Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |1
G.R. No. 146839. March 23, 2011.*
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL
and ERLINDA CATUNGAL-WESSEL, petitioners, vs. ANGEL S. RODRIGUEZ,
respondent.
Actions; Pleadings, Practice and Procedure; The object of pleadings is to draw the
lines of battle between the litigants and to indicate fairly the nature of the claims or
defenses of both parties; Courts of justice have no jurisdiction or power to decide a
question not in issue.—This is not an instance where a party merely failed to assign
an issue as an error in the brief nor failed to argue a material point on appeal that
was raised in the trial court and supported by the record. Neither is this a case where
a party raised an error closely related to, nor dependent on the resolution of, an error
properly assigned in his brief. This is a situation where a party completely changes his
theory of the case on appeal and abandons his previous assignment of errors in his
brief, which plainly should not be allowed as anathema to due process. Petitioners
should be reminded that the object of pleadings is to draw the lines of battle between
the litigants and to indicate fairly the nature of the claims or defenses of both parties.
In Philippine National Construction Corporation v. Court of Appeals, 467 SCRA 569
(2005), we held that “[w]hen a party adopts a certain theory in the trial court, he will
not be permitted to change his theory on appeal, for to permit him to do so would
not only be unfair to the other party but it would also be offensive to the basic rules
of fair play, justice and due process.” We have also previously ruled that “courts of
justice have no jurisdiction or power to decide a question not in issue. Thus, a
judgment that goes beyond the issues and purports to adjudicate something on
which the court did not hear the parties, is not only irregular but also extrajudicial
and invalid. The rule rests on the fundamental tenets of fair play.”
Obligations and Contracts; Sales; A provision in a Conditional Deed of Sale stating
that the vendee shall pay the balance of the purchase price when he has successfully
negotiated and secured a road right of way is not a condition on the perfection of the
contract nor on the validity of the entire contract or its compliance as contemplated
by Article 1308 of the Civil Code—such a condition is not purely potestative—such a
condition is likewise dependent on chance as there is no guarantee that the vendee
and the third-party landowners would come to an agreement regarding the road right
of way, a type mixed condition expressly allowed under Article 1182 of the Civil
Code.—In the past, this Court has distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of an
obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party the option to
either refuse to proceed with the sale or to waive the condition. This principle is
evident in Article 1545 of the Civil Code on sales, which provides in part: Art. 1545.
Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he
may waive performance of the condition x x x. Paragraph 1(b) of the Conditional
Deed of Sale, stating that respondent shall pay the balance of the purchase price
when he has successfully negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the validity of the entire contract or
its compliance as contemplated in Article 1308. It is a condition imposed only on
respondent’s obligation to pay the remainder of the purchase price. In our view and
applying Article 1182, such a condition is not purely potestative as petitioners
contend. It is not dependent on the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the road right of way shall be
negotiated. In a manner of speaking, such a condition is likewise dependent on
chance as there is no guarantee that respondent and the third party-landowners
would come to an agreement regarding the road right of way. This type of mixed
condition is expressly allowed under Article 1182 of the Civil Code.
Same; Same; Interpretation of Contracts; A basic rule in the interpretation of
contracts is that the contract should be taken as a whole.—It is petitioners’ strategy
to insist that the Court examine the first sentence of paragraph 5 alone and, resist a
correlation of such sentence with other provisions of the contract. Petitioners’ view,
however, ignores a basic rule in the interpretation of contracts—that the contract
should be taken as a whole. Article 1374 of the Civil Code provides that “[t]he various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly.” The same Code
further sets down the rule that “[i]f some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.” Similarly, under the Rules of Court it is prescribed
that “[i]n the construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect to all”
and “for the proper construction of an instrument, the circumstances under which it
was made, including the situation of the subject thereof and of the parties to it, may
be shown, so that the judge may be placed in the position of those whose language
he is to interpret.”
Same; Same; Where the so-called potestative condition is imposed not on the birth of
the obligation but on its fulfillment, only the condition is avoided, leaving unaffected
the obligation itself.—In any event, even if we assume for the sake of argument that
the grant to Rodriguez of an option to rescind, in the manner provided for in the
contract, is tantamount to a potestative condition, not being a condition affecting the
perfection of the contract, only the said condition would be considered void and the
rest of the contract will remain valid. In Romero, the Court observed that “where the
so-called ‘potestative condition’ is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the obligation itself.”
Same; Same; Being the primary law between the parties, the contract governs the
adjudication of their rights and obligations—a court has no alternative but to enforce
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |2
the contractual stipulations in the manner they have been agreed upon and written.—
It cannot be gainsaid that “contracts have the force of law between the contracting
parties and should be complied with in good faith.” We have also previously ruled
that “[b]eing the primary law between the parties, the contract governs the
adjudication of their rights and obligations. A court has no alternative but to enforce
the contractual stipulations in the manner they have been agreed upon and written.”
We find no merit in petitioners’ contention that their parents were merely “duped”
into accepting the questioned provisions in the Conditional Deed of Sale. We note
that although the contract was between Agapita Catungal and Rodriguez, Jose
Catungal nonetheless signed thereon to signify his marital consent to the same. We
concur with the trial court’s finding that the spouses Catungals’ claim of being misled
into signing the contract was contrary to human experience and conventional wisdom
since it was Jose Catungal who was a practicing lawyer while Rodriguez was a non-
lawyer. It can be reasonably presumed that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and accepted its provisions before they affixed
their signatures thereon.
Same; Same; The Court, having made the observation that it was desirable for the
vendor to file a separate action to fix the period for the vendee’s obligation to
negotiate a road right of way, the Court finds it necessary to fix said period in these
proceedings.—After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of Appeals committed
any reversible error in deciding the present controversy. However, having made the
observation that it was desirable for the Catungals to file a separate action to fix the
period for respondent Rodriguez’s obligation to negotiate a road right of way, the
Court finds it necessary to fix said period in these proceedings. It is but equitable for
us to make a determination of the issue here to obviate further delay and in line with
the judicial policy of avoiding multiplicity of suits. If still warranted, Rodriguez is given
a period of thirty (30) days from the finality of this decision to negotiate a road right
of way. In the event no road right of way is secured by Rodriguez at the end of said
period, the parties shall reassess and discuss other options as stipulated in paragraph
1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of
thirty (30) days to agree on a course of action. Should the discussions of the parties
prove futile after the said thirty (30)-day period, immediately upon the expiration of
said period for discussion, Rodriguez may (a) exercise his option to rescind the
contract, subject to the return of his downpayment, in accordance with the provisions
of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right
of way and pay the balance of the deducted purchase price as determined in the RTC
Decision dated May 30, 1992.
PETITION for review on certiorari of the decision and resolution of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Jesus N. Borromeo for petitioners.
Goering G.C. Paderanga for respondent.
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R.
SP No. 27565: (a) the August 8, 2000 Decision,1 which affirmed the Decision2 dated
May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in
Civil Case No. 2365-L, and (b) the January 30, 2001 Resolution,3 denying herein
petitioners’ motion for reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with Preliminary
Injunction/Restraining Order4 filed on December 10, 1990 by herein respondent
Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu,
docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal
(the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a
parcel of land (Lot 10963) with an area of 65,246 square meters, covered by Original
Certificate of Title (OCT) No. 1055 in her name situated in the Barrio of Talamban,
Cebu City. The said property was allegedly the exclusive paraphernal property of
Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a
Contract to Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was
purportedly “upgraded” into a Conditional Deed of Sale7 dated July 26, 1990 between
the same parties. Both the Contract to Sell and the Conditional Deed of Sale were
annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute are
quoted below:
“1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION
PESOS (P25,000,000.00) payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the
signing of this agreement, receipt of which sum is hereby acknowledged in full from
the VENDEE.
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |3
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESO’S
(P24,500,000.00) shall be payable in five separate checks, made to the order of JOSE
Ch. CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P4,500,000.00) and the remaining balance to be paid in four
checks in the amounts of FIVE MILLION PESOS (P5,000,000.00) each after the
VENDEE have (sic) successfully negotiated, secured and provided a Road Right of
Way consisting of 12 meters in width cutting across Lot 10884 up to the national
road, either by widening the existing Road Right of Way or by securing a new Road
Right of Way of 12 meters in width. If however said Road Right of Way could not be
negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and
solve the problem by taking other options and should the situation ultimately prove
futile, he shall take steps to rescind or cancel the herein Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and any or all cost relative to the acquisition
thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor, granting him a free hand in
negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein
CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and assigns, the real
property described in the Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE
exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall
notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest
free, payable but contingent upon the event that the VENDOR shall have been able to
sell the property to another party.”8
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the
necessary surveys and plans and through his efforts, the properly was reclassified
from agricultural land into residential land which he claimed substantially increased
the property’s value. He likewise alleged that he actively negotiated for the road right
of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested
an advance of P5,000,000.00 on the purchase price for personal reasons. Rodriguez
allegedly refused on the ground that the amount was substantial and was not due
under the terms of their agreement. Shortly after his refusal to pay the advance, he
purportedly learned that the Catungals were offering the property for sale to third
parties.10
Thereafter, Rodriguez received letters dated October 22, 1990,11 October 24, 199012
and October 29, 1990,13 all signed by Jose Catungal who was a lawyer, essentially
demanding that the former make up his mind about buying the land or exercising his
“option” to buy because the spouses Catungal allegedly received other offers and
they needed money to pay for personal obligations and for investing in other
properties/business ventures. Should Rodriguez fail to exercise his option to buy the
land, the Catungals warned that they would consider the contract cancelled and that
they were free to look for other buyers.
In a letter dated November 4, 1990,14 Rodriguez registered his objections to what he
termed the Catungals’ unwarranted demands in view of the terms of the Conditional
Deed of Sale which allowed him sufficient time to negotiate a road right of way and
granted him, the vendee, the exclusive right to rescind the contract. Still, on
November 15, 1990, Rodriguez purportedly received a letter dated November 9,
199015 from Atty. Catungal, stating that the contract had been cancelled and
terminated.
Contending that the Catungals’ unilateral rescission of the Conditional Deed of Sale
was unjustified, arbitrary and unwarranted, Rodriguez prayed in his Complaint, that:
“1. Upon the filing of this complaint, a restraining order be issued enjoining
defendants [the spouses Catungal], their employees, agents, representatives or other
persons acting in their behalf from offering the property subject of this case for sale
to third persons; from entertaining offers or proposals by third persons to purchase
the said property; and, in general, from performing acts in furtherance or
implementation of defendants’ rescission of their Conditional Deed of Sale with
plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such reasonable
bond as may be fixed by the court enjoining defendants and other persons acting in
their behalf from performing any of the acts mentioned in the next preceding
paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and solidarily:
Actual damages in the amount of P400,000.00 for their unlawful rescission of the
Agreement and their performance of acts in violation or disregard of the said
Agreement;
Moral damages in the amount of P200,000.00;
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |4
Exemplary damages in the amount of P200,000.00; Expenses of litigation and
attorney’s fees in the amount of P100,000.00; and Costs of suit.”16
On December 12, 1990, the trial court issued a temporary restraining order and set
the application for a writ of preliminary injunction for hearing on December 21, 1990
with a directive to the spouses Catungal to show cause within five days from notice
why preliminary injunction should not be granted. The trial court likewise ordered
that summons be served on them.17
Thereafter, the spouses Catungal filed their opposition18 to the issuance of a writ of
preliminary injunction and later filed a motion to dismiss19 on the ground of improper
venue. According to the Catungals, the subject property was located in Cebu City and
thus, the complaint should have been filed in Cebu City, not Lapu-lapu City.
Rodriguez opposed the motion to dismiss on the ground that his action was a
personal action as its subject was breach of a contract, the Conditional Deed of Sale,
and not title to, or possession of real property.20
In an Order dated January 17, 1991,21 the trial court denied the motion to dismiss
and ruled that the complaint involved a personal action, being merely for damages
with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of
preliminary injunction upon posting by Rodriguez of a bond in the amount of
P100,000.00 to answer for damages that the defendants may sustain by reason of
the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim22
alleging that they had the right to rescind the contract in view of (1) Rodriguez’s
failure to negotiate the road right of way despite the lapse of several months since
the signing of the contract, and (2) his refusal to pay the additional amount of
P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to
purchase the property. The Catungals likewise contended that Rodriguez did not have
an exclusive right to rescind the contract and that the contract, being reciprocal,
meant both parties had the right to rescind.23 The spouses Catungal further claimed
that it was Rodriguez who was in breach of their agreement and guilty of bad faith
which justified their rescission of the contract.24 By way of counterclaim, the spouses
Catungal prayed for actual and consequential damages in the form of unearned
interests from the balance (of the purchase price in the amount) of P24,500,000.00,
moral and exemplary damages in the amount of P2,000,000.00, attorney’s fees in the
amount of P200,000.00 and costs of suits and litigation expenses in the amount of
P10,000.00.25 The spouses Catungal prayed for the dismissal of the complaint and
the grant of their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic allegations but
amplifying their charges of contractual breach and bad faith on the part of Rodriguez
and adding the argument that in view of Article 1191 of the Civil Code, the power to
rescind reciprocal obligations is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the injured party. In the Second
Amended Answer with Counterclaim, the spouses Catungal added a prayer for the
trial court to order the Register of Deeds to cancel the annotations of the two
contracts at the back of their OCT.27
On October 24, 1991, Rodriguez filed an Amended Complaint,28 adding allegations to
the effect that the Catungals were guilty of several misrepresentations which
purportedly induced Rodriguez to buy the property at the price of P25,000,000.00.
Among others, it was alleged that the spouses Catungal misrepresented that their Lot
10963 includes a flat portion of land which later turned out to be a separate lot (Lot
10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will only traverse
two lots owned by Anatolia Tudtud and her daughter Sally who were their relatives
and who had already agreed to sell a portion of the said lots for the road right of way
at a price of P550.00 per square meter. However, because of the Catungals’ acts of
offering the property to other buyers who offered to buy the road lots for P2,500.00
per square meter, the adjacent lot owners were no longer willing to sell the road lots
to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00
per square meter. In other words, instead of assisting Rodriguez in his efforts to
negotiate the road right of way, the spouses Catungal allegedly intentionally and
maliciously defeated Rodriguez’s negotiations for a road right of way in order to
justify rescission of the said contract and enable them to offer the property to other
buyers.
Despite requesting the trial court for an extension of time to file an amended
Answer,29 the Catungals did not file an amended Answer and instead filed an Urgent
Motion to Dismiss30 again invoking the ground of improper venue. In the meantime,
for failure to file an amended Answer within the period allowed, the trial court set the
case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court
the Catungals’ Urgent Motion to Dismiss for violation of the rules and for being
repetitious and having been previously denied.31 However, Atty. Catungal refused to
enter into pre-trial which prompted the trial court to declare the defendants in default
and to set the presentation of the plaintiffs evidence on February 14, 1992.32
On December 23, 1991, the Catungals filed a motion for reconsideration33 of the
December 20, 1991 Order denying their Urgent Motion to Dismiss but the trial court
denied reconsideration in an Order dated February 3, 1992.34 Undeterred, the
Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default35 but
it was likewise denied for being in violation of the rules and for being not
meritorious.36 On February 28, 1992, the Catungals filed a Petition for Certiorari and
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |5
Prohibition37 with the Court of Appeals, questioning the denial of their motion to
dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding
that: (a) under the contract it was complainant (Rodriguez) that had the option to
rescind the sale; (b) Rodriguez’s obligation to pay the balance of the purchase price
arises only upon successful negotiation of the road right of way; (c) he proved his
diligent efforts to negotiate the road right of way; (d) the spouses Catungal were
guilty of misrepresentation which defeated Rodriguez’s efforts to acquire the road
right of way; and (e) the Catungals’ rescission of the contract had no basis and was
in bad faith. Thus, the trial court made the injunction permanent, ordered the
Catungals to reduce the purchase price by the amount of acquisition of Lot 10963
which they misrepresented was part of the property sold but was in fact owned by a
third party and ordered them to pay P100,000.00 as damages, P30,000.00 as
attorney’s fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting the
commission of the following errors by the trial court in their appellants’ brief38 dated
February 9, 1994:
I THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE
GROUNDS OF IMPROPER VENUE AND LACK OF JURISDICTION.
II THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT
A REAL ACTION.
III GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE
CASE IS A PERSONAL ACTION, THE COURT A QUO ERRED IN DECLARING THE
DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE
DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.
IV THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST
THEIR LEGAL STANDING IN COURT WHEN AT MOST THEY COULD ONLY BE
CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL FURTHER
PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE
ORDER OF DEFAULT.
V THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY
INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND OTHER
RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT’S TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS
JURISDICTION, THUS THE NULLITY OF THE WRIT.
VI THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO
FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE AND IN RENDERING
DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS BEING
MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY
WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF
THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN
CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT THERETO
HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND
DIVISION, AND THE COURT A QUO WAS FURNISHED WITH COPY OF SAID NOTICE.
VII THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF
AND AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE
IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN
THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION
IS REVERSIBLE.39
On August 31, 1995, after being granted several extensions, Rodriguez filed his
appellee’s brief,40 essentially arguing the correctness of the trial court’s Decision
regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals
filed a Reply Brief41 dated October 16, 1995.
From the filing of the appellants’ brief in 1994 up to the filing of the Reply Brief, the
spouses Catungal were represented by appellant Jose Catungal himself. However, a
new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo), entered his
appearance before the Court of Appeals on September 2, 1997.42 On the same date,
Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities43 and
a Citation of Authorities.44 This would be followed by Atty. Borromeo’s filing of an
Additional Citation of Authority and Second Additional Citation of Authority both on
November 17, 1997.45
During the pendency of the case with the Court of Appeals, Agapita Catungal passed
away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapita’s
substitution by her surviving children.46
On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated
cases CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,47 affirming the trial court’s
Decision.
In a Motion for Reconsideration dated August 21, 2000,48 counsel for the Catungals,
Atty. Borromeo, argued for the first time that paragraphs 1(b) and 549 of the
Conditional Deed of Sale, whether taken separately or jointly, violated the principle of
mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was
void ab initio. He adverted to the cases mentioned in his various citations of
authorities to support his argument of nullity of the contract and his position that this
issue may be raised for the first time on appeal.
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |6
Meanwhile, a Second Motion for Substitution50 was filed by Atty. Borromeo in view of
the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution
of the deceased Agapita and Jose Catungal by their surviving heirs and denied the
motion for reconsideration for lack of merit.
Hence, the heirs of Agapita and Jose Catungal filed on March 2001 the present
petition for review,51 which essentially argued that the Court of Appeals erred in not
finding that paragraphs 1(b) and/or 5 of the Conditional Deed of Sale, violated the
principle of mutuality of contracts under Article 1308 of the Civil Code. Thus, said
contract was supposedly void ab initio and the Catungals’ rescission thereof was
superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new
matters that cannot be passed upon on appeal; (b) the validity of the Conditional
Deed of Sale was already admitted and petitioners cannot be allowed to change
theories on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale
were valid; and (d) petitioners were the ones who committed fraud and breach of
contract and were not entitled to relief for not having come to court with clean hands.
The Court gave due course to the Petition53 and the parties filed their respective
Memoranda.
The issues to be resolved in the case at bar can be summed into two questions:
I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of
Sale for the first time on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of
mutuality of contracts under Article 1308 of the Civil Code?
On petitioners’ change of theory
Petitioners claimed that the Court of Appeals should have reversed the trial courts’
Decision on the ground of the alleged nullity of paragraphs 1(b) and 5 of the
Conditional Deed of Sale notwithstanding that the same was not raised as an error in
their appellants’ brief. Citing Catholic Bishop of Balanga v. Court of Appeals,54
petitioners argued in the Petition that this case falls under the following exceptions:
(3) Matters not assigned as errors on appeal but 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 not specifically assigned as errors on appeal but raised in the trial court
and are matters of record having some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored;
(5) Matters not assigned as errors on appeal but closely related to an error
assigned; and
(6) Matters not assigned as errors but upon which the determination of a question
properly assigned is dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue as an error in
the brief nor failed to argue a material point on appeal that was raised in the trial
court and supported by the record. Neither is this a case where a party raised an
error closely related to, nor dependent on the resolution of, an error properly
assigned in his brief. This is a situation where a party completely changes his theory
of the case on appeal and abandons his previous assignment of errors in his brief,
which plainly should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw the lines of
battle between the litigants and to indicate fairly the nature of the claims or defenses
of both parties.56 In Philippine National Construction Corporation v. Court of
Appeals,57 we held that “[w]hen a party adopts a certain theory in the trial court, he
will not be permitted to change his theory on appeal, for to permit him to do so
would not only be unfair to the other party but it would also be offensive to the basic
rules of fair play, justice and due pro­cess.”58
We have also previously ruled that “courts of justice have no jurisdiction or power to
decide a question not in issue. Thus, a judgment that goes beyond the issues and
purports to adjudicate something on which the court did not hear the parties, is not
only irregular but also extrajudicial and invalid. The rule rests on the fundamental
tenets of fair play.”59
During the proceedings before the trial court, the spouses Catungal never claimed
that the provisions in the Conditional Deed of Sale, stipulating that the payment of
the balance of the purchase price was contingent upon the successful negotiation of a
road right of way (paragraph 1[b]) and granting Rodriguez the option to rescind
(paragraph 5), were void for allegedly making the fulfillment of the contract
dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the
Answer (and its amended versions) that the payment of the purchase price was
subject to the will of Rodriguez but rather they claimed that paragraph 1(b) in
relation to 1(c) only presupposed a reasonable time be given to Rodriguez to
negotiate the road right of way. However, it was petitioners’ theory that more than
sufficient time had already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguez’s refusal/failure to pay the balance of the purchase price,
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |7
upon demand, was allegedly indicative of lack of funds and a breach of the contract
on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez’s option to
rescind, it was petitioners’ theory in the court a quo that notwithstanding such
provision, they retained the right to rescind the contract for Rodriguez’s breach of the
same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the Conditional
Deed of Sale in view of the questioned provisions was only in their Motion for
Reconsideration of the Court of Appeals’ Decision, affirming the trial court’s
judgment. The previous filing of various citations of authorities by Atty. Borromeo and
the Court of Appeals’ resolutions noting such citations were of no moment. The
citations of authorities merely listed cases and their main rulings without even any
mention of their relevance to the present case or any prayer for the Court of Appeals
to consider them. In sum, the Court of Appeals did not err in disregarding the
citations of authorities or in denying petitioners’ motion for reconsideration of the
assailed August 8, 2000 Decision in view of the proscription against changing legal
theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the procedural
misstep of petitioners, we still cannot uphold their belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is a Conditional
Deed of Sale, whereby the spouses Catungal agreed to sell and Rodriguez agreed to
buy Lot 10963 conditioned on the payment of a certain price but the payment of the
purchase price was additionally made contingent on the successful negotiation of a
road right of way. It is elementary that “[i]n conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition.”60
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding
the claimed nullity of the aforementioned provisions. Article 1308 states that “[t]he
contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.”
Article 1182 of the Civil Code, in turn, provides:
“Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon the
will of a third person, the obligation shall take effect in conformity with the provisions
of this Code.”
In the past, this Court has distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of an
obligation. While failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party the option to
either refuse to proceed with the sale or to waive the condition.61 This principle is
evident in Article 1545 of the Civil Code on sales, which provides in part:
“Art. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition x x x.”
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the
balance of the purchase price when he has successfully negotiated and secured a
road right of way, is not a condition on the perfection of the contract nor on the
validity of the entire contract or its compliance as contemplated in Article 1308. It is a
condition imposed only on respondent’s obligation to pay the remainder of the
purchase price. In our view and applying Article 1182, such a condition is not purely
potestative as petitioners contend. It is not dependent on the sole will of the debtor
but also on the will of third persons who own the adjacent land and from whom the
road right of way shall be negotiated. In a manner of speaking, such a condition is
likewise dependent on chance as there is no guarantee that respondent and the third
party-landowners would come to an agreement regarding the road right of way. This
type of mixed condition is expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,62 wherein the Court
interpreted the legal effect of a condition in a deed of sale that the balance of the
purchase price would be paid by the vendee when the vendor has successfully
ejected the informal settlers occupying the property. In Romero, we found that such
a condition did not affect the perfection of the contract but only imposed a condition
on the fulfillment of the obligation to pay the balance of the purchase price, to wit:
“From the moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law.
Under the agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of which sets
into motion the period of compliance by petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private respondent’s failure “to remove the
squatters from the property” within the stipulated period gives petitioner the right to
either refuse to proceed with the agreement or waive that condition in consonance
with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to
private respondent.
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |8
We share the opinion of the appellate court that the undertaking required of private
respondent does not constitute a “potestative condition dependent solely on his will”
that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a
“mixed” condition “dependent not on the will of the vendor alone but also of third
persons like the squatters and government agencies and personnel concerned.” We
must hasten to add, however, that where the so-called “potestative condition” is
imposed not on the birth of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself.”63 (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of this case, it was
the vendee (Rodriguez) that had the obligation to successfully negotiate and secure
the road right of way. However, in the decision of the trial court, which was affirmed
by the Court of Appeals, it was found that respondent Rodriguez diligently exerted
efforts to secure the road right of way but the spouses Catungal, in bad faith,
contributed to the collapse of the negotiations for said road right of way. To quote
from the trial court’s decision:
“It is therefore apparent that the vendee’s obligations (sic) to pay the balance of the
purchase price arises only when the road-right-of-way to the property shall have
been successfully negotiated, secured and provided. In other words, the obligation to
pay the balance is conditioned upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New Civil Code. Accordingly, “an
obligation dependent upon a suspensive condition cannot be demanded until after the
condition takes place because it is only after the fulfillment of the condition that the
obligation arises.” (Javier v[s] CA, 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show
that plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate for a road-
right-of-way to the property. The written offers, proposals and follow-up of his
proposals show that plaintiff [Rodriguez] went all out in his efforts to immediately
acquire an access road to the property, even going to the extent of offering
P3,000.00 per square meter for the road lots (Exh. Q) from the original P550.00 per
sq. meter. This Court also notes that defendant (sic) [the Catungals] made
misrepresentation in the negotiation they have entered into with plaintiff [Rodriguez].
(Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as to the
third lot (Lot 10986) to be part and parcel of the subject property [(]Lot 10963)
contributed in defeating the plaintiffs [Rodriguez’s] effort in acquiring the road-right-
of-way to the property. Defendants [the Catungals] cannot now invoke the non-
fulfillment of the condition in the contract as a ground for rescission when defendants
[the Catungals] themselves are guilty of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that rescission of the
conditional deed of sale by the defendants is without any legal or factual basis.”64 x x
x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings of the trial
court.
Furthermore, it is evident from the language of paragraph 1(b) that the condition
precedent (for respondent’s obligation to pay the balance of the purchase price to
arise) in itself partly involves an obligation to do, i.e., the undertaking of respondent
to negotiate and secure a road right of way at his own expense.65 It does not escape
our notice as well, that far from disclaiming paragraph 1(b) as void, it was the
Catungals’ contention before the trial court that said provision should be read in
relation to paragraph 1(c) which stated:“
c. That the access road or Road Right of Way leading to Lot 10963 shall be the
responsibility of the VENDEE to secure and any or all cost relative to the acquisition
thereof shall be borne solely by the VENDEE. He shall, however, be accorded with
enough time necessary for the success of his endeavor; granting him a free hand in
negotiating for the passage.”66 (Emphasis supplied.)
The Catungals’ interpretation of the foregoing stipulation was that Rodriguez’s
obligation to negotiate and secure a road right of way was one with a period and that
period, i.e., “enough time” to negotiate, had already lapsed by the time they
demanded the payment of P5,000,000.00 from respondent. Even assuming arguendo
that the Catungals were correct that the respondent’s obligation to negotiate a road
right of way was one with an uncertain period, their rescission of the Conditional
Deed of Sale would still be unwarranted. Based on their own theory, the Catungals
had a remedy under Article 1197 of the Civil Code, which mandates:
“Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of
the debtor.
In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them.”
What the Catungals should have done was to first file an action in court to fix the
period within which Rodriguez should accomplish the successful negotiation of the
road right of way pursuant to the above quoted provision. Thus, the Catungals’
demand for Rodriguez to make an additional payment of P5,000,000.00 was
premature and Rodriguez’s failure to accede to such demand did not justify the
rescission of the contract.
With respect to petitioners’ argument that paragraph 5 of the Conditional Deed of
Sale likewise rendered the said contract void, we find no merit to this theory.
Paragraph 5 provides:
 Obligations and Contracts (Conditional, Joint and Solidary Obligations) Page |9
“5. That the VENDEE has the option to rescind the sale. In the event the VENDEE
exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall
notify the VENDOR by way of a written notice relinquishing his rights over the
property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000,00) representing the downpayment, interest
free, payable but contingent upon the event that the VENDOR shall have been able to
sell the property to another party.”67
Petitioners posited that the above stipulation was the “deadliest” provision in the
Conditional Deed of Sale for violating the principle of mutuality of contracts since it
purportedly rendered the contract subject to the will of respondent.
We do not agree.
It is petitioners’ strategy to insist that the Court examine the first sentence of
paragraph 5 alone and, resist a correlation of such sentence with other provisions of
the contract. Petitioners’ view, however, ignores a basic rule in the interpretation of
contracts—that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that “[t]he various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly.” The same Code further sets down the rule that
“[i]f some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.”68
Similarly, under the Rules of Court it is prescribed that “[i]n the construction of an
instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all”69 and “for the proper construction of
an instrument, the circumstances under which it was made, including the situation of
the subject thereof and of the parties to it, may be shown, so that the judge may be
placed in the position of those whose language he is to interpret.”70
Bearing in mind the aforementioned interpretative rules, we find that the first
sentence of paragraph 5 must be taken in relation with the rest of paragraph 5 and
with the other provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the
contract is not absolute as it is subject to the requirement that there should be
written notice to the vendor and the vendor shall only return Rodriguez’s
downpayment of P500,000.00, without interest, when the vendor shall have been
able to sell the property to another party. That what is stipulated to be returned is
oniy the downpayment of P500,000.00 in the event that Rodriguez exercises his
option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states
that the installments on the balance of the purchase price shall only be paid upon
successful negotiation and procurement of a road right of way. It is clear from such
provision that the existence of a road right of way is a material consideration for
Rodriguez to purchase the property. Thus, prior to him being able to procure the road
right of way, by express stipulation in the contract, he is not bound to make
additional payments to the Catungals. It was further stipulated in paragraph 1(b)
that: “[i]f however said road right of way cannot be negotiated, the VENDEE shall
give notice to the VENDOR for them to reassess and solve the problem by taking
other options and should the situation ultimately prove futile, he [Rodriguez] shall
take steps to rescind or [cancel] the herein Conditional Deed of Sale.” The intention
of the parties for providing subsequently in paragraph 5 that Rodriguez has the
option to rescind the sale is undeniably only limited to the contingency that Rodriguez
shall not be able to secure the road right of way. Indeed, if the parties intended to
give Rodriguez the absolute option to rescind the sale at any time, the contract would
have provided for the return of all payments made by Rodriguez and not only the
downpayment. To our mind, the reason only the downpayment was stipulated to be
returned is that the vendee’s option to rescind can only be exercised in the event that
no road right of way is secured and, thus, the vendee has not made any additional
payments, other than his downpayment.
In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather
also subject to the same mixed condition as his obligation to pay the balance of the
purchase price—i.e., the negotiation of a road right of way. In the event the condition
is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the
purchase price. In the event the condition is not fulfilled (or the negotiation fails),
Rodriguez has the choice either (a) to not proceed with the sale and demand return
of his downpayment or (b) considering that the condition was imposed for his benefit,
to waive the condition and still pay the purchase price despite the lack of road access.
This is the most just interpretation of the parties’ contract that gives effect to all its
provisions.
In any event, even if we assume for the sake of argument that the grant to
Rodriguez of an option to rescind, in the manner provided for in the contract, is
tantamount to a potestative condition, not being a condition affecting the perfection
of the contract, only the said condition would be considered void and the rest of the
contract will remain valid. In Romero, the Court observed that “where the so-called
‘potestative condition’ is imposed not on the birth of the obligation but on its
fulfillment, only the condition is avoided, leaving unaffected the obligation itself.”71
It cannot be gainsaid that “contracts have the force of law between the contracting
parties and should be complied with in good faith.”72 We have also previously ruled
that “[b]eing the primary law between the parties, the contract governs the
adjudication of their rights and obligations. A court has no alternative but to enforce
the contractual stipulations in the manner they have been agreed upon and
written.”73 We find no merit in petitioners’ contention that their parents were merely
“duped” into accepting the questioned provisions in the Conditional Deed of Sale. We
 O b l i g a t i o n s a n d C o n t r a c t s ( C o n d i t i o n a l , J o i n t a n d S o l i d a r y O b l i g a t i o n s ) P a g e | 10

note that although the contract was between Agapita Catungal and Rodriguez, Jose balance of the deducted purchase price as determined in the RTC Decision dated May
Catungal nonetheless signed thereon to signify his marital consent to the same. We 30, 1992.
concur with the trial court’s finding that the spouses Catungals’ claim of being misled
into signing the contract was contrary to human experience and conventional wisdom No pronouncement as to costs.
since it was Jose Catungal who was a practicing lawyer while Rodriguez was a non- SO ORDERED.
lawyer.74 It can be reasonably presumed that Atty. Catungal and his wife reviewed
the provisions of the contract, understood and accepted its provisions before they Corona (C.J., Chairperson), Velasco, Jr., Del Castillo and Perez, JJ., concur.
affixed their signatures thereon.
Judgment and resolution affirmed with modification.
After thorough review of the records of this case, we have come to the conclusion
that petitioners failed to demonstrate that the Court of Appeals committed any Notes.—An agreement to sell, not one of sale, does not transfer the property from
reversible error in deciding the present controversy. However, having made the the vendor to the vendee—a deed of sale or some other contract is necessary to
observation that it was desirable for the Catungals to file a separate action to fix the consummate the sale. (Abesamis vs. Court of Appeals, 361 SCRA 328 [2001])
period for respondent Rodriguez’s obligation to negotiate a road right of way, the
Where the co-owners affixed their signatures on the Contract to Sell, they were no
Court finds it necessary to fix said period in these proceedings. It is but equitable for
longer selling their shares through an agent but, rather, they were selling the same
us to make a determination of the issue here to obviate further delay and in line with
directly and in their own right—a written authority is no longer necessary to empower
the judicial policy of avoiding multiplicity of suits.
an agent. (Oesmer vs. Paraiso Development Corporation, 514 SCRA 228 [2007])
If still warranted, Rodriguez is given a period of thirty (30) days from the finality of
——o0o——
this decision to negotiate a road right of way. In the event no road right of way is
secured by Rodriguez at the end of said period, the parties shall reassess and discuss
other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for
this purpose, they are given a period of thirty (30) days to agree on a course of
action. Should the discussions of the parties prove futile after the said thirty (30)-day
period, immediately upon the expiration of said period for discussion, Rodriguez may
(a) exercise his option to rescind the contract, subject to the return of his
downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the road right of way and pay the balance of
the deducted purchase price as determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January
30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R.
SP No. 27565 are AFFIRMED with the following MODIFICATION:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days
from the finality of this Decision to negotiate a road right of way. In the event no
road right of way is secured by respondent at the end of said period, the parties shall
reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional
Deed of Sale and, for this purpose, they are given a period of thirty (30) days to
agree on a course of action. Should the discussions of the parties prove futile after
the said thirty (30)-day period, immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to
the return of his downpayment, in accordance with the provisions of paragraphs 1(b)
and 5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the
 O b l i g a t i o n s a n d C o n t r a c t s ( C o n d i t i o n a l , J o i n t a n d S o l i d a r y O b l i g a t i o n s ) P a g e | 11
G.R. No. 124045. May 21, 1998.*
SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, petitioners, vs.
COURT OF APPEALS, TABANGAO REALTY, INC., and SHELL GAS
PHILIPPINES, INC., respondents.
Civil Law; Contracts; Sales; A deed of sale is absolute in nature although
denominated a “conditional sale” absent such stipulations reserving title to the vendor
until full payment of the purchase price, nor any stipulation giving them the right to
unilaterally rescind the contract in case of non-payment; In such cases, ownership of
the thing sold passes to the vendee upon the constructive or actual delivery
thereof.—Although denominated “Conditional Sale of Registered Lands,” we hold, as
did respondent court, that the contract of 11 April 1981 between petitioners and
respondent TABANGAO is one of absolute sale. Aside from the terms and stipulations
used therein indicating such kind of sale, there is absolutely no proviso reserving title
in the BABASAS until full payment of the purchase price, nor any stipulation giving
them the right to unilaterally rescind the contract in case of non-payment. A deed of
sale is absolute in nature although denominated a “conditional sale” absent such
stipulations. In such cases, ownership of the thing sold passes to the vendee upon
the constructive or actual delivery thereof. In the instant case, ownership over Lots
Nos. 17827-A, 17827-B and 17827-C passed to TABANGAO both by constructive and
actual delivery. Constructive delivery was accomplished upon the execution of the
contract of 11 April 1981 without any reservation of title on the part of the BABASAS
while actual delivery was made when TABANGAO took unconditional possession of
the lots and leased them to its associate company SHELL which constructed its multi-
million peso LPG Project thereon.
Same; Same; Same; In Romero v. Court of Appeals and Lim v. Court of Appeals the
Court distinguished between a condition imposed on the perfection of a contract and
a condition imposed merely on the performance of an obligation.—We do not agree
with petitioners that their contract with TABANGAO lost its efficacy when the 20-
month period stipulated therein expired without petitioners being able to deliver clean
certificates of title such that TABANGAO may no longer demand performance of their
obligation. In Romero v. Court of Appeals and Lim v. Court of Appeals the Court
distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to
comply with the first condition results in the failure of a contract, failure to comply
with the second merely gives the other party the option to either refuse to proceed
with the sale or to waive the condition.
Same; Same; Same; The BABASAS’ act of unilaterally rescinding their contract with
TABANGAO is clearly unwarranted.—Clearly then, the BABASAS’ act of unilaterally
rescinding their contract with TABANGAO is unwarranted. Even without the
abovequoted stipulation in the deed, the failure of petitioners to deliver clean titles
within twenty (20) months from the signing of the contract merely gives TABANGAO
the option to either refuse to proceed with the sale or to waive the condition in
consonance with Art. 1545 of the New Civil Code. Besides, it would be the height of
inequity to allow the BABASAS to rescind their contract of sale with TABANGAO by
invoking as a ground therefor their own failure to deliver the titles over the lots within
the stipulated period.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
German A. Gineta for petitioners.
Ezequiel S. Consulta for Shell Gas Phils., Inc.
Angara, Abello, Concepcion, Regala & Cruz for Tabangao Realty, Inc.
BELLOSILLO, J.:
On 11 April 1981 a contract of “Conditional Sale of Registered Lands” was executed
between the spouses Vivencio and Elena Babasa as vendors and Tabangao Realty,
Inc. (TABANGAO) as vendee over three (3) parcels of land, Lots Nos. 17827-A,
17827-B and 17827-C, situated in Brgy. Libjo, Batangas City. Since the certificates of
title over the lots were in the name of third persons who had already executed deeds
of reconveyance and disclaimer in favor of the BABASAS, it was agreed that the total
purchase price of P2,121,920.00 would be paid in the following manner: P300,000.00
upon signing of the contract, and P1,821,920.00 upon presentation by the BABASAS
of transfer certificates of titles in their name, free from all liens and encumbrances,
and delivery of registerable documents of sale in favor of TABANGAO within twenty
(20) months from the signing of the contract. In the meantime, the retained balance
of the purchase price would earn interest at seventeen percent (17%) per annum or
P20,648.43 monthly payable to the BABASAS until 31 December 1982. It was
expressly stipulated that TABANGAO would have the absolute and unconditional right
to take immediate possession of the lots as well as introduce any improvements
thereon.
On 18 May 1981 TABANGAO leased the lots to Shell Gas Philippines, Inc. (SHELL),
which immediately started the construction thereon of a Liquefied Petroleum Gas
Terminal Project, an approved zone export enterprise of the Export Processing Zone.
TABANGAO is the real estate arm of SHELL.
The parties substantially complied with the terms of the contract. TABANGAO paid the
first installment of P300,000.00 to the BABASAS while the latter delivered actual
possession of the lots to the former. In addition, TABANGAO paid P379,625.00 to the
tenants of the lots as disturbance compensation and as payment for existing crops as
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well as P334,700.00 to the owners of the houses standing thereon in addition to
granting them residential lots with the total area of 2,800 square meters. TABANGAO
likewise paid the stipulated monthly interest for the 20-month period amounting to
P408,580.80. Meanwhile, the BABASAS filed Civil Case No. 5191 and Petition No.
3732 for the transfer of titles of the lots in their name.
However, two (2) days prior to the expiration of the 20-month period, specifically on
31 December 1982, the BABASAS asked TABANGAO for an indefinite extension within
which to deliver clean titles over the lots. They asked that TABANGAO continue
paying the monthly interest of P20,648.43 starting January 1983 on the ground that
Civil Case No. 519 and Petition No. 373 had not yet been resolved with finality in their
favor. TABANGAO refused the request. In retaliation the BABASAS executed a
notarized unilateral rescission dated 28 February 1983 to which TABANGAO
responded by reminding the BABASAS that they were the ones who did not comply
with their contractual obligation to deliver clean titles within the stipulated 20-month
period, hence, had no right to rescind their contract. The BABASAS insisted on the
unilateral rescission and demanded that SHELL vacate the lots.
On 19 July 1983 TABANGAO instituted an action for specific performance with
damages in the Regional Trial Court of Batangas City to compel the spouses to
comply with their obligation to deliver clean titles over the properties.3 TABANGAO
alleged that the BABASAS were already in a position to secure clean certificates of
title and execute registerable documents of sale since execution of judgment pending
appeal had already been granted in their favor in Civil Case No. 519, while an order
directing reconstitution of the original copies of TCT Nos. T-32565, T-32566 and T-
32567 covering the lots had been issued in Petition No. 373. The BABASAS moved to
dismiss the complaint on the ground that their contract with TABANGAO became null
and void with the expiration of the 20-month period given them within which to
deliver clean certificates of title. SHELL entered the dispute as intervenor praying that
its lease over the premises be respected by the BABASAS.
Despite the pendency of the case the BABASAS put up several structures within the
area in litigation to impede the movements of persons and vehicles therein, laid claim
to twelve (12) heads of cattle belonging to intervenor SHELL and threatened to
collect levy from all buyers of liquefied petroleum gas (LPG) for their alleged use of
the BABASA estate in their business transactions with intervenor SHELL. As a result,
SHELL applied for and was granted on 10 April 1990 a temporary restraining order
against the Babasa spouses and anyone acting for and in their behalf upon filing of a
P2-million bond.4
Eventually, judgment was rendered in favor of TABANGAO and SHELL.5 The court a
quo ruled that the 20-month period stipulated in the contract was never meant to be
its term such that upon its expiration the respective obligations of the parties would
be extinguished. On the contrary, the expiration thereof merely gave rise to the right
of TABANGAO to either rescind the contract or to demand that the BABASAS comply
with their contractual obligation to deliver to it clean titles and registerable
documents of sale. The notarial rescission executed by the BABASAS was declared
void and of no legal effect—
xxxx
1. The unilateral rescission of contract, dated February 28, 1983, executed by the
defendant-spouses is null and void, without any legal force and effect on the
agreement dated April 11, 1981, executed between the plaintiff and the defendant-
spouses;
2. The lease contract, dated May 18, 1981, executed by the plaintiff in favor of the
intervenor is deemed legally binding on the defendant-spouses insofar as it affects
the three lots subject of this case;
3. The defendant-spouses Vivencio Babasa and Elena Cantos are hereby ordered to
deliver to the plaintiff Tabangao Realty, Inc., clean transfer certificates of title in their
name and execute all the necessary deeds and documents necessary for the Register
of Deeds of Batangas City to facilitate the issuance of Transfer Certificates of Title in
the name of plaintiff, Tabangao Realty, Inc. In the event the defendant-spouses fail
to do so, the Register of Deeds of Batangas City is hereby directed to cancel the
present transfer certificates of title over the three lots covered by the Conditional Sale
of Registered Lands executed by and between plaintiff, Tabangao Realty, Inc., and
the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa on April 11, 1981,
upon presentation of credible proof that said defendant-spouses have received full
payment for the lots or payment thereof duly consigned to the Court for the account
of the defendant-spouses;
4. Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-spouses Vivencio
Babasa and Elena Cantos-Babasa the remaining balance of P1,821,920.00 out of the
full purchase price for these three lots enumerated in the agreement dated April 11,
1981 plus interest thereon of 17% per annum or P20,648.43 a month compounded
annually beginning January 1983 until fully paid;
5. The Order dated April 10, 1990 issued in favor of the intervenor enjoining and
restraining defendant-spouses Vivencio Babasa and Elena Cantos-Babasa and/or
anyone acting for and in their behalf from putting up any structure on the three lots
or interfering in any way in the activities of the intervenor, its employees and agents,
is made permanent, and the bond posted by the intervenor cancelled; and,
6. Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa shall pay the costs
of this proceeding as well as the premium the intervenor may have paid in the
posting of the P2,000,000.00 bond for the issuance of the restraining order of April
10, 1990.6
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The BABASAS appealed to the Court of Appeals7 which on 29 February 1996 affirmed
the decision of the trial court rejecting the contention of the BABASAS that the
contract of 11 April 1981 was one of lease, not of sale;8 and described it instead as
one of absolute sale though denominated “conditional.” However, compounded
interest was ordered paid from 19 July 1983 only, the date of filing of the complaint,
not from January 1983 as decreed by the trial court.
The BABASAS now come to us reiterating their contention that the contract of 11
April 1981 was in reality a contract of lease, not of sale; but even assuming that it
was indeed a sale, its nature was conditional only, the efficacy of which was
extinguished upon the non-happening of the condition, i.e., non-delivery of clean
certificates of title and registerable documents of sale in favor of TABANGAO within
twenty (20) months from the signing of the contract.
We find no merit in the petition. Respondent appellate court has correctly concluded
that the allegation of petitioners that the contract of 11 April 1981 is one of lease, not
of sale, is simply incredible. First, the contract is replete with terms and stipulations
clearly indicative of a contract of sale. Thus, the opening whereas clause states that
the parties desire and mutually “agreed on the sale and purchase of the x x x three
parcels of land”; the BABASAS were described as the “vendors” while TABANGAO as
the “vendee” from the beginning of the contract to its end; the amount of
P2,121,920.00 was stated as the purchase price of the lots; TABANGAO, as vendee,
was granted absolute and unconditional right to take immediate possession of the
premises while the BABASAS, as vendors, warranted such peaceful possession
forever; TABANGAO was to shoulder the capital gains tax, and; lastly, the BABASAS
were expected to execute a Final Deed of Absolute Sale in favor of TABANGAO
necessary for the issuance of transfer certificates of title the moment they were able
to secure clean certificates of title in their name. Hence, with all the foregoing, we
cannot give credence to the claim of petitioners that subject contract was one of
lease simply because the word “ownership” was never mentioned therein. Besides, as
correctly pointed out by respondent court, the BABASAS did not object to the terms
and stipulations employed in the contract at the time of its execution when they could
have easily done so considering that they were then ably assisted by their counsel,
Atty. Edgardo M. Carreon, whose legal training negates their pretended ignorance on
the matter. Hence, it is too late for petitioners to insist that the contract is not what
they intended it to be.
But the BABASAS lament that they never intended to sell their ancestral lots but were
merely forced to do so when TABANGAO dangled the threat of expropriation by the
government (through the Export Processing Zone Authority) in the event voluntary
negotiations failed. Although a cause to commiserate with petitioners may be
perceived, it is not enough to provide them with an avenue to escape contractual
obligations validly entered into. We have already held that contracts are valid even
though one of the parties entered into it against his own wish and desire, or even
against his better judgment.9 Besides, a threat of eminent domain proceedings by
the government cannot be legally classified as the kind of imminent, serious and
wrongful injury to a contracting party as to vitiate his consent.10 Private landowners
ought to realize, and eventually accept, that property rights must yield to the valid
exercise by the state of its all-important power of eminent domain.11
Finally, petitioners contend that ownership over the three (3) lots was never
transferred to TABANGAO and that the contract of 11 April 1981 was rendered lifeless
when the 20-month period stipulated therein expired without them being able to
deliver clean certificates of title to TABANGAO through no fault of their own.
Consequently, their unilateral rescission dated 28 February 1983 should have been
upheld as valid.
We disagree. Although denominated “Conditional Sale of Registered Lands,” we hold,
as did respondent court, that the contract of 11 April 1981 between petitioners and
respondent TABANGAO is one of absolute sale. Aside from the terms and stipulations
used therein indicating such kind of sale, there is absolutely no proviso reserving title
in the BABASAS until full payment of the purchase price, nor any stipulation giving
them the right to unilaterally rescind the contract in case of non-payment. A deed of
sale is absolute in nature although denominated a “conditional sale” absent such
stipulations.12 In such cases, ownership of the thing sold passes to the vendee upon
the constructive or actual delivery thereof.13 In the instant case, ownership over Lots
Nos. 17827-A, 17827-B and 17827-C passed to TABANGAO both by constructive and
actual delivery. Constructive delivery was accomplished upon the execution of the
contract of 11 April 1981 without any reservation of title on the part of the BABASAS
while actual delivery was made when TABANGAO took unconditional possession of
the lots and leased them to its associate company SHELL which constructed its multi-
million peso LPG Project thereon.14
We do not agree with petitioners that their contract with TABANGAO lost its efficacy
when the 20-month period stipulated therein expired without petitioners being able to
deliver clean certificates of title such that TABANGAO may no longer demand
performance of their obligation. In Romero v. Court of Appeals 15 and Lim v. Court of
Appeals 16 the Court distinguished between a condition imposed on the perfection of
a contract and a condition imposed merely on the performance of an obligation.
While failure to comply with the first condition results in the failure of a contract,
failure to comply with the second merely gives the other party the option to either
refuse to proceed with the sale or to waive the condition.17
Here, a perfected contract of absolute sale exists between the BABASAS and
TABANGAO when they agreed on the sale of a determinate subject matter, i.e., Lots
Nos. 17827-A, 17827-B and 17827-C, and the price certain therefor without any
condition or reservation of title on the part of the BABASAS. However, the obligation
of TABANGAO as vendee to pay the full amount of the purchase price was made
subject to the condition that petitioners first deliver the clean titles over the lots
 O b l i g a t i o n s a n d C o n t r a c t s ( C o n d i t i o n a l , J o i n t a n d S o l i d a r y O b l i g a t i o n s ) P a g e | 14

within twenty (20) months from the signing of the contract. If petitioners succeed in
delivering the titles within the stipulated 20-month period, they would get
P1,821,920.00 representing the entire balance of the purchase price retained by
TABANGAO. Otherwise, the deed of sale itself provides that—

x x x upon the expiration of the 20-month period from the signing of the contract the
Vendee is hereby authorized to settle out of the balance retained by the Vendee all
legally valid and existing obligations on the properties x x x and whatever balance
remaining after said settlement shall be paid to the Vendor.

Clearly then, the BABASAS’ act of unilaterally rescinding their contract with
TABANGAO is unwarranted. Even without the abovequoted stipulation in the deed,
the failure of petitioners to deliver clean titles within twenty (20) months from the
signing of the contract merely gives TABANGAO the option to either refuse to proceed
with the sale or to waive the condition in consonance with Art. 1545 of the New Civil
Code.18 Besides, it would be the height of inequity to allow the BABASAS to rescind
their contract of sale with TABANGAO by invoking as a ground therefor their own
failure to deliver the titles over the lots within the stipulated period.

WHEREFORE, the petition is DENIED. The appealed decision of the Court of Appeals
in CA-G.R. CV No. 39554 affirming that of the Regional Trial Court of Batangas City,
Br. 4, is AFFIRMED. No costs.

SO ORDERED.

Davide, Jr. (Chairman), Vitug, Panganiban and Quisumbing, JJ., concur.

Petition denied.

Note.—Private respondent fails to distinguish between a condition imposed in the

perfection of the contract and a condition imposed on the performance of an
obligation. (Lim vs. Court of Appeals, 263 SCRA 569 [1996])

——o0o——
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G.R. No. 107207. November 23, 1995.*
VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and
ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
Civil Law; Sales; A perfected contract of sale may either be absolute or conditional.—
Aperfected contract of sale may either be absolute or conditional depending on
whether the agreement is devoid of, or subject to, any condition imposed on the
passing of title of the thing to be conveyed or on the obligation of a party thereto.
When ownership is retained until the fulfillment of a positive condition the breach of
the condition will simply prevent the duty to convey title from acquiring an obligatory
force. If the condition is imposed on an obligationof a party which is not complied
with, the other party may either refuse to proceed or waive said condition (Art. 1545,
Civil Code). Where, of course, the condition is imposed upon the perfection of the
contract itself, the failure of such condition would prevent the juridical relation itself
from coming into existence.
Same; Same; In determining the real character of the contract, the title given to it by
the parties is not as much significant as its substance.—In determining the real
character of the contract, the title given to it by the parties is not as much significant
as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is
not reserved in the vendor or if the vendor is not granted the right to unilaterally
rescind the contract predicated on the fulfillment or nonfulfillment, as the case may
be, of the prescribed condition.
Same; Same; The term “condition” in the context of a perfected contract of sale
pertains in reality to the compliance by one party of an undertaking the fulfillment of
which would beckon in turn the demandability of the reciprocal prestation of the
other party.—The term “condition” in the context of a perfected contract of sale
pertains, in reality, to the compliance by one party of an undertaking the fulfillment of
which would beckon, in turn, the demandability of the reciprocal prestation of the
other party. The reciprocal obligations referred to would normally be, in the case of
vendee, the payment of the agreed purchase price and, in the case of the vendor, the
fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
Same; Same; A sale is at once perfected when a person obligates himself for a price
certain to deliver and to transfer ownership of a specified thing or right to another
over which the latter agrees.—It would be futile to challenge the agreement here in
question as not being a duly perfected contract. A sale is at once perfected when a
person (the seller) obligates himself, for a price certain, to deliver and to transfer
ownership of a specified thing or right to another (the buyer) over which the latter
agrees.
Same; Same; From the moment the contract is perfected, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the
consequences which according to their nature may be in keeping with good faith,
usage and law.—From the moment the contract is perfected, the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith,
usage and law. Under the agreement, private respondent is obligated to evict the
squatters on the property. The ejectment of the squatters is a condition the operative
act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondent’s failure
“to remove the squatters from the property” within the stipulated period gives
petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly
belongs to petitioner and not to private respondent.
Same; Same; Where the so-called “potestative condition” is imposed not on the birth
of the obligation but on its fulfillment, only the condition is avoided leaving unaffected
the obligation itself.—We share the opinion of the appellate court that the
undertaking required of private respondent does not constitute a “potestative
condition dependent solely on his will” that might, otherwise, be void in accordance
with Article 1182 of the Civil Code but a “mixed” condition “dependent not on the will
of the vendor alone but also of third persons like the squatters and government
agencies and personnel concerned.” We must hasten to add, however, that where
the so-called “potestative condition” is imposed not on the birth of the obligation but
on its fulfillment, only the condition is avoided, leaving unaffected the obligation
itself.
Same; Same; Rescission; The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other party
that violates the reciprocity between them.—In any case, private respondent’s action
for rescission is not warranted. She is not the injured party. The right of resolution of
a party to an obligation under Article 1191 of the Civil Code is predicated on a breach
of faith by the other party that violates the reciprocity between them. It is private
respondent who has failed in her obligation under the contract. Petitioner did not
breach the agreement. He has agreed, in fact, to shoulder the expenses of the
execution of the judgment in the ejectment case and to make arrangements with the
sheriff to effect such execution.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
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Antonio C. Cabreras, Jr. & Peter M. Porras Law Offices and Yap, Apostol, Gumaru
& Balgua for petitioner.
Joaquin Yuseco for private respondent.
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract
for the sale of a parcel of land for a cause traceable to his own failure to have the
squatters on the subject property evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of
production, manufacture and exportation of perlite filter aids, permalite insulation and
processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a
central warehouse in Metro Manila on a land area of approximately 2,000 square
meters. The project was made known to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a
broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay
San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT No. 361402 in the
name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the
property and, except for the presence of squatters in the area, he found the place
suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance
the amount of P50,000.00 which could be used in taking up an ejectment case
against the squatters, private respondent would agree to sell the property for only
P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a
contract, denominated “Deed of Conditional Sale,” was executed between petitioner
and private respondent. The simply-drawn contract read:
“DEED OF CONDITIONAL SALE
“KNOW ALL MEN BY THESE PRESENTS:
“This Contract, made and executed in the Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:
“ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at
105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR;
- and -
“VIRGILIO R. ROMERO, married to Severina L. Lat, of legal age, Filipino, and residing
at 110 San Miguel St., Plainview Subd., Mandaluyong, Metro Manila, hereinafter
referred to as the VENDEE:
“W I T N E S S E T H: That
“WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or
less, located in Barrio San Dionisio, Municipality of Parañaque, Province of Rizal,
covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more
particularly described as follows:
“x x x xxx x x x.
“WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions hereinafter
stipulated:
“NOW,THEREFORE, for and in consideration of the sum of ONE MILLION FIVE
HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY,
Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR
agrees to sell to the VENDEE, their heirs, successors, administrators, executors,
assign, all her rights, titles and interest in and to the property mentioned in the FIRST
WHEREAS CLAUSE, subject to the following terms and conditions:
“1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine
Currency, is to be paid upon signing and execution of this instrument.
“2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45
days after the removal of all squatters from the above described property.
“3. Upon full payment of the overall purchase price as aforesaid, VENDOR without
necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver
the corresponding deed of absolute sale in favor of the VENDEE free from all liens
and encumbrances and all Real Estate taxes are all paid and updated.
“It is hereby agreed, covenanted and stipulated by and between the parties hereto
that if after 60 days from the date of the signing of this contract the VENDOR shall
not be able to remove the squatters from the property being purchased, the
downpayment made by the buyer shall be returned/reimbursed by the VENDOR to
the VENDEE.
“That in the event that the VENDEE shall not be able to pay the VENDOR the balance
of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the
VENDEE of the removal of the squatters from the property being purchased, the
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FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be
forfeited in favor of the VENDOR.
“Expenses for the registration such as registration fees, documentary stamp, transfer
fee, assurances and such other fees and expenses as may be necessary to transfer
the title to the name of the VENDEE shall be for the account of the VENDEE while
capital gains tax shall be paid by the VENDOR.
“IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City
of Makati, MM, Philippines on this 9th day of June, 1988. f
(Sgd.)
(Sgd.)
VIRGILIO R. ROMERO
ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee
Vendor
“SIGNED IN THE PRESENCE OF:
(Sgd.)
(Sgd.)
Rowena C. Ongsiong
Jack M. Cruz”1
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged
a check for P50,000.002 from petitioner.3 Pursuant to the agreement, private
respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor
Musa and 29 other squatter families with the Metropolitan Trial Court of Parañaque. A
few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60-
day period (expiring 09 August 1988) stipulated in the contract. The writ of execution
of the judgment was issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00
she received from petitioner since, she said, she could not “get rid of the squatters”
on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April
1989, refused the tender and stated:
“Our client believes that with the exercise of reasonable diligence considering the
favorable decision rendered by the Court and the writ of execution issued pursuant
thereto, it is now possible to eject squatters from the premises of the subject
property, for which reason, he proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred by reason thereof shall be
chargeable to the purchase price of the land.”4
Meanwhile, the Presidential Commission for the Urban Poor (“PCUP”), through its
Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of
Parañaque for a grace period of 45 days from 21 April 1989 within which to relocate
and transfer the squatter families. Acting favorably on the request, the court
suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-
day grace period and his client’s willingness to “underwrite the expenses for the
execution of the judgment and ejectment of the occupants.”5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private
respondent, advised Atty. Apostol that the Deed of Conditional Sale had been
rendered null and void by virtue of his client’s failure to evict the squatters from the
premises within the agreed 60-day period. He added that private respondent had
“decided to retain the property.”6
On 23 June 1989, Atty. Apostol wrote back to explain:
“The contract of sale between the parties was perfected from the very moment that
there was a meeting of the minds of the parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it
to state that, the provision of the Deed of Conditional Sale do not grant her the
option or prerogative to rescind the contract and to retain the property should she fail
to comply with the obligation she has assumed under the contract. In fact, a perusal
of the terms and conditions of the contract clearly shows that the right to rescind the
contract and to demand the return/reimbursement of the downpayment is granted to
our client for his protection.
“Instead, however, of availing himself of the power to rescind the contract and
demand the return, reimbursement of the downpayment, our client had opted to take
it upon himself to eject the squatters from the premises. Precisely, we refer you to
our letters addressed to your client dated April 17, 1989 and June 8, 1989.
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“Moreover, it is basic under the law on contracts that the power to rescind is given to
the injured party. Undoubtedly, under the circumstances, our client is the injured
party.
“Furthermore, your client has not complied with her obligation under their contract in
good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to
eject the squatters from the premises of the subject property and her decision to
retain the property was brought about by the sudden increase in the value of realties
in the surrounding areas.
“Please consider this letter as a tender of payment to your client and a demand to
execute the absolute Deed of Sale.”7
A few days later (or on 27 June 1989), private respondent, prompted by petitioner’s
continued refusal to accept the return of the P50,000.00 advance payment, filed with
the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission
of the deed of “conditional” sale, plus damages, and for the consignation of
P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of
execution in Civil Case No. 7579 on motion of private respondent but the squatters
apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati8
rendered decision holding that private respondent had no right to rescind the contract
since it was she who “violated her obligation to eject the squatters from the subject
property” and that petitioner, being the injured party, was the party who could, under
Article 1191 of the Civil Code, rescind the agreement. The court ruled that the
provisions in the contract relating to (a) the return/reimbursement of the P50,000.00
if the vendor were to fail in her obligation to free the property from squatters within
the stipulated period or (b), upon the other hand, the sum’s forfeiture by the vendor
if the vendee were to fail in paying the agreed purchase price, amounted to “penalty
clauses.” The court added:
“This Court is not convinced of the ground relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so
much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against
her profession of good faith is plaintiff’s conduct which is not in accord with the rules
of fair play and justice. Notably, she caused the issuance of an alias writ of execution
on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after
she filed the complaint before this Court on June 27, 1989. If she were really afraid of
the squatters, then she should not have pursued the issuance of an alias writ of
execution. Besides, she did not even report to the police the alleged phone threats
from the squatters. To the mind of the Court, the so-called squatter factor is simply
factuitous (sic).”9
The lower court, accordingly, dismissed the complaint and ordered, instead, private
respondent to eject or cause the ejectment of the squatters from the property and to
execute the absolute deed of conveyance upon payment of the full purchase price by
petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate
court rendered its decision.10 It opined that the contract entered into by the parties
was subject to a resolutory condition, i.e., the ejectment of the squatters from the
land, the non-occurrence of which resulted in the failure of the object of the contract;
that private respondent substantially complied with her obligation to evict the
squatters; that it was petitioner who was not ready to pay the purchase price and
fulfill his part of the contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would fail to
eject the squatters within the 60day period was not a penal clause. Thus, it
concluded:
“WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new
one entered declaring the contract of conditional sale dated June 9, 1988 cancelled
and ordering the defendantappellee to accept the return of the downpayment in the
amount of P50,000.00 which was deposited in the court below. No pronouncement as
to costs.”11
Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari
raising issues that, in fine, center on the nature of the contract adverted to and the
P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional12 depending on
whether the agreement is devoid of, or subject to, any condition imposed on the
passing of title of the thing to be conveyed or on the obligation of a party thereto.
When ownership is retained until the fulfillment of a positive condition the breach of
the condition will simply prevent the duty to convey title from acquiring an obligatory
force. If the condition is imposed on an obligation of a party which is not complied
with, the other party may either refuse to proceed or waive said condition (Art. 1545,
Civil Code). Where, of course, the condition is imposed upon the perfection of the
contract itself, the failure of such condition would prevent the juridical relation itself
from coming into existence.13
In determining the real character of the contract, the title given to it by the parties is
not as much significant as its substance. For example, a deed of sale, although
denominated as a deed of conditional sale, may be treated as absolute in nature, if
title to the property sold is not reserved in the vendor or if the vendor is not granted
the right to unilaterally rescind the contract predicated on the fulfillment or non-
fulfillment, as the case may be, of the prescribed condition.14
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The term “condition” in the context of a perfected contract of sale pertains, in reality,
to the compliance by one party of an undertaking the fulfillment of which would
beckon, in turn, the demandability of the reciprocal prestation of the other party. The
reciprocal obligations referred to would normally be, in the case of vendee, the
payment of the agreed purchase price and, in the case of the vendor, the fulfillment
of certain express warranties (which, in the case at bench is the timely eviction of the
squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly
perfected contract. A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a specified thing or
right to another (the buyer) over which the latter agrees.15
The object of the sale, in the case before us, was specifically identified to be a 1,952-
square meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of
Title No. 361402 of the Registry of Deeds for Pasig and therein technically described.
The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid
upon the execution of the document of sale and the balance of P1,511,600.00
payable “45 days after the removal of all squatters from the above described
property.”
From the moment the contract is perfected, the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law.
Under the agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of which sets
into motion the period of compliance by petitioner of his own obligation, i.e., to pay
the balance of the purchase price. Private respondent’s failure “to remove the
squatters from the property” within the stipulated period gives petitioner the right to
either refuse to proceed with the agreement or waive that condition in consonance
with Article 1545 of the Civil Code.16 This option clearly belongs to petitioner and not
to private respondent.
We share the opinion of the appellate court that the undertaking required of private
respondent does not constitute a “potestative condition dependent solely on his will”
that might, otherwise, be void in accordance with Article 1182 of the Civil Code17 but
a “mixed” condition “dependent not on the will of the vendor alone but also of third
persons like the squatters and government agencies and personnel concerned.”18 We
must hasten to add, however, that where the so-called “potestative condition” is
imposed not on the birth of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself.19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows
the obligee to choose between proceeding with the agreement or waiving the
performance of the condition. It is this provision which is the pertinent rule in the
case at bench. Here, evidently, petitioner has waived the performance of the
condition imposed on private respondent to free the property from squatters.20
In any case, private respondent’s action for rescission is not warranted. She is not the
injured party.21 The right of resolution of a party to an obligation under Article 1191
of the Civil Code is predicated on a breach of faith by the other party that violates the
reciprocity between them.22 It is private respondent who has failed in her obligation
under the contract. Petitioner did not breach the agreement. He has agreed, in fact,
to shoulder the expenses of the execution of the judgment in the ejectment case and
to make arrangements with the sheriff to effect such ex+ecution. In his letter of 23
June 1989, counsel for petitioner has tendered payment and demanded forthwith the
execution of the deed of absolute sale. Parenthetically, this offer to pay, having been
made prior to the demand for rescission, assuming for the sake of argument that
such a demand is proper under Article 159223 of the Civil Code, would likewise
suffice to defeat private respondent’s prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance
payment is reimbursable to petitioner or forfeitable by private respondent, since, on
the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice
it to say that petitioner having opted to proceed with the sale, neither may petitioner
demand its reimbursement from private respondent nor may private respondent
subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED
AND SET ASIDE, and another is entered ordering petitioner to pay private respondent
the balance of the purchase price and the latter to execute the deed of absolute sale
in favor of petitioner. No costs.
SO ORDERED.
Feliciano (Chairman), Romero, Melo and Panganiban, JJ., concur.
Judgment reversed and set aside.
Note.—The remedy of rescission only applies to contracts validly agreed upon by the
parties in the cases established by law. (Causapin vs. Court of Appeals, 233 SCRA 615
[1994])
——o0o——
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G.R. No. L-22558. May 31, 1967.
GREGORIO ARANETA, INC., petitioner, vs. THE PHILIPPINE SUGAR
ESTATES DEVELOPMENT Co., LTD., respondent.
Obligations; Contracts; Sale; Pleadings; When court should not fix the period for
performing an obligation.—Where the issue raised in the pleadings was whether the
seller of the land was given in the contract of sale a reasonable time within which to
construct the streets around the perimeter of the land sold, the court, in an action for
specific performance to compel the construction of said. streets or for recovery of'
damages, cannot fix a period within which the seller should construct the streets. The
court should determine whether. the parties had agreed that the seller should have
reasonable time to perform its part of the bargain. If the contract so provided, then
there was a period fixed, a "reasonable time", and all that the court should have done
was to determine if that reasonable time had already elapsed when the suit was filed.
If it had passed, then the court should' declare that the petitioner had breached the
contract, as averred in the complaint. and fix the resulting damages. On the other
hand, if the reasonable time had not yet elapsed, the court perforce was bound to
dismiss the action for being premature. But in no case can it be logically held that,
under the pleadings, the intervention of the court to fix the period for performance
was warranted, for Article 1197 of the New Civil Code is precisely predicated. on the
absence of any period fixed by the parties.
Same; Pleading and practice; When amendment of complaint is necessary.—If the
complaint did not ask that a period for the performance of an obligation be fixed, and
the court wants to fix a period, it cannot proceed to do so unless the complaint is first
amended.
Same; Specific performance; Power of court to fix period.—Article 1197 of the New
Civil Code involves a two-step process. The court must first determine that the
obligation does not fix a period (or that the period depends upon the debtor's will)
and that the intention of the parties, as may be inferred from the nature and
circumstances of the obligation, is to have a period for its performance. The second
step is to ascertain the period probably contemplated by the parties. The court
cannot arbitrarily fix a period out of thin air.
Same; Period within which obligation to construct streets on land occupied by
squatters should be performed.—Where the seller obligated itself to construct streets
around the perimeter of the land sold (site of the Santo Domingo Church in Quezon
City) and the parties were aware that the land, on which the streets would be
constructed, was occupied by squatters, the time for the performance of the seller's
obligation should be fixed at the date that all the squatters on the affected areas are
finally evicted therefrom. While this solution would render the date of performance
indefinite, still the circumstances of the case admit of no other reasonable view. This
very indefiniteness explains why the contract did not specify any exact period of
performance. The ruling that the obligation should be performed within two years is
not warranted.
PETITION for review by certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Araneta & Araneta for petitioner.
Rosauro Alvarez and Ernani Cruz Paño for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No.
28249-R, affirming with modification, an amendatory decision of the Court of First
Instance of Manila, in its Civil Case No. 36303, entitled "Philippine Sugar Estates
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and Gregorio
Araneta, Inc., defendants".
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract of land situated in Quezon City,
otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens title
in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold
a portion thereof with an area of 43,034.4 square meters, more or less, for the sum
of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties
stipulated, among others, in the contract of purchase and sale with mortgage, that
the buyer will—
"Build on the said parcel of land the Sto. Domingo Church and Convent"
while the seller for its part will—
"Construct streets on the NE and NW and SW sides of the land herein sold so that the
latter will be a block surrounded by streets on all four sides; and the street on the NE
side shall be named 'Sto. Domingo Avenue';"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction
of Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which
began constructing the streets, is unable to finish the construction of the street in the
Northeast side (named Sto. Domingo Avenue) because a certain third-party, by the
name of Manuel Abundo, who has been physically occupying a middle part thereof,
refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates
Development Co., Ltd. filed its complaint against J. M. Tuason & Co., Inc. and
Gregorio Araneta, Inc., in the above stated court of first instance, seeking to compel
the latter to comply with their obligation, as stipulated in the above-mentioned deed
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of sale, and/or to pay damages in the event they failed or refused to perform said
obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the
complaint, the latter particularly setting up the principal defense that the action was
premature since its obligation to construct the streets in question was without a
definite period which needs to be fixed first by the court in a proper suit for that
purpose before a complaint for specific performance will prosper.
The issues having been joined, the lower court proceeded with the trial, and upon its
termination, it dismissed plaintiff's complaint (in a decision dated May 31, 1960),
upholding the defenses interposed by defendant Gregorio Araneta, Inc.
Plaintiff moved to reconsider and modify the above decision, praying that the court fix
a period within which defendants will comply with their obligation to construct the
streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's
complaint did not expressly or impliedly allege and pray for the fixing of a period to
comply with its obligation and that the evidence presented at the trial was insufficient
to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the proven facts precisely
warrants the fixing of such a period", issued an order granting plaintiff's motion for
reconsideration and amending the dispositive portion of the decision of May 31, 1960,
to read as follows:
"WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc.,
a period of two (2) years from notice hereof, within which to comply with its
obligation under the contract, Annex A."
Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted
order, which motion, plaintiff opposed.
On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc.'s
motion; and the latter perfected its appeal to the Court of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly
that the relief granted, i.e., fixing of a period, under the amendatory decision of July
16, 1960, was not justified by the pleadings and not supported by the facts submitted
at the trial of the case in the court 'below and that the relief granted in eff ect
allowed a change of theory after the submission of the case for decision.
Ruling on the above contention, the appellate court declared that the fixing of a
period was within the pleadings and that there was no true change of theory after the
submission of the case for decision since defendant-appellant Gregorio Araneta, Inc.
itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses
contained in its answer which reads—
"7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a
reasonable time within which to comply with its obligations to construct and complete
the streets on the NE, NW and SW sides of the lot in question; that under the
circumstances, said reasonable time has not elapsed;
Disposing of the other issues raised by appellant which were ruled as not meritorious
and which are not decisive in the resolution of the legal issues posed in the instant
appeal before us, said appellate court rendered its decision dated December 27,
1963, the dispositive part of which reads—
"IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant
is given two (2) years from the date of finality of this decision to comply with the
obligation to construct streets on the NE, NW and SW sides of the land sold to
plaintiff so that the same would be a block surrounded by streets on all four sides,"
Unsuccessful in having the above decision reconsidered, defendant-appellant
Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court. We
gave it due course.
We agree with the petitioner that the decision of the Court of Appeals, affirming that
of the Court of "First Instance is legally untenable. The fixing of a period by the
courts under Article 1197 of the Civil Code of the Philippines is sought to be justified
on the basis that petitioner (defendant below) placed the absence of a period in issue
by pleading in its answer that the contract with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within
which to comply with its obligation to construct and complete the streets." Neither of
the courts below seems to have noticed that, on the hypothesis stated, what the
answer put in issue was not whether the court should fix the time of performance,
but whether or not the parties agreed that the petitioner should have reasonable time
to perform its part of the bargain. If the contract so provided, then there was a
period fixed, a "reasonable time"; and all that the court should have done was to
determine if that reasonable time had already elapsed when suit was filed. If it had
passed, then the court should declare that petitioner had breached the contract, as
averred in the complaint, and fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce was bound to dismiss the
action for being- premature. But in no case can it be logically held that under the plea
above quoted, the intervention of the court to f ix the period for performance was
warranted, for Article 1197 is precisely predicated on the absence of any period fixed
by the parties.
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Even on the assumption. that the court should have found that no reasonable time or
no period at all had been fixed (and the trial court's amended decision nowhere
declared any such fact) still, the complaint not having sought that the Court should
set a period, the court could not proceed to do so unless the complaint was first
amended; for the original decision is clear that the complaint proceeded on the
theory that the period for performance had already elapsed, that the contract had
been breached and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to f ix the period of perf
ormance, still the amended decision is defective in that no basis is stated to support
the conclusion that the period should be set at two years after finality of the
judgment. The last paragraph of Article 1197 is clear that the period can not be set
arbitrarily. The law expressly prescribes that "the Courts shall determine such period
as may under the circumstances have been probably contemplated by the parties."
this very indefiniteness is what explains why the agreement did not specify any exact
periods or dates of performance.
It follows that there is no justification in law for the setting the date of performance
at any other time than that of the eviction of the squatters occupying the land in
question; and in not so holding, both the trial Court and the Court of Appeals
committed reversible error, It is not denied that the case against one of the
squatters, Abundo, was still pending in the Court of Appeals when its decision in this
case was rendered.
In view of the foregoing, the decision appealed from is reversed, and the time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at
the date that all the squatters on affected areas are finally evicted therefrom.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.
respect is that "the proven facts precisely warrant the fixing of such a period", a
statement manifestly insufficient to explain how the twoyear period given to Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and
petitioner herein was arrived at. Castro, JJ., concur.

It must be recalled that Article 1197 of. the Civil Code involves a two-step process. Decision reversed.
The Court must first determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor)," but from the nature and the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and
2). This preliminary point settled, the Court must then proceed to the second step,
and decide what period was "probably contemplated by the parties" (Do., par. 3). So
that, ultimately, the Court can not fix a period merely because in its opinion it is or
should be reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the two-year
period set In its decision out of thin air, since no circumstances are mentioned to
support it. Plainly, this is not warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract shows that the parties
were fully aware that the land described therein was occupied by squatters, because
the fact is expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp.
12-13). As the parties must have known that they could not take the law into their
own hands, but must resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would not be under their
control nor could the same be determined in advance. The conclusion is thus forced
that the parties must have intended to defer the performance of the obligations
under the contract until the squatters were duly evicted, as contended by the
petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of
performance indefinite. Yet, the circumstances admit no other reasonable view; and
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G.R. No. 96405. June 26, 1996.*
BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents.
Actions; Pleadings and Practice; A party after having lost his chance to fully ventilate
his factual claims below may no longer be accorded the same opportunity in the
absence of grave abuse of discretion on the part of the court below.—The above-
stated points are clearly factual. Petitioner is to be reminded of the basic rule that this
Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims
below, petitioner may no longer be accorded the same opportunity in the absence of
grave abuse of discretion on the part of the court below. Had he presented Judge
Pantanosas’ affidavit before the lower court, it would have strengthened his claim
that the promissory note did not reflect the correct amount of the loan.
Contracts; Evidence; Parol Evidence Rule; Negotiable Instruments; Promissory Notes;
The parol evidence rule does not specify that the written agreement be a public
document.—Nor is there merit in petitioner’s assertion that since the promissory note
“is not a public deed with the formalities prescribed by law but x x x a mere
commercial paper which does not bear the signature of x x x attesting witnesses,”
parol evidence may “overcome” the contents of the promissory note. The first
paragraph of the parol evidence rule states: “When the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence of
such terms other than the contents of the written agreement.” Clearly, the rule does
not specify that the written agreement be a public document.
Same; Same; Same; Same; Same; For the parol evidence rule to apply, a written
contract need not be in any particular form, or be signed by both parties—as a
general rule, bills, notes and other instruments of a similar nature are not subject to
be varied or contradicted by parol or extrinsic evidence.—What is required is that the
agreement be in writing as the rule is in fact founded on “long experience that
written evidence is so much more certain and accurate than that which rests in
fleeting memory only, that it would be unsafe, when parties have expressed the
terms of their contract in writing, to admit weaker evidence to control and vary the
stronger and to show that the parties intended a different contract from that
expressed in the writing signed by them.” Thus, for the parol evidence rule to apply,
a written contract need not be in any particular form, or be signed by both parties. As
a general rule, bills, notes and other instruments of a similar nature are not subject to
be varied or contradicted by parol or extrinsic evidence.
Same; Same; Same; Fraud; Fraud must be established by clear and convincing
evidence, mere preponderance of evidence not even being adequate—and a party’s
attempt to prove fraud must fail where it was evidenced only by his own
uncorroborated and self-serving testimony.—By alleging fraud in his answer,
petitioner was actually in the right direction towards proving that he and his co-
makers agreed to a loan of P5,000.00 only considering that, where a parol
contemporaneous agreement was the inducing and moving cause of the written
contract, it may be shown by parol evidence. However, fraud must be established by
clear and convincing evidence, mere preponderance of evidence, not even being
adequate. Petitioner’s attempt to prove fraud must, therefore, fail as it was evidenced
only by his own uncorroborated and, expectedly, self-serving testimony.
Same; Obligations; Joint and Solidary Obligations and Guaranty, Distinguished.—A
solidary or joint and several obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the whole obligation. On the
other hand, Article 2047 of the Civil Code states: “By guaranty a person, called the
guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor
in case the latter should fail to do so. If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such a case the contract is called a suretyship.” (Italics supplied.)
Same; Same; Same; While a guarantor may bind himself solidarily with the principal
debtor, the liability of a guarantor is different from that of a solidary debtor.—While a
guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor. Thus, Tolentino explains: “A
guarantor who binds himself in solidum with the principal debtor under the provisions
of the second paragraph does not become a solidary co-debtor to all intents and
purposes. There is a difference between a solidary co-debtor and a fiador in solidum
(surety). The latter, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the other rights,
actions and benefits which pertain to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed upon him in Section 4, Chapter 3,
Title I, Book IV of the Civil Code.”
Same; Same; Same; There is a solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.—
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more debtors in
one and the same obligation, the presumption is that the obligation is joint so that
each of the debtors is liable only for a proportionate part of the debt. There is a
solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.
Same; Same; Same; Where the promissory note expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may
be proceeded against for the entire obligation—the choice is left to the solidary
creditor to determine against whom he will enforce collection.—Because the
promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be
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proceeded against for the entire obligation. The choice is left to the solidary creditor
to determine against whom he will enforce collection. Consequently, the dismissal of
the case against Judge Pontanosas may not be deemed as having discharged
petitioner from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Petitioner, therefore, may only have recourse
against his co-makers, as provided by law.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Emilio G. Abrogena for petitioner.
Teogenes X. Velez for private respondent.
ROMERO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
affirming that of the Regional Trial Court of Misamis Oriental, Branch 18,1 which
disposed of Civil Case No. 10507 for collection of a sum of money and damages, as
follows:
“WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable
and ordered to pay to the plaintiff Philippine Bank of Communications, Cagayan de
Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00), with interest thereon
from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total
amount due, as liquidated damages or penalty from May 5, 1983 until fully paid; plus
10% of the total amount due for expenses of litigation and attorney’s fees; and to
pay the costs.
The counterclaim, as well as the cross claim, are dismissed for lack of merit.
SO ORDERED.”
Petitioner’s liability resulted from the promissory note in the amount of P50,000.00
which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3,
1983, holding themselves jointly and severally liable to private respondent Philippine
Bank of Communications, Cagayan de Oro City branch. The promissory note was due
on May 5, 1983.
Said due date expired without the promissors having paid their obligation.
Consequently, on November 14, 1983 and on June 8, 1984, private respondent sent
petitioner telegrams demanding payment thereof.2 On December 11, 1984 private
respondent also sent by registered mail a final letter of demand to Rene C. Naybe.
Since both obligors did not respond to the demands made, private respondent filed
on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the
three obligors.
On November 25, 1986, the complaint was dismissed for failure of the plaintiff to
prosecute the case. However, on January 9, 1987, the lower court reconsidered the
dismissal order and required the sheriff to serve the summonses. On January 27,
1987, the lower court dismissed the case against defendant Pantanosas as prayed for
by the private respondent herein. Meanwhile, only the summons addressed to
petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi
Arabia.
In his answer, petitioner alleged that sometime in January 1983, he was approached
by his friend, Rudy Campos, who told him that he was a partner of Pio Tio, the
branch manager of private respondent in Cagayan de Oro City, in the falcata logs
operation business. Campos also intimated to him that Rene C. Naybe was interested
in the business and would contribute a chainsaw to the venture. He added that,
although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of
the approval of a loan he would make with private respondent. Campos then
persuaded petitioner to act as a “co-maker” in the said loan. Petitioner allegedly
acceded but with the understanding that he would only be a co-maker for the loan of
P5,000.00.
Petitioner alleged further that five (5) copies of a blank promissory note were brought
to him by Campos at his office. He affixed his signature thereto but in one copy, he
indicated that he bound himself only for the amount of P5,000.00. Thus, it was by
trickery, fraud and misrepresentation that he was made liable for the amount of
P50,000.00.
In the aforementioned decision of the lower court, it noted that the typewritten figure
“—50,000—” clearly appears directly below the admitted signature of the petitioner in
the promissory note.3 Hence, the latter’s uncorroborated testimony on his limited
liability cannot prevail over the presumed regularity and fairness of the transaction,
under Sec. 5 (q) of Rule 131. The lower court added that it was “rather odd” for
petitioner to have indicated in a copy and not in the original, of the promissory note,
his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held
that, even granting that said limited amount had actually been agreed upon, the
same would have been merely collateral between him and Naybe and, therefore, not
binding upon the private respondent as creditor-bank.
The lower court also noted that petitioner was a holder of a Bachelor of Laws degree
and a labor consultant who was supposed to take due care of his concerns, and that,
on the witness stand, Pio Tio denied having participated in the alleged business
venture although he knew for a fact that the falcata logs operation was encouraged
by the bank for its export potential.
Petitioner appealed the said decision to the Court of Appeals which, in its decision of
August 31, 1990, affirmed that of the lower court. His motion for reconsideration of
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the said decision having been denied, he filed the instant petition for review on
certiorari.
On February 6, 1991, the Court denied the petition for failure of petitioner to comply
with the Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show
that respondent court had committed any reversible error in its questioned decision.4
His motion for the reconsideration of the denial of his petition was likewise denied
with finality in the Resolution of April 24, 1991.5 Thereafter, petitioner filed a motion
for leave to file a second motion for reconsideration which, in the Resolution of May
27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of
judgment in this case.6
Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the
latter motion, he asserted that he had attached Registry Receipt No. 3268 to page 14
of the petition in compliance with Circular No. 1-88. Thus, on August 7, 1991, the
Court granted his prayer that his petition be given due course and reinstated the
same.7
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after
the rendition of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC
judge and petitioner’s co-maker in the promissory note. It supports petitioner’s
allegation that they were induced to sign the promissory note on the belief that it was
only for P5,000.00, adding that it was Campos who caused the amount of the loan to
be increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner’s contention in the instant
petition that the Court of Appeals should have declared the promissory note null and
void on the following grounds: (a) the promissory note was signed in the office of
Judge Pantanosas, outside the premises of the bank; (b) the loan was incurred for
the purpose of buying a secondhand chainsaw which cost only P5,000.00; (c) even a
new chainsaw would cost only P27,500.00; (d) the loan was not approved by the
board or credit committee which was the practice, as it exceeded P5,000.00; (e) the
loan had no collateral; (f) petitioner and Judge Pantanosas were not present at the
time the loan was released in contravention of the bank practice, and (g) notices of
default are sent simultaneously and separately but no notice was validly sent to him.8
Finally, petitioner contends that in signing the promissory note, his consent was
vitiated by fraud as, contrary to their agreement that the loan was only for the
amount of P5,000.00, the promissory note stated the amount of P50,000.00.
The above-stated points are clearly factual. Petitioner is to be reminded of the basic
rule that this Court is not a trier of facts. Having lost the chance to fully ventilate his
factual claims below, petitioner may no longer be accorded the same opportunity in
the absence of grave abuse of discretion on the part of the court below. Had he
presented Judge Pantanosas’ affidavit before the lower court, it would have
strengthened his claim that the promissory note did not reflect the correct amount of
the loan.
Nor is there merit in petitioner’s assertion that since the promissory note “is not a
public deed with the formalities prescribed by law but x x x a mere commercial paper
which does not bear the signature of x x x attesting witnesses,” parol evidence may
“overcome” the contents of the promissory note.9 The first paragraph of the parol
evidence rule10 states:
“When the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the
written agreement.”
Clearly, the rule does not specify that the written agreement be a public document.
What is required is that the agreement be in writing as the rule is in fact founded on
“long experience that written evidence is so much more certain and accurate than
that which rests in fleeting memory only, that it would be unsafe, when parties have
expressed the terms of their contract in writing, to admit weaker evidence to control
and vary the stronger and to show that the parties intended a different contract from
that expressed in the writing signed by them.”11 Thus, for the parol evidence rule to
apply, a written contract need not be in any particular form, or be signed by both
parties.12 As a general rule, bills, notes and other instruments of a similar nature are
not subject to be varied or contradicted by parol or extrinsic evidence.13
By alleging fraud in his answer,14 petitioner was actually in the right direction
towards proving that he and his co-makers agreed to a loan of P5,000.00 only
considering that, where a parol contemporaneous agreement was the inducing and
moving cause of the written contract, it may be shown by parol evidence.15
However, fraud must be established by clear and convincing evidence, mere
preponderance of evidence, not even being adequate.16 Petitioner’s attempt to prove
fraud must, therefore, fail as it was evidenced only by his own uncorroborated and,
expectedly, self-serving testimony.
Petitioner also argues that the dismissal of the complaint against Naybe, the principal
debtor, and against Pantanosas, his co-maker, constituted a release of his obligation,
especially because the dismissal of the case against Pantanosas was upon the motion
of private respondent itself. He cites as basis for his argument, Article 2080 of the
Civil Code which provides that
“The guarantors, even though they be solidary, are released from their obligation
whenever by some act of the creditor, they cannot be subrogated to the rights,
mortgages, and preferences of the latter.”
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It is to be noted, however, that petitioner signed the promissory note as a solidary
co-maker and not as a guarantor. This is patent even from the first sentence of the
promissory note which states as follows:
“Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the
City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00)
Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16)
per cent per annum until fully paid.”
A solidary or joint and several obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the whole obligation.17 On
the other hand, Article 2047 of the Civil Code states:
“By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is
called a suretyship.” (Italics supplied.)
While a guarantor may bind himself solidarily with the principal debtor, the liability of
a guarantor is different from that of a solidary debtor. Thus, Tolentino explains:
court never acquired jurisdiction over him. Petitioner, therefore, may only have
recourse against his co-makers, as provided by law.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the
questioned decision of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Regalado (Chairman), Puno, Mendoza and Torres, Jr., JJ., concur.
Petition denied, judgment affirmed.
Notes.—Even when a document appears on its face to be a sale with pacto de retro
the owner of the property may prove that the contract is really a loan with mortgage
by raising as an issue the fact that the document does not express the true intent
and agreement of the parties, and parol evidence then becomes competent and
admissible to prove that the instrument was given merely as a security for the
repayment of the loan. (Olea vs. Court of Appeals, 247 SCRA 274 [1995])
Explanatory evidence may be received to show the circumstances under which a
document has been made and to what debt it relates; A party, by failing to object to
the parol evidence presented, waives the protection of the parol evidence rule.
(Willex Plastic Industries Corporation vs. Court of Appeals, 256 SCRA 478 [1996])

“A guarantor who binds himself in solidum with the principal debtor under the ——o0o——
provisions of the second paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a solidary co-debtor and a fiador
in solidum (surety). The latter, outside of the liability he assumes to pay the debt
before the property of the principal debtor has been exhausted, retains all the other
rights, actions and benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed upon him in Section 4,
Chapter 3, Title I, Book IV of the Civil Code.”18

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more debtors in
one and the same obligation, the presumption is that the obligation is joint so that
each of the debtors is liable only for a proportionate part of the debt. There is a
solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.19

Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may
be proceeded against for the entire obligation.20 The choice is left to the solidary
creditor to determine against whom he will enforce collection.21 Consequently, the
dismissal of the case against Judge Pantanosas may not be deemed as having
discharged petitioner from liability as well. As regards Naybe, suffice it to say that the
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G.R. No. 147561. June 22, 2006.*
STRONGHOLD INSURANCE COMPANY, INC., petitioner, vs. REPUBLIC-
ASAHI GLASS CORPORATION, respondent.
Obligations and Contracts; Death of a Party; As a general rule, the death of either the
creditor or the debtor does not extinguish the obligation—obligations are
transmissible to the heirs, except when the transmission is prevented by the law, the
stipulations of the parties, or the nature of the obligation.—As a general rule, the
death of either the creditor or the debtor does not extinguish the obligation.
Obligations are transmissible to the heirs, except when the transmission is prevented
by the law, the stipulations of the parties, or the nature of the obligation. Only
obligations that are personal or are identified with the persons themselves are
extinguished by death. Section 5 of Rule 86 of the Rules of Court expressly allows the
prosecution of money claims arising from a contract against the estate of a deceased
debtor. Evidently, those claims are not actually extinguished. What is extinguished is
only the obligee’s action or suit filed before the court, which is not then acting as a
probate court.
Same; Same; Surety; Since death is not a defense that a party or his estate can set
up to wipe out the obligations under a performance bond, the surety cannot use such
party’s death to escape its monetary obligation.—In the present case, whatever
monetary liabilities or obligations Santos had under his contracts with respondent
were not intransmissible by their nature, by stipulation, or by provision of law. Hence,
his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate. Death is not a defense that he or his estate can set
up to wipe out the obligations under the performance bond. Consequently, petitioner
as surety cannot use his death to escape its monetary obligation under its
performance bond.
Same; Same; Same; Although the contract of surety is in essence secondary only to a
valid principal obligation, his liability to the creditor or promisee of the principal is said
to be direct, primary and absolute—he is directly and equally bound with the
principal.—As a surety, petitioner is solidarily liable with Santos in accordance with
the Civil Code, which provides as follows: “Art. 2047. By guaranty a person, called the
guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor
in case the latter should fail to do so.” If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.” x x x x x x x x x “Art.
1216. The creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected.” Elucidating on these provisions, the Court in
Garcia v. Court of Appeals, 191 SCRA 493 (1990), stated thus: “x x x. The surety’s
obligation is not an original and direct one for the performance of his own act, but
merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to
be direct, primary and absolute; in other words, he is directly and equally bound with
the principal. x x x.”
Same; Same; Same; The death of the principal debtor will not work to convert,
decrease or nullify the substantive right of the solidary creditor.—Under the law and
jurisprudence, respondent may sue, separately or together, the principal debtor and
the petitioner herein, in view of the solidary nature of their liability. The death of the
principal debtor will not work to convert, decrease or nullify the substantive right of
the solidary creditor. Evidently, despite the death of the principal debtor, respondent
may still sue petitioner alone, in accordance with the solidary nature of the latter’s
liability under the performance bond.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
T.J. Sumawang for petitioner.
Ponce Enrile, Reyes & Manalastas for respondent.
PANGANIBAN, CJ:
A surety company’s liability under the performance bond it issues is solidary. The
death of the principal obligor does not, as a rule, extinguish the obligation and the
solidary nature of that liability.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to
reverse the March 13, 2001 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No.
41630.
The assailed Decision disposed as follows:
“WHEREFORE, the Order dated January 28, 1993 issued by the lower court is
REVERSED and SET ASIDE. Let the records of the instant case be REMANDED to the
lower court for the reception of evidence of all parties.”3
The Facts
The facts of the case are narrated by the CA in this wise:
“On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi)
entered into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS
Construction (JDS), for the construction of roadways and a drainage system in
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Republic-Asahi’s compound in Barrio Pinagbuhatan, Pasig City, where [respondent]
was to pay x x x JDS five million three hundred thousand pesos (P5,300,000.00)
inclusive of value added tax for said construction, which was supposed to be
completed within a period of two hundred forty (240) days beginning May 8, 1989. In
order ‘to guarantee the faithful and satisfactory performance of its undertakings’ x x x
JDS, shall post a performance bond of seven hundred ninety five thousand pesos
(P795,000.00). x x x JDS executed, jointly and severally with [petitioner] Stronghold
Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.
“On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five
thousand pesos (P795,000.00) by way of downpayment.
“Two progress billings dated August 14, 1989 and September 15, 1989, for the total
amount of two hundred seventy four thousand six hundred twenty one pesos and
one centavo (P274,621.01) were submitted by x x x JDS to [respondent], which the
latter paid. According to [respondent], these two progress billings accounted for only
7.301% of the work supposed to be undertaken by x x x JDS under the terms of the
contract.
“Several times prior to November of 1989, [respondent’s] engineers called the
attention of x x x JDS to the alleged alarmingly slow pace of the construction, which
resulted in the fear that the construction will not be finished within the stipulated
240-day period. However, said reminders went unheeded by x x x JDS.
“On November 24, 1989, dissatisfied with the progress of the work undertaken by x x
x JDS, [respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to
Article XIII of said contract, and wrote a letter to x x x JDS informing the latter of
such rescission. Such rescission, according to Article XV of the contract shall not be
construed as a waiver of [respondent’s] right to recover damages from x x x JDS and
the latter’s sureties.
“[Respondent] alleged that, as a result of x x x JDS’s failure to comply with the
provisions of the contract, which resulted in the said contract’s rescission, it had to
hire another contractor to finish the project, for which it incurred an additional
expense of three million two hundred fifty six thousand, eight hundred seventy four
pesos (P3,256,874.00).
“On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim
under the bond for not less than P795,000.00. On March 22, 1991, [respondent]
again sent another letter reiterating its demand for payment under the
aforementioned bond. Both letters allegedly went unheeded.
“[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x
x JDS payment of P3,256,874.00 representing the additional expenses incurred by
[respondent] for the completion of the project using another contractor, and from x x
x JDS and SICI, jointly and severally, payment of P750,000.00 as damages in
accordance with the performance bond; exemplary damages in the amount of
P100,000.00 and attorney’s fees in the amount of at least P100,000.00.
“According to the Sheriff’s Return dated June 14, 1991, submitted to the lower court
by Deputy Sheriff Rene R. Salvador, summons were duly served on defendant-
appellee SICI. However, x x x Jose D. Santos, Jr. died the previous year (1990), and
x x x JDS Construction was no longer at its address at 2nd Floor, Room 208-A, San
Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its whereabouts were
unknown.
“On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondent’s]
money claims against [petitioner and JDS] have been extinguished by the death of
Jose D. Santos, Jr. Even if this were not the case, [petitioner] SICI had been released
from its liability under the performance bond because there was no liquidation, with
the active participation and/or involvement, pursuant to procedural due process, of
herein surety and contractor Jose D. Santos, Jr., hence, there was no ascertainment
of the corresponding liabilities of Santos and SICI under the performance bond. At
this point in time, said liquidation was impossible because of the death of Santos,
who as such can no longer participate in any liquidation. The unilateral liquidation on
the party (sic) of [respondent] of the work accomplishments did not bind SICI for
being violative of procedural due process. The claim of [respondent] for the forfeiture
of the performance bond in the amount of P795,000.00 had no factual and legal
basis, as payment of said bond was conditioned on the payment of damages which
[respondent] may sustain in the event x x x JDS failed to complete the contracted
works. [Respondent] can no longer prove its claim for damages in view of the death
of Santos. SICI was not informed by [respondent] of the death of Santos. SICI was
not informed by [respondent] of the unilateral rescission of its contract with JDS, thus
SICI was deprived of its right to protect its interests as surety under the performance
bond, and therefore it was released from all liability. SICI was likewise denied due
process when it was not notified of plaintiff-appellant’s process of determining and
fixing the amount to be spent in the completion of the unfinished project. The
procedure contained in Article XV of the contract is against public policy in that it
denies SICI the right to procedural due process. Finally, SICI alleged that
[respondent] deviated from the terms and conditions of the contract without the
written consent of SICI, thus the latter was released from all liability. SICI also
prayed for the award of P59,750.00 as attorney’s fees, and P5,000.00 as litigation
expenses.
“On August 16, 1991, the lower court issued an order dismissing the complaint of
[respondent] against x x x JDS and SICI, on the ground that the claim against JDS
did not survive the death of its sole proprietor, Jose D. Santos, Jr. The dispositive
portion of the [O]rder reads as follows:
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‘ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing
business under trade and style, ‘JDS Construction’ and Stronghold Insurance
Company, Inc. is ordered DISMISSED.
‘SO ORDERED.’
“On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking
reconsideration of the lower court’s August 16, 1991 order dismissing its complaint.
[Petitioner] SICI field its ‘Comment and/or Opposition to the Motion for
Reconsideration.’ On October 15, 1991, the lower court issued an Order, the
dispositive portion of which reads as follows:
‘WHEREFORE, premises considered, the Motion for Reconsideration is hereby given
due course. The Order dated 16 August 1991 for the dismissal of the case against
Stronghold Insurance Company, Inc., is reconsidered and hereby reinstated (sic).
However, the case against defendant Jose D. Santos, Jr. (deceased) remains
undisturbed.
‘Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold]
Insurance Company Inc., are set for hearing on November 7, 1991 at 2:00 o’clock in
the afternoon.
‘SO ORDERED.’
“On June 4, 1992, [petitioner] SICI filed its ‘Memorandum for Bondsman/Defendant
SICI (Re: Effect of Death of defendant Jose D. Santos, Jr.)’ reiterating its prayer for
the dismissal of [respondent’s] complaint.
“On January 28, 1993, the lower court issued the assailed Order reconsidering its
Order dated October 15, 1991, and ordered the case, insofar as SICI is concerned,
dismissed. [Respondent] filed its motion for reconsideration which was opposed by
[petitioner] SICI. On April 16, 1993, the lower court denied [respondent’s] motion for
reconsideration. x x x.”4
Ruling of the Court of Appeals
The CA ruled that SICI’s obligation under the surety agreement was not extinguished
by the death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after
SICI for the bond.
The appellate court also found that the lower court had erred in pronouncing that the
performance of the Contract in question had become impossible by respondent’s act
of rescission. The Contract was rescinded because of the dissatisfaction of respondent
with the slow pace of work and pursuant to Article XIII of its Contract with JDS.
The CA ruled that “[p]erformance of the [C]ontract was impossible, not because of
[respondent’s] fault, but because of the fault of JDS Construction and Jose D. Santos,
Jr. for failure on their part to make satisfactory progress on the project, which
amounted to non-performance of the same. x x x [P]ursuant to the [S]urety
[C]ontract, SICI is liable for the non-performance of said [C]ontract on the part of
JDS Construction.”5
Hence, this Petition.6
Issue
Petitioner states the issue for the Court’s consideration in the following manner:
“Death is a defense of Santos’ heirs which Stronghold could also adopt as its defense
against obligee’s claim.”7
More precisely, the issue is whether petitioner’s liability under the performance bond
was automatically extinguished by the death of Santos, the principal.
The Court’s Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Surety’s Liability
Petitioner contends that the death of Santos, the bond principal, extinguished his
liability under the surety bond.
Consequently, it says, it is automatically released from any liability under the bond.
As a general rule, the death of either the creditor or the debtor does not extinguish
the obligation.8 Obligations are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of the parties, or the nature of
the obligation.9 Only obligations that are personal10 or are identified with the
persons themselves are extinguished by death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of
money claims arising from a contract against the estate of a deceased debtor.
Evidently, those claims are not actually extinguished.13 What is extinguished is only
the obligee’s action or suit filed before the court, which is not then acting as a
probate court.14
In the present case, whatever monetary liabilities or obligations Santos had under his
contracts with respondent were not intransmissible by their nature, by stipulation, or
by provision of law. Hence, his death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his estate.15 Death is not a
defense that he or his estate can set up to wipe out the obligations under the
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performance bond. Consequently, petitioner as surety cannot use his death to escape
its monetary obligation under its performance bond.
The liability of petitioner is contractual in nature, because it executed a performance
bond worded as follows:
“KNOW ALL MEN BY THESE PRESENTS:
“That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw
Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE
COMPANY, INC. a corporation duly organized and existing under and by virtue of the
laws of the Philippines with head office at Makati, as Surety, are held and firmly
bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm,
partnership, corporation or association supplying the principal with labor or materials
in the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00),
Philippine Currency, for the payment of which sum, well and truly to be made, we
bind ourselves, our heirs, executors, administrators, successors and assigns, jointly
and severally, firmly by these presents.
“The CONDITIONS OF THIS OBLIGATION are as follows;
“WHEREAS the above bounden principal on the ___ day of __________, 19__
entered into a contract with the REPUBLIC ASAHI GLASS CORPORATION represented
by _________________, to fully and faithfully. Comply with the site preparation
works road and drainage system of Philippine Float Plant at Pinagbuhatan, Pasig,
Metro Manila.
“WHEREAS, the liability of the Surety Company under this bond shall in no case
exceed the sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00)
Philippine Currency, inclusive of interest, attorney’s fee, and other damages, and shall
not be liable for any advances of the obligee to the principal.
“WHEREAS, said contract requires the said principal to give a good and sufficient
bond in the above-stated sum to secure the full and faithfull performance on its part
of said contract, and the satisfaction of obligations for materials used and labor
employed upon the work;
“NOW THEREFORE, if the principal shall perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of said contract during
the original term of said contract and any extension thereof that may be granted by
the obligee, with notice to the surety and during the life of any guaranty required
under the contract, and shall also perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of any and all duly
authorized modifications of said contract that may hereinafter be made, without
notice to the surety except when such modifications increase the contract price; and
such principal contractor or his or its sub-contractors shall promptly make payment to
any individual, firm, partnership, corporation or association supplying the principal of
its sub-contractors with labor and materials in the prosecution of the work provided
for in the said contract, then, this obligation shall be null and void; otherwise it shall
remain in full force and effect. Any extension of the period of time which may be
granted by the obligee to the contractor shall be considered as given, and any
modifications of said contract shall be considered as authorized, with the express
consent of the Surety.
“The right of any individual, firm, partnership, corporation or association supplying
the contractor with labor or materials for the prosecution of the work hereinbefore
stated, to institute action on the penal bond, pursuant to the provision of Act No.
3688, is hereby acknowledge and confirmed.”16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil
Code, which provides as follows:
“Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.
“If a person binds himself solidarily with the principal debtor, the provisions of Section
4,17 Chapter 3, Title I of this Book shall be observed. In such case the contract is
called a suretyship.”
xxx xxx xxx
“Art. 1216. The creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected.”
Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 stated thus:
“x x x. The surety’s obligation is not an original and direct one for the performance of
his own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence secondary only
to a valid principal obligation, his liability to the creditor or promisee of the principal is
said to be direct, primary and absolute; in other words, he is directly and equally
bound with the principal. x x x.”19
Under the law and jurisprudence, respondent may sue, separately or together, the
principal debtor and the petitioner herein, in view of the solidary nature of their
liability. The death of the principal debtor will not work to convert, decrease or nullify
the substantive right of the solidary creditor. Evidently, despite the death of the
principal debtor, respondent may still sue petitioner alone, in accordance with the
solidary nature of the latter’s liability under the performance bond.
 O b l i g a t i o n s a n d C o n t r a c t s ( C o n d i t i o n a l , J o i n t a n d S o l i d a r y O b l i g a t i o n s ) P a g e | 31

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals
AFFIRMED. Costs against petitioner.

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Petition denied, judgment affirmed.

Notes.—There is nothing wrong if the parties to a lease contract agree on certain

mandatory provisions concerning their respective rights and obligations, such as the
procurement of the insurance and the rescission clause, contracts being respected as
the law between the contracting parties who may establish such stipulations, clauses,
terms and conditions as they may want to include. The law on obligations and
contracts does not prohibit parties from entering into an agreement providing that a
violation of the terms of the contract would cause its cancellation even without
judicial intervention. (Heirs of the Late Justice Jose B.L. Reyes vs. Court of Appeals,
338 SCRA 282 [2000])

Courts operate not because one person has been defeated or overcome by another,
but because he has been defeated or overcome illegally—men may do foolish things,
make ridiculous contracts, use miserable judgment, and lose money by them, but not
for that alone can the law intervene and restore. (Paguyo vs. Astorga, 470 SCRA 33
[2005])

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