G.R. No.

L-29900 June 28, 1974

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE
PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Florentino B. del Rosario for petitioner-appellant.
Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While
several points were raised, the decisive issue is whether a creditor is barred by prescription in his
attempt to collect on a promissory note executed more than fifteen years earlier with the debtor sued
promising to pay either upon receipt by him of his share from a certain estate or upon demand, the
basis for the action being the latter alternative. The lower court held that the ten-year period of
limitation of actions did apply, the note being immediately due and demandable, the creditor
admitting expressly that he was relying on the wording "upon demand." On the above facts as found,
and with the law being as it is, it cannot be said that its decision is infected with error. We affirm.
From the appealed decision, the following appears: "The parties in this case agreed to submit the
matter for resolution on the basis of their pleadings and annexes and their respective memoranda
submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July
3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby
the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the
amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now
before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo
Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling
located at 2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo
Palanca, assessed at P41,800.00. The idea is that once said property is brought under
administration, George Pay, as creditor, can file his claim against the administratrix." 1 It then stated
that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca
to be appointed as administratrix; that the property sought to be administered no longer belonged to the
debtor, the late Justo Palanca; and that the rights of petitioner-creditor had already prescribed. The
promissory note, dated January 30, 1962, is worded thus: " `For value received from time to time since
1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking
Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at
the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of
the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa
Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then came this paragraph: "The Court has
inquired whether any cash payment has been received by either of the signers of this promissory note
from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this provision but
that petitioner is only claiming on his right under the promissory note ." 3 After which, came the ruling that

the wording of the promissory note being "upon demand," the obligation was immediately due. Since it
was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired from that
time until to date. The action, therefore, of the creditor has definitely prescribed." 4 The result, as above
noted, was the dismissal of the petition.

In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the
correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of
the late Justo Palanca to be appointed as administratrix, as to the property sought to be
administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of
petitioner-creditor having already prescribed. As noted at the outset, only the question of prescription
need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be
affirmed, considering the clear tenor of the promissory note.
From the manner in which the promissory note was executed, it would appear that petitioner was
hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving
cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs, or, as
expressed therein, "upon demand." There is nothing in the record that would indicate whether or not
the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen
years after the execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code
provides: "Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once." This used to be Article 1113 of
the Spanish Civil Code of 1889. As far back as Floriano v. Delgado, 5 a 1908 decision, it has been
applied according to its express language. The well-known Spanish commentator, Manresa, on this point,
states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se
fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia
de aquel: la exigibilidad immediata." 6
The obligation being due and demandable, it would appear that the filing of the suit after fifteen
years was much too late. For again, according to the Civil Code, which is based on Section 43 of Act
No. 190, the prescriptive period for a written contract is that of ten years. 7 This is another instance
where this Court has consistently adhered to the express language of the applicable norm. 8 There is no
necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the
petition to fail just because the surviving spouse refuses to be made administratrix, or just because the
estate was left with no other property. The decision of the lower court cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.

G.R. No. 75096 October 23, 1990

SATURNINO SONGCUAN, petitioner,
vs.
Hon. INTERMEDIATE APPELLATE COURT, MARIANO ALVIAR BELEN ALVIAR and LUZ
ALVIAR PINLACrespondents.
G.R. No. 80851 October 23, 1990
SATURNINO SONGCUAN, petitioner,
vs.
HON. GENARO C. GINES, in his capacity as Judge of the Regional Trial Court, Branch 26, San
Fernando, La Union, ATTY. ALFREDO A. TALAVERA, in his capacity as Clerk of Court,
Regional Trial Court of San Fernando, La Union, MARIANO ALVIAR, BELEN ALVIAR and LUZ
ALVIAR PINLAC respondents.
Arcadio G. De la Cruz for petitioner.
Alfredo F. Tadiar for private respondents.

MEDIALDEA, J.:
Victoriano Alviar was the owner of two parcels of land located at San Fernando, La Union. On the
land stands a building owned by his son, Mariano, and his wife, Belen. On September 29, 1966, the
Alviars sold these realties to Saturnino Songcuan for P34,026.09. On October 10, 1966 Songcuan
executed an instrument entitled "Deed of Repurchase of Two Parcels of Land and a ResidentialCommercial Building" (pp. 5-6, Records [Exhibit]) wherein he gave the Alviars, or any one of them or
"their respective heirs and assigns, the right and privilege to repurchase [the realties they had
previously sold to him] ... at the price of P34,026.09 ... for, during and within the period of 10 years
counted from the date of execution of [the] instrument" provided that the redemptioner also pays the
cost of improvements.
Appearing at the dorsal portion of the instrument below the notarial subscription is an undated
additional condition which reads, to wit:

P.S. (Additional condition)

In the event the said Victoriano Alviar, Mariano S. Alviar and Belen F. Alviar or either
of them, exercise or exercises the right to repurchase the above described properties
and they or either of them become the owner and possessor of the premises, they
shall or either of them be obliged to give me (Saturnino A. Songcuan) the right of
lease and are or is obliged to execute a lease contract with me for a period of twenty
five (25) years from the time of exercising the right to repurchase the premises, at a
monthly rental of three hundred ninety pesos (P390.00), for the premises actually
occupied by me (Saturnino Songcuan) at the time of the execution of this instrument.
(p. 6, Records [Exhibit])
The signatures of the Alviars appear at the bottom of the paragraph. At the time of the execution of
the instrument, Songcuan, though then already the owner of the realties, was admittedly actually
occupying only one-third portion of the ground floor of the 3 storey building, apparently having
leased the remaining portion to third persons.
Sometime in March, 1969 the mentioned building was razed by fire and Songcuan erected another
at his own expense. Subsequently, Songcuan had the realties registered in his name and was
issued OCT No. 0-1029 sometime in 1969.
In 1974, the Alviars filed a complaint against Songcuan, docketed as Civil Case No. 2621, for
"Redemption with Consignation" to compel the defendant to effect the redemption to them of the
subject realties. Victoriano Alviar having died at this time, he was represented by his heirs.
Songcuan refused to sell back to the Alviars the properties because the latter was tendering only the
price of P34,026.00 whereas Songcuan wanted reimbursement for the cost of the building he
erected and also for the cost of the registration of the realties. The Alviars, on the other hand,
claimed that the transactions between them and Songcuan were one of equitable mortgage and,
therefore, Songcuan cannot compel them to pay for the cost of the building he had erected without
their permission.
In his Answer, Songcuan prays, in the alternative, that in the event the Alviars be allowed to
repurchase the realties the latter be also compelled to lease the properties to him pursuant to the
"P.S. (Additional Condition)" embodied in the instrument dated October 10, 1966 as above quoted.
On July 29, 1977, the then Court of First Instance of La Union rendered its decision decreeing the
following:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
(a) Declaring that the true and real agreement or contract of the parties Exhs. C, D, E
& F for plaintiffs; (Exhs. 1, 2, 3 and 4 for the defendant) on the two parcels of land
with the commercial building is that of a deed of sale with right to repurchase and
hereby enjoins the parties to comply and abide by the terms of their contract;

(b) Declaring that plaintiffs' right to repurchase the property as admitted by the
defendant for a period of 10 years from October 10, 1966 to October 10, 1976, as
stipulated in their contracts, have been suspended by the filing of the complaint on
November 22, 1974. Said redemption period is suspended during the pendency of
this case. Plaintiffs-vendor-a-retro may exercise their right to repurchase the
properties within the remaining period of one (1) year, 10 months and 18 days from
the finality of this decision (Ong Chua v. CARR, 53 Phil. 975) or within the period of
30 days from finality of this decision as provided for under Art. 1606 of the New Civil
Code;
(c) The plaintiffs in exercising their right to repurchase the properties should pay the
defendant the necessary and useful improvement in putting up the building in the
amount of P30,000.00, in addition to the repurchase price of P34,026.09, and the
additional expenses of P1,000.00 for the registration of the land under Act 496;
otherwise, the defendant may retain possession of the parcels of land and building
until reimbursement is fully made;
(d) No damages, including attorney's fees and litigation expenses is awarded to both
parties.
Without pronouncement as to costs. (P. 57, Record [Exhibits]
From this decision Songcuan appealed alleging among others that "[the [lower court] erred in
refusing to make a finding as to the appellants' right to lease the property for 25 years ... "
On July 15, 1980 the Court of Appeals, in CA-G.R. No. 62934, affirmed in toto the appealed
decision. With respect to Songcuan's alleged right to lease, the appellate court stated that the lower
court had already upheld the validity of the deeds executed by the parties and, therefore, "such
pronouncement regarding appellant's right to lease the premises for 25 years is unnecessary. The
condition is already there in the contract itself which is the law between the parties."
This decision became final and executory on March 9, 1981, the petition for its review having been
denied in our resolution, in G.R. No. 55196 dated January 26, 1981.
The writ of execution was issued on April 1, 1981 but was returned unsatisfied because Songcuan
refused to accept the manager's check tendered to him claiming that it was not legal tender and for
the further reason that the Alviars refused to execute a lease contract in his favor as embodied in
their October 10, 1966 contract. Analias writ of execution was issued on June 1, 1981 but also was
not satisfied.
On July 7, 1981, Songcuan filed a complaint with the same Court of First Instance of La Union for
Rescission of Right to Repurchase which was docketed as Civil Case No. 3213 and which gave rise
to this petition. Songcuan was of the opinion that the Alviars' forfeited their right to repurchase the
realties for having failed to redeem them within 30 days from the finality of the decision in Civil Case
No. 2621 contrary to the mandate of Article 1606 of the Civil Code.

On July 9, 1981, the trial court in Civil Case No. 2621 issued an order for its Clerk of Court to issue a
Deed of Reconveyance in behalf of Songcuan and in favor of the Alviars.
On July 11, 1981, Songcuan amended his complaint alleging that rescission lies for the further
reason that the Alviars failed to execute in his favor a lease contract citing Article 1191 of the Civil
Code, and that if the Deed of Reconveyance had already been executed by the Clerk of Court it be
declared null since the Alviars had already forfeited their right to redeem the realties. Songcuan's
amended complaint further added an alternative prayer that in the event the court decides to compel
him to reconvey the properties, the Alviars be also compelled to lease the realties to him for 25 years
according to the terms of their contract.
On July 17, 1981, the Clerk of Court of the Court of First Instance of La Union issued a Deed of
Reconveyance transferring ownership of the properties to the Alviars. Possession of the properties,
however, was retained by Songcuan as the trial court granted his prayer for a writ of preliminary
injunction in Civil Case No. 3213 to enjoin the Alviars from taking possession of the realties.
In their Answer, the Alviars alleged that their tender to Songcuan of a manager's check was a valid
tender of payment and that Songcuan is no longer entitled to lease the premises because the
subject matter of the contract was burned in 1969 citing Article 1655 of the Civil Code.
On March 19, 1984, the trial court rendered its decision, the dispositive portion of which reads, to wit:
WHEREFORE judgment is hereby rendered as follows:
1. That defendants exercised (sic) their right of redemption within the specific period
of one (1) year, ten (10) months and eighteen (18) days from March 9, 1981 as
provided for in the decision of Civil Case No. 2621;
2. That the Deed of Reconveyance executed by the Clerk of Court and Ex-Officio
Provincial Sheriff dated July 17, 1981 is valid and cannot be rescinded;
3. That plaintiff is the lessee of the defendant on the entire properties mentioned in
the Deed of Reconveyance for a period of twenty-five (25) years to be counted from
July 17, 1981 at the monthly rental of THREE HUNDRED NINETY (P390.00)
PESOS;
4. That the preliminary injunction restraining defendants or any of their
representatives or agents or persons acting on their behalf from committing acts of
dispossession against plaintiff on the premises of this complaint is now made
PERMANENT during the existence of the lease contract, ...;
5. That defendants shall maintain the plaintiff in the peaceful and adequate
enjoyment of the lease for the entire duration of the lease;
6. That defendants shall pay plaintiff the amount of P50,000.00 by way of attorney's
fees as damages with interest at the legal rate of 12% per year until fully paid; and

7. That defendants pay costs of this suit.

SO ORDERED. (pp. 363-386, Records)
Both parties appealed, Songcuan pressing for rescission while the Alviars disclaiming any obligation
to lease the premises to Songcuan. The Alviars, in the alternative countered, that if Songcuan was
entitled to lease the premises, the lease should cover only 1/3 of the building.
On June 27, 1986 the Court of Appeals in AC G.R. CV No. 04325 rendered its decision (pp. 5869, Rollo) modifying that of the trial court's by limiting the area Songcuan is entitled to lease to only
1/3 of the building; declaring the Alviars entitled to a writ of possession with regard the rest of the
premises; deleting the award of attorney's fees and ordering the parties to each bear the cost of
litigation.
From this decision Songcuan appealed by certiorari to this Court (G.R. No. 75096). The principal
issue here is the same as that presented in the lower court and the Court of Appeals, which is,
whether or not the Alviars had forfeited their right to repurchase, or whether the right may be
rescinded under the grounds advanced by Songcuan. After deliberating on the arguments raised,
this Court rules in the negative.
We do not find merit in Songcuan's argument that the Alviars had forfeited their right to repurchase
the subject premises for having failed to exercise it within thirty days from the finality of the decision
in Civil Case No. 2621 citing the third paragraph of Article 1606 of the Civil Code which provides that
a vendor-a-retro may still exercise his right to repurchase "within thirty days from the time the final
judgment was rendered in a civil action on the basis that the contract was a true sale with right to
repurchase." The judgment in Civil Case No. 2621 which had become final on March 9, 1981, had
ordained that the running of the period within which the Alviars could repurchase the premises had
been suspended during the pendency of the case and they were given the option either to
repurchase the premises within 30-days from the finality of the judgment, as provided by the law, or
within the remaining period of one year, ten months and 18 days therefrom. It is axiomatic that a final
judgment may no longer be amended and to limit now to 30 days the period within which the Alviars
may repurchase the premises would be an open violation of the rule. A final judgment is the law
between the parties to a case and controls their relation with respect to the controversy there
presented. We thus fully agree with the pronouncement of the appellate court on this matter that:
There is no merit in Songcuan's claim that the Alviars' failure to abide by Article 1606
of the New Civil Code foreclosed their right to repurchase. Indeed, Art. 1606 provides
that the vendors-a-retro may repurchase within 30 days from the finality of the
judgment ... However, it is noted that the final decision in Case 2621, which became
final on March 9, 1981, gave the Alviars two alternative periods within which to
exercise the right to repurchase either within 30 days as prescribed in Article 1606, or
within 1 year, 10 months and 18 days from March 9, 1981, ... Accordingly, whichever
of the alternative periods the Alviars may avail of, would still constitute a valid
exercise of their right. (pp. 64-65, Rollo)

Neither do We agree that the right of the Alviars to repurchase may be rescinded under Article 1191
of the Civil Code. Songcuan asserts that the October 10, 1966 contract he entered into with the
Alviars created a reciprocal obligation between them for him to reconvey the subject premises and
for the Alviars to lease the realties to him and the refusal of the latter to fulfill their obligation giving
him the right, under Article 1191, to rescind "the right of [the Alviars] to repurchase" the realties. The
law provides in part:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
xxx xxx xxx
The cited law is not applicable in this case. Although the parties are each obligor and obligee of the
other, their corresponding obligation can hardly be called reciprocal. In reciprocal obligations the
obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of which
entitles the other party to rescind the contract. In the case at bar, there are two separate and distinct
obligations, each independent of the other. The obligation of Songcuan to reconvey the property is
not dependent on the obligation of the Alviars to lease the premises to the former. The obligation of
the Alviars is not an essential part of the contract. This is evident in the wordings of the "P.S.
(Additional Condition)" itself which states that "in the event [the Alviars] exercised the right to
repurchase ... and becomes the owner and possessor of the premises, they shall ... be obliged to
give [Songcuan] the right of lease and are ... obliged to execute a lease contract .... " In other words,
the obligation of the Alviars to lease to Songcuan the subject premises arises only after the latter had
reconveyed the realties to them. We quote with approval the following statements of the respondent
appellate court:
For the stipulation imposes on them the obligation to execute the lease only at such
time when the Alviars or any one among them exercises the right and becomes the
possessor of the properties in question ... Otherwise stated, the obligation to execute
the lease emerges only if the Alviars had already repurchased and obtained
possession of the repurchased properties. (p. 66, Rollo)
Should the Alviars fail to lease the subject premises to Songcuan after reconveyance, then the
latter's remedy is not for rescission but for specific performance, which in fact he asked for in the
alternative and was granted by the trial court and the Court of Appeals.
Thus, the right of the Alviars to repurchase must be upheld notwithstanding the fact that such right
had not been annotated at the back of Songcuan's certificate of title. The purpose of annotation is
only to serve notice to third persons and not to lend validity or nullity to an instrument.
The next question to be resolved is how much area Songcuan is entitled to lease. The trial court,
awarded Songcuan the whole premises, based on the "P.S. (Additional Condition)" which speaks of
"the premises actually occupied by [Songcuan]" and there was no evidence presented by the Alviars
on the area Songcuan was actually occupying. Further, the trial court said that the right of Songcuan
to lease the whole premises is strengthened by the fact that he became the registered owner of the
realties and hence, has complete dominion over the properties.

We rule, however, that the P.S. clause refers to the area Songcuan was actually occupying and not
to what he constructively may possess as the owner of the premises at the time of the execution of
the October 10, 1966 contract. Further, as pointed out by private respondents, there was no need to
present any evidence as to the area Songcuan was actually occupying since at the pre-trial
conference in the trial court, Songcuan had admitted that he was occupying only one-third of the
single story Alviar building.
Under the parties' agreement, Songcuan's lease was to start from the time the Alviars exercised their
right to repurchase. Songcuan should therefore be deemed to have become the Alviar's lessee on
July 17, 1981 and should pay rent in the amount agreed upon from said date.
As regards the deletion by the respondent court of the award to Songcuan of attorney's fees, We
fully agree and quote its pronouncement that:
We find no justification for the exorbitant award in Songcuan's favor of attorney's fees
of P50,000.00 considered as damages. Attorney's fees in concept of damages may
be awarded only if the defendant acted in gross and evident bad faith in refusing
plaintiffs just and demandable claim. (Art. 2208, New Civil Code). In the case at bar,
there is no showing that the Alviars acted in bad faith in refusing Songcuan's claim to
a 25-year lease of the entire premises. The stipulation to that effect merely refers to
the premises Songcuan was occupying at the execution of the deed on October 10,
1966, which admittedly, was only 1/3 of the ground floor of the Alviar building, not the
entire building. .... " (p. 68, Rollo)
With respect to G.R. No. 80851, which is a petition to enjoin the implementation of the writ of
possession in favor of the Alviars, there is no need to discuss the issues therein, as the same has
become moot and academic, this Court having pronounced that Songcuan is entitled to lease only
one-third of the ground floor of the subject building, with the Alviars being entitled to a writ of
possession as to the rest.
ACCORDINGLY, the decision under review in G.R. No. 75096 is hereby AFFIRMED, and the petition
in G.R. No. 80851 is DISMISSED for having become moot and academic.
SO ORDERED.

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,

vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE
LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the
Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to
reconvey to private respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a
deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title
No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from
the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment
and use of a medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college
shall be under obligation to erect a cornerstone bearing that name. Any net income
from the land or any of its parks shall be put in a fund to be known as the "RAMON
LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection
of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action
for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to
the time the action was filed the latter had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated with the National Housing Authority
(NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed;
that it did not violate any of the conditions in the deed of donation because it never used the donated
property for any other purpose than that for which it was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the
donation and declared it null and void. The court a quo further directed petitioner to execute a deed

of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents
herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the
back of petitioner's certificate of title were resolutory conditions breach of which should terminate the
rights of the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the
appellate court rendered its decision reversing the appealed decision and remanding the case to the
court of origin for the determination of the time within which petitioner should comply with the first
condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in
the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation
which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding
that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the
trial court for the fixing of the period within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the
donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's
playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to
establish a medical college thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on 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. Thus, when a person donates land to another on the condition that
the latter would build upon the land a school, the condition imposed was not a condition precedent or
a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is, before the donee could become the owner of
the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid
before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be revoked and all rights which the donee may
have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land
donated, depended upon the exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended upon the

exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation and
recovery of the property donated cannot be specifically determined in the instant case. A cause of
action arises when that which should have been done is not done, or that which should not have
been done is done. 7 In cases where there is no special provision for such computation, recourse must
be had to the rule that the period must be counted from the day on which the corresponding action could
have been instituted. It is the legal possibility of bringing the action which determines the starting point for
the computation of the period. In this case, the starting point begins with the expiration of a reasonable
period and opportunity for petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the erection of an educational institution,
such as government laws and regulations pertaining to education, building requirements and
property restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies,
which provides that the courts may fix the duration thereof because the fulfillment of the obligation
itself cannot be demanded until after the court has fixed the period for compliance therewith and
such period has arrived. 8
This general rule however cannot be applied considering the different set of circumstances existing
in the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when such procedure would be a mere technicality
and formality and would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot
comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the
same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for the court to decree the
rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring
to incidental circumstances of a gratuitous contract should be resolved in favor of the least
transmission of rights and interests.10 Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to
comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of
time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for
all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of
the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot
No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.

CORONEL, ANNABELLE C. GONZALES (for herself and on
behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners, vs.
THE
COURT
OF
APPEALS,
CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.
DECISION
MELO, J.:

The petition before us has its roots in a complaint for specific performance
to compel herein petitioners (except the last named, Catalina Balais
Mabanag) to consummate the sale of a parcel of land with its improvements
located along Roosevelt Avenue in Quezon City entered into by the parties
sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in
this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter
referred to as Coronels) executed a document entitled Receipt of Down Payment
(Exh. A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 - Total amount
50,000.00 - Down payment
-----------------------------------------P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1.
Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon
execution of the document aforestated;
2.
The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3.
Upon the transfer in their names of the subject property, the Coronels will
execute the deed of absolute sale in favor of Ramona and the latter will pay the former
the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00)
Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels
father was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with
Ramona by depositing the down payment paid by Concepcion in the bank in trust for
Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific
performance against the Coronels and caused the annotation of a notice of lis
pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering
the same property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for decision solely
on the basis of documentary exhibits. Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence accordingly marked as
Exhibits
A
through
J,
inclusive
of
their
corresponding
submarkings. Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as Exhibits 1 through

10, likewise inclusive of their corresponding submarkings. Upon motion of

the parties, the trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and an additional 15 days
within which to submit their corresponding comment or reply thereto, after
which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge
Reynaldo Roura, who was then temporarily detailed to preside over Branch 82
of the RTC of Quezon City. On March 1, 1989, judgment was handed down
by Judge Roura from his regular bench at Macabebe, Pampanga for
the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now
TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the
purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby
canceled and declared to be without force and effect. Defendants and intervenor and
all other persons claiming under them are hereby ordered to vacate the subject
property and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and
attorneys fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)

A motion for reconsideration was filed by petitioners before the new

presiding judge of the Quezon City RTC but the same was denied by Judge
Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for decision as of April 14, 1988
when the parties terminated the presentation of their respective documentary evidence
and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that
they were allowed to file memoranda at some future date did not change the fact that
the hearing of the case was terminated before Judge Roura and therefore the same
should be submitted to him for decision; (2) When the defendants and intervenor did
not object to the authority of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time before the undersigned
Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after they received the
decision in question which happens to be adverse to them; (3) While it is true that
Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he
was in all respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he returned to his
Official Station at Macabebe, Pampanga, he did not lose his authority to decide or
resolve cases submitted to him for decision or resolution because he continued as
Judge of the Regional Trial Court and is of co-equal rank with the undersigned
Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec. 9,
Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the documentary evidence
presented by the parties, she is convinced that the Decision of March 1, 1989 is
supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul

Decision and Render Anew Decision by the Incumbent Presiding Judge datedMarch
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991,
the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.)
rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents Reply Memorandum, was filed onSeptember
15, 1993. The case was, however, re-raffled to undersigned ponente only
on August 28, 1996, due to the voluntary inhibition of the Justice to whom the
case was last assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial courts decision,
we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of
the other issues in the case at bar is the precise determination of the legal
significance of the document entitled Receipt of Down Payment which was
offered in evidence by both parties. There is no dispute as to the fact that the
said document embodied the binding contract between Ramona Patricia
Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other,
pertaining to a particular house and lot covered by TCT No. 119627, as
defined in Article 1305 of the Civil Code of the Philippines which reads as
follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the Receipt of Down

Payment embodied a perfected contract of sale, which perforce, they seek to
enforce by means of an action for specific performance, petitioners on their
part insist that what the document signified was a mere executory contract to
sell, subject to certain suspensive conditions, and because of the absence of
Ramona P. Alcaraz, who left for the United States of America, said contract
could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought
about by the way each interprets the terms and/or conditions set forth in said
private instrument. Withal, based on whatever relevant and admissible
evidence may be available on record, this Court, as were the courts below, is
now called upon to adjudge what the real intent of the parties was at the time
the said document was executed.
The Civil Code defines a contract of sale, 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.
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 nonfulfillment 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. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force.
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 of 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 (cf. Homesite and
Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). 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.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by the
owner not to the party the seller contracted with, but to a third person, as in
the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the
suspensive condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property. There is no double
sale in such case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-sellers title per se, but the
latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely affect
the sellers title thereto. In fact, if there had been previous delivery of the
subject property, the sellers ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer have any title to
transfer to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or constructive
knowledge of such defect in the sellers title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good faith. Such

second buyer cannot defeat the first buyers title. In case a title is issued to
the second buyer, the first buyer may seek reconveyance of the property
subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and
private respondents.
It is a canon in the interpretation of contracts that the words used therein
should be given their natural and ordinary meaning unless a technical
meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586
[1992]). Thus, when petitioners declared in the said Receipt of Down
Payment that they -Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by
TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price,
the natural and ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of petitioners
to transfer title to the buyer, but since the transfer certificate of title was still in
the name of petitioners father, they could not fully effect such transfer
although the buyer was then willing and able to immediately pay the purchase
price. Therefore, petitioners-sellers undertook upon receipt of the down
payment from private respondent Ramona P. Alcaraz, to cause the issuance
of a new certificate of title in their names from that of their father, after which,
they promised to present said title, now in their names, to the latter and to
execute the deed of absolute sale whereupon, the latter shall, in turn, pay the
entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers
herein made no express reservation of ownership or title to the subject parcel
of land. Furthermore, the circumstance which prevented the parties from

entering into an absolute contract of sale pertained to the sellers themselves

(the certificate of title was not in their names) and not the full payment of the
purchase price. Under the established facts and circumstances of the case,
the Court may safely presume that, had the certificate of title been in the
names of petitioners-sellers at that time, there would have been no reason
why an absolute contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not
merely promise to sell the property to private respondent upon the fulfillment
of the suspensive condition. On the contrary, having already agreed to sell
the subject property, they undertook to have the certificate of title change to
their names and immediately thereafter, to execute the written deed of
absolute sale.
Thus, the parties did not merely enter into a contract to sell where the
sellers, after compliance by the buyer with certain terms and conditions,
promised to sell the property to the latter. What may be perceived from the
respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father,
completely willing to transfer ownership of the subject house and lot to the
buyer if the documents were then in order. It just so happened, however, that
the transfer certificate of title was then still in the name of their father. It was
more expedient to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance of a new
transfer of the certificate of title in their names upon receipt of the down
payment in the amount ofP50,000.00. As soon as the new certificate of title is
issued in their names, petitioners were committed to immediately execute the
deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly
entered into so as to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property until the
buyer effects full payment therefor, in the contract entered into in the case at
bar, the sellers were the ones who were unable to enter into a contract of
absolute sale by reason of the fact that the certificate of title to the property

was still in the name of their father. It was the sellers in this case who, as it
were, had the impediment which prevented, so to speak, the execution of an
contract of absolute sale.
What is clearly established by the plain language of the subject document
is that when the said Receipt of Down Payment was prepared and signed by
petitioners Romulo A. Coronel, et. al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to the successful
transfer of the certificate of title from the name of petitioners father,
Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact,
fulfilled on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the
conditional contract of sale between petitioners and private respondent
Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the
execution of the deed of absolute sale in a public instrument, which petitioners
unequivocally committed themselves to do as evidenced by the Receipt of
Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1181. 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.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners names was fulfilled on February 6, 1985, the
respective obligations of the parties under the contract of sale became
mutually demandable, that is, petitioners, as sellers, were obliged to present

the transfer certificate of title already in their names to private respondent

Ramona P. Alcaraz, the buyer, and to immediately execute the deed of
absolute sale, while the buyer on her part, was obliged to forthwith pay the
balance of the purchase price amounting toP1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of
title immediately upon receipt of the downpayment above-stated". The sale was
still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the
title to the property under their names, there could be no perfected contract of
sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of
the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that
thecondition herein referred to was actually and indisputably fulfilled on
February 6, 1985, when a new title was issued in the names of petitioners as
evidenced by TCT No. 327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1),

the parties entered into a contract of sale subject to the suspensive condition
that the sellers shall effect the issuance of new certificate title from that of their
fathers name to their names and that, on February 6, 1985, this condition was
fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently
provides Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract
of sale became mutually due and demandable as of the time of fulfillment or
occurrence of the suspensive condition on February 6, 1985. As of that point
in time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January
19, 1985 because they were then not yet the absolute owners of the inherited
property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent and value of the inheritance of a person are transmitted
through his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to
succession by operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became
binding and enforceable upon them. It is expressly provided that rights to the

succession are transmitted from the moment of death of the decedent (Article
777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be declared
unless the creditors have been paid is rendered moot by the fact that they
were able to effect the transfer of the title to the property from the decedents
name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack
of capacity to enter into an agreement at that time and they cannot be allowed
to now take a posture contrary to that which they took when they entered into
the agreement with private respondent Ramona P. Alcaraz. The Civil Code
expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
Having represented themselves as the true owners of the subject property at
the time of sale, petitioners cannot claim now that they were not yet the
absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected
contract of sale between them and Ramona P. Alcaraz, the latter breach her
reciprocal obligation when she rendered impossible the consummation thereof
by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15,
Answer with Compulsory Counterclaim to the Amended Complaint, p. 2;
Rollo, p. 43), for which reason, so petitioners conclude, they were correct in
unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the
contract of sale in the instant case. We note that these supposed grounds for
petitioners rescission, are mere allegations found only in their responsive
pleadings, which by express provision of the rules, are deemed controverted
even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of
Court). The records are absolutely bereft of any supporting evidence to

substantiate petitioners allegations. We have stressed time and again that

allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong,
110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere
allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States
of America on February 6, 1985, we cannot justify petitioners-sellers act of
unilaterally and extrajudicially rescinding the contract of sale, there being no
express stipulation authorizing the sellers to extrajudicially rescind the
contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda.
De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of
Ramona P. Alcaraz because although the evidence on record shows that the
sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been
dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted for and
in behalf of her daughter, if not also in her own behalf. Indeed, the down
payment was made by Concepcion D. Alcaraz with her own personal Check
(Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no
evidence showing that petitioners ever questioned Concepcions authority to
represent Ramona P. Alcaraz when they accepted her personal
check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned,
the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default,
insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the defense of the
physical absence of Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new transfer certificate of
title in their names and signified their willingness and readiness to execute the
deed of absolute sale in accordance with their agreement. Ramonas
corresponding obligation to pay the balance of the purchase price in the
amount of P1,190,000.00 (as buyer) never became due and demandable and,
therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfill his obligation, delay by the other
begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil
Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who presents
the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April
25, 1985 as proof of the second contract of sale was registered with the
Registry of Deeds of Quezon City giving rise to the issuance of a new
certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus,
the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to

pass to the buyer, the exceptions being: (a) when the second buyer, in good
faith, registers the sale ahead of the first buyer, and (b) should there be no
inscription by either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer. Unless, the
second buyer satisfies these requirements, title or ownership will not transfer
to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the
subject, now a distinguished member of the Court, Justice Jose C. Vitug,
explains:
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyers
rights except when the second buyer first registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register, since knowledge
taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129
SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R.
No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was
annotated on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not

whether or not the second buyer in good faith but whether or not said second
buyer registers such second sale in good faith, that is, without knowledge of
any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag
could not have in good faith, registered the sale entered into on February 18,
1985 because as early as February 22, 1985, a notice of lis pendens had
been annotated on the transfer certificate of title in the names of petitioners,
whereas petitioner Mabanag registered the said sale sometime in April,
1985. At the time of registration, therefore, petitioner Mabanag knew that the
same property had already been previously sold to private respondents, or, at
least, she was charged with knowledge that a previous buyer is claiming title
to the same property. Petitioner Mabanag cannot close her eyes to the defect
in petitioners title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another person
claims said property in a previous sale, the registration will constitute a registration in
bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and
Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between
petitioners and Catalina B. Mabanag on February 18, 1985, was correctly
upheld by both the courts below.
Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent insofar
as the subject contract of sale is concerned, the issue of whether or not
Concepcion was also acting in her own behalf as a co-buyer is not squarely
raised in the instant petition, nor in such assumption disputed between mother
and daughter. Thus, We will not touch this issue and no longer disturb the
lower courts ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby

DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.

G.R. No. L-48194 March 15, 1990

JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners,

vs.
COURT OF APPEALS and LEONARDO TIRO, respondents.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.

REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No.
52296-R, dated March 6, 1978, 1 the dispositive portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby set aside and another one
entered ordering the defendants-appellees, jointly and solidarily, to pay plaintiffappellant the sum of P79,338.15 with legal interest thereon from the filing of the
complaint, plus attorney's fees in the amount of P8,000.00. Costs against
defendants-appellees. 2
As found by respondent court or disclosed by the records, 3 this case was generated by the following
antecedent facts.
Private respondent is a holder of an ordinary timber license issued by the Bureau of Forestry
covering 2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966 he executed
a "Deed of Assignment" 4 in favor of herein petitioners the material parts of which read as follows:
xxx xxx xxx
I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis
Oriental, for and in consideration of the sum of ONE HUNDRED TWENTY
THOUSAND PESOS (P120,000.00), Philippine Currency, do by these presents,
ASSIGN, TRANSFER AND CONVEY, absolutely and forever unto JOSE M. JAVIER
and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of 2897 F.B.
Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH CORPORATION
in the total amount of P120,000.00, payment of which shall be made in the following
manner:
1. Twenty thousand (P20,000.00) Pesos upon signing of this contract;
2. The balance of P100,000.00 shall be paid P10,000.00 every
shipment of export logs actually produced from the forest concession
of Timberwealth Corporation.

That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs.
Jose M. Javier, as soon as stock certificates are issued.
xxx xxx xxx
At the time the said deed of assignment was executed, private respondent had a pending
application, dated October 21, 1965, for an additional forest concession covering an area of 2,000
hectares southwest of and adjoining the area of the concession subject of the deed of assignment.
Hence, on February 28, 1966, private respondent and petitioners entered into another
"Agreement" 5 with the following stipulations:
xxx xxx xxx
1. That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and
convey whatever rights he may acquire, absolutely and forever, to TIMBERWEALTH
CORPORATION, a corporation duly organized and existing under the laws of the
Philippines, over a forest concession which is now pending application and approval
as additional area to his existing licensed area under O.T. License No. 391-103166,
situated at Medina, Misamis Oriental;
2. That for and in consideration of the aforementioned transfer of rights over said
additional area to TIMBERWEALTH CORPORATION, ESTRELLA F. JAVIER and
JOSE M. JAVIER, both directors and stockholders of said corporation, do hereby
undertake to pay LEONARDO TIRO, as soon as said additional area is approved
and transferred to TIMBERWEALTH CORPORATION the sum of THIRTY
THOUSAND PESOS (P30,000.00), which amount of money shall form part of their
paid up capital stock in TIMBERWEALTH CORPORATION;
3. That this Agreement is subject to the approval of the members of the Board of
Directors of the TIMBERWEALTH CORPORATION.
xxx xxx xxx
On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest
concession was renewed up to May 12, 1967 under O.T.L. No. 391-51267, but since the concession
consisted of only 2,535 hectares, he was therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are hereby given until
May 12, 1967 to form an organization such as a cooperative, partnership or
corporation with other adjoining licensees so as to have a total holding area of not
less than 20,000 hectares of contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic meters, otherwise, your license
will not be further renewed. 6
Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment
executed by private respondent in their favor, entered into a Forest Consolidation Agreement 7 on

April 10, 1967 with other ordinary timber license holders in Misamis Oriental, namely, Vicente L. De Lara,
Jr., Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement, they all
agreed to pool together and merge their respective forest concessions into a working unit, as envisioned
by the aforementioned directives. This consolidation agreement was approved by the Director of Forestry
on May 10, 1967. 8 The working unit was subsequently incorporated as the North Mindanao Timber
Corporation, with the petitioners and the other signatories of the aforesaid Forest Consolidation
Agreement as incorporators. 9

On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of
assignment, private respondent filed an action against petitioners, based on the said contracts, for
the payment of the amount of P83,138.15 with interest at 6% per annum from April 10, 1967 until full
payment, plus P12,000.00 for attorney's fees and costs.
On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts
but interposing the special defense of nullity thereof since private respondent failed to comply with
his contractual obligations and, further, that the conditions for the enforceability of the obligations of
the parties failed to materialize. As a counterclaim, petitioners sought the return of P55,586.00 which
private respondent had received from them pursuant to an alleged management agreement, plus
attorney's fees and costs.
On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts
in this wise:
What were actually transferred and assigned to the defendants were plaintiff's rights
and interest in a logging concession described in the deed of assignment, attached
to the complaint and marked as Annex A, and agreement Annex E; that the "shares
of stocks" referred to in paragraph II of the complaint are terms used therein merely
to designate or identify those rights and interests in said logging concession. The
defendants actually made use of or enjoyed not the "shares of stocks" but the
logging concession itself; that since the proposed Timberwealth Corporation was
owned solely and entirely by defendants, the personalities of the former and the latter
are one and the same. Besides, before the logging concession of the plaintiff or the
latter's rights and interests therein were assigned or transferred to defendants, they
never became the property or assets of the Timberwealth Corporation which is at
most only an association of persons composed of the defendants. 10
and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a
part of the sum of P69,661.85 paid by the latter to the former in partial satisfaction of the latter's
claim. 11
After trial, the lower court rendered judgment dismissing private respondent's complaint and ordering
him to pay petitioners the sum of P33,161.85 with legal interest at six percent per annum from the
date of the filing of the answer until complete payment. 12
As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which
reversed the decision of the court of a quo.

On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a
motion for reconsideration, for the reason that they needed to change counsel. 13 Respondent court,
in its resolution dated March 31, 1978, gave petitioners fifteen (15) days from March 28, 1978 within
which to file said motion for reconsideration, provided that the subject motion for extension was filed on
time. 14 On April 11, 1978, petitioners filed their motion for reconsideration in the Court of Appeals. 15 On
April 21, 1978, private respondent filed a consolidated opposition to said motion for reconsideration on the
ground that the decision of respondent court had become final on March 27, 1978, hence the motion for
extension filed on March 28, 1978 was filed out of time and there was no more period to extend. However,
this was not acted upon by the Court of Appeals for the reason that on April 20, 1978, prior to its receipt of
said opposition, a resolution was issued denying petitioners' motion for reconsideration, thus:
The motion for reconsideration filed on April 11, 1978 by counsel for defendantsappellees is denied. They did not file any brief in this case. As a matter of fact this
case was submitted for decision without appellees' brief. In their said motion, they
merely tried to refute the rationale of the Court in deciding to reverse the appealed
judgment. 16
Petitioners then sought relief in this Court in the present petition for review on certiorari. Private
respondent filed his comment, reiterating his stand that the decision of the Court of Appeals under
review is already final and executory.
Petitioners countered in their reply that their petition for review presents substantive and
fundamental questions of law that fully merit judicial determination, instead of being suppressed on
technical and insubstantial reasons. Moreover, the aforesaid one (1) day delay in the filing of their
motion for extension is excusable, considering that petitioners had to change their former counsel
who failed to file their brief in the appellate court, which substitution of counsel took place at a time
when there were many successive intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension can justifiably be excused,
considering that aside from the change of counsel, the last day for filing the said motion fell on a
holiday following another holiday, hence, under such circumstances, an outright dismissal of the
petition would be too harsh. Litigations should, as much as possible, be decided on their merits and
not on technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has
relaxed the stringent application of technical rules in order to resolve the case on its merits. 17 Rules
of procedure are intended to promote, not to defeat, substantial justice and, therefore, they should not be
applied in a very rigid and technical sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central issue of whether the deed of
assignment dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the
former for total absence of consideration and the latter for non-fulfillment of the conditions stated
therein.

Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as stated in the deed itself. Since said corporation never
came into existence, no share of stocks was ever transferred to them, hence the said deed is null
and void for lack of cause or consideration.
We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed
was the transfer of the forest concession of private respondent to petitioners for P120,000.00. This
finding is supported by the following considerations, viz:
1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth
Corporation stated therein was non-existent. 18
2. In their subsequent agreement, private respondent conveyed to petitioners his inchoate right over
a forest concession covering an additional area for his existing forest concession, which area he had
applied for, and his application was then pending in the Bureau of Forestry for approval.
3. Petitioners, after the execution of the deed of assignment, assumed the operation of the logging
concessions of private respondent. 19
4. The statement of advances to respondent prepared by petitioners stated: "P55,186.39 advances
to L.A. Tiro be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every
after (sic) shipment. We had only 2 shipments" 20
5. Petitioners entered into a Forest Consolidation Agreement with other holders of forest
concessions on the strength of the questioned deed of assignment. 21
The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal
that the cause stated in the questioned deed of assignment is false. It is settled that the previous and
simultaneous and subsequent acts of the parties are properly cognizable indica of their true
intention. 22 Where the parties to a contract have given it a practical construction by their conduct as by
acts in partial performance, such construction may be considered by the court in construing the contract,
determining its meaning and ascertaining the mutual intention of the parties at the time of
contracting. 23 The parties' practical construction of their contract has been characterized as a clue or
index to, or as evidence of, their intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper construction of the agreement. 24
The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false
cause or consideration, or one where the parties conceal their true agreement. 25 A contract with a
false consideration is not null and void per se. 26 Under Article 1346 of the Civil Code, a relatively
simulated contract, when it does not prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy binds the parties to their real agreement.
The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in
ruling that
. . . In view of the analysis of the first and second assignment of errors, the
defendants-appellees are liable to the plaintiff-appellant for the sale and transfer in

their favor of the latter's forest concessions. Under the terms of the contract, the
parties agreed on a consideration of P120,000.00. P20,000.00 of which was paid,
upon the signing of the contract and the balance of P100,000.00 to be paid at the
rate of P10,000.00 for every shipment of export logs actually produced from the
forest concessions of the appellant sold to the appellees. Since plaintiff-appellant's
forest concessions were consolidated or merged with those of the other timber
license holders by appellees' voluntary act under the Forest Consolidation
Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3), then the
unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by
the plaintiff-appellant from the defendants-appellees) became due and
demandable. 27
As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that
they cannot be held liable thereon. The efficacy of said deed of assignment is subject to the
condition that the application of private respondent for an additional area for forest concession be
approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed
produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can
take place only if and when the event which constitutes the condition happens or is fulfilled. 28 If the
suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed. 29
The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the
obligation of private respondent to transfer his rights in the forest concession over the additional area
and, on the other hand, the obligation of petitioners to pay P30,000.00. The demandability of the
obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the
failure of private respondent to comply with his obligation negates his right to demand performance
from petitioners. Delivery and payment in a contract of sale, are so interrelated and intertwined with
each other that without delivery of the goods there is no corresponding obligation to pay. The two
complement each other. 30
Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a
mere hope or expectancy is deemed subject to the condition that the thing will come into existence.
In this case, since private respondent never acquired any right over the additional area for failure to
secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its
object the transfer of said right to petitioners, never became effective or enforceable.
WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED. The agreement of
the parties dated February 28, 1966 is declared without force and effect and the amount of
P30,000.00 is hereby ordered to be deducted from the sum awarded by respondent court to private
respondent. In all other respects, said decision of respondent court is affirmed.
SO ORDERED.

G.R. No. 87047 October 31, 1990

FRANCISCO LAO LIM, petitioner,
vs.
COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.
Gener E. Asuncion for petitioner.
Natividad T. Perez for private respondent.

REGALADO, J.:
Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No.
13925, 1 the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 87-42719,
entitled "Francisco Lao Lim vs. Benito Villavicencio Dy," petitioner seeks the reversal of such affirmance in
the instant petition.

The records show that private respondent entered into a contract of lease with petitioner for a period
of three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private respondent
refused to vacate the premises, hence, petitioner filed an ejectment suit against the former in the
City Court of Manila, docketed therein as Civil Case No. 051063-CV. The case was terminated by a
judicially approved compromise agreement of the parties providing in part:
3. That the term of the lease shall be renewed every three years retroacting from
October 1979 to October 1982; after which the abovenamed rental shall be raised
automatically by 20% every three years for as long as defendant needed the
premises and can meet and pay the said increases, the defendant to give notice of
his intent to renew sixty (60) days before the expiration of the term; 2
By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to
1985. On April 17, 1985, petitioner advised private respondent that he would no longer renew the
contract effective October, 1985. 3 However, on August 5, 1985, private respondent informed petitioner in
writing of his intention to renew the contract of lease for another term, commencing November, 1985 to
October, 1988. 4 In reply to said letter, petitioner advised private respondent that he did not agree to a
renewal of the lease contract upon its expiration in October, 1985. 5
On January 15, 1986, because of private respondent's refusal to vacate the premises, petitioner filed
another ejectment suit, this time with the Metropolitan Trial Court of Manila in Civil Case No. 114659CV. In its decision of September 24, 1987, said court dismissed the complaint on the grounds that
(1) the lease contract has not expired, being a continuous one the period whereof depended upon
the lessee's need for the premises and his ability to pay the rents; and (2) the compromise
agreement entered into in the aforesaid Civil Case No. 051063-CV constitutes res judicata to the
case before it. 6
Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988 in
Civil Case No. 87-42719, affirmed the decision of the lower court. 7
As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional
Trial Court and held that (1) the stipulation in the compromise agreement which, in its formulation,
allows the lessee to stay on the premises as long as he needs it and can pay rents is valid, being a
resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and (2) that a
compromise has the effect of res judicata. 8
Petitioner's motion for reconsideration having been denied by respondent Court of Appeals, this
present petition is now before us. We find the same to be meritorious.
Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant
needed the premises and can meet and pay said increases" is a purely potestative condition
because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of
the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to
a new lease, depends upon said condition. It should be noted that a renewal constitutes a new
contract of lease although with the same terms and conditions as those in the expired lease. It
should also not be overlooked that said condition is not resolutory in nature because it is not a

condition that terminates the lease contract. The lease contract is for a definite period of three (3)
years upon the expiration of which the lease automatically terminates.
The invalidity of a condition in a lease contract similar to the one at bar has been resolved
in Encarnacion vs. Baldomar, et al. 9 where we ruled that in an action for ejectment, the defense
interposed by the lessees that the contract of lease authorized them to continue occupying the premises
as long as they paid the rents is untenable, because it would leave to the lessees the sole power to
determine whether the lease should continue or not. As stated therein, "(i)f this defense were to be
allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the
owner would never be able to discontinue it; conversely, although the owner should desire the lease to
continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by
the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid
article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.)
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of
the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain
in such a contract of lease and no equality exists between the lessor and the lessee since the life of
the contract is dictated solely by the lessee.
The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the
compromise agreement, read and interpreted in its entirety, is actually to the effect that the last
portion thereof, which gives the private respondent sixty (60) days before the expiration of the term
the right to give notice of his intent to renew, is subject to the first portion of said paragraph that "the
term of the lease shall be renewed every three (3) years," thereby requiring the mutual agreement of
the parties. The use of the word "renew" and the designation of the period of three (3) years clearly
confirm that the contract of lease is limited to a specific period and that it is not a continuing lease.
The stipulation provides for a renewal of the lease every three (3) years; there could not be a
renewal if said lease did not expire, otherwise there is nothing to renew.
Resultantly, the contract of lease should be and is hereby construed as providing for a definite period
of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take
effect only if the parties decide to renew the lease. A contrary interpretation will result in a situation
where the continuation and effectivity of the contract will depend only upon the will of the lessee, in
violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The
compromise agreement should be understood as bearing that import which is most adequate to
render it effectual. 10 Where the instrument is susceptible of two interpretations, one which will make it
invalid and illegal and another which will make it valid and legal, the latter interpretation should be
adopted. 11
Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending
to create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an
additional term should not be held to create a right to repeated grants in perpetuity, unless by plain
and unambiguous terms the parties have expressed such intention. 12 A lease will not be construed to
create a right to perpetual renewals unless the language employed indicates dearly and unambiguously
that it was the intention and purpose of the parties to do so. 13 A portion in a lease giving the lessee and

his assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as
not making such a provision unless it does so clearly. 14

As we have further emphasized:

It is also important to bear in mind that in a reciprocal contract like a lease, the period
of the lease must be deemed to have been agreed upon for the benefit
of both parties, absent language showing that the term was deliberately set for the
benefit of the lessee or lessor alone. We are not aware of any presumption in law
that the term of a lease is designed for the benefit of the lessee
alone. Kohand Cruz in effect rested upon such a presumption. But that presumption
cannot reasonably be indulged in casually in an era of rapid economic change,
marked by, among other things, volatile costs of living and fluctuations in the value of
the domestic currency. The longer the period the more clearly unreasonable such a
presumption would be. In an age like that we live in, very specific language is
necessary to show an intent to grant a unilateral faculty to extend or renew a contract
of lease to the lessee alone, or to the lessor alone for that matter. We hold that the
above-quoted rulings in Koh v. Ongsiaco and Cruz v. Alberto should be and are
overruled. 15
In addition, even assuming that the clause "for as long as the defendant needed the premises and
can meet and pay, said increases" gives private respondent an option to renew the lease, the same
will be construed as providing for but one renewal or extension and, therefore, was satisfied when
the lease was renewed in 1982 for another three (3) years. A general covenant to renew is satisfied
by one renewal and will not be construed to confer the right to more than one renewal unless
provision is clearly and expressly made for further renewals. 16Leases which may have been intended
to be renewable in perpetuity will nevertheless be construed as importing but one renewal if there is any
uncertainty in that regard. 17
The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding that
respondent lessee can legally stay on the premises for as long as he needs it and can pay the rents, is
not in point. In said case, the lease contract provides for an indefinite period since it merely stipulates
"(t)hat the lease contract shall remain in full force and effect as long as the land will serve the purpose for
which it is intended as a school site of the National Business Institute, but the rentals now stipulated shall
be subject to review every after ten (10) years by mutual agreement of the parties." This is in clear
contrast to the case at bar wherein, to repeat, the lease is fixed at a period of three (3) years although
subject to renewal upon agreement of the parties, and the clause "for as long as defendant needs the
premises and can meet and pay the rents" is not an independent stipulation but is controlled by said fixed
term and the option for renewal upon agreement of both parties.
On the second issue, we agree with petitioner that respondent court erred in holding that the action
for ejectment is barred by res judicata. While it is true that a compromise agreement has the effect
of res judicata this doctrine does not apply in the present case. It is elementary that for a judgment to
be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which rendered it had
jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits, and (4)
there must be identity between the two cases as to parties, subject matter and cause of action. 19

In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no
identity of subject matter and cause of action. The subject matter in the first ejectment case is the
original lease contract while the subject matter in the case at bar is the lease created under the
terms provided in the subsequent compromise agreement. The lease executed in 1978 is one thing;
the lease constituted in 1982 by the compromise agreement is another.
There is also no identity, in the causes of action. The test generally applied to determine the identity
of causes of action is to consider the identity of facts essential to their maintenance, or whether the
same evidence would sustain both causes of action. 20 In the case at bar, the delict or the wrong in the
first case is different from that in the second, and the evidence that will support and establish the cause of
action in the former will not suffice to support and establish that in the latter.
In the first ejectment case, the cause of action was private respondent's refusal to comply with the
lease contract which expired on December 31, 1978. In the present case, the cause of action is a
similar refusal but with respect to the lease which expired in October, 1985 under the compromise
agreement. While the compromise agreement may be res judicata as far as the cause of action and
issues in the first ejectment case is concerned, any cause of action that arises from the application
or violation of the compromise agreement cannot be said to have been settled in said first case. The
compromise agreement was meant to settle, as it did only settle, the first case. It did not, as it could
not, cover any cause of action that might arise thereafter, like the present case which was founded
on the expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact
that the compromise agreement was judicially approved does not foreclose any cause of action
arising from a violation of the terms thereof.
WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private
respondent is hereby ordered to immediately vacate and return the possession of the leased
premises subject of the present action to petitioner and to pay the monthly rentals due thereon in
accordance with the compromise agreement until he shall have actually vacated the same. This
judgment is immediately executory.
SO ORDERED.

SECURITY BANK AND TRUST

COMPANY,
Petitioner,
- versus RIZAL COMMERCIAL BANKING
CORPORATION,
Respondent.
x-------------------------x
RIZAL COMMERCIAL BANKING
CORPORATION,
Petitioner,

G.R. No. 170984

Present:
QUISUMBING, Acting C.J.,
Chairperson,

CORONA,
CARPIO MORALES,
TINGA, and
LEONARDO-DE CASTRO,JJ.

G.R. No. 170987

- versus SECURITY BANK AND TRUST

Promulgated:
COMPANY,
Respondent.
January 30, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUISUMBING, Acting C.J.:
Before us are opposing parties petitions for review of the
Decision[1] dated March 29, 2005 and Resolution[2] datedDecember 12, 2005 of the
Court of Appeals in CA-G.R. CV No. 67387. The two petitions are herein
consolidated as they stem from the same set of factual circumstances.
The facts, as found by the trial and appellate courts, are as follows:

On January 9, 1981, Security Bank and Trust Company (SBTC) issued a

managers check for P8 million, payable to CASH, as proceeds of the loan granted
to Guidon Construction and Development Corporation (GCDC). On the same day,
the P8-million check, along with other checks, was deposited by Continental
Manufacturing Corporation (CMC) in its Current Account No. 0109-022888 with
Rizal Commercial Banking Corporation (RCBC). Immediately, RCBC honored
the P8-million check and allowed CMC to withdraw the same.[3]
On the next banking day, January 12, 1981, GCDC issued a Stop Payment
Order to SBTC, claiming that the P8-million check was released to a third party
by mistake. Consequently, SBTC dishonored and returned the managers check to
RCBC. Thereafter, the check was returned back and forth between the two banks,
resulting in automatic debits and credits in each banks clearing balance.[4]
On February 13, 1981, RCBC filed a complaint [5] for damages against SBTC
with the then Court of First Instance of Rizal, Branch XXII. Said case was
docketed as Civil Case No. 1081 and later transferred to the Regional Trial Court
(RTC) of Makati City, Branch 143.
Meanwhile, following the rules of the Philippine Clearing House, RCBC and
SBTC stopped returning the checks to each other. By way of a temporary
arrangement pending resolution of the case, the P8-million check was equally
divided between, and credited to, RCBC and SBTC.[6]
On May 9, 2000, the RTC of Makati City, Branch 143, rendered a
Decision[7] in favor of RCBC. The dispositive portion of the decision reads:
PREMISES CONSIDERED, the Court renders judgment in favor of
plaintiff [RCBC] and finds defendant SBTC justly liable to [RCBC] and sentences
[SBTC] to pay [RCBC] the amount of:
1. PhP4,000,000.00 as and for actual damages;
2. PhP100,000.00 as and for attorneys fees; and,
3. the costs.
SO ORDERED.[8]

On appeal, the Court of Appeals affirmed with modification the above

Decision, to wit:
WHEREFORE, the
appealed
Decision
is AFFIRMED with MODIFICATION. Appellant Security Bank and Trust Co.

shall pay appellee Rizal Commercial Banking Corporation not only the principal
amount of P4,000,000.00 but also interest thereon at (6%) per annum covering
appellees unearned income on interest computed from the time of filing of the
complaint on February 13, 1981 to the date of finality of this Decision. For lack of
factual and legal basis, the award of attorneys fees is DELETED.
SO ORDERED.[9]

Now for our resolution are the opposing parties petitions for review on
certiorari of the abovecited decision. On its part, SBTC alleges the following to
support its petition:
I.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN REFUSING
TO APPLY THE LAW BECAUSE, IN ITS OPINION, TO DO SO WOULD
RESULT IN AN INJUSTICE.
II.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING
THAT TO DETERMINE WHETHER OR NOT A BANK IS A HOLDER IN
DUE COURSE, ONLY THE NEGOTIABLE INSTRUMENTS LAW NEED BE
APPLIED TO THE EXCLUSION OF CENTRAL BANK RULES AND
REGULATIONS.
III.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO NOTE THAT THE MANAGERS CHECK IN QUESTION WAS
ACCEPTED FOR DEPOSIT BY THE RCBC AND WAS NOT ENCASHED BY
THE PAYEE.
IV.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT PRIOR TO THE DEPOSIT OF THE CHECKS WORTH
PhP53
MILLION,
RCBC
WAS
HOLDING
43
CHECKS
TOTALING P49,017,669.66
DRAWN
BY
CONTINENTAL
MANUFACTURING CORPORATION AGAINST ITS CURRENT ACCOUNT
WHEN THE BALANCE OF THAT ACCOUNT WAS A MERE P573.62.
V.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT THE CHECKS DEPOSITED WITH RCBC THE
PROCEEDS OF WHICH WERE IMMEDIATELY WITHDRAWN TO HONOR
THE 43 CHECKS TOTALING P49,017,669.66 DRAWN BY CONTINENTAL
MANUFACTURING CORPORATION ON ITS CURRENT ACCOUNT WERE

NOT ALL MANAGERS CHECK[S] BUT INCLUDED ORDINARY CHECKS

IN THE TOTAL AMOUNT OF PhP15,436,140.81.
VI.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN FAILING
TO CONSIDER THAT EACH OF THE 43 CHECKS DRAWN BY THE
CONTINENTAL MANUFACTURING CORPORATION WERE ALL
HONORED BY RCBC ON THE BASIS OF A MIXTURE OF ALL THE
MANAGERS AND ORDINARY CHECKS DEPOSITED ON THAT DAY OF 9
JANUARY 1981.
VII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING
THAT THE RCBC IS A HOLDER IN DUE COURSE.
VIII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING
THAT SBTC WAITED FOR THREE (3) DAYS TO NOTIFY THE RCBC OF
THE STOP PAYMENT ORDER.
IX.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING
THAT SBTC SHOULD HAVE FIRST ACQUIRED PERSONAL KNOWLEDGE
OF THE FACTS WHICH GAVE RISE TO THE REQUEST FOR THE STOP
PAYMENT ORDER BEFORE HONORING SUCH REQUEST.
X.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN
REFUSING TO HOLD SBTC LIABLE FOR DAMAGE CLAIMS BASED
SOLELY ON SPECULATION, CONJECTURE AND GUESSWORK.
XI.
THE HONORABLE COURT OF APPEALS RULED CORRECTLY IN HOLDING
THAT RCBC IS NOT ENTITLED TO EXEMPLARY DAMAGES.

XII.
THE HONORABLE COURT OF APPEALS ERRED GRAVELY IN HOLDING
SBTC LIABLE FOR THE ATTORNEYS FEES OF RCBC [SIC].[10]

On RCBCs part, the following issues are submitted for resolution:

I.
WHETHER OR NOT SBTC IS LIABLE FOR THE MANAGERS CHECK IT
ISSUED.
II.
WHETHER OR NOT RCBC IS ENTITLED TO COMPENSATORY DAMAGES
EQUIVALENT TO THE INTEREST INCOME LOST AS A RESULT OF THE
ILLEGAL REFUSAL OF SBTC TO HONOR ITS OWN MANAGERS CHECK,
AS WELL AS FOR EXEMPLARY DAMAGES AND ATTORNEYS FEES.[11]

Simply stated, we find that in these consolidated petitions, the legal issues
for our resolution are: (1) Is SBTC liable to RCBC for the remaining P4
million? and (2) Is SBTC liable to pay for lost interest income on the
remaining P4 million, exemplary damages and attorneys fees?
RCBC avers that the managers check issued by SBTC is substantially as
good as the money it represents because by its peculiar character, its issuance has
the effect of an advance acceptance. RCBC claims that it is a holder in due course
when it credited the P8-million managers check to CMCs account. Accordingly,
RCBC asserts that SBTCs refusal to honor its obligation justifies RCBC claim for
lost interest income, exemplary damages and attorneys fees.
On the other hand, SBTC contends that RCBC violated Monetary Board
Resolution No. 2202 of the Central Bank of thePhilippines mandating all banks to
verify the genuineness and validity of all checks before allowing drawings of the
same. SBTC insists that RCBC should bear the consequences of allowing CMC to
withdraw the amount of the check before it was cleared.[12]
We shall rule on the issues seriatim.
At the outset, it must be noted that the questioned check issued by SBTC is not
just an ordinary check but a managers check. A managers check is one drawn by a
banks manager upon the bank itself. It stands on the same footing as a certified
check,[13] which is deemed to have been accepted by the bank that certified it. [14] As

the banks own check, a managers check becomes the primary obligation of the bank
and is accepted in advance by the act of its issuance.[15]
In this case, RCBC, in immediately crediting the amount of P8 million to
CMCs account, relied on the integrity and honor of the check as it is regarded in
commercial transactions. Where the questioned check, which was payable to Cash,
appeared regular on its face, and the bank found nothing unusual in the transaction, as
the drawer usually issued checks in big amounts made payable to cash, RCBC cannot
be faulted in paying the value of the questioned check.[16]
In our considered view, SBTC cannot escape liability by invoking Monetary
Board Resolution No. 2202 dated December 21, 1979, prohibiting drawings
against uncollected deposits. For we must point out that the Central Bank at that
time issued a Memorandum dated July 9, 1980, which interpreted said Monetary
Board Resolution No. 2202. In its pertinent portion, said Memorandum reads:
MEMORANDUM TO ALL BANKS
July 9, 1980
For the guidance of all concerned, Monetary Board Resolution No. 2202
dated December 31, 1979 prohibiting, as a matter of policy,drawing against
uncollected
deposit
effective
July
1,
1980, uncollected
deposits
representing managers cashiers/ treasurers checks, treasury warrants, postal
money orders and duly funded on us checks which may be permitted at the
discretion of each bank, covers drawings against demand deposits as well as
withdrawals from savings deposits.[17]

Thus, it is clear from the July 9, 1980 Memorandum that banks were given
the discretion to allow immediate drawings on uncollected deposits of managers
checks, among others. Consequently, RCBC, in allowing the immediate
withdrawal against the subject managers check, only exercised a prerogative
expressly granted to it by the Monetary Board.
Moreover, neither Monetary Board Resolution No. 2202 nor the July 9,
1980 Memorandum alters the extraordinary nature of the managers check and the
relative rights of the parties thereto. SBTCs liability as drawer remains the same
by drawing the instrument, it admits the existence of the payee and his then
capacity to indorse; and engages that on due presentment, the instrument will be
accepted, or paid, or both, according to its tenor.[18]

Concerning RCBCs claim for lost interest income on the remaining P4

million, this is already covered by the amount of damages in the form of legal
interest of 6%, based on Article 2200 [19] and 2209[20] of the Civil Code of the
Philippines, as awarded by the Court of Appeals in its decision.
In addition to the above-mentioned award of compensatory damages, we
also find merit in the need to award exemplary damages in order to set an example
for the public good. The banking system has become an indispensable institution
in the modern world and plays a vital role in the economic life of every civilized
society. Whether as mere passive entities for the safe-keeping and saving of
money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with
respect and even gratitude and, above all, trust and confidence. In this connection,
it is important that banks should guard against injury attributable to negligence or
bad faith on its part. As repeatedly emphasized, since the banking business is
impressed with public interest, the trust and confidence of the public in it is of
paramount importance. Consequently, the highest degree of diligence is expected,
and high standards of integrity and performance are required of it. SBTC having
failed in this respect, the award of exemplary damages to RCBC in the amount
of P50,000.00 is warranted.[21]
Pursuant to current jurisprudence, with the finding of liability for exemplary
damages, attorneys fees in the amount ofP25,000.00[22] must also be awarded
against SBTC and in favor of RCBC.
WHEREFORE, the assailed Decision dated March 29, 2005 and
Resolution dated December 12, 2005 of the Court of Appeals in CA-G.R. CV No.
67387 is hereby AFFIRMED with MODIFICATION. Security Bank and Trust
Company is ordered to pay Rizal Commercial Banking Corporation: (1) the
remaining P4,000,000.00, with legal interest thereon at six percent (6%) per annum
from the time of filing of the complaint on February 13, 1981 to the date of finality
of this Decision; (2) exemplary damages ofP50,000.00; and (3) attorneys fees
of P25,000.00.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 107112 February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II),respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.

NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a person by his
contract charges himself with an obligation possible to be performed, he must perform it, unless its
performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule
that in case the party desires to be excused from performance in the event of contingencies arising
thereto, it is his duty to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely, Article
1267 which provides:
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.
In the report of the Code Commission, the rationale behind this innovation was explained, thus:
The general rule is that impossibility of performance releases the obligor. However, it
is submitted that when the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the court should be authorized to release the obligor
in whole or in part. The intention of the parties should govern and if it appears that
the service turns out to be so difficult as to have been beyond their contemplation, it
would be doing violence to that intention to hold their contemplation, it would be
doing violence to that intention to hold the obligor still responsible. 2
In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a
cause of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as
long distance telephone service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating
an electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections
for the use by private respondent in the following places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General Manager; &
(f) 2 Units To be determined by the General Manager. 3
Said contract also provided:
(a) That the term or period of this contract shall be as long as the party of the first
part has need for the electric light posts of the party of the second part it being
understood that this contract shall terminate when for any reason whatsoever, the
party of the second part is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric lightpost; (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel of
petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2,
1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National Electrification Administration
(NEA) which direct that the reasonable compensation for the use of the posts is P10.00 per post, per
month; that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by
them thereon have become much heavier with the increase in the volume of their subscribers,
worsened by the fact that their linemen bore holes through the posts at which points those posts
were broken during typhoons; that a post now costs as much as P2,630.00; so that justice and
equity demand that the contract be reformed to abolish the inequities thereon.

As second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside
Naga City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay
private respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filing of
its complaint; and that petitioners had refused to pay private respondent said amount despite
demands.
And as third cause of action, private respondent complained about the poor servicing by petitioners
of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of
not less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed because
(1) it does not sufficiently state a cause of action for reformation of contract; (2) it is barred by
prescription, the same having been filed more than ten (10) years after the execution of the contract;
and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same
action. Petitioners further alleged that their utilization of private respondent's posts could not have
caused their deterioration because they have already been in use for eleven (11) years; and that the
value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of
charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there
was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if
petitioners had refused to comply with private respondent's demands for payment for the use of the
posts outside Naga City, it was probably because what is due to them from private respondent is
more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone
service had been categorized by the National Telecommunication Corporation (NTC) as "very high"
and of "superior quality."
During the trial, private respondent presented the following witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it
was petitioner Maggay who prepared the contract; that the understanding between private
respondent and petitioners was that the latter would only use the posts in Naga City because at that
time, petitioners' capability was very limited and they had no expectation of expansion because of
legal squabbles within the company; that private respondent agreed to allow petitioners to use its
posts in Naga City because there were many subscribers therein who could not be served by them
because of lack of facilities; and that while the telephone lines strung to the posts were very light in
1977, said posts have become heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department,
declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which
were in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger than those in November, 1977; that in

1987, almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between
Naga City and the town of Pili while the posts in barangay Concepcion, Naga City were broken at
the middle which had been bored by petitioner's linemen to enable them to string bigger telephone
lines; that while the cost per post in 1977 was only from P700.00 to P1,000.00, their costs in 1989
went up from P1,500.00 to P2,000.00, depending on the size; that some lines that were strung to the
posts did not follow the minimum vertical clearance required by the National Building Code, so that
there were cases in 1988 where, because of the low clearance of the cables, passing trucks would
accidentally touch said cables causing the posts to fall and resulting in brown-outs until the electric
lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the
use by private telephone systems of electric cooperatives' posts, they should pay a minimum
monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric
cooperatives have been charging from P10.00 to P15.00 per post, which is what petitioners should
pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent,
testified on the poor service rendered by petitioner's telephone lines, like the telephone in their
Complaints Section which was usually out of order such that they could not respond to the calls of
their customers. In case of disruption of their telephone lines, it would take two to three hours for
petitioners to reactivate them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors
asked him to study the contract sometime during the latter part of 1982 or in 1983, as it had
appeared very disadvantageous to private respondent. Notwithstanding his recommendation for the
filing of a court action to reform the contract, the former general managers of private respondent
wanted to adopt a soft approach with petitioners about the matter until the term of General Manager
Henry Pascual who, after failing to settle the matter amicably with petitioners, finally agreed for him
to file the present action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private respondent and at the same
time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also
a member of the Board of Directors of private respondent, was the one who saw to it that the
contract was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners
for as long as it wishes without paying anything therefor except for long distance calls through PLDT
out of which the latter get only 10% of the charges.
(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which
posts have remained erect up to the present;

(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need
only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private
respondent involved trucks that were either overloaded or had loads that protruded upwards,
causing them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they entered into the
contract was that the coverage thereof would include the whole area serviced by petitioners because
at that time, they already had subscribers outside Naga City. Private respondent, in fact, had asked
for telephone connections outside Naga City for its officers and employees residing there in addition
to the ten (10) telephone units mentioned in the contract. Petitioners have not been charging private
respondent for the installation, transfers and re-connections of said telephones so that naturally, they
use the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be
in accordance with engineering standards and practice and comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards
private respondent's first cause of action, that while the contract appeared to be fair to both parties
when it was entered into by them during the first year of private respondent's operation and when its
Board of Directors did not yet have any experience in that business, it had become disadvantageous
and unfair to private respondent because of subsequent events and conditions, particularly the
increase in the volume of the subscribers of petitioners for more than ten (10) years without the
corresponding increase in the number of telephone connections to private respondent free of
charge. The trial court concluded that while in an action for reformation of contract, it cannot make
another contract for the parties, it can, however, for reasons of justice and equity, order that the
contract be reformed to abolish the inequities therein. Thus, said court ruled that the contract should
be reformed by ordering petitioners to pay private respondent compensation for the use of their
posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the
use of the telephones also in Naga City. And taking into consideration the guidelines of the NEA on
the rental of posts by telephone companies and the increase in the costs of such posts, the trial
court opined that a monthly rental of P10.00 for each post of private respondent used by petitioners
is reasonable, which rental it should pay from the filing of the complaint in this case on January 2,
1989. And in like manner, private respondent should pay petitioners from the same date its monthly
bills for the use and transfers of its telephones in Naga City at the same rate that the public are
paying.
On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by including
therein the provision that for the use of private respondent's posts outside Naga City, petitioners
should pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed,
or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its
telephone connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the
reformation of the agreement (Exh. A); ordering the defendants to pay plaintiff's
electric poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where defendant NATELCO uses plaintiff's
electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole, per month
beginning January, 1989 and ordering also the plaintiff to pay defendant NATELCO
the monthly dues of all its telephones including those installed at the residence of its
officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog,
Mr. Jesus Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiff's
claim for attorney's fees and expenses of litigation and defendants' counterclaim are
both hereby ordered dismissed. Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In
the decision dated May 28, 1992, respondent court affirmed the decision of the trial court, 5 but based
on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void. The motion for
reconsideration was denied in the resolution dated September 10, 1992. 6Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;
2) in ruling that prescription of the action for reformation of the contract in this case
commenced from the time it became disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of
petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal prestation and it is not
for future service with future unusual change. Instead, the ruling in the case of Occea, et al. v.
Jabson, etc., et al., 7 which interpreted the article, should be followed in resolving this case. Besides, said
article was never raised by the parties in their pleadings and was never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of contract would
lie and may prosper, there must be sufficient allegations as well as proof that the
contract in question failed to express the true intention of the parties due to error or
mistake, accident, or fraud. Indeed, in embodying the equitable remedy of

reformation of instruments in the New Civil Code, the Code Commission gave its
reasons as follows:
Equity dictates the reformation of an instrument in order that the true
intention of the contracting parties may be expressed. The courts by
the reformation do not attempt to make a new contract for the parties,
but to make the instrument express their real agreement. The
rationale of the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties. The rigor of
the legalistic rule that a written instrument should be the final and
inflexible criterion and measure of the rights and obligations of the
contracting parties is thus tempered to forestall the effects of mistake,
fraud, inequitable conduct, or accident. (pp. 55-56, Report of Code
Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in
essence that where through mistake or accident on the part of either or both of the
parties or mistake or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed therein, then the
instrument may be reformed at the instance of either party if there was mutual
mistake on their part, or by the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove,
that there was a mistake on its part or mutual mistake on the part of both parties
when they entered into the agreement Exh. "A", and that because of this mistake,
said agreement failed to express their true intention. Rather, plaintiff's evidence
shows that said agreement was prepared by Atty. Luciano Maggay, then a member
of plaintiff's Board of Directors and its legal counsel at that time, who was also the
legal counsel for defendant-appellant, so that as legal counsel for both companies
and presumably with the interests of both companies in mind when he prepared the
aforesaid agreement, Atty. Maggay must have considered the same fair and
equitable to both sides, and this was affirmed by the lower court when it found said
contract to have been fair to both parties at the time of its execution. In fact, there
were no complaints on the part of both sides at the time of and after the execution of
said contract, and according to 73-year old Justino de Jesus, Vice President and
General manager of appellant at the time who signed the agreement Exh. "A" in its
behalf and who was one of the witnesses for the plaintiff (sic), both parties complied
with said contract "from the very beginning" (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of appellant and
the increase in the volume of its subscribers in Naga City and environs through the
years, necessitating the stringing of more and bigger telephone cable wires by
appellant to plaintiff's electric posts without a corresponding increase in the ten (10)
telephone connections given by appellant to plaintiff free of charge in the agreement

Exh. "A" as consideration for its use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the lower court
so found. And it was for this reason that in the later (sic) part of 1982 or 1983 (or five
or six years after the subject agreement was entered into by the parties), plaintiff's
Board of Directors already asked Atty. Luis General who had become their legal
counsel in 1982, to study said agreement which they believed had become
disadvantageous to their company and to make the proper recommendation, which
study Atty. General did, and thereafter, he already recommended to the Board the
filing of a court action to reform said contract, but no action was taken on Atty.
General's recommendation because the former general managers of plaintiff wanted
to adopt a soft approach in discussing the matter with appellant, until, during the term
of General Manager Henry Pascual, the latter, after failing to settle the problem with
Atty. Luciano Maggay who had become the president and general manager of
appellant, already agreed for Atty. General's filing of the present action. The fact that
said contract has become inequitous or disadvantageous to plaintiff as the years
went by did not, however, give plaintiff a cause of action for reformation of said
contract, for the reasons already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that the allegations of its
complaint herein and the evidence it has presented sufficiently make out a cause of
action under Art. 1267 of the New Civil Code for its release from the agreement in
question.
xxx xxx xxx
The understanding of the parties when they entered into the Agreement Exh. "A" on
November 1, 1977 and the prevailing circumstances and conditions at the time, were
described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two
officials who signed said agreement in its behalf, as follows:
Our understanding at that time is that we will allow NATELCO to
utilize the posts of CASURECO II only in the City of Naga because at
that time the capability of NATELCO was very limited, as a matter of
fact we do [sic] not expect to be able to expand because of the legal
squabbles going on in the NATELCO. So, even at that time there
were so many subscribers in Naga City that cannot be served by the
NATELCO, so as a mater of public service we allowed them to sue
(sic) our posts within the Naga City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts of
plaintiff were very light and that very few telephone lines were attached to the posts
of CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the volume
of appellant's subscribers and the corresponding increase in the telephone cables
and wires strung by it to plaintiff's electric posts in Naga City for the more 10 years
that the agreement Exh. "A" of the parties has been in effect, there has been no

corresponding increase in the ten (10) telephone units connected by appellant free of
charge to plaintiff's offices and other places chosen by plaintiff's general manager
which was the only consideration provided for in said agreement for appellant's use
of plaintiffs electric posts. Not only that, appellant even started using plaintiff's electric
posts outside Naga City although this was not provided for in the agreement Exh. "A"
as it extended and expanded its telephone services to towns outside said city.
Hence, while very few of plaintiff's electric posts were being used by appellant in
1977 and they were all in the City of Naga, the number of plaintiff's electric posts that
appellant was using in 1989 had jumped to 1,403,192 of which are outside Naga City
(Exh. "B"). Add to this the destruction of some of plaintiff's poles during typhoons like
the strong typhoon Sisang in 1987 because of the heavy telephone cables attached
thereto, and the escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already become too
one-sided in favor of appellant to the great disadvantage of plaintiff, in short, the
continued enforcement of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be released therefrom under
Art. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its
(plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil Code
citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of
the principle of the obligatory force of contracts (IV Tolentino, Civil Code of the
Philippines, 1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial court, although based on
a different and wrong premise (i.e., reformation of contract), that from the date of the
filing of this case, appellant must pay for the use of plaintiff's electric posts in Naga
City at the reasonable monthly rental of P10.00 per post, while plaintiff should pay
appellant for the telephones in the same City that it was formerly using free of charge
under the terms of the agreement Exh. "A" at the same rate being paid by the
general public. In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to avoid
unjust enrichment by appellant at the expense of plaintiff, said arrangement to
continue only until such time as said parties can re-negotiate another agreement
over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached
and executed by the parties, the aforesaid ruling of the lower court and affirmed by
us shall cease to exist and shall be substituted and superseded by their new
agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision, 9 the term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service contemplated in said article.

Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract
be for future service with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267
states in our law the doctrine of unforseen events. This is said to be based on the discredited theory
of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist.
Considering practical needs and the demands of equity and good faith, the disappearance of the basis of
a contract gives rise to a right to relief in favor of the party prejudiced.

In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the
trial court praying for modification of the terms and conditions of the contract that they entered into
by fixing the proper shares that should pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficient
cause of action. We rationalized that the Court of Appeals misapplied Article 1267 because:
. . . respondent's complaint seeks not release from the subdivision contract but that
the court "render judgment modifying the terms and conditions of the contract . . .
by fixing the proper shares that should pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subject subdivision". The cited article
(Article 1267) does not grant the courts (the) authority to remake, modify or revise
the contract or to fix the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to substitute its own terms
for those covenanted by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and therefore states no cause
of action. Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity grant the relief
sought. 11
The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made out
a cause of action under Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present controversy does not end
here. We have to take into account the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their service to the public; while private respondent, in consonance with the
contract 12 will return all the telephone units to petitioners, causing prejudice to its business. We shall not
allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay private
respondent for the use of its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners use private respondent's posts, the sum of ten
(P10.00) pesos per post, per month, beginning January, 1989; and 2) private respondent to pay petitioner
the monthly dues of all its telephones at the same rate being paid by the public beginning January, 1989.
The peculiar circumstances of the present case, as distinguished further from the Occea case,
necessitates exercise of our equity jurisdiction. 13 By way of emphasis, we reiterate the rationalization of
respondent court that:
. . . In affirming said ruling, we are not making a new contract for the parties herein,
but we find it necessary to do so in order not to disrupt the basic and essential

services being rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff . . . . 14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was
never the subject of trial and evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of the New
Civil Code to this case, we have changed its theory and decided the same on an
issue not invoked by plaintiff in the lower court. For basically, the main and pivotal
issue in this case is whether the continued enforcement of the contract Exh. "A"
between the parties has, through the years (since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so
that a solution must be found to relieve plaintiff from the continued operation of said
agreement and to prevent defendant-appellant from further unjustly enriching itself at
plaintiff's expense. It is indeed unfortunate that defendant had turned deaf ears to
plaintiffs requests for renegotiation, constraining the latter to go to court. But although
plaintiff cannot, as we have held, correctly invoke reformation of contract as a proper
remedy (there having been no showing of a mistake or error in said contract on the
part of any of the parties so as to result in its failure to express their true intent), this
does not mean that plaintiff is absolutely without a remedy in order to relieve itself
from a contract that has gone far beyond its contemplation and has become so highly
inequitous and disadvantageous to it through the years because of the expansion of
defendant-appellant's business and the increase in the volume of its subscribers.
And as it is the duty of the Court to administer justice, it must do so in this case in the
best way and manner it can in the light of the proven facts and the law or laws
applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a certain
ground, the appellant court may uphold the decision below upon some other point
which was ignored or erroneously decided by the trial court (Garcia Valdez v. Tuazon,
40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467).
Furthermore, the appellate court has the discretion to consider an unassigned error
that is closely related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631;
Hernandez v. Andal, 78 Phil. 196). It has also been held that the Supreme Court (and
this Court as well) has the authority to review matters, even if they are not assigned
as errors in the appeal, if it is found that their consideration is necessary in arriving at
a just decision of the case (Saura Import & Export Co., Inc. v. Phil. International
Surety Co. and PNB, 8 SCRA 143). For it is the material allegations of fact in the
complaint, not the legal conclusion made therein or the prayer, that determines the
relief to which the plaintiff is entitled, and the plaintiff is entitled to as much relief as
the facts warrant although that relief is not specifically prayed for in the complaint
(Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844;
Baguioro v. Barrios, 77 Phil. 120). To quote an old but very illuminating decision of
our Supreme Court through the pen of American jurist Adam C. Carson:

"Under our system of pleading it is the duty of the courts to grant the
relief to which the parties are shown to be entitled by the allegations
in their pleadings and the facts proven at the trial, and the mere fact
that they themselves misconstrue the legal effect of the facts thus
alleged and proven will not prevent the court from placing the just
construction thereon and adjudicating the issues accordingly." (Alzua
v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable
Supreme Court also held:
We rule that the respondent court did not commit any error in taking
cognizance of the aforesaid issues, although not raised before the
trial court. The presence of strong consideration of substantial justice
has led this Court to relax the well-entrenched rule that, except
questions on jurisdiction, no question will be entertained on appeal
unless it has been raised in the court below and it is within the issues
made by the parties in their pleadings (Cordero v. Cabral, L-36789,
July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that this Court did not err in
applying Art. 1267 of the New Civil Code to this case. Defendant-appellant stresses
that the applicability of said provision is a question of fact, and that it should have
been given the opportunity to present evidence on said question. But defendantappellant cannot honestly and truthfully claim that it (did) not (have) the opportunity
to present evidence on the issue of whether the continued operation of the contract
Exh. "A" has now become too one-sided in its favor and too inequitous, unfair, and
disadvantageous to plaintiff. As held in our decision, the abundant and copious
evidence presented by both parties in this case and summarized in said decision
established the following essential and vital facts which led us to apply Art. 1267 of
the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for reformation of contract, petitioners
allege that respondent court's ruling that the right of action "arose only after said contract had
already become disadvantageous and unfair to it due to subsequent events and conditions, which
must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of
contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It follows
that whether the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be
an element in the determination of the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year
period is to be reckonedfrom the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private respondent's right of action

arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General,
Jr. . . ., he was asked by (private respondent's) Board of Directors to study said contract as it already
appeared disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's)
cause of action to ask for reformation of said contract should thus be considered to have arisen only
in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten
(10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the
prestations of either party because petitioner's permission for free use of telephones is not made to
depend purely on their will, neither is private respondent's permission for free use of its posts
dependent purely on its will.
Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the
party of the first part[herein appellant] has need for the electric light
posts of the party of the second part [herein plaintiff] it being
understood that this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop, abandoned
[sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied)
is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter's sole and exclusive will
as long as plaintiff is in operation. A similar provision in a contract of lease wherein
the parties agreed that the lessee could stay on the leased premises "for as long as
the defendant needed the premises and can meet and pay said increases" was
recently held by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much
earlier case of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely
potestative condition because it leaves the effectivity and enjoyment of leasehold
rights to the sole and exclusive will of the lessee." Further held the High Court in the
Lim case:
The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the payment of
the rentals or not, completely depriving the owner of any say in the
matter. Mutuality does not obtain in such a contract of lease of no
equality exists between the lessor and the lessee since the life of the
contract is dictated solely by the lessee.
The above can also be said of the agreement Exh. "A" between the parties in this
case. There is no mutuality and equality between them under the afore-quoted

provision thereof since the life and continuity of said agreement is made to depend
as long as appellant needs plaintiff's electric posts. And this is precisely why, since
1977 when said agreement was executed and up to 1989 when this case was finally
filed by plaintiff, it could do nothing to be released from or terminate said agreement
notwithstanding that its continued effectivity has become very disadvantageous and
inequitous to it due to the expansion and increase of appellant's telephone services
within Naga City and even outside the same, without a corresponding increase in the
ten (10) telephone units being used by plaintiff free of charge, as well as the bad and
inefficient service of said telephones to the prejudice and inconvenience of plaintiff
and its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation
is void. 19 Based on this definition, respondent court's finding that the provision in the contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the first
part (petitioner) has need for the electric light posts of the party of the second part
(private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other conditions in the
same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In
sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and
partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by
petitioners, there is no reason to set aside the questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28,
1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.

G.R. No. 96053 March 3, 1993

JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN
GALICIA, JR. and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.

MELO, J.:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979,
and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece
of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following
terms:

1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged

to have been paid upon the execution of this agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10)
days from and after the execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS'
indebtedness with the Philippine Veterans Bank which is hereby assumed by the
VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be
paid within one (1) year from and after the execution of this instrument. (p. 53, Rollo)
is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert
breach of the conditions as against private respondent's claim anchored on full payment and
compliance with the stipulations thereof.
The court of origin which tried the suit for specific performance filed by private respondent on
account of the herein petitioners' reluctance to abide by the covenant, ruled in favor of the vendee
(p. 64, Rollo) while respondent court practically agreed with the trial court except as to the amount to
be paid to petitioners and the refund to private respondent are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan
Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution of
the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from
May 29, 1975, up to November 3, 1979. Concerning private respondent's assumption of the vendors'
obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the
difference the indebtedness came from Celerina Labuguin (p. 73, Rollo). Moreover, petitioners
asserted that not a single centavo of the P27,000.00 representing the remaining balance was paid to
them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the complaint for specific performance.
In addressing the issue of whether the conditions of the instrument were performed by herein private
respondent as vendee, the Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the
Regional Trial Court, Third Judicial Region stationed at Guimba, Nueva Ecija, decided to uphold
private respondent's theory on the basis of constructive fulfillment under Article 1186 and estoppel
through acceptance of piecemeal payments in line with Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment, the lower court counted against the vendors
the candid statement of Josefina Tayag who sat on the witness stand and made the admission that
the check issued as payment thereof was nonetheless paid on a staggered basis when the check
was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding the third
condition, the trial court noted that plaintiff below paid more than P6,000.00 to the Philippine
Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77
which circumstance was construed to be a ploy under Article 1186 of the Civil Code that
"prematurely prevented plaintiff from paying the installment fully" and "for the purpose of withdrawing

the title to the lot". The acceptance by petitioners of the various payments even beyond the periods
agreed upon, was perceived by the lower court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code. Furthermore, the trial court noted that private
respondent consigned P18,520.00, an amount sufficient to offset the remaining balance, leaving the
sum of P1,315.00 to be credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants heirs of Juan Galicia, to execute the Deed of Sale of
their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba Cadastre, covered
by TCT No. NT-120563, in favor of plaintiff Albrigido Leyva, with an equal frontage
facing the national road upon finality of judgment; that, in their default, the Clerk of
Court II, is hereby ordered to execute the deed of conveyance in line with the
provisions of Section 10, Rule 39 of the Rules of Court;
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to pay
attorney's fees of P6,000.00 and the further sum of P3,000.00 for actual and
compensatory damages;
3. Ordering Celerina Labuguin and the other defendants herein to surrender to the
Court the owner's duplicate of TCT No. NT-120563, province of Nueva Ecija, for the
use of plaintiff in registering the portion, subject matter of the instant suit;
4. Ordering the withdrawal of the amount of P18,520.00 now consigned with the
Court, and the amount of P17,204.75 be delivered to the heirs of Juan Galicia as
payment of the balance of the sale of the lot in question, the defendants herein after
deducting the amount of attorney's fees and damages awarded to the plaintiff hereof
and the delivery to the plaintiff of the further sum of P1,315.25 excess or over
payment and, defendants to pay the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court, Justice Dayrit with whom Justices
Purisima and Aldecoa, Jr. concurred, modified the fourth paragraph of the decretal portion to read:
4. Ordering the withdrawal of the amount of P18,500.00 now consigned with the
Court, and that the amount of P16,870.52 be delivered to the heirs of Juan Galicia,
Sr. as payment to the unpaid balance of the sale, including the reimbursement of the
amount paid to Philippine Veterans Bank, minus the amount of attorney's fees and
damages awarded in favor of plaintiff. The excess of P1,649.48 will be returned to
plaintiff. The costs against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate court declared:
With respect to the fourth condition stipulated in the contract, the period indicated
therein is deemed modified by the parties when the heirs of Juan Galicia, Sr.
accepted payments without objection up to November 3, 1979. On the basis of
receipts presented by appellee commencing from August 8, 1975 up to November 3,

1979, a total amount of P13,908.25 has been paid, thereby leaving a balance of
P13,091.75. Said unpaid balance plus the amount reimbursable to appellant in the
amount of P3,778.77 will leave an unpaid total of P16,870.52. Since appellee
consigned in court the sum of P18,500.00, he is entitled to get the excess of
P1,629.48. Thus, when the heirs of Juan Galicia, Sr. (obligees) accepted the
performance, knowing its incompleteness or irregularity and without expressing any
protest or objection, the obligation is deemed fully complied with (Article 1235, Civil
Code). (p. 50, Rollo)
Petitioners are of the impression that the decision appealed from, which agreed with the conclusions
of the trial court, is vulnerable to attack via the recourse before Us on the principal supposition that
the full consideration of the agreement to sell was not paid by private respondent and, therefore, the
contract must be rescinded.
The suggestion of petitioners that the covenant must be cancelled in the light of private respondent's
so-called breach seems to overlook petitioners' demeanor who, instead of immediately filing the
case precisely to rescind the instrument because of non-compliance, allowed private respondent to
effect numerous payments posterior to the grace periods provided in the contract. This apathy of
petitioners who even permitted private respondent to take the initiative in filing the suit for specific
performance against them, is akin to waiver or abandonment of the right to rescind normally
conferred by Article 1191 of the Civil Code. As aptly observed by Justice Gutierrez, Jr. inAngeles vs.
Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines Annotated, Twelfth Ed.
[1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the defendants-appellants,
instead of availing of their alleged right to rescind, have accepted and received
delayed payments of installments, though the plaintiffs-appellees have been in
arrears beyond the grace period mentioned in paragraph 6 of the contract, the
defendants-appellants have waived, and are now estopped from exercising their
alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817-818; cited in 4 Padilla,
Civil Code Annotated, Seventh Ed. [1987], pp. 212-213) a similar opinion was expressed to the
effect that:
In a perfected contract of sale of land under an agreed schedule of payments, while
the parties may mutually oblige each other to compel the specific performance of the
monthly amortization plan, and upon failure of the buyer to make the payment, the
seller has the right to ask for a rescission of the contract under Art. 1191 of the Civil
Code, this shall be deemed waived by acceptance of posterior payments.
Both the trial and appellate courts were, therefore, correct in sustaining the claim of private
respondent anchored on estoppel or waiver by acceptance of delayed payments under Article 1235
of the Civil Code in that:

When the obligee accepts the performance, knowing its incompleteness or

irregularity, and without expressing any protest or objection, the obligation is deemed
fully complied with.
considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the
latter's delayed payments not only beyond the grace periods but also during the pendency of the
case for specific performance (p. 27, Memorandum for petitioners; p. 166, Rollo). Indeed, the right to
rescind is not absolute and will not be granted where there has been substantial compliance by
partial payments (4 Caguioa, Comments and Cases on Civil Law, First Ed. [1968] p. 132). By and
large, petitioners' actuation is susceptible of but one construction that they are now estopped from
reneging from their commitment on account of acceptance of benefits arising from overdue accounts
of private respondent.
Now, as to the issue of whether payments had in fact been made, there is no doubt that the second
installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in
judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose
that "the evidence in the records do not support this conclusion" (p. 18, Memorandum for Petitioners;
p. 157, Rollo). A contrario, when the court of origin, as well as the appellate court, emphasized the
frank representation along this line of Josefina Tayag before the trial court (TSN, September l, 1983,
pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681G, p. 66, Rollo), petitioners chose to remain completely mute even at this stage despite the
opportunity accorded to them, for clarification. Consequently, the prejudicial aftermath of Josefina
Tayag's spontaneous reaction may no longer be obliterated on the basis of estoppel (Article 1431,
Civil Code;Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it may be recalled that respondent court
applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not
have been appreciated because they are the obligees while the proviso in point speaks of the
obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, (Ang
vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties are mutually
obligors and also obligees (4 Padilla, supra, at p. 197), and any of the contracting parties may, upon
non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment
(Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees
under the contract since they are also bound as obligors to respect the stipulation in permitting
private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded
when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of
sale upon full payment of the balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of payment nor consignation of the sum of
P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981 five years
after the amount of P27,000.00 had to be paid (p. 23, Memorandum for Petitioners; p. 162, Rollo).
Again this suggestion ignores the fact that consignation alone produced the effect of payment in the
case at bar because it was established below that two or more heirs of Juan Galicia, Sr. claimed the
same right to collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in Civil Case No. 681-G; pp. 6768, Rollo). Moreover, petitioners did not bother to refute the evidence on hand that, aside from the
P18,520.00 (not P18,500.00 as computed by respondent court) which was consigned, private

respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These two figures
representing private respondent's payment of the fourth condition amount to P32,428.25, less the
P3,778.77 paid by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of
P1,649.48 to private respondent as overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and the decision appealed from is hereby
AFFIRMED with the slight modification of Paragraph 4 of the dispositive thereof which is thus
amended to read:
4. ordering the withdrawal of the sum of P18,520.00 consigned with the Regional
Trial Court, and that the amount of P16,870.52 be delivered by private respondent
with legal rate of interest until fully paid to the heirs of Juan Galicia, Sr. as balance of
the sale including reimbursement of the sum paid to the Philippine Veterans Bank,
minus the attorney's fees and damages awarded in favor of private respondent. The
excess of P1,649.48 shall be returned to private respondent also with legal interest
until fully paid by petitioners. With costs against petitioners.
SO ORDERED.

G.R. No. L-21876

September 29, 1967

PHILIPPINE AMUSEMENT ENTERPRISES, INC., plaintiff-appellant,

vs.
SOLEDAD NATIVIDAD and MARIANO NATIVIDAD, defendants-appellees.
Disini and Arnobit for plaintiff-appellant.
Isidoro Crisostomo for defendants-appellees.

CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Davao dated May 31, 1962,
rescinding, in favor of the defendants, the lease agreement entered into by the plaintiff Philippine
Amusement Enterprises, Inc. and the defendant Soledad Natividad relative to an automatic
phonograph, ordering the latter to restore the phonograph to the former, denying the plaintiff's claim
for liquidated and exemplary damages, attorney's fees and costs of suit, and dismissing the
defendants' counterclaim. The plaintiff took the appeal to the Court of Appeals which, however,
certified it to this Court because the questions involved are of law.
On January 6, 1961 the plaintiff, a domestic corporation with main office in Quezon City and a
branch office in Davao City, entered into a contract with the defendant Soledad Natividad, owner of
the Irene's Refreshment Parlor in Davao City, whereby the former leased to the latter an automatic
phonograph (Seeburg Selectomatic 100-R), more popularly known as "jukebox". The pertinent
provisions of the contract are as follows:
2. The OPERATOR1 agrees to supply and replace parts that may have been damaged as a
result of ordinary wear and tear without any cost to the PROPRIETOR; 2
xxx

xxx

xxx

5. The PROPRIETOR shall pay to the OPERATOR, by way of rental for the use of the
aforesaid automatic phonograph, an amount equal to 75% of the Gross Receipts for the
period of one week, but in no case shall the amount be less than P50.00 a week;
xxx

xxx

xxx

9. The PROPRIETOR agrees that during the term of this agreement, the OPERATOR shall
have the exclusive right to maintain an automatic phonograph in the premises, and the
PROPRIETOR shall not permit anyone to install or maintain any phonograph or any other
devices for the reproduction or the transmission of music in any part of the premises;
xxx

xxx

xxx

11. It is mutually agreed that the duration of this agreement shall be for the period of three (3)
years from the date hereof and shall renew itself automatically for a like period under the
same terms and conditions, unless either of the parties hereto gives to the other written
notice of his intention to cancel this agreement by registered mail within thirty (30) days
before the expiration of this agreement or any renewal thereof.
12. In the event that the PROPRIETOR shall fail to comply with any of the terms and
conditions of this contract, the OPERATOR, at any time during the existence of the
agreement, shall be entitled as a matter of right to immediately repossess, and the
PROPRIETOR binds himself to voluntarily surrender the said phonograph; and hereby
expressly grants permission to representatives of the OPERATOR any time for such
purposes thereby waiving any action for trespass or damages.
xxx

xxx

xxx

15. In the event of a breach of this agreement by the PROPRIETOR, the parties hereto
agree that the OPERATOR shall be entitled to recover as liquidated damages and not as a
penalty or forfeiture, a sum equal to P50.00 per week for each week remaining of the
unexpired term of this agreement; AND IN THE EVENT OF JUDICIAL PROCEEDINGS TO
ENFORCE ANY OF THE PROVISIONS OF THIS CONTRACT, the OPERATOR shall be
entitled to attorney's fees of not less than P200.00, costs of the action, premiums for bonds,
and other expenses and damages which OPERATOR may suffer or incur by reason thereof,
as well as to the immediate issuance of preliminary writ of mandatory injunction.
1awphl.nt

On July 17, 1961, Mariano Natividad, husband of the defendant Soledad Natividad, wrote the
following letter to the plaintiff's branch office in Davao City:
For two (2) weeks ago, I had advised your representative here in Davao to get back your
jukebox, but until today said representative did not mind us.
So upon receipt of this letter, you are hereby again advised to get the said Jukebox and
failure on your part to get it, we shall not be responsible anymore for the said Jukebox.
On July 27, 1961 Mariano Natividad wrote another letter to the plaintiff, this time addressed to its
main office in Quezon City, informing it of his letter of July 17 and of the reasons for requesting the
return of the jukebox to the company. This letter reads as follows:
Please may you hear our revelations or relations prior to the advice we had made to your
company regarding our slight difference from your agent, stationed here in Davao City.
1. We requested your agent that the said Jukebox should be inspected once in a
while there are times when the said Jukebox stock up and the coins which will be
dropped will just be confiscated due to the selected record which will not give our
selected music.

2. About a year ago, we asked your agent here in Davao City if we could buy your
Jukebox. He replied, "yes" and he will inform the Manila office. From that time, we
made always an inquiry if said matter was already referred to. But we were surprised
why until last May we did not hear any word from your agent. So we decided to order
one from the United States.
3. On July 3rd, we advised personally your agent that the said Jukebox should be
taken from our establishment. He answered us that he will report the matter to your
Central Office. From July 3rd until July 16th, we had not met your agent. On the
following day, July 17th, we met your agent because he accounted the income of the
said Jukebox and we again told him that the Jukebox should be taken. He replied
that he could not act because there is no letter from us for the Manila office advising
the return of the said Jukebox. So we made a discussion why he did not tell us if our
letter was necessary; so we wrote a letter on July 17th. At that time when he received
our letter, he requested for an extension of one (1) week for he would forward our
letter to Manila. But according to my wife, your agent told her that he forwarded our
letter last July 22nd. On July 24th, we finally decided to return the said Jukebox and
even have ready laborers to help us load the Jukebox on your pick-up. Your agent,
Mr. Gonzales, remarked angrily that he would not accept the said Jukebox but will
just deposit it in our establishment until the Manila office will act on it. According to
him, your agent, Mr. Gonzales, we could not remove the said Jukebox from the place
because there was a contract. Later on, Mr. Gonzales calmly requested us again to
have an additional extension of one (1) more week. In this situation we were very
embarrassed because there were many customers and other persons present during
our discussions. Right on that day, we transferred your Jukebox inside our
airconditioned room without any business because Mr. Gonzales told us that the said
Jukebox should be deposited only in our establishment. Your agent, Mr. Gonzales, is
a good agent on the other world but not in this world where we are living. Beginning
July 24th until the time you will get the Jukebox, we are going to collect a monthly
rental of Fifty Pesos (P50.00) for the space occupying the Jukebox.
In its reply of August 4, 1961 the plaintiff stated that
the stocking up of coins is quite normal in any coin-operated phonograph, as well as failure
to get the desired selection. It has been the policy of our company, however, to give top
priority to the complaints of our customers. It is not clear from your letter whether our Branch
Manager for Davao City has been remiss in his duties. We are willing to give the benefit of
the doubt by concluding that he might have failed to respond to your calls in time and I
assure you that immediate instructions will be issued from this office directing him to give
personal attention to any service that you might wish in connection with the said Jukebox.
It as well denied knowledge of the defendants' desire to buy a jukebox and deplored the fact that the
defendants ordered one from the United States without first sending the request to buy directly to it
since the plaintiff was anyway willing to sell a jukebox to any interested person. Calling attention to
paragraph 9 of the lease contract which gave it the exclusive right to maintain an automatic

phonograph in the defendants' premises, the plaintiff asked the defendants to re-install its jukebox
and remove the other one which the defendants had installed in their premises.
On August 4 and October 16, 1961, the plaintiff, through counsel, wrote the defendant spouses,
demanding anew compliance with the lease contract and the payment of damages, and warning
them that it would file the corresponding action in court if they did not comply with its demand. As the
defendants refused the demand, the plaintiff brought action in the Court of First Instance of Davao
on November 21, 1961, praying for the return to it of the automatic phonograph, subject of the
contract of lease and the payment of P5,850 as liquidated damages, P5,000 as exemplary damages,
P500 as attorney's fees and P400 as expenses of litigation.
Upon the parties' stipulation of facts, their pleadings and the documentary evidence submitted by
them as annexes to the stipulation of facts and pleadings, the lower court rendered the decision
hereinbefore adverted to.
The plaintiff imputes four errors to the lower court, the vital one being the court's holding that the
facts fully warrant a rescission of the contract of lease in favor of the defendants by reason of the
plaintiff's failure to perform its obligation to render the automatic phonograph suitable for the purpose
for which it was intended.
It is our view that the decision of the lower court should be reversed on three grounds.
First. The power to rescind obligations is implied in reciprocal ones in case one of the obligors
should not comply with what is incumbent upon him. So the Civil Code provides. 3 But it is equally
settled that, in the absence of a stipulation to the contrary, this power must be invoked judicially; it
cannot be exercised solely on a party's own judgment that the other has committed a breach of the
obligation.4 Hence, as there is nothing in the contract of lease empowering the defendants to rescind
it without resort to the courts, the defendants' action in unilaterally terminating the contract is
unjustified. As this Court said in Escueta v. Pando:5
The defendant could not, by himself alone and without judicial intervention, resolve or annul
the agreement. Under article 1124 [now art. 1191] of the Civil Code, the right to resolve
reciprocal obligations, in case one of the obligors shall fail to comply with that which is
incumbent upon him, is deemed to be implied. But that right must be invoked judicially for the
same article also provides: "The court shall decree the resolution demanded, unless there
should be grounds which justify the allowance of a term for the performance of the
obligation."
Second. Rescission will be ordered only where the breach complained of is substantial as to defeat
the object of the parties in entering into the agreement. It will not be granted where the breach is
slight or casual.6 The defendants asked the plaintiff to retrieve its phonograph, claiming that there
were times when the coins dropped into the slot would get stuck, resulting in its failure to play the
desired music. But apart from this bare statement, there is nothing in the evidence which shows the
frequency with which the jukebox failed to function properly. The expression "there are times"
connotes occasional failure of the phonograph to operate, not frequent enough to render it
unsuitable and unserviceable. As a matter of fact, there is not even a claim that, as a result of

unsatisfactory performance thereof, the income therefrom dropped to such a level that the
defendants could not even pay the plaintiff its guaranteed share of P50 a week. On the contrary, the
evidence (Stipulation of Facts, Annexes J, K, L, M, N, and O) shows that, during the period
complained of, the operation of the jukebox was quite profitable to both parties. 7
Third. We believe that the defendants actually bought a jukebox only in 1961 after they had signed
the lease contract in question, although they might have expressed a desire to buy one the year
before, for otherwise they would not have entered into a three-year lease. But certainly their decision
to buy a jukebox and operate it themselves was made long before they ever complained in July,
1961 of any defect in the rented jukebox. To be sure, it is not shown when the rented phonograph
supposedly developed trouble; presumably it was early in July, 1961, since the defendants' first letter
of complaint was written on July 17. But if, as defendants admit, they began operating their own
jukebox "sometime in July, 1961" (presumably on July 24, 1961 when they removed the rented
jukebox from where it was installed), then the defendants' pretense that they decided to buy their
own jukebox only after the rented one had failed to function properly becomes highly improbable.
The jukebox which they ordered from the United States could not have arrived in so short a time as
to enable them to operate it on July 24.
We are rather inclined to believe that the decision to buy a jukebox was made because the
defendants found it more profitable to operate one themselves. Their letter of July 17, 1961, in which
they demanded the removal of the rented jukebox from their premises, with the warning that they
would not be "responsible anymore" for it, and their other letter of July 27 of like tenor, betray the
haste with which they wanted to get out of their contractual obligations to the plaintiff. We note that
they did not even ask the plaintiff to service the rented jukebox; they asked the plaintiff to remove the
jukebox or they would charge rental for the use of the space occupied by it. The conviction cannot
be avoided that the jukebox which the defendants had ordered from the United States had arrived
and the latter thereafter conjured up a reason for operating it without being charged with violation of
the lease contract. The defendants' pretenses cannot excuse their culpable violation of the lease
contract; their conduct fully justifies the award of liquidated damages to the plaintiff.
ACCORDINGLY, the judgment a quo is reversed, and the contract of lease between the plaintiff and
the defendant Soledad Natividad is hereby rescinded in favor of the plaintiff. The defendants are
ordered to return to the plaintiff the automatic phonograph subject of the contract, and to pay the
plaintiff liquidated damages in the total amount of P5,850, plus 6 per cent interest from the date of
the filing of the complaint until the amount shall have been fully paid, and attorney's fees in the
amount of P200. Costs against the defendants.

G.R. No. 80479 July 28, 1989

AGUSTINA LIQUETTE TAN, petitioner,
vs.
COURT OF APPEALS AND SPS. MARIANO SINGSON and VISITACION SINGSON, respondents.
Noe Villanueva for petitioner.
Jose Beltran for private respondents.

CORTES, J.:
The instant petition for review raises the main issue of whether the private respondents committed a
substantial breach of their obligation so as to warrant petitioner's exercise of her right to rescind the
contract of sale under Article 1191 of the Civil Code.
The antecedents of the instant controversy had been summarized in the respondent court's
decision ** as follows:

xxx
The evidence shows that defendants-appellants spouses (private respondents
herein) are the owners of a house and lot located at No. 34 Easter Road, Baguio
City, and covered by T.C.T. No. T-13826, which were then for sale. On June 14,
1984, plaintiff-appellee together with her agent went to see said spouses at their
residence regarding the property. After appellants had shown appellee around the
house and had conversation about the encumbrances and/or liens on the property,
the parties finally agreed on the price of Pl,800,000.00, with appellee to advance
earnest money of P200,000.00 to enable appellants to secure the cancellation of the
mortgage and lien annotated on the title of the property and the balance of the price
to be paid by appellee on June 21, 1984. Forthwith, appellee handed to appellants a
check for P200,000.00 and thereupon the parties signed a receipt (Exh. A) in the
following tenor:
xxx
In turn, appellants handed to appellee a xerox copy of the title and other papers
pertaining to the property as well as an inventory of the furnishings of the house that
are included in the sale. There (3) days thereafter, i.e., on June 17, 1984, appellee
returned to appellants' house together with her daughter Corazon and one Ines, to
ask for a reduction of the price to Pl,750,000.00 and appellants spouses agreed, and
so another receipt entitled "Agreement" (Exh. B) was signed by the parties as
follows:
xxx
The very same day that appellants received the earnest money of P 200,000.00, they
started paying their mortgage loan with the Development Bank of the Philippines
(DBP) to clear up the title of the subject property. On June 14, 1984, appellants paid
the bank P30,000.00 per receipt, Exhibit B; on June 18, 1984 another P50,000.00
(Exh. 4-c); on June 29, 1984, P20,000.00 (Exh. 4-D); and on July 5, 1984,
P70,909.59 and another P19,886.60 (Exhs. 4-F and 4-G) in full payment of the
mortgage loan. On July 9, 1984, the DBP executed a cancellation of mortgage, which
was registered with the Registry of Property of Baguio City in July 12, 1984.
Appellants also paid all the taxes due and in appears on the property. It likewise
appears that appellants paid in full on July 17, 1984 the cost price of the 338 square
meter lot which was awarded to appellant Visitacion Singson per her townsite sale
application for said property. And the request of the City Sheriff of Baguio City to lift
the notice of levy in execution dated February 2, 1978 in Civil Case No. Q-10202, Pio
S. Acampado, et al. v. Mariano D. Singson, et al., was duly annotated on the back of
TCT No. T-1 3826 on August 2, 1979.
On June 25, 1984, appellee accompanied by her daughter Corazon and her lawyer,
Atty. Vicente Quitoriano, went to Baguio City to inquire about the status of the
property and appellants told her that the Development Bank of the Philippines was

taking some time processing their payments and preparing the deed of cancellation
of the mortgage. On that occasion, the parties agreed on an extension of two (2)
weeks for the execution of the deed of sale. Here, the parties' respective versions on
the matter parted ways. According to appellants, it was appellee who asked for the
extension because she was not yet ready to pay the balance of P l,550,000.00. On
the other hand, appellee said that it was appellants who asked for it because the title
of the property was not yet cleared. The court below believed appellee because on
said date the Development Bank had not yet executed the deed of cancellation of
mortgage, and no title has yet been issued for the driveway although already fully
paid for.
Immediately, upon execution by the DBP of the deed of cancellation of mortgage of
July 9, 1984, appellants tried to contact appellee and/or her daughter Corazon to
come to Baguio City for the formal execution of the deed of sale, but to no avail.
Instead, appellants received a telegram from Atty. Quitoriano cancelling the sale and
demanding the return of the P200,000.00 earnest money. Appellants countered with
a letter of their lawyer, Atty. Tiofisto Rodes, calling on appellee to perform her part of
the contract because "the title to the house and lot right now suffers no imperfection
or doubt. The levy on execution has long been lifted, the mortgage indebtedness
released, the portion of the public land used as driveway has long been awarded and
fully paid for the City of Baguio. In short, the title can now be transferred in your
name upon execution of the contract of sale ... Your refusal will compel us to sue for
specific performance. . .
Before appellants could make good their threat, appellee "jumped the gun", so to
speak, upon them by filing in court on August 27, 1984 the case for recovery of sum
of money with damages which is now this case on appeal before us.
In her complaint, appellee alleged that she gave appellants spouses P200,000.00
upon their assurances that they could transfer to her the house and lot she was
buying from them free from any liens and encumbrances, including the furnishings
thereof and the adjacent lot being used as driveway, on June 25, 1984, but that day
had come and passed without appellants being able to make good their promise,
because she "discovered to her shock and dismay that she had been dealt with in
bad faith by defendants" as the mortgage on the property was not released or
cancelled and the driveway was still public land and could not be validly transferred
to her as any disposition thereof would yet require approval by the Secretary of
Agriculture and Natural Resources. Hence, the suit against appellants spouses for
recovery of the P200,000.00 earnest money which is, in essence and concept, one
for rescission with damages.
xxx
[CA Decision, pp. 1-6; Rollo, pp. 53-57.]

The Regional Trial Court which took cognizance of Civil Case No. 3709-V filed by petitioner Agustina
Liquette Tan rendered a decision disposing of the case as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants:
(1) Ordering the rescission of the contracts entered into by and between plaintiff and
the defendants, which are embodied in Exhs. "A" or "l and "B" or "2";
(2) Ordering the defendants, spouses Mariano Singson and Visitacion Singson to
return to plaintiff the P200,000.00 earnest money given by her to defendants;
(3) Ordering the defendants to pay plaintiff interest at the rate of 12% per annum on
the P200,000.00 from the filing of the complaint until fully paid;
(4) Ordering the defendant (sic) to pay plaintiff moral damages in the sum of
P50,000.00;
(5) Ordering the defendants to pay plaintiff the amount of P20,000.00 as attorney's
fees; and
(6) Ordering the defendants to pay the costs of this suit.
SO ORDERED. [Rollo. pp. 49-50.]
Private respondents interposed an appeal from said decision alleging that the trial court erred
I. . . . in considering the consent of appellee to the agreement was vitiated by fraud.
II. . . . in resolving in favor of the appellee the sole right of rescission.
III. .. . in considering the adjacent lot as part of the sale agreed upon by the parties.
IV. . . . in deciding the case in favor of the appellee and awarding damages.
On August 24, 1987, the respondent Court of Appeals promulgated a decision reversing that of the
trial court, the decretal portion of which reads as follows:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a new
one is hereby entered ordering immediately upon the finality of this judgment
appellants spouses to execute and sign an absolute deed of sale conveying to
appellee free from any lien or encumbrance the house and lot covered by T.C.T. No.
13826 of the Registry of Deeds of Baguio City together with the furnishings and
appliances listed in Exhibit C and the adjacent lot used as driveway covered by the
Order of Award, Exhibit E-3 and appellee to pay appellants spouses the sum of

Pl,550,000.00 plus interest at the legal rate from the finality of this judgment until fully
paid.
SO ORDERED. [Rollo, p. 61.]
Petitioners filed the instant petition for review on certiorari assailing the conclusion of the respondent
Court of Appeals that the private respondents had not committed a substantial breach of their
obligation and therefore, there was no legal basis for the judgment ordering rescission of the
contract. Petitioners maintain that since private respondents were not prepared to convey the title to
the subject property on the date agreed upon in view of the various liens and encumbrances
thereon, the former are entitled to rescind the contract pursuant to Article 1191 of the Civil Code
which states:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
After a thorough examination of the allegations contained in the parties' pleadings, the Court finds
the instant petition to be devoid of any merit.
That the power to rescind obligations is implied in reciprocal ones in case one of the obligors should
not comply with what is incumbent upon him is clear from a reading of the Civil Code provisions.
However, it is equally settled that, in the absence of a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a party's own judgment that the other has
committed a breach of the obligation. Where there is nothing in the contract empowering the
petitioner to rescind it without resort to the courts, the petitioner's action in unilaterally terminating the
contract in this case is unjustified [Philippine Amusement Enterprises, Inc. v. Natividad, G.R. No. L12876. September 29, 1967, 21 SCRA 284].
In this case, petitioner received on July 17, 1984 through her daughter Cora Tan Singson, a telegram
from private respondent Visitacion Singson advising the former that the papers for the sale of the
property are ready for final execution. The parties likewise met on June 25, 1984, the day agreed
upon for the full payment of the purchase price, and they agreed on a further extension of two weeks
for the execution of the deed of sale. Despite this agreement, 'private respondents suddenly
received a telegram from Atty. Quitoriano, counsel for the petitioner, unilaterally stopping the sale
and demanding the return of the earnest money paid by petitioner [Exhibit "9", Original Records, p.
99].

Petitioner, in rescinding the sale, claims that a substantial breach of the obligation has been
committed by the private respondents as indicated by the following facts proved to be existing as of
the date agreed upon for the consummation of the sale:
1. That no title has yet been issued by the Registry of Deeds of the City of Baguio in
the name of either of the respondents in connection with the 338-square meter lot
where the driveway is located;
2. That the private respondents have not paid in full the total consideration for the
said lot to the City of Baguio because they were able to complete the payment of the
purchase price only on July 17, 1984 as found out by the respondent court in its
decision (Please see page 8 of the Court of Appeals' decision, Annex "B');
3. That private respondents have not acquired the "previous consent of the Secretary
of Natural Resources' for the said transfer to the petitioner as required by the award;
4. That the restrictions indicated in the AWARD makes whatever conveyance to be
made by the awardee of the lot within the prohibited period as null and void and
could cause the forfeiture of all the payments already made as well as the
improvements introduced therein;
5. That there are still liens and encumbrances insofar as TCT No. T-13826 consisting
of a mortgage with the DBP and a notice of Levy and Writ of Execution. [Rollo, pp.
14-15.]
Alternatively, petitioner seeks annulment of the contract on the ground of fraud since private
respondents had misrepresented to her that they could validly convey title to the property subject of
the contract which however is encumbered with various existing liens.
1. The alleged breach of the obligation by the private respondents, which consists in a mere delay
for a few days in clearing the title to the property, cannot be considered substantial enough to
warrant rescission of the contract.
A thorough review of the records clearly indicates that private respondents had substantially
complied with their undertaking of clearing the title to the property which has a total land area of 886
square meters. It must be pointed out that the subject lot consists of private land, with an area of 548
square meters, covered by TCT No. T-13826 and of a portion of the public land which has been
awarded to the private respondents under Townsite Sales Application No. 7-676-A. While TCT No. T13826 was subject to a mortgage in favor of DBP, private respondents, upon receipt of the earnest
money paid by petitioner, utilized the same to settle its obligations with DBP thus enabling them to
secure a cancellation of the existing mortgage, which was duly noted in the title to the property [See
Original Records, p. 94].
It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the
contract but only for such breaches as are so substantial and fundamental as to defeat the object of
the parties in making the agreement [Universal Food Corporation v. Court of Appeals, G.R. No. L-

29155, May 13, 1970,33 SCRA 1; Philippine Amusement Enterprises, Inc. v. Natividad, supra;
Roque v. Lapuz, G.R. No. L-32811, March 31, 1980,96 SCRA 741]. A court, in determining whether
rescission is warranted, must exercise its discretion judiciously considering that the question of
whether a breach of a contract is substantial depends upon the attendant circumstances [Corpus v.
Alikpala, et al., G.R. Nos. L-23720 and L-23707, January 17, 1968, 22 SCRA 104].
In this case, as to the lot covered by TCT No. T-13826, it is true that as of June 25, 1984, the date
set for the execution of the final deed of sale, the mortgage lien in favor of DBP annotated in the title
has not yet been cancelled as it took DBP some time in processing the papers relative thereto.
However, just a few days after, or on July 12, 1984, the cancellation of the DBP mortgage was
entered by the Register of Deeds and duly noted on the title. Time not being of the essence in the
agreement, a slight delay on the part of the private respondents in the performance of their
obligation, is not sufficient ground for the resolution of the agreement [Biando and Espanto v.
Embestro and Bardaje, 105 Phil. 1164 (1959)], more so when the delay was not totally attributable to
them.
As to the notice of levy and execution annotated on TCT No. T-13826, a request to lift the same had
already been filed with the Register of Deeds and duly noted on the title (Original Records, p. 95].
The fact that said notice had not yet been cancelled by the Register of Deeds as of June 25, 1984
cannot prejudice the sellers who must be deemed to have substantially complied with their
obligation. The rule in this jurisdiction is that where the fulfillment of the condition (in a conditional
obligation) does not depend on the will of the obligor, but on that of a third person, the obligor's part
of the contract is complied with, if he does an that is in his power and it then becomes incumbent
upon the other contracting party to comply with the terms of the contract [Article 1182, Civil Code;
Smith Bell and Co. v. Sotelo Matti, 44 Phil. 874 (1922)].
On the other hand, private respondents' interest in the public land used as a driveway can likewise
be conveyed to petitioner although no title has yet been issued in the name of Visitacion Singson.
Such portion of the public land has long been awarded to Singson in 1972 and payment of the
purchase price thereof has already been completed as of July 17, 1984. The fact that the consent of
the Secretary of Agriculture and Natural Resources to the sale of the property to petitioner has not
yet been secured cannot be considered a substantial breach of private respondents' obligation under
the contract of sale.
In Juanico and Barredo v. American Land Commercial Co., Inc., et al. (97 Phil. 221 1955)], this Court
had ruled that the prior approval of the Secretary of Agriculture and Natural Resources is required
only in cases of sale and encumbrance of the public land during the pendency of the application by
the purchaser and before his compliance with the requirements of the law. Thus:
... But such approval becomes unnecessary after the purchaser had complied with
all the requirements of the law, even if the patent has not been actually issued, for in
that case the rights of the purchaser are already deemed vested, the issuance of the
patent being a mere ceremony. Thus, "the execution and delivery of the patent after
the right to it has become complete, are the mere ministerial acts of the officers
charged with that duty" . . . And, as it has been held, One who has done everything
which is necessary in order to entitle him to receive a patent for public land has, even

before the patent is actually issued by the land department, a complete acquirable
estate in the land which he can sell and convey, mortgage or lease. A fortiori a
contract to convey land made before the issuance of a patent but after final proof has
been made and the land paid for is not illegal... [At 227: Italics supplied.]
Here, since the land in question had already been awarded to private respondents since 1972 and
all the requirements of the law for the purchase of public land were subsequently complied with,
private respondents, as owners of said property, can properly convey title thereto to petitioner.
Inasmuch as the private respondents are ready, willing and able to comply with their obligation to
deliver title to the property subject of the sale and had already demanded that petitioner pay the full
amount of the purchase price, the petitioner must be considered as having incurred in delay. This
conclusion is warranted by the clear provision of Article 1169 of the Civil Code which states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extra-judicially demands from them the fulfillment of their
obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
It is basic that the breach of a contract gives the aggrieved party under the law and even under
general principles of fairness, the right to rescind the contract or to ask for specific performance
[Nagarmull v. Binalbagan-Isabela Sugar Co., Inc., G.R. No. L-22470, May 28, 1970, 33 SCRA 46.]
Petitioner having failed to comply with her obligation of paying the balance of the purchase price
despite demands by private respondents, private respondents were clearly entitled to their
counterclaim for specific performance, as correctly adjudged by the respondent court.
2. The claim that petitioner's consent to the contract was vitiated by fraud and, therefore, the contract
in question is voidable is patently unmeritorious. The contract of sale is not voidable where no
evidence was shown that through insidious words or machinations under Article 1338 of the Civil
Code, the seller had induced the buyer to enter into the contract (Caram v. Laureta, Jr., G.R. No. L28740, February 24, 1981,103 SCRA 7].
In this case, the evidence on record fully supports the finding of the appellate court that private
respondents did not represent to petitioner that the house and lot they were selling were free from
liens and encumbrances. Rather, they told her that the property was mortgaged to the DBP which
was why they asked her to advance P200,000.00 as earnest money so that they could settle the
mortgage indebtedness and clear up the title [Rollo, p. 60]. The testimony of petitioner herself shows
that she was furnished with xerox copies of the title, at the back of which was a memorandum of the
encumbrances of the property [TSN, September 30, 1985, p. 4]. Further, it is undisputed that at the
time petitioner entered into the agreement in question, she was accompanied by her daughter

Corazon and one Maria Lorenzo whom she could have asked to explain the particulars of the
transaction that she could not understand [Rollo, p. 61].
One final point, the decision of the respondent Court of Appeals ordered execution by private
respondents of the absolute deed of sale conveying the subject property to petitioner and payment
by petitioner of the balance of the purchase price immediately upon finality of such judgment.
However, under the third paragraph of Article 1191 of the Civil Code, the Court is given a
discretionary power to allow a period within which a person in default may be permitted to perform
his obligation [Kapisanan Banahaw v. Dejarme and Alvero, 55 Phil. 339 (1930)]. Considering the
huge amount of money involved in this sale, the Court, in the exercise of its sound discretion, hereby
fixes a period of ninety (90) days within which petitioner shall pay the balance of the purchase price
amounting to one million and five hundred fifty thousand pesos (Pl,550,000.00) plus interest thereon
at the legal rate from finality of this judgment until fully paid. After such payment has been made, the
private respondents are ordered to sign and execute the necessary absolute deed of sale in favor of
petitioner.
WHEREFORE, the assailed decision of the respondent Court of Appeals granting the counterclaim
for specific performance of herein private respondents is hereby AFFIRMED with the
MODIFICATION that the petitioner is given a period of ninety (90) days within which to pay the sum
of one million and five hundred fifty thousand pesos (Pl,550,000.00) representing the balance of the
purchase price, with interest thereon at the legal rate from the finality of this judgment until fully paid.
The private respondents are ordered to sign and execute the absolute deed of sale after the
petitioner has completed payment of the purchase price and the interest thereon.
SO ORDERED.

G.R. No. L-39778 September 13, 1985

VIRGILIO SIY, petitioner,
vs.
COURT OF APPEALS, SERGIO VALDEZ, AND VIRGINIA VALDEZ, respondents.
Quintin C. Pardes for petitioner.
Romeo L. Mendoza & Assoc. Law Office for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review which seeks to annul and set aside the decision of the Court of Appeals,
now Intermediate Appellate Court affirming the trial court's decision, ordering, among others, the
rescission of the contract of sale entered into between the petitioner and the private respondents.
The private respondents, spouses Valdez are the owners of a parcel of land containing an area of
155 square meters, more or less, and the house constructed thereon, situated at No. 333 Jefferson
Street, Makati, and covered by Transfer Certificate of Title No. 32718 of the Registry of Deeds of
Rizal. There is no dispute that the petitioner and private respondents entered into a contract of sale
regarding the said property. The controversy, however, stemmed from subsequent agreements
executed by the parties.
The first agreement entered into by the petitioner and private respondents was the Deed of
Conditional Sale (Exh. A) whereby for and in consideration of P22,000.00, the private respondents
as vendors agreed to sell to the petitioner as vendee the lot covered by TCT No. 32718 with all the
improvements thereon. The sale was subject to the condition that immediately upon the approval of
the petitioner's loan with the Social Security System (SSS) and its payment to the respondents, the

vendor shall execute the deed of absolute sale in favor of the vendee. The petitioner applied for a
loan with the SSS, through the Home Financing Commission (HFC). Since the property in question
was mortgaged to the Government Service Insurance System (GSIS), the HFC requested both
parties to execute a Deed of Sale with Assumption of Mortgage (Exh. G) which they did, stating
among others that the respondents sell, transfer, and convey to the petitioner the property for and in
consideration of the sum of P22,000.00, of which P6,400.00 (representing the amount allegedly
incurred by the petitioners for improvements on said property) had been paid and the balance of
P15,600. 00 payable upon approval of the petitioners loan with the SSS. In reality, however, the
respondents had not received a single centavo from the petitioner at the time. Subsequently, the
parties executed three more contracts. The first contract (Exh. I) which was executed more than one
month after Exhibit A provided that the respondents agreed to sell the property to the petitioner at
P14,000.00 while the latter must negotiate a loan with the SSS in order to settle the amount within a
period of thirty days from March 17, 1963. The contract also provided for the payment of rentals by
the petitioner at P50.00 a month from March 1, 1963 until the date of final settlement and damages
at the rate of P30.00 a day for each day of delay. The next day, another contract was executed by
the parties which was essentially the same as Exh. "1". Respondent Virginia Valdez explained that
she did not agree with the granting of another thirty-day extension to the petitioner and so Exh. "1"
was torn up. However, the respondents changed their minds after the mother of the petitioner
pleaded with them for another extension. Thus, Exh. "2" came into being. It provided that the full
amount of P14,000.00 would be paid on or before the 30th day from the date of the execution of the
contract and that failure of the petitioner to settle his obligation within that period shall make him
liable for damages at P30.00 for every day of delay.
The last agreement entered into by the parties, (Exh. 5), provided among others, that the
respondents agreed to receive the partial amount of P12,000.00 on the condition that the balance of
P4,376.00 is completely paid forty-five days after the date fixed by them and that failure of the
petitioner to pay the said balance on the agreed time will entitle the respondents to damages at
P20.00 for every day of delay until said balance shall have been fully paid.
Within the forty-five (45) days deadline, however, the petitioner failed to pay both the P12,000.00
which was supposed to be received by the respondents upon the execution of the agreement, (Exh.
5) and the balance of P4,376.00. Thus, when the petitioner's loan with the SSS was finally ready for
release, he requested the respondents to sign the deed of absolute sale and other papers required
by the SSS but the latter refused on the ground that the petitioner had already breached their latest
agreement (Exh. 5). The petitioner filed an action for specific performance with writ of preliminary
mandatory injunction seeking to compel the respondents to execute the deed of absolute sale of the
property and other such documents required by the SSS for the immediate release of the approved
loan.
In its first decision, the trial court rendered judgment in favor of the petitioner making the following
findings:
xxx xxx xxx
Apparently, the defendants are of the impression that the provision in the agreement
that 'failure of the plaintiff to settle said balance on or before the stipulated date will

entitle the defendants to collect P20.00 for every day of delay until balance is fully
paid' and just because plaintiff so failed to comply with it this will release them from
compliance with the condition mentioned in Exhibits 'A' and 'G'. The court agrees
with the defendant that plaintiff committed a breach granting that plaintiff failed to
comply with the stated proviso, but this is not the breach contemplated by law and
cannot be considered a sufficient cause for them to depart from their unfulfilled
obligation to the plaintiff because as the provision clearly states, defendants' rights
are adequately protected and compensated in the form of damages recoverable from
the plaintiff in case of non-compliance by the plaintiff.
Under the law (Article 119, New Civil Code), in reciprocal obligations, in case one of
the obligors should not comply with what is incumbent upon him, the injured party
may choose between the fulfillment and the rescission of the obligation with the
payment of damages in either case. In the instant case, plaintiff seeks not rescission
but fulfillment of the obligation. It is obvious when the parties herein agreed that the
consideration mentioned in Exhibits 'A' & 'G ' that will be paid upon the approval of
the loan, they mean approval and release of the loan. Weighing the evidence
presented both by the plaintiff and defendants, it is the opinion of the court that the
defendants by virtue of their contracts Exhibits 'A' and 'G', the defendants can be
compelled to fulfill the condition agreed thereon.
In due time, the private respondents filed a motion for reconsideration stating, among others, that the
decision of the lower court failed to consider the other contracts executed by the parties. Among
them was the agreement marked as Exhibit "5" which would clearly show that there was a limited
period within which the petitioner was given time to secure a loan from the SSS and pay P14,000.00,
the real consideration for the property agreed upon by the parties.
The petitioner filed his opposition to the respondents' motion for reconsideration. The respondents in
turn asked the lower court for five (5) days within which to submit a rejoinder. The extension was
granted in open court. However, even before the end of the five-day period, the court already issued
an order denying the respondents' motion for reconsideration. Another motion to reconsider was,
therefore, filed by the respondents praying that their rejoinder be taken into account since the same
was filed within the five-day period granted by the court.
Realizing its error, another decision was consequently rendered by the trial court, this time, in favor
of the private respondents, stating the following:
This Court observes that Exhibit '5' is an implementation or confirmation of the
provisions of both Exhibits '1' and '2' which are supplementary contracts providing for
a definite period of payment of the agreed purchase price of the property involved
herein. This period of payment is not provided for in Exhibits 'A' and 'G' thereby
modifying the later contracts in this regard. Article 1374 of the new Civil Code of the
Philippines, the Court believes, is also applicable to the instant case wherein it is
provided that the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them taken

together. Exhibits 'A', 'G', '1', '2' and '5' being complementary contracts, they should
be construed to correctly arrive at the true intention of the parties.
xxx xxx xxx
The wordings of Exhibit '5' when it states that the defendants-spouses agreed to
receive the partial amount of P12,000.00 only show that when Exhibit '5' was
executed, defendants did not yet receive said amount. It is still to be received, and
evidence of the plaintiff is wanting to show that he paid this amount of P12,000.00.
Neither is there any showing that the balance of P4,763.00 agreed upon in Exhibit '5'
had been paid by the plaintiff within forty-five days from July 9, 1963. This clearly
constitutes a breach of their last agreement Exhibit '5'. Article 1191 of the New Civil
Code provides that the power to rescind obligations is implied in reciprocal ones in
case one of the obligors should not comply with what is incumbent upon him. The
injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. There is no dispute that all the contracts
entered into by the parties herein are reciprocal ones. There is, likewise, no question
that the plaintiff is guilty of delay and the defendants- spouses are entitled to
damages occasioned by it in the light of the provisions of Article 1170 of the New
Civil Code providing that those who, in the performance of their obligations, are guilty
of delay and those who, in any manner, contravene the tenor thereof, are liable for
damages. The defendants-spouses elected rescission of their agreement of
purchase and sale with damages.
The petitioner filed a motion for reconsideration which the trial court denied. On appeal, the Court of
Appeals affirmed the decision in toto. Hence, this petition.
The issues raised are:
I
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE
FIRST DECISION OF THE TRIAL COURT WAS NOT FINAL WHEN THE SAME
WAS SET ASIDE AND SUPERSEDED BY THE SECOND DECISION AND THUS,
THE TRIAL COURT HAD NO MORE JURISDICTION TO RENDER SAID SECOND
DECISION, AND
II
WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING THE
TRIAL COURT IN ORDERING THE RESCISSION OF THE AGREEMENT (EXHIBIT
5) AND THE PAYMENT OF DAMAGES AND ATTORNEY'S FEES.
The petitioner maintains that the motions for reconsideration filed by the respondents are both pro
forma because they presented issues which the trial court had already considered and ruled upon
and that the second motion for reconsideration merely asked the court to consider two documents

which were already submitted by respondents in evidence. The petitioner argues that the said
motion did not interrupt the running of the period to appeal and thus, when the second decision was
rendered the trial court had already lost its jurisdiction over the case, making such decision null and
void.
The above contentions are untenable.
In the first place, the very purpose of a motion for reconsideration is to point out the findings and
conclusions of the decision which in the movant's view, are not supported by law or the evidence.
The movant is, therefore, very often confined to the amplification or further discussion of the same
issues already passed upon by the court. Otherwise, his remedy would not be a reconsideration of
the decision but a new trial or some other remedy. In the case of Vina v. Court of Appeals (126
SCRA 381-382), we emphasized the nature of a motion for reconsideration. We ruled:
Contrary to petitioner's contention, REPUBLIC's Motion for Reconsideration dated
January 10, 1973 was not pro forma, even if we were to concede that it was a
reiteration of its previous Motion for suspension of the proceedings.
... Among the ends to which a motion for reconsideration is addressed, one is
precisely to convince the court that its ruling is erroneous and improper, contrary to
the law or the evidence (Rule 37, Section 1, subsection [c]; and in doing so, the
movant has to dwell of necessity upon the issues passed upon by the court. If a
motion for reconsideration may not discuss these issues, the consequence would be
that after a decision is rendered, the losing party would be confined to filing only
motions for reopening and new trial. We find in the Rules of Court no warrant for
ruling to that effect, a ruling that would, in effect eliminate subsection (c) of Section I
of Rule 37. (Guerra Enterprises Co., Inc. v. Court of First Instance of Lanao del Sur,
32 SCRA 317 [1970]).
Secondly, as far as the second motion of respondents is concerned, the same should not be strictly
construed as a motion for reconsideration although captioned as such because in reality, it is merely
a supplementary pleading aimed to call the court's attention to the fact that it had given the
respondents five days to file their rejoinder, with which they complied and, therefore, said rejoinder
should have been considered before the court acted upon the respondents' first motion for
reconsideration. Supplemental pleadings are meant to supply deficiencies in aid of original
pleadings, not to entirely substitute the latter (See Pasay City Government v. CFI of Manila, 132
SCRA 169), and neither should they be considered independently nor separately from such original
pleadings.
We, therefore, hold that the appellate court did not commit grave abuse of discretion in upholding the
trial court's jurisdiction when it rendered the second decision.
In the second assignment of error, the petitioner contends that the Court of Appeals committed a
reversible error in affirming the rescission of the contract when the respondents did not pray for
rescission and in ordering the payment of damages and attorney's fees notwithstanding the fact that
the complaint for specific performance was not instituted in bad faith.

It is noteworthy to mention that in their answer to the petitioner's complaint, the respondents prayed
for the annulment of both the Deed of Conditional Sale (Exh. 'A') and the Deed of Sale with
Assumption of Mortgage (Exh. 'G') which are the very bases of the supplemental agreements (Exhs.
'1', '2' and '5') executed between the petitioner and the respondent. The technical argument that the
respondents never prayed for the rescission of the contracts and that the trial court and the appellate
court should never have rescinded the same has no merit. Furthermore, by failing to pay the amount
of P12,000.00 and the balance of P4,376.00 as stipulated in the contract within the forty-five (45)
days period, the petitioner clearly committed a breach of contract which sufficiently and justly entitled
the respondents to ask for the rescission of the contracts. In the case of Nagarmull v. BinalbaganIsabel Sugar Co., Inc. (33 SCRA 52), we ruled that " ... The Breach of contract committed by
appellee gave appellant, under the law and even under general principles of fairness, the right to
rescind the contract or to ask for its specific performance, in either case with right to demand
damages ... It is evident, in the case at bar, that the respondents chose to rescind the contracts after
the petitioner repeatedly failed to pay not only the balance but the initial amount as downpayment in
consideration of which the contracts or agreements were executed. As a matter of fact, the petitioner
later asked the SSS to cancel his loan application. He thereby abandoned his own claim for specific
performance. Therefore, the appellate court correctly affirmed the rescission of the above-mentioned
contracts. It also correctly affirmed the payment of attorney's fees. While the petitioner may not have
acted in bad faith in filing his complaint, still the payment of attorney's fees is warranted in this case
because of the environmental circumstances which compelled the respondents to litigate for the
protection of their interests. (See Bert Osmena & Associates v. Court of Appeals, 120 SCRA 401 and
Article 2208 (2) New Civil Code).
We, however, find the award of damages in the amount of P4,376.00 unwarranted. In their motion
for reconsideration, the respondents explained how they arrived at this amount
Plaintiff obliged himself to pay P30.00 for everyday of delay after the lapse of thirty
days from the execution of the document of March 17, 1963 (Exh. 1-Defendants).
Thirty days from March 17, 1963 would be April 18, which will mark the beginning of
the counting of the days of delays. From April 18, 1963 to July 9, 1963, the number of
days of delay was 82 days. Plaintiff requested that this be reduced to 70 days and
defendants agreed. At P30.00 per day of delay the amount in 70 days will be
P2,100.00. The rental as provided for in the same exhibit 1 for defendants was
P50.00 per month. From March 1, 1963 to June 20, 1963, 4 months elapsed. At
P50.00 per month the rental would be P200.00. Plaintiff got or utilized adobe stones
belonging to defendant which he found in the premises when he and his parents
transferred to the lot in question in March 1963 the value of which was P76.00.
Adding this to the P2,100.00 which is the amount to be paid for the delay in making
payments and the P200.00 for 4 months rental, the total will be P2,376.00. The
agreed purchase price was Pl4,000.00 but Pl2,000.00 was the amount of loan the
Social Security System was then willing to give to plaintiff so that there will be a
shortage of P2,000.00 more to complete the payment of the purchase price. This
shortage of P2,000.00 was added to the P2,376.00 and the sum will be P4,376.00.
Hence, in the agreement of July 9, 1963, this amount of P4,376.00 was to be paid
within 45 days from the date thereof and the P12,000.00 which was the loan then

approved by the Social Security System was to be paid to defendants on the day of
the execution of the said agreement.
xxx xxx xxx
It is evident from the motion that the amount of P4,376.00 awarded by the appellate court as
damages is mainly based on "P30.00 per day of delay" penalty clause embodied in the agreement
marked Exhibit "1". Enforcement of the clause on daily penalties now would result in excessive
damages considering that the agreement was entered into way back in 1963. Moreover, the
P2,000.00 represents part of the purchase price of the sale which was already rescinded.
Under Article 1191 of the Civil Code, "the injured party may choose between the fulfillment and
rescission of the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become impossible ... ." The law,
however, does not authorize the injured party to rescind the obligation and at the same time seek its
partial fulfillment under the guise of recovering damages.
The appellate court, therefore, erred in including both the penalty clause and the part of the
purchase price in the computation of damages. There is no question that the petitioner must pay
damages for the use of the house and lot until he vacates the premises. The petitioner and his family
have lived in the respondents' house all these years without paying either the price he obligated
himself to pay or the monthly rentals he agreed to pay as early as 1963. At the very least, the
petitioner should pay P50.00 monthly rentals with legal interest from March, 1963.
WHEREFORE, the decision appealed from is MODIFIED in that the award of damages in the
amount of P4,376.00 is set aside. The petitioner is ordered to vacate the disputed property and to
pay FIFTY PESOS (P50.00) as monthly rentals with interest at the legal rate from March, 1963 up to
the time he and his successors-in-interest vacate the property in question. In all other respects, the
decision is AFFIRMED.
SO ORDERED.

[G.R. No. 156273. October 15, 2003]

HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely:

ESPERANZA R. EDJEC, BERNARDA R. SUELA, RUBY C.
ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE LIMBAGA,
VIRGINIA R. ARBON, ROSALINDA R. ARQUISOLA, CORAZON
ROTEA, FE R. EBORA, CARIDAD ROTEA, ANGELES VDA. DE
RENACIA, JORGE ROTEA, MARIA LUISA ROTEA-VILLEGAS,
ALFREDO R. ROTEA, represented by his heirs LIZBETH ROTEA
and ELEPETH ROTEA; LUIS ROTEA, represented by his heir
JENNIFER ROTEA; and ROLANDO R. ROTEA, represented by
his heir ROLANDO R. ROTEA JR., petitioners, vs. MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, respondent.
DECISION
BELLOSILLO, J.:

THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners

herein, are the successors-in-interest of the former registered owners of two
(2) parcels of land situated in Lahug, Cebu City, designated as Lot No. 916
with an area of 2,355 square meters under TCT No. RT-7543 (106) T-13694,
and Lot No. 920 consisting of 3,097 square meters under TCT No. RT-7544
(107) T-13695.
[1]

In 1949 the National Airport Corporation as the predecessor agency of

respondent Mactan-Cebu International Airport Authority (MCIAA) wanted to
acquire Lots Nos. 916 and 920 above described among other parcels of land
for the proposed expansion of Lahug Airport. To entice the landowners to
cede their properties, the government assured them that they could
repurchase their lands once Lahug Airport was closed or its operations
transferred to Mactan Airport. Some of the landowners executed deeds of
sale with right of repurchase in favor of the government but many others,
[2]

[3]

including the owners of Lots Nos. 916 and 920 herein mentioned, refused the
offer because the payment was perceived to be way below the market price.
[4]

On 16 April 1952, as the negotiations for the purchase of the lots

necessary for the expansion and improvement of Lahug Airport irredeemably
broke down, the Civil Aeronautics Administration as the successor agency of
the National Airport Corporation filed a complaint with the Court of First
Instance of Cebu, for the expropriation of Lots Nos. 916 and 920 and other
subject realties, docketed as Civil Case No. R-1881.
On 29 December 1961 the trial court promulgated its Decision in Civil
Case No. R-1881 condemning Lots Nos. 916 and 920 and other lots for public
use upon payment of just compensation. Petitioners predecessors were
paid P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with
consequential damages by way of legal interest from 16 November 1947. No
appeal was taken from the Decision on Lots Nos. 916 and 920, and the
judgment of condemnation became final and executory. Thereafter, the
certificates of title for these parcels of land were issued in the name of the
Republic of the Philippines under TCT No. 58691 for Lot No. 916 and TCT No.
58692 for Lot No. 920, which under RA 6958 (1990) were subsequently
transferred in favor of respondent MCIAA.
[5]

[6]

[7]

At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to
MCIAA, Lahug Airport ceased operations as the Mactan Airportwas opened
for incoming and outgoing flights. Lots Nos. 916 and 920 which had been
expropriated for the extension of Lahug Airport were not utilized. In fact, no
expansion of Lahug Airport was undertaken by MCIAA and its predecessorsin-interest. Hence, petitioners wrote then President Fidel V. Ramos and the
airport manager begging them for the exercise of their alleged right to
repurchase Lots Nos. 916 and 920. Their pleas were not heeded.
[8]

[9]

[10]

[11]

[12]

On 11 March 1997 petitioners filed a complaint for reconveyance and

damages with RTC of Cebu City against respondent MCIAA to compel the
repurchase of Lots Nos. 916 and 920, docketed as Civil Case No. CEB20015. In the main, petitioners averred that they had been convinced by the
officers of the predecessor agency of respondent MCIAA not to oppose the
expropriation proceedings since in the future they could repurchase the
properties if the airport expansion would not push through. MCIAA did not
object to petitioners evidence establishing these allegations.
When the civil case was pending, one Richard E. Enchuan filed a Motion
for Transfer of Interest alleging that he acquired through deeds of assignment
the rights of some of herein petitioners over Lots Nos. 916 and 920. The
Department of Public Works and Highways (DPWH) also sought to intervene
[13]

in the civil case claiming that it leased in good faith Lot No. 920 from the
predecessor agencies of respondent MCIAA and that it built thereon its
Regional Equipment Services and its Region 7 Office.
[14]

On 12 April 1999 the trial court found merit in the claims of petitioners and
granted them the right to repurchase the properties at the amount pegged as
just compensation in Civil Case No. R-1881 but subject to the alleged property
rights of Richard E. Enchuan and the leasehold of DPWH. The trial court
opined that the expropriation became illegal or functus officio when the
purpose for which it was intended was no longer there.
[15]

[16]

Respondent MCIAA appealed the Decision of the trial court to the Court of
Appeals, docketed as CA-G.R. CV No. 64456.
On 20 December 2001 the Court of Appeals reversed the
assailed Decision on the ground that the judgment of condemnation in Civil
Case No. R-1881 was unconditional so that the rights gained therefrom by
respondent MCIAA were indicative of ownership in fee simple. The appellate
court cited Fery v. Municpality of Cabanatuan which held that mere deviation
from the public purpose for which the power of eminent domain was exercised
does not justify the reversion of the property to its former owners,
and Mactan-Cebu International Airport Authority v. Court of Appeals which is
allegedly stare decisis to the instant case to prevent the exercise of the right
of repurchase as the former dealt with a parcel of land similarly expropriated
under Civil Case No. R-1881.
[17]

[18]

[19]

[20]

On 28
November
2002 reconsideration
denied. Hence, this petition for review.

of

the Decision was

[21]

Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to

the case at bar since what was involved therein was the right of reversion
and not the right of repurchase which they are invoking. They also
differentiate Mactan-Cebu International Airport Authority v. Court of
Appeals from the instant case in that the landowners in the MCIAA case
offered inadmissible evidence to show their entitlement to a right of
repurchase, while petitioners herein offered evidence based on personal
knowledge for which reason MCIAA did not object and thus waived whatever
objection it might have had to the admissibility thereof. Finally, petitioners
allege that their right to equal protection of the laws would be infringed if some
landowners are given the right to repurchase their former properties even as
they are denied the exercise of such prerogative.
[22]

On the other hand, respondent MCIAA clings to our decisions

in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport

Authority v. Court of Appeals. According to respondent MCIAA there is only

one instance when expropriated land may be repurchased by its previous
owners, and that is, if the decision of expropriation itself provides [the]
condition for such repurchase. Respondent asserts that theDecision in Civil
Case No. R-1881 is absolute and without conditions, thus, no repurchase
could be validly exercised.
This is a difficult case calling for a difficult but just solution. To begin with,
there exists an undeniable historical narrative that the predecessors of
respondent MCIAA had suggested to the landowners of the properties
covered by the Lahug Airport expansion scheme that they could repurchase
their properties at the termination of the airports venture. Some acted on
this assurance and sold their properties; other landowners held out and
waited for the exercise of eminent domain to take its course until finally
coming to terms with respondents predecessors that they would not appeal
nor block further the judgment of condemnation if the same right of
repurchase was extended to them. A handful failed to prove that they acted
on such assurance when they parted with the ownership of their lands.
[23]

[24]

[25]

[26]

In resolving this dispute, we must reckon with the rulings of this Court
in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport
Authority v. Court of Appeals, which define the rights and obligations of
landowners whose properties were expropriated when the public purpose for
which eminent domain was exercised no longer subsists. In Fery, which was
cited in the recent case of Reyes v. Court of Appeals, we declared that the
government acquires only such rights in expropriated parcels of land as may
be allowed by the character of its title over the properties [27]

If x x x land is expropriated for a particular purpose, with the condition that when that
purpose is ended or abandoned the property shall return to its former owner, then, of
course, when the purpose is terminated or abandoned the former owner reacquires the
property so expropriated. If x x x land is expropriated for a public street and the
expropriation is granted upon condition that the city can only use it for a public street,
then, of course, when the city abandons its use as a public street, it returns to the
former owner, unless there is some statutory provision to the contrary x x x x If, upon
the contrary, however, the decree of expropriation gives to the entity a fee simple title,
then, of course, the land becomes the absolute property of the expropriator, whether it
be the State, a province, or municipality, and in that case the non-user does not have
the effect of defeating the title acquired by the expropriation proceedings
x x x x When land has been acquired for public use in fee simple, unconditionally,
either by the exercise of eminent domain or by purchase, the former owner retains no
rights in the land, and the public use may be abandoned, or the land may be devoted to

a different use, without any impairment of the estate or title acquired, or any reversion
to the former owner x x x x
[28]

In Mactan-Cebu International
Airport
Authority,
respondent Chiongbian sought to enforce an alleged right of repurchase over
her properties that had been expropriated in Civil Case No. R-1881. This
Court did not allow her to adduce evidence of her claim, for to do so would
unsettle as to her properties the judgment of condemnation in the eminent
domain proceedings. We also held therein that Chiongbians evidence was
both inadmissible and lacking in probative value The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in
fee simple to the Republic of the Philippines. There was no condition imposed to the
effect that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right
to repurchase the same if the purpose for which it was expropriated is ended or
abandoned or if the property was to be used other than as
the Lahug Airport. CHIONGBIAN cannot rely on the ruling in MactanCebu InternationalAirport vs. Court of Appeals wherein the presentation
of parol evidence was allowed to prove the existence of a written agreement
containing the right to repurchase. Said case did not involve expropriation
proceedings but a contract of sale x x x x To permit CHIONGBIAN to prove the
existence of a compromise settlement which she claims to have entered into with the
Republic of the Philippines prior to the rendition of judgment in the expropriation
case would result in a modification of the judgment of a court which has long become
final and executory x x x x And even assuming for the sake of argument that
CHIONGBIAN could prove the existence of the alleged written agreement
acknowledging her right to repurchase Lot No. 941 through parol evidence, the Court
of Appeals erred in holding that the evidence presented by CHIONGBIAN was
admissible x x x x Aside from being inadmissible under the provisions of the Statute
of Frauds, [the] testimonies are also inadmissible for being hearsay in nature x x x x
[29]

We adhere to the principles enunciated in Fery and in MactanCebu International Airport Authority, and do not overrule them. Nonetheless
the weight of their import, particularly our ruling as regards the properties of
respondent Chiongbian in Mactan-Cebu International Airport Authority, must
be commensurate to the facts that were established therein as distinguished
from those extant in the case at bar. Chiongbianput forth inadmissible and
inconclusive evidence, while in the instant case we have preponderant proof
as found by the trial court of the existence of the right of repurchase in favor of
petitioners.

Moreover, respondent MCIAA has brought to our attention a significant

and telling portion in the Decision in Civil Case No. R-1881 validating our
discernment that the expropriation by the predecessors of respondent was
ordered under the running impression that LahugAirport would continue in
operation As for the public purpose of the expropriation proceeding, it cannot now be
doubted. Although Mactan Airport is being constructed, it does not take away the
actual usefulness and importance of the Lahug Airport: it is handling the air traffic
both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru
it on their flights to the North and Manila. Then, no evidence was adduced to show
how soon is the Mactan Airport to be placed in operation and whether
the Lahug Airport will be closed immediately thereafter. It is up to the other
departments of the Government to determine said matters. The Court cannot
substitute its judgment for those of the said departments or agencies. In the absence
of such showing, the Court will presume that the Lahug Airportwill continue to
be in operation (emphasis supplied).
[30]

While the trial court in Civil Case No. R-1881 could have simply
acknowledged the presence of public purpose for the exercise of eminent
domain regardless of the survival of Lahug Airport, the trial court in
its Decision chose not to do so but instead prefixed its finding of public
purpose upon its understanding that Lahug Airport will continue to be in
operation. Verily, these meaningful statements in the body of
theDecision warrant the conclusion that the expropriated properties would
remain to be so until it was confirmed that Lahug Airport was no longer in
operation. This inference further implies two (2) things: (a) after
the Lahug Airport ceased its undertaking as such and the expropriated lots
were not being used for any airport expansion project, the rights vis--vis the
expropriated Lots Nos. 916 and 920 as between the State and their former
owners, petitioners herein, must be equitably adjusted; and, (b) the foregoing
unmistakable declarations in the body of the Decisionshould merge with and
become an intrinsic part of the fallo thereof which under the premises is
clearly inadequate since the dispositive portion is not in accord with the
findings as contained in the body thereof.
[31]

Significantly, in light of the discussion above, the admission of petitioners

during the pre-trial of Civil Case No. CEB-20015 for reconveyanceand
damages that respondent MCIAA was the absolute owner of Lots Nos. 916
and 920 does not prejudice petitioners interests. This is as it should be not
only because the admission concerns a legal conclusion fiercely debated by

the parties but more so since respondent was truly the absolute owner of the
realties until it was apparent that Lahug Airport had stopped doing business.
[32]

To sum up what we have said so far, the attendance in the case at bar of
standing admissible evidence validating the claim of petitioners as well as the
portions above-quoted of the Decision in the expropriation case volunteered
no less than by respondent itself, takes this case away from the ambit
of Mactan-Cebu International Airport Authority v. Court of Appeals but within
the principles enunciated in Fery as mentioned earlier. In addition, there
should be no doubt that our present reading of the fallo of the Decision in Civil
Case No. R-1881 so as to include the statements in the body thereof aforequoted is sanctioned by the rule that a final and executory judgment may
nonetheless be clarified by reference to other portions of the decision of
which it forms a part. In Republic v. De Los Angeles we ruled [33]

[34]

This Court has promulgated many cases x x x wherein it was held that a judgment
must not be read separately but in connection with the other portions of the decision
of which it forms a part. Hence x x x the decision of the court below should be taken
as a whole and considered in its entirety to get the true meaning and intent of any
particular portion thereof x x x x Neither is this Court inclined to confine itself to a
reading of the said fallo literally. On the contrary, the judgment portion of a decision
should be interpreted and construed in harmony with the ratio decidendi thereof
x x x x As stated in the case of Policarpio vs. Philippine Veterans Board, et
al., supra, to get the true intent and meaning of a decision, no specific portion thereof
should be resorted to but the same must be considered in its entirety. Hence, a
resolution or ruling may and does appear in other parts of the decision and not merely
in the fallo thereof x x x x The foregoing pronouncements find support in the case
of Locsin, et al. vs. Paredes, et al., 63 Phil., 87, 91-92, wherein this Court allowed a
judgment that had become final andexecutory to be clarified by supplying a word
which had been inadvertently omitted and which, when supplied, in effect changed the
literal import of the original phraseology x x x x This is so because, in the first place,
if an already final judgment can still be amended to supply an omission committed
through oversight, this simply means that in the construction or interpretation of an
already final decision, the fallo or dispositive portion thereof must be correlated with
the body of such final decision x x x x [I]f an amendment may be allowed after a
decision has already become final x x x such amendment may consist x x x either in
the x x x interpretation of an ambiguous phrase therein in relation to the body of the
decision which gives it life.
[35]

We now resolve to harmonize the respective rights of the State and

petitioners to the expropriated Lots Nos. 916 and 920.

Mactan-Cebu International Airport Authority is correct in stating that one

would not find an express statement in the Decision in Civil Case No. R-1881
to the effect that the [condemned] lot would return to [the landowner] or that
[the landowner] had a right to repurchase the same if the purpose for which it
was expropriated is ended or abandoned or if the property was to be used
other than as the Lahug Airport. This omission notwithstanding, and while the
inclusion of this pronouncement in the judgment of condemnation would have
been ideal, such precision is not absolutely necessary nor is it fatal to the
cause of petitioners herein. No doubt, the return or repurchase of the
condemned properties of petitioners could be readily justified as the manifest
legal effect or consequence of the trial courts underlying presumption that
Lahug Airport will continue to be in operation when it granted the complaint
for eminent domain and the airport discontinued its activities.
[36]

The predicament of petitioners involves a constructive trust, one that is

akin to the implied trust referred to in Art. 1454 of the Civil Code, If an
absolute conveyance of property is made in order to secure the performance
of an obligation of the grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand thereconveyance of the property to him. In
the case at bar, petitioners conveyed Lots Nos. 916 and 920 to the
government with the latter obliging itself to use the realties for the expansion
of Lahug Airport; failing to keep its bargain, the government can be compelled
by petitioners toreconvey the parcels of land to them, otherwise, petitioners
would be denied the use of their properties upon a state of affairs that was not
conceived nor contemplated when the expropriation was authorized.
[37]

Although the symmetry between the instant case and the situation
contemplated by Art. 1454 is not perfect, the provision is undoubtedly
applicable. For, as explained by an expert on the law of trusts: The only
problem of great importance in the field of constructive trusts is to decide
whether in the numerous and varying fact situations presented to the courts
there is a wrongful holding of property and hence a threatened unjust
enrichment of the defendant. Constructive trusts are fictions of equity which
are bound by no unyielding formula when they are used by courts as devices
to remedy any situation in which the holder of the legal title may not in good
conscience retain the beneficial interest.
[38]

[39]

In constructive trusts, the arrangement is temporary and passive in which

the trustees sole duty is to transfer the title and possession over the property
to the plaintiff-beneficiary. Of course, the wronged party seeking the aid of a
court of equity in establishing a constructive trust must himself do
equity. Accordingly, the court will exercise its discretion in deciding what
[40]

[41]

acts are required of the plaintiff-beneficiary as conditions precedent to

obtaining such decree and has the obligation to reimburse the trustee the
consideration received from the latter just as the plaintiff-beneficiary would if
he proceeded on the theory of rescission. In the good judgment of the court,
the trustee may also be paid the necessary expenses he may have incurred in
sustaining the property, his fixed costs for improvements thereon, and the
monetary value of his services in managing the property to the extent that
plaintiff-beneficiary will secure a benefit from his acts.
[42]

[43]

The rights and obligations between the constructive trustee and the
beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos.
916 and 920, are echoed in Art. 1190 of the Civil Code, When the conditions
have for their purpose the extinguishment of an obligation to give, the parties,
upon the fulfillment of said conditions, shall return to each other what they
have received x x x x In case of the loss, deterioration or improvement of the
thing, the provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return x x x x
Hence, respondent MCIAA as representative of the State is obliged
to reconvey Lots Nos. 916 and 920 to petitioners who shall hold the same
subject to existing liens thereon, i.e., leasehold right of DPWH. In return,
petitioners as if they were plaintiff-beneficiaries of a constructive trust must
restore to respondent MCIAA what they received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881,
i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with
consequential damages by way of legal interest from 16 November
1947. Petitioners must likewise pay respondent MCIAA the necessary
expenses it may have incurred in sustaining the properties and the monetary
value of its services in managing them to the extent that petitioners will be
benefited thereby. The government however may keep whatever income or
fruits it may have obtained from the parcels of land, in the same way that
petitioners need not account for the interests that the amounts they received
as just compensation may have earned in the meantime. As a matter of
justice and convenience, the law considers the fruits and interests as the
equivalent of each other.
[44]

Under Art. 1189 of the Civil Code, If the thing is improved by its nature, or
by time, the improvement shall inure to the benefit of the creditor x x x, the
creditor being the person who stands to receive something as a result of the
process of restitution. Consequently, petitioners as creditors do not have to
settle as part of the process of restitution the appreciation in value of Lots
Nos. 916 and 920 which is the natural consequence of nature and time.

Petitioners need not also pay for improvements introduced by third parties,
i.e., DPWH, as the disposition of these properties is governed by existing
contracts and relevant provisions of law. As for the improvements that
respondent MCIAA may have made on Lots Nos. 916 and 920, if any,
petitioners must pay respondent their prevailing free market price in case
petitioners opt to buy them and respondent decides to sell. In other words, if
petitioners do not want to appropriate such improvements or respondent does
not choose to sell them, the improvements would have to be removed without
any obligation on the part of petitioners to pay any compensation to
respondent MCIAA for whatever it may have tangibly introduced therein.
[45]

The medium of compensation for the restitution shall be ready money or

cash payable within a period of three hundred sixty five (365) days from the
date that the amount to be returned by petitioners is determined with finality,
unless the parties herein stipulate and agree upon a different scheme,
medium or schedule of payment. If after the period of three hundred sixty five
(365) days or the lapse of the compromise scheme or schedule of payment
such amount owed is not settled, the right of repurchase of petitioners and the
obligation of respondent MCIAA to reconvey Lots Nos. 916 and 920 and/or the
latters improvements as set forth herein shall be deemed forfeited and the
ownership of those parcels of land shall vest absolutely upon respondent
MCIAA.
Finally, we delete the award of P60,000.00 for attorneys fees
and P15,000.00 for litigation expenses in favor of petitioners as decreed in the
assailed Decision of 12 April 1999 of the trial court. It is not sound public
policy to set a premium upon the right to litigate where such right is exercised
in good faith, as in the present case, albeit the decision to resist the claim is
erroneous.
[46]

The rule on awards of attorneys fees and litigation expenses is found in

Art. 2208 of the Civil Code In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1)

When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interests;
(3)

In criminal cases of malicious prosecution against the plaintiff;

(4)

In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff's valid and demandable claim;
(6)

In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's liability
laws;
(9)

In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
As noted in Mirasol v. De la Cruz, Art. 2208 intends to retain the award of
attorneys fees as the exception in our law and the general rule remains that
attorneys fees are not recoverable in the absence of a stipulation thereto.
[47]

In the case at bar, considering the established absence of any stipulation

regarding attorneys fees, the trial court cannot base its award on any of the
exceptions enumerated in Art. 2208. The records of the instant case do not
disclose any proof presented by petitioners to substantiate that the actuations
of respondent MCIAA were clearly unfounded or purely for the purpose of
harassment; neither does the trial court make any finding to that effect in its
appealed Decision.
While Art. 2208, par. (4), allows attorneys fees in cases of clearly
unfounded civil actions, this exception must be understood to mean those
where the defenses are so untenable as to amount to gross and evident bad
faith. Evidence must be presented to the court as to the facts and
circumstances constituting the alleged bad faith, otherwise, the award of
attorneys fees is not justified where there is no proof other than the bare
statement of harassment that a party to be so adjudged had acted in bad
faith. The exercise of judicial discretion in the award of attorneys fees under

Art. 2208, par. (11), demands a factual, legal or equitable justification that
would bring the case within the exception and justify the grant of such award.
WHEREFORE,
the
instant Petition
for
Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV
No. 64456 dated 20 December 2001 and its Resolution of 28 November 2002
denying reconsideration of the Decision are REVERSED and SET ASIDE.
The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case
No. CEB-20015 is MODIFIED IN PART by (a) ORDERING respondent Mactan-Cebu International Airport Authority
(MCIAA) TO RECONVEY to petitioner Heirs of Timoteo Moreno and
Maria Rotea,
namely: Esperanza
R. Edjec, Bernarda R. Suela,
Ruby
C. Rotea, Bernarda R. Rotea, Elia R. Vda De Limbaga, Virginia R. Arbon,
Rosalinda R. Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea,
Angeles Vda. De Renacia, Jorge Rotea, Maria Luisa Rotea-Villegas, Alfredo
R. Rotea, represented by his heirs, namely: Lizbeth Rotea and Elepeth Rotea;
Luis Rotea, represented by his heir Jennifer Rotea; and Rolando R. Rotea,
represented by his heir Rolando R. Rotea Jr., Lot No. 916 with an area of
2,355 square meters and Lot No. 920 consisting of 3,097 square meters
in Lahug, Cebu City, with all the improvements thereon evolving through
nature or time, but excluding those that were introduced by third parties, i.e.,
DPWH, which shall be governed by existing contracts and relevant provisions
of law;
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO
PAY respondent MCIAA what the former received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881,
i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with
consequential damages by way of legal interest from 16 November
1947. Petitioners must likewise PAY respondent MCIAA the necessary
expenses that the latter may have incurred in sustaining the properties and
the monetary value of its services in managing the properties to the extent
that petitioners will secure a benefit from such acts. Respondent MCIAA
however may keep whatever income or fruits it may have obtained from the
parcels of land, in the same way that petitioners need not account for the
interests that the amounts they received as just compensation may have
earned in the meantime;
(c)
ORDERING respondent MCIAA TO CONVEY to petitioners the
improvements it may have built on Lots Nos. 916 and 920, if any, in which
case petitioners SHALL PAY for these improvements at the prevailing free
market price, otherwise, if petitioners do not want to appropriate such

improvements, or if respondent does not choose to sell them, respondent

MCIAA SHALL
REMOVE these
improvementsWITHOUT
ANY
OBLIGATION on the part of petitioners to pay any compensation to
respondent MCIAA for them;
(d) ORDERING petitioners TO PAY the amount so determined under letter
(b) of this dispositive portion as consideration for thereconveyance of Lots
Nos. 916 and 920, as well as the prevailing free market price of the
improvements built thereon by respondent MCIAA, if any and desired to be
bought and sold by the parties, in ready money or cash PAYABLE within a
period of three hundred sixty five (365) days from the date that the amount
under letter (b) above is determined with finality, unless the parties herein
stipulate a different scheme or schedule of payment, otherwise, after the
period of three hundred sixty five (365) days or the lapse of the compromise
scheme or schedule of payment and the amount so payable is not settled, the
right of repurchase of petitioners and the obligation of respondent MCIAA to
so reconvey Lots Nos. 916 and 920 and/or the improvements shall
be DEEMED FORFEITED and the ownership of those parcels of land
shall VEST ABSOLUTELY upon respondent MCIAA;
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes
of determining the amount of compensation for Lots Nos. 916 and 920 to be
paid by petitioners as mandated in letter (b) hereof, and the value of the
prevailing free market price of the improvements built thereon by respondent
MCIAA, if any and desired to be bought and sold by the parties, and in
general, securing the immediate execution of thisDecision under the
premises;
(f) ORDERING petitioners to respect the right of the Department of Public
Works and Highways to its lease contract until the expiration of the lease
period; and
(g) DELETING the
award
of P60,000.00
for
attorneys
fees
and P15,000.00 for litigation expenses against respondent MCIAA and in
favor of petitioners.
This Decision is without prejudice to the claim of intervenor one Richard
E. Enchuan on his allegation that he acquired through deeds of assignment
the rights of some of herein petitioners over Lots Nos. 916 and 920.
No costs.
SO ORDERED.

G.R. No. 177050

July 01, 2013

CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM, SHIRLEY LEODADIA
DIZON,** AND ARLEEN LIM FERNANDEZ, PETITIONERS,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENT.
DECISION
DEL CASTILLO, J.:
"While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagors failure to
pay his obligation, it is imperative that such right be exercised according to its clear mandate. Each
and every requirement of the law must be complied with, lest, the valid exercise of the right would
end."1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the February 22,
2007 Decision3 of the Court of Appeals (CA) in CA-G.R. CV No. 59275.
Factual Antecedents
On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed Lim, obtained a
loan ofP40,000.00 (Lim Account) from respondent Development Bank of the Philippines (DBP) to
finance their cattle raising business.4 On the same day, they executed a Promissory
Note5 undertaking to pay the annual amortization with an interest rate of 9% per annum and penalty
charge of 11% per annum.
On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all surnamed Lim;
Shirley Leodadia Dizon, Arleen Lim Fernandez, Juan S. Chua,6 and Trinidad D. Chua7 obtained
another loan from DBP8in the amount of P960,000.00 (Diamond L Ranch Account).9 They also
executed a Promissory Note,10 promising to pay the loan annually from August 22, 1973 until August
22, 1982 with an interest rate of 12% per annum and a penalty charge of 1/3% per month on the
overdue amortization.
To secure the loans, petitioners executed a Mortgage11 in favor of DBP over real properties covered
by the following titles registered in the Registry of Deeds for the Province of South Cotabato:
(a) TCT No. T-6005 x x x in the name of Edmundo Lim;

(b) TCT No. T-6182 x x x in the name of Carlos Lim;

(c) TCT No. T-7013 x x x in the name of Carlos Lim;
(d) TCT No. T-7012 x x x in the name of Carlos Lim;
(e) TCT No. T-7014 x x x in the name of Edmundo Lim;
(f) TCT No. T-7016 x x x in the name of Carlito Lim;
(g) TCT No. T-28922 x x x in the name of Consolacion Lim;
(h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;
(i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chuas deceased husband Juan Chua. 12
Due to violent confrontations between government troops and Muslim rebels in Mindanao from 1972
to 1977, petitioners were forced to abandon their cattle ranch.13 As a result, their business collapsed
and they failed to pay the loan amortizations.14
In 1978, petitioners made a partial payment in the amount of P902,800.00,15 leaving an outstanding
loan balance of P610,498.30, inclusive of charges and unpaid interest, as of September 30, 1978. 16
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP Statements of
Account for the "Lim Account" and the "Diamond L Ranch Account."17 Quoted below are the
computations in the Statements of Account, as of January 31, 1989 which were stamped with the
words "Errors & Omissions Excepted/Subject to Audit:"
1wphi1

Diamond L Ranch Account:

Matured [Obligation]:
Principal
Regular Interest
Advances

P 939,973.33
561,037.14
34,589.45

Additional Interest

2,590,786.26

Penalty Charges

1,068,147.19

Total claims as of January 31, 1989

P 5,194,533.37

Lim Account:
Matured [Obligation]:
Principal
Regular Interest
Additional Interest

P 40,000.00
5,046.97
92,113.56

18

Penalty Charges
Total claims as of January 31, 1989

39,915.46
P 177,075.99

Claiming to have already paid P902,800.00, Edmundo requested for an amended statement of
account.20
On May 4, 1990, Edmundo made a follow-up on the request for recomputation of the two
accounts.21 On May 17, 1990, DBPs General Santos Branch informed Edmundo that the Diamond L
Ranch Account amounted toP2,542,285.60 as of May 31, 199022 and that the mortgaged properties
located at San Isidro, Lagao, General Santos City, had been subjected to Operation Land Transfer
under the Comprehensive Agrarian Reform Program (CARP) of the government. 23 Edmundo was
also advised to discuss with the Department of Agrarian Reform (DAR) and the Main Office of
DBP24 the matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties were ceded by DAR to other persons without
their knowledge.25 No reply was made.26
On April 30, 1991, Edmundo again signified petitioners intention to settle the Diamond L Ranch
Account.27 Again, no reply was made.28
On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the following day.29 To
stop the foreclosure, he was advised by the banks Chief Legal Counsel to pay an interest covering a
60-days period or the amount of P60,000.00 to postpone the foreclosure for 60 days. 30 He was also
advised to submit a written proposal for the settlement of the loan accounts. 31
In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the accounts through dacion
en pago, with the balance to be paid in equal quarterly payments over five years.
In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and informed Edmundo that unless
the accounts are fully settled as soon as possible, the bank will pursue foreclosure proceedings.
DBP then sent Edmundo the Statements of Account34 as of June 15, 1992 which were stamped with
the words "Errors & Omissions Excepted/Subject to Audit" indicating the following amounts: (1)
Diamond L Ranch:P7,210,990.27 and (2) Lim Account: P187,494.40.
On June 11, 1992, Edmundo proposed to pay the principal and the regular interest of the loans in 36
equal monthly installments.35
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio Tamayo, Jr.
(Tamayo).36Tamayo promised to review the accounts.37
On September 21, 1992, Edmundo received another Notice from the Sheriff that the mortgaged
properties would be auctioned on November 22, 1992. 38 Edmundo again paid P30,000.00 as
additional interest to postpone the auction.39 But despite payment of P30,000.00, the mortgaged
properties were still auctioned with DBP emerging as the highest bidder in the amount
of P1,086,867.26.40 The auction sale, however, was later withdrawn by DBP for lack of jurisdiction. 41
Thereafter, Tamayo informed Edmundo of the banks new guidelines for the settlement of
outstanding loan accounts under Board Resolution No. 0290-92. 42 Based on these guidelines,
petitioners outstanding loan obligation was computed at P3,500,000.00 plus.43 Tamayo then

19

proposed that petitioners pay 10% downpayment and the remaining balance in 36 monthly
installments.44 He also informed Edmundo that the bank would immediately prepare the
Restructuring Agreement upon receipt of the downpayment and that the conditions for the settlement
have been "pre-cleared" with the banks Regional Credit Committee.45 Thus, Edmundo wrote a
letter46 on October 30, 1992 manifesting petitioners assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was accepted with some
minor adjustments and that an initial payment should be made by November 27, 1992. 47
On December 15, 1992, Edmundo paid the downpayment of P362,271.7548 and was asked to wait
for the draft Restructuring Agreement.49
However, on March 16, 1993, Edmundo received a letter 50 from Tamayo informing him that the
Regional Credit Committee rejected the proposed Restructuring Agreement; that it required
downpayment of 50% of the total obligation; that the remaining balance should be paid within one
year; that the interest rate should be non prime or 18.5%, whichever is higher; and that the proposal
is effective only for 90 days from March 5, 1993 to June 2, 1993.51
Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their previous
agreement.53 On June 5, 1993, the bank replied,54 viz:
This has reference to your letter dated May 28, 1993, which has connection to your desire to
restructure the Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between you and the Branch are not final until [the]
same has been approved by higher authorities of the Bank. We did [tell] you during our discussion
that we will be recommending the restructuring of your accounts with the terms and conditions as
agreed. Unfortunately, our Regional Credit Committee did not agree to the terms and conditions as
recommended, hence, the subject of our letter to you on March 15, 1993.
Please be informed further, that the Branch cannot do otherwise but to comply with the conditions
imposed by the Regional Credit Committee. More so, the time frame given had already lapsed on
June 2, 1993.
Unless we will receive a favorable action on your part soonest, the Branch will be constrained to do
appropriate action to protect the interest of the Bank." 55
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit Committee.
In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the previous Restructuring
Agreement was reconsidered and approved by the Regional Credit Committee subject to the
following additional conditions, to wit:
1) Submission of Board Resolution and Secretarys Certificate designating you as authorized
representative in behalf of Diamond L Ranch;
2) Payment of March 15 and June 15, 1993 amortizations within 30 days from date hereof;
and
3) Submission of SEC registration.

In this connection, please call immediately x x x our Legal Division to guide you for the early
documentation of your approved restructuring.
Likewise, please be reminded that upon failure on your part to sign and perfect the documents and
comply [with] other conditions within (30) days from date of receipt, your approved recommendation
shall be deemed CANCELLED and your deposit of P362,271.75 shall be applied to your account.
No compliance was made by Edmundo.58
On September 21, 1993, Edmundo received Notice that the mortgaged properties were scheduled to
be auctioned on that day.59 To stop the auction sale, Edmundo asked for an extension until
November 15, 199360 which was approved subject to additional conditions:
Your request for extension is hereby granted with the conditions that:
1) This will be the last and final extension to be granted your accounts; and
2) That all amortizations due from March 1993 to November 1993 shall be paid including the
additional interest computed at straight 18.5% from date of your receipt of notice of approval,
viz:
xxxx
Failure on your part to comply with these conditions, the Bank will undertake appropriate legal
measures to protect its interest.
Please give this matter your preferential attention.61
On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:
Acknowledge receipt of your Sept. 27 letter. I would like to finalize documentation of restructuring
Diamond L Ranch and Carlos Lim Accounts. However, we would need clarification on amortizations
due on NTFI means [sic]. I will call x x x your Legal Department at DBP Head Office by Nov. 11. Pls.
advise who[m] I should contact. Thank you.62
Receiving no response, Edmundo scheduled a meeting with Tamayo in Manila. 63 During their
meeting, Tamayo told Edmundo that he would send the draft of the Restructuring Agreement by
courier on November 15, 1993 to the Main Office of DBP in Makati, and that Diamond L Ranch need
not submit the Board Resolution, the Secretarys Certificate, and the SEC Registration since it is a
single proprietorship.64
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to Tamayo asking for the
draft of the Restructuring Agreement.65
On November 29, 1993, the documents were forwarded to the Legal Services Department of DBP in
Makati for the parties signatures. At the same time, Edmundo was required to pay the amount
of P1,300,672.75, plus a daily interest of P632.15 starting November 16, 1993 up to the date of
actual payment of the said amount.66
On December 19, 1993, Edmundo received the draft of the Restructuring Agreement. 67

In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank cancelled the
Restructuring Agreement due to his failure to comply with the conditions within a reasonable time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay the outstanding
amount ofP6,404,412.92, as of November 16, 1993, exclusive of interest and penalty charges. 69
Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was not able to review the
agreement due to the Christmas holidays. He also said that his lawyer was requesting clarification
on the following points:
Can the existing obligations of the Mortgagors, if any, be specified in the Restructuring Agreement
already?
Is there a statement showing all the accrued interest and advances that shall first be paid before the
restructuring shall be implemented?
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to sign as Mortgagors
considering that Mr. Chua is deceased and the pasture lease which he used to hold has already
expired?71
Edmundo also indicated that he was prepared to pay the first quarterly amortization on March 15,
1994 based on the total obligations of P3,260,445.71, as of December 15, 1992, plus interest.72
On January 28, 1994, Edmundo received from the bank a telegram73 which reads:
We refer to your cattle ranch loan carried at our DBP General Santos City Branch.
Please coordinate immediately with our Branch Head not later than 29 January 1994, to forestall the
impending foreclosure action on your account.
Please give the matter your utmost attention.
The bank also answered Edmundos queries, viz:
In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the untimely demise
of his father, we regret [that] he cannot personally respond to your letter of January 18, 1994.
However, he gave us the instruction to answer your letter on direct to the point basis as follows:
- Yes to Items No. 1 and 2,
- No longer needed on Item No. 3
AVP Tamayo would like us also to convey to you to hurry up with your move to settle the obligation,
while the foreclosure action is still pending with the legal division. He is afraid you might miss your
last chance to settle the account of your parents. 74
Edmundo then asked about the status of the Restructuring Agreement as well as the computation of
the accrued interest and advances75 but the bank could not provide any definite answer.76

On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial Sheriff of the RTC of
General Santos City issued a Notice77 resetting the public auction sale of the mortgaged properties
on July 11, 1994. Said Notice was published for three consecutive weeks in a newspaper of general
circulation in General Santos City.78
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the mortgaged properties
for the satisfaction of petitioners total obligations in the amount of P5,902,476.34. DBP was the
highest bidder in the amount of P3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff issued the Sheriffs Certificate of Extra-Judicial Sale in favor
of DBP covering 11 parcels of land.80
In a letter81 dated September 16, 1994, DBP informed Edmundo that their right of redemption over
the foreclosed properties would expire on July 28, 1995, to wit:
This is to inform you that your right of redemption over your former property/ies acquired by the Bank
on July 13, 1994, thru Extra-Judicial Foreclosure under Act 3135 will lapse on July 28, 1995.
In view thereof, to entitle you of the maximum condonable amount (Penal Clause, AI on Interest,
PC/Default Charges) allowed by the Bank, we are urging you to exercise your right within six (6)
months from the date of auction sale on or before January 12, 1995.
Further, failure on your part to exercise your redemption right by July 28, 1995 will constrain us to
offer your former property/ies in a public bidding.
Please give this matter your preferential attention. Thank you.82
On July 28, 1995, petitioners filed before the RTC of General Santos City, a Complaint 83 against DBP
for Annulment of Foreclosure and Damages with Prayer for Issuance of a Writ of Preliminary
Injunction and/or Temporary Restraining Order. Petitioners alleged that DBPs acts and omissions
prevented them from fulfilling their obligation; thus, they prayed that they be discharged from their
obligation and that the foreclosure of the mortgaged properties be declared void. They likewise
prayed for actual damages for loss of business opportunities, moral and exemplary damages,
attorneys fees, and expenses of litigation.84
On same date, the RTC issued a Temporary Restraining Order85 directing DBP to cease and desist
from consolidating the titles over petitioners foreclosed properties and from disposing the same.
In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction and directed
petitioners to post a bond in the amount of P3,000,000.00.
DBP filed its Answer,87 arguing that petitioners have no cause of action;88 that petitioners failed to pay
their loan obligation;89 that as mandated by Presidential Decree No. 385, initial foreclosure
proceedings were undertaken in 1977 but were aborted because petitioners were able to obtain a
restraining order;90 that on December 18, 1990, DBP revived its application for foreclosure but it was
again held in abeyance upon petitioners request;91 that DBP gave petitioners written and verbal
demands as well as sufficient time to settle their obligations;92 and that under Act 3135,93 DBP has
the right to foreclose the properties.94
Ruling of the Regional Trial Court

On December 10, 1996, the RTC rendered a Decision, 95 the dispositive portion of which reads:
WHEREFORE, in light of the foregoing, judgment is hereby rendered:
(1) Declaring that the [petitioners] have fully extinguished and discharged their obligation to
the [respondent] Bank;
(2) Declaring the foreclosure of [petitioners] mortgaged properties, the sale of the properties
under the foreclosure proceedings and the resultant certificate of sale issued by the
foreclosing Sheriff by reason of the foreclosure NULL and VOID;
(3) Ordering the return of the [properties] to [petitioners] free from mortgage liens;
(4) Ordering [respondent] bank to pay [petitioners], actual and compensatory damages
of P170,325.80;
(5) Temperate damages of P50,000.00;
(c) Moral damages of P500,000.00;
(d) Exemplary damages of P500,000.00;
(e) Attorneys fees in the amount of P100,000.00; and
(f) Expenses of litigation in the amount of P20,000.00.
[Respondent] Banks counterclaims are hereby DISMISSED.
[Respondent] Bank is likewise ordered to pay the costs of suit.
SO ORDERED.96
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC Decision. Thus:
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The assailed
Decision dated 10 December 1996 is hereby REVERSED and SET ASIDE. A new judgment is
hereby rendered. It shall now read as follows:
WHEREFORE, premises considered, judgment is hereby rendered:
Ordering the dismissal of the Complaint in Civil Case No. 5608;
Declaring the extrajudicial foreclosure of [petitioners] mortgaged properties as valid;
Ordering [petitioners] to pay the [respondent] the amount of Two Million Five Hundred Ninety Two
Thousand Two Hundred Ninety Nine [Pesos] and Seventy-Nine Centavos (P2,592,299.79) plus
interest and penalties as stipulated in the Promissory Note computed from 11 July 1994 until full
payment; and

Ordering [petitioners] to pay the costs.

SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the following issues:
1. Whether x x x respondents own wanton, reckless and oppressive acts and omissions in
discharging its reciprocal obligations to petitioners effectively prevented the petitioners from
paying their loan obligations in a proper and suitable manner;
2. Whether x x x as a result of respondents said acts and omissions, petitioners obligations
should be deemed fully complied with and extinguished in accordance with the principle of
constructive fulfillment;
3. Whether x x x the return by the trial Court of the mortgaged properties to petitioners free
from mortgage liens constitutes unjust enrichment;
4. Whether x x x the low bid price made by the respondent for petitioners mortgaged
properties during the foreclosure sale is so gross, shocking to the conscience and inherently
iniquitous as to constitute sufficient ground for setting aside the foreclosure sale;
5. Whether x x x the restructuring agreement reached and perfected between the petitioners
and the respondent novated and extinguished petitioners loan obligations to respondent
under the Promissory Notes sued upon; and
6. Whether x x x the respondent should be held liable to pay petitioners actual and
compensatory damages, temperate damages, moral damages, exemplary damages,
attorneys fees and expenses of litigation.98
Petitioners Arguments
Petitioners seek the reinstatement of the RTC Decision which declared their obligation fully
extinguished and the foreclosure proceedings of their mortgaged properties void.
Relying on the Principle of Constructive Fulfillment, petitioners insist that their obligation should be
deemed fulfilled since DBP prevented them from performing their obligation by charging excessive
interest and penalties not stipulated in the Promissory Notes, by failing to promptly provide them with
the correct Statements of Account, and by cancelling the Restructuring Agreement even if they
already paid P362,271.75 as downpayment.99 They likewise deny any fault or delay on their part in
finalizing the Restructuring Agreement.100
In addition, petitioners insist that the foreclosure sale is void for lack of personal notice 101 and the
inadequacy of the bid price.102 They contend that at the time of the foreclosure, petitioners obligation
was not yet due and demandable,103 and that the restructuring agreement novated and extinguished
petitioners loan obligation.104

Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless, or oppressive manner;
hence, they are entitled to actual, temperate, moral and exemplary damages, attorneys fees, and
expenses of litigation.105
Respondents Arguments
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or oppressive
manner106 and in charging excessive interest and penalties.107 According to it, the amounts in the
Statements of Account vary because the computations were based on different cut-off dates and
different incentive schemes.108
DBP further argues that the foreclosure sale is valid because gross inadequacy of the bid price as a
ground for the annulment of the sale applies only to judicial foreclosure. 109 It likewise maintains that
the Promissory Notes and the Mortgage were not novated by the proposed Restructuring
Agreement.110
As to petitioners claim for damages, DBP contends it is without basis because it did not act in bad
faith or in a wanton, reckless, or oppressive manner.111
Our Ruling
The Petition is partly meritorious.
The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant case became due and demandable as early as 1972
and 1976. The only reason the mortgaged properties were not foreclosed in 1977 was because of
the restraining order from the court. In 1978, petitioners made a partial payment of P902,800.00. No
subsequent payments were made. It was only in 1989 that petitioners tried to negotiate the
settlement of their loan obligations. And although DBP could have foreclosed the mortgaged
properties, it instead agreed to restructure the loan. In fact, from 1989 to 1994, DBP gave several
extensions for petitioners to settle their loans, but they never did, thus, prompting DBP to cancel the
Restructuring Agreement.
Petitioners, however, insist that DBPs cancellation of the Restructuring Agreement justifies the
extinguishment of their loan obligation under the Principle of Constructive Fulfillment found in Article
1186 of the Civil Code.
We do not agree.
As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that "the condition shall
be deemed fulfilled when the obligor voluntarily prevents its fulfillment," does not apply in this
case,112 viz:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which
applies when the following three (3) requisites concur, viz: (1) The condition is suspensive; (2) The
obligor actually prevents the fulfillment of the condition; and (3) He acts voluntarily. Suspensive
condition is one the happening of which gives rise to the obligation. It will be irrational for any Bank
to provide a suspensive condition in the Promissory Note or the Restructuring Agreement that will
allow the debtor-promissor to be freed from the duty to pay the loan without paying it. 113

Besides, petitioners have no one to blame but themselves for the cancellation of the Restructuring
Agreement. It is significant to point out that when the Regional Credit Committee reconsidered
petitioners proposal to restructure the loan, it imposed additional conditions. In fact, when DBPs
General Santos Branch forwarded the Restructuring Agreement to the Legal Services Department of
DBP in Makati, petitioners were required to pay the amount ofP1,300,672.75, plus a daily interest
of P632.15 starting November 16, 1993 up to the date of actual payment of the said amount. 114 This,
petitioners failed to do. DBP therefore had reason to cancel the Restructuring Agreement.
Moreover, since the Restructuring Agreement was cancelled, it could not have novated or
extinguished petitioners loan obligation. And in the absence of a perfected Restructuring Agreement,
there was no impediment for DBP to exercise its right to foreclose the mortgaged properties. 115
The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we are constrained to nullify the foreclosure
sale due to the banks failure to send a notice of foreclosure to petitioners.
We have consistently held that unless the parties stipulate, "personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary" 116 because Section 3117 of Act 3135 only
requires the posting of the notice of sale in three public places and the publication of that notice in a
newspaper of general circulation.
In this case, the parties stipulated in paragraph 11 of the Mortgage that:
11. All correspondence relative to this mortgage, including demand letters, summons, subpoenas, or
notification of any judicial or extra-judicial action shall be sent to the Mortgagor at xxx or at the
address that may hereafter be given in writing by the Mortgagor or the Mortgagee; 118
However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the
foreclosure sale scheduled on July 11, 1994. The letters dated January 28, 1994 and March 11,
1994 advising petitioners to immediately pay their obligation to avoid the impending foreclosure of
their mortgaged properties are not the notices required in paragraph 11 of the Mortgage. The failure
of DBP to comply with their contractual agreement with petitioners, i.e., to send notice, is a breach
sufficient to invalidate the foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong,119 we explained that:
x x x a contract is the law between the parties and, that absent any showing that its provisions are
wholly or in part contrary to law, morals, good customs, public order, or public policy, it shall be
enforced to the letter by the courts. Section 3, Act No. 3135 reads:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in the municipality and city.
The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication
of the same in a newspaper of general circulation. Personal notice to the mortgagor is not
necessary. Nevertheless, the parties to the mortgage contract are not precluded from exacting
additional requirements. In this case, petitioner and respondent in entering into a contract of real
estate mortgage, agreed inter alia:

all correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or
notifications of any judicial or extra-judicial action shall be sent to the MORTGAGOR at 40-42
Aldeguer St. Iloilo City, or at the address that may hereafter be given in writing by the MORTGAGOR
to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which
petitioner might take on the subject property, thus according him the opportunity to safeguard his
rights. When petitioner failed to send the notice of foreclosure sale to respondent, he committed a
contractual breach sufficient to render the foreclosure sale on November 23, 1981 null and
void.120 (Emphasis supplied)
In view of foregoing, the CA erred in finding the foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
As to the imposition of additional interest and penalties not stipulated in the Promissory Notes, this
should not be allowed. Article 1956 of the Civil Code specifically states that "no interest shall be due
unless it has been expressly stipulated in writing." Thus, the payment of interest and penalties in
loans is allowed only if the parties agreed to it and reduced their agreement in writing. 121
In this case, petitioners never agreed to pay additional interest and penalties. Hence, we agree with
the RTC that these are illegal, and thus, void. Quoted below are the findings of the RTC on the
matter, to wit:
Moreover, in its various statements of account, [respondent] Bank charged [petitioners] for additional
interests and penalties which were not stipulated in the promissory notes.
In the Promissory Note, Exhibit "A," for the principal amount of P960,000.00, only the following
interest and penalty charges were stipulated:
(1) interest at the rate of twelve percent (12%) per annum;
(2) penalty charge of one-third percent (1/3%) per month on overdue amortization;
(3) attorneys fees equivalent to ten percent (10%) of the total indebtedness then unpaid; and
(4) advances and interest thereon at one percent (1%) per month.
[Respondent] bank, however, charged [petitioners] the following items as shown in its Statement of
Account for the period as of 31 January 1989, Exhibit "D:"
(1) regular interest in the amount of P561,037.14;
(2) advances in the amount of P34,589.45;
(3) additional interest in the amount of P2,590,786.26; and
(4) penalty charges in the amount of P1,068,147.19.

The Court finds no basis under the Promissory Note, Exhibit "A," for charging the additional interest
in the amount of P2,590,786.26. Moreover, it is incomprehensible how the penalty charge of 1/3%
per month on the overdue amortization could amount to P1,086,147.19 while the regular interest,
which was stipulated at the higher rate of 12% per annum, amounted to only P561,037.14 or about
half of the amount allegedly due as penalties.
In Exhibit "N," which is the statement of account x x x as of 15 June 1992, [respondent] bank
charged plaintiffs the following items:
(1) regular interest in the amount of P561,037.14;
(2) advances in the amount of P106,893.93;
(3) additional interest on principal in the amount of P1,233,893.79;
(4) additional interest on regular interest in the amount of P859,966.83;
(5) additional interest on advances in the amount of P27,206.45;
(6) penalty charges on principal in the amount of P1,639,331.15;
(7) penalty charges on regular interest in the amount of P1,146,622.55;
(8) penalty charges on advances in the amount of P40,520.53.
Again, the Court finds no basis in the Promissory Note, Exhibit "A," for the imposition of additional
interest on principal in the amount of P1,233,893.79, additional interest on regular interest in the
amount of P859,966.83, penalty charges on regular interest in the amount of P1,146,622.55 and
penalty charges on advances in the amount of P40,520.53.
In the Promissory Note, Exhibit "C," for the principal amount of P40,000.00, only the following
charges were stipulated:
(1) interest at the rate of nine percent (9%) per annum;
(2) all unpaid amortization[s] shall bear interest at the rate of eleven percent (11%) per
annum; and,
(3) attorneys fees equivalent to ten percent (10%) of the total indebtedness then unpaid.
In its statement of account x x x as of 31 January 1989, Exhibit "E," [respondent] bank charged
[petitioners] with the following items:
(1) regular interest in the amount of P5,046.97
(2) additional interest in the amount of P92,113.56; and
(3) penalty charges in the amount of P39,915.46.

There was nothing in the Promissory Note, Exhibit "C," which authorized the imposition of additional
interest. Again, this Court notes that the additional interest in the amount of P92,113.56 is even
larger than the regular interest in the amount of P5,046.97. Moreover, based on the Promissory
Note, Exhibit "C," if the 11% interest on unpaid amortization is considered an "additional interest,"
then there is no basis for [respondent] bank to add penalty charges as there is no other provision
providing for this charge. If, on the other hand, the 11% interest on unpaid amortization is considered
the penalty charge, then there is no basis to separately charge plaintiffs additional interest. The
same provision cannot be used to charge plaintiffs both interest and penalties.
In Exhibit "O," which is the statement of account x x x as of 15 June 1992, [respondent] charged
[petitioners] with the following:
(1) regular interest in the amount of P4,621.25;
(2) additional interest on principal in the amount of P65,303.33;
(3) additional interest on regular interest in the amount of P7,544.58;
(4) penalty charges on principal in the amount of P47,493.33;
(5) penalty charges on regular interest in the amount of P5,486.97;
(6) penalty charges on advances in the amount of P40,520.53.
[Respondent] bank failed to show the basis for charging additional interest on principal, additional
interest on regular interest and penalty charges on principal and penalty charges on regular interest
under items (2), (3), (4) and (5) above.
Moreover, [respondent] bank charged [petitioners] twice under the same provisions in the promissory
notes. It categorically admitted that the additional interests and penalty charges separately being
charged [petitioners] referred to the same provision of the Promissory Notes, Exhibits "A" and "C."
Thus, for the Lim Account in the amount of P40,000.00, [respondents] Mr. Ancheta stated:
Q:
In Exhibit 14, it is stated that for a principal amount of P40,000.00 you imposed an additional interest
in the amount of P65,303.33 in addition to the regular interest of P7,544.58, can you tell us looking
[at] the mortgage contract and promissory note what is your basis for charging that additional
interest?
A:
The same as that when I answered Exhibit No. 3, which shall cover amortization on the principal and
interest at the above-mentioned rate. All unpaid amortization[s] shall bear interest at the rate of
eleven per centum (11%) per annum.
Q:
You also imposed penalty which is on the principal in the amount of P40,000.00 in the amount
of P47,493.33 in addition to regular interest of P5,486.96. Can you point what portion of Exhibit 3
gives DBP the right to impose such penalty?

A:
The same paragraph as stated.
Q:
Can you please read the portion referring to penalty?
A:
All unpaid amortization shall bear interest at the rate of 11% per annum.
Q:
The additional interest is based on 11% per annum and the penalty is likewise based on the same
rate?
A:
Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
With respect to the Diamond L. Ranch account in the amount of P960,000.00, Mr. Ancheta testified
as follows:
Q:
Going back to Exhibit 14 Statement of Accounts. Out of the principal of P939,973.33 you imposed an
additional interest of P1,233,893.79 plus P859,966.83 plus P27,206.45. Can you tell us what is the
basis of the imposition?
A:
As earlier stated, it is only the Promissory Note as well as the Mortgage Contract.
Q:
Please point to us where in the Promissory Note is the specific portion?
A:
In Exhibit 1: "in case of failure to pay in full any amortization when due, a penalty charge of 1/3% per
month on the overdue amortization shall be paid."
Q:
What is the rate?
A:
1/3% per month.

Q:
So, the imposition of the additional interest and the penalty charge is based on the same provision?
A:
Yes (TSN, 28 May 1996, pp. 41-42.)
A perusal of the promissory notes, however, failed to justify [respondent] banks computation of both
interest and penalty under the same provision in each of the promissory notes.
[Respondent] bank also admitted that the additional interests and penalties being charged
[petitioners] were not based on the stipulations in the Promissory Notes but were imposed
unilaterally as a matter of its internal banking policies. (TSN, 19 March 1996, pp. 23-24.) This
banking policy, however, has been declared null and void in Philippine National Bank vs. CA, 196
SCRA 536 (1991). The act of [respondent] bank in unilaterally changing the stipulated interest rate is
violative of the principle of mutuality of contracts under 1308 of the Civil Code and contravenes 1956
of the Civil Code. [Respondent] bank completely ignored [petitioners] "right to assent to an important
modification in their agreement and (negated) the element of mutuality in contracts." (Philippine
National Bank vs. CA, G.R. No. 109563, 9 July 1996; Philippine National Bank vs. CA, 238 SCRA 20
1994). As in the PNB cases, [petitioners] herein never agreed in writing to pay the additional interest,
or the penalties, as fixed by [respondent] bank; hence [respondent] banks imposition of additional
interest and penalties is null and void.122(Emphasis supplied)
Consequently, this case should be remanded to the RTC for the proper determination of petitioners
total loan obligation based on the interest and penalties stipulated in the Promissory Notes.
DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner.
Finally, as to petitioners claim for damages, we find the same devoid of merit.
DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling the
Restructuring Agreement. As we have said, DBP had reason to cancel the Restructuring Agreement
because petitioners failed to pay the amount required by it when it reconsidered petitioners request
to restructure the loan.
Likewise, DBPs failure to send a notice of the foreclosure sale to petitioners and its imposition of
additional interest and penalties do not constitute bad faith. There is no showing that these
contractual breaches were done in bad faith or in a wanton, reckless, or oppressive manner.
1wphi1

In Philippine National Bank v. Spouses Rocamora,123 we said that:

Moral damages are not recoverable simply because a contract has been breached. They are
recoverable only if the defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and
oppressive or abusive. Likewise, a breach of contract may give rise to exemplary damages only if
the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton disregard of
its contractual obligations, simply because it increased the interest rates and delayed the foreclosure

of the mortgages. Bad faith cannot be imputed simply because the defendant acted with bad
judgment or with attendant negligence. Bad faith is more than these; it pertains to a dishonest
purpose, to some moral obliquity, or to the conscious doing of a wrong, a breach of a known duty
attributable to a motive, interest or ill will that partakes of the nature of fraud. Proof of actions of this
character is undisputably lacking in this case. Consequently, we do not find the spouses Rocamora
entitled to an award of moral and exemplary damages. Under these circumstances, neither should
they recover attorneys fees and litigation expense. These awards are accordingly
deleted.124 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY GRANTED. The assailed February 22, 2007 Decision of the
Court of Appeals in CA-G.R. CV No. 59275 is hereby MODIFIED in accordance with this Decision.
The case is hereby REMANDED to the Regional Trial Court of General Santos City, Branch 22, for
the proper determination of petitioners total loan obligations based on the interest and penalties
stipulated in the Promissory Notes dated November 24, 1969 and December 30, 1970. The
foreclosure sale of the mortgaged properties held on July 11, 1994 is DECLARED void ab initio for
failure to comply with paragraph 11 of the Mortgage, without prejudice to the conduct of another
foreclosure sale based on the recomputed amount of the loan obligations, if necessary.
SO ORDERED.

G.R. No. L-11827

July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.
Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
REYES, J.B.L., J.:
This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the
municipality of Jose Panganiban, province of Camarines Norte.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a
contract with any individual or juridical person for the exploration and development of the mining
claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be
extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on
Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap
Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis
provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the
mining claims in question, opening and paving roads within and outside their boundaries, making
other improvements and installing facilities therein for use in the development of the mines, and in
time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron
ore.
For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract"
was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his

rights and interests over the "24,000 tons of iron ore, more or less" that the former had already
extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which
was paid upon the signing of the agreement, and
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out
of the first letter of credit covering the first shipment of iron ores and of the first amount
derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its
assigns, administrators, or successors in interests.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of
Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated
December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its
stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and
Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented
to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on
December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a
bonding company was put up by defendants to secure the payment of the P65,000.00 balance of
their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated
December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the
surety company would attach only when there had been an actual sale of iron ore by the Larap
Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability
of said surety company would automatically expire on December 8, 1955. Both bonds were attached
to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier
entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap
Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question,
together with the improvements therein and the use of the name "Larap Iron Mines" and its good will,
in consideration of certain royalties. Fonacier likewise transferred, in the same document, the
complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the
Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).
Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety
and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid
to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right
to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C"
to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed
the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for
the payment of the P65,000.00 balance of the price of the ore, consequential damages, and
attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon
by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first
letter of credit covering the first shipment of iron ore and/or the first amount derived from the local
sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and
that consequently, the obligation was not yet due and demandable. Defendant Fonacier also
contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.
At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:
(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due
and demandable when the defendants failed to renew the surety bond underwritten by the Far
Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and
(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were
actually in existence in the mining claims when these parties executed the "Revocation of Power of
Attorney and Contract", Exhibit "A."
On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term:
i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected
within one year or before December 8, 1955; that the giving of security was a condition precedent to
Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient
security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the
obligation became due and demandable under Article 1198 of the New Civil Code.
As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000
tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit
"A."
Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly
and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus
costs. From this judgment, defendants jointly appealed to this Court.
During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that
the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and even if true, does
not make these appellants guilty of contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself.
As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in
view of the results that we have reached in this case, which we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee
Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term
and not one with a suspensive condition, and that the term expired on December 8, 1955; and
(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of
iron ore sold by appellee Gaite to appellant Fonacier.
The first issue involves an interpretation of the following provision in the contract Exhibit "A":
7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his
rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together
with all his rights and interests to operate the mine in consideration of the sum of SEVENTYFIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.
We find the court below to be legally correct in holding that the shipment or local sale of the iron ore
is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was
only a suspensive period or term. What characterizes a conditional obligation is the fact that its
efficacy or obligatory force (as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never existed. That the parties to the
contract Exhibit "A" did not intend any such state of things to prevail is supported by several
circumstances:
1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner
or later; what is undetermined is merely the exact date at which it will be made. By the very terms of
the contract, therefore, the existence of the obligation to pay is recognized; only
its maturity or demandability is deferred.
2) A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of
a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without

getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one
by a surety company; and the fact that appellants did put up such bonds indicates that they admitted
the definite existence of their obligation to pay the balance of P65,000.00.
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore
as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor,
for the sale or shipment could not be made unless the appellants took steps to sell the ore.
Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a
construction of the contract Exhibit "A" needs no stressing.
4) Assuming that there could be doubt whether by the wording of the contract the parties indented a
suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the
rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since
sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine,
provides:
If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.
and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be
actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were
viewed as non-existent or not binding until the ore was sold.
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit,
and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at
all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment
of the balance of the agreed price, but was intended merely to fix the future date of the payment.
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have
the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment;
or, in other words, whether or not they are entitled to take full advantage of the period granted them
for making the payment.
We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern
Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding
company's undertaking on December 8, 1955 substantially reduced the security of the vendor's
rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon
which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The
case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:
"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .
(2) When he does not furnish to the creditor the guaranties or securities which he has
promised.
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired
the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced.
There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with
full knowledge that on its face it would automatically expire within one year was a waiver of its
renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose
and had nothing to gain barely; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on
December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became
absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".
All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding
payment and instituting this action one year from and after the contract (Exhibit "A") was executed,
either because the appellant debtors had impaired the securities originally given and thereby
forfeited any further time within which to pay; or because the term of payment was originally of no
more than one year, and the balance of P65,000.00 became due and payable thereafter.
Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of
iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had
been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we
must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible
goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated
in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the
mass; and second, that the evidence shows that neither of the parties had actually measured of
weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the
volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic
meter.
The sale between the parties is a sale of a specific mass or iron ore because no provision was made
in their contract for the measuring or weighing of the ore sold in order to complete or perfect the
sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such
measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of
the ore found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So.
872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did

not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite
had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump
price.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a shortdelivery in this case?
We think not. As already stated, neither of the parties had actually measured or weighed the whole
mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims
only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per
cubic meter.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that
he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano
Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the
average weight in tons per cubic meter, the parties are again in disagreement, with appellants
claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that
the correct tonnage factor is about 3.7.
In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of
iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the States and a mining engineering
graduate of the Universities of Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between
3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds
to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by
engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at
the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in
Gaite's stockpiles after the dispute arose.
Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of
3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of
24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error should be allowed anyone making
an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract
Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).
There was, consequently, no short-delivery in this case as would entitle appellants to the payment of
damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to
appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as
charged by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs
against appellants.

G.R. No. L-18916

November 28, 1969

JOSE ABESAMIS, plaintiff-appellee,

vs.
WOODCRAFT WORKS, LTD., defendant-appellant.
Ramon O. de Veyra for plaintiff-appellee.
Zosimo Rivas for defendant-appellant.

MAKALINTAL, J.:
The plaintiff, doing business under the name "East Samar Lumber Mills," was the owner of a timber
concession and sawmill located at Dolores, Samar. On November 8, 1950 the defendant Woodcraft
Works, Ltd., entered into an agreement with the plaintiff to purchase from the latter 300,000 board
feet of Philippine round logs at P60.00 per thousand board feet. Due to bad weather conditions and
the failure of the defendant to send the necessary vessels to Dolores, Samar, only 13,068 board feet
of logs were delivered.
On January 22, 1951 the parties entered into a new contract. The previous one was cancelled, with
the plaintiff waiving all his claims thereunder. Certain advances which had been given by the
defendant to the plaintiff, in the aggregate amount of P9,000.00, were transferred to and considered
as advances on the new contract. It was stipulated that the defendant would purchase from the
plaintiff 1,700,000 board feet of logs of the specifications stated in the contract 1,300,000 board
feet at P78.00 per thousand and the rest at P70.00. It was also agreed that the shipment was to be
"before the end of July, but will not commence earlier than April with the option to make partial
shipment depending on the availability of logs and vessels."
Of the quantity of logs agreed upon, only two shipments were made, one in March and the other in
April, 1951, amounting to 333,832 board feet and 128,825 board feet, respectively, or a total of
462,657 board feet. On September 13, 1951 the plaintiff filed in the Court of First Instance of Leyte
an action for rescission of the contract of January 22, 1951 and for recovery of damages in the sum
of P155,000.00 by reason of the defendant's failure to comply with its obligations. The defendant
filed an answer and later an amended answer, denying the material allegations of the complaint, with
special defenses and counterclaims.
After due trial the lower court rendered judgment as follows:
WHEREFORE and on the strength of all the foregoing, the Court renders judgment:
declaring the aforementioned contract of January 22, 1951, rescinded; ordering the
defendant to pay to the plaintiff for actual damages suffered by the latter in the amount of
P145,623.03, plus the amount of P50,000.00 representing the plaintiff's actual loss of credit
in the operation of his business, and, another sum of P5,000.00 as attorney's fees. The
defendant is likewise ordered to pay the costs.
The defendant appealed to this Court and now avers that the lower court erred: "(1) in stating that
Woodcraft Works, Ltd. was obligated to send the boat to receive the shipment of logs of the East
Samar Lumber Mills at Dolores, Samar, before the end of July 1951; (2) in deciding that (appellee)
had sufficient stock of logs to cover the contract on July 31, 1951; (3) in stating that appellant failed
to comply with the terms and conditions of the contract; (4) in granting damages to appellee; and (5)
in not granting damages and recovery of money in favor of herein appellant."

The main issue before us is whether or not appellant Woodcraft Works, Ltd. failed to comply with its
obligations under the contract, or more specifically, whether or not it was obligated to furnish the
vessel to receive the shipment of logs from appellee. Appellant contends that it was not.
The contract (Exh. A) does not expressly provide as to which of the parties should furnish the vessel.
But it does contain provisions which show clearly, albeit only by implication, that the obligation to do
so devolved upon appellant, thus:
Fees & Charges: Bureau of Forestry inspection charges and Philippine Government
wharfage fees are for account of Woodcraft Works, Ltd.
Dispatch of Ship: Immediately upon arrival of the vessel at Dolores, Samar, you will
commence loading at the rate of 200,000 bd. ft. per working day per four hatches.
Should the weather be unfavorable, be sure to have a certificate signed by the
captain confirming time idle due to this fact. Furthermore, in the event the ship's
gears are not functioning well, kindly do likewise and get a statement from the
captain.
Demurrage: Failure to load 200,000 bd. ft. per working day, you agree to pay us the
sum of P800.00 per day pro-rata.
The contract was in the form of a letter addressed by appellant to appellee, and the terms set forth in
the portions aforequoted, particularly with respect to wharfage dues, demurrage and condition of the
weather and of the ship's machinery, would have been of little concern to appellant and would not
have been imposed by it if appellee were the one to furnish the vessel. Besides, the
contemporaneous and subsequent acts of the parties, which under the law may be taken into
consideration to determine their intention (Art. 1371, Civil Code), point unequivocally to the same
conclusion. In the two shipments of logs in March and April of 1961 the vessels "SS AEULUS" and
"SS DON JOSE" were furnished by appellant. In several telegraphic communications exchanged
between the parties it was invariably appellee who requested information as to the arrival of the
vessels and appellant who gave the information accordingly.
Finally it was appellant, through its witness Irza Toeg, who had to explain at length during the trial its
failure to furnish the necessary vessels, as follows:
A. Well, when the shipping firms in Manila learned about the failures of the vessels which we
sent to Dolores, Samar to load, and news travels fast from one shipping company to the
other, the other shipping companies were very hesitant when we asked for a vessel to call at
the port of Dolores, Samar. They asked us whether any vessel has already gone there to
load and what is the loading rate for that particular vessel. So the facts of loading rates that
the East Samar Lumber Mills was able to effect on the Bunyo Maru had a very bad effect in
obtaining additional vessels. Other shipping companies instructed their vessels not to go to
Dolores, Samar because shipping companies as a rule do not want to gamble and sent
vessels to a loading port when they know of the place and they know that the people
operating there would not be able to handle the loading of the vessels judging from their past
performances.

... . You will recall that the first vessel that loaded in this contract was a foreign vessel which
was the Bunyo Maru. Out of the expected quantity of 400,000 bd. ft. of logs only 13,000
approximately was loaded. Therefore, that had a very bad effect on the other foreign vessels.
The second and third vessels however were of Philippine Registry, and it was only thru our
good connection with the shipping company that they even permitted their vessels to call at
Dolores, Samar. So, after the three sad experiences, each one with considerable delay in the
loading time with incomplete quantities that should have been loaded, it was difficult for us to
obtain vessels to call at that port. (T.S.N. pp. 28-30, Deposition)
In the light of all these circumstances, appellant's claim that it was not obligated to furnish the vessel
cannot prevail.
It is next contended that appellee was not in a position to comply with his own obligation to ship the
quantities of logs called for under the contract. This was sought to be proven by means of a
certificate issued by the Bureau of Forestry (Exhs. 11 & 11-A), which is the official record of timber
cut under appellee's permit, showing that appellee's production from January to July, 1951,
amounted only to 1,926.64 cubic meters or 816,795 board feet of logs, which was short by 833,205
board feet of the quantity called for in the contract.
There is indeed a discrepancy between the certificate of production issued by the Bureau of Forestry
and the testimony of Francisco Abesamis regarding the quantity of the timber cut under appellee's
permit, but this was satisfactorily explained by him at the trial in this wise:
A. Because my export grade logs is a big quantity, and if we immediately report those export
grade logs to the Bureau of Forestry before shipment is made, we will be paying forest
charges for the logs for which we have not received payment yet. So we make it a practice to
report only the logs that are actually shipped. The forest charges amount to so much money
that we could hardly afford to pay this in advance. This was more or less a convenience
given to us by the lumber grader. And besides that, we prepare a big quantity of logs but the
lumber grader usually is instructed by the buyer to grade only a certain portion of it because
of the limitation of cargo space in buyer's vessel. For example, we have there prepared
1,000,000 board feet but Mr. Selga is instructed to inspect only 400,000 board feet which is
the capacity of incoming vessel. So the balance of 600,000 board feet could not be graded
as this quantity could not be loaded.
Abesamis categorically stated on the witness stand that by the end of July 1951 he had 1,300,000
board feet of logs available 800,000 at hand and ready for loading and the rest deposited at
various stations; and that he advised appellant of that fact in a telegram dated July 31, 1951 (Exh.
S), at the same time requesting that a grader and a vessel be dispatched to Dolores immediately as
the logs were in danger of deteriorating.
Nicanor Selga, lumber inspector of the Bureau of Forestry, reported to appellant that as of July 3,
1951 he had graded appellee's logs amounting to 488,015 board feet (Exh. aa). Of this quantity
appellant, in its reply telegram of July 13, 1951 (Exh. BB) said that it could accept 239,547 board
feet, made up of logs at least 13 feet in length and 20 inches in diameter. However, Selga likewise
testified that appellee had other logs some 600,000 board feet in all in the two barrios of

Aroganga and Genolaso. After July 3, 1951, which was the last day Selga made his inspection, there
is evidence that appellee continued its logging operations, such that there was enough to cover the
quantity called for in the contract by due date, that is, on July 31, 1951.
Appellee divides his claim for damages into three categories, each based on a separate breach of
contract by appellant.
First, appellee maintains that due to the failure of appellant to send a vessel to Dolores, Samar, the
storm on May 5, 1951 swept away almost all the logs then awaiting shipment, amounting to 410,000
board feet, valued at P73,537.77. On this point it should be noted that under the contract shipment
was to be made before the end of July 1951, but not to commence earlier than April of the same
year. The obligation between the parties was a reciprocal one, appellant to furnish the vessel and
appellee to furnish the logs. It was also an obligation with a term, which obviously was intended for
the benefit of both parties, the period having been agreed upon in order to avoid the stormy weather
in Dolores, Samar, during the months of January to March. The obligation being reciprocal and with
a period, neither party could demand performance nor incur in delay before the expiration of the
period. Consequently, when the typhoon struck on May 5, 1951 there was yet no delay on the part of
appellant, and the corresponding loss must be shouldered by appellee.
As regards the second breach it has been established that after the storm of May 5, 1951 appellee
continued its logging operations. Appellant was advised of the quantity of logs ready for shipment
and was urged to send a vessel to take delivery. It thereupon gave assurance that a vessel, the "SS
ALBAY," with a capacity of 450,000 board feet, was coming to Dolores, Samar, to load on June 25,
1951. Appellee readied the necessary quantity of logs but the vessel did not arrive. As a result,
60,000 board feet of logs which had been rafted broke loose and were lost. Appellee's loss on this
account amounted to a total of P7,685.26, representing the value of the logs lost, the cost of rafting
and other incidental expenses. It may be observed in this respect that although the obligation would
not become due until July 31, 1951 appellant waived the benefit of the period by assuring appellee
that it would take delivery of the logs on June 25, 1951. On that date appellee was ready to comply,
but appellant failed on his commitment, without any satisfactory explanation for such failure.
Therefore, appellant should bear the corresponding loss.
Third and finally, as heretofore pointed out, by the end of July 1951 appellee had sufficient logs
ready for shipment in accordance with the contract. But appellant, in spite of the representations
made by the former, failed to send a vessel on the aforesaid date. There is no evidence that such
failure was due to circumstances beyond appellant's control. As a result logs totalling 800,000 board
feet were destroyed by marine borers, causing a loss of P62,000.00, for which appellant should be
held liable.
The trial court sentenced appellant to pay P50,000.00 representing appellee's loss of credit in the
operation of his business. The decision does not say upon what evidence the award is based. Nor is
there any attempt in appellee's brief to justify the amount awarded. Actual or compensatory damages
must be established by clear evidence. In this case, other than a few letters of demand for payment
of money accounts received by appellee from its creditors and presented as exhibits, there is
nothing to go upon, and the mere fact that such demands were made does not necessarily prove
loss of credit. This item must therefore be eliminated.

IN VIEW OF THE FOREGOING, the judgment appealed from is affirmed, with the modification that
appellant Woodcraft Works, Ltd. is sentenced to pay appellee the aggregate sum of P69,685.26 by
way of damages, plus P5,000 as attorney's fees, without costs in this instance.

G.R. No. L-22558

May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.
Araneta and Araneta for petitioner.
Rosauro Alvarez and Ernani Cruz Pao for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R,
affirming with modification, an amendatory decision of the Court of First Instance of Manila, in its
Civil Case No. 36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J.
M. Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as
the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950,
through Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4
square meters, more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development
Co., Ltd. The parties stipulated, among in the contract of purchase and sale with mortgage, that the
buyer will
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will
Construct streets on the NE and NW and SW sides of the land herein sold so that the latter
will be a block surrounded by streets on all four sides; and the street on the NE side shall be
named "Sto. Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto.
Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the
streets, is unable to finish the construction of the street in the Northeast side named (Sto. Domingo
Avenue) because a certain third-party, by the name of Manuel Abundo, who has been physically
occupying a middle part thereof, refused to vacate the same; hence, on May 7, 1958, Philippine
Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and
instance, seeking to compel the latter to comply with their obligation, as stipulated in the abovementioned deed of sale, and/or to pay damages in the event they failed or refused to perform said
obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter
particularly setting up the principal defense that the action was premature since its obligation to
construct the streets in question was without a definite period which needs to he fixed first by the
court in a proper suit for that purpose before a complaint for specific performance will prosper.
The issues having been joined, the lower court proceeded with the trial, and upon its termination, it
dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses
interposed by defendant Gregorio Araneta, Inc.
1wph1.t

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within
which defendants will comply with their obligation to construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not
expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that
the evidence presented at the trial was insufficient to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of
such a period," issued an order granting plaintiff's motion for reconsideration and amending the
dispositive portion of the decision of May 31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a
period of two (2) years from notice hereof, within which to comply with its obligation under
the contract, Annex "A".
Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which
motion, plaintiff opposed.
On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter
perfected its appeal Court of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief
granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not justified by
the pleadings and not supported by the facts submitted at the trial of the case in the court below and
that the relief granted in effect allowed a change of theory after the submission of the case for
decision.

Ruling on the above contention, the appellate court declared that the fixing of a period was within the
pleadings and that there was no true change of theory after the submission of the case for decision
since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said issue by alleging in
paragraph 7 of the affirmative defenses contained in its answer which reads
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a
reasonable time within which to comply with its obligations to construct and complete the
streets on the NE, NW and SW sides of the lot in question; that under the circumstances,
said reasonable time has not elapsed;
Disposing of the other issues raised by appellant which were ruled as not meritorious and which are
not decisive in the resolution of the legal issues posed in the instant appeal before us, said appellate
court rendered its decision dated December 27, 1963, the dispositive part of which reads
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given
two (2) years from the date of finality of this decision to comply with the obligation to
construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same
would be a block surrounded by streets on all four sides.
Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc.
resorted to a petition for review by certiorari to this Court. We gave it due course.
We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of
First Instance is legally untenable. The fixing of a period by the courts under Article 1197 of the Civil
Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed
the absence of a period in issue by pleading in its answer that the contract with respondent
Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable
time within which to comply with its obligation to construct and complete the streets." Neither of the
courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue was
not whether the court should fix the time of performance, but whether or not the parties agreed that
the petitioner should have reasonable time to perform its part of the bargain. If the contract so
provided, then there was a period fixed, a "reasonable time;" and all that the court should have done
was to determine if that reasonable time had already elapsed when suit was filed if it had passed,
then the court should declare that petitioner had breached the contract, as averred in the complaint,
and fix the resulting damages. On the other hand, if the reasonable time had not yet elapsed, the
court perforce was bound to dismiss the action for being premature. But in no case can it be logically
held that under the plea above quoted, the intervention of the court to fix the period for performance
was warranted, for Article 1197 is precisely predicated on the absence of any period fixed by the
parties.
Even on the assumption that the court should have found that no reasonable time or no period at all
had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the
complaint not having sought that the Court should set a period, the court could not proceed to do so
unless the complaint in as first amended; for the original decision is clear that the complaint
proceeded on the theory that the period for performance had already elapsed, that the contract had
been breached and defendant was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance, still the
amended decision is defective in that no basis is stated to support the conclusion that the period
should be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear
that the period can not be set arbitrarily. The law expressly prescribes that
the Court shall determine such period as may under the circumstances been probably
contemplated by the parties.
All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the
proven facts precisely warrant the fixing of such a period," a statement manifestly insufficient to
explain how the two period given to petitioner herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must
first determine that "the obligation does not fix a period" (or that the period is made to depend upon
the will of the debtor)," but from the nature and the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to
the second step, and decide what period was "probably contemplated by the parties" (Do., par. 3).
So that, ultimately, the Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended. As the record stands,
the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no
circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the parties were fully aware
that the land described therein was occupied by squatters, because the fact is expressly mentioned
therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would render the date of performance
indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is
what explains why the agreement did not specify any exact periods or dates of performance.
It follows that there is no justification in law for the setting the date of performance at any other time
than that of the eviction of the squatters occupying the land in question; and in not so holding, both
the trial Court and the Court of Appeals committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in
this case was rendered.
In view of the foregoing, the decision appealed from is reversed, and the time for the performance of
the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on
affected areas are finally evicted therefrom.
Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.

[G.R. No. 138739. July 6, 2000]

RADIOWEALTH FINANCE COMPANY, petitioner, vs. Spouses VICENTE
and MA. SUMILANG DEL ROSARIO,respondents.
DECISION
PANGANIBAN, J.:

When a demurrer to evidence granted by a trial court is reversed on appeal, the

reviewing court cannot remand the case for further proceedings. Rather, it should
render judgment on the basis of the evidence proffered by the plaintiff. Inasmuch as
defendants in the present case admitted the due execution of the Promissory Note both
in their Answer and during the pretrial, the appellate court should have rendered

judgment on the bases of that Note and on the other pieces of evidence adduced during
the trial.
The Case

Before us is a Petition for Review on Certiorari of the December 9, 1997

Decision[1] and the May 3, 1999 Resolution [2] of the Court of Appeals in CA-GR CV No.
47737. The assailed Decision disposed as follows:

WHEREFORE, premises considered, the appealed order (dated November

4, 1994) of the Regional Trial Court (Branch XIV) in the City of Manila in Civil
Case No. 93-66507 is hereby REVERSED and SET ASIDE. Let the records
of this case be remanded to the court a quo for further proceedings. No
pronouncement as to costs.[3]
The assailed Resolution denied the petitioners Partial Motion for Reconsideration. [4]
The Facts

The facts of this case are undisputed. On March 2, 1991, Spouses Vicente and
Maria Sumilang del Rosario (herein respondents), jointly and severally executed, signed
and delivered in favor of Radiowealth Finance Company (herein petitioner), a
Promissory Note[5] for P138,948. Pertinent provisions of the Promissory Note read:

FOR VALUE RECEIVED, on or before the date listed below, I/We promise to
pay jointly and severally Radiowealth Finance Co. or order the sum of ONE
HUNDRED THIRTY EIGHT THOUSAND NINE HUNDRED FORTY
EIGHT Pesos (P138,948.00) without need of notice or demand, in
installments as follows:
P11,579.00 payable for 12 consecutive months starting on ________
19__ until the amount of P11,579.00 is fully paid. Each installment
shall be due every ____ day of each month. A late payment penalty
charge of two and a half (2.5%) percent per month shall be added to
each unpaid installment from due date thereof until fully paid.
xxxxxx

xxx

It is hereby agreed that if default be made in the payment of any of the

installments or late payment charges thereon as and when the same becomes

due and payable as specified above, the total principal sum then remaining
unpaid, together with the agreed late payment charges thereon, shall at once
become due and payable without need of notice or demand.
xxxxxx

xxx

If any amount due on this Note is not paid at its maturity and this Note is
placed in the hands of an attorney or collection agency for collection, I/We
jointly and severally agree to pay, in addition to the aggregate of the principal
amount and interest due, a sum equivalent to ten (10%) per cent thereof as
attorneys and/or collection fees, in case no legal action is filed, otherwise, the
sum will be equivalent to twenty-five (25%) percent of the amount due which
shall not in any case be less than FIVE HUNDRED PESOS (P500.00) plus
the cost of suit and other litigation expenses and, in addition, a further sum of
ten per cent (10%) of said amount which in no case shall be less than FIVE
HUNDRED PESOS (P500.00), as and for liquidated damages.[6]
Thereafter, respondents defaulted on the monthly installments. Despite repeated
demands, they failed to pay their obligations under their Promissory Note.
On June 7, 1993, petitioner filed a Complaint [7] for the collection of a sum of money
before the Regional Trial Court of Manila, Branch 14. [8]During the trial, Jasmer Famatico,
the credit and collection officer of petitioner, presented in evidence the respondents
check payments, the demand letter dated July 12, 1991, the customers ledger card for
the respondents, another demand letter and Metropolitan Bank dishonor slips. Famatico
admitted that he did not have personal knowledge of the transaction or the execution of
any of these pieces of documentary evidence, which had merely been endorsed to him.
On July 4, 1994, the trial court issued an Order terminating the presentation of
evidence for the petitioner.[9] Thus, the latter formally offered its evidence and exhibits
and rested its case on July 5, 1994.
Respondents filed on July 29, 1994 a Demurrer to Evidence [10] for alleged lack of
cause of action. On November 4, 1994, the trial court dismissed [11] the complaint for
failure of petitioner to substantiate its claims, the evidence it had presented being
merely hearsay.
On appeal, the Court of Appeals (CA) reversed the trial court and remanded the
case for further proceedings.

Hence, this recourse.[12]

Ruling of the Court of Appeals

According to the appellate court, the judicial admissions of respondents established

their indebtedness to the petitioner, on the grounds that they admitted the due execution
of the Promissory Note, and that their only defense was the absence of an agreement
on when the installment payments were to begin. Indeed, during the pretrial, they
admitted the genuineness not only of the Promissory Note, but also of the demand letter
dated July 12, 1991. Even if the petitioners witness had no personal knowledge of
these documents, they would still be admissible if the purpose for which [they are]
produced is merely to establish the fact that the statement or document was in fact
made or to show its tenor[,] and such fact or tenor is of independent relevance.
Besides, Articles 19 and 22 of the Civil Code require that every person must -- in the
exercise of rights and in the performance of duties -- act with justice, give all else their
due, and observe honesty and good faith. Further, the rules on evidence are to be
liberally construed in order to promote their objective and to assist the parties in
obtaining just, speedy and inexpensive determination of an action.
Issue

The petitioner raises this lone issue:

The Honorable Court of Appeals patently erred in ordering the remand of this
case to the trial court instead of rendering judgment on the basis of
petitioners evidence.[13]
For an orderly discussion, we shall divide the issue into two parts: (a) legal effect of
the Demurrer to Evidence, and (b) the date when the obligation became due and
demandable.
The Courts Ruling

The Petition has merit. While the CA correctly reversed the trial court, it erred in
remanding the case "for further proceedings."
Consequences of a Reversal, on Appeal, of a Demurrer to Evidence

Petitioner contends that if a demurrer to evidence is reversed on appeal, the

defendant should be deemed to have waived the right to present evidence, and the
appellate court should render judgment on the basis of the evidence submitted by the

plaintiff. A remand to the trial court "for further proceedings" would be an outright
defiance of Rule 33, Section 1 of the 1997 Rules of Court.
On the other hand, respondents argue that the petitioner was not necessarily
entitled to its claim, simply on the ground that they lost their right to present evidence in
support of their defense when the Demurrer to Evidence was reversed on appeal. They
stress that the CA merely found them indebted to petitioner, but was silent on when their
obligation became due and demandable.
The old Rule 35 of the Rules of Court was reworded under Rule 33 of the 1997
Rules, but the consequence on appeal of a demurrer to evidence was not changed. As
amended, the pertinent provision of Rule 33 reads as follows:

SECTION 1. Demurrer to evidence.After the plaintiff has completed the

presentation of his evidence, the defendant may move for dismissal on the
ground that upon the facts and the law the plaintiff has shown no right to
relief. If his motion is denied, he shall have the right to present evidence. If
the motion is granted but on appeal the order of dismissal is reversed he shall
be deemed to have waived the right to present evidence.[14]
Explaining the consequence of a demurrer to evidence, the Court in Villanueva
Transit v. Javellana[15] pronounced:

The rationale behind the rule and doctrine is simple and logical. The
defendant is permitted, without waiving his right to offer evidence in the event
that his motion is not granted, to move for a dismissal (i.e., demur to the
plaintiffs evidence) on the ground that upon the facts as thus established and
the applicable law, the plaintiff has shown no right to relief. If the trial
court denies the dismissal motion, i.e., finds that plaintiffs evidence is
sufficient for an award of judgment in the absence of contrary evidence, the
case still remains before the trial court which should then proceed to hear and
receive the defendants evidence so that all the facts and evidence of the
contending parties may be properly placed before it for adjudication as well as
before the appellate courts, in case of appeal. Nothing is lost. The doctrine is
but in line with the established procedural precepts in the conduct of trials that
the trial court liberally receive all proffered evidence at the trial to enable it to
render its decision with all possibly relevant proofs in the record, thus assuring
that the appellate courts upon appeal have all the material before them

necessary to make a correct judgment, and avoiding the need of remanding

the case for retrial or reception of improperly excluded evidence, with the
possibility thereafter of still another appeal, with all the concomitant
delays. The rule, however, imposes the condition by the same token that if his
demurrer is granted by the trial court, and the order of dismissal is reversed
on appeal, the movant losses his right to present evidence in his behalf and
he shall have been deemed to have elected to stand on the insufficiency of
plaintiffs case and evidence. In such event, the appellate court which
reverses the order of dismissal shall proceed to render judgment on the merits
on the basis of plaintiffs evidence. (Underscoring supplied)
In other words, defendants who present a demurrer to the plaintiffs evidence retain
the right to present their own evidence, if the trial court disagrees with them; if the trial
court agrees with them, but on appeal, the appellate court disagrees with both of them
and reverses the dismissal order, the defendants lose the right to present their own
evidence.[16] The appellate court shall, in addition, resolve the case and render judgment
on the merits, inasmuch as a demurrer aims to discourage prolonged litigations. [17]
In the case at bar, the trial court, acting on respondents demurrer to evidence,
dismissed the Complaint on the ground that the plaintiff had adduced mere hearsay
evidence. However, on appeal, the appellate court reversed the trial court because the
genuineness and the due execution of the disputed pieces of evidence had in fact been
admitted by defendants.
Applying Rule 33, Section 1 of the 1997 Rules of Court, the CA should have
rendered judgment on the basis of the evidence submitted by the petitioner. While the
appellate court correctly ruled that the documentary evidence submitted by the
[petitioner] should have been allowed and appreciated xxx, and that the petitioner
presented quite a number of documentary exhibits xxx enumerated in the appealed
order,[18] we agree with petitioner that the CA had sufficient evidence on record to
decide the collection suit. A remand is not only frowned upon by the Rules, it is also
logically unnecessary on the basis of the facts on record.
Due and Demandable Obligation

Petitioner claims that respondents are liable for the whole amount of their debt and
the interest thereon, after they defaulted on the monthly installments.
Respondents, on the other hand, counter that the installments were not yet due and
demandable. Petitioner had allegedly allowed them to apply their promotion services

for its financing business as payment of the Promissory Note. This was supposedly
evidenced by the blank space left for the date on which the installments should have
commenced.[19] In other words, respondents theorize that the action for immediate
enforcement of their obligation is premature because its fulfillment is dependent on the
sole will of the debtor. Hence, they consider that the proper court should first fix a
period for payment, pursuant to Articles 1180 and 1197 of the Civil Code.
This contention is untenable. The act of leaving blank the due date of the first
installment did not necessarily mean that the debtors were allowed to pay as and when
they could. If this was the intention of the parties, they should have so indicated in the
Promissory Note. However, it did not reflect any such intention.
On the contrary, the Note expressly stipulated that the debt should be amortized
monthly in installments of P11,579 for twelve consecutive months. While the specific
date on which each installment would be due was left blank, the Note clearly provided
that each installment should be payable each month.
Furthermore, it also provided for an acceleration clause and a late payment penalty,
both of which showed the intention of the parties that the installments should be paid at
a definite date. Had they intended that the debtors could pay as and when they could,
there would have been no need for these two clauses.
Verily, the contemporaneous and subsequent acts of the parties manifest their
intention and knowledge that the monthly installments would be due and demandable
each month.[20] In this case, the conclusion that the installments had already became
due and demandable is bolstered by the fact that respondents started paying
installments on the Promissory Note, even if the checks were dishonored by their
drawee bank. We are convinced neither by their avowals that the obligation had not yet
matured nor by their claim that a period for payment should be fixed by a court.
Convincingly, petitioner has established not only a cause of action against the
respondents, but also a due and demandable obligation. The obligation of the
respondents had matured and they clearly defaulted when their checks bounced. Per
the acceleration clause, the whole debt became due one month (April 2, 1991) after the
date of the Note because the check representing their first installment bounced.
As for the disputed documents submitted by the petitioner, the CA ruling in favor of
their admissibility, which was not challenged by the respondents, stands. A party who
did not appeal cannot obtain affirmative relief other than that granted in the appealed
decision.[21]

It should be stressed that respondents do not contest the amount of the principal
obligation. Their liability as expressly stated in the Promissory Note and found by the
CA is P13[8],948.00[22] which is payable in twelve (12) installments at P11,579.00 a
month for twelve (12) consecutive months. As correctly found by the CA, the
"ambiguity" in the Promissory Note is clearly attributable to human error.[23]
Petitioner, in its Complaint, prayed for 14% interest per annum from May 6, 1993
until fully paid. We disagree. The Note already stipulated a late payment penalty of 2.5
percent monthly to be added to each unpaid installment until fully paid. Payment of
interest was not expressly stipulated in the Note. Thus, it should be deemed included in
such penalty.
In addition, the Note also provided that the debtors would be liable for attorneys
fees equivalent to 25 percent of the amount due in case a legal action was instituted
and 10 percent of the same amount as liquidated damages. Liquidated damages,
however, should no longer be imposed for being unconscionable. [24] Such damages
should also be deemed included in the 2.5 percent monthly penalty. Furthermore, we
hold that petitioner is entitled to attorneys fees, but only in a sum equal to 10 percent of
the amount due which we deem reasonable under the proven facts. [25]
The Court deems it improper to discuss respondents' claim for moral and other
damages. Not having appealed the CA Decision, they are not entitled to affirmative
relief, as already explained earlier.[26]
WHEREFORE, the Petition is GRANTED. The appealed Decision is MODIFIED in
that the remand is SET ASIDE and respondents are ordered TO PAY P138,948, plus
2.5 percent penalty charge per month beginning April 2, 1991 until fully paid, and 10
percent of the amount due as attorneys fees. No costs.
SO ORDERED.