Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118203 July 5, 1996

EMILIO A. SALAZAR and TERESITA DIZON, petitioners,
vs.
COURT OF APPEALS and JONETTE BORRES, respondents.

DAVIDE, JR., J.:p

Petitioners seek to set aside the decision 1 of 29 November 1994 of the Court of Appeals in CA-G.R. CV No.
40197, which reversed the decision 2 of 3 September 1992 of Branch 66 of the Regional Trial Court (RTC) of
Makati, Metro Manila, in Civil Case No. 89-4468.
The primary issues presented for our resolution are whether (a) the so-called Deed of Absolute Sale executed
by petitioner Emilio A. Salazar in favor of private respondent Jonette Borres is a perfected contract of sale or a
mere contract to sell, and (b) the action for specific performance which the latter filed will lie to compel the
former to deliver the Deed of Absolute Sale, the Transfer Certificates of Title, and other documents relative to
the property in question.
The factual antecedents of this case, as summarized by the trial court, are as follows:
That defendant Dr. Salazar is the owner of the two (2) parcels of land with improvements
thereon located at 2914 Finlandia Street, Makati, Metro Manila and covered by Transfer
Certificate of Title Nos. 31038 and 31039 of the Registry of Deeds of Makati; that Dr. Salazar
offered to sell his properties to Jonette Borres for One Million pesos (P1,000,000.00) (TSN pp. 7
and 8, November 5, 1991). The initial proposal took place at the Dimsum Restaurant, Makati,
whereby it was proposed that the payment of the consideration was to be made within six (6)
months but was objected to by Dr. Salazar and he reduced it to a three (3) months period (TSN
Direct Examination on Jonette Borres p. 22, November 12, 1991); that sometime on [May] 28,
1989, Jonette Borres together with a certain Emilio T. Salazar went to see Dr. Salazar at the
latter's residence in Bataan bearing a copy of a Deed of Absolute Sale (Exhibit ("C") and Deed
of Warranty (Exhibit "D") but Dr. Salazar refused to sign because Jonette Borres did not have
the money ready then. In said occasion Dr. Salazar further reduced the period within which
plaintiff may purchase the lots, to one (1) month or up to June 30, 1989 (TSN Direct
Examination on Jonette Borres November 5, [1991], pp. 10 and 11).
Jonette Borres then met again Dr. Salazar on June 2, 1989 at the Ninoy International Airport
who was about to leave for the United States of America where he is a resident. Jonette Borres
had with her the Deed of Absolute Sale and asked Dr. Salazar to sign said document. Dr.
Salazar reluctantly agreed to sign the document provided that Jonette Borres pays one half
(1/2) of the consideration or P500,000.00 in "cash" by June 15, 1989 and the balance was
payable on June 30, 1989 (TSN Direct Examination on Emilio A. Salazar, May 21, [1991], p. 9;
TSN Cross Examination on Jonette Borres, November 12, [1991], pp. 29 and 30). It was during
this occasion that Dr. Salazar again emphasized to Jonette Borres that he needed the money
because he was then buying a property in the United States (TSN pp. 15-20, November 5,
1991; pp. 22 and 23, May 21, 1991; and pp. 56-57, May 21, 1991).
Plaintiff agreed to the above conditions (TSN Cross Examination on Jonette Borres November
12, 1989, p. 32) and Dr. Salazar constituted co-defendant Teresa Dizon as custodian at the
Deed of Absolute Sale (Exhibit "C") together with the Titles of the Land in question with the
instruction to Teresa Dizon not to surrender said documents to Jonette Borres until upon
payment of the full price in "cash" (TSN Direct Examination on Emilio A. Salazar, May 21,
[1991], p. 11).
On June 14, 1989 Jonette Borres informed defendant Dizon that she will be able to pay the full
amount of P1,000,000.00 on June 15, 1989 (TSN Direct Examination Jonette Borres, November
5, [1991], p. 25) and on the next day, she then went to the house of Teresa Dizon to see and
get the documents entrusted to her by Dr. Salazar. The documents not being in Dizon's
possession, they agreed to meet at Metro Bank West Avenue Branch to get the documents and

then to proceed to Makati to meet the plaintiff's business partner a certain Balao who allegedly
gave plaintiff a Far East Bank and Trust Company check for the amount of P1,500,000.00
(Exhibit "F") with which to buy the property (TSN Direct Examination on Jonette Borres
November 5, [1991], pp. 30, 32 and 33). For some reason or another Jonette Borres and
defendant Dizon failed to proceed to Makati.
In the meantime or on June 16, 1992, Dr. Salazar made an overseas call to co-defendant Dizon
to inquire if Jonette Borres had already paid the down payment of P500,000.00 and Teresa
Dizon replied to Dr. Salazar that Jonette Borres had not paid the down payment. Dr. Salazar
then ordered Dizon to stop the sale (TSN Direct Examination on Emilio A. Salazar, May 21,
[1991], pp. 12 and 13).
As maybe seen from the evidence presented by the plaintiff and the defendants, the terms and
conditions of the agreement for the sale of the two (2) parcels of land owned by Dr. Salazar in
favor of the plaintiff Jonette Borres, are that the purchase price is in the amount of
P1,000,000.00, fifty percent (50%) of which or P500,000.00 was to paid on or before June 15,
1989 while the balance thereof was to be paid on or before June 30, 1989 (TSN May 21, 1991,
p. 27); that the payment was to be made in "cash" (TSN May 21, 1991, p. 55); that the place of
payment is at defendant's bank, Metropolitan Bank Quezon City Branch (TSN October 21,
1991, p. 23). 3
The trial court held that the Deed of Absolute Sale was in reality a contract to sell, and that since Borres failed
to pay Salazar the downpayment of P500,000.00 on the agreed date, 15 June 1989, the complaint for specific
performance cannot prosper. It then dismissed the complaint and ordered Borres to pay the petitioners
P5,000.00 each as attorney's fees and litigation expenses. 4
In ruling that the Deed of Absolute Sale was a contract to sell, the trial court considered pertinent the
circumstances attending its execution. First, that the Deed of Absolute Sale was "reluctantly signed" by Dr.
Salazar, who was then about to leave for the United States of America, in order that if Borres would comply
with the terms and conditions of their agreement, he need not come to the Philippines just to sign it; hence, it
does not bind Dr. Salazar until the suspensive condition, i.e., the downpayment of P500,000.00 to be effected
on or before 15 June 1989 and the balance to be paid on or before 30 June 1989, is complied with. Second,
Borres was not, in fact, financially prepared to buy the parcels of land on or before 15 June 1989 considering
that
[s]he was just looking for possible buyers or business partners. First, she requested that the
pertinent documents like the Deed of Sale (Exhibit "C") and the corresponding Transfer
Certificates of Titles Nos. 31038 and 31039 of the Register of Deeds of Rizal (Exhibits "A" and
"B") be entrusted to her even before making the downpayment of P500,000.00 purposely to
raise the amount needed. When Dr. Salazar refused her request, Jonette Borres approached a
certain businessman P.D. Dionisio for loan and was turned down when Jonette Borres cannot
[sic] produce the Deed of Absolute Sale and the Titles of the parcels of land in question (TSN
November 5, 1991, pp. 20-25). Then she approached a certain Benjamin Balao a realtor
developer. Although Balao had issued to her his check in the amount of P1,500,000.00 (Exhibit
"F") he instructed his bank not to honor his check without his presence (TSN November 14,
1991, pp. 81 to 84). Jonette Borres admitted that she was not in a position to encash the check
(Exhibit "F") although it was payable to "cash" (TSN November 21, 1991, pp. 41 and 44). 5
Salazar's victory was short-lived. On Borre's appeal from the decision of the trial court, the Court of Appeals, in
its challenged decision of 29 November 1994, ruled that the Deed of Absolute Sale, whose existence and due
execution was undisputed, is perfected contract of sale, with a definite object and a specific consideration
which the parties had agreed upon. As proof that it is a contract of sale and not a contract to sell, the Court of
Appeals stressed the absence of a proviso that the title to the property is reserved in the vendor until full
payment of the purchase price or that the vendor may unilaterally rescind the contract the moment the
vendee fails to pay within the fixed period. 6 Salazar's reluctance to sign it is of no moment, since there is no
allegation of fraud, forgery, or duress. And even assuming that Borres failed to pay the contract price, such
failure did not convert the contract into one without cause or consideration as to vitiate the validity of the
contract, it not being essential for the existence of cause that payment or full payment be made at the time of
the contract. Neither did such failure ipso facto resolve the contract in question. The remedy of the vendor, Dr.
Emilio A. Salazar, is to demand specific performance or rescission, with damages in either case. On the other
hand, the vendee, Jonette Borres, may demand specific performance, i.e., compel the vendor to accept the
price and deliver the title of the land object of the contract.
The Court of Appeals disagreed with the trial court's finding that Borres was not in a position to pay the
downpayment because
[o]n June 15, 1989, plaintiff-appellant had a Far East Bank check payable to her order, in the
amount of P1,500,000.00 more than the whole agreed purchase price of P1,000,000.00.
Defendant-appellee Teresa Dizon agreed (on June 14, 1989) to meet her on June 15, 1989, at
Metro Bank West and thereafter to proceed to Makati in order to encash the Far East Bank

check. Defendant-appellee Teresa Dizon somehow managed to manipulate things by making

herself unavailable so that the payment could not be made on June 15, 1989. (TSN, Nov. 5,
1991, pp. 27-41). On the next day, June 16, 1989, defendant-appellee Teresa Dizon informed
plaintiff-appellant that defendant-appellee Dr. Emilio A. Salazar called up in the evening of June
15, 1989 asking whether plaintiff-appellant paid on that day and upon being answered in the
negative, said vendor said that he is revoking the contract. (TSN, Nov. 5, 1991, pp. 41-42).
Defendant-appellee Teresa Dizon having her own interested buyer, evidently acted in bad faith,
tried and indeed succeeded to frustrate the efforts of plaintiff-appellant to comply with her
reciprocal obligation to pay the agreed purchase price.
The fact that the Far East Bank check was payable to the Order of plaintiff-appellant, and it
covers the amount of P1,500,000.00 which is much more than the agreed purchase price of
P1,000,000.00 reveals that plaintiff-appellant was financially prepared to comply with her
reciprocal obligation. That plaintiff-appellant filed the present suit for specific performance on
July 6, 1989, bolsters the fact that she is really willing and able to pay the agreed purchase
price. How and from whom she borrowed/obtained the said amount, is of no consequence. 7
Accordingly, the respondent Court reversed the decision of the trial court and handed down a new judgment
ordering Emilio A. Salazar to accept from Jonette Borres the payment representing the purchase price in the
amount of P1 million and thereafter to comply with his reciprocal obligation to surrender the original copies of
the deed of absolute sale and torrens title covering the parcels of land subject of the contract. Finding
petitioner Teresita Dizon to have "acted in bad faith in frustrating the efforts" of Borres to comply with her
obligation to pay the purchase price, the appellate court ordered her to pay Borres the amounts of P80,000.00
as moral damages; P50,000.00 as exemplary damages; and P100,000.00 as attorney's fees.
Unable to accept the reversal of the trial court's decision, the petitioners filed the instant petition wherein they
submit that the Court of Appeals committed grave and serious errors:
A. . . . in relying on the Deed of Absolute Sale dated May 30, 1989 notwithstanding the fact
that:
1. BORRES EXECUTED A DEED OF WARRANTY (EXHS. "D" AND "2") STATING THEREIN THAT
UNTIL AND UNLESS THE AMOUNT OF P1,000,000.00 REPRESENTING THE PURCHASE PRICE FOR
THAT PARCELS OF LAND COVERED BY TCT NOS. S-31038 AND S-31039 BE PAID BY HER TO
SALAZAR, SHE HAS NO RIGHT WHATSOEVER TO THE ORIGINAL COPIES OF THE DEED OF
ABSOLUTE SALE AND THAT SHE HAS NO LEGAL RIGHT WHATSOEVER TO ANY AND ALL
PERTINENT RECORDS OF THE ABOVE-MENTIONED LOTS;
2. UPON HERE BEHEST, BORRES WAS GIVEN A PHOTOCOPY OF THE DEED OF ABSOLUTE SALE
BY DIZON BUT ONLY AFTER THE LATTER ERASED THE SIGNATURE OF SALAZAR AS THE VENDEE
THEREIN.
3. BORRES HAD NOT PAID ANY PORTION OF THE AGREED PURCHASE PRICE AND THUS
RENDERS THE DEED OF ABSOLUTE SALE VOID AB INITIO.
B. . . . in concluding that the agreement between SALAZAR and BORRES is a contract of sale
and thus, perfected upon agreement on the subject matter and consideration, notwithstanding
the fact that:
1. THE AGREEMENT BETWEEN THE PARTIES IS ESSENTIALLY A CONTRACT TO SELL SUBJECT TO
A SUSPENSIVE CONDITION, THE BIRTH OR EFFECTIVITY OF WHICH SHOULD TAKE PLACE ONLY IF
AND WHEN THE EVENT WHICH CONSTITUTES THE CONDITION HAPPENS OR IS FULFILLED.
SINCE BORRES FAILED TO COMPLY WITH HER OBLIGATION, THE AGREEMENT TO SELL BECAME
STILLBORN;
2. THERE WAS AN EXPRESS AGREEMENT BETWEEN THE PARTIES THAT BORRES SHALL BE
ENTITLED TO THE PROPERTY OR ANY RECORDS PERTAINING THERETO OR ORIGINAL COPIES OF
THE DEED OF ABSOLUTE SALE ONLY UPON FULL PAYMENT OF THE PURCHASE PRICE.
C. . . . in holding that DIZON acted in bad faith and succeeded to frustrate the efforts of
BORRES to comply with her reciprocal obligation to pay the purchase price notwithstanding the
fact that:
1. AT THE TIME THAT BORRES WAS OBLIGED TO PAY AT LEAST 50% OF THE PURCHASE PRICE
OR ON JUNE 15, 1989, SHE WAS NOT READY, WILLING AND ABLE TO DO SO. EVEN ASSUMING
FOR THE SAKE OF ARGUMENT THAT THE LATTER HAD THE FINANCIAL CAPABILITY TO MEET HER
OBLIGATION, THE FACT REMAINS THAT SHE FAILED TO PROPERLY TENDER PAYMENT OF HER
OBLIGATION AND IN CASE TENDER OF PAYMENT WAS REFUSED, TO CONSIGN THE SAME IN
COURT;

2. DIZON HAD NO REASON TO FRUSTRATE THE EFFORTS OF BORRES TO COMPLY WITH HER
OBLIGATION TO PAY THE AGREED PURCHASE PRICE SINCE SHE WAS MERELY CONSTITUTED AS
CUSTODIAN OF THE DEED OF ABSOLUTE SALE AND TITLES OF THE PROPERTY WITH SPECIFIC
INSTRUCTIONS TO RELEASE THE SAME TO BORRES ONLY UPON RECEIPT OF THE PURCHASE
PRICE IN FULL AND IN CASH WITHIN THE AGREED PERIOD.
D. . . . in ordering Dizon to pay Borres the amount of P80,000.00 moral damages; P50,000.00
exemplary damages and P100,000.00 as attorney's fees by way of damages notwithstanding
the fact that the evidence adduced before the trial court clearly shows that BORRES had no
cause of action against the former. 8
We shall first the issue of whether the agreement between petitioner Salazar and private respondent Borres is
a contract of sale or a contract to sell.
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded; whereas in a contract to
sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is
a positive suspensive condition, failure of which is not a breach but an event prevents the obligation of the
vendor to convey title from becoming effective. 9
If we are to consider only the Deed of Absolute Sale, 10 we can easily say that the contract between Salazar
and Borres is one of sale. However, the Deed of Warranty 11 and the oral testimony on the circumstances
surrounding the execution of the Deed of Absolute Sale, as well as the other pieces of evidence submitted by
Borres, sustain the finding and conclusion of the trial court that the true agreement between the parties was a
contract to sell in that the true intent of Salazar was to transfer ownership of the property to Borres only after
the latter pays the full consideration.
From the beginning to the end, such intention of Salazar was unequivocal and manifest. He rejected Borre's
offer to pay the consideration within six months to give her time to secure a loan. When Borres proposed that
he lend her the certificates of title of the lots so that she could secure a loan from the banks in Manila and be
able to pay, within three months, 12 the consideration out of the proceeds of the loan, Salazar agreed provided
that she would assure him that the title would not pass to her until he is fully paid. Borres forthwith promised
to execute a warranty. She then prepared a Deed of Absolute Sale for Salazar's signature and a Deed of
Warranty for her signature. When finally she presented to him the Deed of Absolute Sale, Salazar did not sign it
and insisted that he be paid the purchase price at the end of June 1989; he further told her that he would not
lend her the certificates of title until he is so paid. He signed it only after Borres agreed to pay by the end of
June 1989 at a bank in Makati. But he did not give the Deed of Absolute Sale to her; instead, he told her to just
meet him at the Ninoy Aquino International Airport on 2 June 1989, when he would leave for the United States
of America, so she would know to whom he would entrust the document and other papers relative to the
property. We quote verbatim Borre's own testimony on direct examination upon these points:
Q Have you met the owner of the lot mentioned a while ago?
A Yes, your Honor, I met Dr. Salazar, the owner, sometime last week of April,
1989 at Dimsum Restaurant.
Q You met at Dimsum, in what particular place was that?
A We met at Dimsum Restaurant in Makati after I was called by Emilio T.
Salazar to meet at Dimsum because Dr. Salazar wanted to sell the property
and he wanted to talk to you [sic].
COURT:
Talk to you?
A To discuss the matter of sale to me at Dimsum Sir
ATTY. BORRES:
Q And so you really met at Dimsum.
A Yes, Ma'am.
Q What transpired at Dimsum?

A Dr. Salazar offered me to buy the properties for a total of ONE MILLION
PESOS (P1,000,000.00) excluding all and any other expenses that may be
involved in the transfer of the properties in case I am interested to by [sic], in
case Atty. Borres wanted to buy.
Q What then was your reply?
A I am interested to buy.
Q Dr. Salazar. . . I asked . . . what did Dr. Salazar say after that?
A I answered Dr. Salazar that I could buy or able to buy the properties within
six (6) months because I have to go home to the province to secure a loan.
Q What did Dr. Salazar say regarding your proposal?
A I told Dr. Salazar. Dr. Salazar said that he could not wait for that six (6)
months is a very long time.
Q What else did you say?
A I told Dr. Salazar that "it is possible I can pay within three (3) months' time if
your can lend me the title of your property because banks here in Manila
usually release loans in three months' time and I will have less problem to
complete the payment of ONE MILLION PESOS (P1,000,000.00)."
Q So, what did Dr. Salazar say?
A Dr. Salazar said that "if it is the best for our transaction I can lend you the
title provided I can be assured that the title will not pass on you until you are
fully paid.
Q What was your answer then?
A I told Dr. Salazar that I can execute a warranty to the effect that the property
could not be transferred to me until I have fully paid him.
Q What did Dr. Salazar say?
A Dr. Salazar said "I will agree to that"
COURT:
Dr. Salazar told you that he is agreeable to the proposal.
A Yes, Dr. Salazar said "you prepare a craft, the necessary document and bring
it to Bataan.
ATTY. BORRES:
Q And what was your answer to Dr. Salazar
A I answered Dr. Salazar that "I will be ever willing to go to Bataan any time
you wanted me to go.
Q And you really did go to Bataan.
A Yes, I did.
xxx xxx xxx
ATTY BORRES:
Q And what happened while there in Bataan?
xxx xxx xxx

Q And what happened while you got all seated in the sala of Dr. Salazar.
A I showed him a document which he instructed me to prepare and he has read
it and agreed to the Deed of Absolute Sale and the warranty I made. He gave
me back the documents for signing.
Q And you did sign the document?
A Yes, I did sign it and passed it on to Dr. Salazar.
Q After you passed it to Dr. Salazar, what happened?
A Dr. Salazar did not sign the document and told me that he is only going to
sign it if I am going to pay by the end of June and that he could not lend me
the title and he said he is going to sign it and not to give me a copy until the
purchase price is fully paid.
Q And what was your reaction with the statement?
A I said "what about the loan that we have a greed at Dimsum if you will not
lend me the title and the document that we have signed new?" Dr. Salazar said
"I could not lend you the title and I care less how your are going to loan the
property and raise the money you are going to pay me, what is important to
me is you pay me the whole amount of One Million Pesos (P1,000,000.00) not
late than June 30, 1989."
Q And what did you say?
A Since I could not do anything and I really wanted to buy the property, I
agreed to Dr. Salazar's condition that I pay the property by the end of June and
I will pay only at the bank in Makati.
Q And what did Dr. Salazar say?
A Dr. Salazar said "okey I will sign this and have this notarized but I could not
lend you and never have a [copy] of the title as well as the Deed of Sale and
you just wait oat NAIA and wait if you could have this document because I am
leaving on June 2 for the US. You meet me there".
Q And after that what did Dr. Salazar do?
A It was only when that he signed the document after I have agreed to his
proposal but he was very much stand [sic] to the payments and he was no
longer the same when I met him at Dimsum. 13
Clearly then, the original intention in the execution of the Deed of Absolute Sale was to implement the
proposal of Borres that Salazar "lend" her the transfer certificates of title so that she could secure a loan from
a bank in Manila whose proceeds would be applied to the payment of the purchase price of the property, and
the original purpose of the Deed of Warranty was to assure Salazar that, as demanded by him, title to the lots
will not pass to her until she pays the full consideration. The lending of the certificates of title for the above
purpose could have been accomplished through a special power of attorney under which Salazar will authorize
her to obtain a loan and to mortgage the property as security therefor. But, perhaps anticipating Salazar's
departure to the United States of America where he resides, Borres, who is a lawyer, prepared instead a Deed
of Absolute Sale and Deed of Warranty. Notwithstanding Borre's deliberate characterizations of the documents,
we are convinced that they were prepared in connection with and in the implementation of the agreement
regarding the lending of the certificates of title. They do not weaken the adamantine position of Salazar not to
part with his title to the two lots until full payment of the agreed price therefor. Borre's execution of the Deed
of Warranty was in fact a recognition of Salazar's position. Despite its careful wordings and phraseology to
make some sort of distinction between Borre's right to the ownership or title over the lots on the one hand,
and her right to possess or keep the Deed of Absolute Sale and the other documents relative to the lots, the
totality of the Deed of Warranty manifests an indubitable recognition by Borres of the aforementioned intention
of Salazar. She declares therein as follows:
1. That until and unless the amount of ONE MILLION (P1,000,000.00) PESOS representing the
purchase price for that parcels of land covered by Transfer Certificate of Title Nos. S-31038 and
S-31039 be paid by the undersigned unto Dr. Emilio A. Salazar, the undersigned has no
absolute right whatsoever to the original copies of the Deed of Absolute Sale executed by said
Dr. Emilio A. Salazar date May ____, 1989;

2. That she has no legal right whatsoever to any and all pertinent records of the
aforementioned lots;
3. That upon payment of the aforementioned amount, Dr. Emilio A. Salazar or his
representative is obliged to surrender the original of these presents together with all the
original documents and titles covering the sale of the aforementioned lots unto the
undersigned. 14
Then, too, in her Memorandum of Agreement with Monteland Realty Corporation, 15 dated 15 June 1989, Borres
explicitly mentioned only her "rights and interests" under the Deed of Absolute Sale signed by Salazar and
therein conveyed, transferred, and assigned to the said corporation only such "rights and interest." Also worth
noting is the statement in the second whereas clause of the Memorandum of Agreement that Monteland Realty
Corporation
has full knowledge of the sales [sic] and conditions of the SELLER-OWNER of the property . . .
that the buyer [Borres] has an obligation to pay DR. EMILIO SALAZAR the amount of ONE
MILLION PESOS (P1,000,000.00) and that there is already a Deed of Absolute Deed of [sic] Sale
in favor of [Borres] of which both copies of the titles of the properties for sale and all
documents including the Deed of Absolute Sale aforementioned are including the Deed of
Absolute Sale aforementioned are under the custody of MS. TERESA DIZON who will only
release the Title and the Deed of Absolute Sale after the obligation of [Borres] is fully
paid. 16
The withholding by Salazar through Dizon of the Deed of Absolute Sale, the certificates of title, and all other
documents relative to the lots is an additional indubitable proof that Salazar did not transfer to Borres either by
actual or constructive delivery the ownership of the two lots. While generally the execution of a deed of
absolute sale constitutes constructive delivery of ownership, the withholding by the vendor of that deed under
explicit agreement that it be delivered together with the certificates of titles to the vendee only upon the
latter's full payment of the consideration amounts to a suspension of the effectivity of the deed of sale as a
binding contract.
Undoubtedly, Salazar and Borres mutually agreed that despite the Deed of Absolute Sale title to the two lots in
question was not to pass to the latter until full payment of the consideration of P1 million. The form of the
instrument cannot prevail over the true intent of the parties as established by the evidence.
Accordingly, since Borres was unable to pay the consideration, which was a suspensive condition, Salazar
cannot be compelled to deliver to her the deed of sale, certificates of title, and other documents concerning
the two lots. In other words, no right in her favor and no corresponding obligation on the part of Salazar were
created. Article 1181 of the Civil Code provides:
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired shall depend upon the happening of the event which constitutes the
condition.
Even granting for the sake of argument that, as ruled by the court of Appeals, the agreement of Salazar and
Borres as evidenced by the Deed of Absolute Sale was a perfected contract of sale, Borre's action for specific
performance must likewise fail. We are in full accord with the trial court and, perforce, disagree with the Court
of Appeals, that Borres was not ready to pay P500,000.00 on or before 15 June 1989. That Borres had a check
of P1.5 million, or of more than the full consideration of the two lots, is of no moment. The check, 17 dated 15
June 1989, is a crossed check payable to "Atty. Jonette Borres," or herein private respondent. The crossing is of
simple type two parallel lines at the upper left hand corner without the words "and company" between the
lines. Accordingly, it cannot be paid to anyone except Borres, or it can be deposited with a bank where she
keeps an account. 18
There is absolutely no evidence that Borres encashed the check and tendered to Salazar thru Dizon the sum of
P500,000.00 on 15 June 1989. On the contrary, the check itself was cancelled as shown by the
word cancelledhandwritten across it. Moreover, the delivery of the check by Monteland Realty Corporation
through Balao was not unconditional. Per the receipt 19 Borres signed on 15 June 1989, encashment of the
check "it subject to the verifications as to the authenticity of documents pertaining to the subject property."
Neither is there evidence that Borres paid the downpayment on 15 June 1989 with money she got from other
sources. No payment appears to have been made thereafter or during the pendency of the case before the
trial court or the Court of Appeals. She should have consigned the payment in court pursuant to Article 1256 of
the Civil Code for her to be released from her obligation and, consequently, exact fulfillment by Salazar of his
corresponding obligation.
The challenged decision of the Court of Appeals must then be reversed. That of the trial court must be
affirmed, with the modification consisting in the deletion of the award of attorney's fees in favor of the
petitioners which we find to be without basis. The award of attorney's fees as damages is the exception rather
than the rule; it is not to be given to the defendant every time the latter prevails. The right to litigate is so

precious that a penalty should not be charged on those who may exercise it erroneously, unless, of course
such party acted in bad faith. 20
WHEREFORE, the instant petition is hereby GRANTED. The challenged decision of 29 November 1994 of the
Court of Appeals in CA-G.R. CV No. 40197 is REVERSED and SET ASIDE, and the decision of 3 September 1992
of Branch 66 of the Regional Trial Court of Manila in Civil Case No. 89-4468 is AFFIRMED, subject to the
modification that the award for attorney's fees is deleted.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 112127 July 17, 1995

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

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of
Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private
respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the
Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of
the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of
Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU
with the following annotations copied from the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment and use of
a medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way
encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under
obligation to erect a cornerstone bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the
action was filed the latter had not complied with the conditions of the donation. Private respondents also
argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it
did not violate any of the conditions in the deed of donation because it never used the donated property for
any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any
third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and
declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of
the property in favor of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of
petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the
donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the donor did not fix a period within which the condition
must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be
considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its
decision reversing the appealed decision and remanding the case to the court of origin for the determination of
the time within which petitioner should comply with the first condition annotated in the certificate of title.

Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the
certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be
fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of
prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of
the period within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation
executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring
the latter to erect schools, construct a children's playground and open streets on the land was considered an
onerous donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an
onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition
but a resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the owner of the land, otherwise, it would be
invading the property rights of the donor. The donation had to be valid before the fulfillment of the
condition. 5 If there was no fulfillment or compliance with the condition, such as what obtains in the instant
case, the donation may now be revoked and all rights which the donee may have acquired under it shall be
deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land donated,
depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When
petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time
within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has
been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed
of donation were sufficient to prevent the statute of limitations from barring the action of private
respondents upon the original contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of
the property donated cannot be specifically determined in the instant case. A cause of action arises when that
which should have been done is not done, or that which should not have been done is done. 7 In cases where
there is no special provision for such computation, recourse must be had to the rule that the period must be
counted from the day on which the corresponding action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the computation of the period. In this case, the
starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has
been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and improvements
on the property cannot be quantified in a specific number of years because of the presence of several factors
and circumstances involved in the erection of an educational institution, such as government laws and
regulations pertaining to education, building requirements and property restrictions which are beyond the
control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a
period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the
courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until
after the court has fixed the period for compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the different set of circumstances existing in the
instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of
the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of
the obligation when such procedure would be a mere technicality and formality and would serve no purpose
than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of
the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may
seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a
period. In the absence of any just cause for the court to determine the period of the compliance, there is no
more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights
and interests. 10 Records are clear and facts are undisputed that since the execution of the deed of donation up

to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner
has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to
declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee
should now return the donated property to the heirs of the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently,
petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144
covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-5003

June 27, 1953

NAZARIO TRILLANA, administrator-appellee,

vs.
QUEZON COLLEGE, INC., claimant-appellant.
Singson, Barnes, Yap and Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
PARAS, J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:
June 1, 1948
The BOARD OF TRUSTEES
Quezon College
Manila
Gentlemen:
Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of
P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng
isda) pesos as my initial payment and the balance payable in accordance with law and the rules and
regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares
of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees
of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at
ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
Nilagdaan sa aming harapan:
JOSE CRISOSTOMO
EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription
mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance
of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the
subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the
estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the
Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized
by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety
of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee,
there are other decisive considerations which, though not touched by the lower court, amply sustained the
appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a
general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in
accordance with law and the regulations of the College. On the other hand, in the letter actually sent by
Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did
not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli
ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment
suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge
during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced
in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to
express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential,
because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay
the price of the subscription after she had caused fish to be caught. In other words, the relation between
Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the
latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for
subscription fixing her own plan of payment, a relation, in the absence as in the present case of acceptance

by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an
enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative,
in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish,
a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the
obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the
condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it
should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in
accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it
would have served to create the obligation to pay, unlike a case, exemplified by Osmea vs. Rama (14 Phil.,
99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an
already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition,
facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole
obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.

PADILLA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and reversal of the
decision * of respondent Court of Appeals in CA-G.R. CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank
and Trust Company, et. al." dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court,
Branch 63, Makati in Civil Case No. 42712, a complaint for breach of contract with damages.
Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and Trust Company
(SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City for the price of P1,760,000.00. The
contract dated 4 February 1980 provided that Ferrer would finish the construction in two hundred (200)
working days. Respondent Ferrer was able to complete the construction of the building on 15 August 1980
(within the contracted period) but he was compelled by a drastic increase in the cost of construction materials
to incur expenses of about P300,000.00 on top of the original cost. The additional expenses were made known
to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as
March 1980. Respondent Ferrer made timely demands for payment of the increased cost. Said demands were
supported by receipts, invoices, payrolls and other documents proving the additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm
consulted by SBTC, verified Ferrer's claims for additional cost. A recommendation was then made to settle
Ferrer's claim but only for P200,000.00. SBTC, instead of paying the recommended additional amount, denied
ever authorizing payment of any amount beyond the original contract price. SBTC likewise denied any liability
for the additional cost based on Article IX of the building contract which states:
If at any time prior to the completion of the work to be performed hereunder, increase in prices
of construction materials and/or labor shall supervene through no fault on the part of the
contractor whatsoever or any act of the government and its instrumentalities which directly or
indirectly affects the increase of the cost of the project, OWNER shall equitably make the
appropriate adjustment on mutual agreement of both parties.
Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled for Ferrer and
ordered defendants SBTC and Rosito C. Manhit to pay:
a) P259,417.23 for the increase in price of labor and materials plus 12% interest thereon per
annumfrom 15 August 1980 until fully paid;
b) P24,000.00 as actual damages;
c) P20,000.00 as moral damages;
d) P20,000.00 as exemplary damages;
e) attorney's fees equivalent to 25% of the principal amount due; and
f) costs of suit.
On appeal, the Court of Appeals affirmed the trial court decision.
In the present petition for review, petitioners assign the following errors to the appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE
SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.

. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE

CONSTRUCTION CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT, THE
LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON
IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1
Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the price of
labor and/or materials resulting in an increase in construction cost above the stipulated contract price will not
automatically make petitioners liable to pay for such increased cost, as any payment above the stipulated
contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon
mutual agreement of both parties". It is contended that since there was no mutual agreement between the
parties, petitioners' obligation to pay amounts above the original contract price never materialized.
Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by
petitioners. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly refute the
arguments raised by petitioners, as the contents of said pleadings are mostly quoted portions of the decision
of the Court of Appeals, devoid of adequate discussion of the merits of respondent's case. The Court, to be
sure, expects more diligence and legal know-how from lawyers than what has been exhibited by counsel for
respondent in the present case. Under these circumstances, the Court had to review the entire records of this
case to evaluate the merits of the issues raised by the contending parties.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet lecupletari (no
man ought to be made rich out of another's injury) states:
Art. 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or
legal ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which
were formulated as "basic principles to be observed for the rightful relationship between human beings and for
the stability of the social order, . . . designed to indicate certain norms that spring from the fountain of good
conscience, . . . guides for human conduct [that] should run as golden threads through society to the end that
law may approach its supreme ideal which is the sway and dominance of justice." 2
In the present case, petitioners' arguments to support absence of liability for the cost of construction beyond
the original contract price are not persuasive.
Under the previously quoted Article IX of the construction contract, petitioners would make the appropriate
adjustment to the contract price in case the cost of the project increases through no fault of the contractor
(private respondent). Private respondent informed petitioners of the drastic increase in construction cost as
early as March 1980.
Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded
payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the bank's architectural
consultant were directed by the bank to verify and compute private respondent's claims of increased cost. A
recommendation was then made to settle private respondent's claim for P200,000.00. Despite this
recommendation and several demands from private respondent, SBTC failed to make payment. It denied
authorizing anyone to make a settlement of private respondent's claim and likewise denied any liability,
contending that the absence of a mutual agreement made private respondent's demand premature and
baseless.
Petitioners' arguments are specious.
It is not denied that private respondent incurred additional expenses in constructing petitioner bank's building
due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted liability for
increased cost when a recommendation was made to settle private respondent's claim for P200,000.00.
Private respondent's claim for the increased amount was adequately proven during the trial by receipts,
invoices and other supporting documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the
sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies
upon to support its non-liability for the increased construction cost, is in effect a condition dependent on
petitioner bank's sole will, since private respondent would naturally and logically give consent to such an
agreement which would allow him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the
construction even at an increased cost.

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction
cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such
unjust enrichment, as previously discussed, is not allowed by law.
Finally, with respect to the award of attorney's fees to respondent, the Court has previously held that, "even
with the presence of an agreement between the parties, the court may nevertheless reduce attorney's fees
though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable." 3 As
previously noted, the diligence and legal know-how exhibited by counsel for private respondent hardly justify
an award of 25% of the principal amount due, which would be at least P60,000.00. Besides, the issues in this
case are far from complex and intricate. The award of attorney's fees is thus reduced to P10,000.00.
WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed decision of
the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of
land for a cause traceable to his own failure to have the squatters on the subject property evicted within the
contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and
exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his
foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000
square meters. The project was made known to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of
land measuring 1,952 square meters. Located in Barangay San Dionisio, 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. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of
P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No.
7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of 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 so-called "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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 146839

March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGALWESSEL, Petitioners,
vs.
ANGEL S. RODRIGUEZ, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals
in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision, 1 which
affirmed the Decision2 dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu
in Civil Case No. 2365-L, and (b) the January 30, 2001 Resolution, 3 denying herein petitioners motion for
reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining
Order4 filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch
27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal
(the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with
an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 105 5 in her name situated in
the Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of
Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell 6 with
respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed
of Sale7 dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of
Sale were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (P25,000,000.00)
payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement,
receipt of which sum is hereby acknowledged in full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00) shall
be payable in five separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be
for FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the remaining balance to be
paid in four checks in the amounts of FIVE MILLION PESOS (P5,000,000.00) each after the VENDEE
have (sic) successfully negotiated, secured and provided a Road Right of Way consisting of 12 meters
in width cutting across Lot 10884 up to the national road, either by widening the existing Road Right of
Way or by securing a new Road Right of Way of 12 meters in width. If however said Road Right of Way
could not be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve
the problem by taking other options and should the situation ultimately prove futile, he shall take steps
to rescind or cancel the herein Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the
VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to
VENDEE, his heirs, successors and assigns, the real property described in the Original Certificate of Title No.
105 x x x.

xxxx
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind
the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice
relinquishing his rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but
contingent upon the event that the VENDOR shall have been able to sell the property to another party. 8
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and
plans and through his efforts, the property was reclassified from agricultural land into residential land which he
claimed substantially increased the propertys value. He likewise alleged that he actively negotiated for the
road right of way as stipulated in the contract.9
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance
of P5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground that
the amount was substantial and was not due under the terms of their agreement. Shortly after his refusal to
pay the advance, he purportedly learned that the Catungals were offering the property for sale to third
parties.10
Thereafter, Rodriguez received letters dated October 22, 1990, 11 October 24, 199012 and October 29, 1990,13all
signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about
buying the land or exercising his "option" to buy because the spouses Catungal allegedly received other offers
and they needed money to pay for personal obligations and for investing in other properties/business
ventures. Should Rodriguez fail to exercise his option to buy the land, the Catungals warned that they would
consider the contract cancelled and that they were free to look for other buyers.
In a letter dated November 4, 1990,14 Rodriguez registered his objections to what he termed the Catungals
unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to
negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract. Still, on
November 15, 1990, Rodriguez purportedly received a letter dated November 9, 1990 15 from Atty. Catungal,
stating that the contract had been cancelled and terminated.
Contending that the Catungals unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary
and unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses
Catungal], their employees, agents, representatives or other persons acting in their behalf from
offering the property subject of this case for sale to third persons; from entertaining offers or proposals
by third persons to purchase the said property; and, in general, from performing acts in furtherance or
implementation of defendants rescission of their Conditional Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed
by the court enjoining defendants and other persons acting in their behalf from performing any of the
acts mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and solidarily:
Actual damages in the amount of P400,000.00 for their unlawful rescission of the Agreement and their
performance of acts in violation or disregard of the said Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorneys fees in the amount
of P100,000.00; and
Costs of suit.16
On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of
preliminary injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show
cause within five days from notice why preliminary injunction should not be granted. The trial court likewise
ordered that summons be served on them.17
Thereafter, the spouses Catungal filed their opposition 18 to the issuance of a writ of preliminary injunction and
later filed a motion to dismiss19 on the ground of improper venue. According to the Catungals, the subject
property was located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu

City. Rodriguez opposed the motion to dismiss on the ground that his action was a personal action as its
subject was breach of a contract, the Conditional Deed of Sale, and not title to, or possession of real property. 20
In an Order dated January 17, 1991, 21 the trial court denied the motion to dismiss and ruled that the complaint
involved a personal action, being merely for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon
posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may
sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim 22 alleging that they had the
right to rescind the contract in view of (1) Rodriguezs failure to negotiate the road right of way despite the
lapse of several months since the signing of the contract, and (2) his refusal to pay the additional amount
of P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to purchase the property.
The Catungals likewise contended that Rodriguez did not have an exclusive right to rescind the contract and
that the contract, being reciprocal, meant both parties had the right to rescind. 23 The spouses Catungal further
claimed that it was Rodriguez who was in breach of their agreement and guilty of bad faith which justified their
rescission of the contract.24 By way of counterclaim, the spouses Catungal prayed for actual and consequential
damages in the form of unearned interests from the balance (of the purchase price in the amount)
of P24,500,000.00, moral and exemplary damages in the amount of P2,000,000.00, attorneys fees in the
amount of P200,000.00 and costs of suits and litigation expenses in the amount of P10,000.00.25 The spouses
Catungal prayed for the dismissal of the complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,26 retaining their basic allegations but amplifying their charges of
contractual breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191
of the Civil Code, the power to rescind reciprocal obligations is granted by the law itself to both parties and
does not need an express stipulation to grant the same to the injured party. In the Second Amended Answer
with Counterclaim, the spouses Catungal added a prayer for the trial court to order the Register of Deeds to
cancel the annotations of the two contracts at the back of their OCT. 27
On October 24, 1991, Rodriguez filed an Amended Complaint, 28 adding allegations to the effect that the
Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy the property
at the price of P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that
their Lot 10963 includes a flat portion of land which later turned out to be a separate lot (Lot 10986) owned by
Teodora Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly misrepresented that the
road right of way will only traverse two lots owned by Anatolia Tudtud and her daughter Sally who were their
relatives and who had already agreed to sell a portion of the said lots for the road right of way at a price
of P550.00 per square meter. However, because of the Catungals acts of offering the property to other buyers
who offered to buy the road lots for P2,500.00 per square meter, the adjacent lot owners were no longer willing
to sell the road lots to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per
square meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way,
the spouses Catungal allegedly intentionally and maliciously defeated Rodriguezs negotiations for a road right
of way in order to justify rescission of the said contract and enable them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an amended Answer, 29 the Catungals did not
file an amended Answer and instead filed an Urgent Motion to Dismiss 30 again invoking the ground of improper
venue. In the meantime, for failure to file an amended Answer within the period allowed, the trial court set the
case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals Urgent
Motion to Dismiss for violation of the rules and for being repetitious and having been previously
denied.31 However, Atty. Catungal refused to enter into pre-trial which prompted the trial court to declare the
defendants in default and to set the presentation of the plaintiffs evidence on February 14, 1992. 32
On December 23, 1991, the Catungals filed a motion for reconsideration 33 of the December 20, 1991 Order
denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3,
1992.34 Undeterred, the Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default 35 but it
was likewise denied for being in violation of the rules and for being not meritorious. 36 On February 28, 1992,
the Catungals filed a Petition for Certiorari and Prohibition37 with the Court of Appeals, questioning the denial of
their motion to dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the
contract it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguezs obligation to
pay the balance of the purchase price arises only upon successful negotiation of the road right of way; (c) he
proved his diligent efforts to negotiate the road right of way; (d) the spouses Catungal were guilty of
misrepresentation which defeated Rodriguezs efforts to acquire the road right of way; and (e) the Catungals
rescission of the contract had no basis and was in bad faith. Thus, the trial court made the injunction
permanent, ordered the Catungals to reduce the purchase price by the amount of acquisition of Lot 10963

which they misrepresented was part of the property sold but was in fact owned by a third party and ordered
them to pay P100,000.00 as damages, P30,000.00 as attorneys fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors
by the trial court in their appellants brief 38 dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER VENUE AND
LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL ACTION,
THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT
TIME THE DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN
COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES
OF ALL FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF
DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE
OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE
NULLITY OF THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND
FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR
OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI QUESTIONING
ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT
THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND DIVISION, AND
THE COURT A QUO WAS FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANTS
ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN
DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE. 39
On August 31, 1995, after being granted several extensions, Rodriguez filed his appellees brief, 40 essentially
arguing the correctness of the trial courts Decision regarding the foregoing issues raised by the Catungals.
Subsequently, the Catungals filed a Reply Brief41 dated October 16, 1995.
From the filing of the appellants brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were
represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N.
Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on September 2, 1997. 42 On
the same date, Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities 43 and a Citation of
Authorities.44 This would be followed by Atty. Borromeos filing of an Additional Citation of Authority and Second
Additional Citation of Authority both on November 17, 1997. 45
During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her
husband, Jose, filed on February 17, 1999 a motion for Agapitas substitution by her surviving children. 46
On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No. 40627
and CA-G.R. SP No. 27565,47 affirming the trial courts Decision.

In a Motion for Reconsideration dated August 21, 2000, 48 counsel for the Catungals, Atty. Borromeo, argued for
the first time that paragraphs 1(b) and 549 of the Conditional Deed of Sale, whether taken separately or jointly,
violated the principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was
void ab initio. He adverted to the cases mentioned in his various citations of authorities to support his
argument of nullity of the contract and his position that this issue may be raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution 50 was filed by Atty. Borromeo in view of the death of Jose
Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita
and Jose Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for review, 51 which
essentially argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the
Conditional Deed of Sale, violated the principle of mutuality of contracts under Article 1308 of the Civil Code.
Thus, said contract was supposedly void ab initio and the Catungals rescission thereof was superfluous.
In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new matters that cannot be passed
upon on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and petitioners cannot
be allowed to change theories on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale were
valid; and (d) petitioners were the ones who committed fraud and breach of contract and were not entitled to
relief for not having come to court with clean hands.
The Court gave due course to the Petition53 and the parties filed their respective Memoranda.
The issues to be resolved in the case at bar can be summed into two questions:
I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time
on appeal?
II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of
contracts under Article 1308 of the Civil Code?
On petitioners change of theory
Petitioners claimed that the Court of Appeals should have reversed the trial courts Decision on the ground of
the alleged nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same was
not raised as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court of
Appeals,54 petitioners argued in the Petition that this case falls under the following exceptions:
(3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a
just decision and complete resolution of the case or to serve the interest of justice or to avoid
dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed to raise or which the lower
court ignored;
(5) Matters not assigned as errors on appeal but closely related to an error assigned; and
(6) Matters not assigned as errors but upon which the determination of a question properly assigned is
dependent.55
We are not persuaded.
This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to argue
a material point on appeal that was raised in the trial court and supported by the record. Neither is this a case
where a party raised an error closely related to, nor dependent on the resolution of, an error properly assigned
in his brief. This is a situation where a party completely changes his theory of the case on appeal and
abandons his previous assignment of errors in his brief, which plainly should not be allowed as anathema to
due process.
Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the litigants
and to indicate fairly the nature of the claims or defenses of both parties. 56 In Philippine National Construction
Corporation v. Court of Appeals,57 we held that "[w]hen a party adopts a certain theory in the trial court, he will
not be permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the
other party but it would also be offensive to the basic rules of fair play, justice and due process." 58

We have also previously ruled that "courts of justice have no jurisdiction or power to decide a question not in
issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court
did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the
fundamental tenets of fair play."59
During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in the
Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent
upon the successful negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the option to
rescind (paragraph 5), were void for allegedly making the fulfillment of the contract dependent solely on the
will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its amended
versions) that the payment of the purchase price was subject to the will of Rodriguez but rather they claimed
that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate
the road right of way. However, it was petitioners theory that more than sufficient time had already been
given Rodriguez to negotiate the road right of way. Consequently, Rodriguezs refusal/failure to pay the
balance of the purchase price, upon demand, was allegedly indicative of lack of funds and a breach of the
contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs option to rescind, it was petitioners
theory in the court a quo that notwithstanding such provision, they retained the right to rescind the contract
for Rodriguezs breach of the same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of the
questioned provisions was only in their Motion for Reconsideration of the Court of Appeals Decision, affirming
the trial courts judgment. The previous filing of various citations of authorities by Atty. Borromeo and the
Court of Appeals resolutions noting such citations were of no moment. The citations of authorities merely
listed cases and their main rulings without even any mention of their relevance to the present case or any
prayer for the Court of Appeals to consider them.1wphi1 In sum, the Court of Appeals did not err in
disregarding the citations of authorities or in denying petitioners motion for reconsideration of the assailed
August 8, 2000 Decision in view of the proscription against changing legal theories on appeal.
Ruling on the questioned provisions of the Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we
still cannot uphold their belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the
spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a
certain price but the payment of the purchase price was additionally made contingent on the successful
negotiation of a road right of way. It is elementary that "[i]n conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition."60
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the
aforementioned provisions. Article 1308 states that "[t]he contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional
obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition
results in the failure of a contract, failure to comply with the second merely gives the other party the option to
either refuse to proceed with the sale or to waive the condition. 61 This principle is evident in Article 1545 of the
Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive performance of the condition
x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase
price when he has successfully negotiated and secured a road right of way, is not a condition on the perfection
of the contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308. It is
a condition imposed only on respondents obligation to pay the remainder of the purchase price. In our view
and applying Article 1182, such a condition is not purely potestative as petitioners contend. It is not dependent

on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom
the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise dependent on
chance as there is no guarantee that respondent and the third party-landowners would come to an agreement
regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182 of the Civil
Code.
Analogous to the present case is Romero v. Court of Appeals, 62 wherein the Court interpreted the legal effect of
a condition in a deed of sale that the balance of the purchase price would be paid by the vendee when the
vendor has successfully ejected the informal settlers occupying the property. In Romero, we found that such a
condition did not affect the perfection of the contract but only imposed a condition on the fulfillment of the
obligation to pay the balance of the purchase price, to wit:
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of
compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private
respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner
the right to either refuse to proceed with the agreement or waive that condition in consonance with Article
1545 of the Civil Code. This option clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does not
constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance
with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of the vendor alone but
also of third persons like the squatters and government agencies and personnel concerned." We must hasten
to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation
but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself. 63 (Emphases
supplied.)
From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee (Rodriguez)
that had the obligation to successfully negotiate and secure the road right of way. However, in the decision of
the trial court, which was affirmed by the Court of Appeals, it was found that respondent Rodriguez diligently
exerted efforts to secure the road right of way but the spouses Catungal, in bad faith, contributed to the
collapse of the negotiations for said road right of way. To quote from the trial courts decision:
It is therefore apparent that the vendees obligations (sic) to pay the balance of the purchase price arises only
when the road-right-of-way to the property shall have been successfully negotiated, secured and provided. In
other words, the obligation to pay the balance is conditioned upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New Civil Code. Accordingly, "an obligation dependent
upon a suspensive condition cannot be demanded until after the condition takes place because it is only after
the fulfillment of the condition that the obligation arises." (Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF
and JJ show that plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate for a road-right-of-way to
the property. The written offers, proposals and follow-up of his proposals show that plaintiff [Rodriguez] went
all out in his efforts to immediately acquire an access road to the property, even going to the extent of
offering P3,000.00 per square meter for the road lots (Exh. Q) from the original P550.00 per sq. meter. This
Court also notes that defendant (sic) [the Catungals] made misrepresentation in the negotiation they have
entered into with plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals]
as to the third lot (Lot 10986) to be part and parcel of the subject property [(]Lot 10963) contributed in
defeating the plaintiffs [Rodriguezs] effort in acquiring the road-right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of the condition in the contract as a ground for rescission
when defendants [the Catungals] themselves are guilty of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale by the
defendants is without any legal or factual basis. 64 x x x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for respondents
obligation to pay the balance of the purchase price to arise) in itself partly involves an obligation to do, i.e., the
undertaking of respondent to negotiate and secure a road right of way at his own expense. 65 It does not escape
our notice as well, that far from disclaiming paragraph 1(b) as void, it was the Catungals contention before the
trial court that said provision should be read in relation to paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to
secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the success of his endeavor, granting him a free hand in
negotiating for the passage.66 (Emphasis supplied.)
The Catungals interpretation of the foregoing stipulation was that Rodriguezs obligation to negotiate and
secure a road right of way was one with a period and that period, i.e., "enough time" to negotiate, had already

lapsed by the time they demanded the payment of P5,000,000.00 from respondent. Even assuming arguendo
that the Catungals were correct that the respondents obligation to negotiate a road right of way was one with
an uncertain period, their rescission of the Conditional Deed of Sale would still be unwarranted. Based on their
own theory, the Catungals had a remedy under Article 1197 of the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred
that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in court to fix the period within which
Rodriguez should accomplish the successful negotiation of the road right of way pursuant to the above quoted
provision. Thus, the Catungals demand for Rodriguez to make an additional payment of P5,000,000.00 was
premature and Rodriguezs failure to accede to such demand did not justify the rescission of the contract.
With respect to petitioners argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the
said contract void, we find no merit to this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind
the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice
relinquishing his rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but
contingent upon the event that the VENDOR shall have been able to sell the property to another party. 67
Petitioners posited that the above stipulation was the "deadliest" provision in the Conditional Deed of Sale for
violating the principle of mutuality of contracts since it purportedly rendered the contract subject to the will of
respondent.
We do not agree.
It is petitioners strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist a
correlation of such sentence with other provisions of the contract. Petitioners view, however, ignores a basic
rule in the interpretation of contracts that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly." The same
Code further sets down the rule that "[i]f some stipulation of any contract should admit of several meanings, it
shall be understood as bearing that import which is most adequate to render it effectual." 68
Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an instrument where there are
several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to
all"69 and "for the proper construction of an instrument, the circumstances under which it was made, including
the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in
the position of those whose language he is to interpret."70
Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5 must
be taken in relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguezs option to rescind the contract is not absolute as
it is subject to the requirement that there should be written notice to the vendor and the vendor shall only
return Rodriguezs downpayment of P500,000.00, without interest, when the vendor shall have been able to
sell the property to another party. That what is stipulated to be returned is only the downpayment
of P500,000.00 in the event that Rodriguez exercises his option to rescind is significant. To recall, paragraph
1(b) of the contract clearly states that the installments on the balance of the purchase price shall only be paid
upon successful negotiation and procurement of a road right of way. It is clear from such provision that the
existence of a road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior
to him being able to procure the road right of way, by express stipulation in the contract, he is not bound to
make additional payments to the Catungals. It was further stipulated in paragraph 1(b) that: "[i]f however said
road right of way cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and
solve the problem by taking other options and should the situation ultimately prove futile, he [Rodriguez] shall
take steps to rescind or [cancel] the herein Conditional Deed of Sale." The intention of the parties for providing
subsequently in paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the parties intended to
give Rodriguez the absolute option to rescind the sale at any time, the contract would have provided for the
return of all payments made by Rodriguez and not only the downpayment. To our mind, the reason only the
downpayment was stipulated to be returned is that the vendees option to rescind can only be exercised in the

event that no road right of way is secured and, thus, the vendee has not made any additional payments, other
than his downpayment.
In sum, Rodriguezs option to rescind the contract is not purely potestative but rather also subject to the same
mixed condition as his obligation to pay the balance of the purchase price i.e., the negotiation of a road right
of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance
of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the
choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering that
the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite the
lack of road access. This is the most just interpretation of the parties contract that gives effect to all its
provisions.
In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind,
in the manner provided for in the contract, is tantamount to a potestative condition, not being a condition
affecting the perfection of the contract, only the said condition would be considered void and the rest of the
contract will remain valid. In Romero, the Court observed that "where the so-called potestative condition is
imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving
unaffected the obligation itself."71
It cannot be gainsaid that "contracts have the force of law between the contracting parties and should be
complied with in good faith."72 We have also previously ruled that "[b]eing the primary law between the
parties, the contract governs the adjudication of their rights and obligations. A court has no alternative but to
enforce the contractual stipulations in the manner they have been agreed upon and written." 73 We find no
merit in petitioners contention that their parents were merely "duped" into accepting the questioned
provisions in the Conditional Deed of Sale. We note that although the contract was between Agapita Catungal
and Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the same. We concur
with the trial courts finding that the spouses Catungals claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose Catungal who was a practicing
lawyer while Rodriquez was a non-lawyer.74 It can be reasonably presumed that Atty. Catungal and his wife
reviewed the provisions of the contract, understood and accepted its provisions before they affixed their
signatures thereon.
After thorough review of the records of this case, we have come to the conclusion that petitioners failed to
demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy.
However, having made the observation that it was desirable for the Catungals to file a separate action to fix
the period for respondent Rodriguezs obligation to negotiate a road right of way, the Court finds it necessary
to fix said period in these proceedings. It is but equitable for us to make a determination of the issue here to
obviate further delay and in line with the judicial policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to negotiate a
road right of way. In the event no road right of way is secured by Rodriquez at the end of said period, the
parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale
and, for this purpose, they are given a period of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the expiration of
said period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return
of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of
Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as determined in
the RTC Decision dated May 30, 1992.
WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court of
Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the following
modification:
If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of this
Decision to negotiate a road right of way. In the event no road right of way is secured by respondent at the end
of said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course
of action. Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately
upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract,
subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the
Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 136054

September 5, 2001

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA, PACENCIA LAPINA, MARCELO LAPINA,
SEVERINO LAPINA, ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA assisted by husband
RODOLFO TOLEDO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, DOMINADOR SAN MIGUEL, GUILLERMO F. SAN ARTEMIO F.
SAN MIGUEL, PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by husband, ANTERO CELESTINO,
represented by their Attorney-in-Fact ENRICO CELESTINO, AUGUSTO SAN MIGUEL, ANTONIO SAN
MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN MIGUEL and LUCITA SAN MIGUEL, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari1 of the decision of the Court of Appeals,2 affirming that of the
Regional Trial Court, Cavite, Branch 19, Bacoor3 ordering petitioners, Heirs of Severina San Miguel (hereafter,
"Severina's heirs") to surrender to respondents Dominador San Miguel, et al. (hereafter, "Dominador, et al."),
Transfer Certificate of Title No. 223511 and further directing Severina's heirs to pay for the capital gains and
related expenses for the transfer of the two (2) lots to Dominador, et al.
The Facts
This case involves a parcel of land originally claimed by Severina San Miguel (petitioners' predecessor-ininterest, hereafter, "Severina"). The land is situated in Panapan, Bacoor, Cavite with an area of six hundred
thirty two square meters (632 sq. m.), more or less.
Without Severina's knowledge, Dominador managed to cause the subdivision of the land into three (3) lots, to
wit:4
"LRC Psu-1312 - with an area of 108 square meters;
"LRC Psu-1313 - Lot 1, with an area of 299 square meters;
"LRC Psu-1313 - Lot 2, with an area of 225 square meters."
On September 25, 1974, Dominador, et al. filed a petition with the Court of First Instance, Cavite, as a land
registration court, to issue title over Lots 1 and 2 of LRC Psu-1313, in their names. 5
On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a decision directing the
issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al.
On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of
the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from
her.6
On December 27, 1982, the court resolved to set aside the decision of July 19, 1977, and declared Original
Certificate of Title No. 0-1816 as null and void.
On July 13, 1987, the Register of Deeds of Cavite issued Transfer Certificate of Title No. T-223511 in the names
of Severina and her heirs.7
On February 15, 1990, the trial court issued an order in favor of Severina's heirs, to wit: 8
"WHEREFORE, as prayed for, let the writ of possession previously issued in favor of petitioner Severina
San Miguel be implemented."
However, the writ was returned unsatisfied.
On November 28, 1991, the trial court ordered: 9

"WHEREFORE, as prayed for, let an alias writ of demolition be issued in favor of petitioners, Severina
San Miguel."
Again, the writ was not satisfied.
On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and demolition and entered
into a compromise with Dominador, et al. According to the compromise, Severina's heirs were to sell the
subject lots10 to Dominador, et al. for one and a half million pesos (P1.5 M) with the delivery of Transfer
Certificate of Title No. T-223511 (hereafter, "the certificate of title") conditioned upon the purchase of another
lot 11 which was not yet titled at an additional sum of three hundred thousand pesos (P300,000.00). The
salient features of the compromise (hereafter "kasunduan") are:12
"5. Na ang Lot 1 at Lot 2, plano LRC Psu-1313 na binabanggit sa itaas na ipinagkasundo ng mga
tagapagmana ni Severina San Miguel na kilala sa kasulatang ito sa taguring LAPINA (representing
Severina's heirs), na ilipat sa pangalan nina SAN MIGUEL (representing Dominador's heirs) alang alang
sa halagang ISANG MILYON AT LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina SAN
MIGUEL kina LAPINA;
"6. Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na sakop ng plano LRC-Psu-1312, may
sukat na 108 metro cuadrado ay ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG
LIBONG PISO (P300,000.00);
"7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa
pagpapatitulo nito at sa paghahabol ng sino mang tao;
"8. Na ang nasabing halaga na TATLONG DAANG LIBONG PISO (P300,000.00) ay babayaran nina SAN
MIGUEL kina LAPINA sa loob ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi
mabayaran nina SAN MIGUEL ang nasabing halaga sa takdang panahon ay mawawalan ng kabuluhan
ang kasulatang ito;
"9. Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang owner's copy ng Transfer
Certificate of Title No. T-223511 na sumasakop sa Lots 1 at 2, plano LRC Psu-1313 ay ilalagay lamang
nina LAPINA kina SAN MIGUEL pagkatapos mabayaran ang nabanggit na P300,000.00"
On the same day, on August 6, 1993, pursuant to the kasunduan, Severina's heirs and Dominador, et al.
executed a deed of sale designated as "kasulatan sa bilihan ng lupa."13
On November 16, 1993, Dominador, et al. filed with the trial court, 14 Branch 19, Bacoor, Cavite, a motion
praying that Severina's heirs deliver the owner's copy of the certificate of title to them. 15
In time, Severina's heirs opposed the motion stressing that under the kasunduan, the certificate of title would
only be surrendered upon Dominador, et al.'s payment of the amount of three hundred thousand pesos
(P300,000.00) within two months from August 6, 1993, which was not complied with. 16
Dominador, et al. admitted non-payment of three hundred thousand pesos (P300,000.00) for the reason that
Severina's heirs have not presented any proof of ownership over the untitled parcel of land covered by LRCPsu-1312. Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio. 17
Dominador, et al. prayed that compliance with the kasunduan be deferred until such time that Severina's heirs
could produce proof of ownership over the parcel of land. 18
Severina's heirs countered that the arguments of Dominador, et al. were untenable in light of the provision in
the kasunduan where Dominador, et al. admitted their ownership over the parcel of land, hence dispensing
with the requirement that they produce actual proof of title over it. 19 Specifically, they called the trial court's
attention to the following statement in the kasunduan:20
"7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing lote na sakop ng plano LRC Psu1312 ay sina LAPINA at sila na ang magpapatitulo nito at sina LAPINA ay walang pananagutan sa
pagpapatitulo nito at sa paghahabol ng sino mang tao;"
According to Severina's heirs, since Dominador, et al. have not paid the amount of three hundred thousand
pesos (P300,000.00), then they were justified in withholding release of the certificate of title. 21
The trial court conducted no hearing and then rendered judgment based on the pleadings and memoranda
submitted by the parties.
The Trial Court's Ruling

On June 27, 1994, the trial court issued an order to wit: 22

"WHEREFORE, finding the Motion to Order to be impressed with merit, the defendants-oppositorsvendors Heirs of Severina San Miguel are hereby ordered to surrender to the movant-plaintiffsvendees-Heirs of Dominador San Miguel the Transfer Certificates of Title No. 223511 and for herein
defendants-oppositors-vendors to pay for the capital gains and related expenses for the transfer of the
two lots subject of the sale to herein movants-plaintiffs-vendees-Heirs of Dominador San Miguel."
"SO ORDERED."
On July 25, 1994, Severina's heirs filed with the trial court a motion for reconsideration of the afore-quoted
order.23
On January 23, 1995, the trial court denied the motion for reconsideration for lack of merit and further
ordered:24
"x x x . . . Considering that the Lots 1 and 2 covered by TCT No. T-223511 had already been paid since
August 6, 1993 by the plaintiffs-vendees Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng
Lupa, Rollo, pp. 174-176), herein defendants-vendors-Heirs of Severina San Miguel is hereby ordered
(sic) to deliver the aforesaid title to the former (Dominador San Miguel, et al.) within thirty (30) days
from receipt of this order. In case the defendants-vendors-Heirs of Severina San Miguel fail and refuse
to do the same, then the Register of Deeds of Cavite is ordered to immediately cancel TCT No. T223511 in the name of Severina San Miguel and issue another one in the name of plaintiffs Dominador
San Miguel, et al.
"Also send a copy of this Order to the Register of Deeds of the Province of Cavite, Trece Martires City,
for her information and guidance.
"SO ORDERED."
On February 7, 1995, Severina's heirs appealed the orders to the Court of Appeals. 25
The Court of Appeals' Ruling
On June 29, 1998, the Court of Appeals promulgated a decision denying the appeal, and affirming the decision
of the trial court. The Court of Appeals added that the other matters raised in the petition were "extraneous" to
the kasunduan.26 The Court of Appeals upheld the validity of the contract of sale and sustained the parties'
freedom to contract. The Court of Appeals decided, thus: 27
"WHEREFORE, the decision appealed from is hereby AFFIRMED.
"SO ORDERED."
On August 4, 1998, Severina's heirs filed with the Court of Appeals a motion for reconsideration of the above
decision.28 On October 14, 1998, the Court of Appeals denied the motion for reconsideration for lack of merit. 29
Hence, this appeal.30
The Issues
Severina's heirs submit that the Court of Appeals erred and committed grave abuse of discretion: First, when it
held that the kasunduan had no effect on the "kasulatan sa bilihan ng lupa." Second, when it ordered them to
surrender the certificate of title to Dominador, et al., despite non-compliance with their prior obligations
stipulated under the kasunduan. Third, when it did not find that the kasunduan was null and void for having
been entered into by Dominador, et al. fraudulently and in bad faith. 31
We find the above issues raised by Severina's heirs to be factual. The question whether the prerequisites to
justify release of the certificate of title to Dominador, et al. have been complied with is a question of fact. 32
However, we sift through the arguments and identify the main legal issue, which is whether Dominador, et al.
may be compelled to pay the three hundred thousand pesos (P300,000.00) as agreed upon in
the kasunduan (as a pre-requisite for the release of the certificate of title), despite Severina's heirs' lack of
evidence of ownership over the parcel of land covered by LRC Psu-1312.
The Court's Ruling
We resolve the issue in the negative, and find the petition without merit.

Severina's heirs anchor their claim on the kasunduan, stressing on their freedom to stipulate and the binding
effect of contracts. This argument is misplaced. 33 The Civil Code provides:
ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions
as they may deem convenient provided they are not contrary to law, morals, good customs, public
order or public policy (italics ours).
It is basic that the law is deemed written into every contract. 34 Although a contract is the law between the
parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and
govern the relations between the parties.35 The Civil Code provisions on "sales" state:
ARTICLE 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay a price certain in money or its
equivalent. . . .
ARTICLE 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
ARTICLE 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the
thing which is the object of sale (emphasis ours).
True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the
contract.36However, the vendor must possess title and must be able to transfer title at the time of delivery. In a
contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon
delivery of the thing sold.37
Under the facts of the case, Severina's heirs are not in a position to transfer title. Without passing on the
question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership
in favor of Severina's heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said
land in his name.38 Though tax declarations do not prove ownership of the property of the declarant, tax
declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a
period sufficient for prescription.39 Severina's heirs have nothing to counter this document.
Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina's
heirs' unjust enrichment.40 Basic is the principle in law, "Niguno non deue enriquecerse tortizamente condano
de otro."41 The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or
promised.42 In Nool v. Court of Appeals,43 we held that if the sellers cannot deliver the object of the sale to the
buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article
1405, No. 5 of the Civil Code, to wit:
ARTICLE 1405. The following contracts are inexistent and void from the beginning: . . .
(5) Those which contemplate an impossible service.
xxx

xxx

xxx

Severina's heirs insist that delivery of the certificate of title is predicated on a condition payment of three
hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not
meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code
provides that,
"Impossible conditions, those contrary to good customs or public policy and those prohibited by law
shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof
which is not affected by the impossible or unlawful condition shall be valid, x x x"
Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for
refusal to deliver the certificate of title.
Besides, we note that the certificate of title covers Lots 1 and 2 of LRC Psu-1313, which were fully paid for by
Dominador, et al. Therefore, Severina's heirs are bound to deliver the certificate of title covering the lots.
The Fallo
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 48430 is
AFFIRMED in toto.
No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 176625
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY and AIR TRANSPORTATION OFFICE, Petitioners,
vs.
BERNARDO L. LOZADA, SR., and the HEIRS OF ROSARIO MERCADO, namely, VICENTE LOZADA,
MARIO M. LOZADA, MARCIA L. GODINEZ, VIRGINIA L. FLORES, BERNARDO LOZADA, JR., DOLORES
GACASAN, SOCORRO CAFARO and ROSARIO LOZADA, represented by MARCIA LOZADA
GODINEZ, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse, annul, and set
aside the Decision1 dated February 28, 2006 and the Resolution2 dated February 7, 2007 of the Court of
Appeals (CA) (Cebu City), Twentieth Division, in CA-G.R. CV No. 65796.
The antecedent facts and proceedings are as follows:
Subject of this case is Lot No. 88-SWO-25042 (Lot No. 88), with an area of 1,017 square meters, more or less,
located in Lahug, Cebu City. Its original owner was Anastacio Deiparine when the same was subject to
expropriation proceedings, initiated by the Republic of the Philippines (Republic), represented by the then Civil
Aeronautics Administration (CAA), for the expansion and improvement of the Lahug Airport. The case was filed
with the then Court of First Instance of Cebu, Third Branch, and docketed as Civil Case No. R-1881.
As early as 1947, the lots were already occupied by the U.S. Army. They were turned over to the Surplus
Property Commission, the Bureau of Aeronautics, the National Airport Corporation and then to the CAA.
During the pendency of the expropriation proceedings, respondent Bernardo L. Lozada, Sr. acquired Lot No. 88
from Deiparine. Consequently, Transfer Certificate of Title (TCT) No. 9045 was issued in Lozadas name.
On December 29, 1961, the trial court rendered judgment in favor of the Republic and ordered the latter to pay
Lozada the fair market value of Lot No. 88, adjudged at P3.00 per square meter, with consequential damages
by way of legal interest computed from November 16, 1947the time when the lot was first occupied by the
airport. Lozada received the amount of P3,018.00 by way of payment.
The affected landowners appealed. Pending appeal, the Air Transportation Office (ATO), formerly CAA,
proposed a compromise settlement whereby the owners of the lots affected by the expropriation proceedings
would either not appeal or withdraw their respective appeals in consideration of a commitment that the
expropriated lots would be resold at the price they were expropriated in the event that the ATO would abandon
the Lahug Airport, pursuant to an established policy involving similar cases. Because of this promise, Lozada
did not pursue his appeal. Thereafter, Lot No. 88 was transferred and registered in the name of the Republic
under TCT No. 25057.
The projected improvement and expansion plan of the old Lahug Airport, however, was not pursued.
Lozada, with the other landowners, contacted then CAA Director Vicente Rivera, Jr., requesting to repurchase
the lots, as per previous agreement. The CAA replied that there might still be a need for the Lahug Airport to
be used as an emergency DC-3 airport. It reiterated, however, the assurance that "should this Office dispose
and resell the properties which may be found to be no longer necessary as an airport, then the policy of this
Office is to give priority to the former owners subject to the approval of the President."
On November 29, 1989, then President Corazon C. Aquino issued a Memorandum to the Department of
Transportation, directing the transfer of general aviation operations of the Lahug Airport to the Mactan
International Airport before the end of 1990 and, upon such transfer, the closure of the Lahug Airport.
Sometime in 1990, the Congress of the Philippines passed Republic Act (R.A.) No. 6958, entitled "An Act
Creating the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan
International Airport and the Lahug Airport to the Authority, Vesting the Authority with Power to Administer and
Operate the Mactan International Airport and the Lahug Airport, and For Other Purposes."

From the date of the institution of the expropriation proceedings up to the present, the public purpose of the
said expropriation (expansion of the airport) was never actually initiated, realized, or implemented. Instead,
the old airport was converted into a commercial complex. Lot No. 88 became the site of a jail known as Bagong
Buhay Rehabilitation Complex, while a portion thereof was occupied by squatters. 3 The old airport was
converted into what is now known as the Ayala I.T. Park, a commercial area.1avvphi1
Thus, on June 4, 1996, petitioners initiated a complaint for the recovery of possession and reconveyance of
ownership of Lot No. 88. The case was docketed as Civil Case No. CEB-18823 and was raffled to the Regional
Trial Court (RTC), Branch 57, Cebu City. The complaint substantially alleged as follows:
(a) Spouses Bernardo and Rosario Lozada were the registered owners of Lot No. 88 covered by TCT No.
9045;
(b) In the early 1960s, the Republic sought to acquire by expropriation Lot No. 88, among others, in
connection with its program for the improvement and expansion of the Lahug Airport;
(c) A decision was rendered by the Court of First Instance in favor of the Government and against the
land owners, among whom was Bernardo Lozada, Sr. appealed therefrom;
(d) During the pendency of the appeal, the parties entered into a compromise settlement to the effect
that the subject property would be resold to the original owner at the same price when it was
expropriated in the event that the Government abandons the Lahug Airport;
(e) Title to Lot No. 88 was subsequently transferred to the Republic of the Philippines (TCT No. 25057);
(f) The projected expansion and improvement of the Lahug Airport did not materialize;
(g) Plaintiffs sought to repurchase their property from then CAA Director Vicente Rivera. The latter
replied by giving as assurance that priority would be given to the previous owners, subject to the
approval of the President, should CAA decide to dispose of the properties;
(h) On November 29, 1989, then President Corazon C. Aquino, through a Memorandum to the
Department of Transportation and Communications (DOTC), directed the transfer of general aviation
operations at the Lahug Airport to the Mactan-Cebu International Airport Authority;
(i) Since the public purpose for the expropriation no longer exists, the property must be returned to the
plaintiffs.4
In their Answer, petitioners asked for the immediate dismissal of the complaint. They specifically denied that
the Government had made assurances to reconvey Lot No. 88 to respondents in the event that the property
would no longer be needed for airport operations. Petitioners instead asserted that the judgment of
condemnation was unconditional, and respondents were, therefore, not entitled to recover the expropriated
property notwithstanding non-use or abandonment thereof.
After pretrial, but before trial on the merits, the parties stipulated on the following set of facts:
(1) The lot involved is Lot No. 88-SWO-25042 of the Banilad Estate, situated in the City of Cebu,
containing an area of One Thousand Seventeen (1,017) square meters, more or less;
(2) The property was expropriated among several other properties in Lahug in favor of the Republic of
the Philippines by virtue of a Decision dated December 29, 1961 of the CFI of Cebu in Civil Case No. R1881;
(3) The public purpose for which the property was expropriated was for the purpose of the Lahug
Airport;
(4) After the expansion, the property was transferred in the name of MCIAA; [and]
(5) On November 29, 1989, then President Corazon C. Aquino directed the Department of
Transportation and Communication to transfer general aviation operations of the Lahug Airport to the
Mactan-Cebu International Airport Authority and to close the Lahug Airport after such transfer[.] 5
During trial, respondents presented Bernardo Lozada, Sr. as their lone witness, while petitioners presented
their own witness, Mactan-Cebu International Airport Authority legal assistant Michael Bacarisas.
On October 22, 1999, the RTC rendered its Decision, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the plaintiffs,
Bernardo L. Lozada, Sr., and the heirs of Rosario Mercado, namely, Vicente M. Lozada, Marcia L. Godinez,
Virginia L. Flores, Bernardo M. Lozada, Jr., Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada,
represented by their attorney-in-fact Marcia Lozada Godinez, and against defendants Cebu-Mactan
International Airport Authority (MCIAA) and Air Transportation Office (ATO):
1. ordering MCIAA and ATO to restore to plaintiffs the possession and ownership of their land, Lot No.
88 Psd-821 (SWO-23803), upon payment of the expropriation price to plaintiffs; and
2. ordering the Register of Deeds to effect the transfer of the Certificate of Title from defendant[s] to
plaintiffs on Lot No. [88], cancelling TCT No. 20357 in the name of defendant MCIAA and to issue a new
title on the same lot in the name of Bernardo L. Lozada, Sr. and the heirs of Rosario Mercado, namely:
Vicente M. Lozada, Mario M. Lozada, Marcia L. Godinez, Virginia L. Flores, Bernardo M. Lozada, Jr.,
Dolores L. Gacasan, Socorro L. Cafaro and Rosario M. Lozada.
No pronouncement as to costs.
SO ORDERED.6
Aggrieved, petitioners interposed an appeal to the CA. After the filing of the necessary appellate briefs, the CA
rendered its assailed Decision dated February 28, 2006, denying petitioners appeal and affirming in toto the
Decision of the RTC, Branch 57, Cebu City. Petitioners motion for reconsideration was, likewise, denied in the
questioned CA Resolution dated February 7, 2007.
Hence, this petition arguing that: (1) the respondents utterly failed to prove that there was a repurchase
agreement or compromise settlement between them and the Government; (2) the judgment in Civil Case No.
R-1881 was absolute and unconditional, giving title in fee simple to the Republic; and (3) the respondents
claim of verbal assurances from government officials violates the Statute of Frauds.
The petition should be denied.
Petitioners anchor their claim to the controverted property on the supposition that the Decision in the pertinent
expropriation proceedings did not provide for the condition that should the intended use of Lot No. 88 for the
expansion of the Lahug Airport be aborted or abandoned, the property would revert to respondents, being its
former owners. Petitioners cite, in support of this position, Fery v. Municipality of Cabanatuan, 7 which declared
that the Government acquires only such rights in expropriated parcels of land as may be allowed by the
character of its title over the properties
If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended or
abandoned the property shall return to its former owner, then, of course, when the purpose is terminated or
abandoned the former owner reacquires the property so expropriated. If x x x land is expropriated for a public
street and the expropriation is granted upon condition that the city can only use it for a public street, then, of
course, when the city abandons its use as a public street, it returns to the former owner, unless there is some
statutory provision to the contrary. x x x. If, upon the contrary, however, the decree of expropriation gives to
the entity a fee simple title, then, of course, the land becomes the absolute property of the expropriator,
whether it be the State, a province, or municipality, and in that case the non-user does not have the effect of
defeating the title acquired by the expropriation proceedings. x x x.
When land has been acquired for public use in fee simple, unconditionally, either by the exercise of eminent
domain or by purchase, the former owner retains no right in the land, and the public use may be abandoned,
or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any
reversion to the former owner. x x x.8
Contrary to the stance of petitioners, this Court had ruled otherwise in Heirs of Timoteo Moreno and Maria
Rotea v. Mactan-Cebu International Airport Authority,9 thus
Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the Decision in
Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors of respondent was
ordered under the running impression that Lahug Airport would continue in operation
As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan Airport
is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport: it is
handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it
on their flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan
Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is up
to the other departments of the Government to determine said matters. The Court cannot substitute its
judgment for those of the said departments or agencies. In the absence of such showing, the Court will
presume that the Lahug Airport will continue to be in operation (emphasis supplied).

While in the trial in Civil Case No. R-1881 [we] could have simply acknowledged the presence of public purpose
for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in its Decision
chose not to do so but instead prefixed its finding of public purpose upon its understanding that "Lahug Airport
will continue to be in operation." Verily, these meaningful statements in the body of the Decision warrant the
conclusion that the expropriated properties would remain to be so until it was confirmed that Lahug Airport
was no longer "in operation." This inference further implies two (2) things: (a) after the Lahug Airport ceased
its undertaking as such and the expropriated lots were not being used for any airport expansion project, the
rights vis--vis the expropriated Lots Nos. 916 and 920 as between the State and their former owners,
petitioners herein, must be equitably adjusted; and (b) the foregoing unmistakable declarations in the body of
the Decision should merge with and become an intrinsic part of the fallo thereof which under the premises is
clearly inadequate since the dispositive portion is not in accord with the findings as contained in the body
thereof.10
Indeed, the Decision in Civil Case No. R-1881 should be read in its entirety, wherein it is apparent that the
acquisition by the Republic of the expropriated lots was subject to the condition that the Lahug Airport would
continue its operation. The condition not having materialized because the airport had been abandoned, the
former owner should then be allowed to reacquire the expropriated property. 11
On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation suit
commenced upon parcels of land to be used as a site for a public market. Instead of putting up a public
market, respondent Cabanatuan constructed residential houses for lease on the area. Claiming that the
municipality lost its right to the property taken since it did not pursue its public purpose, petitioner Juan Fery,
the former owner of the lots expropriated, sought to recover his properties. However, as he had admitted that,
in 1915, respondent Cabanatuan acquired a fee simple title to the lands in question, judgment was rendered in
favor of the municipality, following American jurisprudence, particularly City of Fort Wayne v. Lake Shore &
M.S. RY. Co.,12McConihay v. Theodore Wright,13 and Reichling v. Covington Lumber Co.,14 all uniformly holding
that the transfer to a third party of the expropriated real property, which necessarily resulted in the
abandonment of the particular public purpose for which the property was taken, is not a ground for the
recovery of the same by its previous owner, the title of the expropriating agency being one of fee simple.
Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private property
shall not be taken for public use without just compensation. 15 It is well settled that the taking of private
property by the Governments power of eminent domain is subject to two mandatory requirements: (1) that it
is for a particular public purpose; and (2) that just compensation be paid to the property owner. These
requirements partake of the nature of implied conditions that should be complied with to enable the
condemnor to keep the property expropriated.16
More particularly, with respect to the element of public use, the expropriator should commit to use the
property pursuant to the purpose stated in the petition for expropriation filed, failing which, it should file
another petition for the new purpose. If not, it is then incumbent upon the expropriator to return the said
property to its private owner, if the latter desires to reacquire the same. Otherwise, the judgment of
expropriation suffers an intrinsic flaw, as it would lack one indispensable element for the proper exercise of the
power of eminent domain, namely, the particular public purpose for which the property will be devoted.
Accordingly, the private property owner would be denied due process of law, and the judgment would violate
the property owners right to justice, fairness, and equity.
In light of these premises, we now expressly hold that the taking of private property, consequent to the
Governments exercise of its power of eminent domain, is always subject to the condition that the property be
devoted to the specific public purpose for which it was taken. Corollarily, if this particular purpose or intent is
not initiated or not at all pursued, and is peremptorily abandoned, then the former owners, if they so desire,
may seek the reversion of the property, subject to the return of the amount of just compensation received. In
such a case, the exercise of the power of eminent domain has become improper for lack of the required factual
justification.17
Even without the foregoing declaration, in the instant case, on the question of whether respondents were able
to establish the existence of an oral compromise agreement that entitled them to repurchase Lot No. 88 should
the operations of the Lahug Airport be abandoned, we rule in the affirmative.
It bears stressing that both the RTC, Branch 57, Cebu and the CA have passed upon this factual issue and have
declared, in no uncertain terms, that a compromise agreement was, in fact, entered into between the
Government and respondents, with the former undertaking to resell Lot No. 88 to the latter if the improvement
and expansion of the Lahug Airport would not be pursued. In affirming the factual finding of the RTC to this
effect, the CA declared
Lozadas testimony is cogent. An octogenarian widower-retiree and a resident of Moon Park, California since
1974, he testified that government representatives verbally promised him and his late wife while the
expropriation proceedings were on-going that the government shall return the property if the purpose for the
expropriation no longer exists. This promise was made at the premises of the airport. As far as he could
remember, there were no expropriation proceedings against his property in 1952 because the first notice of
expropriation he received was in 1962. Based on the promise, he did not hire a lawyer. Lozada was firm that he

was promised that the lot would be reverted to him once the public use of the lot ceases. He made it clear that
the verbal promise was made in Lahug with other lot owners before the 1961 decision was handed down,
though he could not name the government representatives who made the promise. It was just a verbal
promise; nevertheless, it is binding. The fact that he could not supply the necessary details for the
establishment of his assertions during cross-examination, but that "When it will not be used as intended, it will
be returned back, we just believed in the government," does not dismantle the credibility and truthfulness of
his allegation. This Court notes that he was 89 years old when he testified in November 1997 for an incident
which happened decades ago. Still, he is a competent witness capable of perceiving and making his perception
known. The minor lapses are immaterial. The decision of the competency of a witness rests primarily with the
trial judge and must not be disturbed on appeal unless it is clear that it was erroneous. The objection to his
competency must be made before he has given any testimony or as soon as the incompetency becomes
apparent. Though Lozada is not part of the compromise agreement, 18 he nevertheless adduced sufficient
evidence to support his claim.19
As correctly found by the CA, unlike in Mactan Cebu International Airport Authority v. Court of Appeals, 20 cited
by petitioners, where respondent therein offered testimonies which were hearsay in nature, the testimony of
Lozada was based on personal knowledge as the assurance from the government was personally made to him.
His testimony on cross-examination destroyed neither his credibility as a witness nor the truthfulness of his
words.
Verily, factual findings of the trial court, especially when affirmed by the CA, are binding and conclusive on this
Court and may not be reviewed. A petition for certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not of fact.21 Not one of the exceptions to this rule is present in this case to warrant a
reversal of such findings.
As regards the position of petitioners that respondents testimonial evidence violates the Statute of Frauds,
suffice it to state that the Statute of Frauds operates only with respect to executory contracts, and does not
apply to contracts which have been completely or partially performed, the rationale thereof being as follows:
In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable
evidence of the intention of the contracting parties. The statute has precisely been enacted to prevent fraud.
However, if a contract has been totally or partially performed, the exclusion of parol evidence would promote
fraud or bad faith, for it would enable the defendant to keep the benefits already delivered by him from the
transaction in litigation, and, at the same time, evade the obligations, responsibilities or liabilities assumed or
contracted by him thereby.22
In this case, the Statute of Frauds, invoked by petitioners to bar the claim of respondents for the reacquisition
of Lot No. 88, cannot apply, the oral compromise settlement having been partially performed. By reason of
such assurance made in their favor, respondents relied on the same by not pursuing their appeal before the
CA. Moreover, contrary to the claim of petitioners, the fact of Lozadas eventual conformity to the appraisal of
Lot No. 88 and his seeking the correction of a clerical error in the judgment as to the true area of Lot No. 88 do
not conclusively establish that respondents absolutely parted with their property. To our mind, these acts were
simply meant to cooperate with the government, particularly because of the oral promise made to them.
The right of respondents to repurchase Lot No. 88 may be enforced based on a constructive trust constituted
on the property held by the government in favor of the former. On this note, our ruling in Heirs of Timoteo
Moreno is instructive, viz.:
Mactan-Cebu International Airport Authority is correct in stating that one would not find an express statement
in the Decision in Civil Case No. R-1881 to the effect that "the [condemned] lot would return to [the landowner]
or that [the landowner] had a right to repurchase the same if the purpose for which it was expropriated is
ended or abandoned or if the property was to be used other than as the Lahug Airport." This omission
notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have
been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein. No
doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the
manifest legal effect or consequence of the trial courts underlying presumption that "Lahug Airport will
continue to be in operation" when it granted the complaint for eminent domain and the airport discontinued its
activities.
The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in
Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in order to secure the performance
of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of
the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the
property to him." In the case at bar, petitioners conveyed Lots No. 916 and 920 to the government with the
latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the
government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners
would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated
when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect,
the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: "The only problem
of great importance in the field of constructive trust is to decide whether in the numerous and varying fact
situations presented to the courts there is a wrongful holding of property and hence a threatened unjust
enrichment of the defendant." Constructive trusts are fictions of equity which are bound by no unyielding
formula when they are used by courts as devices to remedy any situation in which the holder of legal title may
not in good conscience retain the beneficial interest.
In constructive trusts, the arrangement is temporary and passive in which the trustees sole duty is to transfer
the title and possession over the property to the plaintiff-beneficiary. Of course, the "wronged party seeking
the aid of a court of equity in establishing a constructive trust must himself do equity." Accordingly, the court
will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent
to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the
latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission. In the good judgment
of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the
property, his fixed costs for improvements thereon, and the monetary value of his services in managing the
property to the extent that plaintiff-beneficiary will secure a benefit from his acts.
The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent
MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil Code, "When the
conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment
of said conditions, shall return to each other what they have received x x x In case of the loss, deterioration or
improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding
article shall be applied to the party who is bound to return x x x." 23
On the matter of the repurchase price, while petitioners are obliged to reconvey Lot No. 88 to respondents, the
latter must return to the former what they received as just compensation for the expropriation of the property,
plus legal interest to be computed from default, which in this case runs from the time petitioners comply with
their obligation to respondents.
Respondents must likewise pay petitioners the necessary expenses they may have incurred in maintaining Lot
No. 88, as well as the monetary value of their services in managing it to the extent that respondents were
benefited thereby.
Following Article 118724 of the Civil Code, petitioners may keep whatever income or fruits they may have
obtained from Lot No. 88, and respondents need not account for the interests that the amounts they received
as just compensation may have earned in the meantime.
In accordance with Article 119025 of the Civil Code vis--vis Article 1189, which provides that "(i)f a thing is
improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x,"
respondents, as creditors, do not have to pay, as part of the process of restitution, the appreciation in value of
Lot No. 88, which is a natural consequence of nature and time. 26
WHEREFORE, the petition is DENIED. The February 28, 2006 Decision of the Court of Appeals, affirming the
October 22, 1999 Decision of the Regional Trial Court, Branch 87, Cebu City, and its February 7, 2007
Resolution are AFFIRMED with MODIFICATION as follows:
1. Respondents are ORDERED to return to petitioners the just compensation they received for the
expropriation of Lot No. 88, plus legal interest, in the case of default, to be computed from the time
petitioners comply with their obligation to reconvey Lot No. 88 to them;
2. Respondents are ORDERED to pay petitioners the necessary expenses the latter incurred in
maintaining Lot No. 88, plus the monetary value of their services to the extent that respondents were
benefited thereby;
3. Petitioners are ENTITLED to keep whatever fruits and income they may have obtained from Lot No.
88; and
4. Respondents are also ENTITLED to keep whatever interests the amounts they received as just
compensation may have earned in the meantime, as well as the appreciation in value of Lot No. 88,
which is a natural consequence of nature and time;
In light of the foregoing modifications, the case is REMANDED to the Regional Trial Court, Branch 57, Cebu City,
only for the purpose of receiving evidence on the amounts that respondents will have to pay petitioners in
accordance with this Courts decision. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16109

October 2, 1922

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of Tan Liuan &
Company,defendants.
Uy TIENG PIAO, defendant-appellant.
Cohn, Fisher and DeWitt and William C. Brady for plaintiff-appellant.
Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:
This case comes by appeal from the Court of First Instance of the city of Manila, in a case where the court
awarded to the plaintiff the sum of P300, as damages for breach of contract. The plaintiff appeals on the
ground that the amount of damages awarded is inadequate; while the defendant Uy Tieng Piao appeals on the
ground that he is not liable at all. The judgment having been heretofore affirmed by us in a brief opinion, we
now avail ourselves of the occasion of the filing of a motion to rehear by the attorneys for the plaintiff to
modify the judgment in a slight measure and to state more fully the reasons underlying our decision.
It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as
superintendent of an oil factory which the latter contemplated establishing in this city. The period of the
contract extended over two years from the date mentioned; and the salary was to be at the rate of P600 per
month during the first year and P700 per month during the second, with electric light and water for domestic
consumption, and a residence to live in, or in lieu thereof P60 per month.
At the time this agreement was made the machinery for the contemplated factory had not been acquired,
though ten expellers had been ordered from the United States; and among the stipulations inserted in the
contract with the plaintiff was a provision to the following effect:
It is understood and agreed that should the machinery to be installed in the said factory fail, for any
reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may
be cancelled by the party of the second part at its option, such cancellation, however, not to occur
before the expiration of such six months.
The machinery above referred to did not arrive in the city of Manila within the six months succeeding the
making of the contract; nor was other equipment necessary for the establishment of the factory at any time
provided by the defendants. The reason for this does not appear with certainty, but a preponderance of the
evidence is to the effect that the defendants, in the first months of 1919, seeing that the oil business no longer
promised large returns, either cancelled the order for the machinery from choice or were unable to supply the
capital necessary to finance the project. At any rate on June 28, 1919, availing themselves in part of the option
given in the clause above quoted, the defendants communicated in writing to the plaintiff the fact that they
had decided to rescind the contract, effective June 30th then current, upon which date he was discharged. The
plaintiff thereupon instituted this action to recover damages in the amount of P13,000, covering salary and
perquisites due and to become due under the contract.
The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the defendants the
right to cancel the contract upon the contingency of the nonarrival of the machinery in Manila within six
months, must be understood as applicable only in those cases where such nonarrival is due to causes not
having their origin in the will or act of the defendants, as delays caused by strikes or unfavorable conditions of
transporting by land or sea; and it is urged that the right to cancel cannot be admitted unless the defendants
affirmatively show that the failure of the machinery to arrive was due to causes of that character, and that it
did not have its origin in their own act or volition. In this connection the plaintiff relies on article 1256 of the
Civil Code, which is to the effect that the validity and fulfillment of contracts cannot be left to the will of one of
the contracting parties, and to article 1119, which says that a condition shall be deemed fulfilled if the obligor
intentially impedes its fulfillment.
It will be noted that the language conferring the right of cancellation upon the defendants is broad enough to
cover any case of the nonarrival of the machinery, due to whatever cause; and the stress in the expression "for

any reason" should evidently fall upon the word "any." It must follow of necessity that the defendants had the
right to cancel the contract in the contingency that occurred, unless some clear and sufficient reason can be
adduced for limiting the operation of the words conferring the right of cancellation. Upon this point it is our
opinion that the language used in the stipulation should be given effect in its ordinary sense, without
technicality or circumvention; and in this sense it is believed that the parties to the contract must have
understood it.
Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal
service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract
dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the
contracting parties have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement. Indeed, the
cancellation of a contract in accordance with conditions agreed upon beforehands is fulfillment.
In this connection, we note that the commentator Manresa has the following observation with respect to article
1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will of either of the parties in the
negative form of rescission, a case frequent in certain contracts (the letting of service for hire, the supplying of
electrical energy, etc.), for in such supposed case neither is the article infringed, nor is there any lack of
equality between the persons contracting, since they remain with the same faculties in respect to fulfillment."
(Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net
Undoubtedly one of the consequences of this stipulation was that the employers were left in a position where
they could dominate the contingency, and the result was about the same as if they had been given an
unqualified option to dispense with the services of the plaintiff at the end of six months. But this circumstance
does not make the stipulation illegal.
The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially somewhat
analogous, is not precisely in point. In that case one Hardaker had contracted to render competent and
efficient service as manager of a corporation, to which position it was understood he was to be appointed. In
the same contract it was stipulated that if "for any reason" Hardaker should not be given that position, or if he
should not be permitted to act in that capacity for a stated period, certain things would be done by Hall. Upon
being installed in the position aforesaid, Hardaker failed to render efficient service and was discharged. It was
held that Hall was released from the obligation to do the things that he had agreed to perform. Some of the
judges appear to have thought that the case turned on the meaning of the phrase "for any reason," and the
familiar maxim was cited that no man shall take advantage of his own wrong. The result of the case must have
been the same from whatever point of view, as there was an admitted failure on the part of Hardaker to render
competent service. In the present case there was no breach of contract by the defendants; and the argument
to the contrary apparently suffers from the logical defect of assuming the very point at issue.
But it will be said that the question is not so much one concerning the legality of the clause referred to as one
concerning the interpretation of the resolutory clause as written, the idea being that the court should adjust its
interpretation of said clause to the supposed precepts of article 1256, by restricting its operation exclusively to
cases where the nonarrival of the machinery may be due to extraneous causes not referable to the will or act
of the defendants. But even when the question is viewed in this aspect their result is the same, because the
argument for the restrictive interpretation evidently proceeds on the assumption that the clause in question is
illegal in so far as it purports to concede to the defendants the broad right to cancel the contract upon
nonarrival of the machinery due to any cause; and the debate returns again to the point whether in a contract
for the prestation of service it is lawful for the parties to insert a provision giving to the employer the power to
cancel the contract in a contingency which may be dominated by himself. Upon this point what has already
been said must suffice.
As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the language
used by the parties from its natural meaning and thereby in legal effect to restrict the words "for any reason,"
as used in the contract, to mean "for any reason not having its origin in the will or acts of the defendants." To
impose this interpretation upon those words would in our opinion constitute an unjustifiable invasion of the
power of the parties to establish the terms which they deem advisable, a right which is expressed in article
1255 of the Civil Code and constitutes one of the most fundamental conceptions of contract right enshrined in
the Code.
The view already expressed with regard to the legality and interpretation of the clause under consideration
disposes in a great measure of the argument of the appellant in so far as the same is based on article 1119 of
the Civil Code. This provision supposes a case where the obligor intentionally impedes the fulfillment of a
condition which would entitle the obligee to exact performance from the obligor; and an assumption underlying
the provision is that the obligor prevents the obligee from performing some act which the obligee is entitled to
perform as a condition precedent to the exaction of what is due to him. Such an act must be considered
unwarranted and unlawful, involving per se a breach of the implied terms of the contract. The article can have
no application to an external contingency which, like that involved in this case, is lawfully within the control of
the obligor.

In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a facultative
condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and 1119 of the Civil Code that a
condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders
the whole obligation void (vol. 8, p. 131). That statement is no doubt correct in the sense intended by the
learned author, but it must be remembered that he evidently has in mind the suspensive condition, such as is
contemplated in article 1115. Said article can have no application to the resolutory condition, the validity of
which is recognized in article 1113 of the Civil Code. In other words, a condition at once facultative and
resolutory may be valid even though the condition is made to depend upon the will of the obligor.
If it were apparent, or could be demonstrated, that the defendants were under a positive obligation to cause
the machinery to arrive in Manila, they would of course be liable, in the absence of affirmative proof showing
that the nonarrival of the machinery was due to some cause not having its origin in their own act or will. The
contract, however, expresses no such positive obligation, and its existence cannot be implied in the fact of
stipulation, defining the conditions under which the defendants can cancel the contract.
Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's claim in so far as
damages are sought for the period subsequent to the expiration of the first six months, but in assessing the
damages due for the six-month period, the trial judge evidently overlooked the item of P60, specified in the
plaintiff's fourth assignment of error, which represents commutation of house rent for the month of June, 1919.
This amount the plaintiff is clearly entitled to recover, in addition to the P300 awarded in the court below.
We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the judgment holding him
liable as a member of the firm of Tan Liuan and Co.; and it is insisted in his behalf that he was not bound by the
act of Tan Liuan as manager of Tan Liuan and Co. in employing the plaintiff. Upon this we will merely say that
the conclusion stated by the trial court in the next to the last paragraph of the decision with respect to the
liability of this appellant in our opinion in conformity with the law and facts.
The judgment appealed from will be modified by declaring that the defendants shall pay to the plaintiff the
sum of P360, instead of P300, as allowed by the lower court, and as thus modified the judgment will be
affirmed with interest from November 4, 1919, as provided in section 510 of the Code of Civil Procedure, and
with costs. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172346

July 24, 2013

SPOUSES NAMEAL and LOURDES BONROSTRO, Petitioners,

vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents.
DECISION
DEL CASTILLO, J.:
Questioned in this case is the Court of Appeals' (CA) disquisition on the matter of interest.
Petitioners spouses Nameal and Lourdes Bonrostro (spouses Bonrostro) assail through this Petition for Review
on Certiorari1 the April 15, 2005 Decision2 of the CA in CA-G.R. CV No. 56414 which affirmed with modifications
the April 4, 1997 Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 104 in Civil Case No. Q-9418895. They likewise question the CA April17, 2006 Resolution 4 denying their motion for partial
reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract to Sell 5 with Bliss
Development Corporation (Bliss) involving a house and lot identified as Lot 19, Block 26 of New Capitol Estates
in Diliman, Quezon City. Barely a year after, Constancia, this time as the seller, entered into another Contract
to Sell6 with petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the following terms
and conditions:
1. The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following
manner:
(a) P200,000.00 upon signing x x x the Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at P6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on time, the VENDEE will pay
starting May 1, 1993 a 2% interest on the P300,000.00 monthly. Likewise, in the event the VENDEE
fails to pay the amount of P630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise
be deemed cancelled and rescinded and x x x 5% of the total contract price of P1,250,000.00 shall be
deemed forfeited in favor of the VENDOR. Unpaid monthly amortization shall likewise be deducted
from the initial down payment in favor of the VENDOR.7
Immediately after the execution of the said second contract, the spouses Bonrostro took possession of the
property. However, except for the P200,000.00 down payment, Lourdes failed to pay any of the stipulated
subsequent amortization payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses Luna), filed before the RTC
a Complaint8 for Rescission of Contract and Damages against the spouses Bonrostro praying for the rescission
of the contract, delivery of possession of the subject property, payment by the latter of their unpaid obligation,
and awards of actual, moral and exemplary damages, litigation expenses and attorneys fees.
In their Answer with Compulsory Counterclaim,9 the spouses Bonrostro averred that they were willing to pay
their total balance of P630,000.00 to the spouses Luna after they sought from them a 60-day extension to pay
the same.10 However, during the time that they were ready to pay the said amount in the last week of October
1993, Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at their rendezvous. On
November 24, 1993, Lourdes sent Atty. Carbon a letter11 expressing her desire to pay the balance, but received

no response from the latter. Claiming that they are still willing to settle their obligation, the spouses Bonrostro
prayed that the court fix the period within which they can pay the spouses Luna.
The spouses Bonrostro likewise belied that they were not paying the monthly amortization to New Capitol
Estates and asserted that on November 18, 1993, they paid Bliss, the developer of New Capitol Estates, the
amount of P46,303.44. Later during trial, Lourdes testified that Constancia instructed Bliss not to accept
amortization payments from anyone as evidenced by her March 4, 1993 letter 12 to Bliss.
On April 4, 1997, the RTC rendered its Decision 13 focusing on the sole issue of whether the spouses Bonrostros
delay in their payment of the installments constitutes a substantial breach of their obligation under the
contract warranting rescission. The RTC ruled that the delay could not be considered a substantial breach
considering that Lourdes (1) requested for an extension within which to pay; (2) was willing and ready to pay
as early as the last week of October 1993 and even wrote Atty. Carbon about this on November 24, 1993; (3)
gave Constancia a down payment of P200,000.00; and, (4) made payment to Bliss.
The dispositive portion of the said Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1.) Declaring the Contract to Sell executed by the plaintiff Constancia and defendant Lourdes with
respect to the house and lot located at Blk. 26, Lot 19, New Capitol Estates, Diliman, Quezon City to be
in force and effect. And that Lourdes Bonrostro must remain in the possession of the premises.
2.) Ordering the defendants to pay plaintiffs within 60 days from receipt of this decision the sum
of P300,000.00 plus an interest of 2% per month from April 1993 to November 1993.
3.) Ordering the defendants to pay plaintiffs within sixty (60) days from receipt of this decision the sum
of P330,000.00 plus an interest of 2% per month from July 1993 to November 1993.
4.) Ordering the defendants to reimburse plaintiffs the sum of P214,492.62 which plaintiffs paid to Bliss
Development Corporation.
No pronouncement as to Cost.
SO ORDERED.14
As their Motion for Reconsideration15 was likewise denied in an Order16 dated July 15, 1997, the spouses Luna
appealed to the CA.17
Ruling of the Court of Appeals
In its Decision18 of April 15, 2005, the CA concluded that since the contract entered into by and between the
parties is a Contract to Sell, rescission is not the proper remedy. Moreover, the subject contract being
specifically a contract to sell a real property on installment basis, it is governed by Republic Act No. 6552 19 or
the Maceda Law, Section 4 of which states:
Sec. 4. In case where less than two years of installment were paid, the seller shall give the buyer a grace
period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act. (Emphases supplied)
The CA held that while the spouses Luna sent the spouses Bonrostro letters 20 rescinding the contract for nonpayment of the sum of P630,000.00, the same could not be considered as valid and effective cancellation
under the Maceda Law since they were made within the 60-day grace period and were not notarized. The CA
concluded that there being no cancellation effected in accordance with the procedure prescribed by law, the
contract therefore remains valid and subsisting.
The CA also affirmed the RTCs finding that Lourdes was ready to pay her obligation on November 24, 1993.
However, the CA modified the RTC Decision with respect to interest, viz:
Nevertheless, there is a need to modify the appealed decision insofar as (i) the interest imposed on the sum
of P300,000.00 is only for the period April 1993 to November 1993; (ii) the interest imposed on the sum
of P330,000.00 is 2% per month and is only for the period July 1993 to November 1993; (iii) it does not impose
interest on the amount of P214,492.62 which was paid by Constancia to BLISS in behalf of Lourdes x x x

The rule is that no interest shall be due unless it has been expressly stipulated in writing (Art. 1956, Civil
Code). However, the contract does not provide for interest in case of default in payment of the sum
of P330,000.00 to Constancia and the monthly amortizations to BLISS.
Considering that Lourdes had incurred x x x delay in the performance of her obligations, she should pay (i)
interest at the rate of 2% per month on the sum of P300,000.00 from May 1, 1993 until fully paid and (ii)
interest at the legal rate on the amounts of P330,000.00 and P214,492.62 from the date of default (August 1,
1993 and April 4, 1997 date of the appealed decision, respectively) until the same are fully paid x x x 21
Hence, the dispositive portion of the said Decision:
WHEREFORE, the appealed decision is AFFIRMED with the MODIFICATIONS that paragraphs 2, 3, and 4 of its
dispositive portion shall now read:
2.) Ordering the defendants to pay plaintiffs the sum of P300,000.00 plus interest thereon at the rate
of 2% per month from May 1, 1993 until fully paid;
3.) Ordering the defendants to pay plaintiffs the sum of P330,000.00 plus interest thereon at the legal
rate from August 1, 1993 until fully paid; and
4.) Ordering the defendants to reimburse plaintiffs the sum of P214,492.62, which plaintiffs paid to
Bliss Development Corporation, plus interest thereon at the legal rate from filing of the complaint until
fully reimbursed.
SO ORDERED.22
The spouses Luna no longer assailed the ruling. On the other hand, the spouses Bonrostro filed a Partial Motion
for Reconsideration23 questioning the above-mentioned modifications. The CA, however, denied for lack of
merit the said motion in a Resolution24 dated April 17, 2006.
Hence, this Petition for Review on Certiorari.
Issue
The basic issue in this case is whether the CA correctly modified the RTC Decision with respect to interests.
The Parties Arguments
As may be recalled, the RTC under paragraphs 2 and 3 of the dispositive portion of its Decision ordered the
spouses Bonrostro to pay the spouses Luna the sums of P300,000.00 plus interest of 2% per month from April
1993 to November 1993 and P330,000.00 plus interest of 2% per month from July 1993 to November 1993,
respectively. The CA modified these by reckoning the payment of the 2% interest on the P300,000.00 from May
1, 1993 until fully paid and by imposing interest at the legal rate on the P330,000.00 reckoned from August 1,
1993 until fully paid.
The spouses Bonrostro harp on the factual finding of the RTC, as affirmed by the CA, that Lourdes was willing
and ready to pay her obligation as evidenced by her November 24, 1993 letter to Atty. Carbon. They also
assert that the sending of the said letter constitutes a valid tender of payment on their part. Hence, they argue
that they should not be assessed any interest subsequent to the date of the said letter. Neither should they be
ordered to pay interest on the amount of P214,492.62 which covers the amortizations paid by the spouses
Luna to Bliss. They point out that it was Constancia who prevented them from fulfilling their obligation to pay
the amortizations when she instructed Bliss not to accept payment from them. 25
The spouses Luna, on the other hand, aver that the November 24, 1993 letter of Lourdes is not equivalent to
tender of payment since the mere sending of a letter expressing the intention to pay, without the
accompanying payment, cannot be considered a valid tender of payment. Also, if the spouses Bonrostro were
really willing and ready to pay at that time and assuming that the spouses Luna indeed refused to accept
payment, the former should have resorted to consignation. Anent the payment of amortization, the spouses
Luna explain that under the parties Contract to Sell, Lourdes was to assume Constancias balance to Bliss by
paying the monthly amortization in order to avoid the cancellation of the earlier Contract to Sell entered into
by Constancia with Bliss.26 However, since Lourdes was remiss in paying the same, the spouses Luna were
constrained to pay the amortization. They thus assert that reimbursement to them of the said amount with
interest is proper considering that by reason of such payment, the spouses Bonrostro were spared from the
interests and penalties which would have been imposed by Bliss if the amortizations remained unpaid.
Our Ruling
The Petition lacks merit.

The spouses Bonrostros reliance on the RTCs factual finding that Lourdes was willing and ready to pay on
November 24, 1993 is misplaced.
As mentioned, the RTC in resolving the Complaint focused on the sole issue of whether the failure of spouses
Bonrostro to pay the installments of P300,000.00 on April 30, 1993 and P330,000.00 on July 31, 1993 is a
substantial breach of their obligation under the contract as to warrant the rescission of the same. 27 The said
court ratiocinated, viz:
After careful evaluation of the evidence testimonial and documentary, the Court believes that the defendants
delay in the payment of the two installments is not so substantial as to warrant rescission of contract.
Although, the defendant failed to pay the two installments in due time, she was able to communicate with the
plaintiffs through letters requesting for an extension of two months within which to pay the installments. In
fact, on November 24, 1993 defendant informed Atty. Arlene Carbon that she was ready to pay the
installments and the money is ready for pick-up. However, plaintiff did not bother to get or pick-up the money
without any valid reason. It would be very prejudicial on the part of the defendant if the contract to sell be
rescinded considering that she made a downpayment of P200,000.00 and made partial amortization to the
Bliss Development Corporation. In fact, the defendant testified that she is willing and ready to pay the balance
including the interest on November 24, 1993.
The Court is of the opinion that the delay in the payment of the balance of the purchase price of the house and
lot is not so substantial as to warrant the rescission of the contract to sell. The question of whether a breach of
contract is substantial depends upon the attendant circumstance. x x x 28
Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken premise that rescission is
applicable to the case. Hence, its determination of whether there was substantial breach. As may be recalled,
however, the CA, in its assailed Decision, found the contract between the parties as a contract to sell,
specifically of a real property on installment basis, and as such categorically declared rescission to be not the
proper remedy. This is considering that in a contract to sell, payment of the price is a positive suspensive
condition, failure of which is not a breach of contract warranting rescission under Article 1191 29 of the Civil
Code but rather just an event that prevents the supposed seller from being bound to convey title to the
supposed buyer.30 Also, and as correctly ruled by the CA, Article 1191 cannot be applied to sales of real
property on installment since they are governed by the Maceda Law. 31
There being no breach to speak of in case of non-payment of the purchase price in a contract to sell, as in this
case, the RTCs factual finding that Lourdes was willing and able to pay her obligation a conclusion arrived at
in connection with the said courts determination of whether the non-payment of the purchase price in
accordance with the terms of the contract was a substantial breach warranting rescission therefore loses
significance. The spouses Bonrostros reliance on the said factual finding is thus misplaced. They cannot invoke
their readiness and willingness to pay their obligation on November 24, 1993 as an excuse from being made
liable for interest beyond the said date.
The spouses Bonrostro are liable for interest on the installments due from the date of default until fully paid.
The spouses Bonrostro assert that Lourdes letter of November 24, 1993 amounts to tender of payment of the
remaining balance amounting to P630,000.00. Accordingly, thenceforth, accrual of interest should be
suspended.
Tender of payment "is the manifestation by the debtor of a desire to comply with or pay an obligation. If
refused without just cause, the tender of payment will discharge the debtor of the obligation to pay but only
after a valid consignation of the sum due shall have been made with the proper court." 32 "Consignation is the
deposit of the proper amount with a judicial authority in accordance with rules prescribed by law, after the
tender of payment has been refused or because of circumstances which render direct payment to the creditor
impossible or inadvisable."33
"Tender of payment, without more, produces no effect." 34 "To have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and
consignation."35
As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino explained as follows:
When a tender of payment is made in such a form that the creditor could have immediately realized payment
if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means of payment in
court by way of consignation, the accrual of interest on the obligation will be suspended from the date of such
tender. But when the tender of payment is not accompanied by the means of payment, and the debtor did not
take any immediate step to make a consignation, then interest is not suspended from the time of such tender.
x x x x36(Emphasis supplied)
Here, the subject letter merely states Lourdes willingness and readiness to pay but it was not accompanied by
payment. She claimed that she made numerous telephone calls to Atty. Carbon reminding the latter to collect

her payment, but, neither said lawyer nor Constancia came to collect the payment. After that, the spouses
Bonrostro took no further steps to effect payment. They did not resort to consignation of the payment with the
proper court despite knowledge that under the contract, non-payment of the installments on the agreed date
would make them liable for interest thereon. The spouses Bonrostro erroneously assumed that their notice to
pay would excuse them from paying interest. Their claimed tender of payment did not produce any effect
whatsoever because it was not accompanied by actual payment or followed by consignation. Hence, it did not
suspend the running of interest. The spouses Bonrostro are therefore liable for interest on the subject
installments from the date of default until full payment of the sums of P300,000.00 and P330,000.00.
The spouses Bonrostro are likewise liable for interest on the amount paid by the spouses Luna to Bliss as
amortization.
The spouses Bonrostro want to be relieved from paying interest on the amount of P214,492.62 which the
spouses Luna paid to Bliss as amortizations by asserting that they were prevented by the latter from fulfilling
such obligation. They invoke Art. 1186 of the Civil Code which provides that "the condition shall be deemed
fulfilled when the obligor voluntarily prevents its fulfillment."
However, the Court finds Art. 1186 inapplicable to this case. The said provision explicitly speaks of a situation
where it is the obligor who voluntarily prevents fulfillment of the condition. Here, Constancia is not the obligor
but the obligee. Moreover, even if this significant detail is to be ignored, the mere intention to prevent the
happening of the condition or the mere placing of ineffective obstacles to its compliance, without actually
preventing fulfillment is not sufficient for the application of Art. 1186. 37 Two requisites must concur for its
application, to wit: (1) intent to prevent fulfillment of the condition; and, (2) actual prevention of compliance. 38
In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4, 1994 not to accept
payment from anyone but her, there is nothing on record to show that Bliss heeded the instruction of
Constancia as to actually prevent the spouses Bonrostro from making payments to Bliss. There is no showing
that subsequent to the said letter, the spouses Bonrostro attempted to make payment to and was refused by
Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the instruction contained
in Constancias letter. While Bliss Project Development Officer, Mr. Ariel Cordero, testified during trial, nothing
could be gathered from his testimony regarding this except for the fact that Bliss received the said letter. 39 In
view of these, the spouses Luna could not be said to have placed an effective obstacle as to actually prevent
the spouses Bonrostro from making amortization payments to Bliss.
On the other hand, there are telling circumstances which militate against the spouses Bonrostros claimed
keenness to comply with their obligation to pay the monthly amortization. After the execution of the contract in
January 1993, they immediately took possession of the property but failed to make amortization payments. It
was only after seven months or on November 18, 1993 that they made payments to Bliss in the amount
of P46,303.44.40 Whether the same covers previous unpaid amortizations is also not clear as the receipt does
not indicate the same41 and per Statement of Account42 as of March 8, 1994 issued by Bliss, the unpaid
monthly amortizations for February to November 1993 in the total amount of P78,271.69 remained
outstanding. There was also no payment made of the amortizations due on December 4, 1993 and January 4,
199443 before the filing of the Complaint on January 11, 1994.
On the part of the spouses Luna, it is understandable that they paid the amortizations due.1wphi1 The
assumption of payment of the monthly amortization to Bliss was made part of the obligations of the spouses
Bonrostro under their contract with the spouses Luna precisely to avoid the cancellation of the earlier contract
entered into by Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the spouses Luna
were constrained to pay Bliss to avoid the adverse effect of such failure. This act of the spouses Luna proved to
be even more beneficial to the spouses Bonrostro as the cancellation of the Contract to Sell between
Constancia and Bliss would result in the cancellation of the subsequent Contract to Sell between Constancia
and Lourdes. Also, the spouses Bonrostro were relieved from paying the penalties that would have been
imposed by Bliss if the monthly amortizations covered by the said payment remained unpaid. The Statements
of Account44 issued by Bliss clearly state that each monthly amortization is due on or before the fourth day of
every month and a penalty equivalent to 1/10th of 1% per day of delay shall be imposed for all payments
made after due date. That translates to 3% monthly or 36% per annum rate of interest, three times higher
than the 12% per annum rate of interest correctly imposed by the CA.
Hence, the resulting situation is that the spouses Luna are constrained to part with their money while the
spouses Bonrostro, despite being remiss in their obligation to pay the monthly amortization, are relieved from
paying higher penalties at the expense of the former. This is aside from the fact that the spouses Bonrostro are
in continued possession of the subject property and are enjoying the beneficial use thereof. Under the
circumstances and considering that the spouses Bonrostro are obviously in delay in complying with their
obligation to pay the amortizations due from February 1993 to January 1995 for which the spouses Luna
paid P214,492.62,45 the CA correctly ordered the reimbursement to the latter of the said amount with interest.
"Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract
incurs delay, the other party who performs his part of the contract suffers damages thereby." 46 As discussed,
the spouses Luna obviously suffered damages brought about by the failure of the spouses Bonrostro to comply
with their obligation on time. "And, sans elaboration of the matter at hand, damages take the form of interest x
x x."47

Under Article 2209 of the Civil Code, "if the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest x x x." There being
no stipulation on interest in case of delay in the payment of amortization, the CA thus correctly imposed
interest at the legal rate which is now 12% per annum.
WHEREFORE, the Petition for Review on Certiorari is DENIED and the assailed Decision dated April 15, 2005
and the Resolution dated April 17, 2006 of the Court of Appeals in CA-G.R. CV No. 56414 are AFFIRMED.
SO ORDERED.