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Amadora v.

CA
G.R. No. L-47745 April 15, 1988
CRUZ, J.:
Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where he would
ascend the stage and in the presence of his relatives and friends receive his high school diploma. These ceremonies were
scheduled on April 16, 1972. As it turned out, though, fate would intervene and deny him that awaited experience. On
April 13, 1972, while they were in the auditorium of their school, the Colegio de San Jose-Recoletos, a classmate, Pablito
Damon, fired a gun that mortally hit Alfredo, ending all his expectations and his life as well. The victim was only
seventeen years old. 1
Daffon was convicted of homicide thru reckless imprudence . 2 Additionally, the herein petitioners, as the victim's
parents, filed a civil action for damages under Article 2180 of the Civil Code against the Colegio de San Jose-Recoletos, its
rector the high school principal, the dean of boys, and the physics teacher, together with Daffon and two other students,
through their respective parents. The complaint against the students was later dropped. After trial, the Court of First
Instance of Cebu held the remaining defendants liable to the plaintiffs in the sum of P294,984.00, representing death
compensation, loss of earning capacity, costs of litigation, funeral expenses, moral damages, exemplary damages, and
attorney's fees . 3 On appeal to the respondent court, however, the decision was reversed and all the defendants were
completely absolved . 4
In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the respondent
court found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a school of arts and trades
but an academic institution of learning. It also held that the students were not in the custody of the school at the time of
the incident as the semester had already ended, that there was no clear identification of the fatal gun and that in any
event the defendant, had exercised the necessary diligence in preventing the injury. 5
The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April 13, 1972, and while in its
auditorium was shot to death by Pablito Daffon, a classmate. On the implications and consequences of these facts, the
parties sharply disagree.
The petitioners contend that their son was in the school to show his physics experiment as a prerequisite to his
graduation; hence, he was then under the custody of the private respondents. The private respondents submit that
Alfredo Amadora had gone to the school only for the purpose of submitting his physics report and that he was no longer
in their custody because the semester had already ended.
There is also the question of the identity of the gun used which the petitioners consider important because of an earlier
incident which they claim underscores the negligence of the school and at least one of the private respondents. It is not
denied by the respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys, confiscated from Jose Gumban an
unlicensed pistol but later returned it to him without making a report to the principal or taking any further action . 6 As
Gumban was one of the companions of Daffon when the latter fired the gun that killed Alfredo, the petitioners contend
that this was the same pistol that had been confiscated from Gumban and that their son would not have been killed if it
had not been returned by Damaso. The respondents say, however, that there is no proof that the gun was the same
firearm that killed Alfredo.
Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is invoked
by both parties in support of their conflicting positions. The pertinent part of this article reads as follows:
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and
students or apprentices so long as they remain in their custody.

Three cases have so far been decided by the Court in connection with the above-quoted provision, to wit: Exconde v.
Capuno 7 Mercado v. Court of Appeals, 8 and Palisoc v. Brillantes. 9 These will be briefly reviewed in this opinion for a
better resolution of the case at bar.
In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Scout, attended a Rizal
Day parade on instructions of the city school supervisor. After the parade, the boy boarded a jeep, took over its wheel
and drove it so recklessly that it turned turtle, resulting in the death of two of its passengers. Dante was found guilty of
double homicide with reckless imprudence. In the separate civil action flied against them, his father was held solidarily
liable with him in damages under Article 1903 (now Article 2180) of the Civil Code for the tort committed by the 15-year
old boy.
This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the school in an obiter dictum
(as it was not a party to the case) on the ground that it was riot a school of arts and trades. Justice J.B.L. Reyes, with
whom Justices Sabino Padilla and Alex Reyes concurred, dissented, arguing that it was the school authorities who should
be held liable Liability under this rule, he said, was imposed on (1) teachers in general; and (2) heads of schools of arts
and trades in particular. The modifying clause "of establishments of arts and trades" should apply only to "heads" and
not "teachers."
Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor blade
during recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the culprits parents
for damages. Through Justice Labrador, the Court declared in another obiter (as the school itself had also not been sued
that the school was not liable because it was not an establishment of arts and trades. Moreover, the custody
requirement had not been proved as this "contemplates a situation where the student lives and boards with the
teacher, such that the control, direction and influences on the pupil supersede those of the parents." Justice J.B.L. Reyes
did not take part but the other members of the court concurred in this decision promulgated on May 30, 1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a classmate with fist blows in
the laboratory of the Manila Technical Institute. Although the wrongdoer who was already of age was not boarding
in the school, the head thereof and the teacher in charge were held solidarily liable with him. The Court declared
through Justice Teehankee:
The phrase used in the cited article "so long as (the students) remain in their custody" means the protective and
supervisory custody that the school and its heads and teachers exercise over the pupils and students for as long as they
are at attendance in the school, including recess time. There is nothing in the law that requires that for such liability to
attach, the pupil or student who commits the tortious act must live and board in the school, as erroneously held by the
lower court, and the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to have been set
aside by the present decision.
This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who stressed, in answer to the
dissenting opinion, that even students already of age were covered by the provision since they were equally in the
custody of the school and subject to its discipline. Dissenting with three others, 11 Justice Makalintal was for retaining
the custody interpretation in Mercado and submitted that the rule should apply only to torts committed by students not
yet of age as the school would be acting only in loco parentis.
In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case but added that "since
the school involved at bar is a non-academic school, the question as to the applicability of the cited codal provision to
academic institutions will have to await another case wherein it may properly be raised."
This is the case.
Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded and is sought to be held
liable under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an academic institution of
learning. The parties herein have also directly raised the question of whether or not Article 2180 covers even

establishments which are technically not schools of arts and trades, and, if so, when the offending student is supposed
to be "in its custody."
After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in question
should apply to all schools, academic as well as non-academic. Where the school is academic rather than technical or
vocational in nature, responsibility for the tort committed by the student will attach to the teacher in charge of such
student, following the first part of the provision. This is the general rule. In the case of establishments of arts and trades,
it is the head thereof, and only he, who shall be held liable as an exception to the general rule. In other words, teachers
in general shall be liable for the acts of their students except where the school is technical in nature, in which case it is
the head thereof who shall be answerable. Following the canon of reddendo singula singulis "teachers" should apply to
the words "pupils and students" and "heads of establishments of arts and trades" to the word "apprentices."
The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he said in part:
I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of arts and trades and not to academic
ones. What substantial difference is there between them insofar as concerns the proper supervision and vice over their
pupils? It cannot be seriously contended that an academic teacher is exempt from the duty of watching that his pupils
do not commit a tort to the detriment of third Persons, so long as they are in a position to exercise authority and
Supervision over the pupil. In my opinion, in the phrase "teachers or heads of establishments of arts and trades" used in
Art. 1903 of the old Civil Code, the words "arts and trades" does not qualify "teachers" but only "heads of
establishments." The phrase is only an updated version of the equivalent terms "preceptores y artesanos" used in the
Italian and French Civil Codes.
If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa in vigilando
that the parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it would seem clear that
where the parent places the child under the effective authority of the teacher, the latter, and not the parent, should be
the one answerable for the torts committed while under his custody, for the very reason/that the parent is not
supposed to interfere with the discipline of the school nor with the authority and supervision of the teacher while the
child is under instruction. And if there is no authority, there can be no responsibility.
There is really no substantial distinction between the academic and the non-academic schools insofar as torts
committed by their students are concerned. The same vigilance is expected from the teacher over the students under
his control and supervision, whatever the nature of the school where he is teaching. The suggestion in the Exconde and
Mercado Cases is that the provision would make the teacher or even the head of the school of arts and trades liable for
an injury caused by any student in its custody but if that same tort were committed in an academic school, no liability
would attach to the teacher or the school head. All other circumstances being the same, the teacher or the head of the
academic school would be absolved whereas the teacher and the head of the non-academic school would be held liable,
and simply because the latter is a school of arts and trades.
The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis only
of the nature of their respective schools. There does not seem to be any plausible reason for relaxing that vigilance
simply because the school is academic in nature and for increasing such vigilance where the school is non-academic.
Notably, the injury subject of liability is caused by the student and not by the school itself nor is it a result of the
operations of the school or its equipment. The injury contemplated may be caused by any student regardless of the
school where he is registered. The teacher certainly should not be able to excuse himself by simply showing that he is
teaching in an academic school where, on the other hand, the head would be held liable if the school were nonacademic.
These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the torts
committed by his students, why is it the head of the school only who is held liable where the injury is caused in a school
of arts and trades? And in the case of the academic or non- technical school, why not apply the rule also to the head
thereof instead of imposing the liability only on the teacher?

The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades exercised
a closer tutelage over his pupils than the head of the academic school. The old schools of arts and trades were engaged
in the training of artisans apprenticed to their master who personally and directly instructed them on the technique and
secrets of their craft. The head of the school of arts and trades was such a master and so was personally involved in the
task of teaching his students, who usually even boarded with him and so came under his constant control, supervision
and influence. By contrast, the head of the academic school was not as involved with his students and exercised only
administrative duties over the teachers who were the persons directly dealing with the students. The head of the
academic school had then (as now) only a vicarious relationship with the students. Consequently, while he could not be
directly faulted for the acts of the students, the head of the school of arts and trades, because of his closer ties with
them, could be so blamed.
It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts and trades,
the consequent increase in their enrollment, and the corresponding diminution of the direct and personal contract of
their heads with the students. Article 2180, however, remains unchanged. In its present state, the provision must be
interpreted by the Court according to its clear and original mandate until the legislature, taking into account the charges
in the situation subject to be regulated, sees fit to enact the necessary amendment.
The other matter to be resolved is the duration of the responsibility of the teacher or the head of the school of arts and
trades over the students. Is such responsibility co-extensive with the period when the student is actually undergoing
studies during the school term, as contended by the respondents and impliedly admitted by the petitioners themselves?
From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc v.
Brillantes, does not mean that the student must be boarding with the school authorities, it does signify that the student
should be within the control and under the influence of the school authorities at the time of the occurrence of the
injury. This does not necessarily mean that such, custody be co-terminous with the semester, beginning with the start of
classes and ending upon the close thereof, and excluding the time before or after such period, such as the period of
registration, and in the case of graduating students, the period before the commencement exercises. In the view of the
Court, the student is in the custody of the school authorities as long as he is under the control and influence of the
school and within its premises, whether the semester has not yet begun or has already ended.
It is too tenuous to argue that the student comes under the discipline of the school only upon the start of classes
notwithstanding that before that day he has already registered and thus placed himself under its rules. Neither should
such discipline be deemed ended upon the last day of classes notwithstanding that there may still be certain requisites
to be satisfied for completion of the course, such as submission of reports, term papers, clearances and the like. During
such periods, the student is still subject to the disciplinary authority of the school and cannot consider himself released
altogether from observance of its rules.
As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective, in
the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the
enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues.
Indeed, even if the student should be doing nothing more than relaxing in the campus in the company of his classmates
and friends and enjoying the ambience and atmosphere of the school, he is still within the custody and subject to the
discipline of the school authorities under the provisions of Article 2180.
During all these occasions, it is obviously the teacher-in-charge who must answer for his students' torts, in practically the
same way that the parents are responsible for the child when he is in their custody. The teacher-in-charge is the one
designated by the dean, principal, or other administrative superior to exercise supervision over the pupils in the specific
classes or sections to which they are assigned. It is not necessary that at the time of the injury, the teacher be physically
present and in a position to prevent it. Custody does not connote immediate and actual physical control but refers more
to the influence exerted on the child and the discipline instilled in him as a result of such influence. Thus, for the injuries
caused by the student, the teacher and not the parent shag be held responsible if the tort was committed within the
premises of the school at any time when its authority could be validly exercised over him.

In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the teacher or the
head of the school of arts and trades and not on the school itself. If at all, the school, whatever its nature, may be held
to answer for the acts of its teachers or even of the head thereof under the general principle of respondeat superior, but
then it may exculpate itself from liability by proof that it had exercised the diligence of a bonus paterfamilias.
Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to
answer for the tort committed by the student. As long as the defendant can show that he had taken the necessary
precautions to prevent the injury complained of, he can exonerate himself from the liability imposed by Article 2180,
which also states that:
The responsibility treated of in this article shall cease when the Persons herein mentioned prove that they observed all
the diligence of a good father of a family to prevent damages.
In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco parentis
for the law does not require that the offending student be of minority age. Unlike the parent, who wig be liable only if
his child is still a minor, the teacher is held answerable by the law for the act of the student under him regardless of the
student's age. Thus, in the Palisoc Case, liability attached to the teacher and the head of the technical school although
the wrongdoer was already of age. In this sense, Article 2180 treats the parent more favorably than the teacher.
The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in Palisoc that
the school may be unduly exposed to liability under this article in view of the increasing activism among the students
that is likely to cause violence and resulting injuries in the school premises. That is a valid fear, to be sure. Nevertheless,
it should be repeated that, under the present ruling, it is not the school that will be held directly liable. Moreover, the
defense of due diligence is available to it in case it is sought to be held answerable as principal for the acts or omission of
its head or the teacher in its employ.
The school can show that it exercised proper measures in selecting the head or its teachers and the appropriate
supervision over them in the custody and instruction of the pupils pursuant to its rules and regulations for the
maintenance of discipline among them. In almost all cases now, in fact, these measures are effected through the
assistance of an adequate security force to help the teacher physically enforce those rules upon the students. Ms should
bolster the claim of the school that it has taken adequate steps to prevent any injury that may be committed by its
students.
A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly answerable
for the damage caused by his students as long as they are in the school premises and presumably under his influence. In
this respect, the Court is disposed not to expect from the teacher the same measure of responsibility imposed on the
parent for their influence over the child is not equal in degree. Obviously, the parent can expect more obedience from
the child because the latter's dependence on him is greater than on the teacher. It need not be stressed that such
dependence includes the child's support and sustenance whereas submission to the teacher's influence, besides being
coterminous with the period of custody is usually enforced only because of the students' desire to pass the course. The
parent can instill more las discipline on the child than the teacher and so should be held to a greater accountability than
the teacher for the tort committed by the child.
And if it is also considered that under the article in question, the teacher or the head of the school of arts and trades is
responsible for the damage caused by the student or apprentice even if he is already of age and therefore less
tractable than the minor then there should all the more be justification to require from the school authorities less
accountability as long as they can prove reasonable diligence in preventing the injury. After all, if the parent himself is no
longer liable for the student's acts because he has reached majority age and so is no longer under the former's control,
there is then all the more reason for leniency in assessing the teacher's responsibility for the acts of the student.
Applying the foregoing considerations, the Court has arrived at the following conclusions:

1. At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San JoseRecoletos notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the school
auditorium to finish his physics experiment or merely to submit his physics report for what is important is that he was
there for a legitimate purpose. As previously observed, even the mere savoring of the company of his friends in the
premises of the school is a legitimate purpose that would have also brought him in the custody of the school authorities.
2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was the
teacher-in-charge as previously defined. Each of them was exercising only a general authority over the student body and
not the direct control and influence exerted by the teacher placed in charge of particular classes or sections and thus
immediately involved in its discipline. The evidence of the parties does not disclose who the teacher-in-charge of the
offending student was. The mere fact that Alfredo Amadora had gone to school that day in connection with his physics
report did not necessarily make the physics teacher, respondent Celestino Dicon, the teacher-in-charge of Alfredo's
killer.
3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in enforcing
discipline upon Daffon or that he had waived observance of the rules and regulations of the school or condoned their
non-observance. His absence when the tragedy happened cannot be considered against him because he was not
supposed or required to report to school on that day. And while it is true that the offending student was still in the
custody of the teacher-in-charge even if the latter was physically absent when the tort was committed, it has not been
established that it was caused by his laxness in enforcing discipline upon the student. On the contrary, the private
respondents have proved that they had exercised due diligence, through the enforcement of the school regulations, in
maintaining that discipline.
4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable especially in view of
the unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and returned the
same later to him without taking disciplinary action or reporting the matter to higher authorities. While this was clearly
negligence on his part, for which he deserves sanctions from the school, it does not necessarily link him to the shooting
of Amador as it has not been shown that he confiscated and returned pistol was the gun that killed the petitioners' son.
5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the article
because only the teacher or the head of the school of arts and trades is made responsible for the damage caused by the
student or apprentice. Neither can it be held to answer for the tort committed by any of the other private respondents
for none of them has been found to have been charged with the custody of the offending student or has been remiss in
the discharge of his duties in connection with such custody.
In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein announced that
none of the respondents is liable for the injury inflicted by Pablito Damon on Alfredo Amadora that resulted in the
latter's death at the auditorium of the Colegio de San Jose-Recoletos on April 13, 1972. While we deeply sympathize
with the petitioners over the loss of their son under the tragic circumstances here related, we nevertheless are unable
to extend them the material relief they seek, as a balm to their grief, under the law they have invoked.
WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered.
Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Grio-Aquino, JJ., concur.
Fernan, Padilla and Teehankee, C.J., JJ, took no part.
Valenzuela v. CA
G.R. No. 115024
KAPUNAN, J.:

These two petitions for review on certiorari under Rule 45 of the Revised Rules of Court stem from an action to recover
damages by petitioner Lourdes Valenzuela in the Regional Trial Court of Quezon City for injuries sustained by her in a
vehicular accident in the early morning of June 24, 1990. The facts found by the trial court are succinctly summarized by
the Court of Appeals below:
This is an action to recover damages based on quasi-delict, for serious physical injuries sustained in a vehicular accident.
Plaintiffs version of the accident is as follows: At around 2:00 in the morning of June 24, 1990, plaintiff Ma. Lourdes
Valenzuela was driving a blue Mitsubishi lancer with Plate No. FFU 542 from her restaurant at Marcos highway to her
home at Palanza Street, Araneta Avenue. She was travelling along Aurora Blvd. with a companion, Cecilia Ramon,
heading towards the direction of Manila. Before reaching A. Lake Street, she noticed something wrong with her tires;
she stopped at a lighted place where there were people, to verify whether she had a flat tire and to solicit help if
needed. Having been told by the people present that her rear right tire was flat and that she cannot reach her home in
that cars condition, she parked along the sidewalk, about 1 feet away, put on her emergency lights, alighted from the
car, and went to the rear to open the trunk. She was standing at the left side of the rear of her car pointing to the tools
to a man who will help her fix the tire when she was suddenly bumped by a 1987 Mitsubishi Lancer driven by defendant
Richard Li and registered in the name of defendant Alexander Commercial, Inc. Because of the impact plaintiff was
thrown against the windshield of the car of the defendant, which was destroyed, and then fell to the ground. She was
pulled out from under defendants car. Plaintiffs left leg was severed up to the middle of her thigh, with only some skin
and sucle connected to the rest of the body. She was brought to the UERM Medical Memorial Center where she was
found to have a traumatic amputation, leg, left up to distal thigh (above knee). She was confined in the hospital for
twenty (20) days and was eventually fitted with an artificial leg. The expenses for the hospital confinement (P
120,000.00) and the cost of the artificial leg (P27,000.00) were paid by defendants from the car insurance.
In her complaint, plaintiff prayed for moral damages in the amount of P1 million, exemplary damages in the amount of
P100,000.00 and other medical and related expenses amounting to a total of P180,000.00, including loss of expected
earnings.
Defendant Richard Li denied that he was negligent. He was on his way home, travelling at 55 kph; considering that it was
raining, visibility was affected and the road was wet. Traffic was light. He testified that he was driving along the inner
portion of the right lane of Aurora Blvd. towards the direction of Araneta Avenue, when he was suddenly confronted, in
the vicinity of A. Lake Street, San Juan, with a car coming from the opposite direction, travelling at 80 kph, with full
bright lights. Temporarily blinded, he instinctively swerved to the right to avoid colliding with the oncoming vehicle, and
bumped plaintiffs car, which he did not see because it was midnight blue in color, with no parking lights or early
warning device, and the area was poorly lighted. He alleged in his defense that the left rear portion of plaintiffs car was
protruding as it was then at a standstill diagonally on the outer portion of the right lane towards Araneta Avenue (par.
18, Answer). He confirmed the testimony of plaintiffs witness that after being bumped the car of the plaintiff swerved
to the right and hit another car parked on the sidewalk. Defendants counterclaimed for damages, alleging that plaintiff
was reckless or negligent, as she was not a licensed driver.
The police investigator, Pfc. Felic Ramos, who prepared the vehicular accident report and the sketch of the three cars
involved in the accident, testified that the plaintiffs car was near the sidewalk; this witness did not remember
whether the hazard lights of plaintiffs car were on, and did not notice if there was an early warning device; there was a
street light at the corner of Aurora Blvd. and F. Roman, about 100 meters away. It was not mostly dark, i.e. things can
be seen (p. 16, tsn, Oct. 28, 1991).
A witness for the plaintiff, Rogelio Rodriguez, testified that after plaintiff alighted from her car and opened the trunk
compartment, defendants car came approaching very fast ten meters from the scene; the car was zigzagging. The rear
left side of plaintiffs car was bumped by the front right portion of defendants car; as a consequence, the plaintiffs car
swerved to the right and hit the parked car on the sidewalk. Plaintiff was thrown to the windshield of defendants car,
which was destroyed, and landed under the car. He stated that defendant was under the influence of liquor as he could
smell it very well (pp. 43, 79, tsn., June 17, 1991).

After trial, the lower court sustained the plaintiffs submissions and found defendant Richard Li guilty of gross negligence
and liable for damages under Article 2176 of the Civil Code. The trial court likewise held Alexander Commercial, Inc., Lis
employer, jointly and severally liable for damages pursuant to Article 2180. It ordered the defendants to jointly and
severally pay the following amounts:
1.
P41,840.00, as actual damages, representing the miscellaneous expenses of the plaintiff as a result of her severed
left leg;
2.
The sums of (a) P37,500.00, for the unrealized profits because of the stoppage of plaintiffs Bistro La Conga
restaurant three (3) weeks after the accident on June 24, 1990; (b) P20,000.00, a month, as unrealized profits of the
plaintiff in her Bistro La Conga restaurant, from August, 1990 until the date of this judgment; and (c) P30,000.00, a
month, for unrealized profits in plaintiffs two (2) beauty salons from July, 1990 until the date of this decision;
3.

P1,000,000.00, in moral damages;

4.

P50,000.00, as exemplary damages,

5.

P60,000.00, as reasonable attorneys fees; and

6.

Costs.

As a result of the trial courts decision, defendants filed an Omnibus Motion for New Trial and for Reconsideration, citing
testimony in Criminal Case O.C. No. 804367 (People vs. Richard Li), tending to show that the point of impact, as depicted
by the pieces of glass/debris from the parties cars, appeared to be at the center of the right lane of Aurora Blvd. The
trial court denied the motion. Defendants forthwith filed an appeal with the respondent Court of Appeals. In a Decision
rendered March 30, 1994, the Court of Appeals found that there was ample basis from the evidence of record for the
trial courts finding that the plaintiffs car was properly parked at the right, beside the sidewalk when it was bumped by
defendants car.[1] Dismissing the defendants argument that the plaintiffs car was improperly parked, almost at the
center of the road, the respondent court noted that evidence which was supposed to prove that the car was at or near
center of the right lane was never presented during the trial of the case.[2] The respondent court furthermore observed
that:
Defendant Lis testimony that he was driving at a safe speed of 55 km./hour is self serving; it was not corroborated. It
was in fact contradicted by eyewitness Rodriguez who stated that he was outside his beerhouse located at Aurora
Boulevard after A. Lake Street, at or about 2:00 a.m. of June 24, 1990 when his attention was caught by a beautiful lady
(referring to the plaintiff) alighting from her car and opening the trunk compartment; he noticed the car of Richard Li
approaching very fast ten (10) meters away from the scene; defendants car was zigzagging, although there were no
holes and hazards on the street, and bumped the leg of the plaintiff who was thrown against the windshield of
defendants car, causing its destruction. He came to the rescue of the plaintiff, who was pulled out from under
defendants car and was able to say hurting words to Richard Li because he noticed that the latter was under the
influence of liquor, because he could smell it very well (p. 36, et. seq., tsn, June 17, 1991). He knew that plaintiff
owned a beerhouse in Sta. Mesa in the 1970s, but did not know either plaintiff or defendant Li before the accident.
In agreeing with the trial court that the defendant Li was liable for the injuries sustained by the plaintiff, the Court of
Appeals, in its decision, however, absolved the Lis employer, Alexander Commercial, Inc. from any liability towards
petitioner Lourdes Valenzuela and reduced the amount of moral damages to P500,000.00. Finding justification for
exemplary damages, the respondent court allowed an award of P50,000.00 for the same, in addition to costs, attorneys
fees and the other damages. The Court of Appeals, likewise, dismissed the defendants counterclaims.[3]
Consequently, both parties assail the respondent courts decision by filing two separate petitions before this Court.
Richard Li, in G.R. No. 117944, contends that he should not be held liable for damages because the proximate cause of
the accident was Ma. Lourdes Valenzuelas own negligence. Alternatively, he argues that in the event that this Court
finds him negligent, such negligence ought to be mitigated by the contributory negligence of Valenzuela.

On the other hand, in G.R. No. 115024, Ma. Lourdes Valenzuela assails the respondent courts decision insofar as it
absolves Alexander Commercial, Inc. from liability as the owner of the car driven by Richard Li and insofar as it reduces
the amount of the actual and moral damages awarded by the trial court.[4]
As the issues are intimately related, both petitions are hereby consolidated. It is plainly evident that the petition for
review in G.R. No. 117944 raises no substantial questions of law. What it, in effect, attempts to have this Court review
are factual findings of the trial court, as sustained by the Court of Appeals finding Richard Li grossly negligent in driving
the Mitsubishi Lancer provided by his company in the early morning hours of June 24, 1990. This we will not do. As a
general rule, findings of fact of the Court of Appeals are binding and conclusive upon us, and this Court will not normally
disturb such factual findings unless the findings of fact of the said court are palpably unsupported by the evidence on
record or unless the judgment itself is based on a misapprehension of facts.[5]
In the first place, Valenzuelas version of the incident was fully corroborated by an uninterested witness, Rogelio
Rodriguez, the owner-operator of an establishment located just across the scene of the accident. On trial, he testified
that he observed a car being driven at a very fast speed, racing towards the general direction of Araneta Avenue.[6]
Rodriguez further added that he was standing in front of his establishment, just ten to twenty feet away from the scene
of the accident, when he saw the car hit Valenzuela, hurtling her against the windshield of the defendants Mitsubishi
Lancer, from where she eventually fell under the defendants car. Spontaneously reacting to the incident, he crossed the
street, noting that a man reeking with the smell of liquor had alighted from the offending vehicle in order to survey the
incident.[7] Equally important, Rodriguez declared that he observed Valenzuelas car parked parallel and very near the
sidewalk,[8] contrary to Lis allegation that Valenzuelas car was close to the center of the right lane. We agree that as
between Lis self-serving asseverations and the observations of a witness who did not even know the accident victim
personally and who immediately gave a statement of the incident similar to his testimony to the investigator
immediately after the incident, the latters testimony deserves greater weight. As the court emphasized:
The issue is one of credibility and from Our own examination of the transcript, We are not prepared to set aside the trial
courts reliance on the testimony of Rodriguez negating defendants assertion that he was driving at a safe speed. While
Rodriguez drives only a motorcycle, his perception of speed is not necessarily impaired. He was subjected to crossexamination and no attempt was made to question his competence or the accuracy of his statement that defendant was
driving very fast. This was the same statement he gave to the police investigator after the incident, as told to a
newspaper report (Exh. P). We see no compelling basis for disregarding his testimony.
The alleged inconsistencies in Rodriguez testimony are not borne out by an examination of the testimony. Rodriguez
testified that the scene of the accident was across the street where his beerhouse is located about ten to twenty feet
away (pp. 35-36, tsn, June 17, 1991). He did not state that the accident transpired immediately in front of his
establishment. The ownership of the Lambingan sa Kambingan is not material; the business is registered in the name of
his mother, but he explained that he owns the establishment (p. 5, tsn., June 20, 1991).
Moreover, the testimony that the streetlights on his side of Aurora Boulevard were on the night the accident transpired
(p. 8) is not necessarily contradictory to the testimony of Pfc. Ramos that there was a streetlight at the corner of Aurora
Boulevard and F. Roman Street (p. 45, tsn., Oct. 20, 1991).
With respect to the weather condition, Rodriguez testified that there was only a drizzle, not a heavy rain and the rain
has stopped and he was outside his establishment at the time the accident transpired (pp. 64-65, tsn., June 17, 1991).
This was consistent with plaintiffs testimony that it was no longer raining when she left Bistro La Conga (pp. 10-11, tsn.,
April 29, 1991). It was defendant Li who stated that it was raining all the way in an attempt to explain why he was
travelling at only 50-55 kph. (p. 11, tsn., Oct. 14, 1991). As to the testimony of Pfc. Ramos that it was raining, he arrived
at the scene only in response to a telephone call after the accident had transpired (pp. 9-10, tsn, Oct. 28, 1991). We find
no substantial inconsistencies in Rodriguezs testimony that would impair the essential integrity of his testimony or
reflect on his honesty. We are compelled to affirm the trial courts acceptance of the testimony of said eyewitness.

Against the unassailable testimony of witness Rodriguez we note that Lis testimony was peppered with so many
inconsistencies leading us to conclude that his version of the accident was merely adroitly crafted to provide a version,
obviously self-serving, which would exculpate him from any and all liability in the incident. Against Valenzuelas
corroborated claims, his allegations were neither backed up by other witnesses nor by the circumstances proven in the
course of trial. He claimed that he was driving merely at a speed of 55 kph. when out of nowhere he saw a dark maroon
lancer right in front of him, which was (the) plaintiffs car. He alleged that upon seeing this sudden apparition he put
on his brakes to no avail as the road was slippery.[9]
One will have to suspend disbelief in order to give credence to Lis disingenuous and patently self-serving asseverations.
The average motorist alert to road conditions will have no difficulty applying the brakes to a car traveling at the speed
claimed by Li. Given a light rainfall, the visibility of the street, and the road conditions on a principal metropolitan
thoroughfare like Aurora Boulevard, Li would have had ample time to react to the changing conditions of the road if he
were alert - as every driver should be - to those conditions. Driving exacts a more than usual toll on the senses.
Physiological fight or flight[10] mechanisms are at work, provided such mechanisms were not dulled by drugs, alcohol,
exhaustion, drowsiness, etc.[11] Lis failure to react in a manner which would have avoided the accident could therefore
have been only due to either or both of the two factors: 1) that he was driving at a very fast speed as testified by
Rodriquez; and 2) that he was under the influence of alcohol.[12] Either factor working independently would have
diminished his responsiveness to road conditions, since normally he would have slowed down prior to reaching
Valenzuelas car, rather than be in a situation forcing him to suddenly apply his brakes. As the trial court noted (quoted
with approval by respondent court):
Secondly, as narrated by defendant Richard Li to the San Juan Police immediately after the incident, he said that while
driving along Aurora Blvd., out of nowhere he saw a dark maroon lancer right in front of him, which was plaintiffs car,
indicating, again, thereby that, indeed, he was driving very fast, oblivious of his surroundings and the road ahead of him,
because if he was not, then he could not have missed noticing at a still far distance the parked car of the plaintiff at the
right side near the sidewalk which had its emergency lights on, thereby avoiding forcefully bumping at the plaintiff who
was then standing at the left rear edge of her car.
Since, according to him, in his narration to the San Juan Police, he put on his brakes when he saw the plaintiffs car in
front of him, but that it failed as the road was wet and slippery, this goes to show again, that, contrary to his claim, he
was, indeed, running very fast. For, were it otherwise, he could have easily completely stopped his car, thereby avoiding
the bumping of the plaintiff, notwithstanding that the road was wet and slippery. Verily, since, if, indeed, he was running
slow, as he claimed, at only about 55 kilometers per hour, then, inspite of the wet and slippery road, he could have
avoided hitting the plaintiff by the mere expedient or applying his brakes at the proper time and distance.
It could not be true, therefore, as he now claims during his testimony, which is contrary to what he told the police
immediately after the accident and is, therefore, more believable, that he did not actually step on his brakes, but simply
swerved a little to the right when he saw the on-coming car with glaring headlights, from the opposite direction, in order
to avoid it.
For, had this been what he did, he would not have bumped the car of the plaintiff which was properly parked at the right
beside the sidewalk. And, it was not even necessary for him to swerve a little to the right in order to safely avoid a
collision with the on-coming car, considering that Aurora Blvd. is a double lane avenue separated at the center by a
dotted white paint, and there is plenty of space for both cars, since her car was running at the right lane going towards
Manila and the on-coming car was also on its right lane going to Cubao.[13]
Having come to the conclusion that Li was negligent in driving his company-issued Mitsubishi Lancer, the next question
for us to determine is whether or not Valenzuela was likewise guilty of contributory negligence in parking her car
alongside Aurora Boulevard, which entire area Li points out, is a no parking zone.
We agree with the respondent court that Valenzuela was not guilty of contributory negligence.

Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has
suffered, which falls below the standard to which he is required to conform for his own protection. [14] Based on the
foregoing definition, the standard or act to which, according to petitioner Li, Valenzuela ought to have conformed for
her own protection was not to park at all at any point of Aurora Boulevard, a no parking zone. We cannot agree.
Courts have traditionally been compelled to recognize that an actor who is confronted with an emergency is not to be
held up to the standard of conduct normally applied to an individual who is in no such situation. The law takes stock of
impulses of humanity when placed in threatening or dangerous situations and does not require the same standard of
thoughtful and reflective care from persons confronted by unusual and oftentimes threatening conditions.[15] Under
the emergency rule adopted by this Court in Gan vs Court of Appeals,[16] an individual who suddenly finds himself in a
situation of danger and is required to act without much time to consider the best means that may be adopted to avoid
the impending danger, is not guilty of negligence if he fails to undertake what subsequently and upon reflection may
appear to be a better solution, unless the emergency was brought by his own negligence.[17]
Applying this principle to a case in which the victims in a vehicular accident swerved to the wrong lane to avoid hitting
two children suddenly darting into the street, we held, in Mc Kee vs. Intermediate Appellate Court,[18] that the driver
therein, Jose Koh, adopted the best means possible in the given situation to avoid hitting the children. Using the
emergency rule the court concluded that Koh, in spite of the fact that he was in the wrong lane when the collision with
an oncoming truck occurred, was not guilty of negligence.[19]
While the emergency rule applies to those cases in which reflective thought, or the opportunity to adequately weigh a
threatening situation is absent, the conduct which is required of an individual in such cases is dictated not exclusively by
the suddenness of the event which absolutely negates thoughtful care, but by the over-all nature of the circumstances.
A woman driving a vehicle suddenly crippled by a flat tire on a rainy night will not be faulted for stopping at a point
which is both convenient for her to do so and which is not a hazard to other motorists. She is not expected to run the
entire boulevard in search for a parking zone or turn on a dark Street or alley where she would likely find no one to help
her. It would be hazardous for her not to stop and assess the emergency (simply because the entire length of Aurora
Boulevard is a no-parking zone) because the hobbling vehicle would be both a threat to her safety and to other
motorists. In the instant case, Valenzuela, upon reaching that portion of Aurora Boulevard close to A. Lake St., noticed
that she had a flat tire. To avoid putting herself and other motorists in danger, she did what was best under the
situation. As narrated by respondent court:
She stopped at a lighted place where there were people, to verify whether she had a flat tire and to solicit help if
needed. Having been told by the people present that her rear right tire was flat and that she cannot reach her home she
parked along the sidewalk, about 1 feet away, behind a Toyota Corona Car.[20] In fact, respondent court noted, Pfc.
Felix Ramos, the investigator on the scene of the accident confirmed that Valenzuelas car was parked very close to the
sidewalk.[21] The sketch which he prepared after the incident showed Valenzuelas car partly straddling the sidewalk,
clear and at a convenient distance from motorists passing the right lane of Aurora Boulevard. This fact was itself
corroborated by the testimony of witness Rodriguez.[22]
Under the circumstances described, Valenzuela did exercise the standard reasonably dictated by the emergency and
could not be considered to have contributed to the unfortunate circumstances which eventually led to the amputation
of one of her lower extremities. The emergency which led her to park her car on a sidewalk in Aurora Boulevard was not
of her own making, and it was evident that she had taken all reasonable precautions.
Obviously in the case at bench, the only negligence ascribable was the negligence of Li on the night of the accident.
Negligence, as it is commonly understood is conduct which creates an undue risk of harm to others.[23] It is the failure
to observe that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury.[24] We stressed, in Corliss vs. Manila Railroad Company,[25] that negligence is the want of care
required by the circumstances.
The circumstances established by the evidence adduced in the court below plainly demonstrate that Li was grossly
negligent in driving his Mitsubishi Lancer. It bears emphasis that he was driving at a fast speed at about 2:00 A.M. after a

heavy downpour had settled into a drizzle rendering the street slippery. There is ample testimonial evidence on record
to show that he was under the influence of liquor. Under these conditions, his chances of effectively dealing with
changing conditions on the road were significantly lessened. As Prosser and Keaton emphasize:
[U]nder present day traffic conditions, any driver of an automobile must be prepared for the sudden appearance of
obstacles and persons on the highway, and of other vehicles at intersections, such as one who sees a child on the curb
may be required to anticipate its sudden dash into the street, and his failure to act properly when they appear may be
found to amount to negligence. [26]
Lis obvious unpreparedness to cope with the situation confronting him on the night of the accident was clearly of his
own making.
We now come to the question of the liability of Alexander Commercial, Inc. Lis employer. In denying liability on the part
of Alexander Commercial, the respondent court held that:
There is no evidence, not even defendant Lis testimony, that the visit was in connection with official matters. His
functions as assistant manager sometimes required him to perform work outside the office as he has to visit buyers and
company clients, but he admitted that on the night of the accident he came from BF Homes Paraaque he did not have
business from the company (pp. 25-26, tsn, Sept. 23, 1991). The use ofthe company car was partly required by the
nature of his work, but the privilege of using it for non-official business is a benefit, apparently referring to the fringe
benefits attaching to his position.
Under the civil law, an employer is liable for the negligence of his employees in the discharge of their respective duties,
the basis of which liability is not respondeat superior, but the relationship of pater familias, which theory bases the
liability of the master ultimately on his own negligence and not on that of his servant (Cuison v. Norton and Harrison Co.,
55 Phil. 18). Before an employer may be held liable for the negligence of his employee, the act or omission which caused
damage must have occurred while an employee was in the actual performance of his assigned tasks or duties (Francis
High School vs. Court of Appeals, 194 SCRA 341). In defining an employers liability for the acts done within the scope of
the employees assigned tasks, the Supreme Court has held that this includes any act done by an employee, in
furtherance of the interests of the employer or for the account of the employer at the time of the infliction of the injury
or damage (Filamer Christian Institute vs. Intermediate Appellate Court, 212 SCRA 637). An employer is expected to
impose upon its employees the necessary discipline called for in the performance of any act indispensable to the
business and beneficial to their employer (at p. 645).
In light of the foregoing, We are unable to sustain the trial courts finding that since defendant Li was authorized by the
company to use the company car either officially or socially or even bring it home, he can be considered as using the
company car in the service of his employer or on the occasion of his functions. Driving the company car was not among
his functions as assistant manager; using it for non-official purposes would appear to be a fringe benefit, one of the
perks attached to his position. But to impose liability upon the employer under Article 2180 of the Civil Code, earlier
quoted, there must be a showing that the damage was caused by their employees in the service of the employer or on
the occasion of their functions. There is no evidence that Richard Li was at the time of the accident performing any act in
furtherance of the companys business or its interests, or at least for its benefit. The imposition of solidary liability
against defendant Alexander Commercial Corporation must therefore fail.[27]
We agree with the respondent court that the relationship in question is not based on the principle of respondeat
superior, which holds the master liable for acts of the servant, but that of pater familias, in which the liability ultimately
falls upon the employer, for his failure to exercise the diligence of a good father of the family in the selection and
supervision of his employees. It is up to this point, however, that our agreement with the respondent court ends.
Utilizing the bonus pater familias standard expressed in Article 2180 of the Civil Code,[28] we are of the opinion that Lis
employer, Alexander Commercial, Inc. is jointly and solidarily liable for the damage caused by the accident of June 24,
1990.

First, the case of St. Francis High School vs. Court of Appeals[29] upon which respondent court has placed undue
reliance, dealt with the subject of a school and its teachers supervision of students during an extracurricular activity.
These cases now fall under the provision on special parental authority found in Art. 218 of the Family Code which
generally encompasses all authorized school activities, whether inside or outside school premises.
Second, the employers primary liability under the concept of pater familias embodied by Art. 2180 (in relation to Art.
2176) of the Civil Code is quasi-delictual or tortious in character. His liability is relieved on a showing that he exercised
the diligence of a good father of the family in the selection and supervision of its employees. Once evidence is
introduced showing that the employer exercised the required amount of care in selecting its employees, half of the
employers burden is overcome. The question of diligent supervision, however, depends on the circumstances of
employment.
Ordinarily, evidence demonstrating that the employer has exercised diligent supervision of its employee during the
performance of the latters assigned tasks would be enough to relieve him of the liability imposed by Article 2180 in
relation to Article 2176 of the Civil Code. The employer is not expected to exercise supervision over either the
employees private activities or during the performance of tasks either unsanctioned by the former or unrelated to the
employees tasks. The case at bench presents a situation of a different character, involving a practice utilized by large
companies with either their employees of managerial rank or their representatives.
It is customary for large companies to provide certain classes of their employees with courtesy vehicles. These company
cars are either wholly owned and maintained by the company itself or are subject to various plans through which
employees eventually acquire their vehicles after a given period of service, or after paying a token amount. Many
companies provide liberal car plans to enable their managerial or other employees of rank to purchase cars, which,
given the cost of vehicles these days, they would not otherwise be able to purchase on their own.
Under the first example, the company actually owns and maintains the car up to the point of turnover of ownership to
the employee; in the second example, the car is really owned and maintained by the employee himself. In furnishing
vehicles to such employees, are companies totally absolved of responsibility when an accident involving a companyissued car occurs during private use after normal office hours?
Most pharmaceutical companies, for instance, which provide cars under the first plan, require rigorous tests of road
worthiness from their agents prior to turning over the car (subject of company maintenance) to their representatives. In
other words, like a good father of a family, they entrust the company vehicle only after they are satisfied that the
employee to whom the car has been given full use of the said company car for company or private purposes will not be a
threat or menace to himself, the company or to others. When a company gives full use and enjoyment of a company car
to its employee, it in effect guarantees that it is, like every good father, satisfied that its employee will use the privilege
reasonably and responsively.
In the ordinary course of business, not all company employees are given the privilege of using a company-issued car. For
large companies other than those cited in the example of the preceding paragraph, the privilege serves important
business purposes either related to the image of success an entity intends to present to its clients and to the public in
general, or for practical and utilitarian reasons - to enable its managerial and other employees of rank or its sales agents
to reach clients conveniently. In most cases, providing a company car serves both purposes. Since important business
transactions and decisions may occur at all hours in all sorts of situations and under all kinds of guises, the provision for
the unlimited use of a company car therefore principally serves the business and goodwill of a company and only
incidentally the private purposes of the individual who actually uses the car, the managerial employee or company sales
agent. As such, in providing for a company car for business use and/or for the purpose of furthering the companys
image, a company owes a responsibility to the public to see to it that the managerial or other employees to whom it
entrusts virtually unlimited use of a company issued car are able to use the company issue capably and responsibly.
In the instant case, Li was an Assistant Manager of Alexander Commercial, Inc. In his testimony before the trial court, he
admitted that his functions as Assistant Manager did not require him to scrupulously keep normal office hours as he was
required quite often to perform work outside the office, visiting prospective buyers and contacting and meeting with

company clients.[30] These meetings, clearly, were not strictly confined to routine hours because, as a managerial
employee tasked with the job of representing his company with its clients, meetings with clients were both social as well
as work-related functions. The service car assigned to Li by Alexander Commercial, Inc. therefore enabled both Li - as
well as the corporation - to put up the front of a highly successful entity, increasing the latters goodwill before its
clientele. It also facilitated meeting between Li and its clients by providing the former with a convenient mode of travel.
Moreover, Lis claim that he happened to be on the road on the night of the accident because he was coming from a
social visit with an officemate in Paraaque was a bare allegation which was never corroborated in the court below. It
was obviously self-serving. Assuming he really came from his officemates place, the same could give rise to speculation
that he and his officemate had just been from a work-related function, or they were together to discuss sales and other
work related strategies.
In fine, Alexander Commercial, Inc. has not demonstrated, to our satisfaction, that it exercised the care and diligence of
a good father of the family in entrusting its company car to Li. No allegations were made as to whether or not the
company took the steps necessary to determine or ascertain the driving proficiency and history of Li, to whom it gave
full and unlimited use of a company car.[31] Not having been able to overcome the burden of demonstrating that it
should be absolved of liability for entrusting its company car to Li, said company, based on the principle of bonus pater
familias, ought to be jointly and severally liable with the former for the injuries sustained by Ma. Lourdes Valenzuela
during the accident.
Finally, we find no reason to overturn the amount of damages awarded by the respondent court, except as to the
amount of moral damages. In the case of moral damages, while the said damages are not intended to enrich the plaintiff
at the expense of a defendant, the award should nonetheless be commensurate to the suffering inflicted. In the instant
case we are of the opinion that the reduction in moral damages from an amount of P 1,000,000.00 to P500,000.00 by
the Court of Appeals was not justified considering the nature of the resulting damage and the predictable sequelae of
the injury.
As a result of the accident, Ma. Lourdes Valenzuela underwent a traumatic amputation of her left lower extremity at the
distal left thigh just above the knee. Because of this, Valenzuela will forever be deprived of the full ambulatory functions
of her left extremity, even with the use of state of the art prosthetic technology. Well beyond the period of
hospitalization (which was paid for by Li), she will be required to undergo adjustments in her prosthetic devise due to
the shrinkage of the stump from the process of healing.
These adjustments entail costs, prosthetic replacements and months of physical and occupational rehabilitation and
therapy. During her lifetime, the prosthetic devise will have to be replaced and re-adjusted to changes in the size of her
lower limb effected by the biological changes of middle-age, menopause and aging. Assuming she reaches menopause,
for example, the prosthetic will have to be adjusted to respond to the changes in bone resulting from a precipitate
decrease in calcium levels observed in the bones of all post-menopausal women. In other words, the damage done to
her would not only be permanent and lasting, it would also be permanently changing and adjusting to the physiologic
changes which her body would normally undergo through the years. The replacements, changes, and adjustments will
require corresponding adjustive physical and occupational therapy. All of these adjustments, it has been documented,
are painful.
The foregoing discussion does not even scratch the surface of the nature of the resulting damage because it would be
highly speculative to estimate the amount of psychological pain, damage and injury which goes with the sudden severing
of a vital portion of the human body. A prosthetic device, however technologically advanced, will only allow a
reasonable amount of functional restoration of the motor functions of the lower limb. The sensory functions are forever
lost. The resultant anxiety, sleeplessness, psychological injury, mental and physical pain are inestimable.
As the amount of moral damages are subject to this Courts discretion, we are of the opinion that the amount of
P1,000,000.00 granted by the trial court is in greater accord with the extent and nature of the injury -. physical and
psychological - suffered by Valenzuela as a result of Lis grossly negligent driving of his Mitsubishi Lancer in the early
morning hours of the accident.

WHEREFORE, PREMISES CONSIDERED, the decision of the court of Appeals is modified with the effect of REINSTATING
the judgment of the Regional Trial Court.
SO ORDERED.
Padilla, Bellosillo, and Hermosisima, Jr., JJ., concur.
Vitug., J., see concurring opinion

Arrieta v. Natl Rice and Corn Corporation


G.R. No. L-15645
January 31, 1964
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20, 1958,
awarding to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and dismissing the
counterclaim and third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration (NARIC) is hereby
abolished and all its assets, liabilities, functions, powers which are not inconsistent with the provisions of this Act, and all
personnel are transferred "to the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the
aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20,000 metric
tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the contract for the same.
Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of
Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmess
Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant corporation committed itself to pay for the imported
rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiffappellee and/or supplier in Burma, immediately." Despite the commitment to pay immediately "by means of an
irrevocable, confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the
execution of the contract, that the defendant corporation, thru its general manager, took the first to open a letter of
credit by forwarding to the Philippine National Bank its Application for Commercial Letter Credit. The application was
accompanied by a transmittal letter, the relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required
to be deposited as a condition for the opening of letters of credit, we will appreciate it if this application could be
considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4, 1952, and in order to
comply therewith, it is imperative that the L/C be opened prior to that date. We would therefore request your full
cooperation on this matter.

On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant corporation of the extreme
necessity for the immediate opening of the letter credit since she had by then made a tender to her supplier in Rangoon,
Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in
Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a letter of
credit for $3,614,000.00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that
marginal cash deposit be paid and that drafts are to be paid upon presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of
Exhibits). Furthermore, the Bank represented that it "will hold your application in abeyance pending compliance with
the above stated requirement."
As it turned out, however, the appellant corporation not in any financial position to meet the condition. As matter of
fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In this connection,
please be advised that our application for opening of the letter of credit has been presented to the bank since July 30th
but the latter requires that we first deposit 50% of the value of the letter amounting to aproximately $3,614,000.00
which we are not in a position to meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya,
Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the
contract) the party named by the appellee as beneficiary of the letter of credit.1wph1.t
As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to
524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although
the Burmese authorities had set August 4, 1952, as the deadline for the remittance of the required letter of credit, the
cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20, 1952, or, a full
half month after the expiration of the deadline. And yet, even with the 15-day grace, appellant corporation was unable
to make good its commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating
the same became apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at
the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time." (Exh.
X-Pe., Exh. 25Def., p. 38, Folder of Exhibits). This offer for substitution, however, was rejected by the appellant in a
resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages caused her in
the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected she instituted
this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance Company was brought to
the suit as a third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the
appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened with the contemplated period.
This failure must, therefore, be taken as the immediate cause for the consequent damage which resulted. As it is then,
the disposition of this case depends on a determination of who was responsible for such failure. Stated differently, the
issue is whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the
contract of July 1, 1952 for which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the contrary, it
insists that the fault lies with the appellee. Appellant contends that the disputed negotiable instrument was not
promptly secured because the appellee , failed to seasonably furnish data necessary and required for opening the same,

namely, "(1) the amount of the letter of credit, (2) the person, company or corporation in whose favor it is to be opened,
and (3) the place and bank where it may be negotiated." Appellant would have this Court believe, therefore, that had
these informations been forthwith furnished it, there would have been no delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an area of the
proceedings into which We are not at liberty to encroach. The explanation refers to a question of fact. Nothing in the
record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. His
conclusion on the matter is sufficiently borne out by the evidence presented. We are denied, therefore, the prerogative
to disturb that finding, consonant to the time-honored tradition of this Tribunal to hold trial judges better situated to
make conclusions on questions of fact. For the record, We quote hereunder the lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff to name the supplier,
the amount and the bank is not tenable. Plaintiff stated in Court that these facts were known to defendant even before
the contract was executed because these facts were necessarily revealed to the defendant before she could qualify as a
bidder. She stated too that she had given the necessary data immediately after the execution of Exh. "A" (the contract of
July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally and in writing and that she also
pressed for the opening of the letter of credit on these occasions. These statements have not been controverted and
defendant NARIC, notwithstanding its previous intention to do so, failed to present Mr. Belmonte to testify or refute
this. ...
Secondly, from the correspondence and communications which form part of the record of this case, it is clear that what
singularly delayed the opening of the stipulated letter of credit and which, in turn, caused the cancellation of the
allocation in Burma, was the inability of the appellant corporation to meet the condition importation by the Bank for
granting the same. We do not think the appellant corporation can refute the fact that had it been able to put up the 50%
marginal cash deposit demanded by the bank, then the letter of credit would have been approved, opened and released
as early as August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the
said date, appellant's "application for a letter of credit ... has been approved by the Board of Directors with the condition
that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the
bank. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware
of its financial incapacity to undertake the prestation. We base this judgment upon the letter which accompanied the
application filed by the appellant with the bank, a part of which letter was quoted earlier in this decision. In the said
accompanying correspondence, appellant admitted and owned that it did "not have sufficient deposit with your
institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters
of credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant knew the
bank requirements for opening letters of credit; second, that appellant also knew it could not meet those requirement.
When, therefore, despite this awareness that was financially incompetent to open a letter of credit immediately,
appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirm and assignable
letter of credit," it must be similarly held to have bound itself to answer for all and every consequences that would result
from the representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it should have a
certained its ability and capacity to comply with the inevitably requirements in cash to pay for such importation. Having
announced the bid, it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the
importation within the required period, especially since it had imposed the supplier the 90-day period within which the
shipment of the rice must be brought into the Philippines. Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its
issuance.

In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 11 of the
Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations a decreed
liable; in general, every debtor who fails in performance of his obligations is bound to indemnify for the losses and
damages caused thereby (De la Cruz Seminary of Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21 Phil. 184;
De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v.
Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil. 657). The phrase "any manner contravene the tenor" of
the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or
defective performance. (IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally
contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the
breach of the contract. We disagree. Waivers are not presumed, but must be clearly and convincingly shown, either by
express stipulation or acts admitting no other reasonable explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In the
case at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the
lower court based its award. Under the contract, the NARIC bound itself to buy 20,000 metric tons of Burmese rice at
"$203.00 U.S. Dollars per metric ton, all net shipped weight, and all in U.S. currency, C.I.F. Manila ..." On the other hand,
documentary and other evidence establish with equal certainty that the plaintiff-appellee was able to secure the
contracted commodity at the cost price of $180.70 per metric ton from her supplier in Burma. Considering freights,
insurance and charges incident to its shipment here and the forfeiture of the 5% deposit, the award granted by the
lower court is fair and equitable. For a clearer view of the equity of the damages awarded, We reproduce below the
testimony of the appellee, adequately supported by the evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
A. Because the selling price of my rice is $203.00 per metric ton, and the cost price of my rice is $180.00 We had to pay
also $6.25 for shipping and about $164 for insurance. So adding the cost of the rice, the freight, the insurance, the total
would be about $187.99 that would be $15.01 gross profit per metric ton, multiply by 20,000 equals $300,200, that is
my supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. A
precise and more exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and
Exhibit 34 of the defendant, hereunder quoted so far as germane.
It is equally of record now that as shown in her request dated July 29, 1959, and other communications subsequent
thereto for the opening by your corporation of the required letter of credit, Mrs. Arrieta was supposed to pay her
supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus
Eight Dollars ($8.00) in the same currency per ton for shipping and other handling expenses, so that she is already
assured of a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per ton or a total of Two Hundred
and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized profit damages
in the total sum of $406,000.00 from the failure of the projected contract to materialize. This counterclaim was
supported by a cost study made and submitted by the appellant itself and wherein it was illustrated how indeed had the
importation pushed thru, NARIC would have realized in profit the amount asserted in the counterclaim. And yet, the said
amount of P406,000.00 was realizable by appellant despite a number of expenses which the appellee under the
contract, did not have to incur. Thus, under the cost study submitted by the appellant, banking and unloading charges

were to be shouldered by it, including an Import License Fee of 2% and superintendence fee of $0.25 per metric ton. If
the NARIC stood to profit over P400 000.00 from the disputed transaction inspite of the extra expenditures from which
the herein appellee was exempt, we are convicted of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the dispositive portion of the decision appeal from
insofar as it expresses the amount of damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically
requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public
and private debts." In view of that law, therefore, the award should be converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange should apply in the conversion here decreed. Should it be at
the time of the breach, at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation
of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages for breach of
contract, even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at
the time of the judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This ruling,
however, can neither be applied nor extended to the case at bar for the same was laid down when there was no law
against stipulating foreign currencies in Philippine contracts. But now we have Republic Act No. 529 which expressly
declares such stipulations as contrary to public policy, void and of no effect. And, as We already pronounced in the case
of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement
to pay an obligation in a currency other than Philippine legal tender, the same is null and void as contrary to public
policy (Republic Act 529), and the most that could be demanded is to pay said obligation in Philippine currency "to be
measured in the prevailing rate of exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award
should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred
or on July 1, 1952 when the contract was executed. The appellee insurance company, in the light of this judgment, is
relieved of any liability under this suit. No pronouncement as to costs.
Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon and Makalintal, JJ., concur.
Barrera, J., took no part.
Reyes, J.B.L., J., reserves his vote.
Nietes vs. CA
G.R. No. L-32873 August 18, 1972
CONCEPCION, C.J.:p
Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.
It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered into a "Contract of
Lease with Option to Buy," pursuant to the terms and conditions set forth in the deed Exhibits A and A-1, (also, marked
as Exhibit 2) namely:
That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE situated at Angeles, Pampanga, a school which is
duly recognized by the Government;
That the lessor agrees to lease the above stated school to the LESSEE under the following terms and conditions:
1. That the term will be for a period of five (5) years;
2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable in the following manners:

a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS (P5,500) will be paid upon the execution of this Contract
of Lease;
b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500) is payable on or before the 30th day of October,
1959;
c. That the remaining balance of FIFTEEN THOUSAND PESOS (P15,000) will be paid on or before March 30, 1960;
3. That all improvements made during the lease by the LESSEE will be owned by the LESSOR after the expiration of the
term of this Contract of Lease;
4. That the LESSOR agrees to give the LESSEE an option to buy the land and the school building, for a price of ONE
HUNDRED THOUSAND PESOS (P100,000) within the period of the Contract of Lease;
5. That should the LESSEE buy the lot, land and the school building within the stipulated period, the unused payment for
the Contract of Lease will be considered as part payment for the sale of the land and school;
6. That an inventory of all properties in the school will be made on March 31, 1960;
6A. That the term of this Contract will commence in June 1960 and will terminate in June 1965;
7. That the LESSEE will be given full control and responsibilities over all the properties of the school and over all the
supervisions and administrations of the school;
8. That the LESSEE agrees to help the LESSOR to collect the back accounts of students incurred before the execution of
this contract.
Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of August 4, 1961,
made payments as follows:
October 6,1960 ....................................... P18,957.00 (Exh. D)
November 23, 1960 ................................. 300.00 (Exh. E)
December 21, 1960 ................................. 200.00 (Exh. F)
January 14, 1961 ..................................... 500.00 (Exh. G)
February 16, 1961 ................................... 3,000.00 (Exh. H)
March 12, 1961 ....................................... 1,000.00 (Exh. I)
March 13, 1961 ....................................... 700.00 (Exh. J)
August 4, 1961 ........................................ 100.00 (Exh. K) _________
TOTAL ..................................... P24,757.00
Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia the additional sums of
P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B and C, reading:

Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per advance pay for the school, the
contract of lease being paid.
(Sgd.) PABLO GARCIA (Exh. B)
To Whom it May Concern:
This is to certify that I received the sum of Two Thousand Two Hundred Pesos, Philippine Currency, from Mrs. Catherine
R. Nietes as the partial payment on the purchase of the property as specified on the original contract of "Contract of
Lease with the First Option to Buy" originally contracted and duly signed.
(Sgd.) DR. PABLO GARCIA (Exh. C)
On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V) stating:
The Director
Philippine Institute of Electronics
Angeles, Pampanga
Sir:
I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your contract, dated 19 October 1959 because
of the following:
1. That you had not maintained the building, subject of the lease contract in good condition.
2. That you had not been using the original name of the school Angeles Institute, thereby extinguishing its existence
in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties of the school.
4. That up to this time, you had not collected or much less helped in the collection of back accounts of former students.
This is to remind you that the foregoing obligations had been one, if not, the principal moving factors which had induced
the lessor in agreeing with the terms embodied in your contract of lease, without which fulfillment, said contract could
not have come into existence. It is not simply one of those reminders that we make mention, that our client under the
circumstances, is not only entitled to a rescission of the contract. He is likewise entitled to damages actual,
compensatory and exemplary.
In view of the serious nature of the breach which warrant and sanction drastic legal remedies against you, we earnestly
request you to please see the undersigned at the above-named address two days from receipt hereof. Otherwise, if we
shall not hear from you, the foregoing will serve notice on your part to vacate the premises within five (5) days to be
counted from date of notice.
Very truly yours,
(Sgd.) VICTOR T. LLAMAS, JR.
to which counsel for Nietes replied in the following language:
Atty. Victor T. Llamas, Jr.
Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City

Dear Sir:
Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine Institute of Electronics, Angeles
City, has been referred to me and in reply, please, be informed that my client has not violated any provision of the
CONTRACT OF LEASE WITH OPTION TO BUY, executed by him as LESSEE and Dr. Pablo Garcia as LESSOR. For this reason,
there is no basis for rescission of the contract nor of the demands contained in your letter.
In this connection, I am also serving this formal notice upon your client Dr. Pablo Garcia, thru you, that my client Mr.
AQUILINO T. NIETES will exercise his OPTION to buy the land and building subject matter of the lease and that my said
client is ready to pay the balance of the purchase price in accordance with the contract. Please, inform Dr. Pablo Garcia
to make available the land title and execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to
do so within fifteen (15) days from the receipt of this letter, we shall take the corresponding action to enforce the
agreement.
Truly yours,
(Sgd.) CONRADO V. DEL ROSARIO
Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City checks amounting
to P84,860.50, as balance of the purchase price of the property, but he withdrew said sum of P84,860.50 on August 12,
1965, after the checks had been cleared. On August 2, 1965, he commenced the present action, in the Court of First
Instance of Pampanga, for specific performance of Dr. Garcia's alleged obligation to execute in his (Nietes') favor a deed
of absolute sale of the leased property, free from any lien or encumbrance whatsoever, he having meanwhile mortgaged
it to the People's Bank and Trust Company, and to compel him (Garcia) to accept whatever balance of the purchase price
is due him, as well as to recover from him the aggregate sum of P90,000 by way of damages, apart from attorney's fees
and the costs.
Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations thereof, as well as
setting up a counterclaim for damages in the sum of P150,000.
After due trial, said court rendered its decision, the dispositive part of which reads:
WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and against the defendant, judgment is
hereby rendered ordering the latter to execute the Deed of Absolute Sale of property originally leased together with the
school building and other improvements thereon which are covered by the contract, Annex "A", upon payment of the
former of the balance (whatever be the amount) of the stipulated purchase price; to free the said property from any
mortgage or encumbrance and deliver the title thereto to the plaintiff free from any lien or encumbrance, and should
said defendant fail to do so, the proceeds from the purchase price be applied to the payment of the encumbrance so
that the title may be conveyed to the plaintiff; to pay the plaintiff the sum of P1,000.00 as attorney's fees, and the cost
of this suit.
Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither dismissed the complaint
nor upheld his counterclaim and failed to order Nietes to vacate the property in question, and Nietes insofar as the trial
court had granted him no more than nominal damages in the sum of P1,000, as attorney's fees.
After appropriate proceedings, a special division of Court of Appeals rendered its decision, on October 18, 1969,
affirming, in effect, that of the trial court, except as regards said attorney's fees, which were eliminated. The dispositive
part of said decision of the Court of Appeals reads:

WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the plaintiff is
eliminated, the appealed judgment is hereby affirmed in all other respects, and the defendant is ordered to execute the
corresponding deed of sale for the school building and lot in question in favor of the plaintiff upon the latter's full
payment of the balance of the purchase price. The costs of this proceedings shall be taxed against the defendantappellant.
On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned decision and
rendered another one, promulgated on March 10, 1970 reversing the appealed decision of the court of first instance,
and dismissing the complaint of Nietes, with costs again him. Hence, the present petition of Nietes for review certiorari
of the second decision of the Court of Appeals, dated March 10, 1970, to which petition We gave due course.
Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly predicated upon the theory
that, under the contract between the parties, "the full purchase price must be paid before the option counsel be
exercised," because "there was no need nor sense providing that "the unused payment for the Contract Lease will be
considered as part payment for the sale the land and school'" inasmuch as "otherwise there is substantial amount from
which such unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes, dated August 7,
1964, to the effect that he "will exercise his OPTION to buy the land and building," indication that he did not consider
the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective exercise of his option to buy"; that the
checks for P84,860.50 deposited by Nietes with the Agro-Industrial Development Bank, did not constitute a proper
tender of payment, which, at any rate, was "made beyond the stipulated 5-year period"; that such deposit "was not
seriously made, because on August 12, 1965, the same was withdrawn from the Bank and ostensibly remains in the
lessee's hand"; and that "the fact that such deposit was made by the lessee shows that he himself believed that he
should have paid the entire amount of the purchase price before he could avail of the option to buy, otherwise, the
deposit was a senseless gesture ... ."
Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the contract of lease
between the parties which were paid late and not within the periods and/or schedules fixed by the contract (Annex A.)."
What is more, on the witness stand, Garcia claimed that he did "not know" whether the signatures on Exhibits B and C
the receipt for P3,000 and P2,200, respectively were his, and even said that he was "doubtful" about it.
This testimony is manifestly incredible, for a man of his intelligence a Doctor of Medicine and the owner of an
educational institution could not possibly "not know" or entertain doubts as to whether or not the aforementioned
signatures are his and the payments therein acknowledged had been received by him. His dubious veracity becomes
even more apparent when we consider the allegations in paragraph (4) of his answer referring to paragraphs 5 and 6
of the complaint alleging, inter alia, the aforementioned partial payments of P3,000 and P2,200, on account of the
stipulated sale price to the effect that said sums " paid to the herein defendant were part of the price of the contract
of lease." In other words, payment of said sums of P3,000 and P2,200 is admitted in said answer. Besides, the rentals for
the whole period of the lease aggregated P25,000 only, whereas said sums of P3,000 and P2,200, when added to the
payments previously made by Nietes, give a grand total of P29,957.00, or P4,957 in excess of the agreed rentals for the
entire period of five years. Thus, Dr. Garcia was less than truthful when he tried to cast doubt upon the fact of payment
of said sums of P3,000 and P2,200, as well as when he claimed that the same were part of the rentals collectible by him.
We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the tenor of the contract
Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia as reflected in the receipts Exhibits B and C
justifies such view. The contract does not say that Nietes had to pay the stipulated price of P100,000 before exercising
his option to buy the property in question. Accordingly, said option is governed by the general principles on obligations,
pursuants to which:
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. 1

In the case of an option to buy, the creditor may validly and effectively exercise his right by merely advising the debtor
of the former's decision to buy and expressing his readiness to pay the stipulated price, provided that the same is
available and actually delivered to the debtor upon execution and delivery by him of the corresponding deed of sale.
Unless and until the debtor shall have done this the creditor is not and cannot be in default in the discharge of his
obligation to pay. 2 In other words, notice of the creditor's decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered to the owner of the property upon performance of his part
of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank checks amounting
altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after does not and cannot affect his cause of
action in the present case. In making such deposit, he may have had the intent to show his ability to pay the balance of
the sum due to Dr. Garcia as the sale price of his property. In short, said deposit and its subsequent withdrawal cannot
affect the result of the present case.
Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which pursuant to
paragraph 6-A of said contract commenced "in June 1960" and was to "terminate in June 1965." As early as
September 4, 1961, or well "within the period of the Contract of Lease," Nietes had paid Dr. Garcia the following sums:
October 6, 1960 ............................ P18,957.00 (Exh. D)
November 23, 1960 ....................... 300.00 (Exh E)
December 21, 1960 ....................... 200.00 (Exh. F)
January 14, 1961 ........................... 500.00 (Exh. G)
February 16, 1961 ......................... 3,000.00 (Exh. H)
March 12, 1961 ............................. 1,000.00 (Exh. I)
March 13, 1961 ............................. 700.00 (Exh. J)
August 4, 1961 ............................... 100.00 (Exh. K)
September 4, 1961 ......................... 3,000.00 (Exh. B)
________
TOTAL ............................... P27,757.00
It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on or before October 30,
1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000, from October 19, 1959 to March 30, 1960,
whereas his first payment was not made until October 10, 1960, when he delivered the sum of P18,957 to Dr. Garcia,
and the latter had by August 4, 1961, received from the former the aggregate sum of P24,757. This is, however, P243.00
only less than the P25,000 due as of March 30, 1960, so that Nietes may be considered as having complied substantially
with the terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or not considered that Nietes had
thereby violated the contract, because the letter of the former, dated July 31, 1964, demanding rescission of the
contract, did not mention said acts or omissions of Nietes among his alleged violations thereof enumerated in said
communication. In fact, when, on September 4, 1961, Mrs. Nietes turned over the sum of P3,000 to Dr. Garcia, he issued
the receipt Exhibit B, stating that said payment had been made "as per advance pay for the school, the Contract of Lease
being paid" in other words, in accordance or conformity with said contract. Besides, when, on December 13, 1962,
Mrs. Nietes delivered the additional sum of P2,200, Dr. Garcia issued a receipt accepting said amount "as the partial
payment on the purchase price of the property as specified on the original contract," thus further indicating that the
payment, in his opinion, conformed with said contract, and that, accordingly, the same was in full force and effect.

In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of P27,757, or P2,757
in excess of the P25,000 representing the rentals for the entire period of the lease, and over P21,200 in excess of the
rentals for the unexpired portion of the lease, from September 4, 1961 to June 1965. This circumstance indicates clearly
that Nietes had, on September 4, 1961, chosen to exercise and did exercise then his option to buy. What is more, this is
borne out by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which he referred
therein as a "partial payment on the purchase of the property as specified on the original contract of 'Contract of Lease
with the First Option to Buy' ... ."
Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 also, within the period of the lease
stating that he "will exercise his OPTION to buy the land and building subject matter of the lease." It is not correct to
construe this expression as did the appealed decision as implying that the option had not been or was not yet
being exercised, or as a mere announcement of the intent to avail of it at some future time. This interpretation takes
said expression out of the context of Exhibit L, which positively states, also, that Nietes "is ready to pay the balance of
the purchase price in accordance with the contract," and requests counsel for Dr. Garcia to inform or advise him "to
make available the land title and execute the corresponding Deed of Sale pursuant to this notice, and that if he fails to
do so within fifteen (15) days ... we shall take the corresponding action to enforce the agreement." Such demand and
said readiness to pay the balance of the purchase price leave no room for doubt that, as stated in Exhibit L, the same is
"a formal notice" that Nietes had exercised his option, and expected Dr. Garcia to comply, within fifteen (15) days, with
his part of the bargain. Surely, there would have been no point for said demand and readiness to pay, if Nietes had not
yet exercised his option to buy.
The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make use of his option to
buy "the unused payment for the Contract of Lease will be considered as payment for the sale of the land and school,
"simply means that the rental paid for the unused portion of the lease shall be applied to and deducted from the sale
price of P100,000 to be paid by Nietes at the proper time in other words, simultaneously with the delivery to him of
the corresponding deed of sale, duly executed by Dr. Garcia.
It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his option to buy the
property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged receipt from Mrs. Nietes of the sum of
P2,200 then delivered by her "in partial payment on the purchase of the property" described in the "Contract of Lease
with Option to Buy"; that from the aggregate sum of P29,957.00 paid to him up to that time, the sum of P12,708.33
should be deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty (30) months and a
half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, representing the rentals for the unused period of
the lease, plus P4,957.00 paid in excess of said rental and advanced solely on account of the purchase price; that
deducting said sum of P17,248.67 from the agreed price of P100,000.00, there results a balance of P82,751.33 which
should be paid by Nietes to Dr. Garcia, upon execution by the latter of the corresponding deed of absolute sale of the
property in question, free from any lien or encumbrance whatsoever, in favor of Nietes, and the delivery to him of said
deed of sale, as well as of the owner's duplicate of the certificate of title to said property; and that Dr. Garcia should
indemnify Nietes in the sum of P2,500 as and for attorney's fees.
Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other respects, and that
of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo C. Garcia. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio and Esguerra, JJ., concur.
Castro, J., took no part.
Zulueta vs. Mariano
G.R. No. L-29360 January 30, 1982

MELENCIO-HERRERA, J.:

In this action for mandamus and Prohibition, petitioner seeks to compel respondent Judge to assume appellate, not
original jurisdiction over an Ejectment case appealed from the Municipal Court of Pasig (CC No. 1190 entitled Jose C.
Zulueta vs. Lamberto Avellana), and to issue a Writ of Execution in said case.
The antecedental facts follow:
Petitioner Jose C. Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision,
Pasig, Rizal.
On November 6, 1964, petitioner Zulueta and private respondent Lamberto Avellana, a movie director, entered into a
"Contract to Sell" the aforementioned property for P75,000.00 payable in twenty years with respondent buyer assuming
to pay a down payment of P5,000.00 and a monthly installment of P630.00 payable in advance before the 5th day of the
corresponding month, starting with December, 1964.
It was further stipulated:
12) That upon failure of the BUYER to fulfill any of the conditions herein stipulated, BUYER automatically and irrevocably
authorizes OWNER to recover extra-judicially, physical possession of the land, building and other improvements which
are the subject of this contract, and to take possession also extra-judicially whatever personal properties may be found
within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations
BUYER may have with OWNER; and this contract shall be considered as without force and effect also from said date; all
payments made by the BUYER to OWNER shall be deemed as rental payments without prejudice to OWNER's right to
collect from BUYER whatever other monthly installments and other money obligations which may have been paid until
BUYER vacates the aforesaid premises; upon his failure to comply with any of the herein conditions BUYER forfeits all
money claims against OWNER and shall pay a monthly rental equivalent to his monthly installment under Condition 1 of
this Contract from the date of the said failure to the date of recovery of physical possession by OWNER of the land,
building and other improvements which are the subject of this Contract; BUYER shall not remove his personal properties
without the previous written consent of OWNER, who, should he take possession of such properties following the
aforesaid failure of BUYER, shall return the same to BUYER only after the latter shall have fulfilled all money claims
against him by OWNER; in all cases herein, demand is waived;
Respondent Avellana occupied the property from December, 1964, but title remained with petitioner Zulueta.
Upon the allegation that respondent Avellana had failed to comply with the monthly amortizations stipulated in the
contract, despite demands to pay and to vacate the premises, and that thereby the contract was converted into one of
lease, petitioner, on June 22, 1966, commenced an Ejectment suit against respondent before the Municipal Court of
Pasig (CC No. 1190), praying that judgment be rendered ordering respondent 1) to vacate the premises; 2) to pay
petitioner the sum of P11,751.30 representing respondent's balance owing as of May, 1966; 3) to pay petitioner the sum
of P 630.00 every month after May, 1966, and costs.
Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the contract; that prior to the execution of the contract to sell,
petitioner was already indebted to him in the sum of P31,269.00 representing the cost of two movies respondent made
for petitioner and used by the latter in his political campaign in 1964 when petitioner ran for Congressman, as well as
the cost of one 16 millimeter projector petitioner borrowed from respondent and which had never been returned,
which amounts, according to their understanding, would be applied as down payment for the property and to whatever
obligations respondent had with petitioner. The latter strongly denied such an understanding. Respondent's total
counterclaim against petitioner was in the amount of P42,629.99 representing petitioner's pleaded indebtedness to
private respondent, claim for moral damages, and attorney's fees.
The counterclaim was dismissed by the Municipal Court for being in an amount beyond its jurisdiction. However, as a
special defense, private respondent sought to offset the sum of P31,269.00 against his obligations to petitioner.

Deciding the case on May 10, 1967, the Municipal Court found that respondent Avellana had failed to comply with his
financial obligations under the contract and ordered him to vacate the premises and deliver possession thereof to
petitioner; to pay petitioner the sum of P21,093.88 representing arrearages as of April, 1967, and P630.00 as monthly
rental from and after May, 1967 until delivery of possession of that premises to petitioner. That conclusion was
premised on title finding that breach of any of the conditions by private respondent converted the agreement into a
lease contractual and upon the following considerations:
The question involved herein is that of possession, that who of the contending parties has the better right to possession
of the properly in question. The issue in this case being that of possession, the claim of defendant against plaintiff or P
31,269.00 indebtedness, has no place as a defense here. It should be the subject- matter of a separate action against,
plaintiff Jose C. Zulueta. As it is, said indebtedness is only a claim still debatable and controversial and not a final
judgment. 'It is our considered opinion that to admit and to allow such a defense would be tantamount to prejuding the
claim on its merits prematurely in favor of defendant. This court can not do without violating some rules of law. This is
not the proper court and this is not the proper case in which to ventilate the claim.
Respondent Avellana appealed to the Court of First Instance of Rizal presided by respondent Judge. Thereat, petitioner
summoned for execution alleging private respondent's failure to deposit in accordance the monthly rentals, which the
latter denied. Respondent Judge held resolution thereof in abeyance.
On February 19, 1968, respondent Avellana filed a Motion to Dismiss Appeal alleging that, inasmuch as the defense set
up in his Answer was that he had not breached his contract with petitioner, the case necessarily involved the
interpretation and/or rescission of the contract and, therefore, beyond the jurisdiction of the Municipal Court. Petitioner
opposed claiming that the Complaint had set out a clear case of unlawful detainer considering that judicial action for the
rescission of the contract was unnecessary due to the automatic rescission clause therein and the fact that petitioner
had cancelled said contract so that respondent's right to remain in the premises had ceased.
On March 21, 1968, respondent Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court,
explaining:
The decision of the lower court declared said Contract to Sell to have been converted into a contract of lease. It is the
contention of the defendant that the lower court had no jurisdiction to entertain the case as the same involves the
interpretation of contract as to whether or not the same has been converted to lease contract. Although the contract to
sell object of this case states that the same may be converted into a lease contract upon the failure of the defendant to
pay the amortization of the property in question, there is no showing that before filing this case in the lower court, the
plaintiff has exercised or has pursued his right pursuant to the contract which should be the basis of the action in the
lower court.
Petitioner's Motion for Reconsideration was denied by respondent Judge as follows:
The plaintiff having filed a motion for reconsideration of this Court's Order dismissing the appeal, the Court, while
standing pat on its Order dismissing this case for lack of jurisdiction of the lower court over the subject matter, hereby
takes cognizance of the case and will try the case as if it has been filed originally in this Court.
WHEREFORE, let this case be set for pre-trial on July 12, 1968 at 8:30 a.m. with notice to an parties.
Petitioner then availed of the instant recourse.
Was the action before the Municipal Court of Pasig essentially for detainer and, therefore, within its exclusive original
jurisdiction, or one for rescission or annulment of a contract, which should be litigated before a Court of First Instance?
Upon a review of the attendant circumstances, we uphold the ruling of respondent Judge that the Municipal Court of
Pasig was bereft of jurisdiction to take cognizance of the case filed before it. In his Complaint, petitioner had alleged
violation by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally considered the

contract rescinded. Respondent Avellana denied any breach on his part and argued that the principal issue was one of
interpretation and/or rescission of the contract as well as of set-off. Under those circumstances, proof of violation is a
condition precedent to resolution or rescission. It is only when the violation has been established that the contract can
be declared resolved or rescinded. Upon such rescission, in turn, hinges a pronouncement that possession of the realty
has become unlawful. Thus, the basic issue is not possession but one of rescission or annulment of a contract. which is
beyond the jurisdiction of the Municipal Court to hear and determine.
A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other
party to resolved or rescind it. An allegation of such violation in a detainer suit may be proved by competent evidence.
And if proved a justice of the peace court might make a finding to that effect, but it certainly cannot declare and hold
that the contract is resolved or rescinded. It is beyond its power so to do. And as the illegality of the possession of realty
by a party to a contract to sell is premised upon the resolution of the contract, it follows that an allegation and proof of
such violation, a condition precedent to such resolution or rescission, to render unlawful the possession of the land or
building erected thereon by the party who has violated the contract, cannot be taken cognizance of by a justice of the
peace court. ... 1
True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however, where the
other party does not oppose it. 2 Where it is objected to, a judicial determination of the issue is still necessary.
A stipulation entitling one party to take possession of the land and building if the other party violates the contract does
not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial
intervention and' determination. 3
But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly
dismissed the appeal, he erred in assuming original jurisdiction, in the face of the objection interposed by petitioner.
Section 11, Rule 40, leaves no room for doubt on this point:
Section 11. Lack of jurisdiction A case tried by an inferior court without jurisdiction over the subject matter shall be
dismiss on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance may try
the case on the merits, if the parties therein file their pleadings and go to trial without any objection to such jurisdiction.
There was no other recourse left for respondent Judge, therefore, except to dismiss the appeal.
If an inferior court tries a case without jurisdiction over the subject-matter on appeal, the only authority of the CFI is to
declare the inferior court to have acted without jurisdiction and dismiss the case, unless the parties agree to the exercise
by the CFI of its original jurisdiction to try the case on the merits. 4
The foregoing premises considered, petitioner's prayer for a Writ of Execution of the judgment of the Municipal Court of
Pasig must perforce be denied.
WHEREFORE, the Writ of mandamus is denied, but the Writ of Prohibition is granted and respondent Court hereby
permanently enjoined from taking cognizance of Civil Case No. 10595 in the exercise of its original jurisdiction. No costs.
SO ORDERED.
Makasiar, Fernandez, Guerrero and Plana, JJ., concur.
Teehankee, J., concur in the result.
Angeles v. Calasanz
G.R. No. L-42283 March 18, 198

GUTIERREZ, JR., J.:


This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the
contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of
sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.
The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been
raised for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the
amount of P3,920.00 plus 7% interest per annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the
balance in monthly installments of P 41.20 until fully paid, the installments being due and payable on the 19th day of
each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment
already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of
past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed to
meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied
by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch
X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after
computing all subsequent payments for the land in question, they found out that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the
land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffsappellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the
monthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby constraining
the defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs and
against the defendants declaring that the contract subject matter of the instant case was NOT VALIDLY cancelled by the
defendants. Consequently, the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to
pay the sum of P500.00 by way of attorney's fees. Costs against the defendants.
A motion for reconsideration filed by the defendants-appellants was denied.
As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure questions
of law.
The defendants-appellants assigned the following alleged errors of the lower court:
First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN
LEGALLY AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE
LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES.
The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the
defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract
which provides:
xxx xxx xxx
SIXTH.In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein
agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one
corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to
the party of the SECOND PART expired; without the payments corresponding to both months having been satisfied, an
interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a
period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of
SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the
party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the
party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons, as if this
contract had never been entered into. In case of such cancellation of the contract, all the amounts paid in accordance
with this agreement together with all the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the above mentioned premises, and as payment for the damages suffered by failure of the party
of the SECOND PART to fulfill his part of the agreement; and the party of the SECOND PART hereby renounces all his
right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the
same to the party of the FIRST PART. (Emphasis supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite
demands for more than four (4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No. L6573, February 28, 1955) where this Court upheld the right of the subdivision owner to automatically cancel a contract
to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The defendantsappellants also argue that even in the absence of the aforequoted provision, they had the right to cancel the contract to
sell under Article 1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6 of
the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms, the sellers have
the right to declare the contract cancelled and of no effect, because it granted the sellers an absolute and automatic
right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:

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.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the
other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties
from entering into an agreement that violation of the terms of the contract would cause its cancellation even without
court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)
Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v.
Commissioner of Customs, 37 SCRA 327, and cases cited therein)
Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this
Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the
contract itself provides that it may be rescinded for violation of its terms and conditions, was qualified by this Court in
University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort
to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not correct in law. ... .
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking
Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal
Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo &
Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends
upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides:

SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY
ONLY (P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of each month, from this date until the
total payment of the price above stipulated, including interest.
because they failed to pay the August installment, despite demand, for more than four (4) months.
The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart
from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period
of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Furthermore,
although the principal obligation was only P 3,920.00 excluding the 7 percent interests, the plaintiffs- appellees had
already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the defendants-appellants will work
injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the
defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the defendants-appellants in cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise
purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which
they can really call their own.
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
NINTH.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART, as
not exacting a strict compliance with the conditions of paragraph 6 of this contract, as well as any other condonation
that the party of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter,
should not be interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this
contract, in case of default or non-compliance by the party of the SECOND PART.
The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6
not merely once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. 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 De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx

But defendants do not deny that in spite of the long arrearages, neither they nor their predecessor, Teodoro de Guzman,
even took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is
admitted that the delayed payments were received without protest or qualification. ... Under these circumstances, We
cannot but agree with the lower court that at the time appellees exercised their option, appellants had already forfeited
their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals
by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees of all their
arrearages.
The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of
P671,67 due from the plaintiffs-appellees. They submit that while it is true that the total monthly installments paid by
the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said payments were applied to the
interests since the contract specifically provides for a 7% interest per annum on the remaining balance. The defendantsappellants rely on paragraph 2 of the contract which provides:
SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY
ONLY (P 3,920.00), Philippine Currency, plus interest at the rate of 7% per annum ... . (Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendantsappellants a total sum of P4,533.38, the defendants-appellants must now be compelled to execute the final deed of sale
pursuant to paragraph 12 of the contract which provides:
TWELFTH.That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party to the
FIRST PART will execute in favor of the party of the SECOND PART, the necessary deed or deeds to transfer to the latter
the title of the parcel of land sold, free from all hens and encumbrances other than those expressly provided in this
contract; it is understood, however, that au the expenses which may be incurred in the said transfer of title shall be paid
by the party of the SECOND PART, as above stated.
Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is
a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a
contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to
acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of
the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them
on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:
xxx xxx xxx
... (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto. . . . there are
certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such
contracts are called contracts of adhesion, because the only participation of the party is the signing of his signature or
his "adhesion" thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this
category. (Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the
sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to
transfer the title to the buyer upon payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the
observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party
who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested
a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its

phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most
unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an
aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not
uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the
defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute
the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the
modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTYSEVEN CENTAVOS (P671.67) without any interests. Costs against the defendants-appellants.
SO ORDERED.
Smith Bell and Co. V. Sotelo Matti
G.R. No. L-16570
March 9, 1922

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the
former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twenty-one
thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or four
months;" two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from San
Francisco in the month of September, 1918, or as soon as possible; and two electric motors at the price of two thousand
pesos (P2,000) each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery
within ninety days. This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on
the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to
receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other facts,
that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as to the delivery
thereof, and that the defendant refused to receive any of them and to pay their price. The plaintiff, further, alleged that
the expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc., denied
the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant,
Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the
motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the
Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919,
that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and
long after the date stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's
delay in making delivery of the goods, which the intervenor intended to use in the manufacture of cocoanut oil, the
intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and
ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty
pesos (P21,250) on account of the expellers and the motors not having arrived in due time.
The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and the
electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expellers

and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest thereon
from July 26, 1919, and costs."
Both parties appeal from this judgment, each assigning several errors in the findings of the lower court.
The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances
established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. If
it has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable for the
consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we find this
clause:
To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no obligation on
our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirement of the
United States Government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In
other words, the order is accepted on the basis of shipment at Mill's convenience, time of shipment being merely an
indication of what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation appears:
The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the month of
September /18, or as soon as possible. Two Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:
Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to obtain
Priority Certificate, subject to the United States Government requirements and also subject to confirmation of
manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes known as
"Force Majeure" entirely beyond the control of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks,
the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the
contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of
September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains
this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time of the world war when there existed rigid
restrictions on the export from the United States of articles like the machinery in question, and maritime, as well as
railroad, transportation was difficult, which fact was known to the parties; hence clauses were inserted in the contracts,
regarding "Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirements of the
United States Government," in connection with the tanks and "Priority Certificate, subject to the United State
Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were
not unmindful of the contingency of the United States Government not allowing the export of the goods, nor of the fact
that the other foreseen circumstances therein stated might prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties
attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to
Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be
governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ.
Code.)
And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining
certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to
railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition.
In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be
deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.
In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his power, was
entitled to enforce performance of the obligation. This performance, which is fictitious not real is not expressly
authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby affected; but
it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine. (Manresa's
commentaries on the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19, 1896, and
February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a third person
who can in no way be compelled to carry it out, and it is found by the lower court that the obligor has done all in his
power to comply with the obligation, the judgment of the said court, ordering the other party to comply with his part of
the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima Recopilacin," or Law
12, Tit. 11, of Partida 5, when in the said finding of the lower court, no law or precedent is alleged to have been violated.
(Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14,
page 656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a third
person, who can in no way be compelled to carry it out, the obligor's part of the contract is complied withalf Belisario
not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the
affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded
in the registry on the same date.
(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and
Aureno Belisario as his only heirs.

(33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was
represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of the
various sales and that in none of the sales was the notice published more than twice in a newspaper.
The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be
disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the
sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of
Dagupan with the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase from the
Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act
No. 1791.
The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of
sale. Section 454 of the Code of civil Procedure reads in part as follows:
SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows:
1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the
municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and
condition of the property;
2. *

3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three
public places of the municipality or city where the property is situated, and also where the property is to be sold, and
publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation
in the province, if there be one. If there are newspaper published in the province in both the Spanish and English
languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language,
and in one published in the English language: Provided, however, That such publication in a newspaper will not be
required when the assessed valuation of the property does not exceed four hundred pesos;
4. *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first
published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was
changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made
on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly
periodical published every Saturday afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only
fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was
made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning
until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the
hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale
were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices.
In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without
the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the
sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled
doctrine in this jurisdiction whatever the rule may be elsewhere.
It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where
the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400.
Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the

sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these
sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a
judgment creditor, the sales must be held invalid.
The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791
pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in section 19 of the Act
and read:
. . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall
have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be
not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a
description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the
same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original
owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any
time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the
whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . .
The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the
successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no
rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid
conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act
for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with
interest, but has acquired no title through the redemption.
The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively
argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated
through inscription in the Mortgage Law registry.
The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community
property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified, and
the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and
the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest
thereon from July 17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So
ordered.
Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.
UFC vs. Francisco
G.R. No. L-29155 May 13, 1970
CASTRO, J.:
Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals of February 13,
1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco, plaintiffs-appellants vs. Universal Food
Corporation, defendant-appellee), the dispositive portion of which reads as follows: "WHEREFORE the appealed decision
is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is hereby ordered to
return to plaintiff Magdalo V. Francisco, Sr., his Mafran sauce trademark and formula subject-matter of Exhibit A, and to
pay him his monthly salary of P300.00 from December 1, 1960, until the return to him of said trademark and formula,
plus attorney's fees in the amount of P500.00, with costs against defendant." 1
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First Instance of
Manila, against, the Universal Food Corporation, an action for rescission of a contract entitled "Bill of Assignment." The
plaintiffs prayed the court to adjudge the defendant as without any right to the use of the Mafran trademark and

formula, and order the latter to restore to them the said right of user; to order the defendant to pay Magdalo V.
Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs
of suit. 1
On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3 thereof "admits the
allegations contained in paragraph 3 of plaintiffs' complaint." The answer further alleged that the defendant had
complied with all the terms and conditions of the Bill of Assignment and, consequently, the plaintiffs are not entitled to
rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not dismissed from the service as permanent chief
chemist of the corporation as he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is
estopped from questioning 1) the contents and due execution of the Bill of Assignment, 2) the corporate acts of the
petitioner, particularly the resolution adopted by its board of directors at the special meeting held on October 14, 1960,
to suspend operations to avoid further losses due to increase in the prices of raw materials, since the same plaintiff was
present when that resolution was adopted and even took part in the consideration thereof, 3) the actuations of its
president and general manager in enforcing and implementing the said resolution, 4) the fact that the same plaintiff was
negligent in the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The defendant
corporation prayed for the dismissal of the complaint, and asked for P750 as attorney's fees and P5,000 in exemplary or
corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim for damages and
attorney's fees, with costs against the former, who promptly appealed to the Court of Appeals. On February 13, 1969
the appellate court rendered the judgment now the subject of the present recourse.
The Court of Appeals arrived at the following "uncontroverted" findings of fact:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a
food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that the manufacture of this
product was used in commercial scale in 1942, and in the same year plaintiff registered his trademark in his name as
owner and inventor with the Bureau of Patents; that due to lack of sufficient capital to finance the expansion of the
business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the
aforequoted "Bill of Assignment" (Exhibit A or 1).
Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco, Sr. was appointed Chief Chemist
with a salary of P300.00 a month, and plaintiff Victoriano V. Francisco was appointed auditor and superintendent with a
salary of P250.00 a month. Since the start of the operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr.,
when preparing the secret materials inside the laboratory, never allowed anyone, not even his own son, or the President
and General Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula secret to
himself. However, said plaintiff expressed a willingness to give the formula to defendant provided that the same should
be placed or kept inside a safe to be opened only when he is already incapacitated to perform his duties as Chief
Chemist, but defendant never acquired a safe for that purpose. On July 26, 1960, President and General Manager Tirso
T. Reyes wrote plaintiff requesting him to permit one or two members of his family to observe the preparation of the
'Mafran Sauce' (Exhibit C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not compel
or force plaintiff to accede to said request. Thereafter, however, due to the alleged scarcity and high prices of raw
materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum
(Exhibit B), duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco
should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time
being until the corporation should resume its operation. Some five (5) days later, that is, on December 3, 1960,
President and General Manager Tirso T. Reyes, issued a memorandom to Victoriano Francisco ordering him to report to
the factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the
corporation's various distributors and dealers, and with instructions to take only the necessary daily employees without
employing permanent employees (Exhibit B). Again, on December 6, 1961, another memorandum was issued by the
same President and General Manager instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily

employees who are connected in the production of Mafran Sauce and also some additional daily employees for the
production of Porky Pops (Exhibit B-1). On December 29, 1960, another memorandum was issued by the President and
General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to
produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire daily
laborers in order to cope with the full blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary
as Chief Chemist in the amount of P300.00 a month only until his services were terminated on November 30, 1960. On
January 9 and 16, 1961, defendant, acting thru its President and General Manager, authorized Porfirio Zarraga and Paula
de Bacula to look for a buyer of the corporation including its trademarks, formula and assets at a price of not less than
P300,000.00 (Exhibits D and D-1). Due to these successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being
recalled back to work, the latter filed the present action on February 14, 1961. About a month afterwards, in a letter
dated March 20, 1961, defendant, thru its President and General Manager, requested said plaintiff to report for duty
(Exhibit 3), but the latter declined the request because the present action was already filed in court (Exhibit J).
1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued that under article
1191 of the new Civil Code, the right to rescind a reciprocal obligation is not absolute and can be demanded only if one
is ready, willing and able to comply with his own obligation and the other is not; that under article 1169 of the same
Code, 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; that in this case the trial court found that the respondents not only
have failed to show that the petitioner has been guilty of default in performing its contractual obligations, "but the
record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco who had been remiss in the compliance
of his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce;" that even the
respondent Court of Appeals found that as "observed by the lower court, 'the record is replete with the various attempt
made by the defendant (herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that
upon the foregoing findings, the respondent Court of Appeals unjustly concluded that the private respondents are
entitled to rescind the Bill of Assignment.
The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V. Francisco,
Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce. 2
The Bill of Assignment sets forth the following terms and conditions:
THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the MAFRAN trade-mark
and the formula for MAFRAN SAUCE;
THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit which the PARTY OF THE
Second Part [Universal Food Corporation] may realize by and/or out of its production of MAFRAN SAUCE and other food
products and from other business which the Party of the Second Part may engage in as defined in its Articles of
Incorporation, and which its Board of Directors shall determine and declare, said Party of the First Part hereby assign,
transfer, and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE
unto the Party of the Second Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party of the Second Part
obligates itself to pay unto the Party of the First Part as founder and as owner of the MAFRAN trademark and formula
for MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after the proper accounting and inventories has been
undertaken by the Party of the Second Part and after a competent auditor designated by the Board of Directors shall
have duly examined and audited its books of accounts and shall have certified as to the correctness of its Financial
Statement;
THAT it is hereby understood that the Party of the First Part, to improve the quality of the products of the Party of the
First Part and to increase its production, shall endeavor or undertake such research, study, experiments and testing, to
invent or cause to invent additional formula or formulas, the property rights and interest thereon shall likewise be
assigned, transferred, and conveyed unto the Party of the Second Part in consideration of the foregoing premises,
covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the First Part shall be entitled to the
following Participation:
(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of the Party of the
Second Part, which appointments are permanent in character and Mr. VICTORIANO V. FRANCISCO shall be appointed
Auditor thereof and in the event that the Treasurer or any officer who may have the custody of the funds, assets and
other properties of the Party of the Second Part comes from the Party of the First Part, then the Auditor shall not be
appointed from the latter; furthermore should the Auditor be appointed from the Party representing the majority shares
of the Party of the Second Part, then the Treasurer shall be appointed from the Party of the First Part;
(b) THAT in case of death or other disabilities they should become incapacitated to discharge the duties of their
respective position, then, their shares or assigns and who may have necessary qualifications shall be preferred to
succeed them;
(c) That the Party of the First Part shall always be entitled to at least two (2) membership in the Board of Directors of the
Party of the Second Part;
(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second Part, the Chief
Chemist shall have and shall exercise absolute control and supervision over the laboratory assistants and personnel and
in the purchase and safekeeping of the Chemicals and other mixtures used in the preparation of said products;
THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the PARTY OF THE First Part
ask, demand or sue for the surrender of its rights and interest over said MAFRAN trademark and mafran formula, except
when a dissolution of the Party of the Second Part, voluntary or otherwise, eventually arises, in which case then the
property rights and interests over said trademark and formula shall automatically revert the Party of the First Part.
Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent
patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce.
Thus, the last part of the second paragraph recites that the respondent patentee "assign, transfer and convey all its
property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second
Part," and the last paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and) in
no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula."
However, a perceptive analysis of the entire instrument and the language employed therein 3 would lead one to the
conclusion that what was actually ceded and transferred was only the use of the Mafran sauce formula. This was the
precise intention of the parties, 4 as we shall presently show.
Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO (2%) PER CENTUM
of the net annual profit" which the petitioner corporation may realize by and/or out of its production of Mafran sauce
and other food products, etc. The word "royalty," when employed in connection with a license under a patent, means
the compensation paid for the use of a patented invention.
'Royalty,' when used in connection with a license under a patent, means the compensation paid by the licensee to the
licensor for the use of the licensor's patented invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d
10, 16.) 5
Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized proliferation, it is
provided in paragraph 5-(a) of the Bill that the respondent patentee was to be appointed "chief chemist ... permanent in
character," and that in case of his "death or other disabilities," then his "heirs or assigns who may have necessary
qualifications shall be preferred to succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the
same respondent shall have and shall exercise absolute control and supervision over the laboratory assistants and

personnel and over the purchase and safekeeping of the chemicals and other mixtures used in the preparation of the
said product. All these provisions of the Bill of Assignment clearly show that the intention of the respondent patentee at
the time of its execution was to part, not with the formula for Mafran sauce, but only its use, to preserve the monopoly
and to effectively prohibit anyone from availing of the invention. 6
Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation eventually take place,
"the property rights and interests over said trademark and formula shall automatically revert to the respondent
patentee. This must be so, because there could be no reversion of the trademark and formula in this case, if, as
contended by the petitioner, the respondent patentee assigned, ceded and transferred the trademark and formula
and not merely the right to use it for then such assignment passes the property in such patent right to the petitioner
corporation to which it is ceded, which, on the corporation becoming insolvent, will become part of the property in the
hands of the receiver thereof. 7
Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred by virtue of the
Bill of Assignment is the "use of the formula" (and not the formula itself). This incontrovertible fact is admitted without
equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not require proof and cannot be contradicted." 8
The last part of paragraph 3 of the complaint and paragraph 3 of the answer are reproduced below for ready reference:
3. ... and due to these privileges, the plaintiff in return assigned to said corporation his interest and rights over the
said trademark and formula so that the defendant corporation could use the formula in the preparation and
manufacture of the mafran sauce, and the trade name for the marketing of said project, as appearing in said contract ....
3. Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint.
Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce formula by the
respondent patentee.
Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be interpreted to effect
"the least transmission of right," 9 and is there a better example of least transmission of rights than allowing or
permitting only the use, without transfer of ownership, of the formula for Mafran sauce.
The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually ceded and transferred
by the respondent patentee Magdalo V. Francisco, Sr. in favor of the petitioner corporation was only the use of the
formula. Properly speaking, the Bill of Assignment vested in the petitioner corporation no title to the formula. Without
basis, therefore, is the observation of the lower court that the respondent patentee "had been remiss in the compliance
of his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce."
2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr. was dismissed
from his position as chief chemist of the corporation without justifiable cause, and in violation of paragraph 5-(a) of the
Bill of Assignment which in part provides that his appointment is "permanent in character."
The petitioner submits that there is nothing in the successive memoranda issued by the corporate officers of the
petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the respondent patentee was being dismissed
from his position as chief chemist of the corporation. The fact, continues the petitioner, is that at a special meeting of
the board of directors of the corporation held on October 14, 1960, when the board decided to suspend operations of
the factory for two to four months and to retain only a skeletal force to avoid further losses, the two private
respondents were present, and the respondent patentee was even designated as the acting superintendent, and
assigned the mission of explaining to the personnel of the factory why the corporation was stopping operations
temporarily and laying off personnel. The petitioner further submits that exhibit B indicates that the salary of the
respondent patentee would not be paid only during the time that the petitioner corporation was idle, and that he could
draw his salary as soon as the corporation resumed operations. The clear import of this exhibit was allegedly entirely
disregarded by the respondent Court of Appeals, which concluded that since the petitioner resumed partial production
of Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief chemist, without

considering that the petitioner had to resume partial operations only to fill its pending orders, and that the respondents
were duly notified of that decision, that is, that exhibit B-1 was addressed to Ricardo Francisco, and this was made
known to the respondent Victoriano V. Francisco. Besides, the records will show that the respondent patentee had
knowledge of the resumption of production by the corporation, but in spite of such knowledge he did not report for
work.
The petitioner further submits that if the respondent patentee really had unqualified interest in propagating the product
he claimed he so dearly loved, certainly he would not have waited for a formal notification but would have immediately
reported for work, considering that he was then and still is a member of the corporation's board of directors, and insofar
as the petitioner is concerned, he is still its chief chemist; and because Ricardo Francisco is a son of the respondent
patentee to whom had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano
V. Francisco is his brother, the respondent patentee could not feign ignorance of the resumption of operations.
The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated December 29,
1960, the records will show that the petitioner was set to resume full capacity production only sometime in March or
April, 1961, and the respondent patentee cannot deny that in the very same month when the petitioner was set to
resume full production, he received a copy of the resolution of its board of directors, directing him to report
immediately for duty; that exhibit H, of a later vintage as it is dated February 1, 1961, clearly shows that Ricardo
Francisco was merely the acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing
of the present action for rescission. The designation of Ricardo Francisco as the chief chemist carried no weight because
the president and general manager of the corporation had no power to make the designation without the consent of the
corporation's board of directors. The fact of the matter is that although the respondent Magdalo V. Francisco, Sr. was
not mentioned in exhibit H as chief chemist, this same exhibit clearly indicates that Ricardo Francisco was merely the
acting chemist as he was the one assisting his father.
In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28, 1960 the secretarytreasurer of the corporation issued a memorandum (exh. B), duly approved by its president and general manager,
directing that only Ricardo Francisco be retained in the factory and that the salary of respondent patentee, as chief
chemist, be stopped for the time being until the corporation resumed operations. This measure was taken allegedly
because of the scarcity and high prices of raw materials. Five days later, however, or on December 3, the president and
general manager issued a memorandum (exh. B-1) ordering the respondent Victoria V. Francisco to report to the factory
and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the orders of the various
distributors and dealers of the corporation, and instructing him to take only the necessary daily employees without
employing permanent ones. Then on December 6, the same president and general manager issued yet another
memorandum (exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to recall all daily employees connected
with the production of Mafran sauce and to hire additional daily employees for the production of Porky Pops. Twentythree days afterwards, or on December 29, the same president and general manager issued still another memorandum
(exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as acting superintendent, to produce
Mafran sauce and, Porky Pops in full swing, starting January 2, 1961, with the further instruction to hire daily laborers in
order to cope with the full blast production. And finally, at the hearing held on October 24, 1961, the same president
and general manager admitted that "I consider that the two months we paid him (referring to respondent Magdalo V.
Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961 when the complaint for
rescission of the Bill of Assignment was filed. They clearly prove that the petitioner, acting through its corporate officers,
11 schemed and maneuvered to ease out, separate and dismiss the said respondent from the service as permanent chief
chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the
institution of the action for rescission, the petitioner corporation, thru its president and general manager, requested the
respondent patentee to report for duty (exh. 3), is of no consequence. As the Court of Appeals correctly observed, such
request was a "recall to placate said plaintiff."
3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote for ready reference
the following articles of the new Civil Code governing rescission of contracts:

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 of the Mortgage Law.
ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused.
At the moment, we shall concern ourselves with the first two paragraphs of article 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 fulfillment and rescission of the obligation, with payment of damages in either
case.
In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The
petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of
the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.
Upon the factual milieu, is rescission of the Bill of Assignment proper?
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement. 12 The
question of whether a breach of a contract is substantial depends upon the attendant circumstances. 13 The petitioner
contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary
remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same. However, in this case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the
permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. He was
dismissed without any fault or negligence on his part. Thus, apart from the legal principle that the option to demand
performance or ask for rescission of a contract belongs to the injured party, 14 the fact remains that the
respondents-appellees had no alternative but to file the present action for rescission and damages. It is to be
emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it
not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief
Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have
"absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of
said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of
the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job
and steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the
use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a
permanent status; the obligation of the said respondent patentee to continue research on the patent to improve the
quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants
and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said
product all these provisions of the Bill of Assignment are so interdependent that violation of one would result in
virtual nullification of the rest.

4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is
entitled to payment of his monthly salary of P300 from December 1, 1960, until the return to him of the Mafran
trademark and formula, arguing that under articles 1191, the right to specific performance is not conjunctive with the
right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the
respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that
the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law, when it is considered that
such holding would make the petitioner liable to pay respondent patentee's salary from December 1, 1960 to "kingdom
come," as the said holding requires the petitioner to make payment until it returns the formula which, the appellate
court itself found, the corporation never had; that, moreover, the fact is that the said respondent patentee refused to go
back to work, notwithstanding the call for him to return which negates his right to be paid his back salaries for
services which he had not rendered; and that if the said respondent is entitled to be paid any back salary, the same
should be computed only from December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already
formally called him back to work.
The above contention is without merit. Reading once more the Bill of Assignment in its entirety and the particular
provisions in their proper setting, we hold that the contract placed the use of the formula for Mafran sauce with the
petitioner, subject to defined limitations. One of the considerations for the transfer of the use thereof was the
undertaking on the part of the petitioner corporation to employ the respondent patentee as the Second Vice-President
and Chief Chemist on a permanent status, at a monthly salary of P300, unless "death or other disabilities supervened.
Under these circumstances, the petitioner corporation could not escape liability to pay the private respondent patentee
his agreed monthly salary, as long as the use, as well as the right to use, the formula for Mafran sauce remained with the
corporation.
5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the
respondents the trademark and formula for Mafran sauce, when both the decision of the appellate court and that of the
lower court state that the corporation is not aware nor is in possession of the formula for Mafran sauce, and the
respondent patentee admittedly never gave the same to the corporation. According to the petitioner these findings
would render it impossible to carry out the order to return the formula to the respondent patentee. The petitioner's
predicament is understandable. Article 1385 of the new Civil Code provides that rescission creates the obligation to
return the things which were the object of the contract. But that as it may, it is a logical inference from the appellate
court's decision that what was meant to be returned to the respondent patentee is not the formula itself, but only its
use and the right to such use. Thus, the respondents in their complaint for rescission specifically and particularly pray,
among others, that the petitioner corporation be adjudged as "without any right to use said trademark and formula."
ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court of Appeals is
modified to read as follows: "Wherefore the appealed decision is reversed. The Bill of Assignment (Exhibit A) is hereby
rescinded, and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. Francisco, Sr. the
right to the use of his Mafran sauce trademark and formula, subject-matter of the Bill of Assignment, and to this end the
defendant corporation and all its assigns and successors are hereby permanently enjoined, effective immediately, from
using in any manner the said Mafran sauce trademark and formula. The defendant corporation shall also pay to Magdalo
V. Francisco, Sr. his monthly salary of P300 from December 1, 1960, until the date of finality of this judgment, inclusive,
the total amount due to him to earn legal interest from the date of the finality of this judgment until it shall have been
fully paid, plus attorney's fees in the amount of P500, with costs against the defendant corporation." As thus modified,
the said judgment is affirmed, with costs against the petitioner corporation.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.
Teehankee J., took no part.
UP vs. De los Angeles
G.R. No. L-28602 September 29, 1970

REYES, J.B.L., J.:


Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be
annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP)
against the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The
first order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land
Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967,
adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights
or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied
reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction against the enforcement or implementation of the three (3)
questioned orders was issued by this Court, per its resolution on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an
institution of higher learning, to be operated and developed for the purpose of raising additional income for its support,
pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was
granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a
further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as
of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed
to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed
an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which
was approved by the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing
indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been
applied shall be paid by the DEBTOR in full no later than June 30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR
agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement
dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a
matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964
to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon
City), for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore
specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for
preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the
Land Grant.

That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take
over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was
awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but
were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary injunction; and, on 25 February 1966, respondent judge issued
the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara Lumber Company, Inc.,
and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14 January 1967,
declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara Lumber Company, Inc., to refrain
from exercising logging rights or conducting logging operations in the concession.
The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is embodied in Act 3608 and,
therefore, conclusively known, respondent ALUMCO did not deny the foregoing allegations in the petition. In its answer,
respondent corrected itself by stating that the period of the logging agreement is five (5) years - not seven (7) years, as it
had alleged in its second amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in
the court below, which maybe boiled down to: blaming its former general manager, Cesar Guy, in not turning over
management of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94; that it failed to pursue the
manner of payments, as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the
logs that it had cut turned out to be rotten and could not be sold to Sta. Clara Lumber Company, Inc., under its contract
"to buy and sell" with said firm, and which contract was referred and annexed to the "Acknowledgment of Debt and
Proposed Manner of Payments"; that UP's unilateral rescission of the logging contract, without a court order, was
invalid; that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the
management of Cesar Guy be first sold; that respondent was permitted to cut logs in the middle of June 1965 but
petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several offers to petitioner for
respondent to resume logging operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard
the same before any judicial pronouncement to that effect. Respondent ALUMCO contended, and the lower court, in
issuing the injunction order of 25 February 1966, apparently sustained it (although the order expresses no specific
findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms
that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or
effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping
Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract.

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort
to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary
case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court
that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely
does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively
sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal obligation, 1 since in every case where the extrajudicial
resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may
render nugatory the general rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol.
IV, page 140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter
the initiative of instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power of cancellation upon one contracting party, the Supreme
Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil;
Code is practically a reproduction), has repeatedly held that, a resolution of reciprocal or synallagmatic contracts may be
made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de
los obligados no cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este Tribunal, surge
immediatamente despuesque la otra parte incumplio su deber, sin necesidad de una declaracion previa de los
Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una "facultad" atribuida a la parte
perjudicada por el incumplimiento del contrato, la cual tiene derecho do opcion entre exigir el cumplimientoo la
resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por declaracion del acreedor, a
reserva, claro es, que si la declaracion de resolucion hecha por una de las partes se impugna por la otra, queda aquella
sometida el examen y sancion de los Tribunale, que habran de declarar, en definitiva, bien hecha la resolucion o por el
contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de las partes de su respectiva
prestacion, puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no
es impugnada en juicio luego con exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el cumplimientocon
la indemnizacion de danos y perjuicios realmente causados, siempre quese acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto,
definitivo o irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala, contenida en las

Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho intermedio, recogido del
Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that the complaint of petitioner University made out a prima
facie case of breach of contract and defaults in payment by respondent ALUMCO, to the extent that the court below
issued a writ of preliminary injunction stopping ALUMCO's logging operations, and repeatedly denied its motions to lift
the injunction; that it is not denied that the respondent company had profited from its operations previous to the
agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment"); that the excuses
offered in the second amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten
condition of the logs in private respondent's pond, which said respondent was in a better position to know when it
executed the acknowledgment of indebtedness, do not constitute on their face sufficient excuse for non-payment; and
considering that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of compensation in
damages, it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest
without first receiving evidence on the issues tendered by the parties, and in subsequently refusing to dissolve the
injunction, were in grave abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such
injunction, therefore, must be set aside.
For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals,
and the case is pending therein, this Court abstains from making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25 February 1966,
granting the Associated Lumber Company's petition for injunction, is hereby set aside. Let the records be remanded for
further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.
Araneta vs. Phil Sugar Estates
G.R. No. L-22558
May 31, 1967

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 above-mentioned 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.
Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and Castro, JJ., concur.
Songcuan vs. IAC
G.R. No. 75096 October 23, 1990
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 Residential-Commercial 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. Plaintiffsvendor-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. An alias 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. 58-69, 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.
Narvasa (Chairman,), Cruz, Gancayco and Grio-Aquino, JJ., concur.

Encarnacion vs. Baldomar


G.R. No. L-264
October 4, 1946
HILADO, J.:
Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street, Manila, some six years ago leased said
house to Jacinto Baldomar and her son, Lefrado Fernando, upon a month-to-month basis for the monthly rental of P35.
After Manila was liberated in the last war, specifically on March 16, 1945, and on April 7, of the same year, plaintiff
Singson Encarnacion notified defendants, the said mother and son, to vacate the house above-mentioned on or before
April 15, 1945, because plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff
had said offices before. Despite this demand, defendants insisted on continuing their occupancy. When the original
action was lodged with the Municipal Court of Manila on April 20, 1945, defendants were in arrears in the payment of
the rental corresponding to said month, the agrees rental being payable within the first five days of each month. That
rental was paid prior to the hearing of the case in the municipal court, as a consequence of which said court entered
judgment for restitution and payment of rentals at the rate of P35 a month from May 1, 1945, until defendants
completely vacate the premises. Although plaintiff included in said original complaint a claim for P500 damages per
month, that claim was waived by him before the hearing in the municipal court, on account of which nothing was said
regarding said damages in the municipal court's decision.
When the case reached the Court of First Instance of Manila upon appeal, defendants filed therein a motion to dismiss
(which was similar to a motion to dismiss filed by them in the municipal court) based upon the ground that the
municipal court had no jurisdiction over the subject matter due to the aforesaid claim for damages and that, therefore,
the Court of First Instance had no appellate jurisdiction over the subject matter of the action. That motion to dismiss
was denied by His Honor, Judge Mamerto Roxas, by order dated July 21, 1945, on the ground that in the municipal court
plaintiff had waived said claim for damages and that, therefore, the same waiver was understood also to have been
made in the Court of First Instance.lawphil.net
In the Court of First Instance the graveman of the defense interposed by defendants, as it was expressed defendant
Lefrado Fernando during the trial, was that the contract which they had celebrated with plaintiff since the beginning
authorized them to continue occupying the house indefinetly and while they should faithfully fulfill their obligations as
respects the payment of the rentals, and that this agreement had been ratified when another ejectment case between
the parties filed during the Japanese regime concerning the same house was allegedly compounded in the municipal
court. The Court of First Instance gave more credit to plaintiff's witness, Vicente Singson Encarnacion, jr., who testified
that the lease had always and since the beginning been upon a month-to-month basis. The court added in its decision
that this defense which was put up by defendant's answer, for which reason the Court considered it as indicative of an
eleventh-hour theory. We think that the Court of First Instance was right in so declaring. Furthermore, carried to its
logical conclusion, the defense thus set up by defendant Lefrado Fernando would leave to the sole and exclusive will of
one of the contracting parties (defendants in this case) the validity and fulfillment of the contract of lease, within the
meaning of article 1256 of the Civil Code, since the continuance and fulfillment of the contract would then depend solely
and exclusively upon their free and uncontrolled choice between continuing paying the rentals or not, completely
depriving the owner of all say in the matter. If 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, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil.,
100.)

During the pendency of the appeal in the Court of First Instance and before the judgment appealed from was rendered
on October 31, 1945, the rentals in areas were those pertaining to the month of August, 1945, to the date of said
judgment at the rate of P35 a month. During the pendency of the appeal in that court, certain deposits were made by
defendants on account of rentals with the clerk of said court, and in said judgment it is disposed that the amounts thus
deposited should be delivered to plaintiff.
Upon the whole, we are clearly of opinion that the judgment appealed from should be, as it is hereby, affirmed, with the
costs of the three instances to appellants. So ordered.
Paras, Pablo, Perfecto and Padilla, JJ., concur.
Lambert vs. Fox
G.R. No. L-7991

January 29, 1914

MORELAND, J.:
This is an action brought to recover a penalty prescribed on a contract as punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail book and stationery business, found itself in
such condition financially that its creditors, including the plaintiff and the defendant, together with many others, agreed
to take over the business, incorporate it and accept stock therein in payment of their respective credits. This was done,
the plaintiff and the defendant becoming the two largest stockholders in the new corporation called John R. Edgar & Co.,
Incorporated. A few days after the incorporation was completed plaintiff and defendant entered into the following
agreement:
Whereas the undersigned are, respectively, owners of large amounts of stock in John R. Edgar and Co, Inc; and,
Whereas it is recognized that the success of said corporation depends, now and for at least one year next following, in
the larger stockholders retaining their respective interests in the business of said corporation:
Therefore, the undersigned mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of their
present holdings of stock in said John R. Edgar & Co. Inc., till after one year from the date hereof.
Either party violating this agreement shall pay to the other the sum of one thousand (P1,000) pesos as liquidated
damages, unless previous consent in writing to such sale, transfer, or other disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19, 1911, sold his stock in the said corporation to E. C.
McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R. Edgar & Co., Inc.
This sale was made by the defendant against the protest of the plaintiff and with the warning that he would be held
liable under the contract hereinabove set forth and in accordance with its terms. In fact, the defendant Foz offered to
sell his shares of stock to the plaintiff for the same sum that McCullough was paying them less P1,000, the penalty
specified in the contract.
The learned trial court decided the case in favor of the defendant upon the ground that the intention of the parties as it
appeared from the contract in question was to the effect that the agreement should be good and continue only until the
corporation reached a sound financial basis, and that that event having occurred some time before the expiration of the
year mentioned in the contract, the purpose for which the contract was made and had been fulfilled and the defendant
accordingly discharged of his obligation thereunder. The complaint was dismissed upon the merits.
It is argued here that the court erred in its construction of the contract. We are of the opinion that the contention is
sound. The intention of parties to a contract must be determined, in the first instance, from the words of the contract

itself. It is to be presumed that persons mean what they say when they speak plain English. Interpretation and
construction should by the instruments last resorted to by a court in determining what the parties agreed to. Where the
language used by the parties is plain, then construction and interpretation are unnecessary and, if used, result in making
a contract for the parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504.)
In the case cited the court said with reference to the construction and interpretation of statutes: "As for us, we do not
construe or interpret this law. It does not need it. We apply it. By applying the law, we conserve both provisions for the
benefit of litigants. The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and
interpretation come only after it has been demonstrated that application is impossible or inadequate without them.
They are the very last functions which a court should exercise. The majority of the law need no interpretation or
construction. They require only application, and if there were more application and less construction, there would be
more stability in the law, and more people would know what the law is."
What we said in that case is equally applicable to contracts between persons. In the case at bar the parties expressly
stipulated that the contract should last one year. No reason is shown for saying that it shall last only nine months.
Whatever the object was in specifying the year, it was their agreement that the contract should last a year and it was
their judgment and conviction that their purposes would not be subversed in any less time. What reason can give for
refusing to follow the plain words of the men who made the contract? We see none.
The appellee urges that the plaintiff cannot recover for the reason that he did not prove damages, and cites numerous
American authorities to the effect that because stipulations for liquidated damages are generally in excess of actual
damages and so work a hardship upon the party in default, courts are strongly inclined to treat all such agreements as
imposing a penalty and to allow a recovery for actual damages only. He also cites authorities holding that a penalty, as
such, will not be enforced and that the party suing, in spite of the penalty assigned, will be put to his proof to
demonstrate the damages actually suffered by reason of defendants wrongful act or omission.
In this jurisdiction penalties provided in contracts of this character are enforced . It is the rule that parties who are
competent to contract may make such agreements within the limitations of the law and public policy as they desire, and
that the courts will enforce them according to their terms. (Civil Code, articles 1152, 1153, 1154, and 1155; Fornow vs.
Hoffmeister, 6 Phil. Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs. Koch, 16 Phil. Rep., 1.) The
only case recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a penalty
stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and the court can see
that the person demanding the penalty has received the benefit of such or irregular performance. In such case the court
is authorized to reduce the penalty to the extent of the benefits received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and liquidated damages, so far as legal results are
concerned. Whatever differences exists between them as a matter of language, they are treated the same legally. In
either case the party to whom payment is to be made is entitled to recover the sum stipulated without the necessity of
proving damages. Indeed one of the primary purposes in fixing a penalty or in liquidating damages, is to avoid such
necessity.
It is also urged by the appelle in this case that the stipulation in the contract suspending the power to sell the stock
referred to therein is an illegal stipulation, is in restraint of trade and, therefore, offends public policy. We do not so
regard it. The suspension of the power to sell has a beneficial purpose, results in the protection of the corporation as
well as of the individual parties to the contract, and is reasonable as to the length of time of the suspension. We do not
here undertake to discuss the limitations to the power to suspend the right of alienation of stock, limiting ourselves to
the statement that the suspension in this particular case is legal and valid.
The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the plaintiff and against
the defendant for P1,000, with interest; without costs in this instance.
Arellano, C.J., Trent and Araullo, JJ., concur.

Eleizegui v. Manila Lawn Tennis Club


G.R. No. 967
May 19, 1903

ARELLANO, C. J.:
This suit concerns the lease of a piece of land for a fixed consideration and to endure at the will of the lessee. By the
contract of lease the lessee is expressly authorized to make improvements upon the land, by erecting buildings of both
permanent and temporary character, by making fills, laying pipes, and making such other improvements as might be
considered desirable for the comfort and amusement of the members.
With respect to the term of the lease the present question has arisen. In its decision three theories have been
presented: One which makes the duration depend upon the will of the lessor, who, upon one month's notice given to
the lessee, may terminate the lease so stipulated; another which, on the contrary, makes it dependent upon the will of
the lessee, as stipulated; and the third, in accordance with which the right is reversed to the courts to fix the duration of
the term.
The first theory is that which has prevailed in the judgment below, as appears from the language in which the basis of
the decision is expressed: "The court is of the opinion that the contract of lease was terminated by the notice given by
the plaintiff on August 28 of last year . . . ." And such is the theory maintained by the plaintiffs, which expressly rests
upon article 1581 of the Civil Code, the law which was in force at the time the contract was entered into (January 25,
1890). The judge, in giving to this notice the effect of terminating the lease, undoubtedly considers that it is governed by
the article relied upon by the plaintiffs, which is of the following tenor: "When the term has not been fixed for the lease,
it is understood to be for years when an annual rental has been fixed, for months when the rent is monthly. . . ." The
second clause of the contract provides as follows: "The rent of the said land is fixed at 25 pesos per month." (P. 11, Bill
of Exceptions.)
In accordance with such a theory, the plaintiffs might have terminated the lease the month following the making of the
contract at any time after the first month, which, strictly speaking, would be the only month with respect to which
they were expressly bound, they not being bound for each successive month except by a tacit renewal (art. 1566) an
effect which they might prevent by giving the required notice.
Although the relief asked for in the complaint, drawn in accordance with the new form of procedure established by the
prevailing Code, is the restitution of the land to the plaintiffs (a formula common to various actions), nevertheless the
action which is maintained can be no other than that of desahucio, in accordance with the substantive law governing the
contract. The lessor says article 1569 of the Civil Code may judicially dispossess the lessee upon the expiration of
the conventional term or of the legal term; the conventional term that is, the one agreed upon by the parties; the
legal term, in defect of the conventional, fixed for leases by articles 1577 and 1581. We have already seen what this legal
term is with respect to urban properties, in accordance with article 1581.
Hence, it follows that the judge has only to determine whether there is or is not conventional term. If there be a
conventional term, he can not apply the legal term fixed in subsidium to cover a case in which the parties have made no
agreement whatsoever with respect to the duration of the lease. In this case the law interprets the presumptive
intention of the parties, they having said nothing in the contract with respect to its duration. "Obligations arising from
contracts have the force of law between the contracting parties and must be complied with according to the tenor of
the contracts." (Art. 1091 of the Civil Code.)
The obligations which, with the force of law, the lessors assumed by the contract entered into, so far as pertaining to the
issues, are the following: "First. . . . They lease the above-described land to Mr. Williamson, who takes it on lease, . . . for

all the time the members of the said club may desire to use it . . . Third. . . . the owners of the land undertake to
maintain the club as tenant as long as the latter shall see fit, without altering in the slightest degree the conditions of
this contract, even though the estate be sold."
It is necessary, therefore, to answer the first question: Was there, or was there not, a conventional term, a duration,
agreed upon in the contract in question? If there was an agreed duration, a conventional term, then the legal term
the term fixed in article 1581 has no application; the contract is the supreme law of the contracting parties. Over and
above the general law is the special law, expressly imposed upon themselves by the contracting parties. Without these
clauses 1 and 3, the contract would contain no stipulation with respect to the duration of the lease, and then article
1581, in connection with article 1569, would necessarily be applicable. In view of these clauses, however, it can not be
said that there is no stipulation with respect to the duration of the lease, or that, notwithstanding these clauses, article
1581, in connection with article 1569, can be applied. If this were so, it would be necessary to hold that the lessors
spoke in vain that their words are to be disregarded a claim which can not be advanced by the plaintiffs nor upheld
by any court without citing the law which detracts all legal force from such words or despoils them of their literal sense.
It having been demonstrated that the legal term can not be applied, there being a conventional term, this destroys the
assumption that the contract of lease was wholly terminated by the notice given by the plaintiffs, this notice being
necessary only when it becomes necessary to have recourse to the legal term. Nor had the plaintiffs, under the contract,
any right to give such notice. It is evident that they had no intention of stipulating that they reserved the right to give
such notice. Clause 3 begins as follows: "Mr. Williamson, or whoever may succeed him as secretary of said club, may
terminate this lease whenever desired without other formality than that of giving a month's notice. The owners of the
land undertake to maintain the club as tenant as long as the latter shall see fit." The right of the one and the obligation
of the others being thus placed in antithesis, there is something more, much more, than the inclusio unius, exclusio
alterius. It is evident that the lessors did not intend to reserve to themselves the right to rescind that which they
expressly conferred upon the lessee by establishing it exclusively in favor of the latter.
It would be the greatest absurdity to conclude that in a contract by which the lessor has left the termination of the lease
to the will of the lessee, such a lease can or should be terminated at the will of the lessor.
It would appear to follow, from the foregoing, that, if such is the force of the agreement, there can be no other mode of
terminating the lease than by the will of the lessee, as stipulated in this case. Such is the conclusion maintained by the
defendant in the demonstration of the first error of law in the judgment, as alleged by him. He goes so far, under this
theory, as to maintain the possibility of a perpetual lease, either as such lease, if the name can be applied, or else as an
innominate contract, or under any other denomination, in accordance with the agreement of the parties, which is, in
fine, the law of the contract, superior to all other law, provided that there be no agreement against any prohibitive
statute, morals, or public policy.
It is unnecessary here to enter into a discussion of a perpetual lease in accordance with the law and doctrine prior to the
Civil Code now in force, and which has been operative since 1889. Hence the judgment of the supreme court of Spain of
January 2, 1891, with respect to a lease made in 1887, cited by the defendant, and a decision stated by him to have been
rendered by the Audiencia of Pamplona in 1885 (it appears to be rather a decision by the head office of land registration
of July 1, 1885), and any other decision which might be cited based upon the constitutions of Cataluna, according to
which a lease of more than ten years is understood to create a life tenancy, or even a perpetual tenancy, are entirely out
of point in this case, in which the subject-matter is a lease entered into under the provisions of the present Civil Code, in
accordance with the principles of which alone can this doctrine be examined.
It is not to be understood that we admit that the lease entered into was stipulated as a life tenancy, and still less as a
perpetual lease. The terms of the contract express nothing to this effect. They do, whatever, imply this idea. If the lease
could last during such time as the lessee might see fit, because it has been so stipulated by the lessor, it would last, first,
as long as the will of the lessee that is, all his life; second, during all the time that he may have succession, inasmuch
as he who contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question does not fall
within any of the cases in which the rights and obligations arising from a contract can not be transmitted to heirs, either
by its nature, by agreement, or by provision of law. Furthermore, the lessee is an English association.

Usufruct is a right of superior degree to that which arises from a lease. It is a real right and includes all the jus utendi and
jus fruendi. Nevertheless, the utmost period for which a usufruct can endure, if constituted in favor a natural person, is
the lifetime of the usufructuary (art. 513, sec. 1); and if in favor of juridical person, it can not be created for more than
thirty years. (Art. 515.) If the lease might be perpetual, in what would it be distinguished from an emphyteusis? Why
should the lessee have a greater right than the usufructuary, as great as that of an emphyteuta, with respect to the
duration of the enjoyment of the property of another? Why did they not contract for a usufruct or an emphyteusis? It
was repeatedly stated in the document that it was a lease, and nothing but a lease, which was agreed upon: "Being in
the full enjoyment of the necessary legal capacity to enter into this contract of lease . . . they have agreed upon the lease
of said estate . . . They lease to Mr. Williamson, who receives it as such. . . . The rental is fixed at 25 pesos a month. . . .
The owners bind themselves to maintain the club as tenant. . . . Upon the foregoing conditions they make the present
contract of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it must be for a determinate period. (Art.
1543.) By its very nature it must be temporary, just as by reason of its nature an emphyteusis must be perpetual, or for
an unlimited period. (Art. 1608.)
On the other hand, it can not be concluded that the termination of the contract is to be left completely at the will of the
lessee, because it has been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of obligations with a
term it has supplied the deficiency of the former law with respect to the "duration of the term when it has been left to
the will of the debtor," and provides that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is entitled to demand the performance, and a
debtor upon whom rests the obligation to perform the undertaking. In bilateral contracts the contracting parties are
mutually creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the rights
enumerated in article 1554, and is the debtor with respect to the obligations imposed by articles 1555 and 1561. The
term within which performance of the latter obligation is due is what has been left to the will of the debtor. This term it
is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the
judge the determination of this period, and not the unlawful detainer action which has been brought an action which
presupposes the expiration of the term and makes it the duty of the judge to simply decree an eviction. To maintain the
latter action it is sufficient to show the expiration of the term of the contract, whether conventional or legal; in order to
decree the relief to be granted in the former action it is necessary for the judge to look into the character and conditions
of the mutual undertakings with a view to supplying the lacking element of a time at which the lease is to expire. In the
case of a loan of money or a commodatum of furniture, the payment or return to be made when the borrower "can
conveniently do so" does not mean that he is to be allowed to enjoy the money or to make use of the thing indefinitely
or perpetually. The courts will fix in each case, according to the circumstances, the time for the payment or return. This
is the theory also maintained by the defendant in his demonstration of the fifth assignment of error. "Under article 1128
of the Civil Code," thus his proposition concludes, "contracts whose term is left to the will of one of the contracting
parties must be fixed by the courts, . . . the conditions as to the term of this lease has a direct legislative sanction," and
he cites articles 1128. "In place of the ruthless method of annihilating a solemn obligation, which the plaintiffs in this
case have sought to pursue, the Code has provided a legitimate and easily available remedy. . . . The Code has provided
for the proper disposition of those covenants, and a case can hardly arise more clearly demonstrating the usefulness of
that provision than the case at bar." (Pp. 52 and 53 of appellant's brief.)
The plaintiffs, with respect to this conclusion on the part of their opponents, only say that article 1128 "expressly refers
to obligations in contracts in general, and that it is well known that a lease is included among special contracts." But they
do not observe that if contracts, simply because special rules are provided for them, could be excepted from the
provisions of the articles of the Code relative to obligations and contracts in general, such general provisions would be
wholly without application. The system of the Code is that of establishing general rules applicable to all obligations and
contracts, and then special provisions peculiar to each species of contract. In no part of Title VI of Book IV, which treats
of the contract of lease, are there any special rules concerning pure of conditional obligations which may be stipulated in
a lease, because, with respect to these matters, the provisions of section 1, chapter 3, Title I, on the subject of

obligations are wholly sufficient. With equal reason should we refer to section 2, which deals with obligations with a
term, in the same chapter and title, if a question concerning the term arises out of a contract of lease, as in the present
case, and within this section we find article 1128, which decides the question.
The judgment was entered below upon the theory of the expiration of a legal term which does not exist, as the case
requires that a term be fixed by the courts under the provisions of article 1128 with respect to obligations which, as is
the present, are terminable at the will of the obligee. It follows, therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the court below with directions to enter a judgment of
dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club, without special allowance as to the
recovery of costs. So ordered.
Mapa and Ladd, JJ., concur.
Torres, J., disqualified.

Ong Guan Can v. Century Insurance


G.R. No. L-21196
February 6, 1924

JOHNSON, J.:
The only question presented by the appeal is whether or not the judgment by default rendered by the lower court
should be set aside and annulled. We think it should be, for the following reasons:
The action was commenced in the Court of First Instance of the City of Iloilo on the 15th day of May, 1923. Its purpose
was to recover an amount due on the policy of insurance issued by the defendant to the plaintiff. On the same day a
copy of the complaint was served upon the defendant, through its duly authorized representative in the City of Iloilo,
Messrs. Andrew & Co. The defendant filed its appearance with the clerk of the court on the 7th day of June, 1923. The
notice of appearance, it is alleged and not denied, was mailed at the City of Manila on the 2d day of June, 1923. On the
5th day of June, 1923, the attorneys for the plaintiff presented a motion praying that a judgment by default be rendered
against the defendant. Said motion was granted on the same day, and a judgment by default was duly entered. On the
8th day of June, 1923, the defendant, through its attorneys, filed a motion praying that the judge set aside said
judgment by default and permit the defendant to answer. Said motion recited that the said notice of appearance was
mailed at the City of Manila on the 2nd day of June, 1923, and that the steamship Vizcaya, carrying mails, including the
letter containing the notice of appearance on the 2d day of June, did not arrive at Iloilo in the usual course until after the
time had expired for filing its appearance, or on the 7th day of June, 1923, due to the fact that said ship encountered a
storm at sea. The lower court denied said motion on the 11th day of June, 1923, to which order the defendant duly
expected, and later presented another motion to the same effect, alleging and asserting that it had a valid and
meritorious defense to the cause of action presented by the plaintiff. Later the second motion was also denied, to which
the defendant also excepted. Some further proceedings were had in the lower court concerning the judgment by
default, which have no importance in the consideration of the question presented.
From the judgment by default of the lower court the defendant appealed and now alleges that it committed an error in
not granting the motions to set aside said judgment and permit the defendant to answer. It is admitted that the plaintiff
and defendant resided in the same province. Under paragraph 2 of section 392 of Act No. 190 it became the duty of the
defendant to appear within twenty days from the service of the summons. The summons was served on the 15th day of
May. The twenty days within which the defendant was required to appear expired on the 5th day of June. No
appearance was filed by the defendant until perhaps the 7th day of June. It is admitted that the defendant mailed its
appearance in the City of Manila on the 2d day of June, 1923. It is also a fact that mail, in the ordinary course, will arrive
at Iloilo from Manila in two days. The defendant mailed its appearance at a time when in the ordinary course of events it
would have reached the hand of the clerk of the court on or before the expiration of the time within which it was
obliged to make its appearance. The reason that the appearance did not reach its destination was due to a fact over

which the defendant had no control. The failure to make the appearance within the time prescribed by law was due to
no fault of the defendant. The defendant evidently made an honest effort to comply with the law. To render a judgment
against it under these circumstances would be to render a judgment against it without giving it an opportunity to be
heard.
It has been frequently decided that, if pleadings or other papers essential to a case are entrusted to the mails in due
season and under proper precaution and are lost or miscarried, it will be ground for vacating a judgment by default.
(Boyd vs. Williams and Overbaugh, 70 N.J. Law, 185; Corning vs. Tripp, 1 Howard's Practice [N.Y.], 14; Williams vs.
Richmond, etc. Railroad Co., 110 N. C., 466; Chicago, etc. Railway Co. vs. Eastham, 30 L.R.A. [N.S.], 740; 23 Cyc., 943; 15
Ruling Case Law, 708.)
A delay of mail, such as occurred in the present case, in our opinion amounts to accident or surprise for which
judgments by default may be set aside, especially when the defendant shows by affidavit or otherwise that he has a
valid and meritorious defense. The time fixed for filing papers in a cause is generally directory and the court always has it
in its power, in the exercise of a proper discretion, to extend the time fixed by law whenever the ends of justice would
seem to demand such an extension. (Wood vs. Fobes and Farnham, 5 Cal., 62.)
Considering the causes which prevented the defendant from making its appearance within the time prescribed by
subparagraph 2 of article 392 of Act No. 190 and considering its showing that, if permitted to answer, it has a
meritorious defense, we are of the opinion, and so decide, that the judgment by default rendered by the lower court
should be and is hereby set aside, and it is hereby ordered and decreed that the defendant's appearance be admitted
and that it be given ten days in which to answer from notice of this decision. And without any findings as to costs, it is so
ordered.
Araullo, C.J., Street, Malcolm, Avancea, Ostrand, Johns and Romualdez, JJ., concur.

Pamintuan vs. CA
G.R. No. L-28367 November 29, 1971

FERNANDO, J.:
The question before respondent Court of Appeals, as before us, is the right of private respondents, the lessors Llorente
O. Yarisantos and Lourdes O. Yarisantos, to rescind a contract of lease for nonpayment of rentals on time. The facts as
found by respondent Court left no doubt that there was indeed such a failure to do so on the part of petitioners,
Ruperto Tan and Pedro Pamintuan, respectively the lessees and sublessees Article 1659 of the Civil Code, which grants
the right to the lessor in the event of the failure on the part of the lessee to comply with his obligations, is thus
applicable. 1 So it was held by respondent Court of Appeals. We cannot do otherwise. We affirm.
The complaint for rescission was filed by private respondents who succeeded to the rights of the previous lessor,
Patrocinio A. Vda. de Gaerlan from which the disputed two lots situated in Sampaloc, Manila were, purchased. The lease
contract in favor of private petitioners Tan and Pamintuan provided for an agreed monthly rental of P15.00 payable
promptly at the end of every month for each lot or P30.00 for the two, the lease entered into on October 10, 1951 to
expire at the discretion of the lessee after twenty years. There was another provision that failure on the part of the
lessee to pay the rental for six consecutive months would automatically annul the contract. 2 The complaint for
rescission filed by private respondents as plaintiffs against petitioners as defendants on November 12, 1959 alleged that
with respect to the first lot, defendant, now petitioner, Ruperto Tan, was in arrears for the period of twelve months and,
with respect to the second lot, for a period of eight months. The judgment was in favor of private respondents as
plaintiffs, the contract of lease being rescinded by virtue of the above Civil Code provision.
An appeal was then taken to respondent Court of Appeals. It considered as "the one and only issue" whether
defendants, now petitioners, had violated the provision in the contract of lease as to the monthly rental being promptly

paid at the end of every month as claimed by plaintiffs, now private respondents. If they had not vioIated said provision,
as claimed by them in their answer to said complaint, then private respondents have no right to ask for the rescission or
annulment of the said contract of lease. 3
This is how respondent Court resolved the issue: "While claiming to have committed no such violations, [petitioners]
nevertheless admit that ['they] in their pleadings nor at any time during the trial, never claimed to have offered to pay
the rental at the end of each month beginning the month of October, 1958. On the contrary, they impliedly admitted in
their pleadings and they do now formally admit here, no such monthly payments were ever made' ... . With [their] above
admission that 'no such monthly payments were ever made' by them to [private respondents] it stands clear that they
violated the aforequoted provision of paragraph 2 of the contract of lease 'That the agreed monthly rental of [Fifteen
Pesos] (P15.00), Philippine Currency, payable promptly at the end of every month for each lot or Thirty Pesos (P30.00),
Philippine Currency for the two lots, shall be maintained, ... .' [So] clearly, said violation of lessees' ... obligation 'to pay
the price of the lease according to the terms stipulated' (Article 1657 of the New Civil Code), entitles [private
respondents] to rescind said contract of lease under Article 1659 of the same Code providing that 'If the lessor or the
lessee should not comply with the obligations set forth in articles 1654 and 1657, the aggrieved party may ask for the
rescission of the, contract and indemnification for damages or only the latter, allowing the contract to remain in force.' "
4
From the decision of respondent Court of Appeals of October 30, 1967 affirming the judgment of the lower court, a
petition for review was filed with this Tribunal. A careful perusal of the records of the case and the legal grounds in
support of this petition yields, the conclusion that no error of law could be imputed to respondent Court.
1. Much is made in the third error assigned of private respondents being bereft of the right to ask for rescission in view
of their refusal to recognize the existence of the lease contract. Such an argument was raised and rejected by
respondent Court of Appeals in these words: "Of course, we do not overlook' ... that the defense of the appellants
(against such failure to pay every months) is that the appellees as early as May, 1958, refused to recognize the existence
and/or binding effect of the lease contract, Exh. A and the appellees maintained this judicial stand until final decision
was had in the ejectment case, Civil Case No. 63700, with the Municipal Court of Manila in December, 1959 or a month
after they filed their complaint in these proceedings.' ... Refusal on plaintiffs' part to recognize the existence and/or
binding effect of the said lease contract Exhibit A is only like saying that the latter would not accept payment of rentals
thereunder. In such a situation, defendants' remedy is not to violate their own obligation under Exhibit A but to make
tender of payment of such rentals and, if refused, to make consignation thereof in court. ... .'" 5
Nor is this all that was said by respondent Court Appeals on the matter. Thus: "Defendants, however take exception to
the said remedy by rescission, contending that there is paragraph 3 of the said lease contract providing 'That failure on
the part of the [lessee] to pay rentals for six (6) consecutive months shall automatically annul this contract.' Defendants'
argument at page 20 of their brief runs thus: 'What good is there to grant the lessees a six-month period of grace if the
lessor can rescind the lease contract anyway, with but a month's failure pay the same rentals?' The aforequoted
argument was neatly answered by the lower court as follows: 'The right to rescind the contract pursuant to Article 1659
of the Code is different from the automatic annulment of same contract in accordance with the provision of paragraph 3
thereof. They arise from different cases and are based on different grounds. In making deposit rentals at six-month
intervals, the defendants prevent automatic cancellation of the contract but did not depress the owner to ask for the
rescission of the contract failure of the lessee to pay the stipulated rentals promptly at the end of every month. It was
never contemplated that the rentals were to be payable every six months, otherwise, there would have been no
necessity for the stipulation in paragraph 2 of the contract. Indeed, the intention that the lessee should pay rentals
monthly is emphasized by the provision that such rentals should be paid 'promptly at the end of every month' ... ." 6
2. It was likewise assigned as the second error that in view of a previous favorable decision by the Court of First Instance
of Manila of a consignation case filed by private petitioner Tan against private respondents to compel the latter to
accept the rentals at the rate of P15.00 monthly a well as another decision dismissing an ejectment suit by private
respondents against such petitioner, the principle of res adjudicata would apply. This point was, raised and decided
adversely against petitioner by respondent Court of Appeals thus: "Another contention of defendants that the
consignation and ejectment cases elsewhere referred to constitute res adjudicata or are a bar to the present action is

also without merit because the subject-matter and causes of action in the said cases are distinct from those in the
instant case." 7 Such a defense was thus unavailing. It did not suffice to preclude the operation of Article 1659. An
independent and separate cause of action had, as correctly stated by respondent Court, already come into being.
3. It would thus appear clear that the first error assigned to the effect that the contract of lease could not be rescinded is
devoid of merit. Article 1659 speaks in categorical language. Private respondents, as the aggrieved parties, had the right
to ask for rescission, there being a failure on the part of petitioners to comply with their obligations as lessee and
sublessee respectively. With the lessors having decided to avail themselves of such a right under the law, no court can
validly stand in the way of the enforcement thereof. That was what the lower court presided by the Honorable Judge
Conrado Vasquez, and respondent Court of Appeals did. To impute what was done by them as error would be to
disregard what the law so plainly commands.
An excerpt from an opinion in Malicsi v. Carpizo, 8 penned by Justice Barrera, is relevant. Thus: "And, Article 1659 of the
same Code expressly provides, among others, that if the lessee should not comply with his obligation of paying the price
(rental of the lease according to the terms stipulated), 'the aggrieved party may ask for the rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in force'. In the instant case, appellant
failed and refused to pay the monthly stipulated rental of the property subject matter of the aforementioned lease
contract for the months of January and February, 1958. Consequently, appellee had the right under said provision of the
Civil Code to bring, as he did, the present action for rescission of said Contract of Lease, and the trial court correctly
declared the rescission thereof. Appellant claims that she had not defaulted in the payment of said rental as no demand
to make payment was made on her by appellee. This is a question of fact which can not be raised here and the finding of
the lower court to this effect is binding on us.'" 9
That is all that need be said as to this petition for the review of the decision of respondent Court of Appeals complained
of, the last error assigned being obviously untenable, as no recovery would lie against private respondents and in favor
of petitioners on their counter-claim.
WHEREFORE, the decision of respondent Court of October 30, 1967 is affirmed. Costs against petitioners.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L. and Barredo, JJ., concur in the result.

Romero v. CA
G.R. No. 107207 November 23, 1995
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a
cause traceable to his own failure to have the squatters on the subject property evicted within the contractuallystipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation
of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided
to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was
made known to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land
measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT
No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and,
except for the presence of squatters in the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which
could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property
for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated
"Deed of Conditional Sale," was executed between petitioner and private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988
by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105
Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR;
-andVIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at
110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred
to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE
HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality
of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and
more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the
offer, subject to the terms and conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to
(sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators,
executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST
WHEREAS CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to
be paid upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days
after the removal of all squatters from the above described property.
3. Upon full payment of the overall purchase price as aforesaid, VENDOR without
necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver the
corresponding deed of absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days
from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from
the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by
the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase
price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY
after 45 days from written notification to the VENDEE of the removal of the squatters from the property
being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be
forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and
such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall
be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM,
Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for
P50,000.00 2 from petitioner. 3
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor
Musa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21
February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down
beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment
was issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since,
she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply
of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence considering the favorable decision
rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the
squatters from the premises of the subject property, for which reason, he proposes that he shall take it
upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof
shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989 within which to
relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the
writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's
willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the
Deed of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters from the
premises within the agreed 60-day period. He added that private respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very moment that there was a meeting
of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00.
Moreover, the contract had already been partially fulfilled and executed upon receipt of the
downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon
her inability to eject the squatters from the premises of subject property during the agreed period.
Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option or
prerogative to rescind the contract and to retain the property should she fail to comply with the
obligation she has assumed under the contract. In fact, a perusal of the terms and conditions of the
contract clearly shows that the right to rescind the contract and to demand the return/reimbursement
of the downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters
from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989
and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party.
Undoubtedly, under the circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the
premises of the subject property and her decision to retain the property was brought about by the
sudden increase in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to execute the absolute
Deed of Sale. 7
A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the
return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 894394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on
motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that
private respondent had no right to rescind the contract since it was she who "violated her obligation to eject the
squatters from the subject property" and that petitioner, being the injured party, was the party who could, under Article
1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters

within the stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in
paying the agreed purchase price, amounted to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely:
(1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p.
6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not
in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of
execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed
the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she
should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to
the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter
factor is simply factuitous (sic). 9
The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause
the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon
payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10 It
opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the
squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private
respondent substantially complied with her obligation to evict the squatters; that it was petitioner who was not ready to
pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day
period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring
the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-appellee to
accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court
below. No pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center
on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional 12 depending on whether the agreement is devoid of,
or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party
thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a
party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil
Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition
would prevent the juridical relation itself from coming into existence. 13
In determining the real character of the contract, the title given to it by the parties is not as much significant as its
substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute
in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally
rescind
the
contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14
The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of
an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the
other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed
purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is
the timely eviction of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a
specified thing or right to another (the buyer) over which the latter agrees. 15
The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio,
Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein
technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the
execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters
from the above described property."
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage
and law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of
the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive
that condition in consonance with Article 1545 of the Civil Code. 16This option clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a
"potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of
the Civil Code 17 but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the
squatters and government agencies and personnel concerned." 18 We must hasten to add, however, that where the socalled "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between
proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent
rule in the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on private
respondent to free the property from squatters. 20
In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of
resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other
party that violates the reciprocity between them. 22 It is private respondent who has failed in her obligation under the
contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of
the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of
23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of the deed of
absolute sale. Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the
sake of argument that such a demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat
private respondent's prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner
or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an
issue. Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demand its
reimbursement from private respondent nor may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is
entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to execute the
deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Panganiban, JJ., concur.

Ayson-Simon v. Adamos
G.R. No. L-39378 August 28, 1984

MELENCIO-HERRERA, J.:
Originally, this was an appeal by defendants from the Decision of the then Court of First Instance of Manila, Branch XX,
in Civil Case No. 73942, to the Court of Appeals (now Intermediate Appellate Court), which Tribunal, certified the case to
us because the issue is a pure question of law.
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-appellants herein, purchased two lots forming
part of the Piedad Estate in Quezon City, with an area of approximately 56,395 square meters, from Juan Porciuncula.
Sometime thereafter, the successors-in-interest of the latter filed Civil Case No. 174 in the then Court of First Instance of
Quezon City for annulment of the sale and the cancellation of Transfer Certificate of Title No. 69475, which had been
issued to defendants-appellants by virtue of the disputed sale. On December 18, 1963, the Court rendered a Decision
annulling the sale, cancelling TCT 69475, and authorizing the issuance of a new title in favor of Porciuncula's successorsin-interest. The said judgment was affirmed by the Appellate Court and had attained finality.
In the meantime, on May 29, 1946, during the pendency of the above-mentioned case, defendants-appellants sold to
GENEROSA Ayson Simon, plaintiff-appellee herein, the two lots in question for P3,800.00 each, plus an additional
P800.00 paid subsequently for the purpose of facilitating the issuance of new titles in GENEROSA's name. Due to the
failure of defendants-appellants to comply with their commitment to have the subdivision plan of the lots approved and
to deliver the titles and possession to GENEROSA, the latter filed suit for specific performance before the Court of First
Instance of Quezon City on September 4, 1963 (Civil Case No. Q-7275). On January 20, 1964, said Court ordered:
WHEREFORE, the plaintiff is declared entitled to a summary judgment and the defendants are hereby ordered to have
the subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block No. 3, relocated and resurveyed and the subdivision plan
approved and, if not possible for one reason or another, and in case of the absence or loss of said subdivision, to cause
and effect the subdivision of the said lots and deliver the titles and possession thereof to the plaintiff. As to the claim
and counterclaim for damages, let the hearing thereon be deferred until further move by the parties. 1
However, since execution of the foregoing Order was rendered impossible because of the judgment in Civil Case No.
174, which earlier declared the sale of the lots in question by Juan Porciuncula to defendants-appellants to be null and
void, GENEROSA filed, on August 16, 1968, another suit in the Court of First Instance of Manila (Civil Case No. 73942) for
rescission of the sale with damages. On June 7, 1969, the Court rendered judgment, the dispositive portion of which
reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against defendants, ordering the latter jointly and
severally, to pay the former the sum of P7,600.00, the total amount received by them from her as purchase price of the
two lots, with legal rate of interest from May 29, 1946 until fully paid; another sum of P800.00, with legal rate 6f interest
from August 1, 1966 until fully paid; the sum of P1,000 for attorney's fees; and the costs of this suit. 2
Hence, the appeal before the Appellate Court on the ground that GENEROSA's action had prescribed, considering that
she had only four years from May 29, 1946, the date of sale, within which to rescind said transaction, and that her
complaint for specific performance may be deemed as a waiver of her right to rescission since the fulfillment and
rescission of an obligation are alternative and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge, later Court of Appeals Associate Justice Luis B.
Reyes, correctly resolved the issues, reiterated in the assignments of error on appeal, as follows:

Defendants contend (1) that the fulfillment and the rescission of the obligation in reciprocal ones are alternative
remedies, and plaintiff having chosen fulfillment in Civil Case No. Q- 7525, she cannot now seek rescission; and (2) that
even if plaintiff could seek rescission the action to rescind the obligation has prescribed.
The first contention is without merit. The rule that the injured party can only choose between fulfillment and rescission
of the obligation, and cannot have both, applies when the obligation is possible of fulfillment. If, as in this case, the
fulfillment has become impossible, Article 1191 3 allows the injured party to seek rescission even after he has chosen
fulfillment.
True it is that in Civil Case No. 7275 the Court already rendered a Decision in favor of plaintiff, but since defendants
cannot fulfill their obligation to deliver the titles to and possession of the lots to plaintiff, the portion of the decision
requiring them to fulfill their obligations is without force and effect. Only that portion relative to the payment of
damages remains in the dispositive part of the decision, since in either case (fulfillment or rescission) defendants may be
required to pay damages.
The next question to determine is whether the action to rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the injured party may also seek rescission, if the fulfillment should become
impossible. The cause of action to claim rescission arises when the fulfillment of the obligation became impossible when
the Court of First Instance of Quezon City in Civil Case No. 174 declared the sale of the land to defendants by Juan
Porciuncula a complete nullity and ordered the cancellation of Transfer Certificate of Title No. 69475 issued to them.
Since the two lots sold to plaintiff by defendants form part of the land involved in Civil Case No. 174, it became
impossible for defendants to secure and deliver the titles to and the possession of the lots to plaintiff. But plaintiff had
to wait for the finality of the decision in Civil Case No. 174, According to the certification of the clerk of the Court of First
Instance of Quezon City (Exhibit "E-2"), the decision in Civil Case No. 174 became final and executory "as per entry of
Judgment dated May 3, 1967 of the Court of Appeals." The action for rescission must be commenced within four years
from that date, May 3, 1967. Since the complaint for rescission was filed on August 16, 1968, the four year period within
which the action must be commenced had not expired.
Defendants have the obligation to return to plaintiff the amount of P7,600.00 representing the purchase price of the
two lots, and the amount of P800.00 which they received from plaintiff to expedite the issuance of titles but which they
could not secure by reason of the decision in Civil Case No. 174. Defendant has to pay interest at the legal rate on the
amount of P7,600.00 from May 29, 1946, when they received the amount upon the execution of the deeds of sale, and
legal interest on the P800.00 from August 1, 1966, when they received the same from plaintiff. 4
WHEREFORE, the appealed judgment of the former Court of First Instance of Manila, Branch XX, in Civil Case No. 73942,
dated June 7, 1969, is hereby affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
Teehankee, Actg. C.J., Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ., concur.