G.R. No.

170405

February 2, 2010

RAYMUNDO S. DE LEON, Petitioner, vs. BENITA T. ONG.1 Respondent. DECISION CORONA, J.: On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating: xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions: 1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of [respondent] without any further cost whatsoever; 2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal (emphasis supplied) xxx xxx xxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title. Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to assume petitioners outstanding loan. RSLAI required her to undergo credit investigation. Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria

after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title. Respondent persistently contacted petitioner but her efforts proved futile. On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties. Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith. Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioners obligation, the RTC held that the sale was never perfected. In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys fees and the cost of suit. Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a quo erred in dismissing the complaint. The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties. In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay her P50,000 moral damages and P15,000 exemplary damages. Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell. Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a suspensive condition, that is, the approval by RSLAI of respondents assumption of mortgage. Because RSLAI did not allow respondent to assume his (petitioners) obligation, the condition never materialized.

Consequently, there was no sale. Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full ownership of the subject properties upon the execution of the deed. We modify the decision of the CA. Contract of Sale or Contract to Sell? The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a contract to sell while the CA held that it was a contract of sale. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition.12 On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages.13 The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance15 payable directly to RSLAI (on behalf of petitioner) within a reasonable time.16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price.17 On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18 In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Void Sale Or Double Sale? Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions.20 However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to respondent. On this account, the CA erred. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code provides: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (emphasis supplied) This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other persons claim or interest in the property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the sellers title. Was respondent a purchaser in good faith? Yes. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioners outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioners obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondents obligation to assume petitioners indebtedness to RSLAI impossible to perform. Article 1266 of the Civil Code provides: Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically impossible without the fault of the obligor. Since respondents obligation to assume petitioners outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of

determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable. Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner. Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of damages. WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing the balance of the purchase price as provided in their March 10, 1993 agreement. Costs against petitioner. SO ORDERED. RENATO C. CORONA Associate Justice Chairperson WE CONCUR: ANTONIO T. CARPIO Associate Justice ANTONIO EDUARDO B. NACHURA Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice DIOSDADO M. PERALTA Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Associate Justice Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

Per Special Order No. 818 dated January 18, 2010.

The Court of Appeals was impleaded as respondent but was excluded pursuant to Section 4, Rule 45 of the Rules of Court.
1 2

Covered by TCT Nos. 226469, 226470 and 226471 registered in the name of petitioner.

Rollo, pp. 55-56. There is a marked discrepancy between the total amount and the sum of the payments to be made by respondent (or P1,099,500).
3

The records of this case revealed that petitioners outstanding obligation to RSLAI amounted to P715,000 as of April 1, 1993.
4

Respondent had the properties cleaned and landscaped. She likewise had the house (built thereon) painted and repaired.
5 6

Docketed as Civil Case No. 93-2739. Penned by Judge Francisco A. Querubin. Id., pp. 129-151. Docketed as CA-G.R. CV No. 59748.

Penned by Associate Justice Eugenio S. Labitoria and concurred in by Associate Justices Eliezer R. delos Santos and Arturo D. Brion (now a member of this Court) of the Third
9

Division of the Court of Appeals. Rollo, pp. 30-34.

10

Id., pp. 46-47. Under Rule 45 of the Rules of Court.

11

Dijamco v. Court of Appeals. G.R. No. 113665, 7 October 2004, 440 SCRA 190, 197. See also J.B.L. Reyes, 5 Outline of Philippine Civil Law, 2-3 (1957).
12 13

Id. Supra note 3. Supra note 4.

14

15

Paragraph 2 of the deed did not prescribe a period within which respondent should settle petitioners obligation to RSLAI.
16 17

See Civil Code, Art. 1370 which provides: Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the stipulations shall control. If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

18

Civil Code, Art. 1495 provides: Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.

19

Civil Code, Art. 1498 provides: Article 1498. When a sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed. the contrary does not appear or cannot be clearly inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. (emphasis supplied)

20

See Delfin v. Lagon, G.R. No. 132262, 15 September 2006, 502 SCRA 24, 31. Centeno v. Spouses Viray, 440 Phil. 881, 885 (2002). See Civil Code, Art. 1498.

21

22

The Lawphil Project - Arellano Law Foundation

G.R. No. 188064

June 1, 2011

MILA A. REYES, Petitioner, vs. VICTORIA T. TUPARAN, Respondent. DECISION MENDOZA, J.: Subject of this petition for review is the February 13, 2009 Decision1 of the Court of Appeals (CA) which affirmed with modification the February 22, 2006 Decision2 of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of Contract with Damages. On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on that property, she put up a three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the sidewalks were being leased and occupied by tenants and street vendors. In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a monthly rental of 4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in petitioners financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month. On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of 2,000,000.00 payable in installments. On November 15, 1990, petitioners outstanding account on the mortgage reached 2,278,078.13. Petitioner then decided to sell her real properties for at least 6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally buy petitioners real properties for 4,200,000.00 payable on installment basis without interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered the following conditions/concessions: 1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said properties for the amount of 6,500,000.00 within the next three (3) months provided all amounts received by the plaintiff from

the defendant (respondent) including payments actually made by defendant to Farmers Savings and Loan Bank would be refunded to the defendant with additional interest of six (6%) monthly; 2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics store without any rentals for the duration of the installment payments; 3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for drugstore and cosmetics store at a monthly rental of only 8,000.00 after full payment of the stipulated installment payments are made by the defendant; 4. That the defendant will undertake the renewal and payment of the fire insurance policies on the two (2) subject buildings following the expiration of the then existing fire insurance policy of the plaintiff up to the time that plaintiff is fully paid of the total purchase price of 4,200,000.00.3 After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks approval for respondent to assume her (petitioners) outstanding bank account. The assumption would be part of respondents purchase price for petitioners mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent. On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent. Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump sum of 1.2 million pesos without interest as part of the purchase price in three (3) fixed installments as follows: a) 200,000.00 due January 31, 1991 b) 200,000.00 due June 30, 1991 c) 800,000.00 due December 31, 1991 Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments, respondent agreed to pay petitioner an interest of 6% a month. As of August 31, 1992, respondent had only paid 395,000.00, leaving a balance of 805,000.00 as principal on the unpaid installments and 466,893.25 as unpaid accumulated interest.

Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Instead, respondent became interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex. Nonetheless, she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as shown by the fact that since December 1990, she (respondent) had not collected any rentals from the petitioner for the space occupied by her drugstore and cosmetics store. On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose rental income in the amount of 8,000.00 a month since April 1992. Respondent neglected to renew the fire insurance policy on the subject buildings. Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner. On September 2, 1992, respondent offered the amount of 751,000.00 only payable on September 7, 1992, as full payment of the purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale. Respondents Answer Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and uncertain event. Moreover, the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were supposed to be paid by petitioner but she failed to do so. Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage in the amount of 2,278,078.13 plus interest and other finance charges. Because of her payment, she was able to obtain a deed of cancellation of mortgage and secure a release of mortgage on the subject real properties including petitioners ancestral residential property in Sta. Maria, Bulacan. Petitioners claim for the balance of the purchase price of the subject real properties was baseless and unwarranted because the full amount of the purchase price had already been paid, as she did pay more than 4,200,000.00, the agreed purchase price of the subject real properties, and she had even introduced improvements thereon worth more than 4,800,000.00. As the parties could no longer be restored to their original positions, rescission could not be resorted to. Respondent added that as a result of their business relationship, petitioner was able to obtain from her a loan in the amount of 400,000.00 with interest and took several pieces of jewelry worth 120,000.00. Petitioner also failed and refused to pay the monthly rental of

20,000.00 since November 16, 1990 up to the present for the use and occupancy of the ground floor of the building on the subject real property, thus, accumulating arrearages in the amount of 470,000.00 as of October 1992. Ruling of the RTC On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in full the 4.2 million total purchase price of the subject real properties leaving a balance of 805,000.00. It stated that the checks and receipts presented by respondent refer to her payments of the mortgage obligation with FSL Bank and not the payment of the balance of 1,200,000.00. The RTC also considered the Deed of Conditional Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract of sale. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her non-payment in full of the purchase price "may not be considered as substantial and fundamental breach of the contract as to defeat the object of the parties in entering into the contract."4 The RTC believed that the respondents offer stated in her counsels letter dated September 2, 1992 to settle what she thought was her unpaid balance of 751,000.00 showed her sincerity and willingness to settle her obligation. Hence, it would be more equitable to give respondent a chance to pay the balance plus interest within a given period of time. Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys fees because there was no proof that either party acted fraudulently or in bad faith. Thus, the dispositive portion of the RTC Decision reads: WHEREFORE, judgment is hereby rendered as follows: 1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the amount of 805,000.00, representing the unpaid purchase price of the subject property, with interest thereon at 2% a month from January 1, 1992 until fully paid. Failure of the defendant to pay said amount within the said period shall cause the automatic rescission of the contract (Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff and the defendant shall be restored to their former positions relative to the subject property with each returning to the other whatever benefits each derived from the transaction; 2. Directing the defendant to allow the plaintiff to continue using the space occupied by her for drugstore and cosmetic store without any rental pending payment of the aforesaid balance of the purchase price. 3. Ordering the defendant, upon her full payment of the purchase price together with interest, to execute a contract of lease for fifteen (15) years in favor of the plaintiff over the space for the drugstore and cosmetic store at a fixed monthly rental of 8,000.00; and

4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price together with interest, to execute the necessary deed of sale, as well as to pay the Capital Gains Tax, documentary stamps and other miscellaneous expenses necessary for securing the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990, all necessary to transfer ownership of the subject property to the defendant. No pronouncement as to damages, attorneys fees and costs. SO ORDERED.5 Ruling of the CA On February 13, 2009, the CA rendered its decision affirming with modification the RTC Decision. The CA agreed with the RTC that the contract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondents failure to pay the petitioner the balance of the purchase price in the total amount of 805,000.00 was not a breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the purchaser (respondent). It reasoned that out of the total purchase price of the subject property in the amount of 4,200,000.00, respondents remaining unpaid balance was only 805,000.00. Since respondent had already paid a substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. Thus, the decretal portion of the CA Decision reads: WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22 December 2006 of the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that defendant-appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days from finality of this Decision, the amount of 805,000.00 representing the unpaid balance of the purchase price of the subject property, plus interest thereon at the rate of 6% per annum from 11 September 1992 up to finality of this Decision and, thereafter, at the rate of 12% per annum until full payment. The ruling of the trial court on the automatic rescission of the Deed of Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive portion of the trial courts decision is AFFIRMED in all other respects. SO ORDERED.6 After the denial of petitioners motion for reconsideration and respondents motion for partial reconsideration, petitioner filed the subject petition for review praying for the reversal and setting aside of the CA Decision anchored on the following ASSIGNMENT OF ERRORS A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISALLOWING THE OUTRIGHT RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE GROUND THAT RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE

PURCHASE PRICE OF 805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE PRICE OF 805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF 4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT OF 1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF THE 805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT. B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISREGARDING AS GROUND FOR THE RESCISSION OF THE SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE 805,000.00 PLUS INTEREST THEREON. C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION OF THE SUBJECT CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE 805,000.00 TO ONLY "6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11, 1992" DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT WILL PAY INTEREST ON THE 805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY ON DECEMBER 31, 1991. D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF 805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006. E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR THE 29,609.00 BACK RENTALS THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER. F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS EARLIER "URGENT MOTION FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY 7, 2008 AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS THREE (3) SEPARATE "MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL INCOME" DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH HERSELF BY

CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES" DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA CITY. G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT. In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that there was no legal basis for the rescission of the Deed of Conditional Sale with Assumption of Mortgage. Position of the Petitioner The petitioner basically argues that the CA should have granted the rescission of the subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage for the following reasons: 1. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is reciprocity arising from identity of cause by virtue of which one obligation is correlative of the other. 2. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale pursuant to Article 1191 of the Civil Code because of the respondents failure/refusal to pay the 805,000.00 balance of the total purchase price of the petitioners properties within the stipulated period ending December 31, 1991. 3. There was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the 1,200,000.00 balance and unjustly enriched herself at the expense of the petitioner by collecting all rental payments for her personal benefit and enjoyment. Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of 805,000.00 from the date of the delinquency, December 31, 1991, because she obligated herself to do so. Finally, the petitioner asserts that her claim for damages or lost income as well as for the back rentals in the amount of 29,609.00 has been fully substantiated and, therefore, should have been granted by the CA. Her claim for moral and exemplary damages and attorneys fees has been likewise substantiated. Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage entered into between the parties is a contract to sell and not a contract of sale because the title of the subject properties still remains with the petitioner as she failed to pay the installment payments in accordance with their agreement. Respondent echoes the RTC position that her inability to pay the full balance on the purchase price may not be considered as a substantial and fundamental breach of the subject contract and it would be more equitable if she would be allowed to pay the balance including interest within a certain period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a certain amount which was, however, rejected by the petitioner. Finally, respondent states that the subject deed of conditional sale explicitly provides that the installment payments shall not bear any interest. Moreover, petitioner failed to prove that she was entitled to back rentals. The Courts Ruling The petition lacks merit. The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations: 8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of 2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party. 9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.7 Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent. Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that

prevents the petitioner from being bound to convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson8 is enlightening: The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell, not a contract of sale. A contract of sale is defined in Article 1458 of the Civil Code, thus: Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. xxx Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. xxx xxx xxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to sell: In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into by the parties. In this case, the contract entitled "Deed of Conditional Sale" is actually a contract to sell. The contract stipulated that "as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold." Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell." The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price. xxx Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. The full payment of the purchase

price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. [Emphases and underscoring supplied] Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. Espidol, 9 where it was written: Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers non-payment of the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that the parties understood this to be the case. Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition had not taken place. x x x. [Emphases and underscoring supplied] Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of 4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes."10 Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight

or substantial is largely determined by the attendant circumstances.11 In the case at bench, the subject contract stipulated the following important provisions: 2. That the purchase price of 4,200,000.00 shall be paid as follows: a) 278,078.13 received in cash by the First Party but directly paid to the Third Party as partial payment of the mortgage obligation of the First Party in order to reduce the amount to 2,000,000.00 only as of November 15, 1990; b) 721,921.87 received in cash by the First Party as additional payment of the Second Party; c) 1,200,000.00 to be paid in installments as follows: 1. 200,000.00 payable on or before January 31, 1991; 2. 200,000.00 payable on or before June 30, 1991; 3. 800,000.00 payable on or before December 31, 1991; Note: All the installments shall not bear any interest. d) 2,000,000.00 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby assumed by the Second Party. xxx 3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as partial payment of the loan obligation of First Party in order to reduce the account to only 2,000,000.00 as of November 15, 1990 to be assumed by the Second Party effective November 15, 1990.12 From the records, it cannot be denied that respondent paid to FSL Bank petitioners mortgage obligation in the amount of 2,278,078.13, which formed part of the purchase price of the subject property. Likewise, it is not disputed that respondent paid directly to petitioner the amount of 721,921.87 representing the additional payment for the purchase of the subject property. Clearly, out of the total price of 4,200,000.00, respondent was able to pay the total amount of 3,000,000.00, leaving a balance of 1,200,000.00 payable in three (3) installments. Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first and second installments of 200,000.00 each. She, however, failed to pay the third and last installment of 800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay the amount of 751,000.00, which was rejected by petitioner for the reason that the actual balance was 805,000.00 excluding the interest charges.

Considering that out of the total purchase price of 4,200,000.00, respondent has already paid the substantial amount of 3,400,000.00, more or less, leaving an unpaid balance of only 805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply with her obligation when she offered to pay the petitioner the amount of 751,000.00. On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly interest on the 805,000.00 from the date of delinquency, December 31, 1991. As can be gleaned from the contract, there was a stipulation stating that: "All the installments shall not bear interest." The CA was, however, correct in imposing interest at the rate of 6% per annum starting from the filing of the complaint on September 11, 1992.1avvphi1 Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages and attorneys fees. Aside from petitioners self-serving statements, there is not enough evidence on record to prove that respondent acted fraudulently and maliciously against the petitioner. In the case of Heirs of Atienza v. Espidol,13 it was stated: Respondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil Code, which enumerates the cases when moral damages may be recovered. Article 2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. However, this case involves a contract to sell, wherein full payment of the purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. Since there is no breach of contract in this case, respondents are not entitled to moral damages. In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages cannot be granted for they are allowed only in addition to any of the four kinds of damages mentioned. WHEREFORE, the petition is DENIED. SO ORDERED. JOSE CATRAL MENDOZA Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson ANTONIO EDUARDO B. NACHURA Associate Justice DIOSDADO M. PERALTA Associate Justice

ROBERTO A. ABAD Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. G.R. No. 105774 April 25, 2002

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs. THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents. CARPIO, J.: The Case Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992 Decision1 of the Court of Appeals2 in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988 Decision3 of the Regional Trial Court of Manila, Branch 52,4 ordering petitioners Great Asian Sales Center Corporation ("Great Asian" for brevity) and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation ("Bancasia" for brevity) the amount of P1,042,005.00. The Court of Appeals affirmed the trial courts award of interest and costs of suit but deleted the award of attorneys fees. The Facts Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2.0 million. The second board resolution

also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line. On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements ("Surety Agreements" for brevity) in favor of Bancasia. Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three were payable to "New Asian Emp.", and the last three were payable to cash. Various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise. Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475.00, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks. Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales Center", while the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: "account closed", "payment stopped", "account under garnishment", and "insufficiency of funds". The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks: Drawee Bank 1st Deed Solid Bank Pacific Banking Corp. 2nd Deed C-A097480 P137,500.00 23950 P47,211.00 March 16, 1982 March 17, 1982 Check No. Amount Maturity Date

Metrobank

030925 030926

P68,722.00 P45,230.00

March 19, 1982 March 19, 1982 March 23, 1982 April 1, 1982 April 21, 1982 April 28, 1982 April 22, 1982 April 29, 1982 April 23, 1982 April 28, 1982 April 30, 1982 April 30, 1982 March 18, 1982

Solidbank Pacific Banking Corp. 3rd Deed

C-A097478 P140,000.00 CC 769910 P58,867.00

Phil. Trust Company 060835 060836 Allied Banking Corp. 11251624 11251625 Pacific Banking Corp. 237984 237988 237985 Security Bank & Trust Co. 4th Deed Pacific Banking Corp. 860178 22061

P21,228.00 P22,187.00 P41,773.00 P38,592.00 P37,886.00 P47,385.00 P46,748.00 P88,676.00

P200,000.00

After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks. On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified petition was a "Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation," listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin. Ruling of the Trial Court The trial court rendered its decision on January 26, 1988 with the following findings and conclusions: "From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the defendants. The Board Resolution (Exh. "T"), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of financing accommodation, from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to the plaintiff for the amount of P1,042,005.00 sought to be recovered by the latter in this case.5 xxx WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and severally, to pay the former: (a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully paid;

(b) Attorneys fees equivalent to twenty per cent (20%) of the total amount due; and (c) The costs of suit. SO ORDERED."6 Ruling of the Court of Appeals On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorneys fees, as follows: "As against appellants bare denial of it, the Court is more inclined to accept the appellees version, to the effect that the subject deeds of assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation -should not be taken singly and distinct therefrom. In addition to its plausibility, the proposition is, more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs. "A", "D", "I", and "R") and the Board Resolutions of the appellant corporations Board of Directors (Exhs. "T", "U" and "V"), the appellee -- consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. "W" and "X"), as well as the demand letters it served upon the latter as surety (Exhs. "Y" and "Z"). It bears emphasis that the second Resolution of the appellant corporations Board of Directors (Exh. "V") even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. "I" and "R"). Were the appellants posturings true, it seems rather strange that the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. "CC", "DD" and "DD-1").7 xxx The appellants contend that the foregoing warranties enlarged or increased the suretys risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellants Brief). Without saying more, the appellants position is, however, soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. "W" and "X"), to the effect that the "xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the creditor xxx." With the possible exception of the fixed

ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and understood the same. xxx With the foregoing disquisition, the Court sees little or no reason to go into the appellants remaining assignments of error, save the matter of attorneys fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial courts award of attorneys fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57). WHEREFORE, the decision appealed from is MODIFIED, to delete the trial courts award of attorneys fees. The rest is AFFIRMED in toto. SO ORDERED."8 The Issues The petition is anchored on the following assigned errors: "1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners. 2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks. 3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or indicating the name of his supposed principal. 4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded by the private respondent to petitioner-corporation, and not a purchase and sale thereof. 5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or receivables.

6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent when the former included the latter as one of its creditors in its petition for voluntary insolvency, although no claim was filed and proved by the private respondent in the insolvency court. 7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question."9 The issues to be resolved in this petition can be summarized into three: 1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN; 2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW; 3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS. The Courts Ruling The petition is bereft of merit. First Issue: Authority of Arsenio to Sign the Deeds of Assignment Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms. The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save in those instances where the Code requires stockholders approval for certain specific acts. Section 23 of the Code provides: "SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x." In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation. To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different dates, the first on March 17, 1981, and the

second on February 10, 1982. These two board resolutions, as certified under oath by Great Asians Corporate Secretary Mario K. Tan, state: First Board Resolution "RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and negotiate for a loan accommodation or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as may be needed to effectuate the same."10 (Emphasis supplied) Second Board Resolution "RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency. RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem fit and proper. RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation: (signed) Specimen Signature 1. ARSENIO LIM PIAT, JR. 2. _______________________ 3. _______________________ 4. _______________________ PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of such revocation."11 (Emphasis supplied)

The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a "loan accommodation or credit line" with Bancasia for not more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia. The second board resolution expressly authorizes Great Asian to secure a "discounting line" from Bancasia for not more than P2.0 million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, "to sign, execute and deliver any and all documents, checks x x x necessary or incidental to secure" the discounting line. The second board resolution specifically authorizes Arsenio to secure the discounting line "under such terms and conditions as (he) x x x may deem fit and proper." As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line. Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word "Assignor", thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following words: "the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr." The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions. Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian, "x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x x x." The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable then. In short, instead of waiting for the

maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the checks. In exchange for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia. In the financing industry, the term "discounting line" means a credit facility with a financing company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount.12 The term "discount" means the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables which are still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides: "Financing companies" are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property." (Emphasis supplied) This definition of "financing companies" is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).13 Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the Financing Company Act of 1998 states: "Discounting" is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value." (Emphasis supplied) Likewise, this definition of "discounting" is an exact reproduction of the definition of "discounting" in the implementing rules of the old Finance Company Act. Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his authority under the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do. Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian shows its

bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the checks assigned under the Deeds. Second Issue: Breach of Contract by Great Asian Bancasias complaint against Great Asian is founded on the latters breach of contract under the Deeds of Assignment. The Deeds of Assignment uniformly stipulate14 as follows: "If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is fully paid. In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all the costs, plus attorneys fees equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other appropriate venues being hereby waived. The last Deed of Assignment15 contains the following added stipulation: "xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx" Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorneys fees. The failure of the drawers to pay the checks is a suspensive condition,16 the happening of which gives rise to Bancasias right to demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that "Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts;

(4) Acts or omissions punished by law; and (5) Quasi-delicts." By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code further provides that "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides that "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." The explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law. There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.17 Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act. Since in discounting of receivables the assignee is subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks. The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course.18 Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective. Thus, the endorsement does not operate to make the finance company a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks.

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed Bancasias cause of action. Bancasia, however, did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment. The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment.19 In the instant case, all the checks were dishonored for any of the following reasons: "account closed", "account under garnishment", insufficiency of funds", or "payment stopped". In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment. Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay.20 This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, "Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law. One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia "for valuable consideration." Moreover, Article 1354 of the Civil Code states that, "Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary." The record is devoid of any showing on the part of Great Asian rebutting this presumption. On the other hand, Bancasias Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face value of the postdated checks.21 Moreover, in its verified petition for voluntary insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extrajudicial admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency.22 The Insolvency Law requires the petitioner to submit a schedule of debts that must "contain a full and true statement of all his debts and liabilities."23 The Insolvency Law even requires the petitioner to state in his verification that the schedule of debts contains "a full, correct and true discovery of all my debts and liabilities x x x."24 Great Asian cannot now claim that the listing of Bancasia as a creditor was not an admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian.

Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law. Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law. At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed. In summary, Great Asians four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on the part of Great Asian arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and attorneys fees. Third Issue: The liability of surety Tan Chong Lin Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the following common condition: "Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes." Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The

condition on which Tan Chong Lins obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian. Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under the Surety Agreements: "The ASSIGNOR warrants: 1. the soundness of the receivables herein assigned; 2. that said receivables are duly noted in its books and are supported by appropriate documents; 3. that said receivables are genuine, valid and subsisting; 4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course of its business transactions; 5. that the obligors of the receivables herein assigned are solvent; 6. that it has valid and genuine title to and indefeasible right to dispose of said accounts; 7. that said receivables are free from all liens and encumbrances; 8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any objection to this assignment, and has in fact given his/their consent hereto." Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a "novation, compensation, confusion or remission of the debt" made by the creditor with any of the solidary debtors. These warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety Agreements, written on the letter head of "Bancasia Finance & Investment Corporation," uniformly state that "Great Asian Sales Center x x x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from" Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asians business activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety. In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states that:

"x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the Principal may now or may hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%) per annum, or at such increased rate of interest which the Creditor may charge on the Principals obligations or renewals or the reduced amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith. xxx Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principals failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied) The second Surety Agreement contains the following provisions: "x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection therewith. If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR, whether due or not due, and whether owing to the PRINCIPAL in its

personal capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis supplied) Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonored checks, including penalty and attorneys fees in accordance with the Deeds of Assignment. The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorneys fees equivalent to 25% of the outstanding debt. The award of attorneys fees in the instant case is justified,25 not only because of such stipulation, but also because Great Asian and Tan Chong Lin acted in gross and evident bad faith in refusing to pay Bancasias plainly valid, just and demandable claim. We deem it just and equitable that the stipulated attorneys fee should be awarded to Bancasia. The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made a written demand on Great Asian prior to filing the complaint.26 Bancasia made an extrajudicial demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian. WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully paid, (c) attorneys fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the outstanding amount of the attorneys fees from the finality of this judgment until the same is fully paid, and (c) costs of suit. SO ORDERED. Vitug, (Acting Chairman), and Panganiban, JJ., concur. Melo, (Chairman), J., on leave. Sandoval-Gutierrez, J., no part.

Footnotes
1

Rollo, pp. 38-58.

Eleventh Division composed of Justices Nathanael P. De Pano, Jr. (ponente), Jesus M. Elbinias and Angelina S. Gutierrez (now a member of this Court).
2 3

Rollo, pp. 144-157. Penned by Judge Maximo A. Savellano, Jr. Rollo, pp. 154-155. Ibid., pp. 156-157. Ibid., pp. 76-77. Ibid., pp. 79-81. Rollo, pp. 13-15. Plaintiffs Evidence, p. 15. Plaintiffs Evidence, p. 16.

10

11

The following entry on "discount" in Simon & Schuster New Millennium Encyclopedia (2000 CD Version) explains the meaning of a discounting line: "In finance, discounts are premiums or considerations given on the purchase of promissory notes, bills of exchange, or other forms of negotiable commercial paper in advance of their maturity dates. Such discounts make up deductions from the face value of the discounted paper and are made at the time of purchase. The principal agencies engaged in discounting commercial paper are commercial banks and, in a few countries, financial institutions that specialize in that practice. When discounted paper is again put into circulation by a bank or discount house and is discounted again, it is said to be rediscounted.
12

When discounted paper matures, the holders of such bills and notes receive the full face value of the commercial paper they present for payment; therefore, the practice of discounting bills and notes is, in effect, a means of extending credit in the form of loans; the discounts are regarded as advance collections of interest on the loans. Rates for discounting and rediscounting commercial paper are established by commercial banks and discount houses in accordance with the relative supply of money available for commercial loans. In countries in which the banking system is organized on a centralized basis, discount and rediscount rates are determined in large part by the central banks; in the U.S., these rates are established in part by the Federal Reserve System to control the volume of credit and thus stimulate or slow the economy." Section 3 (a) of R.A. No. 5980 stated as follows: "Financing companies," hereinafter called companies, are corporations x x x which are primarily organized for the purpose of extending credit facilities to consumers and to
13

industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, x x x."
14

Plaintiffs Evidence, Exhs. "A", "D", "I", "R", pp. 1, 3, 6 and 11-12. Plaintiffs Evidence, Exh. "R", pp. 11-12.

15

Article 1181 of the Civil Code provides as follows: "In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition."
16 17

Sesbreo vs. Court of Appeals, 222 SCRA 466 (1993).

See Campos & Campos, p. 128, Notes and Selected Cases on Negotiable Instruments Law (1971).
18

Section 114 (d) and (e) of the Negotiable Instruments Law provides as follows: "When notice need not be given to drawer. - Notice of dishonor is not required to be given to the drawer in either of the following cases: (a) x x x; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer has countermanded payment."
19 20

Campos & Campos, p. 516, supra., Note 18. TSN, May 7, 1984, p. 9. Original Records, Exhibits "DD", "DD-1", pp. 238-244. Act No. 1956, Section 15. Ibid., Section 17. Article 2208 of the Civil Code. Eastern Shipping Lines, Inc. vs. Court of Appeals, 234 SCRA 78 (1994).

21

22

23

24

25

26

G.R. No. L-58286 May 16, 1983 AGAPITO B. DUCUSIN and AGAPITO T. DUCUSIN, JR., petitioners, vs. HON. COURT OF APPEALS, VIRGILIO S. BALIOLA and LILIA S. BALIOLA, respondents. Agapito Ducusin in his own behalf.

Roberto Brodette for respondents.

GUERRERO, J.: Petition for certiorari praying that the judgment in CA-G.R. No. SP-11473- PR entitled "Virgilio S. Baliola and Lilia S. Baliola vs. Hon. Alfredo L. Benipayo, Judge, CFI of Manila, Branch XVI, Agapito Ducusin and Agapito Ducusin, Jr." be set aside and reversed, the dispositive portion of which reads: WHEREFORE, premises considered, the judgment appealed from is hereby MODIFIED. The complaint for ejectment is hereby DISMISSED. Petitioners are hereby ordered to pay private respondent Agapito Ducusin Sr. the sum of P263.29 as their proportionate share for the use of the booster pump. Petitioners are likewise ordered to share in the expenses incurred for the use of the booster pump in the future until the termination of the contract of lease. No costs. It appears from the records that on February 20, 1975, petitioner Agapito Ducusin leased to private respondent, Virgilio S. Baliola married to Lilia Baliola a one-door apartment unit located in 3319-A, Magistrado Araulio St., Bacood, Sta. Mesa, Manila under the contract of lease, Exhibit "A", pertinent stipulations of which state: xxx xxx xxx Now, therefore, for and in consideration of the foregoing premises and covenants and stipulations herein contained in a monthly rental of Two Hundred and Twenty (P220.00) Pesos, the Lessor hereby lease the one-door residential apartment located at No. 3319-A Maj. Araulio St., Bacood, Manila under the following terms, stipulations and conditions: l. The lessees agrees to pay to the Lessor on or before the 30th day of each and every month the sum of Two Hundred and Twenty (P220.00) Pesos as rental fee for the subject premises, without need of demand; 2. The term of this contract shall be in a month to month basis commencing on February 19,1975 until terminated by the lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for in accordance with law; 3. The Lessees, hereby warrants that the leased premises will be used by him exclusively as residence only and that Lessees shag not directly or indirectly sublease, assign, transfer, convey or in any manner encumber the right of lease or in any part of the leased premises under any circumstances whatsoever; 4. The Lessees hereby agrees to keep and maintain the premises clean or same in such good and tenantable conditions, and shall comply with all

government sanitary regulations and safety, as well as electrical regulations which may be imposed by the government or the lessor himself; 5. All utilities such as light, water, telephone, gas service, etc. in the leased premises shall be paid for by the Lessees, 6. The Lessor hereby undertake to maintain the Lessees in a peaceful enjoyment and possession of the lease premises and warrants that the premises lease by him to the lessees, are in good habitable condition; 7. That all repairs necessary for the preservation of the wire screens, electric switches and other parts, plumbing fixtures, articles or toilet parts and tubes, paints and payment for labor for repairs shall be for the account of the Lessees, except big major repairs; 8. That the Lessees agrees to deposit the amount of four hundred and forty ( P440.00) pesos rental deposit to the Lessor. The said rental deposit which is equivalent to payment of two months rental fee could be used or be paid for the Lessees last two months stay in the leased premises. ... (Exhibit "A"). (Emphasis supplied) The Baliola spouses occupied the apartment for almost two (2) years, paying its rentals when on January 18, 1977, petitioner Ducusin sent a "Notice to Terminate Lease Contract" to private respondents Baliolas terminating the lease and giving them until March 15, 1977 within which to vacate the premises for the reason that his two children were getting married and will need the apartment for their own use and residence (Exhibit "B"). A second letter dated February 14, 1977 was thereafter sent by Ducusin to respondents Baliolas making an inquiry on any action the latter had taken on the previous notice to terminate the lease contract. Respondents made no reply to the "Notice to Terminate Lease Contract". Indeed, they wrote a letter to the Secretary of National Defense dated February 12, 1977, reporting that Ducusin was intent on evicting them from the leased premises (Exhibit "6"). So on April 14, 1977, petitioners filed an action for ejectment against the Baliola spouses in the City Court of Manila, Branch XVI, alleging that having constructed the apartment complex for the use and residence of his children (each to a unit) if and when they decide to marry and live independently and that the apartment unit located at 3319-A Magistrado Araullo St., Bacood, Manila having been allotted to his son, Agapito Ducusin, Jr., the said unit is now needed by Agapito, Jr. who is getting married in the month of May, 1977 and that said Agapito, Jr. has decided to live independently. The complaint for eviction further alleged that the lessees have violated the terms of the contract by subleasing the premises; that the lessees have not used the premises solely for residential purposes but have used the same as factory and/or manufacturing premises for their commercial goods; and that they have neglected to undertake repairs of the apartment and the premises according to their agreement.

The lessees denied the allegations of the lessor and claimed in their Answer that the ejectment suit "is a well-planned scheme to rid the defendants and family out of their apartment, and to circumvent the law prohibiting raising the rental of apartments and houses. " The City Court of Manila, Branch XVI, decided in favor of the lessor Ducusin on the ground that the "defendants' contract with the plaintiff has already terminated with the notice of termination sent by the plaintiff to the defendants on the ground that he needs the premises for his own children." The trial court's decision states the following dispositive portion: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the defendants and all persons claiming possession under them to vacate the premises known as 3319-A Magistrado Araulio St., Bacood, Sta. Mesa, Manila, and surrender possession thereof to the plaintiffs herein; ordering the defendants to pay the plaintiffs the amount of P220.00 monthly as reasonable compensation for the use of the premises starting December 1978 until the premises is finally vacated and possession thereof surrendered to the plaintiffs; ordering the defendants to pay to the plaintiffs the amount of P263.29 as reimbursement for the expenses incurred for the use of the booster pump; ordering the defendants to pay the plaintiff the amount of P700.00 as reasonable attorney's fees, plus the costs of suit. The lessees appealed to the Court of First Instance of Manila, Branch XVI, assigning the following errors: (a) That the lower court erred in not finding that the written contract of lease falls within the range of P.D. No. 20; (b) That the lower court erred in finding that the need of the leased premises by the plaintiffs-appellees to be lawful and valid and satisfactorily proved by them; (c) That the lower court erred in awarding damages in the form of reimbursement of the expenses for the use of the booster pump and attorney's fees; and (d) That the lower court erred in not allowing defendants-appellants' counter-claim. The Court of First Instance of Manila, Branch XVI, affirmed the decision of the City Court of Manila, Branch XVI, based on its findings that: (1) mere allegation of the landlord in his need of the premises for the use of the immediate members of his family "constitutes a cause to eject the tenants ..."; (2) the marriage of private respondent Agapito Ducusin, Jr. was proved by the testimony of private respondent Agapito Ducusin, Sr., the latter's son Arturo, photographs depicting married couple and a marriage certificate (Exhibits "F", "G", "H" and "I"); and (3) that petitioners admitted the existence of the verbal agreement to share the expenses incurred for the use of the booster pump. The lessees, still not satisfied with the CFI decision, went to the Court of Appeals on a petition for review submitting that: "(1) that the respondent CFI of Manila erred in holding that the need of the premises in question by the private respondents is lawful and valid; (2) that the respondent CFI of Manila erred in finding that the need of the premises a quo by the private respondents has been sufficiently proven by them and legally entitle them to judicially eject the petitioners from the premises; (3) that the respondent CFI of Manila erred in ruling that the award by the trial court to private respondents of damages in the form of reimbursement of expenses for the use of the booster pump is proper and legal."

In resolving the appeal, the respondent appellate court proceeded to "examine (the) determination of the questions (1) whether or not an owner of a leased premises can unilaterally terminate the contract of lease under the terms and conditions stated therein; and (2) whether or not the happening of the resolutory condition re: the need of the immediate members of the family of the lessor of the leased premises - has been established by a preponderance of evidence Sustaining the validity of the clause in the contract of lease in question, the Court of Appeals held: The clause in the contract of lease dated February 20, 1975 at issue in the instant case reads: xxx xxx xxx 2. The term of this contract shall be in a month-to-month basis commencing on February 19, 1975 until terminated by mutual agreement or terminated by the lessor on the ground that his children need the premises for their own use or residence or upon any ground provided for in accordance with law-, xxx xxx xxx (Emphasis supplied.) The Parties to the contract of lease agreed that the obligations arising from the said contract shall be extinguished due to the following causes; (1) termination of the contract by mutual consent of the Parties; (2) when the lessor elects to terminate the contract on the ground that his children need the premises for their own use or residence and (3) for any cause as provided in accordance with law. In the complaint for ejectment, private respondents rely on three causes of action to support their claim that the contract of lease entered into with the petitioners was terminated: (1) violation of the clause in the contract against sublease: (21 use of the leased premises for commercial purposes and (3) happening of the resolutory condition - need of the leased premises by the lessor's children. The trial court rejected the first two grounds as not being supported by evidence presented but sustained the private respondents' third cause of action. The validity of the terms and conditions in a contract is governed by the following Civil Code provisions: Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.

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. ... The resolutory condition in the contract of lease re: the need of the lessor's children of the leased premises is not a condition the happening of which is dependent solely upon the will of the lessor. The happening of the condition depends upon the will of a third person the lessor's children. Whenever the latter require the use of the leased premises for their own needs, then the contract of lease shall be deemed terminated. The validity of the said condition as agreed upon by the parties stands. We agree with the above ruling of the respondent Court and, therefore, affirm the same. As to the second issue: whether the need of the immediate members of the family of the lessor of the leased premises has been established by a preponderance of evidence, the respondent court ruled against the lessor Ducusin and We quote: Upon a careful review of the records of the instant case, We are of the opinion that the private respondents have not proved by a preponderance of evidence the alleged need of the immediate members of his family of the use of the leased premises in dispute, Private respondent Agapito Ducusin Sr. alleged in his complaint that he needed the leased premises because his son Agapito Ducusin, Jr. was getting married. In the proceedings at the trial Court, he testified that Agapito Ducusin Jr. was getting married on May 1977, hence the latter needed the leased premises (T.S.N., March 7, 1978, pp. 11-12). No proof of the marriage of private respondent Agapito Ducusin, Jr. was presented from the time of the institution of the case against the petitioners on April 13, 1977 until June 5, 1979 when Arturo Ducusin testified for his father, Agapito Ducusin, Sr. In fact, evidence on the alleged marriage of private respondent Agapito Ducusin, Jr. was only presented after private respondents filed a "Motion To Reopen The Case For Reception of Rebuttal Evidence For Plaintiffs." The evidence consists of photographs of a wedding (Exhibits "J" and "J-1") and a marriage certificate (Exhibit "H"). An alleged letter of the private respondent Agapito Ducusin, Jr. where it stated that the latter intended to settle in the Philippines instead of Canada where he was presently residing with his wife (Exhibits "F" & "G") was also presented. To give weight and credence to the evidence presented by the private respondents on the need of the landlord's children to occupy and use the leased premises runs counter to the time-honored rule against hearsay evidence.

Private respondent Agapito Ducusin, Jr. though named a plaintiff in the case at bar never appeared during the proceedings in the trial Court. Even his presence in the Philippines in 1977 when the case was instituted remains subject to conjecture. His father, private respondent Agapito Ducusin Sr., merely intimated during the trial Court proceedings that the younger Ducusin applied as an immigrant to Canada (T.S.N. March 7, 1978, pp. 11- 12) The letters of private respondent Agapito Ducusin, Jr. to his brother Arturo Ducusin, photographs of the alleged wedding of the former and the certificate of marriage of Agapito Ducusin, Jr. are all self-serving. . Petitioners are entitled to cross-examine the person who y made the statements in the letter following the rulings in Pastor v. Gaspar, 2 Phil. 529; U.S. v. Caligagan, 2 Phil. 433; U.S. v. Manalo, 6 Phil. 364. The evidence presented to prove the alleged marriage of Agapito Ducusin, Jr. should be excluded in accordance with the provisions of Rule 130, Sec. 30 of the Rules of Court which states: Sec. 30. Testimony generally confined to personal knowledge; hearsay excluded: A witness can testify only to those facts which he knows of his own knowledge; that is, which is derived from his own perception, except as otherwise provided in these rules.' Moreover, even if We are satisfactorily convinced of the marriage of private respondent Agapito Ducusin, Jr., it does not establish the alleged need of the latter to use the leased premises presently occupied by the petitioners. Private respondent Agapito Ducusin, Sr. did not show that the one-door apartment leased to the petitioners was the only place available for the use of his son, Agapito Ducusin, Jr. On the contrary, petitioner Virgilio Baliola testified that private respondent Agapito Ducusin, Sr. informed him before the action was instituted against him that another apartment unit, No. 3319D similarly owned by the latter would soon be vacated (T.S.N., July 27, 1978, pp. 17-18). According to the petitioners, the above ruling of the Court of Appeals is erroneous and should be reversed because "I. The contract expired by the termination of the period of the lease and upon notice to vacate, irrespective of the truth or not of petitioner' need of the subject premises; II. The evidence of petitioners on the third cause of action was sufficient to show their need of the premises for their personal use and occupation; and III. There being a provision in the contract on the third cause of action, the house rental laws have not been violated." (Petition, p. 11, Records). We find for the petitioners. We do not agree with the holding of the respondent court that the petitioners have not proved by a preponderance of evidence the alleged need of the immediate members of his family for the use of the leased premises, which holding is grounded on the assumption that "to give weight and credence to the evidence presented by the private respondents on the need of the landlord's children to occupy and use the leased premises runs counter to the time-honored rule against hearsay evidence. " (CA Decision, p. 108, Records). The Court of Appeals rejected the letters of petitioner Agapito Ducusin, Jr. to his brother, Arturo Ducusin the photographs of the wedding of Ducusin, Jr. and the

certificate of marriage of Ducusin, Jr. and Adela Villacorta as self. serving, citing Sec. 30, Rule 130 of the Rules of Court which provides that the witness can testify only to those facts which he knows of his own knowledge. And since the marriage was not proved, the appellate court reasoned out that the need for the use of the leased premises by Ducusin, Jr. was not established. We reject this holding of the respondent court. In the first place, as pointed out by the petitioners, the testimony of petitioner Agapito Ducusin, Sr. should have been given weight by the appellate court because he testified that his son Agapito Jr. got married to Adela Villacorta on November 25, 1978 in Edmonton Alberta, Canada at the St. Anthony Church and that he knows this fact of marriage since he was present during the wedding ceremony and pictures marked Exhibits "H", "I", "J" and "J-1" were taken of the wedding party after the ceremony and wherein he Identified himself in the picture (Exh. "J") as "the gentleman in dark jacket on the right side" (t.s.n., June 5,1979, pp. 19-21; pp. 177-179, Records). And with the testimony of Arturo Ducusin, a brother of Agapito Jr., which may be considered under Rule 130, Sec. 33 as an act or declaration about pedigree, the word "pedigree" including relationship, family genealogy, birth, marriage, death, the dates when and the places where these facts occurred, and the names of the relatives, as well as the presentation of the marriage certificate of Agapito Ducusin, Jr. and Adela Villacorta (all of which evidence were noted, admitted and considered in the decision of the case before the CFI of Manila, Branch XVI (p. 87, Records) and in the decision of the City Court of Manila, Branch XVI (p. 62, Records) both holding that the marriage has been sufficiently proved, We rule that the Court of Appeals gravely erred in excluding the evidence described above and presented to prove the marriage of Agapito Ducusin, Jr. We likewise conclude that the intention to use the leased premises as the residence of Ducusin Jr. has been satisfactorily and sufficiently proved by clear, strong, and substantial evidence found in the records of the case. The testimony of the petitioner, Ducusin Sr., that his son needs the leased premises as he was getting married and did in fact got married, for which reason petitioner sent the "Notice to Terminate His Contract" (Exh. "B"); the testimony of Arturo Ducusin -that he had an overseas telephone talk with his brother Agapito Jr. informing that the latter was coming home and that he and his wife were preparing their documents and arriving within the month (t.s.n., pp. 13, 17, June 5, 1979; p. 15, Records) and the documentary evidence (Exh. "F" and "G") which is the letter of the private respondent Agapito Ducusin, Jr. where it stated that he intended to settle in the Philippines instead of Canada where he was presently residing with his wife (CA decision, p. 108, Records) - an these evidence clearly and competently prove the intention of petitioner Agapito Ducusin, Jr. to re side in the Philippines and use the leased premises for his residence and his wife. The contention of the petitioner that the contract of lease in question is for a definite period, being on a month-to-month basis beginning February 19, 1975 and is, therefore, not covered by P.D. No. 20, is correct. The rule We laid down in Rantael vs. Court of Appeals and Teresa Llave, L-47519, April 30, 97 SCRA 453, is squarely on an fours with the case at bar and is controlling. The Supreme Court said, and We quote: 1. The source of disagreement between petitioner Rantael and respondent Llave relates to the following quoted provisions of the Agreement on Occupancy of Apartment dated August 1, 1974:

The undersigned TENANT hereby agrees with Mrs. Teresa F. Llave as owner, to use, occupy and live in the latter's apartment at Standford, Quezon City, known as Door 51-A on a month to month basis, beginning today, under the following terms and condition until the premises, (are) completely vacated. ... The aforequoted provisions of the Agreement on Occupancy of Apartment cannot but be read as providing for a definite period for the lease. Period relates to "length of existence; duration" or even a "series of years, months or days in which something is completed" Definite means "having distinct or certain limits; determinate in extent or character; limited fixed." A definite period, therefore, refers to a portion of time certain or ascertainable as to its beginning, duration and termination. As already stated above, the parties further expressly agreed that 'upon thirty (30) days notice, either party may terminate this agreement, each fulfilling their respective obligations herein agreed. In the case at bar, the lease entered into between petitioner Rantael and respondent Llave commenced, in accordance with the provisions of the Agreement on Occupancy of Apartment, on August 1, 1974, the date of execution of the said Agreement, considering that the parties employed the phrase "beginning today" with reference to the starting point of the period during which petitioner Rantael would have use and occupancy of the premises of unit 51-A. As to the duration and termination of the aforementioned contractual relations, the parties used the phrase "on a month to month basis" in the Agreement with reference to the length of time during which petitioner Rantael would have use and occupancy of the leased premises. And month here should be construed, in like manner as in the interpretation of laws pursuant to the provisions of Article 12 of the Civil Code of the Philippines, there being no reason to deviate therefrom, as a period composed of thirty days. The contractual relations between petitioner Rantael and respondent Llave ceased after the expiration of the first thirty days reckoned from August 1, 1974 but continued for the next thirty-day period and expired after the last day thereof, repeating the same cycle for the succeeding thirty-day periods, until the Id respondent Llave exercised her express prerogative under the agreement to terminate the same. xxx xxx xxx However, by express exception of P.D. No. 20, judicial ejectment lies "when the lease is for a definite period"or when the fixed or definite period agreed upon has expired. The lease in the case at bar having a definite period, it indubitably follows that the exception, rather than the general rule, applies and, therefore, respondent Llave's right to judicially eject petitioner Rantael from the premises may be duly enforced. This has been the consistent administrative

interpretation of the Office of the President, supra. Therefore, no error was committed by respondent appellate court. ... As to the holding of the respondent court that petitioner Ducusin, Sr. "did not show that the one-door apartment leased to the petitioners was the only place available for the use of his son, Agapito Ducusin, Jr.," on the contrary, We find in the records evidence that out of the eight doors apartment building belonging to the petitioner Ducusin Sr., three doors, now 31 years old, became untenantable due to wear and tear and the remaining five doors were all occupied by tenants; first door, 3319, is occupied by Mr. Coluso, 3319-A by the Baliola spouses, 3319-B by Mr. & Mrs. Magsano, 3319-C by Mr. & Mrs. de los Santos, and 3319-D by Videz. (pp. 13-14, t.s.n., July 27, 1978; see p. 14, Records). From this evidence may be deduced that there is no other place available for the use and residence of petitioner's son, Agapito Ducusin, Jr. Assuming that Agapito Ducusin, Sr. informed his tenant Virgilio Baliola that another apartment unit No. 3319, would soon be vacated, the alleged vacancy is nearly speculative and there is no showing that it actually became vacant and available. There is, therefore, no factual and legal basis for the respondent court's decision dismissing the complaint for ejectment and reversing the findings of facts of both the City Court of Manila, Branch XVI, and the Court of First Instance of Manila, Branch XVI. And that brings Us to the last point in the review of the case at bar. Generally, the findings of fact by the Court of Appeals are deemed accepted as the basis for review of the appellate court's decision. But this rule is not without exception such as shown in the case before Us where the Court of Appeals reversed the findings of fact made by the trial court (the City Court of Manila) and also the Court of First Instance, by excluding evidence supposedly hearsay when they are not pursuant to the rules of evidence, by ignoring evidence on record that are competent, clear and substantial and by misapprehending the facts, thereby making manifest the commission of grave abuse of discretion on the part of the respondent appellate court and so warrants and justifies a review not only of the law but also the facts. We reiterate Our doctrine in Tolentino vs. De Jesus, 56 SCRA 167, where it was ruled that the findings of facts of the Court of Appeals are not conclusive where there is grave abuse of discretion; the judgment is based on misapprehens ion of facts; the findings of facts of the Court of Appeals are contrary to those of the trial court or premised on the absence of evidence and is contradicted by evidence on record; the conclusion is a finding grounded entirely on speculation, surmise and conjectures; and the inference made is manifestly mistaken. These are the exceptions to the general rule. The instant petition is such an exception. WHEREFORE, IN VIEW OF THE FOREGOING, the decision of the respondent Court of Appeals subject of this review is hereby REVERSED and SET ASIDE. The decision of the City Court of Manila, Branch XVI and affirmed on appeal to the Court of First Instance of Manila, Branch XVI is hereby reinstated and restored, with costs in favor of petitioners. SO ORDERED. Makasiar, Aquino, Concepcion, Jr., De Castro and Escolin JJ., concur. Abad Santos, J., took no part.