent proof to support her contention. Instead, she argues that the period
cannot be extended beyond ten years, because to do so would convert the buyers
obligation to a purely potestative obligation that would annul the contract under Article
1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such obligations
are usually not meant to be fulfilled.14 Indeed, to allow the fulfillment of conditions to
depend exclusively on the debtors will would be to sanction illusory obligations.15 The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment
of the purchase price is dependent upon whether respondents want to pay it or not.
Second, the fact that they already made partial payment thereof only shows that the
parties intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding.1wphi1 Well-settled is the
rule that findings of fact by the CA are generally binding upon this Court and will not be
disturbed on appeal, especially when they are the same as those of the trial court.16
Petitioner has not given us sufficient reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to respondents, because
a certificate of title had already been issued in their names. Petitioner nonetheless argues
that the Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not
determine whether petitioner is entitled to rescission. It is a fundamental principle in land
registration that such title serves merely as an evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose name appears therein.17
While a review of the decree of registration is no longer possible after the expiration of
the one-year period from entry, an equitable remedy is still available to those wrongfully
deprived of their property.18 A certificate of title cannot be subject to collateral attack and
can only be altered, modified or canceled in direct proceedings in accordance with law.19
Hence, the CA correctly held that the propriety of the issuance of title in the name of
respondents was an issue that was not determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the value of the
lot, because the CA erred in ruling that the reconveyance of the extra 58-square meter lot,
which had been included in the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring
ownership over immovable property, because it does not create or vest title, but merely
confirms one already created or vested.20Registration does not give holders any better
title than what they actually have.21 Land erroneously included in the certificate of title
of another must be reconveyed in favor of its true and actual owner.22
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall
not be subject to collateral attack, alteration, modification, or cancellation except in a
direct proceeding.23 The cancellation or removal of the extra portion from the title of
respondents is not permissible in an action for rescission of the contract of sale between
them and petitioners late husband, because such action is tantamount to allowing a
collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion
was already filed by the State in favor of petitioner and the heirs of her husband.24
Hence, there is no need in this case to pass upon the right of respondents to the
registration of the subject land under their names. For the same reason, there is no
necessity to order them to pay petitioner the fair market value of the extra 58-square
meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the
MODIFICATION that the payment for the extra 58-square meter lot included in
respondents title is DELETED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10801 February 28, 1961
MARIANO RODRIGUEZ and MARINA RODRIGUEZ, plaintiffs-appellees,
vs.
PORFIRIO BELGICA and EMMA BELGICA, defendants-appellants.
Ignacio M. Orendain for plaintiffs-appellees.
Arsenio M. Cabrera and Jose S. Fineza for defendants-appellants.
PAREDES, J.:
This was originally a partition case, instituted in the Court of First Instance of Rizal,
Quezon City Branch. After a series of pleadings filed by the parties, and on one of the
hearings held, the defendants made a verbal offer to compromise. Pursuant to the said
offer, the plaintiffs, on August 27, 1955, filed a "Motion re Offer to Compromise." What
transpired afterwards is best depicted in the following judgment of the lower court: .
"The above-entitled case was scheduled in the calendar of this Court today to consider the
"Motion re Offer of Compromise" as a result of the pre-trial held by the parties and their
respective Attorneys in this case.
The parties have discussed and considered the terms and conditions set forth in said Offer
of Compromise submitted by the attorney for the plaintiffs and as a result thereof they
have arrived at an amicable settlement, the terms of which were dictated in open court by
the attorneys of both parties in the presence of their clients, with the exception of
plaintiffs Mariano Rodriguez and his wife Marina Rodriguez who were represented by
their son, Atty. Jose Rodriguez. The terms and conditions of said Compromise Agreement
are as follows: .
Atty. Fineza:
If your Honor please, as regards the Motion Re Offer of Compromise presented by the
plaintiffs dated August 26, 1955, we wish to inform this Honorable Court that with
regards to paragraph 1-A wherein the length of time given to the defendants to pay the
plaintiffs of P35,000.00 is thirty (30) days, we request that said period be seventy (70)
days counted from today, August 30, 1955. With regard to Paragraphs 1-B and 1-C, we
are agreeable to the terms and conditions therein stated: Court: .
Any objection to the said counter proposal of the defendants? .
Atty. Orendain: .
We have no objection, Your Honor.
Court: - (To defendant Mr. Porfirio Belgica).
Mr. Porfirio Belgica, have you heard what Atty. Fineza, your lawyer, have proposed to the
Court and are you agreeable to the same? .
Defendant Porfirio Belgica: .
Yes, Your Honor.
Atty. Fineza: .
Inasmuch as defendant Porfirio Belgica will have to negotiate a portion of the part
pertaining to him to raise the amount of P35,000.00 with which he will pay the plaintiffs,
we request that the plaintiffs make new selection of the portion they desire as per plan
Exhibit E.
Atty. Orendain:.
According to my clients, Your Honor, I was instructed to choose the portion which is
nearest to Quezon City, in other words, the portion in the bigger lot which is the Southern
portion as appears in Exhibit E and which is encircled in red pencil, subject to relocation
or readjustment after a survey is made.
That the plaintiffs will sign the necessary transfer of the 36% in favor of the defendants
upon payment of the P35,000.00.
That the plaintiffs agree to grant authority to defendant Porfirio Belgica to negotiate the
sale or mortgage of the 36% which is proposed to be conveyed to him, for the purpose of
raising the P35,000.00 to be paid to the plaintiffs.
That the Motion re Offer of Compromise is hereby made a part and parcel of the
Compromise Agreement, as modified.
Parties agree that in the event the defendants fail to pay to the plaintiffs said amount of
P35,000.00 within the period above fixed or stipulated, the plaintiffs will automatically
be the owners of the 36% of the two parcels of land, and that the 14% pertaining to the
defendants will be taken from the portion towards Caloocan, or more particularly in the
portion encircled in blue pencil, subject to the survey and relocation of a surveyor.
Court: .
Make of record that this Compromise Agreement was made in open court in the presence
of Atty. Jose Rodriguez, who is the son of the plaintiff Mariano Rodriguez, their attorney
Mr. Ignacio M. Orendain, the defendant Mr. Porfirio Belgica and his counsel Atty. Jose S.
Fineza.
Parties respectfully pray this Honorable Court to render judgment in accordance
therewith without costs.
The transcript of the notes taken by the Stenographer of the proceedings taken by the
parties before they arrived at an amicable settlement was signed by the parties and their
respective attorneys and submitted to this Court for corresponding decision.
IN VIEW OF THE FOREGOING, judgment is hereby rendered approving en toto the
foregoing Compromise Agreement and the parties are hereby ordered to abide by and
comply with the terms and conditions contained in said Compromise Agreement, without
pronouncement as to costs.
On September 3, 1955, the defendants filed a Motion for Withdrawal of Exhibits,
particularly the Certificates of Titles covering the lands, subject matter of the present
controversy. Among the reasons given in the motion was "the defendants have already
taken steps to effect that partition of the property for the purpose of delimiting the
respectively portion which would appertain to each, which delimitation has to be effected
in order that defendants may have the opportunity of negotiating their half or any portion
thereof to raise the P35,000.00 which he undertook to pay to plaintiffs. The above motion
bore the conformity of counsel for the plaintiffs.
On November 19, 1955, after the lapse of the seventy (70) day period stipulated in the
compromise agreement, and upon the failure of the defendants to pay, the plaintiffs
presented a motion praying that the defendants be ordered to deliver to the plaintiffs the
Certificates of the Titles so that 14% of the property pertaining to the defendant could be
segregated. An opposition was registered by the defendants, contending that the inability
to meet the obligation to pay the P35,000.00 was due to the deliberate refusal of the
plaintiffs to grant the authority to defendant Porfirio Belgica to negotiate the sale or
mortgage of the 36%; and that since the decision had created reciprocal obligations, the
refusal or failure on the part of one to comply did not make the other in default. In the
opposition, the defendants prayed that the plaintiffs be ordered to grant defendant Porfirio
Belgica the authority to negotiate the sale or mortgage of the 36%. the lower court, On
November 26, 1955, ordered the defendants to surrender to the Court the TCT's they
withdrew, not latter than December 1, 1955. On this date the defendants filed a "Motion
to Compel Plaintiffs to Comply with the Conditions of the Judgment", reiterating in
substance, the reason they invoked in their previous oppositions. On December 15, 1955,
the trial court acting on the motion of the defendants, handed down the following order,
to wit:
"defendant Belgica's contention is that the plaintiffs Mariano Rodriguez has refused to
grant the authority adverted to. Said defendant, however, has not done anything, nor has
filed any petition with the Court regarding the alleged refusal of the plaintiff Rodriguez to
grant such authority before the expiration of the 70-day period fixed by the parties within
which to pay the said amount of P35,000.00. The petition to compel the plaintiffs to
comply with the conditions of the judgment, namely to command said plaintiffs to grant
the authority above referred to was only filed on December 1, 1955, or after the
expiration of 90 days. In the opinion of the Court, the decision rendered in this case has
already become final and executory under the terms and conditions stipulated by the
parties and upon which said decision was based.
IN VIEW OF THE FOREGOING, the said motion to compel the plaintiffs to comply
with the condition embodied in the judgment is hereby DENIED.".
The above ordered is now the subject to the present appeal, appellants contending in their
lone assignment of error that the lower court erred "in denying the motion of December 1,
1955 (to compel the plaintiffs to grant the authority), on the ground that because of the
failure of defendants-appelants to pay the plaintiffs-appelees the amount P35,000.00
within the period of seventy days, the judgment of August 30,1955, has already become
due and executory.".
Whether the denial of the motion of compel the plaintiffs to grant the authority is proper
and legal, would seem to be the dominant issue..
On the plaintiffs-appellees was impose the obligation of granting to defendants-appellants
the requisite authority to negotiate either the sale or mortgage of the 36% interest in the
property. This is understandable, because on the face of the two certificates of the title
covering the properties, defendants owned only 14%, while plaintiffs owned 86%.
Without such authority executed by plaintiffs in favor of the defendants, it was difficult,
not to say impossible for the latter to affect a negotiation. This the plaintiffs the fully
knew, because in the compromise, they acknowledged that the amount of P35,000.00 due
to them would be paid within 70 days from the August 30, 1953, with money to be
delivered from the sale of mortgage of the property. It was, therefore, incumbent upon the
plaintiffs "to grant authority" to defendants to negotiate the sale or mortgage of the 36%
of the property. Considering that the reciprocal obligation has been established by the
compromise agreement, the sequence in which the reciprocal obligations of the parties
are to be performed, is quite clear. The giving of the authority to sell or mortgage
precedes the obligation of the defendants to pay P35,000.00(Martinez vs. Cavives, 25
Phil. 581). Until this authority is granted by the plaintiff, the 70 day period for payment
will not commence to run. The plaintiffs insinuated that defendant did not ask for the
authority. There was, however the statement or allegation by the defendants to the effects
that they made verbal request for such authority but plaintiffs refused to give, a statement
or allegation discredited by the lower court. But even without a request, from the very
nature of the obligation assumed by plaintiffs, demand by defendants that it be
performed, was not necessary (Article 1169, par. 2, Civil Code).
It is true that defendants' petition to compel the plaintiffs to grant the authority repeatedly
mentioned, was only filed on December 1, 1955, after the expiration of the 70-day period.
It should, however, be observed that the actuations or acts of the defendants have always
been lulled by a sense of an honest but insecure misunderstanding, as to the scope and
extent of the terms and conditions of the compromise. To show that defendants had not
abandoned their obligation to pay the sum of P35,000.00, on September 3, 1955, within
the 70-day period which expired on November 8, 1955, they filed a motion to withdraw
documents and certificates of title to delimit the respective portions, in order that they
(defendants) might have an opportunity of negotiating one-half or any portion to raise
P35,000.00 to which motion the plaintiffs agreed. While waiting for the grant of authority
to descend, like manna from Heaven, the defendants were surprised to receive, on
November 19, 1955, plaintiffs' motion to have the titles returned so that the defendants'
14% could be segregated, as they (plaintiffs) wanted to remain with the 86% of the
properties.
The lower court and with it, the plaintiffs-appellees had indulged in fine technicalities
which in this particular case, would work injustice to the defendants-appellants, more
than anything else. The compromise agreement being onerous the doubt should be settled
in favor of the greatest reciprocity of interests. Without the authority in question the
obligation of the defendants to pay the plaintiffs the sum of P35,000.00 cannot be
considered as having matured, and the lapse of the 70-day period fixed in the decision
can not be adjudged as having resulted in the forfeiture of their right to repurchase their
36% interest in the properties (Price, Inc. v. Rilloraza, et al.. No. L-8253, May 25, 1955).
The claim of the appellees that the appellants failed to comply with their initial obligation
to delimit the property, as stated by them in their motion to withdraw, is not supported by
the evidence. The delimitation or segregation of the property to be sold or mortgaged
which appellants should have done first so that the authority could have been granted, had
long been accomplished. This is clear from the words of appellees' counsel when he said,
"According to my clients, Your Honor, I was instructed to choose the portion which is
nearest to Quezon City . . .".
In view hereof, the resolution of the lower court dated December 15, 1955, is reversed,
and another entered, ordering the plaintiffs-appellees to execute in favor of the
defendants-appellants the proper authority to sell or mortgage 36% of the properties in
litigation within 30 days from notice of this decision and further directing the defendants-
appellants to pay unto the plaintiffs-appellees the sum of P35,000.00 within 30 days from
the date such authority is granted. Without special pronouncement as to costs.