J.G.
Delfin status showed that it could no longer complete the projects as
G.R. No. 173155 March 21, 2012
R.S. TOMAS, INC., Petitioner,
vs.
RIZAL CEMENT COMPANY, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioner R.S. Tomas, Inc. against
respondent Rizal Cement Company, Inc. assailing the Court of
Appeals (CA) Decision1 dated December 19, 2005 and
Resolution2 dated June 6, 2006 in CA-G.R. CV No. 61049. The
assailed decision reversed and set aside the Regional Trial
Court3 (RTC) Decision4 dated June 5, 1998 in Civil Case No. 92-
1562.
The facts of the case, as culled from the records, are as follows:
On December 28, 1990, respondent and petitioner entered into a
Contract5 for the supply of labor, materials, and technical
supervision of the following projects:
1. J.O. #P-90-212 Wiring and installation of primary and
secondary lines system.
2. J.O. #P-90-213 Supply and installation of primary protection
and disconnecting switch.
3. J.O. #P-90-214 Rewinding and conversion of one (1) unit
3125 KVA, 34.5 KV/2.4 KV, 3 Transformer to 4000 KVA, 34.5
KV/480V, 3 Delta Primary, Wye with neutral secondary. 6
Petitioner agreed to perform the above-mentioned job orders.
Specifically, it undertook to supply the labor, equipment,
supervision, and materials as specified in the detailed scope of
work.7 For its part, respondent agreed to pay the total sum of
2,944,000.00 in consideration of the performance of the job
orders. Petitioner undertook to complete the projects within one
hundred twenty (120) days from the effectivity of the contract. 8 It
was agreed upon that petitioner would be liable to respondent for
liquidated damages in the amount of 29,440.00 per day of delay
in the completion of the projects which shall be limited to 10%
of the project cost.9 To secure the full and faithful performance
of all its obligations and responsibilities under the contract,
petitioner obtained from Times Surety & Insurance Co. Inc.
(Times Insurance) a performance bond10 in an amount equivalent
to fifty percent (50%) of the contract price or 1,458,618.18.
Pursuant to the terms of the contract, respondent made an initial
payment of 1,458,618.18 on January 8, 1991. 11
In a letter12 dated March 9, 1991, petitioner requested for an
extension of seventy-five (75) days within which to complete the
projects because of the need to import some of the materials
needed. In the same letter, it also asked for a price adjustment of
255,000.00 to cover the higher cost of materials. 13 In another
letter14 dated March 27, 1991, petitioner requested for another 75
days extension for the completion of the transformer portion of
the projects for failure of its supplier to deliver the materials.
On June 14, 1991,15 petitioner manifested its desire to complete
the project as soon as possible to prevent further losses and
maintain goodwill between the companies. Petitioner requested
for respondents assistance by facilitating the acquisition of
materials and supplies needed to complete J.O. #P-90-212 and
J.O. #P-90-213 by directly paying the suppliers. It further sought
that it be allowed to back out from J.O. #P-90-214 covering the
rewinding and conversion of the damaged transformer.
In response16 to petitioners requests, respondent, through
counsel, manifested its observation that petitioners financial
agreed upon. Respondent also informed petitioner that it was
already in default having failed to complete the projects within
120 days from the effectivity of the contract. Respondent further
notified petitioner that the former was terminating the contract.
It also demanded for the refund of the amount already paid to
petitioner, otherwise, the necessary action would be instituted.
Respondent sent another demand letter17 to Times Insurance for
the payment of 1,472,000.00 pursuant to the performance bond
it issued.
On November 14, 1991,18 respondent entered into two contracts
with Geostar Philippines, Inc. (Geostar) for the completion of the
projects commenced but not completed by petitioner for a total
consideration of 3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to
complete J.O. #P-90-212 and J.O. #P-90-213 and to exclude J.O.
#P-90-214,19 but the same was denied by respondent in a
letter20 dated January 14, 1992. In the same letter, respondent
pointed out that amicable settlement is impossible. Hence, the
Complaint for Sum of Money21 filed by respondent against
petitioner and Times Surety & Insurance Co., Inc. praying for
the payment of the following: 493,695.00 representing the
amount which they owed respondent from the downpayment and
advances made by the latter vis--vis the work accomplishment;
2,550,945.87 representing the amount incurred in excess of the
cost of the projects as agreed upon; 294,000.00 as liquidated
damages; plus interest and attorneys fees.22
Times Insurance did not file any pleading nor appeared in court.
For its part, petitioner denied23 liability and claimed instead that
it failed to complete the projects due to respondents fault. It
explained that it relied in good faith on respondents
representation that the transformer subject of the contract could
still be rewound and converted but upon dismantling the core-
coil assembly, it discovered that the coils were already badly
damaged and the primary bushing broken. This discovery
allegedly entailed price adjustment. Petitioner thus requested
respondent for additional time within which to complete the
project and additional amount to finance the same. Petitioner
also insisted that the proximate cause of the delay is the
misrepresentation of the respondent on the extent of the defect
of the transformer.
After the presentation of the parties respective evidence, the
RTC rendered a decision on June 5, 1998 in favor of petitioner,
the dispositive portion of which reads:
Wherefore, finding defendant-contractors evidence more
preponderant than that of the plaintiff, judgment is hereby
rendered in favor of the defendant-contractor against the plaintiff
and hereby orders:
(1) that the instant case be DISMISSED;
(2) that plaintiff pays defendant the amount of 4,000,000.00;
for moral and exemplary & other damages;
(3) 100,000.00 for attorneys fees and cost of suit.
SO ORDERED.24
The RTC held that the failure of petitioner to complete the
projects was not solely due to its fault but more on respondents
misrepresentation and bad faith.25 Therefore, the Court
dismissed respondents complaint. Since respondent was found
to have committed deceit in its dealings with petitioner, the court
awarded damages in favor of the latter.26
Respondent, however, successfully obtained a favorable
decision when its appeal was granted by the CA. The appellate
court reversed and set aside the RTC decision and awarded
respondent 493,695.34 for the excess payment made to
petitioner, 508,510.00 for the amount spent in contracting
Geostar and 294,400.00 as liquidated damages.27 Contrary to
the conclusion of the RTC, the CA found that petitioner failed to
prove that respondent made fraudulent misrepresentation to
induce the former to enter into the contract. It further held that
petitioner was given the opportunity to inspect the transformer
before offering its bid. 28 This being so, the CA added that
petitioners failure to avail of such opportunity is inexcusable,
considering that it is a company engaged in the electrical
business and the contract involved a sizable amount of
money.29 As to the condition of the subject transformer unit, the
appellate court found the testimony of petitioners president
insufficient to prove that the same could no longer be rewound
or converted.30 Considering that advance payments had been
made to petitioner, the court deemed it necessary to require it to
return to respondent the excess amounts, vis--vis its actual
accomplishment.31 In addition to the refund of the excess
payment, the CA also ordered the reimbursement of what
respondent paid to Geostar for the unfinished projects of
petitioner as well as the payment of liquidated damages as
stipulated in the contract.32
Aggrieved, petitioner comes before the Court in this petition for
review on certiorari under Rule 45 of the Rules of Court raising
the following issues: (1) whether or not respondent was guilty of
fraud or misrepresentation as to the actual condition of the
transformer subject of the contract;33 (2) whether or not the
evidence presented by petitioner adequately established the true
nature and condition of the subject transformer;34 (3) whether or
not petitioner is guilty of inexcusable delay in the completion of
the projects;35 (4) whether or not petitioner is liable for liquidated
damages;36 and (5) whether or not petitioner is liable for the cost
of the contract between respondent and Geostar.37
The petition is without merit.
The case stemmed from an action for sum of money or damages
arising from breach of contract. The contract involved in this
case refers to the rewinding and conversion of one unit of
transformer to be installed and energized to supply respondents
power requirements.38 This project was embodied in three (3) job
orders, all of which were awarded to petitioner who represented
itself to be capable, competent, and duly licensed to handle the
projects.39Petitioner, however, failed to complete the projects
within the agreed period allegedly because of misrepresentation
and fraud committed by respondent as to the true nature of the
subject transformer. The trial court found that respondent indeed
failed to inform petitioner of the true condition of the transformer
which amounted to fraud thereby justifying the latters failure to
complete the projects. The CA, however, had a different
conclusion and decided in favor of respondent. Ultimately, the
issue before us is whether or not there was breach of contract
which essentially is a factual matter not usually reviewable in a
petition filed under Rule 45.40
In resolving the issues, the Court inquires into the probative
value of the evidence presented before the trial court.41Petitioner,
indeed, endeavors to convince us to determine once again the
weight, credence, and probative value of the evidence presented
before the trial court.42 While in general, the findings of fact of
the CA are final and conclusive and cannot be reviewed on
appeal to the Court because it is not a trier of facts, 43 there are
recognized exceptions44 as when the findings of fact are
conflicting, which is obtaining in this case. The conflicting
conclusions of the trial and appellate courts impel us to re-
examine the evidence presented.
After a thorough review of the records of the case, we find no
reason to depart from the conclusions of the CA.
It is undisputed that petitioner and respondent entered into a
contract for the supply of labor, materials, and technical
supervision primarily for the rewinding and conversion of one
(1) unit of transformer and related works aimed at providing the
power needs of respondent. As agreed upon by the parties, the
projects were to be completed within 120 days from the
effectivity of the contract. Admittedly, however, respondent
failed, not only to perform its part of the contract on time but, in
fact, to complete the projects. Petitioner tried to exempt itself
from the consequences of said breach by passing the fault to
respondent. It explained that its failure to complete the project
was due to the misrepresentation of the respondent. It claimed
that more time and money were needed, because the condition of
the subject transformer was worse than the representations of
respondent. Is this defense tenable?
We answer in the negative.
Records show that petitioner indeed asked for price adjustment
and extension of time within which to complete the projects. In
its letter45 dated March 9, 1991, petitioner anchored its request
for extension on the following grounds:
1. To maximize the existing 3125 KVA to 4000 KVA capacity
using the same core, we will replace the secondary windings
from rectangular type to copper sheet which is more accurate in
winding to the required number of turns than using parallel
rectangular or circular type of copper magnet wires. However,
these copper sheets are not readily available locally in volume
quantities, and therefore, we will be importing this material and
it will take 60 days minimum time for its delivery.
2. We also find it difficult to source locally the replacement for
the damaged high voltage bushing.
3. The delivery of power cable no. 2/0 will also be delayed. This
will take 90 days to deliver from January 1991. 46
Also in its letter47 dated March 27, 1991, petitioner informed
respondent that the projects would be completed within the
contract time table but explained that the delivery of the
transformer would only be delayed. The reasons advanced by
petitioner to justify the delay are as follows:
1. Our supplier for copper sheets cannot complete the delivery
until April 30, 1991.
2. Importation of HV Bushing will take approximately 45 days
delivery per advice of our supplier. x x x48
Clearly, in the above letters, petitioner justified its inability to
complete the projects within the stipulated period on the alleged
unavailability of the materials to be used to perform the projects
as stated in the job orders. Nowhere in said letters did petitioner
claim that it could not finish the projects, particularly the
conversion of the transformer unit because the defects were
worse than the representation of respondent. In other words,
there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true
condition of the subject transformer. Even in its letter49 dated
May 25, 1991, petitioner only requested respondent that payment
to the first progress billing be released as soon as possible and
without deduction. It further proposed that respondent make a
direct payment to petitioners suppliers.
It was only in its June 14, 1991 letter50 when petitioner raised its
observations that the subject transformer needed more repairs
than what it knew during the bidding. 51 In the same letter,
however, petitioner repeated its request that direct payment be
made by respondent to petitioners suppliers.52 More
importantly, petitioner admitted that it made a judgment error
when it quoted for only 440,770.00 for the contract relating to
J.O. #P-90-214 based on limited information.
It can be inferred from the foregoing facts that there was not only
a delay but a failure to complete the projects as stated in the
contract; that petitioner could not complete the projects because
it did not have the materials needed; and that it is in need of
financial assistance.
As the Court sees it, the bid submitted by petitioner may have
been sufficient to be declared the winner but it failed to anticipate
all expenses necessary to complete the projects. 53 When it
incurred expenses it failed to foresee, it began requesting for
price adjustment to cover the cost of high voltage bushing and
difference in cost of copper sheet and rectangular
wire.54 However, the scope of work presented by respondent
specifically stated that the wires to be used shall be pure copper
and that there was a need to supply new bushings for the
complete rewinding and conversion of 3125 KVA to 4 MVA
Transformer.55 In other words, petitioner was aware that there
was a need for complete replacement of windings to copper and
of secondary bushings. 56 It is, therefore, improper for petitioner
to ask for additional amount to answer for the expenses that were
already part and parcel of the undertaking it was bound to
perform. For petitioner, the contract entered into may have
turned out to be an unwise investment, but there is no one to
blame but petitioner for plunging into an undertaking without
fully studying it in its entirety. 57
The Court likewise notes that petitioner repeatedly asked for
extension allegedly because it needed to import the materials and
that the same could not be delivered on time. Petitioner also
repeatedly requested that respondent make a direct payment to
the suppliers notwithstanding the fact that it contracted with
respondent for the supply of labor, materials, and technical
supervision. It is, therefore, expected that petitioner would be
responsible in paying its suppliers because respondent is not
privy to their (petitioner and its suppliers) contract. This is
especially true in this case since respondent had already made
advance payments to petitioner. It appears, therefore, that in
offering its bid, the source and cost of materials were not
seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the
contract that is why it asked for financial assistance from
respondent. This is contrary to petitioners representation that it
was capable, competent, and duly licensed to handle the projects.
As to the alleged damaged condition of the subject transformer,
we quote with approval the CA conclusion in this wise:
In the same vein, We cannot readily accept the testimony of
Tomas that the transformer unit was severely damaged and was
beyond repair as it was not substantiated with any other
evidence. R.S. Tomas could have presented an independent
expert witness whose opinion may corroborate its stance that the
transformer unit was indeed incapable of being restored. To our
mind, the testimony of Tomas is self-serving as it is easy to
concoct, yet difficult to verify. 58
This lack of evidence, coupled with petitioners failure to raise
the same at the earliest opportunity, belies petitioners claim that
it could not complete the projects because the subject
transformer could no longer be repaired.
Assuming for the sake of argument that the subject transformer
was indeed in a damaged condition even before the bidding
which makes it impossible for petitioner to perform its
obligations under the contract, we also agree with the CA that
petitioner failed to prove that respondent was guilty of bad faith,
fraud, deceit or misrepresentation.
Bad faith does not simply connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known duty through
some motive or interest or ill will that partakes of the nature of
fraud.59 Fraud has been defined to include an inducement
through insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose. Deceit
exists where the party, with intent to deceive, conceals or omits
to state material facts and, by reason of such omission or
concealment, the other party was induced to give consent that
would not otherwise have been given.60 These are allegations of
fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked,
and that is why they are never presumed.61 In this case, the
evidence presented is insufficient to prove that respondent acted
in bad faith or fraudulently in dealing with petitioner.1wphi1
Petitioner in fact admitted that its representatives were given the
opportunity to inspect the subject transformer before it offered
its bid. If indeed the transformer was completely sealed, it should
have demanded that the same be opened if it found it necessary
before it offered its bid. As contractor, petitioner had been remiss
in its obligation to obtain as much information as possible on the
actual condition of the subject transformer or at least it should
have provided a qualification in its bid so as to make clear its
right to claim contract price and time adjustment.62 As aptly held
by the CA, considering that petitioner is a company engaged in
the electrical business and the contract it had entered into
involved a sizable amount of money, its failure to conduct an
inspection of the subject transformer is inexcusable.63
In sum, the evidence presented by the parties lead to the
following conclusions: (1) that the projects were not completed
by petitioner; (2) that petitioner was given the opportunity to
inspect the subject transformer; (3) that petitioner failed to
thoroughly study the entirety of the projects before it offered its
bid; (4) that petitioner failed to complete the projects because of
the unavailability of the required materials and that petitioner
needed financial assistance; (5) that the evidence presented by
petitioner were inadequate to prove that the subject transformer
could no longer be repaired; and (6) that there was no evidence
to show that respondent was in bad faith, acted fraudulently, or
guilty of deceit and misrepresentation in dealing with petitioner.
In view of the foregoing disquisitions, we find that there was not
only delay but non-completion of the projects undertaken by
petitioner without justifiable ground. Undoubtedly, petitioner is
guilty of breach of contract. Breach of contract is defined as the
failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to
perform any promise which forms the whole or part of the
contract.64 In the present case, petitioner did not complete the
projects. This gives respondent the right to terminate the contract
by serving petitioner a written notice. The contract specifically
stated that it may be terminated for any of the following causes:
1. Violation by Contractor of the terms and conditions of this
Contract;
2. Non-completion of the Work within the time agreed upon, or
upon the expiration of extension agreed upon;
3. Institution of insolvency or receivership proceedings
involving Contractor; and
4. Other causes provided by law applicable to this contract. 65
Consequently, and pursuant to the agreement of the
parties,66 petitioner is liable for liquidated damages in the amount
of 29,440.00 per day of delay, which shall be limited to a
maximum of 10% of the project cost or 294,400.00. In this case,
petitioner bound itself to complete the projects within 120 days
from December 29, 1990. However, petitioner failed to fulfill the
same prompting respondent to engage the services of another
contractor on November 14, 1991. Thus, despite the lapse of
eleven months from the time of the effectivity of the contract
entered into between respondent and petitioner, the latter had not
completed the projects. Undoubtedly, petitioner may be held to
answer for liquidated damages in its maximum amount which is
10% of the contract price. While we have reduced the amount of
liquidated damages in some cases,67 because of partial
fulfillment of the contract and/or the amount is unconscionable,
we do not find the same to be applicable in this case. It must be
recalled that the contract entered into by petitioner consists of
three projects, all of which were not completed by petitioner.
Moreover, the percentage of work accomplishment was not
adequately shown by petitioner. Hence, we apply the general rule
not to ignore the freedom of the parties to agree on such terms
and conditions as they see fit as long as they are not contrary to
law, morals, good customs, public order or public policy.68 Thus,
as agreed upon by the parties, we apply the 10% liquidated
damages.
Considering that petitioner was already in delay and in breach of
contract, it is liable for damages that are the natural and probable
consequences of its breach of obligation.69 Since advanced
payments had been made by respondent, petitioner is bound to
return the excess vis--vis its work accomplishments. In order to
finish the projects, respondent had to contract the services of
another contractor. We, therefore, find no reason to depart from
the CA conclusion requiring the return of the excess payments
as well as the payment of the cost of contracting Geostar, in
addition to liquidated damages.70
WHEREFORE, premises considered, the petition is hereby
DENIED. The Court of Appeals Decision dated December 19,
2005 and Resolution dated June 6, 2006 in CA-G.R. CV No.
61049 are AFFIRMED.
SO ORDERED.
[G.R. No. 129760. December 29, 1998]
RICARDO CHENG, petitioner, vs. RAMON B. GENATO
and ERNESTO R. DA JOSE & SOCORRO B. DA
JOSE, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari seeks to annul and set aside
the Decision of the Court of Appeals (CA) [1] dated July 7, 1997
in CA-G.R. No. CV No. 44706 entitled Ricardo Cheng, plaintiff-
appellee vs. Ramon B. Genato, defendant-appellant, Ernesto R.
Da Jose & Socorro B. Da Jose, Intervenors-Appellants which
reversed the ruling of the Regional Trial Court, Branch 96 of
Quezon City dated January 18, 1994. The dispositive portion of
the CA Decision reads:
WHEREFORE, based on the foregoing, appealed decision is
hereby REVERSED and SET ASIDE and judgment is rendered
ordering;
1. The dismissal of the complaint;
2. The cancellation of the annotations of the defendant-
appellants Affidavit to Annul Contract to Sell and plaintiff-
appellees Notice of Adverse Claim in the subject TCTs, namely,
TCT No. T-76.196 (M) and TCT No. T-76.197 (M);
3. Payment by the intervenors-appellants of the remaining
balance of the purchase price pursuant to their agreement with
the defendant-appellant to suspend encashment of the three post-
dated checks issued since 1989.
4. Ordering the execution by the defendant-appellant Genato of
the Deed of Absolute Sale over the subject two lots covered by
TCT No. T-76.196 (M) and TCT No. T-76.197 (M) in favor of
intervenors-appellants Spouses Da Jose;
5. The return by defendant-appellant Genato of P50,000.00 paid
to him by the plaintiff-appellee Cheng, and
6. Payment by plaintiff-appellee Cheng of moral damages to
herein intervenors-appellants Da Jose of P100,000.00,
exemplary damages of P50,000.00, attorneys fees
of P50,000.00, and costs of suit; and to defendant-appellant,
of P100,000.00 in exemplary damages, P50,000.00 in attorneys
fees. The amounts payable to the defendant-appellant may be
compensated by plaintiff-appellee with the amount ordered
under the immediately foregoing paragraph which defendant-
appellant has to pay the plaintiff-appellee.
SO ORDERED.[2]
The antecedents of the case are as follows:
Respondent Ramon B. Genato(Genato) is the owner of two
parcels of land located at Paradise Farms, San Jose Del Monte,
Bulacan covered by TCT No. T-76.196 (M)[3] and TCT No. T-
76.197 (M)[4]with an aggregate area of 35,821 square meters,
more or less.
On September 6, 1989, respondent Genato entered into an
agreement with respondent-spouses Ernesto R. Da Jose and
Socorro B. Da Jose (Da Jose spouses) over the above-mentioned
two parcels of land.The agreement culminated in the execution
of a contract to sell for which the purchase price was P80.00 per
square meter. The contract was in a public instrument and was
duly annotated at the back of the two certificates of title on the
same day. Clauses 1 and 3 thereof provide:
'1. That the purchase price shall be EIGHTY (P80.00) PESOS,
Philippine Currency per square meter, of which the amount of
FIFTY THOUSAND (P50,000.00) Pesos shall be paid by the
VENDEE to the VENDOR as partial down payment at the time
of execution of this Contract to Sell.
xxx xxx xxx
'3. That the VENDEE, thirty (30) DAYS after the execution of
this contract, and only after having satisfactorily verified and
confirmed the truth and authenticity of documents, and that no
restrictions, limitations, and developments imposed on and/or
affecting the property subject of this contract shall be detrimental
to his interest, the VENDEE shall pay to the VENDOR, NINE
HUNDRED FIFTY THOUSAND (P950,000.00) PESOS,
Philippine Currency, representing the full payment of the agreed
Down Payment, after which complete possession of the property
shall be given to the VENDEE to enable him to prepare the
premises and any development therein.[5]
On October 4, 1989, the Da Jose spouses, not having finished
verifying the titles mentioned in clause 3 as aforequoted, asked
for and was granted by respondent Genato an extension of
another 30 days or until November 5, 1989. However, according
to Genato, the extension was granted on condition that a new set
of documents is made seven (7) days from October 4,
1989.[6] This was denied by the Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and
without due notice to the Da Jose spouses, Genato executed an
Affidavit to Annul the Contract to Sell,[7] on October 13,
1989. Moreover, no annotation of the said affidavit at the back
of his titles was made right away. The affidavit contained, inter
alia, the following paragraphs;
xxx xxx xxx
That it was agreed between the parties that the agreed
downpayment of P950,000.00 shall be paid thirty (30) days after
the execution of the Contract, that is on or before October 6,
1989;
The supposed VENDEES failed to pay the said full
downpayment even up to this writing, a breach of contract.
That this affidavit is being executed to Annul the aforesaid
Contract to Sell for the vendee having committed a breach of
contract for not having complied with the obligation as provided
in the Contract to Sell;[8]
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng)
went to Genatos residence and expressed interest in buying the
subject properties. On that occasion, Genato showed to Ricardo
Cheng copies of his transfer certificates of title and the
annotations at the back thereof of his contract to sell with the Da
Jose spouses. Genato also showed him the aforementioned
Affidavit to Annul the Contract to Sell which has not been
annotated at the back of the titles.
Despite these, Cheng went ahead and issued a check
for P50,000.00 upon the assurance by Genato that the previous
contract with the Da Jose spouses will be annulled for which
Genato issued a handwritten receipt (Exh. D), written in this
wise.
10/24/89
Received from Ricardo Cheng
the Sum of Fifty Thousand Only (P50,000 -)
as partial for T-76196 (M)
T-76197 (M) area 35,821 Sq.m.
Paradise Farm, Gaya-Gaya, San Jose Del Monte
P70/m2 Bulacan
Plus C.G.T. etc
(SGD) Ramon B. Genato
Check # 470393
10/24/89[9]
On October 25, 1989, Genato deposited Chengs check. On the
same day, Cheng called up Genato reminding him to register the
affidavit to annul the contract to sell.[10]
The following day, or on October 26, 1989, acting on Chengs
request, Genato caused the registration of the Affidavit to Annul
the Contract to Sell in the Registry of Deeds, Meycauayan,
Bulacan as primary entry No. 262702.[11]
While the Da Jose spouses were at the Office of the Registry of
Deeds of Meycauaya, Bulacan on October 27, 1989, they met
Genato by coincidence. It was only then that the Da Jose spouses
discovered about the affidavit to annul their contract. The latter
were shocked at the disclosure and protested against the
rescission of their contract. After being reminded that he
(Genato) had given them (Da Jose spouses) an additional 30-day
period to finish their verification of his titles, that the period was
still in effect, and that they were willing and able to pay the
balance of the agreed down payment, later on in the day, Genato
decided to continue the Contract he had with them. The
agreement to continue with their contract was formalized in a
conforme letter dated October 27, 1989.
Thereafter, Ramon Genato advised Ricardo Cheng of his
decision to continue his contract with the Da Jose spouses and
the return of Chengs P50,000.00 check. Consequently, on
October 30, 1989, Chengs lawyer sent a letter[12] to Genato
demanding compliance with their agreement to sell the property
to him stating that the contract to sell between him and Genato
was already perfected and threatening legal action.
On November 2, 1989, Genato sent a letter[13] to Cheng (Exh. 6)
enclosing a BPI Cashiers Check for P50,000.00 and expressed
regret for his inability to consummate his transaction with
him. After having received the letter of Genato on November 4,
1989, Cheng, however, returned the said check to the former via
RCPI telegram[14] dated November 6, 1989, reiterating that our
contract to sell your property had already been perfected.
Meanwhile, also on November 2, 1989, Cheng executed an
affidavit of adverse claim[15] and had it annotated on the subject
TCTs.
On the same day, consistent with the decision of Genato and the
Da Jose spouses to continue with their Contract to Sell of
September 6, 1989, the Da Jose spouses paid Genato the
complete down payment of P950,000.00 and delivered to him
three (3) postdated checks (all dated May 6, 1990, the stipulated
due date) in the total amount of P1,865,680.00 to cover full
payment of the balance of the agreed purchase price. However,
due to the filing of the pendency of this case, the three (3)
postdated checks have not been encashed.
On December 8, 1989, Cheng instituted a complaint[16] for
specific performance to compel Genato to execute a deed of sale
to him of the subject properties plus damages and prayer for
preliminary attachment. In his complaint, Cheng averred that
the P50,000.00 check he gave was a partial payment to the total
agreed purchase price of the subject properties and considered as
an earnest money for which Genato acceded. Thus, their contract
was already perfected.
In Answer[17] thereto, Genato alleged that the agreement was
only a simple receipt of an option-bid deposit, and never stated
that it was a partial payment, nor is it an earnest money and that
it was subject to the condition that the prior contract with the Da
Jose spouses be first cancelled.
The Da Jose spouses, in their Answer in Intervention,[18] asserted
that they have a superior right to the property as first
buyers. They alleged that the unilateral cancellation of the
Contract to Sell was without effect and void. They also cited
Chengs bad faith as a buyer being duly informed by Genato of
the existing annotated Contract to Sell on the titles.
After trial on the merits, the lower court ruled that the receipt
issued by Genato to Cheng unerringly meant a sale and not just
a priority or an option to buy. It cannot be true that the
transaction was subjected to some condition or reservation, like
the priority in favor of the Da Jose spouses as first buyer because,
if it were otherwise, the receipt would have provided such
material condition or reservation, especially as it was Genato
himself who had made the receipt in his own hand. It also opined
that there was a valid rescission of the Contract to Sell by virtue
of the Affidavit to Annul the Contract to Sell.Time was of the
essence in the execution of the agreement between Genato and
Cheng, under this circumstance demand, extrajudicial or
judicial, is not necessary. It falls under the exception to the rule
provided in Article 1169[19] of the Civil Code. The right of
Genato to unilaterally rescind the contract is said to be under
Article 1191[20] of the Civil Code. Additionally, after reference
was made to the substance of the agreement between Genato and
the Da Jose spouses, the lower court also concluded that Cheng
should be preferred over the intervenors-Da Jose spouses in the
purchase of the subject properties. Thus, on January 18, 1994 the
trial court rendered its decision the decretal portion of which
reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring the contract to sell dated September 6, 1989
executed between defendant Ramon Genato, as vendor, and
intervenors Spouses Ernesto and Socorro Da Jose, as vendees,
resolved and rescinded in accordance with Art. 1191, Civil Code,
by virtue of defendants affidavit to annul contract to sell dated
October 13, 1989 and as the consequence of intervenors failure
to execute within seven (7) days from October 4, 1989 another
contract to sell pursuant to their mutual agreement with the
defendant;
2. Ordering defendant to return to the intervenors the sum
of P1,000,000.00, plus interest at the legal rate from November
2, 1989 until full payment;
3. Directing defendant to return to the intervenors the three (3)
postdated checks immediately upon finality of this judgment;
4. Commanding defendant to execute with and in favor of the
plaintiff Ricardo Cheng, as vendee, a deed of conveyance and
sale of the real properties described and covered in Transfer
Certificates of Title No. T-76-196 (M) and T-76.197 (M) of the
Registry of Deeds of Bulacan, Meycauyan Branch, at the rate
of P70.00/sqaure meter, less the amount of P50,000.00 already
paid to defendant, which is considered as part of the purchase
price, with the plaintiff being liable for payment of the capital
gains taxes and other expenses of the transfer pursuant to the
agreement to sell dated October 24, 1989; and
5. Ordering defendant to pay the plaintiff and the intervenors as
follows:
a/ P50,000.00, as nominal damages, to plaintiff;
b/ P50,000.00, as nominal damages, to intervenors;
c/ P20,000.00, as and for attorneys fees, to plaintiff;
d/ P20,000.00, as and for attorneys fees, to intervenors; and
e/ Cost of the suit.
xxx xxx xxx
Not satisfied with the aforesaid decision, herein respondents
Ramon Genato and Da Jose spouses appealed to the court a
quo which reversed such judgment and ruled that the prior
contract to sell in favor of the Da Jose spouses was not validly
rescinded, that the subsequent contract to sell between Genato
and Cheng, embodied in the handwritten receipt, was without
force and effect due to the failure to rescind the prior contract;
and that Cheng should pay damages to the respondents herein
being found to be in bad faith.
Hence this petition.[21]
This petition for review, assails the Court of Appeals Decision
on the following grounds: (1) that the Da Jose spouses Contract
to Sell has been validly rescinded or resolved; (2) that Ricardo
Chengs own contract with Genato was not just a contract to sell
but one of conditional contract of sale which gave him better
rights, thus precluding the application of the rule on double sales
under Article 1544, Civil Code; and (3) that, in any case, it was
error to hold him liable for damages.
The petition must be denied for failure to show that the Court of
Appeals committed a reversible error which would warrant a
contrary ruling.
No reversible error can be ascribed to the ruling of the Court of
Appeals that there was no valid and effective rescission of
resolution of the Da Jose spouses Contract to Sell, contrary to
petitioners contentions and the trial courts erroneous ruling.
In a Contract to Sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force.[22] It is one where the happening of the event
gives rise to an obligation. Thus, for its non-fulfillment there will
be no contract to speak of, the obligor having failed to perform
the suspensive condition which enforces a juridical relation. In
fact with this circumstance, there can be no rescission of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet.[23] Emphasis should be made that the
breach contemplated in Article 1191 of the New Civil Code is
the obligors failure to comply with an obligation already extant,
not a failure of a condition to render binding that obligation. [24]
Obviously, the foregoing jurisprudence cannot be made to apply
to the situation in the instant case because no default can be
ascribed to the Da Jose spouses since the 30-day extension period
has not yet expired. The Da Jose spouses contention that no
further condition was agreed when they were granted the 30-days
extension period from October 7, 1989 in connection with clause
3 of their contract to sell dated September 6, 1989 should be
upheld for the following reason, to wit; firstly, If this were not
true, Genato could not have been persuaded to continue his
contract with them and later on agree to accept the full settlement
of the purchase price knowing fully well that he himself imposed
such sine qua non condition in order for the extension to be
valid; secondly, Genato could have immediately annotated his
affidavit to annul the contract to sell on his title when it was
executed on October 13, 1989 and not only on October 26, 1989
after Cheng reminded him of the annotation; thirdly, Genato
could have sent at least a notice of such fact, there being no
stipulation authorizing him for automatic rescission, so as to
finally clear the encumbrance of his titles and make it available
to other would be buyers. It likewise settles the holding of the
trial court that Genato needed money urgently.
Even assuming in gratia argumenti that the Da Jose spouses
defaulted, as claimed by Genato, in their Contract to Sell, the
execution by Genato of the affidavit to annul the contract is not
even called for.For with or without the aforesaid affidavit their
non-payment to complete the full downpayment of the purchase
price ipso facto avoids their contract to sell, it being subjected to
a suspensive condition. When a contract is subject to a
suspensive condition, its birth or effectivity can take place only
if and when the event which constitutes the condition happens or
is fulfilled.[25] If the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never
existed.[26]
Nevertheless, this being so Genato is not relieved from the giving
of a notice, verbal or written, to the Da Jose spouses for decision
to rescind their contract. In many cases,[27] even though we
upheld the validity of a stipulation in a contract to sell
authorizing automatic rescission for a violation of its terms and
conditions, at least a written notice must be sent to the defaulter
informing him of the same. The act of a party in treating a
contract as cancelled should be made known to the other.[28] For
such act is always provisional. It is always subject to scrutiny
and review by the courts in case the alleged defaulter brings the
matter to the proper courts. In University of the Philippines vs.
De Los Angeles,[29] this Court stressed and we quote:
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first
file suit and wait for a judgment before taking extajudicial steps
to protect its interest. Otherwise, the party injured by the others
breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
This rule validates, both in equity and justice, contracts such as
the one at bat, in order to avoid and prevent the defaulting party
from assuming the offer as still in effect due to the obligees
tolerance for such non-fulfillment. Resultantly, litigations of this
sort shall be prevented and the relations among would-be parties
may be preserved. Thus, Ricardo Chengs contention that the
Contract to Sell between Genato and the Da Jose spouses was
rescinded or resolved due to Genatos unilateral rescission finds
no support in this case.
Anent the issue on the nature of the agreement between Cheng
and Genato, the records of this case are replete with
admissions[30] that Cheng believed it to be one of a Contract to
Sell and not one of Conditionl Contract of Sale which he, in a
transparent turn-around, now pleads in this Petition. This
ambivalent stance of Cheng is even noted by the appellate court,
thus:
At the outset, this Court notes that plaintiff-appellee was
inconsistent in characterizing the contract he allegedly entered
into. In his complaint,[31] Cheng alleged that the P50,000.00
down payment was earnest money. And next, his
testimony[32] was offered to prove that the transaction between
him and Genato on October 24, 1989 was actually a perfected
contract to sell.[33]
Settled is the rule that an issue which was not raised during the
trial in the court below cannot be raised for the first time on
appeal.[34] Issues of fact and arguments not adequately brought
to the attention of the trial court need not be and ordinarily will
not be considered by a reviewing court as they cannot be raised
for the first time on appeal.[35] In fact, both courts below correctly
held that the receipt which was the result of their agreement, is a
contract to sell. This was, in fact Chengs contention in his
pleadings before said courts. This patent twist only operates
against Chengs posture which is indicative of the weakness of
his claim.
But even if we are to assume that the receipt, Exh. D, is to be
treated as a conditional contract of sale, it did not acquire any
obligatory force since it was subject to suspensive condition that
the earlier contract to sell between Genato and the Da Jose
spouses should first be cancelled or rescinded a condition never
met, as Genato, to his credit, upon realizing his error, redeemed
himself by respecting and maintaining his earlier contract with
the Da Jose spouses. In fact a careful reading of the receipt, Exh.
D, alone would not even show that a conditional contract of sale
has been entered by Genato and Cheng.When the requisites of a
valid contract of sale are lacking in said receipt, therefore the sale
is neither valid or enforceable.[36]
To support his now new theory that the transaction was a
conditional contract of sale, petitioner invokes the case
of Coronel vs. Court of Appeals[37] as the law that should
govern their Petition. We do not agree. Apparently, the factual
milieu in Coronel is not on all fours with those in the case at bar.
In Coronel, this Court found that the petitioners therein clearly
intended to transfer title to the buyer which petitioner themselves
admitted in their pleading. The agreement of the parties therein
was definitively outline in the Receipt of Down Payment both as
to property, the purchase price, the delivery of the seller of the
property and the manner of the transfer of title subject to the
specific condition that upon the transfer in their names of the
subject property the Coronels will execute the deed of absolute
sale.
Whereas, in the instant case, even by a careful perusal of the
receipt, Exh. D, alone such kind of circumstances cannot be
ascertained without however resorting to the exceptions of the
Rule on Parol Evidence.
To our mind, the trial court and the appellate court correctly held
that the agreement between Genato and Cheng is a contract to
sell, which was, in fact, petitioner connection in his pleadings
before the said courts. Consequently, both to mind, which read:
Article 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith,
if it should be movable property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and in the
absence thereof, to the person who presents the oldest title,
provided there is good faith
However, a meticulous reading of the aforequoted provision
shows that said law is not apropos to the instant case. This
provision connotes that the following circumstances must
concur:
(a) The two (or more) sales transactions in the issue must pertain
to exactly the same subject matter, and must be valid sales
transactions.
(b) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent conflicting
interests; and
(c) The two (or more) buyers at odds over the rightful ownership
of the subject matter must each have bought from the very same
seller.
These situations obviously are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction has been
consummated. The contract to be binding upon the obligee or the
vendor depends upon the fulfillment or non-fulfillment of an
event.
Notwithstanding this contrary finding with the appellate court,
we are of the view that the governing principle of Article 1544,
Civil Code, should apply in this
situation. Jurisprudence[38] teaches us that the governing
principle is PRIMUS TEMPORE, PORTIOR JURE (first in time,
stronger in right). For not only was the contract between herein
respondents first in time; it was also registered long before
petitioners intrusion as a second buyer. This principle only
applies when the special rules provided in the aforcited article of
Civil Code do not apply or fit the specific circumstances
mandated under said law or by jurisprudence interpreting the
article.
The rule exacted by Article 1544 of the Civil Code for the second
buyer to be able to displace the first buyer are:
(1) that the second buyer must show that he acted in good faith
(i.e. in ignorance of the first sale and of the first buyers rights)
from the time of acquisition until title is transferred to him by
registration or failing registration, by delivery of possession;[39]
(2) the second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract
ripens into full ownership through prior registration as provided
by law.[40]
Thus, in the case at bar, the knowledge gained by the Da Jose
spouses, as first buyers, of the new agreement between Cheng
and Genato will not defeat their rights as first buyers except
where Cheng, as second buyer, registers or annotates his
transaction or agreement on the title of the subject properties in
good faith ahead of the Da Jose spouses. Moreover, although the
Da Jose spouses, as first buyers, knew of the second transaction
it will not bar them from availing of their rights granted by law,
among them, to register first their agreement as against the
second buyer.
In contrast, knowledge gained by Cheng of the first transaction
between the Da Jose spouses and Genato defeats his rights even
if he is first to register the second transaction, since such
knowledge taints his prior registration with bad faith.
Registration, as defined by Soler and Castillo, means any entry
made in the books of the registry, including both registration in
its ordinary and strict sense and cancellation, annotation, and
even marginal notes.[41] In its strict acceptation, it is the entry
made in the registry which records solemnly and permanently
the right of ownership and other real rights. [42] We have
ruled[43] before that when a Deed of Sale is inscribed in the
registry of property on the original document itself, what was
done with respect to said entries or annotations and marginal
notes amounted to a registration of the sale. In this light, we see
no reason why we should not give priority in right the annotation
made by the Da Jose spouses with respect to their Contract to
Sell dated September 6, 1989.
Moreover, registration alone in such cases without good faith is
not sufficient. Good faith must concur with registration for such
prior right to be enforceable. In the instant case, the annotation
made by the Da Jose spouses on the titles of Genato of their
Contract to Sell more than satisfies this requirement. Whereas in
the case of Genatos agreement with Cheng such is
unavailing. For even before the receipt, Exh. D, was issued to
Cheng information of such pre-existing agreement has been
brought to his knowledge which did not deter him from pursuing
his agreement with Genato. We give credence to the factual
finding of the appellate court that Cheng himself admitted that it
was he who sought Genato in order to inquire about the property
and offered to buy the same.[44] And since Cheng was fully
aware, or could have been if he had chosen to inquire, of the
rights of the Da Jose spouses under the Contract to Sell duly
annotated on the transfer certificates of titles of Genato, it now
becomes unnecessary to further elaborate in detail the fact that
he is indeed in bad faith in entering into such agreement. As we
have held in Leung Yee vs. F.L. Strong Machinery Co.:[45]
One who purchases real estate with knowledge of a defect x x x
of title in his vendor cannot claim that he has acquired title
thereto in good faith as against x x x x an interest therein; and
the same rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title
of his vendor. A purchaser cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that
he acted in good faith under the belief that there was no defect
in the title of the vendor. His mere refusal to believe that such
defect exists, or his willful closing of his eyes to the possibility
of the existence of a defect in his vendors title, will not make him
an innocent purchaser for value, if it afterwards develops that the
title was in fact defective, and it appears that he had such notice
of the defect as would have led to its discovery had he acted with
that measure of precaution which may reasonably be required of
a prudent man in a like situation. Good faith, or lack of it, is in
its last analysis a question of intention; but in ascertaining the
intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and
outward acts by which alone the inward motive may, with safety,
be determined. So it is that the honesty of intention, the honest
lawful intent, which constitutes good faith implies a freedom
from knowledge and circumstances which ought to put a person
on inquiry, and so it is that proof of such knowledge overcomes
the presumption of good faith in which the courts always indulge
in the absence of the proof to the contrary. Good faith, or the
want of it, is not a visible, tangible fact that can be seen or
touched, but rather a state or condition of mind which can only
be judge of by actual or fancied tokens or signs. (Wilder vs.
Gilman, 55 Vt. 504, 505; Cf. Cardenas vs. Miller, 108 Cal., 250;
Breaux-Renoudet, Cypress Lumber Co. vs. Shadel, 52 La. Ann.,
2094-2098; Pinkerton Bros. Co. vs. Bromely, 119 Mich., 8, 10,
17.) Emphasis ours
Damages were awarded by the appellate court on the basis of its
finding that petitioner was in bad faith when he filed the suit for
specific performance knowing fully well that his agreement with
Genato did not push through.[46] Such bad faith, coupled with his
wrongful interference with the contractual relations between
Genato and the Da Jose spouses, which culminated in his filing
of the present suit and thereby creating what the counsel for the
respondents describes as a prolonged and economically
unhealthy gridlock[47] on both the land itself and the respondents
rights provides ample basis for the damages awarded. Based on
these overwhelming evidence of bad faith on the part of herein
petitioner Ricardo Cheng, we find that the award of damages
made by the appellate court is in order.
WHEREFORE, premises considered, the instant petition for
review is DENIED and the assailed decision is hereby
AFFIRMED EN TOTO.
SO ORDERED.
DIGEST
CHENG V. GENATO (December 29, 1998)
FACTS:
Respondent Genato entered a contract to sell to spouses Da Jose
pertaining to his property in Bulacan. The contract made in
public document states that the spouses shall pay the down
payment and 30 days after verifying the authenticity of the
documents, they shall pay the remaining purchase price.
Da Jose spouses was not able to finish verifying the documents
and as such asked for a 30 day extension. Pending the extension
and without notice to the spouses, Genato made a document for
the annulment of the contract.
Petitioner Cheng expressed interest over the property and paid
50K check with the assurance that the contract between Genato
and the spouses Da Jose will be annulled. Da Jose spouses
protested with the annulment and persuaded Genato to continue
the contract. Genato returned the check to Cheng and hence, this
petition.

HELD:
The contract between Genato and spouses Da Jose was a contract
to sell which is subject to a suspensive condition. Thus, there will
be no contract to speak of, if the obligor failed to perform the
suspensive condition which enforces a juridical relation.
Obviously, the foregoing jurisprudence cannot be made to apply
to the situation in the instant case because no default can be
ascribed to the Da Jose spouses since the 30-day extension period
has not yet expired.

Even assuming that the spouses defaulted, the contract also

cannot be validly rescinded because no notice was given to them.
Thus, Cheng's contention that the Contract to Sell between
Genato and the Da Jose spouses was rescinded or resolved due
to Genato's unilateral rescission finds no support in this case.

The contract between Genato and Cheng is a contract to sell not

a contract of sale. But But even assuming that it should be treated
as a conditional contract of sale, it did not acquire any obligatory
force since it was subject to a suspensive condition that the
earlier contract to sell between Genato and the Da Jose spouses
should first be cancelled or rescinded.

Art.1544 should apply because for not only was the contract
between herein respondents first in time; it was also registered
long before petitioner's intrusion as a second buyer (PRIMUS
TEMPORE, PORTIOR JURE). (Spouses made annotation on
the title of Genato). Since Cheng was fully aware, or could have
been if he had chosen to inquire, of the rights of the Da Jose
spouses under the Contract to Sell duly annotated on the transfer
certificates of titles of Genato, it now becomes unnecessary to
further elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement.