Republic of the Philippines THREE THOUSAND SEVEN HUNDRED ONLY
SUPREME COURT (P73,700.00), with a down payment of P8,900.00 and
Manila
FIRST DIVISION
G.R. No. 118180 September 20, 1996
DEVELOPMENT BANK OF THE PHILIPPINES,
Petitioner,
vs.
COURT OF APPEALS, Sps. NORMY D. CARPIO
and CARMEN ORQUISA; Sps. ROLANDO D.
CARPIO and RAFAELA VILLANUEVA; Sps.
ELISEO D. CARPIO and ANUNCIACION del
ROSARIO; LUZ C. REYES, MARIO C. REYES,
JULIET REYES-RUBIN, Respondents.
DECISION
PADILLA, J.:
This is a petition for review on certiorari under Rule 45
of the Rules of Court which seeks to set aside the
decision of the Court of Appeals (CA) dated 28
February 1994 in C.A.-G.R. CV No. 37158, as well as
the resolution dated 11 August 1994 denying
petitioner's motion for reconsideration.
The facts are undisputed:
Private respondents were the original owners of a
parcel of agricultural land covered by TCT No. T-
1432, situated in Barrio Capucao, Ozamis City, with
an area of 113,695 square meters, more or less.
On 30 May 1977, private respondents mortgaged said
land to petitioner. When private respondents
defaulted on their obligation, petitioner foreclosed the
mortgage on the land and emerged as sole bidder in
the ensuing auction sale. Consequently, Transfer
Certificate of Title No. T-10913 was eventually issued
in petitioner's name.
On 6 April 1984, petitioner and private respondents
entered into a Deed of Conditional Sale wherein
petitioner agreed to reconvey the foreclosed property
to private respondents.
The pertinent stipulations of the Deed provided that:
"WHEREAS, the VENDOR acquired a parcel of land
in an auction sale by the City Sheriff of Ozamiz City,
pursuant to Act 3135, as amended, and subject to the
redemption period pursuant to CA 141, described as
follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to repurchase and
the VENDOR agreed to sell the above-described
property, subject to the terms and stipulations as
hereinafter stipulated, for the sum of SEVENTY
the balance of P64,800 shall be payable in six (6)
years on equal quarterly amortization plan at 18%
interest per annum. The first quarterly amortization of
P4,470.36 shall be payable three months from the
date of the execution of the documents and all
subsequent amortization shall be due and payable
every quarter thereafter.
xxx xxx xxx
That, upon completion of the payment herein
stipulated and agreed, the Vendor agrees to deliver to
the Vendee/s(,) his heirs, administrators and
assigns(,) a good and sufficient deed of conveyance
covering the property, subject matter of this deed of
conditional sale, in accordance with the provisions of
law." (Exh. "A", p. 5, Records)
On 6 April 1990, upon completing the payment of the
full repurchase price, private respondents demanded
from petitioner the execution of a Deed of
Conveyance in their favor.
Petitioner then informed private respondents that the
prestation to execute and deliver a deed of
conveyance in their favor had become legally
impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL)
approved 10 June 1988, and Sec. 1 of E.O. 407
issued 10 June 1990.
Aggrieved, private respondents filed a complaint for
specific performance with damages against petitioner
before the Regional Trial Court of Ozamis City,
Branch XV. During the pre-trial, the trial court
narrowed down the issue to whether or not Sec. 6 of
the CARL (Rep. Act 6657) had rendered legally
impossible compliance by petitioner with its obligation
to execute a deed of conveyance of the subject land
in favor of private respondents. The trial court ordered
both parties to file their separate memorandum and
deemed the case submitted for decision thereafter.
On 30 January 1992, the trial court rendered
judgment, the dispositive part of which reads:
"WHEREFORE, judgment is rendered ordering
defendant to execute and deliver unto plaintiffs a
deed of final sale of the land subject of their deed of
conditional sale - Lot 5259-A, to pay plaintiffs
P10,000.00 as nominal damages, P5,000.00 as
attorney's fees, P3,000.00 as litis expenses and
costs."
The trial court held that petitioner interpreted the
fourth paragraph of Sec. 6, Rep. Act 6657 literally in
conjunction with Sec. 1 of E.O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states
that:
"Upon the effectivity of this Act, any sale disposition,
lease, management contract or transfer of possession
of private lands executed by the original landowner in
violation of this act shall be null and void; Provided,
however, that those executed prior to this act shall be
valid only when registered with the Register of Deeds
after the effectivity of this Act. Thereafter, all Register
of Deeds shall inform the DAR within 320 days of any
transaction involving agricultural lands in excess of
five hectares."
while Sec. 1 of E.O. 407 states that:
"Sec. 1. All government instrumentalities but not
limited to x x x financial institutions such as the DBP x
x x shall immediately execute deeds of transfer in
favor of the Republic of the Philippines as
represented by the Department of Agrarian Reform
and surrender to the department all landholdings
suitable for agriculture."
The court a quo noted that Sec. 6 of Rep. Act 6657,
taken in its entirety, is a provision dealing primarily
with retention limits in agricultural land allowed the
landowner and his family and that the fourth
paragraph, which nullifies any sale x x x by the
original landowner in violation of the Act, does not
cover the sale by petitioner (not the original land
owner) to private respondents.
On the other hand, according to the trial court, E.O.
407 took effect on 10 June 1990. But private
respondents completed payment of the price for the
property, object of the conditional sale, as early as 6
April 1990. Hence, with the fulfillment of the condition
for the sale, the land covered thereby, was detached
from the mass of foreclosed properties held by DBP,
and, therefore, fell beyond the ambit or reach of E.O.
407.
Dissatisfied, petitioner appealed to the Court of
Appeals (CA), still insisting that its obligation to
execute a Deed of Sale in favor of private
respondents had become a legal impossibility and
that the non-impairment clause of the Constitution
must yield to the demands of police power.
On 28 February 1994, the CA rendered judgment
dismissing petitioner's appeal on the basis of the
following disquisitions:
"It is a rule that if the obligation depends upon a
suspensive condition, the demandability as well as
the acquisition or effectivity of the rights arising from
the obligation is suspended pending the happening or
fulfillment of the fact or event which constitutes the
condition. Once the event which constitutes the
condition is fulfilled resulting in the effectivity of the
obligation, its effects retroact to the moment when the
essential elements which gave birth to the obligation
have taken place (8 Manresa, 5th Ed. Bk. 1, pa. 33).
Applying this precept to the case, the full payment by
the appellee on April 6, 1990 retroacts to the time the
contract of conditional sale was executed on April 6,
1984. From that time, all elements of the contract of
sale were present. Consequently, the contract of sale
was perfected. As such, the said sale does not come
under the coverage of R.A. 6657.
It is likewise interesting to note that despite the
mandate of Sec. 1, R.A. 6657, appellant continued to
accept the payments made by the appellee until it
was fully paid on April 6, 1990. All that the appellant
has to do now is to execute the final deed of sale in
favor of the appellee. To follow the line of argument of
the appellant would only result in an unconscionable
injury to the appellee. Obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith (Flavio Macasaet & Associates, Inc. vs.
Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the same can
neither affect appellant's obligation under the deed of
conditional sale. Under the said law, appellant is
required to transfer to the Republic of the Philippines
'all lands foreclosed' effective June 10, 1990. Under
the facts obtaining, the subject property has ceased to
belong to the mass of foreclosed property falling
within the reach of said law. As earlier explained, the
property has already been sold to herein appellees
even before the said E.O. has been enacted. On this
same reason, We therefore need not delve on the
applicability of DBP Circular No. 11."
In the present petition for review on certiorari,
petitioner still insists on its position that Rep. Act
6657, E.O. 407 and DBP Circular No. 11 rendered its
obligation to execute a Deed of Sale to private
respondents "a legal impossibility." Petitioner also
questions the award of attorney's fees, nominal
damages, and costs in favor of private respondents,
as not in accord with law and the evidence.
We rule in favor of private respondents.
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.
The deed of conditional sale between petitioner and
private respondents was executed on 6 April 1984.
Private respondents had religiously paid the agreed
installments on the property until they completed
payment on 6 April 1990. Petitioner, in fact, allowed
private respondents to fulfill the condition of effecting
full payment, and invoked Section 6 of Rep. Act 6657
only after private respondents, having fully paid the
repurchase price, demanded the execution of a Deed
of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10
June 1988. Following petitioner's argument in this
case, its prestation to execute the deed of sale was
rendered legally impossible by Section 6 of said law.
In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an
impossibility of performance.
We reject petitioner's contention as we rule - as the
trial court and CA have correctly ruled - that neither
Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was
intended to impair the obligation of contract petitioner
had much earlier concluded with private respondents.
More specifically, petitioner cannot invoke the last
paragraph of Sec. 6 of Rep. Act 6657 to set aside its
obligations already existing prior to its enactment. In
the first place, said last paragraph clearly deals with
"any sale, lease, management contract or transfer or
possession of private lands executed by the original
land owner." The original owner in this case is not the
petitioner but the private respondents. Petitioner
acquired the land through foreclosure proceedings but
agreed thereafter to reconvey it to private
respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its
entirety deals with retention limits allowed by law to
small landowners. Since the property here involved is
more or less ten (10) hectares, it is then within the
jurisdiction of the Department of Agrarian Reform
(DAR) to determine whether or not the property can
be subjected to agrarian reform. But this necessitates
an entirely different proceeding.
The CARL (Rep. Act 6657) was not intended to take
away property without due process of law. Nor is it
intended to impair the obligation of contracts. In the
same manner must E.O. 407 be regarded. It was
enacted two (2) months after private respondents had
legally fulfilled the condition in the contract of
conditional sale by the payment of all installments on
their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to
that effect.
As aptly stated in the Mirasol case:
"x x x The matter of attorney's fees cannot be touched
once and only in the dispositive portion of the
decision. The text itself must expressly state the
reason why attorney's fees are being awarded. The
court, after reading through the text of the appealed
decision, finds the same bereft of any findings of fact
and law to justify the award of attorney's fees. The
matter of such fees was touched but once and
appears only in the dispositive portion of the decision.
Simply put, the text of the decision did not state the
reason why attorney's fees are being awarded, and
for this reason, the Court finds it necessary to disallow
the same for being conjectural."
While DBP committed egregious error in interpreting
Sec. 6 of RA 6657, the same is not equivalent to
gross and evident bad faith when it refused to execute
the deed of sale in favor of private respondents.
For the same reasons stated above, the award of
nominal damages in the amount of P10,000.00 should
also be deleted.
The amount of P3,000.00 as litigation expenses and
costs against petitioner must remain.
WHEREFORE, premises considered, the petition is
hereby DENIED, and the decision of the CA is hereby
AFFIRMED, for lack of any reversible error, with the
MODIFICATION that attorney's fees and nominal
damages awarded to private respondents are hereby
DELETED.
SO ORDERED.

As to petitioner's contention, however, that the CA

erred in affirming the trial court's decision awarding
nominal damages, and attorney's fees to private
respondents, we rule in favor of petitioner.

It appears that the core issue in this case, being a

pure question of law, did not reach the trial stage as
the case was submitted for decision after pre-trial.

The award of attorney's fees under Article 2208 of the

Civil Code is more of an exception to the general rule
that it is not sound policy to place a penalty on the
right to litigate. While judicial discretion in the award
of attorney's fees is not entirely left out, the same, as
a rule, must have a factual, legal or equitable
justification. The matter cannot and should not be left
to speculation and conjecture.
 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
FIRST DIVISION
G.R. No. 169694 December 09, 2015
MEGAWORLD PROPERTIES AND HOLDINGS,
INC., EMPIRE EAST LAND HOLDINGS, INC., AND
ANDREW L. TAN, Petitioners,
vs
MAJESTIC FINANCE AND INVESTMENT CO., INC.,
RHODORA LOPEZ-LIM, AND PAULINA CRUZ,
Respondents.
DECISION
BERSAMIN, J.:
This case arises from a dispute on whether either
party of a joint venture agreement to develop property
into a residential subdivision has already performed
its obligation as to entitle it to demand the
performance of the other's reciprocal obligation.
The Case
Under review is the decision promulgated on April 27,
2005,1 whereby the Court of Appeals (CA) upheld the
order issued on November 5, 2002 by the Regional
Trial Court, Branch 67, in Pasig City (RTC) in Civil
Case No. 67813 directing the defendants (petitioners
herein) to perform their obligation to provide round-
the-clock security for the property under
development.2 Also appealed is the resolution
promulgated on September 12, 2005 denying the
petitioners' motion for reconsideration.
Antecedents
On September 23, 1994, Megaworld Properties and
Holdings, Inc. (developer) entered into a Joint Venture
Agreement (JVA)4 with Majestic Finance and
Investment Co., Inc. (owner) for the development of
the residential subdivision located in Brgy. Alingaro,
General Trias, Cavite. According to the JVA, the
development of the 215 hectares of land belonging to
the owner (joint venture property) would be for the
sole account of the developer;5 and that upon
completion of the development of the subdivision, the
owner would compensate the developer in the form of
saleable residential subdivision lots.6 The JVA further
provided that the developer would advance all the
costs for the relocation and resettlement of the
occupants of the joint venture property, subject to
reimbursement by the owner;7 and that the developer
would deposit the initial amount of P10,000,000.00 to
defray the expenses for the relocation and settlement,
and the costs for obtaining from the Government the
exemptions and conversion permits, and the required
clearances.
On September 24, 1994, the developer and owner
agreed, through the addendum to the JVA,9 to
increase the initial deposit for the settlement of claims
and the relocation of the tenants from P10,000,000.00
to P60,000,000.00.
On October 27, 1994, the developer, by deed of
assignment,10 transferred, conveyed and assigned to
Empire East Land Holdings, Inc. (developer/assignee)
all its rights and obligations under the JVA including
the addendum.
On February 29, 2000, the owner filed in the RTC a
complaint for specific performance with damages
against the developer, the developer/assignee, and
respondent Andrew Tan, who are now the petitioners
herein. The complaint, docketed as Civil Case No.
67813, was mainly based on the failure of the
petitioners to comply with their obligations under the
JVA,11 including the obligation to maintain a strong
security force to safeguard the entire joint venture
property of 215 hectares from illegal entrants and
occupants.
Following the joinder of issues by the petitioners'
answer with counterclaim, and by the respondents'
reply with answer to the counterclaim, the RTC set
the pre-trial of the case. At the conclusion of the pre-
trial conference, the presentation of the owner's
evidence was suspended because of the parties'
manifestation that they would settle the case
amicably. It appears that the parties negotiated with
each other on how to implement the JVA and the
addendum.
On September 16, 2002, the owner filed in the RTC a
manifestation and motion,12 praying therein that the
petitioners be directed to provide round-the-clock
security for the joint venture property in order to
defend and protect it from the invasion of
unauthorized persons. The petitioners opposed the
manifestation and motion,13 pointing out that: (1) the
move to have them provide security in the properties
was premature; and (2) under the principle of
reciprocal obligations, the owner could not compel
them to perform their obligations under the JVA if the
owner itself refused to honor its obligations under the
JVA and the addendum.
On November 5, 2002, the RTC issued its first
assailed order,14 directing the developer to provide
sufficient round-the-clock security for the protection of
the joint venture property, as follows:
For consideration is a "Manifestation and Motion" filed
by plaintiff, through counsel, defendants having filed
their Opposition thereto, the incident is now ripe for
resolution.
After a careful examination of the records of this case,
the Court believes that the defendants should provide
security for the 215 hectares land subject of the joint
venture agreement to protect it from unlawful
elements as well as to avoid undue damage which
may be caused by the settling of squatters. As
specified in Article III par. (j) of the joint venture
agreement which was entered into by plaintiffs and
defendants, the latter shall at its exclusive account
and sole expense secure the land in question from
the influx of squatters and/or unauthorized settlers,
occupants, tillers, cultivators and the likes from date
of execution of this agreement.
WHEREFORE, and as prayed for, the Court hereby
directs the defendants to provide sufficient round the
clock security for the protection of the 215 hectares
land subject of the joint venture agreement during the
pendency of this case.
SO ORDERED.
The petitioners sought the reconsideration of the
November 5, 2002 order,15 but the RTC denied the
motion on May 19, 2003,16 observing that there was
no reason to reverse the order in question considering
that the allegations in the motion for reconsideration,
being a mere rehash of those made earlier, had
already been passed upon.
On August 4, 2003, the petitioners instituted a special
civil action for certiorari in the CA,17 claiming therein
that the RTC thereby gravely abused its discretion
amounting to lack or excess of jurisdiction in issuing
the order of November 5, 2002, specifying the
following grounds, namely:
THE PUBLIC RESPONDENT GRAVELY ABUSED
HIS DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN DIRECTING
PETITIONERS TO PROVIDE ROUND THE CLOCK
SECURITY GUARDS ON THE SUBJECT
PROPERTIES.
I. THE PUBLIC RESPONDENT ARBITRARILY AND
PREMATURELY DISPOSED OF ONE OF THE
RELIEF[S] PRAYED FOR BY PRIVATE
RESPONDENTS IN THEIR COMPLAINT WHEN
TRIAL HAS NOT EVEN STARTED.
II. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE FACT THAT THE PARTIES
ARE DISCUSSING HOW TO PURSUE THE JVA.
III. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE PRINCIPLE OF "RECIPROCAL
OBLIGATIONS" UNDER THE CIVIL CODE.
On April 27, 2005, the CA promulgated its assailed
decision dismissing the petitioner's petition for
certiorari,18 ruling thusly:
On the merits of the petition, our examination of the
records shows nothing whimsical or arbitrary in the
respondent judge's order directing the petitioners to
provide security over the joint venture property. Like
the respondent judge, we believe that the obligation of
the petitioners under the JVA to provide security in
the area, as spelled out under Article II, par. (c) and
Article III, paragraphs (h) and (j), is well established,
thus:
xxxx
These clear and categorical provisions in the JVA -
which petitioners themselves do not question -
obviously belie their contention that the respondent
judge's order to provide security for the property is
premature at this stage. The petitioner's obligation to
secure the property under the JVA arose upon the
execution of the Agreement, or as soon as the
petitioners acquired possession of the joint venture
property in 1994, and is therefore already
demandable. The settled rule is that "contracts are the
laws between the contracting parties, and if their
terms are clear and leave no room for doubt as to
their intentions, the contracts are obligatory no matter
what their forms may be, whenever the essential
requisites for their validity are present." Thus, unless
the existence of this particular obligation - i.e., to
secure the joint venture property - is challenged,
petitioners are bound to respect the terms of the
Agreement and of his obligation as the law between
them and MAJESTIC.
We stress along this line that the complaint
MAJESTIC filed below is for specific performance and
is not for rescission of contract. The complaint
presupposes existing obligations on the part of the
petitioners that MAJESTIC seeks to be carried out in
accordance with the terms of the Agreement.
Significantly, MAJESTIC did not pray in the complaint
that petitioners be ordered to secure the area from the
influx of illegal settlers and squatters because
petitioner's obligation in this regard commenced upon
the execution of the JVA and hence, is already an
existing obligation. What it did ask is for the
petitioners to maintain a strong security force at all
times over the area, in keeping with their commitment
to secure the area from the influx of illegal settlers
and occupant. To be sure, to "maintain" means "to
continue", "to carry on", to "hold or keep in any
particular state or condition" and presupposes an
obligation that already began. Thus, contrary to
petitioner's submissions, the question of whether or
not they have the obligation to provide security in the
area is not at all an issue in the case below. The issue
MAJESTIC presented below is whether or not
petitioner should be ordered to maintain a strong
security force within the joint venture property. Hence,
in issuing the assailed orders, the public respondent
prejudged no issue that is yet to be resolved after the
parties shall have presented their evidence.
Our conclusion (that the petitioner's obligation to
secure and protect the joint venture property is a non-
issue in the case below) necessarily explains why the
first assailed order -although not in the form of a
preliminary mandatory injunction -is nonetheless
legally justified. As an established and undisputed
interim measure pending the resolution of the case on
the merits, we do not see its enforcement as
hindrance to whatever negotiations the parties may
undertake to settle their dispute.
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their
commitment of safeguarding the joint venture
property. For, while it is true that the JVA gives rise to
reciprocal obligations from both parties, these
obligations are not necessarily demandable at the
same time. MAJESTIC's initial obligation under the
JVA is to deliver or surrender to the petitioners the
possession of the joint venture property -an obligation
it fulfilled upon the execution of the Agreement.
MAJESTIC's obligation under the JVA to deliver to the
petitioners the titles to the joint venture property and
to reimburse them for tenant-related expenses are
demandable at later stages of the contract or upon
completion of the development, and therefore may not
be used by the petitioners as an excuse for not
complying with their own currently demandable
obligation.
All told, we believe that securing and protecting the
area from unlawful elements benefits both the
developer and the landowner who are equally keen in
safeguarding their interests in the project. Otherwise
stated, incursion by unlawful settlers into an
unsecured and unprotected joint venture property can
only cause great loss and damage to both parties.
Reasons of practicality within legal parameters, rather
than grave abuse of discretion, therefore underlie the
respondent judge's challenged orders.
WHEREFORE, premises considered, we hereby
DISMISS the petition for lack of merit.
SO ORDERED.19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a motion for
reconsideration,20 but the CA denied the motion on
September 12, 2005.21chanroblesvirtuallawlibrary
Hence, this appeal by petition for review on certiorari.
Issues
The petitioner submits the following issues:
a Whether or not the petitioners are obligated
to perform their obligations under the JVA,
including that of providing round-the-clock
security for the subject properties, despite
respondents' failure or refusal to
acknowledge, or perform their reciprocal
obligations there;
b Whether or not the RTC gravely abused its
discretion in directing the petitioners to
perform their obligations under the JVA,
including that of providing round-the-clock
security for the subject properties, although
the JVA had been suspended due to the
parties' disagreement as to how to
implement the same;
c Whether or not the RTC gravely abused its
discretion in issuing the first and second
assailed orders and prematurely resolving
and disposing of one of the causes of action
of the respondents, which was to provide
round-the-clock security for the subject
properties, an issue proposed by the
respondents, even before the termination of
the pre-trial;
d Whether or not the RTC gravely abused its
discretion in issuing the first and second
assailed orders in clear disregard of the
mandatory requirements of Rule 58 of the
Rules of Court.
Ruling of the Court
The appeal is meritorious. The CA erred in upholding
the November 5, 2002 order of the RTC.
The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are
those that arise from the same cause, and in which
each party is a debtor and a creditor of the other at
the same time, such that the obligations of one are
dependent upon the obligations of the other. They are
to be performed simultaneously, so that the
performance by one is conditioned upon the
simultaneous fulfillment by the other.23 As the Court
has expounded in Consolidated Industrial Gases, Inc.
v. Alabang Medical Center:
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and
a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They
are to be performed simultaneously, so that the
performance of one is conditioned upon the
simultaneous fulfillment of the other. In reciprocal
obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay
by the other begins.
xxxx
In reciprocal obligations, before a party can demand
the performance of the obligation of the other, the
former must also perform its own obligation. For its
failure to turn over a complete project in accordance
with the terms and conditions of the installation ER to pay Deliver any and all Pay real estate
contracts, CIGI cannot demand for the payment of the and settle documents taxes
contract price balance from AMC, which, in turn, all required for the Art. II(c)
cannot legally be ordered to pay.25chanrobleslaw monetary successful Take possession
claims of development of the of the parcels of
The determination of default on the part of either of all tenants, Project land
the parties depends on the terms of the JVA that settlers, Art. V par. 2 Art. III (j)
clearly categorized the parties' several obligations into occupants, Pay real estate Secure property
two types. tillers, taxes from invasion of
cultivators Art. VI squatters and
The first type related to the continuous obligations of the Must consent on other elements
that would be continuously performed from the land. the reasonableness Art. III(a) par. 1
moment of the execution of the JVA until the parties of the expenses. Advance
shall have achieved the purpose of their joint venture. expense for
The continuous obligations under the JVA were as settlement and
follows: (1) the developer would secure the joint relocation
venture property from unauthorized occupants;26 (2) Art. III(a) par. 2
the owner would allow the developer to take Deposit P10M in
possession of the joint venture property;27 (3) the a joint account of
owner would deliver any and all documents necessary parties.
for the accomplishment of each activity;28 and (4) both DEVELOP Art. II(b) Art. V par. 2
the developer and the owner would pay the real ER to Deliver any and all Pay real estate
estate taxes. relocate documents taxes
and required for the Art. III(c)
The second type referred to the activity obligations. transfer all successful Take possession
The following table shows the activity obligations of the development of the of the parcels of
the parties under the JVA, to wit: tenants, Project land
settlers, Art. V par. 2 Art. III(j)
SEQUENCE OF ACTIVITIES (Article XIV of the occupants, Pay real estate Secure property
JVA) tillers, taxes from invasion of
ACTIVITY OWNER DEVELOPER cultivators Art. II(d) squatters and

 OBLIGATION OBLIGATION of the land Agree to allocate other elements
Signing of Sign JVA Sign JVA to their and aggregate a Art. III(a) par. 1
JVA. Art. II(b) Art. V par. 2 relocation resettlement site Advance
Deliver any and all Pay real estate site, and within the property expense for
documents taxes shall subject to mutually settlement and
required for the Art. IIIa par. 2 endeavor accepted relocation
successful Deposit P10M to fulfill the conditions. Art. III(a)par. 2
development of the same and Art. VI Deposit P10M in
Project the two Must consent on a joint account of
Art. V par. 2 immediatel the reasonableness OWNER and
Pay real estate y of the expenses. DEVELOPER
taxes preceding Art. III(c)
Art. II(g) paragraph Relocate the
Warrant absolute s (b & c) occupants
ownership up to the
DEVELOP Art. II(b) Art. V par. 2 extent of
ER to Deliver any and all Pay real estate 75%
negotiate documents taxes accomplis
immediatel required for the Art. II(c) hment
y with all successful Take possession thereof
tenants, development of the of the parcels of within a
settlers, Project land period of
occupants, Art. V par. 2 Art. III (j) one (1)
tillers, Pay real estate Secure property year from
cultivators taxes from invasion of date of
of the land Art. II(c) squatters and execution
in Allow DEVELOPER other elements of this
question. to take possession Art. III (c) Agreement
of subject property To negotiate with . The
occupants remaining
DEVELOP Art. II(b) Art. V par. 2 25% of the
same and required for the Art. II(c)
requireme secure all successful Take possession
nts shall necessary development of the of the parcels of
be fully developme Project land
accomplis nt permit, Art. V par. 2 Art. III (j)
hed within performan Pay real estate Secure property
another 6 ce bonds, taxes from invasion of
months environme squatters and
from date ntal other elements
of complianc Art. III(f)
expiration e Secure
of the certificate, development
original license to permit, ECC,
one-year sell and all License to Sell,
period. other etc.
DEVELOP Art. II(b) Art. V par. 2 related
ER to Deliver any and all Pay real estate requireme
apply for documents taxes nt from the
and required for the Art. II(c) pertinent
secure successful Take possession Municipal
exemption development of the of the parcels of Governme
or Project land nt, DENR,
conversion Art. V par. 2 Art. III (j) HLURB
permit and Pay real estate Secure property and other
such other taxes from invasion of governme
related Art. II(f) squatters and ntal
requireme Assist other elements agencies
nts DEVELOPER Art. III(a) concerned
needed for secure exemption Advance within a
the from CARL and expenses for period of 2
approval conversion/reclassif exemption, years from
of ication of subject conversion, re- date of
exemption property classification execution
or Art. III(b) expenses. of this
conversion Give DEVELOPER Art.III(b) secure Agreement
application authority to apply exemption and .
of the land for exemption, conversion permit DEVELOP Art. II(b) Art. V par. 2
in question conversion and re- ER Deliver any and all Pay real estate
within a classification. constructio documents taxes
period of Art. VI n required for the Art. II(c)
one and a Must consent on stage/grou successful Take possession
half (1 1/2) the reasonableness nd development of the of the parcels of
years from of the expenses. breaking Project land
date of to Art. V par. 2 Art. III (j)
execution commence Pay real estate Secure property
of this after taxes from invasion of
Agreement release of squatters and
subject to DAR other elements
a six (6) exemption Art. III(e)
month permit or Mobilize
extension. conversion development
DEVELOP Art.III(i) Art. III(d) clearance work and solely
ER to lay Give written Complete and pay its expenses
out a conformity to the comprehensive approval Art. III(f)
complete development plan development plan of other Develop the
Developm (within 6 months required property and
ent Plan to one year from permits by solely pay its
the execution of pertinent expenses on
the JVA) agencies necessary
DEVELOP Art. II(b) Art. V par. 2 of the permits
ER to Deliver any and all Pay real estate governme
apply for documents taxes nt.
DEVELOP Art. II(b) Art. V par. 2 resettlement site within the property, and to approve
ER to Deliver any and all Pay real estate the expenses to be incurred for the process. Should
secure documents taxes the owner fail to allocate the site for the resettlement,
approval required for the Art. II(c) the obligation of the developer to relocate would not
of successful Take possession be demandable. Conversely, should the developer fail
subdivisio development of the of the parcels of to negotiate with the occupants, the owner's obligation
n plan and Project land to allocate the resettlement site would not become
technical Art. V par. 2 Art. III (j) due.
description Pay real estate Secure property
from the taxes from invasion of As to the second activity (i.e., the completion of the
Bureau of Art. II(a) squatters and development plan), the developer had the obligation
Lands Deliver titles to other elements to lay out the plan, but the owner needed to conform
based on DEVELOPER Art. III(k) to the plan before the same was finalized.
the Art. II(a) Process titling of Accordingly, the final development plan would not be
approved Execute Deed of lots generated should the owner fail to approve the lay-out
scheme Assignment plan; nor would the owner be able to approve if no
and Art. III(a) such plan had been initially laid out by the developer.
thereafter Pay all expenses
to petition, for settlement of In each activity, the obligation of each party was
follow-up claims, relocation, dependent upon the obligation of the other. Although
and application for their obligations were to be performed simultaneously,
secure the exemption, the performance of an activity obligation was still
release of conversion, re- conditioned upon the fulfillment of the continuous
individual classification. obligation, and vice versa. Should either party cease
titles for all to perform a continuous obligation, the other's
lots in the subsequent activity obligation would not accrue.
project in Conversely, if an activity obligation was not performed
the by either party, the continuous obligation of the other
respective would cease to take effect. The performance of the
names of continuous obligation was subject to the resolutory
the parties condition that the precedent obligation of the other
form the party, whether continuous or activity, was fulfilled as it
register of became due. Otherwise, the continuous obligation
deeds. would be extinguished.
Market Fix selling date Fix selling date
and Sell According to Article 1184 of the Civil Code, the
the condition that some event happen at a determinate
property time shall extinguish the obligation as soon as the
Owner to time expires, or if it has become indubitable that the
reimburse event will not take place. Here, the common cause of
and pay the parties in entering into the joint venture was the
the development of the joint venture property into the
DEVELOP residential subdivision as to eventually profit
ER therefrom. Consequently, all of the obligations under
the JVA were subject to the happening of the
complete development of the joint venture property, or
The activities under the JVA fell into seven major if it would become indubitable that the completion
categories, specifically: (l)the relocation of the would not take place, like when an obligation, whether
occupants; (2) the completion of the development continuous or activity, was not performed. Should any
plan; (3) the securing of exemption and conversion of the obligations, whether continuous or activity, be
permits; (4) the obtention of the development permits not performed, all the other remaining obligations
from government agencies; (5) the development of would not ripen into demandable obligations while
the subject land; (6) the issuance of titles for the those already performed would cease to take effect.
subdivided lots; and (7) the selling of the subdivided This is because every single obligation of each party
lots and the reimbursement of the advances. under the JVA rested on the common cause of
profiting from the developed subdivision.
For the first activity (i.e., the relocation of the
occupants), the developer was obliged to negotiate It appears that upon the execution of the JVA, the
with the occupants, to advance payment for parties were performing their respective obligations
disturbance compensation, and to relocate the until disagreement arose between them that affected
occupants to an area within the subject land, while the the subsequent performance of their accrued
owner was obliged to agree to and to allocate the obligations. Being reciprocal in nature, their
respective obligations as the owner and the developer
were dependent upon the performance by the other of
its obligations; hence, any claim of delay or non-
performance against the other could prosper only if
the complaining party had faithfully complied with its
own correlative obligation.
A respected commentator has cogently observed in
this connection:
§ 135. Same; consequences of simultaneous
performance. As a consequence of the rule of
simultaneous performance, if the party who has not
performed his obligation demands performance from
the other, the latter may interpose the defense of
unfulfilled contract (exceptio non adimpleli contraclus)
by virtue of which he cannot be obliged to perform
while the other's obligation remains unfulfilled. Hence,
the Spanish Supreme Court has ruled that the non-
performance of one party is justified if based on the
non-performance of the other; that the party who has
failed to perform cannot demand performance from
the other; and that judicial approval is not necessary
to release a party from his obligation, the non-
performance of the other being a sufficient defense
against any demand for performance by the guilty
party.
Another consequence of simultaneous performance is
the rule of compensatio morae, that is to say that
neither party incurs in delay if the other does not or is
not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligations, delay by the other
begins.
Yet, the record is bereft of the proof to support the
lower courts' unanimous conclusion that the owner
had already performed its correlative obligation under
the JVA as to place itself in the position to demand
that the developer should already perform its
obligation of providing the round-the-clock security on
the property. In issuing its order of November 5, 2002,
therefore, the RTC acted whimsically because it did
not first ascertain whether or not the precedent
reciprocal obligation of the owner upon which the
demanded obligation of the developer was dependent
had already been performed. Without such showing
that the developer had ceased to perform a
continuous obligation to provide security over the joint
venture property despite complete fulfillment by the
owner of all its accrued obligations, the owner had no
right to demand from the developer the round-the-
clock security over the 215 hectares of land.
The CA further gravely erred in characterizing the
order for the petitioners to implement the round-the-
clock security provision of the JVA and the addendum
as an established and undisputed interim measure
that could be issued pending the resolution of the
case on the merits.
Apart from the provisional remedies expressly
recognized and made available under Rule 56 to Rule
61 of the Rules of Court, the Court has sanctioned
only the issuance of the status quo ante order but
only to maintain the last, actual, peaceable and
uncontested state of things that preceded the
controversy.32 The eminent Justice Florenz D.
Regalado,33 an authority on remedial law, has
delineated the nature of the status quo ante order,
and distinguished it from the provisional remedy of
temporary restraining order, as follows:
There have been instances when the Supreme Court
has issued a status quo order which, as the very term
connotes, is merely intended to maintain the last,
actual, peaceable and uncontested state of things
which preceded the controversy. This was resorted to
when the projected proceedings in the case made the
conservation of the status quo desirable or essential,
but the affected party neither sought such relief or the
allegations in his pleading did not sufficiently make
out a case for a temporary restraining order. The
status quo order was thus issued motu proprio on
equitable considerations. Also, unlike a temporary
restraining order or a preliminary injunction, a status
quo order is more in the nature of a cease and desist
order, since it neither directs the doing or undoing of
acts as in the case of prohibitory or mandatory
injunctive relief. The further distinction is provided by
the present amendment in the sense that, unlike the
amended rule on restraining orders, a status quo
order does not require the posting of a bond.
The order of November 5, 2002, by directing the
developer to provide sufficient round-the-clock
security for the protection of the joint venture property
during the pendency of the case, was not of the
nature of the status quo ante order because the
developer, as averred in the complaint, had not yet
provided a single security watchman to secure the
entire 215 hectares of land for several years. 34 Also,
the owner stated in the comment to the petition that
the developer had dismissed all the security guards
posted in the property since 1997.35 At the time of the
filing of the complaint for specific performance on
February 29, 2000, therefore, the last actual,
peaceable and uncontested state of things preceding
the controversy was the absence of such security, not
the installation of the security personnel/measures. In
fact, the failure of the developer to provide the round-
the-clock security itself became the controversy that
impelled the owner to bring the action against the
petitioners.
By preliminarily directing the developer to provide
sufficient round-the-clock security for the protection of
the joint venture property during the pendency of the
case, the November 5, 2002 order of the RTC did not
come under the category of the status quo ante order
that would issue upon equitable consideration, or
even of an injunctive relief that would issue under
Rule 58 of the Rules of Court. Hence, the issuance of
the order constituted a blatant jurisdictional error that
needed to be excised. Verily, a jurisdictional error is
one by which the act complained of was issued by the
court without or in excess of jurisdiction. 36Without
jurisdiction means that the court acted with absolute
want of jurisdiction. Excess of jurisdiction means that
the court has jurisdiction but has transcended the
same or acted without any statutory authority.
Regional Trial Court, Branch 67, in Pasig City;
DIRECTS the Regional Trial Court, Branch 67, in
Pasig City to resume the proceedings in Civil Case
No. 67813 with dispatch; and ORDERS the
respondents to pay the costs of suit.
SO ORDERED

Although the RTC undoubtedly had jurisdiction to

hear and decide the principal action for specific
performance as well as to act on the motions
submitted to it in the course of the proceedings, the
distinction between jurisdiction over the case and
jurisdiction to issue an interlocutory order as an
ancillary remedy incident to the principal action should
be discerned. We have frequently declared that a
court may have jurisdiction over the principal action
but may nevertheless act irregularly or in excess of its
jurisdiction in the course of its proceedings by the
granting of an auxiliary remedy.38 In Leung Ben v.
O'Brien,39 for instance, this Court has thus clarified:

It may be observed in this connection that the word

"jurisdiction" as used in attachment cases, has
reference not only to the authority of the court to
entertain the principal action but also to its authority to
issue the attachment, as dependent upon the
existence of the statutory ground. (6 C. J., 89.) This
distinction between jurisdiction to issue the
attachment as an ancillary remedy incident to the
principal litigation is of importance; as a court's
jurisdiction over the main action may be complete,
and yet it may lack authority to grant an attachment
as ancillary to such action. This distinction between
jurisdiction over the ancillary has been recognized by
this court in connection with actions involving the
appointment of a receiver. Thus in Rocha & Co. vs.
Crossfield and Figueras (6 Phil. Rep., 355), a receiver
had been appointed without legal justification. It was
held that the order making the appointment was
beyond the jurisdiction of the court; and though the
court admittedly had jurisdiction of the main cause,
the order was vacated by this court upon application a
writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep.,
358, Blanco vs. Ambler and McMicking 3 Phil. Rep.,
735, Yangco vs. Rohde, 1 Phil. Rep., 404.)

By parity of reasoning it must follow that when a court

issues a writ of attachment for which there is no
statutory authority, it is acting irregularly and in
excess of its jurisdiction, in the sense necessary to
justify the Supreme Court in granting relief by the writ
of certiorari.

WHEREFORE, the Court GRANTS the petition for

review on certiorari; REVERSES and SETS ASIDE
the decision promulgated on April 27, 2005 and the
resolution promulgated on September 12, 2005;
NULLIFIES the orders issued on November 5, 2002
and May 19, 2003 in Civil Case No. 67813 by the
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA
GALICIA, EVELYN GALICIA, JUAN GALICIA, JR.
and RODRIGO GALICIA, Petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA,
Respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975
by Juan Galicia, Sr., prior to his demise in 1979, and
Celerina Labuguin, in favor of Albrigido Leyva
involving the undivided one-half portion of a piece of
land situated at Poblacion, Guimba, Nueva Ecija for
the sum of P50,000.00 under the following terms:
1. The sum of PESOS: THREE THOUSAND
(P3,000.00) is HEREBY acknowledged to
have been paid upon the execution of this
agreement;
2. The sum of PESOS: TEN THOUSAND
(P10,000.00) shall be paid within ten (10)
days from and after the execution of this
agreement;
3. The sum of PESOS: TEN THOUSAND
(P10,000.00) represents the VENDORS'
indebtedness with the Philippine Veterans
Bank which is hereby assumed by the
VENDEE; and
4. The balance of PESOS: TWENTY SEVEN
THOUSAND (P27,000.00.) shall be paid
within one (1) year from and after the
execution of this instrument. (p. 53, Rollo)
is the subject matter of the present litigation between
the heirs of Juan Galicia, Sr. who assert breach of the
conditions as against private respondent's claim
anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific
performance filed by private respondent on account of
the herein petitioners' reluctance to abide by the
covenant, ruled in favor of the vendee (p. 64, Rollo)
while respondent court practically agreed with the trial
court except as to the amount to be paid to petitioners
and the refund to private respondent are concerned
(p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed
as first installment was received by Juan Galicia, Sr.
According to petitioners, of the P10,000.00 to be paid
within ten days from execution of the instrument, only
P9,707.00 was tendered to, and received by, them on
numerous occasions from May 29, 1975, up to
November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine
Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness
came from Celerina Labuguin (p. 73, Rollo).
Moreover, petitioners asserted that not a single
centavo of the P27,000.00 representing the remaining
balance was paid to them. Because of the
apprehension that the heirs of Juan Galicia, Sr. are
disavowing the contract inked by their predecessor,
private respondent filed the complaint for specific
performance.
In addressing the issue of whether the conditions of
the instrument were performed by herein private
respondent as vendee, the Honorable Godofredo
Rilloraza, Presiding Judge of Branch 31 of the
Regional Trial Court, Third Judicial Region stationed
at Guimba, Nueva Ecija, decided to uphold private
respondent's theory on the basis of constructive
fulfillment under Article 1186 and estoppel through
acceptance of piecemeal payments in line with Article
1235 of the Civil Code.
Anent the P10,000.00 specified as second
installment, the lower court counted against the
vendors the candid statement of Josefina Tayag who
sat on the witness stand and made the admission that
the check issued as payment thereof was
nonetheless paid on a staggered basis when the
check was dishonored (TSN, September 1, 1983, pp.
3-4; p. 3, Decision; p. 66, Rollo). Regarding the third
condition, the trial court noted that plaintiff below paid
more than P6,000.00 to the Philippine Veterans Bank
but Celerina Labuguin, the sister and co-vendor of
Juan Galicia, Sr. paid P3,778.77 which circumstance
was construed to be a ploy under Article 1186 of the
Civil Code that "prematurely prevented plaintiff from
paying the installment fully" and "for the purpose of
withdrawing the title to the lot". The acceptance by
petitioners of the various payments even beyond the
periods agreed upon, was perceived by the lower
court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private
respondent consigned P18,520.00, an amount
sufficient to offset the remaining balance, leaving the
sum of P1,315.00 to be credited to private
respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of Juan
Galicia, to execute the Deed of Sale of their
undivided ONE HALF (1/2) portion of Lot No.
1130, Guimba Cadastre, covered by TCT
 No. NT-120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the
national road upon finality of judgment; that,
in their default, the Clerk of Court II, is
hereby ordered to execute the deed of
conveyance in line with the provisions of
Section 10, Rule 39 of the Rules of Court;
2. Ordering the defendants, heirs of Juan
Galicia, jointly and severally to pay attorney's
fees of P6,000.00 and the further sum of
P3,000.00 for actual and compensatory
damages;
3. Ordering Celerina Labuguin and the other
defendants herein to surrender to the Court
the owner's duplicate of TCT No. NT-
120563, province of Nueva Ecija, for the use
of plaintiff in registering the portion, subject
matter of the instant suit;
4. Ordering the withdrawal of the amount of
P18,520.00 now consigned with the Court,
and the amount of P17,204.75 be delivered
to the heirs of Juan Galicia as payment of
the balance of the sale of the lot in question,
the defendants herein after deducting the
amount of attorney's fees and damages
awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum of
P1,315.25 excess or over payment and,
defendants to pay the cost of the suit. (p. 69,
Rollo)
and following the appeal interposed with respondent
court, Justice Dayrit with whom Justices Purisima and
Aldecoa, Jr. concurred, modified the fourth paragraph
of the decretal portion to read:
4. Ordering the withdrawal of the amount of
P18,500.00 now consigned with the Court,
and that the amount of P16,870.52 be
delivered to the heirs of Juan Galicia, Sr. as
payment to the unpaid balance of the sale,
including the reimbursement of the amount
paid to Philippine Veterans Bank, minus the
amount of attorney's fees and damages
awarded in favor of plaintiff. The excess of
P1,649.48 will be returned to plaintiff. The
costs against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the
appellate court declared:
With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed modified by the
parties when the heirs of Juan Galicia, Sr.
accepted payments without objection up to
November 3, 1979. On the basis of receipts
presented by appellee commencing from
August 8, 1975 up to November 3, 1979, a
total amount of P13,908.25 has been paid,
thereby leaving a balance of P13,091.75.
Said unpaid balance plus the amount
reimbursable to appellant in the amount of
P3,778.77 will leave an unpaid total of
P16,870.52. Since appellee consigned in
court the sum of P18,500.00, he is entitled to
get the excess of P1,629.48. Thus, when the
heirs of Juan Galicia, Sr. (obligees) accepted
the performance, knowing its
incompleteness or irregularity and without
expressing any protest or objection, the
obligation is deemed fully complied with
(Article 1235, Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision
appealed from, which agreed with the conclusions of
the trial court, is vulnerable to attack via the recourse
before Us on the principal supposition that the full
consideration of the agreement to sell was not paid by
private respondent and, therefore, the contract must
be rescinded.
The suggestion of petitioners that the covenant must
be cancelled in the light of private respondent's so-
called breach seems to overlook petitioners'
demeanor who, instead of immediately filing the case
precisely to rescind the instrument because of non-
compliance, allowed private respondent to effect
numerous payments posterior to the grace periods
provided in the contract. This apathy of petitioners
who even permitted private respondent to take the
initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment of the
right to rescind normally conferred by Article 1191 of
the Civil Code. As aptly observed by Justice
Gutierrez, Jr. in Angeles vs. Calasanz (135 SCRA
323 [1985]; 4 Paras, Civil Code of the Philippines
Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees
that when the defendants-appellants, instead
of availing of their alleged right to rescind,
have accepted and received delayed
payments of installments, though the
plaintiffs-appellees have been in arrears
beyond the grace period mentioned in
paragraph 6 of the contract, the defendants-
appellants have waived, and are now
estopped from exercising their alleged right
of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5
CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Annotated, Seventh Ed. [1987], pp. 212-213) a similar
opinion was expressed to the effect that:
In a perfected contract of sale of land under
an agreed schedule of payments, while the
parties may mutually oblige each other to
compel the specific performance of the
monthly amortization plan, and upon failure
 of the buyer to make the payment, the seller
has the right to ask for a rescission of the
contract under Art. 1191 of the Civil Code,
this shall be deemed waived by acceptance
of posterior payments.
Both the trial and appellate courts were, therefore,
correct in sustaining the claim of private respondent
anchored on estoppel or waiver by acceptance of
delayed payments under Article 1235 of the Civil
Code in that:
When the obligee accepts the performance,
knowing its incompleteness or irregularity,
and without expressing any protest or
objection, the obligation is deemed fully
complied with.
considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting the
latter's delayed payments not only beyond the grace
periods but also during the pendency of the case for
specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind
is not absolute and will not be granted where there
has been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First
Ed. [1968] p. 132). By and large, petitioners' actuation
is susceptible of but one construction — that they are
now estopped from reneging from their commitment
on account of acceptance of benefits arising from
overdue accounts of private respondent.
Now, as to the issue of whether payments had in fact
been made, there is no doubt that the second
installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag's admission in
judicio that the sum of P10,000.00 was fully
liquidated. It is thus erroneous for petitioners to
suppose that "the evidence in the records do not
support this conclusion" (p. 18, Memorandum for
Petitioners; p. 157, Rollo). A contrario, when the court
of origin, as well as the appellate court, emphasized
the frank representation along this line of Josefina
Tayag before the trial court (TSN, September l, 1983,
pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p.
50, Rollo; p. 3, Decision in Civil Case No. 681-G, p.
66, Rollo), petitioners chose to remain completely
mute even at this stage despite the opportunity
accorded to them, for clarification. Consequently, the
prejudicial aftermath of Josefina Tayag's spontaneous
reaction may no longer be obliterated on the basis of
estoppel (Article 1431, Civil Code; Section 4, Rule
129; Section 2(a), Rule 131, Revised Rules on
Evidence).
Insofar as the third item of the contract is concerned,
it may be recalled that respondent court applied
Article 1186 of the Civil Code on constructive
fulfillment which petitioners claim should not have
been appreciated because they are the obligees while
the proviso in point speaks of the obligor. But,
petitioners must concede that in a reciprocal
obligation like a contract of purchase, (Ang vs. Court
of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at
p. 201), both parties are mutually obligors and also
obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the
other privy of his part of the prestation, rescind the
contract or seek fulfillment (Article 1191, Civil Code).
In short, it is puerile for petitioners to say that they are
the only obligees under the contract since they are
also bound as obligors to respect the stipulation in
permitting private respondent to assume the loan with
the Philippine Veterans Bank which petitioners
impeded when they paid the balance of said loan. As
vendors, they are supposed to execute the final deed
of sale upon full payment of the balance as
determined hereafter.
Lastly, petitioners argue that there was no valid
tender of payment nor consignation of the sum of
P18,520.00 which they acknowledge to have been
deposited in court on January 22, 1981 five years
after the amount of P27,000.00 had to be paid (p. 23,
Memorandum for Petitioners; p. 162, Rollo). Again
this suggestion ignores the fact that consignation
alone produced the effect of payment in the case at
bar because it was established below that two or
more heirs of Juan Galicia, Sr. claimed the same right
to collect (Article 1256, (4), Civil Code; pp. 4-5,
Decision in Civil Case No. 681-G; pp. 67-68, Rollo).
Moreover, petitioners did not bother to refute the
evidence on hand that, aside from the P18,520.00
(not P18,500.00 as computed by respondent court)
which was consigned, private respondent also paid
the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50,
Rollo). These two figures representing private
respondent's payment of the fourth condition amount
to P32,428.25, less the P3,778.77 paid by petitioners
to the bank, will lead us to the sum of P28,649.48 or a
refund of P1,649.48 to private respondent as
overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED
and the decision appealed from is hereby AFFIRMED
with the slight modification of Paragraph 4 of the
dispositive thereof which is thus amended to read:
4. ordering the withdrawal of the sum of
P18,520.00 consigned with the Regional
Trial Court, and that the amount of
P16,870.52 be delivered by private
respondent with legal rate of interest until
fully paid to the heirs of Juan Galicia, Sr. as
balance of the sale including reimbursement
of the sum paid to the Philippine Veterans
Bank, minus the attorney's fees and
damages awarded in favor of private
respondent. The excess of P1,649.48 shall
be returned to private respondent also with
legal interest until fully paid by petitioners.
With costs against petitioners.
SO ORDERED.
 Republic of the Philippines Date Amount Paid
SUPREME COURT July 19, 1990 P40,000.00[6]
Manila March 13, 1991 15,000.00[7]
April 6, 1991 15,000.00[8]
SECOND DIVISION
November 28, 1991 5,000.00[9]
G.R. No. 139523 May 26, 2005 Total P75,000.00

SPS. FELIPE AND LETICIA CANNU, Petitioners,
vs.
SPS. GIL AND FERNANDINA GALANG AND
NATIONAL HOME MORTGAGE FINANCE
CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari which
seeks to set aside the decision[1] of the Court of
Appeals dated 30 September 1998 which affirmed
with modification the decision of Branch 135 of the
Regional Trial Court (RTC) of Makati City, dismissing
the complaint for Specific Performance and Damages
filed by petitioners, and its Resolution[2] dated 22 July
1999 denying petitioners motion for reconsideration.
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of Mortgage
Obligation[10] dated 20 August 1990 was made and
entered into by and between spouses Fernandina and
Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot in question
which contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the
sum of TWO HUNDRED FIFTY THOUSAND PESOS
(P250,000.00), Philippine Currency, receipt of which
is hereby acknowledged by the Vendors and the
assumption of the mortgage obligation, the Vendors
hereby sell, cede and transfer unto the Vendees, their
heirs, assigns and successor in interest the above-
described property together with the existing
improvement thereon.

A complaint[3] for Specific Performance and It is a special condition of this contract that the
Damages was filed by petitioners-spouses Felipe and Vendees shall assume and continue with the payment
Leticia Cannu against respondents-spouses Gil and of the amortization with the National Home Mortgage
Fernandina Galang and the National Home Mortgage Finance Corporation Inc. in the outstanding balance
Finance Corporation (NHMFC) before Branch 135 of of P_______________, as of __________ and shall
the RTC of Makati, on 24 June 1993. The case was comply with and abide by the terms and conditions of
docketed as Civil Case No. 93-2069. the mortgage document dated Feb. 27, 1989 and
identified as Doc. No. 82, Page 18, Book VII, S. of
The facts that gave rise to the aforesaid complaint are 1989 of Notary Public for Quezon City Marites Sto.
as follows: Tomas Alonzo, as if the Vendees are the original
signatories.
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan Petitioners immediately took possession and
Association for P173,800.00 to purchase a house and occupied the house and lot.
lot located at Pulang Lupa, Las Pias, with an area of
150 square meters covered by Transfer Certificate of Petitioners made the following payments to the
Title (TCT) No. T-8505 in the names of respondents- NHMFC:
spouses. To secure payment, a real estate mortgage
was constituted on the said house and lot in favor of Date Amount Receipt No.
Fortune Savings & Loan Association. In early 1990, July 9, 1990 P 14,312.47 D-503986[11]
NHMFC purchased the mortgage loan of March 12, 1991 8,000.00 D-729478[12]
respondents-spouses from Fortune Savings & Loan February 4, 1992 10,000.00 D-999127[13]
Association for P173,800.00. March 31, 1993 6,000.00 E-563749[14]
April 19, 1993 10,000.00 E-582432[15]
Respondent Fernandina Galang authorized[4] her April 27, 1993 7,000.00 E-618326[16]
attorney-in-fact, Adelina R. Timbang, to sell the
P 55,312.47
subject house and lot.
Petitioners paid the equity or second mortgage to
Petitioner Leticia Cannu agreed to buy the property
CERF Realty.[17]
for P120,000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with CERF
Despite requests from Adelina R. Timbang and
Realty[5] (the Developer of the property).
Fernandina Galang to pay the balance of P45,000.00
or in the alternative to vacate the property in question,
Of the P120,000.00, the following payments were
petitioners refused to do so.
made by petitioners:
In a letter[18] dated 29 March 1993, petitioner Leticia
Cannu informed Mr. Fermin T. Arzaga, Vice
President, Fund Management Group of the NHMFC,
that the ownership rights over the land covered by
TCT No. T-8505 in the names of respondents-
spouses had been ceded and transferred to her and
her husband per Deed of Sale with Assumption of
Mortgage, and that they were obligated to assume the
mortgage and pay the remaining unpaid loan balance.
Petitioners formal assumption of mortgage was not
approved by the NHMFC.[19]
Because the Cannus failed to fully comply with their
obligations, respondent Fernandina Galang, on 21
May 1993, paid P233,957.64 as full payment of her
remaining mortgage loan with NHMFC.[20]
Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the
subject property had already been sold to them.
Consequently, the NHMFC held in abeyance the
release of said TCT.
Thereupon, a Complaint for Specific Performance and
Damages was filed asking, among other things, that
petitioners (plaintiffs therein) be declared the owners
of the property involved subject to reimbursements of
the amount made by respondents-spouses
(defendants therein) in preterminating the mortgage
loan with NHMFC.
Respondent NHMFC filed its Answer.[21] It claimed
that petitioners have no cause of action against it
because they have not submitted the formal
requirements to be considered assignees and
successors-in-interest of the property under litigation.
In their Answer,[22] respondents-spouses alleged that
because of petitioners-spouses failure to fully pay the
consideration and to update the monthly
amortizations with the NHMFC, they paid in full the
existing obligations with NHMFC as an initial step in
the rescission and annulment of the Deed of Sale with
Assumption of Mortgage. In their counterclaim, they
maintain that the acts of petitioners in not fully
complying with their obligations give rise to rescission
of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.
After trial, the lower court rendered its decision
ratiocinating:
On the basis of the evidence on record, testimonial
and documentary, this Court is of the view that
plaintiffs have no cause of action either against the
spouses Galang or the NHMFC. Plaintiffs have
admitted on record they failed to pay the amount of
P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. C and 3). Consequently,
this is a breach of contract and evidently a failure to
comply with obligation arising from contracts. . . In this
case, NHMFC has not been duly informed due to lack
of formal requirements to acknowledge plaintiffs as
legal assignees, or legitimate tranferees and,
therefore, successors-in-interest to the property,
plaintiffs should have no legal personality to claim any
right to the same property.[23]
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not
been proven even by preponderance of evidence,
and, as such, plaintiffs have no cause of action
against the defendants herein. The above-entitled
case is ordered dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim,
in favor of defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. C and 3) rescinded and
hereby declared the same as nullified without
prejudice for defendants-spouses Galang to return the
partial payments made by plaintiffs; and the plaintiffs
are ordered, on the other hand, to return the physical
and legal possession of the subject property to
spouses Galang by way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC,
each the amount of P10,000.00 as litigation
expenses, jointly and severally;
3. To pay attorneys fees to defendants in the amount
of P20,000.00, jointly and severally; and
4. The costs of suit.
5. No moral and exemplary damages awarded.[24]
A Motion for Reconsideration[25] was filed, but same
was denied. Petitioners appealed the decision of the
RTC to the Court of Appeals. On 30 September 1998,
the Court of Appeals disposed of the appeal as
follows:
Obligations arising from contract have the force of law
between the contracting parties and should be
complied in good faith. The terms of a written contract
are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to
pay defendants-appellees spouses Galang the sum of
P250,000.00, and to assume the mortgage.
Records show that upon the execution of the Contract
of Sale or on July 19, 1990 plaintiffs-appellants paid
defendants-appellees spouses Galang the amount of
only P40,000.00.
The next payment was made by plaintiffs-appellants
on March 13, 1991 or eight (8) months after the
execution of the contract. Plaintiffs-appellants paid the
amount of P5,000.00.
The next payment was made on April 6, 1991 for
P15,000.00 and on November 28, 1991, for another
P15,000.00.
From 1991 until the present, no other payments were
made by plaintiffs-appellants to defendants-appellees
spouses Galang.
Out of the P250,000.00 purchase price which was
supposed to be paid on the day of the execution of
contract in July, 1990 plaintiffs-appellants have paid,
in the span of eight (8) years, from 1990 to present,
the amount of only P75,000.00. Plaintiffs-appellants
should have paid the P250,000.00 at the time of the
execution of contract in 1990. Eight (8) years have
already lapsed and plaintiffs-appellants have not yet
complied with their obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the
filing of this case, of the Managerial Check in the
amount of P278,957.00 dated January 24, 1994
cannot be considered as an effective mode of
payment.
Performance or payment may be effected not by
tender of payment alone but by both tender and
consignation. It is consignation which is essential in
order to extinguish plaintiffs-appellants obligation to
pay the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with
their obligation to pay the monthly amortizations due
on the mortgage.
In the span of three (3) years from 1990 to 1993,
plaintiffs-appellants made only six payments. The
payments made by plaintiffs-appellants are not even
sufficient to answer for the arrearages, interests and
penalty charges.
On account of these circumstances, the rescission of
the Contract of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification.
Defendants-appellees spouses Galang are hereby
ordered to return the partial payments made by
plaintiff-appellants in the amount of P135,000.00.
No pronouncement as to cost.[26]
The motion for reconsideration[27] filed by petitioners
was denied by the Court of Appeals in a
Resolution[28] dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT PETITIONERS BREACH OF
THE OBLIGATION WAS SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED
WHEN IN EFFECT IT HELD THAT THERE WAS NO
SUBSTANTIAL COMPLIANCE WITH THE
OBLIGATION TO PAY THE MONTHLY
AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THE OTHER
FACTS AND CIRCUMSTANCES THAT MILITATE
AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THAT THE
ACTION FOR RESCISSION IS SUBSIDIARY.[29]
Before discussing the errors allegedly committed by
the Court of Appeals, it must be stated a priori that the
latter made a misappreciation of evidence regarding
the consideration of the property in litigation when it
relied solely on the Deed of Sale with Assumption of
Mortgage executed by the respondents-spouses
Galang and petitioners-spouses Cannu.
As above-quoted, the consideration for the house and
lot stated in the Deed of Sale with Assumption of
Mortgage is P250,000.00, plus the assumption of the
balance of the mortgage loan with NHMFC. However,
after going over the record of the case, more
particularly the Answer of respondents-spouses, the
evidence shows the consideration therefor is
P120,000.00, plus the payment of the outstanding
loan mortgage with NHMFC, and of the equity or
second mortgage with CERF Realty (Developer of the
property).[30]
Nowhere in the complaint and answer of the
petitioners-spouses Cannu and respondents-spouses
Galang shows that the consideration is P250,000.00.
In fact, what is clear is that of the P120,000.00 to be
paid to the latter, only P75,000.00 was paid to Adelina
Timbang, the spouses Galangs attorney-in-fact. This
debunks the provision in the Deed of Sale with
Assumption of Mortgage that the amount of
P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption of
Mortgage failed to express the true intent and
agreement of the parties regarding its consideration,
the same should not be fully relied upon. The
foregoing facts lead us to hold that the case on hand
falls within one of the recognized exceptions to the
parole evidence rule. Under the Rules of Court, a
party may present evidence to modify, explain or add
to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to
express the true intent and agreement of the parties
thereto.[31]
In the case at bar, when respondents-spouses
enumerated in their Answer the terms and conditions
for the sale of the property under litigation, which is
different from that stated in the Deed of Sale with
Assumption with Mortgage, they already put in issue
the matter of consideration. Since there is a difference
as to what the true consideration is, this Court has
admitted evidence aliunde to explain such
inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out
the discrepancy and to clarify the intent of the parties.
As regards the computation[32] of petitioners as to
the breakdown of the P250,000.00 consideration, we
find the same to be self-serving and unsupported by
evidence.
On the first assigned error, petitioners argue that the
Court erred when it ruled that their breach of the
obligation was substantial.
Settled is the rule that rescission or, more accurately,
resolution,[33] of a party to an obligation under Article
1191[34] is predicated on a breach of faith by the
other party that violates the reciprocity between
them.[35] Article 1191 reads:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual
breach of the contract. Rescission may be had only
for such breaches that are substantial and
fundamental as to defeat the object of the parties in
making the agreement.[36] The question of whether a
breach of contract is substantial depends upon the
attending circumstances[37] and not merely on the
percentage of the amount not paid.
In the case at bar, we find petitioners failure to pay
the remaining balance of P45,000.00 to be
substantial. Even assuming arguendo that only said
amount was left out of the supposed consideration of
P250,000.00, or eighteen (18%) percent thereof, this
percentage is still substantial. Taken together with the
fact that the last payment made was on 28 November
1991, eighteen months before the respondent
Fernandina Galang paid the outstanding balance of
the mortgage loan with NHMFC, the intention of
petitioners to renege on their obligation is utterly
clear.
Citing Massive Construction, Inc. v. Intermediate
Appellate Court,[38] petitioners ask that they be
granted additional time to complete their obligation.
Under the facts of the case, to give petitioners
additional time to comply with their obligation will be
putting premium on their blatant non-compliance of
their obligation. They had all the time to do what was
required of them (i.e., pay the P45,000.00 balance
and to properly assume the mortgage loan with the
NHMFC), but still they failed to comply. Despite
demands for them to pay the balance, no payments
were made.[39]
The fact that petitioners tendered a Managers Check
to respondents-spouses Galang in the amount of
P278,957.00 seven months after the filing of this case
is of no moment. Tender of payment does not by itself
produce legal payment, unless it is completed by
consignation.[40] Their failure to fulfill their obligation
gave the respondents-spouses Galang the right to
rescission.
Anent the second assigned error, we find that
petitioners were not religious in paying the
amortization with the NHMFC. As admitted by them,
in the span of three years from 1990 to 1993, their
payments covered only thirty months.[41] This,
indeed, constitutes another breach or violation of the
Deed of Sale with Assumption of Mortgage. On top of
this, there was no formal assumption of the mortgage
obligation with NHMFC because of the lack of
approval by the NHMFC[42] on account of petitioners
non-submission of requirements in order to be
considered as assignees/successors-in-interest over
the property covered by the mortgage obligation.[43]
On the third assigned error, petitioners claim there
was no clear evidence to show that respondents-
spouses Galang demanded from them a strict and/or
faithful compliance of the Deed of Sale with
Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that demands
were made from petitioners to comply with their
obligation. Adelina R. Timbang, attorney-in-fact of
respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after
the last payment made on 28 November 1991, but
petitioners did not pay.[44] Respondent Fernandina
Galang stated in her Answer[45] that upon her arrival
from America in October 1992, she demanded from
petitioners the complete compliance of their obligation
by paying the full amount of the consideration
(P120,000.00) or in the alternative to vacate the
property in question, but still, petitioners refused to
fulfill their obligations under the Deed of Sale with
Assumption of Mortgage. Sometime in March 1993,
due to the fact that full payment has not been paid
and that the monthly amortizations with the NHMFC
have not been fully updated, she made her intentions
clear with petitioner Leticia Cannu that she will
rescind or annul the Deed of Sale with Assumption of
Mortgage.
We likewise rule that there was no waiver on the part
of petitioners to demand the rescission of the Deed of
Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their
attorney-in-fact, payments in installments does not
constitute waiver on their part to exercise their right to
rescind the Deed of Sale with Assumption of
Mortgage. Adelina Timbang merely accepted the
installment payments as an accommodation to
petitioners since they kept on promising they would
pay. However, after the lapse of considerable time (18
months from last payment) and the purchase price
was not yet fully paid, respondents-spouses exercised
their right of rescission when they paid the
outstanding balance of the mortgage loan with
NHMFC. It was only after petitioners stopped paying
that respondents-spouses moved to exercise their
right of rescission.
Petitioners cite the case of Angeles v. Calasanz[46] to
support their claim that respondents-spouses waived
their right to rescind. We cannot apply this case since
it is not on all fours with the case before us. First, in
Angeles, the breach was only slight and casual which
is not true in the case before us. Second, in Angeles,
the buyer had already paid more than the principal
obligation, while in the instant case, the buyers
(petitioners) did not pay P45,000.00 of the
P120,000.00 they were obligated to pay.
We find petitioners statement that there is no
evidence of prejudice or damage to justify rescission
in favor of respondents-spouses to be unfounded.
The damage suffered by respondents-spouses is the
effect of petitioners failure to fully comply with their
obligation, that is, their failure to pay the remaining
P45,000.00 and to update the amortizations on the
mortgage loan with the NHMFC. Petitioners have in
their possession the property under litigation. Having
parted with their house and lot, respondents-spouses
should be fully compensated for it, not only
monetarily, but also as to the terms and conditions
agreed upon by the parties. This did not happen in the
case before us.
Citing Seva v. Berwin & Co., Inc.,[47] petitioners
argue that no rescission should be decreed because
there is no evidence on record that respondent
Fernandina Galang is ready, willing and able to
comply with her own obligation to restore to them the
total payments they made. They added that no
allegation to that effect is contained in respondents-
spouses Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall
squarely with the case on hand. In the former, the
failure of one party to perform his obligation was the
fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their
obligation was due to their own fault.
Second, what is stated in the book of Justice Edgardo
L. Paras is [i]t (referring to the right to rescind or
resolve) can be demanded only if the plaintiff is ready,
willing and able to comply with his own obligation, and
the other is not. In other words, if one party has
complied or fulfilled his obligation, and the other has
not, then the former can exercise his right to rescind.
In this case, respondents-spouses complied with their
obligation when they gave the possession of the
property in question to petitioners. Thus, they have
the right to ask for the rescission of the Deed of Sale
with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on
Article 1383 of the Civil Code, maintain that the Court
of Appeals erred when it failed to consider that the
action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission
applies to contracts enumerated in Articles 1381[48]
of the Civil Code. The contract involved in the case
before us is not one of those mentioned therein. The
provision that applies in the case at bar is Article
1191.
In the concurring opinion of Justice Jose B.L. Reyes
in Universal Food Corp. v. Court of Appeals,[49]
rescission under Article 1191 was distinguished from
rescission under Article 1381. Justice J.B.L. Reyes
said:
. . . The rescission on account of breach of
stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith
by the defendant, that violates the reciprocity between
the parties. It is not a subsidiary action, and Article
1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is
subordinated to anything other than the culpable
breach of his obligations by the defendant. This
rescission is a principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
promises when the other violates his. As expressed in
the old Latin aphorism: Non servanti fidem, non est
fides servanda. Hence, the reparation of damages for
the breach is purely secondary.
On the contrary, in the rescission by reason of lesion
or economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d tre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these
two articles is limited to the cases of rescission for
lesion enumerated in Article 1381 of the Civil Code of
the Philippines, and does not apply to cases under
Article 1191.
From the foregoing, it is clear that rescission
(resolution in the Old Civil Code) under Article 1191 is
a principal action, while rescission under Article 1383
is a subsidiary action. The former is based on breach
by the other party that violates the reciprocity between
the parties, while the latter is not.
In the case at bar, the reciprocity between the parties
was violated when petitioners failed to fully pay the
balance of P45,000.00 to respondents-spouses and
their failure to update their amortizations with the
NHMFC.
Petitioners maintain that inasmuch as respondents-
spouses Galang were not granted the right to
unilaterally rescind the sale under the Deed of Sale
with Assumption of Mortgage, they should have first
asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage
loan with the NHMFC. They claim that such payment
is a unilateral act of rescission which violates existing
jurisprudence.
In Tan v. Court of Appeals,[50] this court said:
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him is clear from
a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to
the contrary, this power must be invoked judicially; it
cannot be exercised solely on a partys own judgment
that the other has committed a breach of the
obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort
to the courts, the petitioners action in unilaterally
terminating the contract in this case is unjustified.
accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to
require the parties to surrender whatever they may
have received from the other. The parties should be
restored to their original situation.[51]
The record shows petitioners paid respondents-
spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments
to NHMFC amounting to P55,312.47. As to the
petitioners alleged payment to CERF Realty of
P46,616.70, except for petitioner Leticia Cannus bare
allegation, we find the same not to be supported by
competent evidence. As a general rule, one who
pleads payment has the burden of proving it.[52]
However, since it has been admitted in respondents-
spouses Answer that petitioners shall assume the
second mortgage with CERF Realty in the amount of
P35,000.00, and that Adelina Timbang, respondents-
spouses very own witness, testified[53] that same has
been paid, it is but proper to return this amount to
petitioners. The three amounts total P165,312.47 --
the sum to be returned to petitioners.
WHEREFORE, premises considered, the decision of
the Court of Appeals is hereby AFFIRMED with
MODIFICATION. Spouses Gil and Fernandina
Galang are hereby ordered to return the partial
payments made by petitioners in the amount of
P165,312.47. With costs.
SO ORDERED.

It is evident that the contract under consideration

does not contain a provision authorizing its
extrajudicial rescission in case one of the parties fails
to comply with what is incumbent upon him. This
being the case, respondents-spouses should have
asked for judicial intervention to obtain a judicial
declaration of rescission. Be that as it may, and
considering that respondents-spouses Answer (with
affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of
Mortgage, it behooves the court to settle the matter
once and for all than to have the case re-litigated
again on an issue already heard on the merits and
which this court has already taken cognizance of.
Having found that petitioners seriously breached the
contract, we, therefore, declare the same is rescinded
in favor of respondents-spouses.

As a consequence of the rescission or, more

 Republic of the Philippines SYSTEM
SUPREME COURT C. ENGINE TELEGRAPH SYSTEM
Manila D. ENGINE CONTROL SYSTEM
E. WEATHER CONTROL SYSTEM
FIRST DIVISION F. ECDIS SYSTEM
G. STEERING WHEEL SYSTEM
G.R. NO. 188986 March 20, 2013 H. BRIDGE CONSOLE

GALILEO A. MAGLASANG, doing business under Php

the name GL Enterprises, Petitioner,
vs
NORTHWESTERN INC., UNIVERSITY, Respondent.
DECISION
SERENO, C.J.:
Before this Court is a Rule 45 Petition, seeking a
review of the 27 July 2009 Court of Appeals (CA)
Decision in CA-G.R. CV No. 88989,1 which modified
the Regional Trial Court (RTC) Decision of 8 January
2007 in Civil Case No. Q-04-53660.2 The CA held that
petitioner substantially breached its contracts with
respondent for the installation of an integrated bridge
system (IBS).
The antecedent .facts are as follows:
On 10 June 2004, respondent Northwestern
University (Northwestern), an educational institution
offering maritime-related courses, engaged the
services of a Quezon City-based firm, petitioner GL
Enterprises, to install a new IBS in Laoag City. The
installation of an IBS, used as the students' training
laboratory, was required by the Commission on
Higher Education (CHED) before a school could offer
maritime transportation programs.
Since its IBS was already obsolete, respondent
required petitioner to supply and install specific
components in order to form the most modern IBS
that would be acceptable to CHED and would be
compliant with the standards of the International
Maritime Organization (IMO). For this purpose, the
parties executed two contracts.
The first contract partly reads:
That in consideration of the payment herein
mentioned to be made by the First Party (defendant),
the Second Party agrees to furnish, supply, install and
integrate the most modern INTEGRATED BRIDGE
SYSTEM located at Northwestern University MOCK
BOAT in accordance with the general conditions,
plans and specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
TOTAL COST:
3,800,000.00
LESS: OLD MARITIME
EQUIPMENT TRADE-IN VALUE 1,000,000.00
DISCOUNT 100,000.00
PROJECT COST (MATERIALS & PhP
INSTALLATION) 2,700,000.00
(Emphasis in the original)
The second contract essentially contains the same
terms and conditions as follows:
That in consideration of the payment herein
mentioned to be made by the First Party (defendant),
the Second Party agrees to furnish, supply, install &
integrate the most modern INTEGRATED BRIDGE
SYSTEM located at Northwestern University MOCK
BOAT in accordance with the general conditions,
plans and specifications of this contract.
SUPPLY & INSTALLATION OF THE
FOLLOWING:
1. ARPA RADAR SIMULATION ROOM
xxx
2. GMDSS SIMULATION ROOM
xxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following
provisions: (1) the IBS and its components must be
compliant with the IMO and CHED standard and with
manuals for simulators/major equipment; (2) the
contracts may be terminated if one party commits a
substantial breach of its undertaking; and (3) any
dispute under the agreement shall first be settled
mutually between the parties, and if settlement is not
obtained, resort shall be sought in the courts of law.
Subsequently, Northwestern paid P1 million as down
payment to GL Enterprises. The former then assumed
possession of Northwestern's old IBS as trade-in
payment for its service. Thus, the balance of the
contract price remained at P1.97 million.

INTEGRATED BRIDGE SYSTEM Two months after the execution of the contracts, GL
Enterprises technicians delivered various materials to
A. 2-RADAR SYSTEM the project site. However, when they started installing
B. OVERHEAD CONSOLE MONITORING the components, respondent halted the operations.
GL Enterprises then asked for an explanation.
Northwestern justified the work stoppage upon its
finding that the delivered equipment were
substandard.9 It explained further that GL Enterprises
violated the terms and conditions of the contracts,
since the delivered components (1) were old; (2) did
not have instruction manuals and warranty
certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO
and CHED standards. Thus, Northwestern demanded
compliance with the agreement and suggested that
GL Enterprises meet with the former's representatives
to iron out the situation.
Instead of heeding this suggestion, GL Enterprises
filed on 8 September 2004 a Complaint10 for breach of
contract and prayed for the following sums: P1.97
million, representing the amount that it would have
earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at least
P100,000 as moral damages; at least P100,000 by
way of exemplary damages; at least P100,000 as
attorney's fees and litigation expenses; and cost of
suit. Petitioner alleged that Northwestern breached
the contracts by ordering the work stoppage and thus
preventing the installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it
asserted that since the equipment delivered were not
in accordance with the specifications provided by the
contracts, all succeeding works would be futile and
would entail unnecessary expenses. Hence, it prayed
for the rescission of the contracts and made a
compulsory counterclaim for actual, moral, and
exemplary damages, and attorney's fees.
The RTC held both parties at fault. It found that
Northwestern unduly halted the operations, even if the
contracts called for a completed project to be
evaluated by the CHED. In turn, the breach
committed by GL Enterprises consisted of the delivery
of substandard equipment that were not compliant
with IMO and CHED standards as required by the
agreement.
Invoking the equitable principle that "each party must
bear its own loss," the trial court treated the contracts
as impossible of performance without the fault of
either party or as having been dissolved by mutual
consent. Consequently, it ordered mutual restitution,
which would thereby restore the parties to their
original positions as follows:
Accordingly, plaintiff is hereby ordered to restore to
the defendant all the equipment obtained by reason of
the First Contract and refund the downpayment of
P1,000,000.00 to the defendant; and for the
defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-continuance
of the installation and integration project. In the event
that restoration of the old equipment taken from
defendant's premises is no longer possible, plaintiff is
hereby ordered to pay the appraised value of
defendant's old equipment at P1,000,000.00.
Likewise, in the event that restoration of the
equipment and materials delivered by the plaintiff to
the defendant is no longer possible, defendant is
hereby ordered to pay its appraised value at
P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and
return all the equipment obtained by reason of the
Second Contract, or if restoration or return is not
possible, plaintiff is ordered to pay the value thereof to
the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With
each of them pointing a finger at the other party as
the violator of the contracts, the appellate court
ultimately determined that GL Enterprises was the
one guilty of substantial breach and liable for
attorney's fees.
The CA appreciated that since the parties essentially
sought to have an IBS compliant with the CHED and
IMO standards, it was GL Enterprises' delivery of
defective equipment that materially and substantially
breached the contracts. Although the contracts
contemplated a completed project to be evaluated by
CHED, Northwestern could not just sit idly by when it
was apparent that the components delivered were
substandard.
The CA held that Northwestern only exercised
ordinary prudence to prevent the inevitable rejection
of the IBS delivered by GL Enterprises. Likewise, the
appellate court disregarded petitioner's excuse that
the equipment delivered might not have been the
components intended to be installed, for it would be
contrary to human experience to deliver equipment
from Quezon City to Laoag City with no intention to
use it.
This time, applying Article 1191 of the Civil Code, the
CA declared the rescission of the contracts. It then
proceeded to affirm the RTC's order of mutual
restitution. Additionally, the appellate court granted
P50,000 to Northwestern by way of attorney's fees.
Before this Court, petitioner rehashes all the
arguments he had raised in the courts a quo. 12 He
maintains his prayer for actual damages equivalent to
the amount that he would have earned, had
respondent not stopped him from performing his tasks
under the two contracts; moral and exemplary
damages; attorney's fees; litigation expenses; and
cost of suit.
Hence, the pertinent issue to be resolved in the
instant appeal is whether the CA gravely erred in (1)
finding substantial breach on the part of GL
Enterprises; (2) refusing petitioner's claims for
damages, and (3) awarding attorney's fees to
Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering
restitution, the courts a quo, however, differed on the
basis thereof. The RTC applied the equitable principle
of mutual fault, while the CA applied Article 1191 on
rescission.
The power to rescind the obligations of the injured
party is implied in reciprocal obligations, such as in
this case. On this score, the CA correctly applied
Article 1191, which provides thus:
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
The two contracts require no less than substantial
breach before they can be rescinded. Since the
contracts do not provide for a definition of substantial
breach that would terminate the rights and obligations
of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang13 that
substantial, unlike slight or casual breaches of
contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement,
since the law is not concerned with trifles.
The question of whether a breach of contract is
substantial depends upon the attending
circumstances.
In the case at bar, the parties explicitly agreed that
the materials to be delivered must be compliant with
the CHED and IMO standards and must be complete
with manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the
intent of the parties was to replace the old IBS in
order to obtain CHED accreditation for Northwestern's
maritime-related courses.
According to CHED Memorandum Order (CMO) No.
10, Series of 1999, as amended by CMO No. 13,
Series of 2005, any simulator used for simulator-
based training shall be capable of simulating the
operating capabilities of the shipboard equipment
concerned. The simulation must be achieved at a
level of physical realism appropriate for training
objectives; include the capabilities, limitations and
possible errors of such equipment; and provide an
interface through which a trainee can interact with the
equipment, and the simulated environment.
Given these conditions, it was thus incumbent upon
GL Enterprises to supply the components that would
create an IBS that would effectively facilitate the
learning of the students.
However, GL Enterprises miserably failed in meeting
its responsibility. As contained in the findings of the
CA and the RTC, petitioner supplied substandard
equipment when it delivered components that (1)
were old; (2) did not have instruction manuals and
warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not
have met the IMO and CHED standards. Highlighting
the defects of the delivered materials, the CA quoted
respondent's testimonial evidence as follows:
Q: In particular which of these equipment of CHED
requirements were not complied with?
A: The Radar Ma'am, because they delivered only 10-
inch PPI, that is the monitor of the Radar. That is 16-
inch and the gyrocompass with two (2) repeaters and
the history card. The gyrocompass - there is no
marker, there is no model, there is no serial number,
no gimbal, no gyroscope and a bulb to work it
properly to point the true North because it is very
important to the Cadets to learn where is the true
North being indicated by the Master Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in
this history card is that the master gyrocompass had
no gimbals, gyroscope and balls and was replaced
with an ordinary electric motor. So what is the
Implication of this?
A: Because those gimbals, balls and the gyroscope it
let the gyrocompass to work so it will point the true
North but they being replaced with the ordinary motor
used for toys so it will not indicate the true North.
Q: So what happens if it will not indicate the true
North?
A: It is very big problem for my cadets because they
must, to learn into school where is the true North and
what is that equipment to be used on board.
Q: One of the defects is that the steering wheel was
that of an ordinary automobile. And what is the
implication of this?
A: Because. on board Ma am, we are using the real
steering wheel and the cadets will be implicated if
they will notice that the ship have the same steering
wheel as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater
was only refurbished and it has no serial number.
What is wrong with that?
A: It should be original Ma am because this gyro
repeater, it must to repeat also the true North being
indicated by the Master Gyro Compass so it will not
work properly, I don t know it will work properly.
(Underscoring supplied)
Evidently, the materials delivered were less likely to
pass the CHED standards, because the navigation
system to be installed might not accurately point to
the true north; and the steering wheel delivered was
one that came from an automobile, instead of one
used in ships. Logically, by no stretch of the
imagination could these form part of the most modern
IBS compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not
refute that the equipment it delivered was
substandard. However, it reiterates its rejected
excuse that Northwestern should have made an
assessment only after the completion of the IBS. 17
Thus, petitioner stresses that it was Northwestern that
breached the agreement when the latter halted the
installation of the materials for the IBS, even if the
parties had contemplated a completed project to be
evaluated by CHED. However, as aptly considered by
the CA, respondent could not just "sit still and wait for
such day that its accreditation may not be granted by
CHED due to the apparent substandard equipment
installed in the bridge system."18 The appellate court
correctly emphasized that, by that time, both parties
would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on
the contracts, the materials that were hauled all the
way from Quezon City to Laoag City under the
custody of the four designated installers might not
have been the components to be used.19 Without
belaboring the point, we affirm the conclusion of the
CA and the RTC that the excuse is untenable for
being contrary to human experience.
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus
clear that its violation was not merely incidental, but
directly related to the essence of the agreement
pertaining to the installation of an IBS compliant with
the CHED and IMO standards.
Consequently, the CA correctly found substantial
breach on the part of petitioner.
In contrast, Northwestern's breach, if any, was
characterized by the appellate court as slight or
casual.21 By way of negative definition, a breach is
considered casual if it does not fundamentally defeat
the object of the parties in entering into an agreement.
Furthermore, for there to be a breach to begin with,
there must be a "failure, without legal excuse, to
perform any promise which forms the whole or part of
the contract."
Here, as discussed, the stoppage of the installation
was justified. The action of Northwestern constituted a
legal excuse to prevent the highly possible rejection of
the IBS. Hence, just as the CA concluded, we find
that Northwestern exercised ordinary prudence to
avert a possible wastage of time, effort, resources
and also of the P2.9 million representing the value of
the new IBS.
Actual Damages, Moral and Exemplary Damages,
and Attorney's Fees
As between the parties, substantial breach can clearly
be attributed to GL Enterprises. Consequently, it is
not the injured party who can claim damages under
Article 1170 of the Civil Code. For this reason, we
concur in the result of the CA's Decision denying
petitioner actual damages in the form of lost earnings,
as well as moral and exemplary damages.
With respect to attorney's fees, Article 2208 of the
Civil Code allows the grant thereof when the court
deems it just and equitable that attorney's fees should
be recovered. An award of attorney's fees is proper if
one was forced to litigate and incur expenses to
protect one's rights and interest by reason of an
unjustified act or omission on the part of the party
from whom the award is sought.
Since we affirm the CA's finding that it was not
Northwestern but GL Enterprises that breached the
contracts without justification, it follows that the
appellate court correctly awarded attorney's fees to
respondent. Notably, this litigation could have
altogether been avoided if petitioner heeded
respondent's suggestion to amicably settle; or, better
yet, if in the first place petitioner delivered the right
materials as required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009
Decision of the Court of Appeals in CA-G.R. CV No.
88989 is hereby AFFIRMED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 207133 March 09, 2015
SWIRE REALTY DEVELOPMENT CORPORATION,
Petitioner,
vs.
JAYNE YU, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule
45 of the 1997 Rules of Civil Procedure which seeks
to reverse and set aside the Decision 1 dated January
24, 2013 and Resolution 2 dated April 30, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty
Development Corporation entered into a Contract to
Sell on July 25, 1995 covering one residential
condominium unit, specifically Unit 3007 of the Palace
of Makati, located at P. Burgos corner Caceres Sts.,
Makati City, with an area of 137.30 square meters for
the total contract price of P7,519,371.80, payable in
equal monthly installments until September 24, 1997.
Respondent likewise purchased a parking slot in the
same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full
purchase price of P7,519,371.80 for the unit while
making a down payment of P20,000.00 for the
parking lot. However, notwithstanding full payment of
the contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted
respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land
Use Regulatory Board (HLURB) Expanded National
Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered
a Decision 3 dismissing respondent’s complaint. It
ruled that rescission is not permitted for slight or
casual breach of the contract but only for such
breaches as are substantial and fundamental as to
defeat the object of the parties in making the
agreement. It disposed of the case as follows:
WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered ordering
[petitioner] the following:
1. To finish the subject unit as pointed out
in the inspection Report
2. To pay [respondent] the following:
a. the amount of P100,000 as
compensatory damages for the
minor irreversible defects in her unit
[respondent], or, in the alternative,
conduct the necessary repairs on
the subject unit to conform to the
intended specifications;
b. moral damages of P20,000.00
c. Attorney’s fees of P20,000.00
On the other hand, [respondent] is hereby
directed to immediately update her account
insofar as the parking slot is concerned,
without interest, surcharges or penalties
charged therein.
All other claims and counterclaims are
hereby dismissed for lack of merit.
IT IS SO ORDERED.
Respondent then elevated the matter to the HLURB
Board of Commissioners.
In a Decision 5 dated March 30, 2006, the HLURB
Board of Commissioners reversed and set aside the
ruling of the HLURB ENCRFO and ordered the
rescission of the Contract to Sell, ratiocinating:
We find merit in the appeal. The report on
the ocular inspection conducted on the
subject condominium project and subject unit
shows that the amenities under the approved
plan have not yet been provided as of May 3,
2002, and that the subject unit has not been
delivered to [respondent] as of August 28,
2002, which is beyond the period of
development of December 1999 under the
license to sell. The delay in the completion of
the project as well as of the delay in the
delivery of the unit are breaches of statutory
and contractual obligations which entitles
[respondent] to rescind the contract, demand
a refund and payment of damages.
The delay in the completion of the project in
accordance with the license to sell also
renders [petitioner] liable for the payment of
administrative fine.
Wherefore, the decision of the Office below
is set aside and a new decision is rendered
as follows:
1 Declaring the contract to sell as rescinded
and directing [petitioner] to refund to
[respondent] the amount of P7,519,371.80 at
 6% per annum from the time of extrajudicial
demand on January 05, 2001: subject to
computation and payment of the correct filing
fee;
2 Directing [petitioner] to pay respondent
attorney’s fees in the amount of P20,000.00;
3 Directing [petitioner] to pay an administrative
fine of P10,000.00 for violation of Section 20,
in relation to Section 38 of P.D. 957:
SO ORDERED.
Petitioner moved for reconsideration, but the same
was denied by the HLURB Board of Commissioners
in a Resolution 7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the
President (OP) on August 7, 2007.
In a Decision 8 dated November 21, 2007, the OP,
through then Deputy Executive Secretary Manuel
Gaite, dismissed petitioner’s appeal on the ground
that it failed to promptly file its appeal before the OP.
It held:
Records show that [petitioner] received its
copy of the 30 March 2006 HLURB Decision
on 17 April 2006 and instead of filing an
appeal, it opted first to file a Motion for
Reconsideration on 28 April 2006 or eleven
(11) days thereafter. The said motion
interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the
HLURB Resolution dated 14 June 2007
denying the Motion for Reconsideration.
Based on the ruling in United Overseas
Bank Philippines, Inc. v. Ching (486 SCRA
655), the period to appeal decisions of the
HLURB Board of Commissioners to the
Office of the President is 15 days from
receipt thereof pursuant to Section 15 of
P.D. No. 957 and Section 2 of P.D. No. 1344
which are special laws that provide an
exception to Section 1 of Administrative
Order No. 18.
Corollary thereto, par. 2, Section 1 of
Administrative Order No. 18, Series of 1987
provides that:
The time during which a motion for
reconsideration has been pending
with the Ministry/Agency concerned
shall be deducted from the period
of appeal. But where such a motion
for reconsideration has been filed
during office hours of the last day of
the period herein provided, the
appeal must be made within the
day following receipt of the denial of
said motion by the appealing
party. (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4)
days from receipt on 23 July 2007 of HLURB
Resolution dated 14 June 2007, or until 27
July 2007 to file the Notice of Appeal before
this Office. However, [petitioner] filed its
appeal only on 7 August 2007 or eleven (11)
days late.
Thus, this Office need not delve on the
merits of the appeal filed as the records
clearly show that the said appeal was filed
out of time.
WHEREFORE, premises considered,
[petitioner]’s appeal is hereby DISMISSED,
and the HLURB Decision dated 30 March
2006 and HLURB Resolution dated 14 June
2007 are hereby AFFIRMED.
SO ORDERED.
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
In a Resolution 10 dated February 17, 2009, the OP,
through then Executive Secretary Eduardo Ermita,
granted petitioner’s motion and set aside Deputy
Executive Secretary Gaite’s decision. It held that after
a careful and thorough evaluation and study of the
records of the case, the OP was more inclined to
agree with the earlier decision of the HLURB
ENCRFO as it was more in accord with facts, law and
jurisprudence relevant to the case. Thus:
WHEREFORE, premises considered, the instant
Motion for Reconsideration is hereby GRANTED. The
Decision and Resolution of the HLURB Third Division
Board of Commissioners, dated March 30, 2006 and
June 14, 2007, respectively, are hereby SET ASIDE,
and the HLURB ENCRFO Decision dated October
19, 2004 is hereby REINSTATED.
SO ORDERED.
Respondent sought reconsideration of said resolution,
however, the same was denied by the OP in a
Resolution 12 dated August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted
respondent’s appeal and reversed and set aside the
Order of the OP. The fallo of its decision reads:
 WHEREFORE, the Petition is hereby
GRANTED. The assailed Resolution dated
17 February 2009 and Order dated 18
August 2011 of the Office of the President, in
O.P. Case No. 07-H-283, are hereby
REVERSED and SET ASIDE. Accordingly,
the Decision dated 30 March 2006 and
Resolution dated 14 June 2007 of the
HLURB Board of Commissioners in HLURB
Case No. REM-A-050127-0014, are
REINSTATED.
SO ORDERED.
Petitioner moved for reconsideration, however, the
CA denied the same in a Resolution dated April 30,
2013.
Hence, the present petition wherein petitioner raises
the following grounds to support its petition:
THE COURT OF APPEALS GRAVELY
ERRED IN IGNORING THE LEGAL
PRECEPTS THAT:
1 TECHNICAL RULES ARE NOT BINDING
UPON ADMINISTRATIVE AGENCIES; and
2 RESCISSION WILL BE ORDERED ONLY
WHERE THE BREACH COMPLAINED OF
IS SUBSTANTIAL AS TO DEFEAT THE
OBJECT OF THE PARTIES IN ENTERING
INTO THE AGREEMENT. 14
In essence, the issues are: (1) whether petitioner’s
appeal was timely filed before the OP; and (2)
whether rescission of the contract is proper in the
instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB
Board of Commissioners to the Office of the President
has long been settled in the case of SGMC Realty
Corporation v. Office of the President, 15 as reiterated
in the cases of Maxima Realty Management and
Development Corporation v. Parkway Real Estate
Development Corporation 16 and United Overseas
Bank Philippines, Inc. v. Ching.
In the aforementioned cases, we ruled that the period
to appeal decisions of the HLURB Board of
Commissioners is fifteen (15) days from receipt
thereof pursuant to Section 15 18 of PD No. 957 19 and
Section 2 20 of PD No. 1344 21 which are special laws
that provide an exception to Section 1 of
Administrative Order No. 18. Thus, in the SGMC
Realty Corporation v. Office of the President case, the
Court explained:
As pointed out by public respondent, the
aforecited administrative order allows
aggrieved party to file its appeal with the
Office of the President within thirty (30) days
from receipt of the decision complained of.
Nonetheless, such thirty-day period is
subject to the qualification that there are no
other statutory periods of appeal applicable.
If there are special laws governing particular
cases which provide for a shorter or longer
reglementary period, the same shall prevail
over the thirty-day period provided for in the
administrative order. This is in line with the
rule in statutory construction that an
administrative rule or regulation, in order to
be valid, must not contradict but conform to
the provisions of the enabling law.
We note that indeed there are special laws
that mandate a shorter period of fifteen (15)
days within which to appeal a case to public
respondent. First, Section 15 of Presidential
Decree No. 957 provides that the decisions
of the National Housing Authority (NHA)
shall become final and executory after the
lapse of fifteen (15) days from the date of
receipt of the decision. Second, Section 2 of
Presidential Decree No. 1344 states that
decisions of the National Housing Authority
shall become final and executory after the
lapse of fifteen (15) days from the date of its
receipt. The latter decree provides that the
decisions of the NHA is appealable only to
the Office of the President. Further, we note
that the regulatory functions of NHA relating
to housing and land development has been
transferred to Human Settlements
Regulatory Commission, now known as
HLURB. x x x
Records show that petitioner received a copy of the
HLURB Board of Commissioners’ decision on April
17, 2006. Correspondingly, it had fifteen days from
April 17, 2006 within which to file its appeal or until
May 2, 2006. However, on April 28, 2006, or eleven
days after receipt of the HLURB Board of
Commissioner’s decision, it filed a Motion for
Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No.
18 23 provides that the time during which a motion for
reconsideration has been pending with the ministry or
agency concerned shall be deducted from the period
for appeal. Petitioner received the HLURB Board
Resolution denying its Motion for Reconsideration on
July 23, 2007 and filed its appeal only on August 7,
2007. Consequently therefore, petitioner had only four
days from July 23, 2007, or until July 27, 2007, within
which to file its appeal to the OP as the filing of the
motion for reconsideration merely suspended the
running of the 15-day period. However, records reveal
that petitioner only appealed to the OP on August 7,
2007, or eleven days late. Ergo, the HLURB Board of
Commissioners’ decision had become final and
executory on account of the fact that petitioner did not
promptly appeal with the OP.
In like manner, we find no cogent reason to exempt
petitioner from the effects of its failure to comply with
the rules.
In an avuncular case, we have held that while the
dismissal of an appeal on purely technical grounds is
concededly frowned upon, it bears emphasizing that
the procedural requirements of the rules on appeal
are not harmless and trivial technicalities that litigants
can just discard and disregard at will. Neither being a
natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory
privilege which may be exercised only in the manner
and in accordance with the provisions of the law.
Time and again, we have held that rules of procedure
exist for a noble purpose, and to disregard such rules,
in the guise of liberal construction, would be to defeat
such purpose. Procedural rules are not to be
disdained as mere technicalities. They may not be
ignored to suit the convenience of a party. 25 The
reason for the liberal application of the rules before
quasi-judicial agencies cannot be used to perpetuate
injustice and hamper the just resolution of the case.
Neither is the rule on liberal construction a license to
disregard the rules of procedure.
Thus, while there may be exceptions for the relaxation
of technical rules principally geared to attain the ends
of justice, petitioner’s fatuous belief that it had a fresh
15-day period to elevate an appeal with the OP is not
the kind of exceptional circumstance that merits
relaxation.
Second, Article 1191 of the Civil Code sanctions the
right to rescind the obligation in the event that specific
performance becomes impossible, to wit:
Article 1191. The power to rescind
obligations is implied in reciprocal ones, in
case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the
obligation, with the payment of damages in
either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to
the rights of third persons who have acquired
the thing, in accordance with Articles 1385
and 1388 and the Mortgage Law.
Basic is the rule that the right of rescission of a party
to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach
contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When the
obligor cannot comply with what is incumbent upon it,
the obligee may seek rescission and, in the absence
of any just cause for the court to determine the period
of compliance, the court shall decree the rescission.
In the instant case, the CA aptly found that the
completion date of the condominium unit was
November 1998 pursuant to License No. 97-12-3202
dated November 2, 1997 but was extended to
December 1999 as per License to Sell No. 99-05-
3401 dated May 8, 1999. However, at the time of the
ocular inspection conducted by the HLURB ENCRFO,
the unit was not yet completely finished as the kitchen
cabinets and fixtures were not yet installed and the
agreed amenities were not yet available. Said
inspection report states:
1 The unit of the [respondent] is Unit 3007, which
was labeled as P2-07, at the Palace of Makati,
located at the corner of P. Burgos Street and
Caceres Street, Poblacion, Makati City. Based
on the approved plans, the said unit is at the
26th Floor.
2 During the time of inspection, the said unit
appears to be completed except for the
installation of kitchen cabinets and fixtures.
3 Complainant pinpointed to the undersigned the
deficiencies as follows:
a The delivered unit has high density fiber
(HDF) floorings instead of narra wood
parquet.
b The [petitioners] have also installed
baseboards as borders instead of pink
porrino granite boarders.
c Walls are newly painted by the respondent
and the alleged obvious signs of cladding
could not be determined.
d Window opening at the master bedroom
conforms to the approved plans. As a
result it leaves a 3 inches (sic) gap
between the glass window and partitioning
of the master’s bedroom.
e It was verified and confirmed that a square
column replaced the round column, based
on the approved plans.
f At the time of inspection, amenities such
as swimming pool and change room are
seen at the 31st floor only. These
 amenities are reflected on the 27th floor
plan of the approved condominium plans.
Health spa for men and women, Shiatsu
Massage Room, Two-Level Sky Palace
Restaurant and Hall for games and
entertainments, replete with billiard tables,
a bar, indoor golf with spectacular deck
and karaoke rooms were not yet provided
by the [petitioner].

g The [master’s] bedroom door bore sign of

poor quality of workmanship as seen
below.

h The stairs have been installed in such

manner acceptable to the undersigned.

i Bathrooms and powder room have been

installed in such manner acceptable to the
undersigned.

From the foregoing, it is evident that the report on the

ocular inspection conducted on the subject
condominium project and subject unit shows that the
amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit
has not been delivered to respondent as of August
28, 2002, which is beyond the period of development
of December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of
contract as it failed to finish and deliver the unit to
respondent within the stipulated period. The delay in
the completion of the project as well as of the delay in
the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to
rescind the contract, demand a refund and payment
of damages.

WHEREFORE, premises considered, the instant

petition is DENIED. The Decision dated January 24,
2013 and Resolution dated April 30, 2013 of the Court
of Appeals in CA-G.R. SP No. 121175 are hereby
AFFIRMED, with MODIFICATION that moral
damages be awarded in the amount of P20,000.00

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185592 June 15, 2015
GEORGE C. FONG, Petitioner,
vs.
JOSE V. DUEÑAS, Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision2 and
the December 8, 2008 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 88396.
These assailed CA rulings annulled the June 27, 2006
decision4 and October 30, 2006 order5 of the Regional
Trial Court of Makati, Branch 64 (trial court), which
directed respondent Jose V. Dueñas (Dueñas) to pay
Five Million Pesos (P5 Million) to petitioner George C.
Fong (Fong), and imposed a six percent (6%) annual
interest on this amount.
Factual Antecedents
Dueñas is engaged in the bakery, food
manufacturing, and retailing business, which are all
operated under his two companies, D.C. DANTON,
Inc. (Danton) and Bakcom Food Industries, Inc.
(Bakcom). He was an old acquaintance of Fong as
they were former schoolmates at the De La Salle
University.
Sometime in November 1996, Dueñas and Fong
entered into a verbal joint venture contract where
they agreed to engage in the food business and to
incorporate a holding company under the name
Alliance Holdings, Inc. (Alliance or the proposed
corporation). Its capitalization would be Sixty Five
Million Pesos (P65 Million), to which they would
contribute in equal parts.
The parties agreed that Fong would contribute Thirty
Two Million and Five Hundred Thousand Pesos
(P32.5 Million) in cash while Dueñas would contribute
all his Danton and Bakcom shares which he valued at
P32.5 Million.8 Fong required Dueñas to submit the
financial documents supporting the valuation of these
shares.
On November 25, 1996, Fong started remitting in
tranches his share in the proposed corporation’s
capital. He made the remittances under the
impression that his contribution would be applied as
his subscription to fifty percent (50%) of Alliance’s
total shareholdings. On the other hand, Dueñas
started processing the Boboli9 international license
that they would use in their food business. Fong’s
cash contributions are summarized below.
Date Amount
November 25, 1996 P1,980,475.20
January 14, 1997 P1,000,000.00
February 8, 1997 P500,000.00
March 7, 1997 P100,000.00
April 28, 1997 P500,000.00
June 13, 1997 P919,524.80
Total P5,000,000.00
On June 13, 1997, Fong sent a letter to Dueñas
informing him of his decision to limit his total
contribution from P32.5 Million to P5 Million. This
letter reads:
June 13, 1997
Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in
process of incorporation. This will make our total
advances to date amounting to P5 million.
Since we agreed in principal late last year to pursue
subject matter, the delays in implementing the joint
venture have caused us to rethink our position. First,
we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn
down a number of business opportunities. Secondly,
since last year, the operation of Century 21 has been
taking more time from us than anticipated. That is why
we decided to relinquish our original plan to manage
and operate ‘Boboli’ knowing this limitation. For us, it
does not make sense anymore to go for a significant
shareholding when we cannot be hands on and
participate actively as originally planned. For your
information, we will probably be giving up our subway
franchise too.
Together with our business advisers and legal
counsel, we came to a decision to hold our
commitment (from advances to investment) at P5
million only for now from the original plan of
P32.5 million, if this is acceptable to you.
We know that our decision will somewhat upset the
overall plans. But it will probably be more problematic
for us in the long run if we continue full speed. We
have put our money down in trust and good faith
despite the much delayed financials. We continue
to believe in your game plan and capabilities to
achieve the desired goals for subject undertaking.
Please permit us instead to be just a modest silent
investor now with a take out plan when time and price
is right.
Thank you for your kind understanding and
consideration.
With best regards.
(Signed) George Fong11
Fong observed that despite his P5 Million
contribution, Dueñas still failed to give him the
financial documents on the valuation of the
Danton and Bakcom shares. Thus, except for
Dueñas’ representations, Fong had nothing to rely on
to ensure that these shares were really valued at
P32.5 Million. Moreover, Dueñas failed to
incorporate and register Alliance with the
Securities and Exchange Commission (SEC).
These circumstances convinced Fong that Dueñas
would no longer honor his obligations in their joint
venture agreement.13 Thus, on October 30, 1997,
Fong wrote Dueñas informing him of his decision to
cancel the joint venture agreement. He also asked for
the refund of the P5 Million that he advanced.14In
response, Dueñas admitted that he could not
immediately return the money since he used it to
defray the business expenses of Danton and
Bakcom.
To meet Fong’s demand, Dueñas proposed several
schemes for payment of the P5 Million.16 However,
Fong did not accept any of these proposed schemes.
On March 25, 1998, Fong wrote a final letter of
demand17 informing Dueñas that he would file a
judicial action against him should he still fail to pay
after receipt of this written demand.
Since Dueñas did not pay, Fong filed a complaint
against him for collection of a sum of money and
damages18 on April 24, 1998.
The Trial Court’s Ruling
In its June 27, 2006 decision, the trial court ruled in
favor of Fong and held that a careful examination of
the complaint shows that although it was labeled as
an action for collection of a sum of money, it was
actually an action for rescission.
The trial court noted that Dueñas’ failure to furnish
Fong with the financial documents on the valuation of
the Danton and Bakcom shares, as well as the almost
one year delay in the incorporation of Alliance,
caused Fong to rescind the joint venture agreement. 20
According to the trial court, these are adequate and
acceptable reasons for rescission.
The trial court also held that Dueñas erroneously
invested Fong’s cash contributions in his two
companies, Danton and Bakcom. The signed
receipts,21 presented as evidence, expressly provided
that each remittance should be applied as
advance subscription to Fong’s shareholding in
Alliance. Thus, Dueñas’ investment of the money in
Danton and Bakcom was clearly unauthorized and
contrary to the parties’ agreement.
Since Dueñas was unjustly enriched by Fong’s
advance capital contributions, the trial court ordered
him to return the money amounting to P5 Million and
to pay ten percent (10%) of this amount in attorney’s
fees, as well as the cost of the suit.
Fong filed a partial motion for reconsideration from
the trial court’s June 27, 2006 decision and asked for
the imposition of a six percent (6%) annual interest,
computed from the date of extrajudicial demand until
full payment of the award. The trial court granted this
prayer in its October 30, 2006 order.
The CA’s Ruling
Dueñas responded to the trial court’s ruling through
an appeal with the CA, which granted the appeal and
annulled the trial court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter
evidenced his intention to convert his cash
contributions from “advances” to the proposed
corporation’s shares, to mere “investments.” Thus,
contrary to the trial court’s ruling, Dueñas correctly
invested Fong’s P5 Million contribution to Bakcom
and Danton. This did not deviate from the parties’
original agreement as eventually, the shares of these
two companies would form part of Alliance’s capital.
Lastly, the CA held that the June 13, 1997 letter
showed that Fong knew all along that he could not
immediately ask for the return of his P5 Million
investment. Thus, whether the action filed was a
complaint for collection of a sum of money, or
rescission, it must still fail.
The Petition
Fong submits that the CA erred when it ruled that his
June 13, 1997 letter showed his intent to convert his
contributions from advance subscriptions to Alliance’s
shares, to investments in Dueñas’ two companies.
Contrary to the CA’s findings, the receipts and the
letter expressly mentioned that his contributions
should all be treated as his share subscription to
Alliance.
Also, Fong argues that Dueñas’ unjustified retention
of the P5 Million and its appropriation to his (Dueñas’)
own business, amounted to unjust enrichment; and
that he contributed to fund Alliance’s capital and
incorporation, not to pay for Danton and Bakcom’s
business expenses.
The Case for Dueñas
Dueñas contends that he could no longer refund the
P5 Million since he had already applied it to his two
companies; that this is proper since Danton and
Bakcom’s shares would also form part of his capital
contribution to Alliance.
Moreover, the incorporation did not push through
because Fong unilaterally rescinded the joint venture
agreement by limiting his investment from P32.5
Million to P5 Million.29 Thus, it was Fong who first
breached the contract, not he. Consequently, Fong’s
failure to comply with his undertaking disqualified him
from seeking the agreement’s rescission.
The Court’s Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the parties’ joint
venture agreement to incorporate a company that
would hold the shares of Danton and Bakcom and
that would serve as the business vehicle for their food
enterprise, is a valid agreement. The failure to reduce
the agreement to writing does not affect its validity or
enforceability as there is no law or regulation which
provides that an agreement to incorporate must be in
writing.
With this as premise, we now address the related
issues raised by the parties.
The body rather than the title of the complaint
determines the nature of the action.
A well-settled rule in procedural law is that the
allegations in the body of the pleading or the
complaint, and not its title, determine the nature of an
action.
An examination of Fong’s complaint shows that
although it was labeled as an action for a sum of
money and damages, it was actually a complaint
for rescission. The following allegations in the
complaint support this finding:
9. Notwithstanding the aforesaid remittances,
defendant failed for an unreasonable length of
time to submit a valuation of the equipment of
D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff,
defendant failed to accomplish the organization
and incorporation of the proposed holding
company, contrary to his representation to promptly
do so.
xxxx
17. Considering that the incorporation of the
proposed holding company failed to materialize,
despite the lapse of one year and four months
from the time of subscription, plaintiff has the
right to revoke his pre-incorporation subscription.
Such revocation entitles plaintiff to a refund of the
amount of P5,000,000.00 he remitted to defendant,
representing advances made in favor of defendant to
be considered as payment on plaintiff’s subscription
to the proposed holding company upon its
incorporation, plus interest from receipt by defendant
of said amount until fully paid. [Emphasis supplied.]
Fong’s allegations primarily pertained to his
cancellation of their verbal agreement because
Dueñas failed to perform his obligations to
provide verifiable documents on the valuation of
the Danton’s and Bakcom’s shares, and to
incorporate the proposed corporation. These
allegations clearly show that what Fong sought was
the joint venture agreement’s rescission.
As a contractual remedy, rescission is available when
one of the parties substantially fails to do what he has
obligated himself to perform.32 It aims to address the
breach of faith and the violation of reciprocity between
two parties in a contract.33 Under Article 1191 of the
Civil Code, the right of rescission is inherent in
reciprocal obligations, viz:
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
[Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of
his cash contribution supports his claim that Fong’s
complaint is an action for collection of a sum of
money. However, Dueñas failed to appreciate that the
ultimate effect of rescission is to restore the
parties to their original status before they entered
in a contract. As the Court ruled in Unlad Resources
v. Dragon:34
Rescission has the effect of “unmaking a contract, or
its undoing from the beginning, and not merely its
termination.” Hence, rescission creates the
obligation to return the object of the contract. It
can be carried out only when the one who demands
rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its
inception and to put an end to it as though it never
was. It is not merely to terminate it and release the
parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties
to their relative positions as if no contract has been
made.
Accordingly, when a decree for rescission is
handed down, it is the duty of the court to require
both parties to surrender that which they have
respectively received and to place each other as
far as practicable in his original situation.35
[Emphasis supplied.]
In this light, we rule that Fong’s prayer for the return
of his contribution did not automatically convert the
action to a complaint for a sum of money. The mutual
restitution of the parties’ original contributions is
only a necessary consequence of their
agreement’s rescission.
Rescission under Art. 1191 is applicable in the
present case
Reciprocal obligations are those which arise from the
same cause, in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent on the obligation of the other.
Fong and Dueñas’ execution of a joint venture
agreement created between them reciprocal
obligations that must be performed in order to fully
consummate the contract and achieve the purpose for
which it was entered into.
Both parties verbally agreed to incorporate a
company that would hold the shares of Danton and
Bakcom and which, in turn, would be the platform for
their food business. Fong obligated himself to
contribute half of the capital or P32.5 Million in cash.
On the other hand, Dueñas bound himself to shoulder
the other half by contributing his Danton and Bakcom
shares, which were allegedly also valued at P32.5
Million. Aside from this, Dueñas undertook to process
Alliance’s incorporation and registration with the SEC.
When the proposed company remained
unincorporated by October 30, 1997, Fong cancelled
the joint venture agreement and demanded the return
of his P5 Million contribution.
For his part, Dueñas explained that he could not
immediately return the P5 Million since he had
invested it in his two companies. He found nothing
irregular in this as eventually, the Danton and Bakcom
shares would form part of Alliance’s capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his
money in Danton and Bakcom. Contrary to Dueñas’
submission, Fong’s understanding was that his
money would be applied to his shareholdings in
Alliance. As shown in Fong’s June 13, 1997 letter, this
fact remained to be true even after he limited his
contribution to P5 Million, viz:
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in
process of incorporation. This will make our total
advances to date amounting to P5 million. 37
[Emphasis supplied.]
Moreover, under the Corporation Code, before a
stock corporation may be incorporated and registered,
it is required that at least twenty five percent (25%) of
its authorized capital stock as stated in the articles of
incorporation, be first subscribed at the time of
incorporation, and at least twenty five percent (25%)
of the total subscription, be paid upon subscription.
To prove compliance with this requirement, the SEC
requires the incorporators to submit a treasurer’s
affidavit and a certificate of bank deposit, showing the
existence of an amount compliant with the prescribed
capital subscription.
In this light, we conclude that Fong’s cash
contributions play an indispensable part in
Alliance’s incorporation. The process necessarily
requires the money not only to fund Alliance’s
registration with the SEC but also its initial capital
subscription. This is evident in the receipts which
Dueñas himself executed, one of which provides:
I, JOSE V. DUEÑAS, hereby acknowledge the receipt
on January 14, 1997 of the amount of One Million
Pesos (Php 1,000,000.00) Check No. 118 118 7014
Metro Bank, Pasong Tamo branch dated January 13,
1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or
investment of Mr. Fong in the joint venture which
he and I are in the process of organizing.
Specifically, this amount will be considered as part of
Mr. Fong’s subscription to the shares of stock of the
joint venture company which we will incorporate to
embody and carry out our joint venture. 40 [Emphasis
supplied.]
Thus, Dueñas erred when he invested Fong’s
contributions in his two companies. This money
should have been used in processing Alliance’s
registration. Its incorporation would not materialize if
there would be no funds for its initial capital.
Moreover, Dueñas represented that Danton and
Bakcom’s shares were valued at P32.5 Million. If this
was true, then there was no need for Fong’s
additional P5 Million investment, which may possibly
increase the value of the Danton and Bakcom shares.
Under these circumstances, the Court agrees with the
trial court that Dueñas violated his agreement with
Fong. Aside from unilaterally applying Fong’s
contributions to his two companies, Dueñas also
failed to deliver the valuation documents of the
Danton and Bakcom shares to prove that the
combined values of their capital contributions
actually amounted to P32.5 Million.
These acts led to Dueñas’ delay in incorporating
the planned holding company, thus resulting in
his breach of the contract.
On this basis, Dueñas’ breach justified Fong’s
rescission of the joint venture agreement under Article
1191. As the Court ruled in Velarde v. Court of
Appeals:
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party who violates
the reciprocity between them. The breach
contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When
the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and in the
absence of any just cause for the court to determine
the period of compliance, the court shall decree the
rescission.
In the present case, private respondents validly
exercised their right to rescind the contract,
because of the failure of petitioners to comply
with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a
violation that consequently gave rise to private
respondents’ right to rescind the same in accordance
with law.42 [Emphasis supplied.]
However, the Court notes that Fong also breached
his obligation in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed
Dueñas that he would be limiting his cash contribution
from P32.5 Million to P5 Million because of the
following reasons which we quote verbatim:
1. First, we were faced with the ‘personal’
factor which was explained to you one
time. This has caused us to turn down a
number of business opportunities;
2. Secondly, since last year, the operation
of Century 21 has been taking more
time from us than anticipated. That is
why we decided to relinquish our
original plan to manage and operate
‘Boboli’ knowing this limitation. For us, it
does not make sense anymore to go for
a significant shareholding when we
cannot be hands on and participate
actively as originally planned.43 x x x.
Although these reasons appear to be valid, they
do not erase the fact that Fong still reneged on
his original promise to contribute P32.5 Million.
The joint venture agreement was not reduced to
writing and the evidence does not show if the parties
agreed on valid causes that would justify the limitation
of the parties’ capital contributions. Their only
admission was that they obligated themselves to
contribute P32.5 Million each.
Hence, Fong’s diminution of his capital share to
P5 Million also amounted to a substantial breach
of the joint venture agreement, which breach
occurred before Fong decided to rescind his
agreement with Dueñas. Thus, Fong also
contributed to the non-incorporation of Alliance that
needed P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the
substantial reduction of his capital contribution also
greatly impeded the implementation of their
agreement to engage in the food business and to
incorporate a holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the
Civil Code, which provides:
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own
damages. [Emphasis supplied.]
Notably, the Court is not aware of the schedule of
performance of the parties’ obligations since the joint
venture agreement was never reduced to writing. The
facts, however, show that both parties began
performing their obligations after executing the joint
venture agreement. Fong started remitting his share
while Dueñas started processing the Boboli
international license for the proposed corporation’s
food business.
The absence of a written contract renders the Court
unsure as to whose obligation must be performed
first. It is possible that the parties agreed that Fong
would infuse capital first and Dueñas’ submission of
the documents on the Danton and Bakcom shares
would just follow. It could also be the other way
around. Further, the parties could have even agreed
to simultaneously perform their respective obligations.
Despite these gray areas, the fact that both Fong
and Dueñas substantially contributed to the non-
incorporation of Alliance and to the failure of their
food business plans remains certain.
As the Court cannot precisely determine who between
the parties first violated the agreement, we apply the
second part of Article 1192 which states: “if it cannot
be determined which of the parties first violated the
contract, the same shall be deemed extinguished,
and each shall bear his own damages.”
In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed
extinguished through rescission under Article
1192 in relation with Article 1191 of the Civil Code.
Dueñas must therefore return the P5 Million that Fong
initially contributed since rescission requires mutual
restitution.44After rescission, the parties must go
back to their original status before they entered
into the agreement. Dueñas cannot keep Fong’s
contribution as this would constitute unjust
enrichment.
No damages shall be awarded to any party in
accordance with the rule under Article 1192 of the
Civil Code that in case of mutual breach and the first
infractor of the contract cannot exactly be determined,
each party shall bear his own damages.

WHEREFORE, premises considered, we hereby

GRANT the petition and reverse the September 16,
2008 decision and December 8, 2008 resolution of
the Court of Appeals in CA-G.R. CV No. 88396.
Respondent Jose V. Dueñas is ordered to RETURN
Five Million Pesos to petitioner George C. Fong. This
amount shall incur an interest of six percent (6%) per
annum from the date of finality of this judgment until
fully paid.45 The parties’ respective claims for
damages are deemed EXTINGUISHED and each of
them shall bear his own damages.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 205113 August 26, 2015
HONORLITA ASCANO-CUPINO AND FLAVIANA
ASCANO-COLOCADO, Petitioners,
vs.
PACIFIC REHOUSE CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari
under Rule 45 of the Rules of Court seeking to
reverse the Decision1 dated 17 July 2012 and
Resolution2 dated 8 January 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 90568. The CA
reversed and set aside the Decision3 dated 15 April
2005 of the Regional Trial Court (RTC) of Trece
Martires City, Cavite, Branch 23, in Civil Case No.
TM-936.
The Facts
On 1 October 1994. Honorlita Ascano-Cupino4 and
Flaviana Ascano-Colocado (petitioners), and their
sister, Noeminia Ascano, (collectively, the Ascanos)5
entered into a Deed of Conditional Sale with Pacific
Rehouse Corporation (Pacific). The latter obliged
itself to purchase from the Ascanos a parcel of land
with an area of 59,753 square meters located in
General Trias, Cavite for P5,975,300.
Following the terms of the Deed of Conditional Sale,
Pacific paid a down payment of P1,792,590 leaving a
balance of P4,182,710, to be paid upon the fulfillment
of certain conditions, namely: (1) the completion of all
documents necessary for the transfer of the certificate
of title of the land; (2) the vendors (the Ascanos) shall
guarantee removal of the tenants, squatters and other
occupants on the land, with the disturbance
compensation to said tenants to be paid by vendors;
and (3) submission by vendors to Pacific of the
Affidavit of Non-Tenancy and the land operation
transfer documents.
In November 1994, petitioners asked for an additional
P600,000 to be deducted from the purchase price,
which Pacific paid.
In 1995, petitioners asked for another P1,000,000,
again deductible from the purchase price, purportedly
to be used to fulfill the conditions in the Deed of
Conditional Sale. Pacific paid the amount.
On 13 February 1995, petitioners submitted to Pacific
a Barangay Agrarian Reform Council Certification
stating that the property was untenanted. They also
informed Pacific that the other necessary documents
were being processed and more expected to be
completed the following month.
The following month, however, petitioners failed to
submit the necessary documents despite several
demands from Pacific to do so. Instead, they informed
Pacific that they wanted to rescind the contract and
refused to accept Pacific's tender of additional
payments amounting to P1,005,180.
In the latter part of March 1995, Pacific, through
Melecio P. Fortuno, Jr. (Fortuno), opened a savings
account with the Capitol Bank of General Trias,
Cavite, in the names of petitioners, depositing in said
account the amount of P1,005,180.11 Pacific then
informed petitioners of the deposit and that "they were
authorized to withdraw the same at [their]
convenience."
Thereafter, Pacific learned that petitioners were
negotiating the sale of the property with other buyers
allegedly for a higher consideration. In September
1995, Pacific effected an annotation of an adverse
claim on the property's title.
Pacific made several demands on petitioners to fulfill
their obligations under the Deed of Conditional Sale.
Instead of heeding the demands, petitioners, through
a certain Atty. Fojas, began negotiating with Pacific
for the rescission of the Deed of Conditional Sale.
On 11 February 1999, Pacific made another demand
on petitioners to fulfill all their obligations under the
Deed of Conditional Sale or to return all payments it
had already made plus legal interest. Petitioners
continued to ignore the demand.
On 2 September 1999, Pacific filed a Complaint for
Cancellation of Contract, Sum of Money and
Damages before the RTC of Trece Martires City.
However, before pre-trial, Pacific discovered that
petitioners had withdrawn the PI,005,180 it had
deposited with Capitol Bank of General Trias.
In view of petitioners' action, Pacific filed an Amended
Complaint17 changing its cause of action from
cancellation to specific performance.
On the other hand, petitioners alleged that it was
Pacific that defaulted in its payment. They maintained
that the real purchase price they agreed upon was
P200 per square meter, or a total of P11,950,600, and
that allegedly the much lower amount stated in the
Deed of Conditional Sale was put there at Pacific's
request in order to lower the taxes they would need to
pay.
Petitioners further alleged that in October 2004, the
parties had executed an Addendum to Deed of
Conditional Sale,19 with item "2" of the original deed
amended to read as follows:
That full payment of the balance of P4,182,710.00
shall be paid in full to the Vendors by the Vendees
within six (6) months from the date of the Deed of
Conditional Sale, otherwise, in case of default, the
sale shall automatically be cancelled and all monies
received by the Vendors shall be refunded to the
Vendee, minus the amount of P792,590.00 taken by
the representative of the Vendee for payment of
disturbance compensation to ten[a]nts.
Petitioners insisted that the Addendum clearly stated
that Pacific undertook the obligation to pay the
tenants' disturbance compensation with the P792,590
taken by Fortuno as Pacific's authorized
representative. However, petitioners averred that the
amount was never paid to the tenants, who remained
in the subject property, in violation of the conditions
set in the deed.
Pacific, however, refused to acknowledge the
Addendum because the same was allegedly not
signed by its authorized representative, Dee Hua T.
Gatchalian, who was the signatory in the original
Deed of Conditional Sale. Pacific also denied that the
price they agreed upon was P11,950,600.
The Decision of the RTC
On 15 April 2005, the RTC promulgated its decision,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered
cancelling the contract and the addendum to it
entered into by the plaintiff and defendants dated
October 1, 1994 and ordering defendants Honorlita
Ascaño, Noeminia Ascaño and Flaviana Ascaño to
return the amount of Two Million Six Hundred Two
Thousand (P2,602,000.00) Pesos to the plaintiff;
while Plaintiff is hereby ordered to pay defendants
who incurred the following in defending their rights:
1. The amount of One Hundred Fifty Thousand
(P150,000.00) Pesos as damages;
2. The amount of One Hundred Thousand
(P100,000.00) Pesos as attorney's fees; and
3. The litigation expenses.
SO ORDERED.22
The RTC held:
In this case, parties admitted that there was a Deed of
Conditional Sale and an addendum to it executed by
the parties. That based on this contract, plaintiff paid
defendant the amount of One Million Seven Hundred
Ninety Two Thousand Five Hundred Ninety (PI
,792,590.00) [Pesos] (Exh. "K"), Six Hundred
Thousand (P600,000.00) Pesos (Exh. "M"), One
Million (PI,000,000.00) Pesos (Exh[.] "Q") and Five
Hundred Five Thousand One Hundred Eighty
(P505,[180].00) Pesos (Exh. "Q") and those payments
were all received by defendants, that when Plaintiff
deposited the balance of One Million (P1,000,000.00)
pesos as full payment for the property, defendants
refused to withdraw it from the bank until plaintiff for
failure of the defendants] to withdraw their tender of
payment, withdraw the amount deposited.
Defendants in their defense alleged that they refused
to withdraw the amount as full payment since plaintiff
failed to pay their tenants and the latter were still
occupying their property. With respect to this, plaintiff
alleged that it is the duty of the party defendants to
pay their tenants as per their agreement but
defendants countered that as per their addendum,
which was incorporated in their Contract to Sell, a part
of what they received from the plaintiff was given to
Mr. Melecio Fortuno to pay the tenants amounting to
Seven Hundred Ninety Two Thousand (P792,000.00)
Pesos; that with respect to the claims of the
defendants], plaintiff denied that Mr. Melecio Fortuno
(now deceased) is not their (sic) authorized agent to
transact in behalf of the plaintiff.
With respect to this, the Court can very well see that
this claim of the plaintiff cannot be given merit.
Plaintiff cannot deny that in their letter addressed to
Honorlita and Flaviano (sic) Ascaiio (Exhibit "G"), the
signature of Melecio Fortuno appeared as authorized
representative of the plaintiff and this cannot be
denied by plaintiff. The fact that it was this person
who received the amount of P792,000.00 as payment
for the tenant shov/s that defendants cannot be
faulted when they refused to accept the full payment
for their property considering that the tenants are still
occupying defendants' land despite the latter giving
the amount to be paid to the tenant.
However, plaintiff in his (sic) complaint prays for the
rescission or cancellation of contract and to this
allegation, the Court has no recourse but to grant this
prayer since parties are no longer willing to proceed
with their contract and in rescission, the parties are
duty bound to return what they received. With respect
to damages, expenses and attorney's fees alleged by
the parties, the Court from the pieces of evidence
submitted so maintains that plaintiff is not entitled
since defendants] [are] not at fault.23
Pacific filed a motion for reconsideration of the RTC's
decision. However, the motion was denied in an
Order24 dated 9 May 2006, prompting it to file an
appeal before the CA.25
The Decision of the CA
In the assailed decision dated 17 July 2012, the CA
granted the appeal, thus:
WHEREFORE, premises considered, the instant
Appeal is GRANTED. The appealed Decision dated
15 April 2005 is hereby REVERSED and SET ASIDE.
Accordingly, this Court ORDERS:
(1) the plaintiff-appellant to pay the defendants-
appellees the amount of One Million Five Hundred
Seventy Seven Thousand Five Hundred Thirty Pesos
(P1,577,530.00), upon the execution by the
defendants-appellees of the Deed of Absolute Sale in
favor of the plaintiff-appellant and delivery to the latter
all documents necessary for the transfer of the title to
the subject property; and
(2) the defendants-appellees shall, at their expense,
commence the necessary proceedings for the eviction
of the tenants and/or informal settlers in the property
until the same is cleared of the same.
No pronouncement as to costs.
SO ORDERED.26
The CA held that "the trial court erred in deciding the
case on the basis of the original complaint." The CA
noted that Pacific amended its complaint from
cancellation of contract to specific performance, which
was done with leave of and allowed by the RTC.
The CA also held that rescission was not warranted in
this case. It ruled that petitioners "were clearly the
ones who failed in their obligation under the
contract."28 Pacific then is the injured party entitled to
choose between rescission of the contract and
fulfillment of the obligation. Pacific chose the latter, as
stated in their Amended Complaint for specific
performance.
Lastly, the CA found that it was proven and
undisputed that a total of P4,497,770 had already
been paid by Pacific leaving only a balance of
P4,577,530.
Petitioners filed a motion for reconsideration, which
was denied in a Resolution dated 8 January 2013.
Petition for Review with Prayer for TRO
Petitioners filed the present petition for review asking
the Court to verse the decision of the CA and
reinstate the decision of the RTC with the deletion of
the order to return the payments received.31redarclaw
Petitioners also prayed for the issuance of a
temporary restraining order (TRO) arguing that Pacific
was likely to move for a writ of execution once the CA
issues an entry of judgment, causing them grave and
irreparable damage.
In its Resolution dated 4 March 2013, the Court
granted the request for TRO upon payment of a cash
or surety bond in the amount of P4.4 million.32
However, petitioners later withdrew their application
for TRO 'ecause they could no longer afford to pay or
secure a surety bond.
Petitioners' Arguments
Petitioners aver that the CA erred in ordering specific
performance instead of rescission, arguing that the
cancellation of the Deed of Conditional Sale was
justified because Pacific was indeed remiss in its
obligation as vendee.34 Petitioners further argue that
they, and not Pacific, are the injured parties in this
case.
Petitioners assert that Pacific is bound by the Deed of
Conditional Sale and its Addendum because Fortuno
was its authorized representative. They emphasized
that Fortuno, along with Pacific's liaison officer Purita
Mendez, signed the Deed of Conditional Sale and
Addendum, while Dee Hua T. Gatchalian did not. 35 As
further proof, they pointed to a letter dated 5 April
1995 where Fortuno himself clearly stated that he was
the company's authorized representative.
Petitioners also insist that Pacific has not paid the
entire purchase price agreed upon. They underscore
that the real purchase price agreed upon was P200
per square meter or P11,950,600. However, Pacific
only acknowledges the purchase price to be
P5,975,300, the amount stated in the Deed of
Conditional Sale. In any case, petitioners insist that
since the total amount paid by Pacific only totals
P3,605,180,37 there remains a balance to be paid
whether the purchase price is that stated in the Deed
of Conditional Sale or P11,950,600.
Petitioners also allege that Pacific has not complied
with its contractual obligation to pay the tenants'
disturbance compensation. Despite receiving
P792,590 through its authorized representative,
Pacific never paid the tenants who continue to occupy
the property.
Thus, petitioners contend that they are the injured
parties in this case, and therefore, entitled to ask for
the rescission of the Deed of Conditional
Sale.39redarclaw
Respondent's Arguments
In its Comment/Opposition,40 Pacific presents a
different version of the facts. It alleges that the
purchase price agreed upon is that stated in the Deed
of Conditional Sale, which is P5,975,300. Pacific paid
the down payment amounting to P1,792,590, leaving
a balance of P4,182,710. The balance, as stipulated
in the deed, was to be paid "upon completion by the
VENDORS of the pertinent documents that are
necessary for the transfer of trie Certificate of Title of
the above mentioned parcel of land unto the
VENDEE[.]" Likewise, the deed stated that the
vendors guaranteed to pay the tenants disturbance
compensation to rid the property of squatters and
other occupants.

In November 1994, petitioners requested from Pacific
an additional partial payment of P600,000 purportedly
to be used to fulfill the conditions in the Deed of
Conditional Sale. Thereafter, petitioners asked for
another P1,000,000, again to be considered as partial
payment, which Pacific agreed tj) pay on the
conditions that, first, petitioners submit a Barangay
Agrarian Reform Council Certification that the
property was untenanted, and second, deliver all the
necessary documents, certifications and clearances
necessary to consummate the sale. On 13 February
1995, petitioners submitted to Pacific a Barangay
Agrarian Reform Council Certification that the land
was untenanted. They also assured Pacific that the
other documents needed to complete the sale were
being processed.
However, by March 1995, petitioners were still unable
to deliver the necessary documents, certifications and
clearances. Pacific also heard from Fortuno that
petitioners were contemplating on rescinding the
Deed of Conditional Sale.
This prompted Pacific to tender to petitioners the
payment for the balance of the purchase price by
opening a savings account in petitioners' names and
depositing the amount in said account. Pacific
informed petitioners of the deposit and told them that
the amount was at their disposal. Petitioners still
failed to comply with their obligations under the Deed
of Conditional Sale.
Pacific was then constrained to effect an annotation of
adverse claim on the property's transfer certificate of
title.44 Thereafter, Pacific sent several demand letters
to petitioners,45 which remained unheeded.
When Pacific was about to initiate legal action,
petitioners' lawyer commenced negotiations for the
rescission of the Deed of Conditional Sale. However,
in December 1998, the lawyer informed Pacific that
his services lad been terminated and he would no
longer negotiate for petitioners.
On 11 February 1999, Pacific again demanded that
petitioners fulfill their obligations under the Deed of
Conditional Sale.47 The demand was again unheeded.
Hence, Pacific filed the Complaint48 for
rescission/cancellation of contract and damages
before the RTC.
Pacific argues that the petition raises questions of fact
and should be denied. Moreover, Pacific avers that
the issues raised by petitioners have already been
decided by the CA. In particular, Pacific emphasizes
that the argument regarding Fortuno's authority has
been conclusively passed upon by the CA.
Pacific also maintains that it is not the party guilty of
failing to comply with the obligations under the Deed
of Conditional Sale. It maintains that it is simply not
true that the purchase price agreed upon is P200 per
square meter. For one, it says, being a corporation, it
is in its best interest that the true and correct
purchase price be recorded in its books as an
expense. In fact, it further says, the party that will
most benefit from reducing the price will be petitioners
themselves.
Likewise, Pacific points out that the Addendum, which
states, "[t]hat we, the above-named Vendors, hereby
amend item 2 of the said Deed of Conditional Sale to
read as follows x x x," proves that the amendment
was a "unilateral act" and without Pacific's consent.
Based on the foregoing arguments, Pacific insists that
it is the injured party in this case. As it has clearly
asked for specific performance in its Amended
Complaint, the CA correctly overturned the RTC's
decision.
The Issue
Petitioners raise this sole issue:
WITH ALL DUE RESPECT, TO DECLARE THAT
SPECIFIC PERFORMANCE IS WARRANTED IN
THE CASE AT BAR, INSTEAD OF RESCISSION,
THE COURT OF APPEALS HAS DECIDED IN A
WAY PROBABLY NOT IN ACCORD WITH LAW
AND/OR WITH THE APPLICABLE DECISIONS OF
THIS HONORABLE COURT. ON THE CONTRARY,
CANCELLATION OF THE DEED OF CONDITIONAL
SALE IS JUSTIFIED BECAUSE [RESPONDENT]
WAS INDEED REMISS [IN] ITS OBLIGATION AS
VENDEE.53
The Court's Ruling
The petition is denied. The Court affirms the assailed
decision and resolution of the CA.
The RTC erred in deciding
based on the original complaint.
It is clear that the RTC erred in deciding the case
based on the original complaint and not on the
Amended Complaint, thus:
[Pacific] in [its] complaint prays for the rescission or
cancellation of contract and to this allegation, the
Court has no recourse but to grant this prayer x x x.
WHEREFORE, judgment is hereby rendered
cancelling (sic) the contract and the addendum to it
entered into by [Pacific] and [petitioners] on October
1, 1994 x x x."54
The RTC failed to consider the Amended Complaint
filed by Pacific which changed Pacific's cause of
action from cancellation/rescission of the Conditional
Deed of Sale55 into one for specific performance. In
particular, he Amended Complaint modified Pacific's
prayer to read:

WHEREFORE, in view of the foregoing premises,
plaintiff respectfully prays that judgment be rendered
in favor of plaintiff and against defendants:
a) Directing defendants to sign and deliver to plaintiff
a Deed of Absolute Sale covering the subject property
and compel said defendants [to] comply with their
undertaking with plaintiff as embodied in the
Conditional Deed of Sale marked as Annex C.
x x x x56 (Underscoring in the original)
Section 8, Rule 10 of the Rules of Court provides:
SEC. 8. Effect of amended pleadings. - An amended
pleading supersedes the pleading that it amends.
However, admissions in superseded pleadings may
be received in evidence against the pleader; and
claims or defenses alleged therein not incorporated in
the amended pleading shall be deemed waived.
(Emphasis supplied)
With Pacific's filing of the Amended Complaint, the
original one must be deemed to have been
abandoned and to have become functus officio.57
Thus, this Court has ruled:
When a pleading is amended, the original pleading is
deemed abandoned. The original ceases to perform
any further function as a pleading. The case stands
for trial on the amended pleading only.58
Therefore, the Amended Compliant, to which
petitioners filed an Amended Answer with
Counterclaim,59 should have been the basis for the
RTC's decision.
The parties' obligations under
the Deed of Conditional Sale
Considering that Pacific seeks specific performance,
particularly for petitioners to execute a Deed of
Absolute Sale and fulfill their obligations under the
Deed of Conditional Sale, it is prudent to re-examine
the terms of said deed to understand each party's
obligations.
In particular, the terms and conditions under the Deed
of Conditional Sale are:
1. That the VENDEE shall pay unto the VENDORS
the sum of PESOS: ONE MILLION SEVEN
HUNDRED NINETY TWO THOUSAND FIVE
HUNDRED NINETY (P1,792,590.00), as
downpayment for the purchase of the aforesaid parcel
of land, which the VENDORS acknowledged receipt
hereof upon the execution of this Conditional Sale;
2. That full payment of the balance of PESOS: FOUR
MILLION ONE HUNDRED EIGHTY TWO
THOUSAND SEVEN HUNDRED TEN ONLY
(P4,182,710.00), shall be made by the VENDEE unto
the
VENDORS upon completion by the VENDORS of
the pertinent documents that are necessary for the
transfer of the [Transfer of] Certificate of Title of the
above mentioned parcel of land unto the VENDEE;
3. That the VENDORS shall guarantee the removal
of any tenant/s, squatters and other occupants on the
said parcel of land. Payments for the tenants'
disturbance compensation shall be shouldered by the
VENDORS;
4. That the VENDORS shall furnish the VENDEE the
Affidavit of Non-Tenancy and the Land operation
transfer document;
x x x x60
In summary, Pacific's obligations are: (1) to pay the
down payment of P1,892,590, which it did; and (2) to
pay the balance of the purchase price "upon
completion by the VENDORS of the pertinent
documents that are necessary for the transfer of the
Transfer Certificate of Title of the above mentioned
parcel of land unto the VENDEE[.]"
On the other hand, the Ascanos undertook the
following: (1) to furnish Pacific with all "pertinent
documents that are necessary for the transfer of the
Transfer Certificate of Title" to the subject property;
(2) to guarantee removal of tenants and shoulder the
full amount of the tenants' disturbance compensation;
and (3) to furnish Pacific the certificate of non-tenancy
and land operation transfer document.
Likewise, as ruled by the CA, the Addendum relied
upon by petitioners cannot prevail over the original
Deed of Conditional Sale entered into by the parties. 61
As the CA found, the Addendum was not signed by
any of Pacific's officers or authorized representatives.
Pacific's authorized representative, Dee Hua T.
Gatchalian, did not sign the Addendum. Moreover,
Fortuno, the person purported to be Pacific's
representative, signed as a mere witness.
A witness is not a party to the contract and is not
automatically converted to a party simply because,
under some other extraneous document or
circumstance, he has presented himself as the
corporation's authorized representative.63 Likewise,
such act of signing as a witness cannot be taken as
evidence of that person's authority.
Thus, the Addendum did not alter the parties'
obligations under the original Deed of Conditional
Sale.
Pacific is entitled to ask
for specific performance.
Article 1191 of the Civil Code states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between fulfillment and
the rescission of the obligation, with payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
As previously discussed, the Deed of Conditional Sale
clearly spells out the obligations of each party. Based
on the allegations of the parties and the findings of
the lower courts, Pacific has already partially fulfilled
its obligation while petitioners have not.
The obligation of petitioners under the Deed of
Conditional Sale is to "guarantee removal of tenants"
and not merely to pay disturbance compensation. It is
an undertaking specifically given to petitioners under
the Deed of Conditional Sale, considering that Pacific
is not yet the owner of the property and will have no
personality to evict the property's present occupants.
Petitioners failed to fulfill this obligation, as well as the
obligation to deliver the necessary documents to
complete the sale.
As previously held by the Court, "the injured party is
the party who has faithfully fulfilled his obligation or is
ready and willing to perform his obligation." 64 From
the foregoing, it is clear that Pacific is the injured
party, entitled to elect between rescinding of the
contract and exacting fulfillment of the obligation. It
has opted for the remedy of specific performance, as
embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of
petitioners, since they themselves failed to perform
their obligations under the Deed of Conditional Sale.
As to the purchase price, both the RTC and the CA
held that, given no other evidence to conclude
otherwise, the true purchase price agreed upon by the
parties is P5,975,300, the amount stipulated in the
Deed of Conditional Sale.
The Court agrees.
The RTC's Pre-trial Order66 is instructive. Specifically,
item "2" of the stipulations reads:
STIPULATIONS
The parties have agreed on the following:
xxxx
2. That on October 1, 1994, plaintiff and defendants]
entered into a Deed of Conditional Sale whereby
plaintiff obliged itself to purchase the property
belonging to defendants for a sum of P5,975,300.00;
x x x x67
Likewise, in the check vouchers issued by Pacific for
each of its payments, the consideration under the
contract was stated as P100 per square meter. These
check vouchers were acknowledged and signed by
petitioners.68redarclaw
Finally, records show, and petitioners do not dispute,
that the following amounts have already been paid by
Pacific:
(1) down payment of PI,792,590, receipt evidenced by
Check Voucher No. 0863;
(2) additional payment of P600,000, receipt evidenced
by Check Voucher No. 0968;
(3) additional payment of P1,000,000, receipt
evidenced by Check Voucher No. 1113;71redarclaw
(4) additional payments of P505,18072 and P500,000
deposited at Capitol Bank of General Trias in
Cavite.73
Pacific, therefore, has a balance of P1,577,530 to be
paid upon the fulfillment by petitioners of their
obligations under the Deed of Conditional Sale.
Thereafter, petitioners are to execute the Deed of
Absolute Sale in favor of Pacific and deliver all the
necessary documents to consummate the sale.
WHEREFORE, the petition is DENIED for lack of
merit. The Decision dated 17 July 2012 and
Resolution dated 8 January 2013 of the Court of
Appeals in CA-G.R. CV No. 90568 are AFFIRMED.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 210215 December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA,
LEONARDA N. ELPEDES, HEIRS OF ARNULFO S.
NOLASCO, AND REMEDIOS M. NOLASCO,
REPRESENTED BY ELENITA M. NOLASCO
Petitioners,
vs.
CELERINO S. CUERPO, JOSELITO ENCABO,
JOSEPH ASCUTIA, AND DOMILO LUCENARIO,
Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are
the Decision2 dated June 17, 2013 and the
Resolution3 dated November 19, 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 95353, which
affirmed in toto the Decision4 dated March 1, 2010 of
the Regional Trial Court of Quezon City, Branch 81
(RTC) in Civil Case No. Q-08-63860 ordering the
rescission of the Contract to Sell executed by herein
parties and the return of the amounts already paid by
respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents)
to petitioners Rogelio S. Nolasco, Nicanora N.
Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S.
Nolasco, and Remedios M. Nolasco, represented by
Elenita M. Nolasco (petitioners), as well as the
remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining
monthly amortizations, all in connection with the said
contract.
The Facts
On July 22, 2008, petitioners and respondents
entered into a Contract to Sell5 (subject contract) over
a 165,775-square meter parcel of land located in
Barangay San Isidro, Rodriguez, Rizal covered by
Original Certificate of Title No. 152 (subject land).6
The subject contract provides, inter alia, that: (a) the
consideration for the sale is P33,155,000.00 payable
as follows: down payment in the amount of
P11,604,250.00 inclusive of the amount of
P2,000,000.00 previously paid by respondents as
earnest money/reservation fee, and the remaining
balance of P21,550,750.00 payable in 36 monthly
installments, each in the amount of P598,632.00
through post-dated checks; (b) in case any of the
checks is dishonored, the amounts already paid shall
be forfeited in petitioners' favor, and the latter shall be
entitled to cancel the subject contract without judicial
recourse in addition to other appropriate legal action;
(c) respondents are not entitled to possess the
subject land until full payment of the purchase price;
(d) petitioners shall transfer the title over the subject
land from a certain Edilberta N. Santos to petitioners'
names, and, should they fail to do so, respondents
may cause the said transfer and charge the costs
incurred against the monthly amortizations; and (e)
upon full payment of the purchase price, petitioners
shall transfer title over the subject land to
respondents.7 However, respondents sent petitioners
a letter8 dated November 7, 2008 seeking to rescind
the subject contract on the ground of financial
difficulties in complying with the same. They also
sought the return of the amount of P12,202,882.00
they had paid to petitioners.9 As their letter went
unheeded, respondents filed the instant complaint10
for rescission before the RTC.11
In their defense,12 petitioners countered that
respondents' act is a unilateral cancellation of the
subject contract as the former did not consent to it.
Moreover, the ground of financial difficulties is not
among the grounds provided by law to effect a valid
rescission.13
In view of petitioners' failure to file the required pre-
trial brief, they were declared "as in default" and,
consequently, respondents were allowed to present
their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in
favor of respondents and, accordingly, ordered: (a)
the rescission of the subject contract; and (b) the
return of the amounts already paid by respondents to
petitioners, as well as the remaining post-dated
checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations.16
It found petitioners to have substantially breached
paragraph 7 of the subject contract which states that
"[t]he [petitioners] shall, within ninety (90) days from
the signing of [the subject contract] cause the
completion of the transfer of registration of title of the
property subject of [the said contract], from Edilberta
N. Santos to their names, at [petitioners'] own
expense."17 As such, respondents were entitled to
rescission under Article 1191 of the Civil Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
In a Decision20 dated June 17, 2013, the CA affirmed
the RTC ruling. It agreed with the RTC that petitioners
substantially breached paragraph 7 of the subject
contract when they did not effect the transfer of the
subject land from Edilberta N. Santos to petitioners'
names within ninety (90) days from the execution of
said contract, thus, entitling respondents to rescind
the same. In this relation, the CA held that under the
present circumstances, the forfeiture of the payments
already made by respondents to petitioners is clearly
improper and unwarranted.21
Aggrieved, petitioners moved for reconsideration,22
which was denied in a Resolution23 dated November
19, 2013; hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or
not the CA correctly affirmed the rescission of the
subject contract and the return of the amounts already
paid by respondents to petitioners, as well as the
remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining
monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or
more appropriately, resolve - the contract upon the
other party's substantial breach of the obligation/s he
had assumed thereunder.24 This is expressly provided
for in Article 1191 of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
"More accurately referred to as resolution, the right of
rescission under Article 1191 is predicated on a
breach of faith that violates the reciprocity between
the parties to the contract. This retaliatory remedy is
given to the contracting party who suffers the injurious
breach on the premise that it is 'unjust that a party be
held bound to fulfill his promises when the other
violates his.'"25 Note that the rescission (or resolution)
of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental
violations as would defeat the very object of the
parties in making the agreement.26 Ultimately, the
question of whether a breach of contract is substantial
depends upon the attending circumstances.27
In the instant case, both the RTC and the CA held
that petitioners were in substantial breach of
paragraph 7 of the subject contract as they did not
cause the transfer of the property to their names from
one Edilberta N. Santos within 90 days from the
execution of said contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the
signing of [the subject contract], cause the completion
of the transfer of registration of title of the property
subject of [the subject contract], from Edilberta N.
Santos to their names, at [petitioners'] own expense.
Failure on the part of [petitioners] to undertake
the foregoing within the prescribed period shall
automatically authorize [respondents] to
undertake the same in behalf of [petitioners] and
charge the costs incidental to the monthly
amortizations upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the subject contract
reveals that while the RTC and the CA were indeed
correct in finding that petitioners failed to perform their
obligation to effect the transfer of the title to the
subject land from one Edilberta N. Santos to their
names within the prescribed period, said courts erred
in concluding that such failure constituted a
substantial breach that would entitle respondents to
rescind (or resolve) the subject contract. To reiterate,
for a contracting party to be entitled to rescission (or
resolution) in accordance with Article 1191 of the Civil
Code, the other contracting party must be in
substantial breach of the terms and conditions of their
contract. A substantial breach of a contract, unlike
slight and casual breaches thereof, is a fundamental
breach that defeats the object of the parties in
entering into an agreement.29 Here, it cannot be said
that petitioners' failure to undertake their obligation
under paragraph 7 defeats the object of the parties in
entering into the subject contract, considering that the
same paragraph provides respondents contractual
recourse in the event of petitioners' non-performance
of the aforesaid obligation, that is, to cause such
transfer themselves in behalf and at the expense of
petitioners.
Indubitably, there is no substantial breach of
paragraph 7 on the part of petitioners that would
necessitate a rescission (or resolution) of the subject
contract. As such, a reversal of the rulings of the RTC
and the CA is in order.
The foregoing notwithstanding, the Court cannot grant
petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture
of the amounts already paid by respondents on
account of the latter's failure to pay its monthly
amortizations,30 simply because in their Answer with
Compulsory Counterclaim and Motion for Summary
Judgment31 filed before the RTC, petitioners neither
prayed for this specific relief nor argued that they
were entitled to the same. Worse, petitioners were
declared "as in default" for failure to file the required
pre-trial brief and, thus, failed to present any evidence
in support of their defense.32 It is settled that "[w]hen a
party deliberately adopts a certain theory and the
case is decided upon that theory in the court below,
he will not be permitted to change the same on
appeal, because to permit him to do so would be
unfair to the adverse party."33 The Court's
pronouncement in Peña v. Spouses Tolentino34 is
instructive on this matter, to wit:

Indeed, the settled rule in this jurisdiction, according

to Mon v. Court of Appeals, is that a party cannot
change his theory of the case or his cause of action
on appeal. This rule affirms 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 legal theory
under which the controversy was heard and
decided in the trial court should be the same
theory under which the review on appeal is
conducted. Otherwise, prejudice will result to the
adverse party. We stress that points of law,
theories, issues, and arguments not adequately
brought to the attention of the lower court will not
be ordinarily considered by a reviewing court,
inasmuch as they cannot be raised for the first
time on appeal. This would be offensive to the
basic rules of fair play, justice, and due process.35
(Emphasis and underscoring supplied)

WHEREFORE, the petition is PARTIALLY

GRANTED. Accordingly, the Decision dated June 17,
2013 and the Resolution dated November 19, 2013 of
the Court of Appeals in CA-G.R. CV No. 95353 are
hereby REVERSED and SET ASIDE. The Contract to
Sell executed by the parties on July 22, 2008 remains
VALID and SUBSISTING.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 202947 December 09, 2015
ASB REALTY CORPORATION, Petitioner,
vs.
ORTIGAS & COMPANY LIMITED PARTNERSHIP,
Respondent.
DECISION
BERSAMIN, J.:
This appeal seeks the review and reversal of the
amended decision promulgated on January 9, 2012, 1
whereby the Court of Appeals (CA) disposed thusly:
WHEREFORE, premises considered, judgment is
rendered:
1. Granting the appeal of plaintiff-appellant and herein
movant Ortigas and Company Limited Partnership,
and reversing the Decision of the court a quo dated
December 14, 2009;
2. Rescinding the June 24, 1994 Deed of Sale
between Ortigas and Company Limited Partnership
and Amethyst Pearl Corporation in view of the
material breached (sic) thereof by AMETHYST;
3. Ordering ASB Realty Corporation, by way of mutual
restitution, the RECONVEYANCE to ORTIGAS of the
subject property covered by TCT No. PT-105797
upon payment by ORTIGAS to ASB of the amount of
Two Million Twenty Four Thousand Pesos (PhP
2,024,000.00) plus legal interest at the rate of 6% per
annum from the time of the finality of this judgment
until the same shall have been fully paid; and
4. Ordering the Register of Deeds of Pasig City to
cancel TCT No. PT-105797 and issue a new title over
the subject property under the name of ORTIGAS &
COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED.2
The petitioner also assails the resolution promulgated
on July 26, 2012,3 whereby the CA denied its Motion
for Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas & Company
Limited Partnership (Ortigas) entered into a Deed of
Sale with Amethyst Pearl Corporation (Amethyst)
involving the parcel of land with an area of 1,012
square meters situated in Barrio Oranbo, Pasig City
and registered under Transfer Certificate of Title
(TCT) No. 65118 of the Register of Deeds of Rizal4 for
the consideration of P2,024,000.00. The Deed of
Sale5 contained the following stipulations, among
others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING
AREA pursuant to its controlled real estate
development project and subdivision scheme, and is
subject to the following covenants which form part of
the consideration of ORTIGAS' sale to VENDEE and
its assigns, namely:
xxxx
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of
reinforced concrete, cement hollow blocks and other
high-quality materials and shall be of the following
height of not more than: fourteen (14) storeys plus
one penthouse.
xxxx
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building
shall be submitted to ORTIGAS for approval not later
than six (6) months from date hereof. Should
ORTIGAS object to the same, it shall notify and
specify to the VENDEE in writing the amendments
required to conform with its building restrictions and
VENDEE shall submit the amended plans within sixty
(60) days from receipt of said notice.
M. CONSTRUCTION AND COMPLETION OF
BUILDING:
The VENDEE shall finish construction of its building
within four (4) years from December 31,
1991.6ChanRoblesVirtualawlibrary
As a result, the Register of Deeds of Rizal cancelled
TCT No. 65118 and issued TCT No. PT-94175 in the
name of Amethyst.7 The conditions contained in the
Deed of Sale were also annotated on TCT No. PT-
94175 as encumbrances.8
On December 28, 1996, Amethyst assigned the
subject property to its sole stockholder, petitioner ASB
Realty Corporation (the petitioner), under a so-called
Deed of Assignment in Liquidation in consideration of
10,000 shares of the petitioner's outstanding capital
stock.9 Thus, the property was transferred to the
petitioner free from any liens or encumbrances except
those duly annotated on TCT No. PT-94175.10 The
Register of Deeds of Rizal cancelled TCT No. PT-
94175 and issued TCT No. PT-105797 in the name of
the petitioner with the same encumbrances annotated
on TCT No. PT-94175.11
On July 7, 2000, Ortigas filed its complaint for specific
performance against the petitioner,12 which was
docketed as Civil Case No. 67978 of the Regional
Trial Court (RTC) in Pasig City.13 Ortigas amended
the complaint, and alleged,14 among others, that:
5. Defendant has violated the terms of the Deed of
Absolute Sale (Annex "A") in the following manner:
a. While the lot may be used only "for office and
residential purposes", defendant introduced
constructions on the property which are commercial in
nature, like restaurants, retail stores and the like (see
par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by
defendant on the property extend up to the boundary
lines of the lot in question violating the setbacks
established in the contract (see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans
and specifications of its proposed building not later
than six (6) months from June 29, 1994 and to
complete construction of the same within four (4)
years from December 31, 1991. (see pars. L and M,
ibid).
d. Being situated in a first-class office building area, it
was agreed that no advertisements or any kind of
commercial signs shall be allowed on the lot or the
improvements therein but this was violated by
defendant when it put up commercial signs and
advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by
the defendant empower the plaintiff to sue under
parangraph "N. Unilateral Cancellation", plaintiff may
have the Deed of Absolute Sale (Annex "A")
cancelled and the property reverted to it by paying the
defendant the amount it has paid less the items
indicated therein.15
For reliefs, Ortigas prayed for the reconveyance of the
subject property, or, alternatively, for the demolition of
the structures and improvements thereon, plus the
payment of penalties, attorney's fees and costs of
suit.16
During the pendency of the proceedings in the RTC,
the petitioner amended its Articles of Incorporation to
change its name to St. Francis Square Realty
Corporation.17
After trial on the merits, the RTC rendered its decision
on December 14, 2009,18 and dismissed the
complaint, pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June
1994. Amethyst was supposed to finish construction
on 31 December 1995. Yet, up to the time the
property was transferred to ASB on 28 December
1996, Ortigas never initiated any action against
Amethyst to enforce said provision. Ortigas is
therefore guilty of laches or negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it. (Tijam v.
Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated in
TCT No. 94175 (in the name of Amethyst Pearl
Corporation) and TCT No. PT-105797 (in the name of
ASB) repeatedly and consistently refer to the
VENDEE. The term VENDEE in the said restrictions
obviously refer to Amethyst Pearls Corporation
considering the fact that the date referred to in
Paragraph N thereof (Construction and Completion of
Building), which is four (4) years from December 31,
1991, obviously refer to the plaintiffs VENDEE
Amethyst Pearl Corporation. Definitely, it cannot refer
to the defendant ASB which is not a vendee of the
plaintiff. Therefore, all references to VENDEE in the
restrictions evidently refer to Amethyst Pearl
Corporation, the VENDEE in the sale from the
plaintiff. Such explanation is more consistent with
logic than the plaintiffs convoluted assertions that the
said restrictions apply to the defendant ASB.
Reconveyance of the property to Ortigas necessarily
implies rescission of the sale or transfer from
Amethyst to ASB and from Ortigas to Amethyst. But
Amethyst was not made a party to the case.
Reconveyance of the property to the original seller
(Ortigas) applies only on the sale to the original
vendee (Amethyst) and not to subsequent vendees to
whom the property was sold (Ayala Corp. v. Rosa
Diana Realty and Dev. Corp., G.R. No. 134284, Dec.
1, 2000, 346 SCRA 663).
The non-compliance by the plaintiff with the requisites
of its own restrictions further proves that it had no
intention whatsoever to enforce or implement the
same. If at all, this evinces an afterthought of the
plaintiff to belatedly and unjustifiably single out the
defendant for alleged non compliance of the said
restrictions which are not applicable to it anyway.
WHEREFORE, foregoing premises considered, the
present complaint is hereby dismissed for lack of
basis.
SO ORDERED.
Ortigas appealed to the CA, which initially affirmed
the RTC under the decision promulgated on
September 6, 2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said
restrictions as against ASB.
The "Covenants, Conditions and Restrictions" of
ORTIGAS with respect to the property clearly states
the following purpose:
"This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING
AREA pursuant to its controlled real estate
development project and subdivision scheme. x x x"
However, it appears from the circumstances obtaining
in this case that ORTIGAS failed to pursue the
aforequoted purpose. It never filed a complaint
against its vendee, AMETHYST, notwithstanding that
it required the latter to complete construction of the
building within four (4) years from the execution of the
Deed of Sale. Neither did it make a demand to
enforce the subject restriction. Moreover, while it
imposed a restriction on the registration and issuance
of title in the name of the vendee under Paragraph "P"
on "Registration of Sale", to wit:
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's
compliance with all conditions therein. x x x"
AMETHYST was nonetheless able to procure the title
to the property in its name, and subsequently,
assigned the same to ASB.
Besides, records show that there are registered
owner-corporations of several properties within the
Ortigas area, where the subject property is located,
that have likewise failed to comply with the restriction
on building construction notwithstanding the fact of its
annotation on the titles covering their properties. In
fact, the tax declarations covering these properties in
the respective names of UNIMART INC., CHAILEASE
DEVELOPMENT CO. INC., CANOGA PARK
DEVELOPMENT CORPORATION, and MAKATI
SUPERMARKET CORPORATION reveal that no
improvements or buildings have been erected
thereon.
Notwithstanding such blatant non-compliance,
however, records are bereft of evidence to prove that
ORTIGAS took steps to demand observance of the
said restriction from these corporations, or that it
opted to institute any case against them in order to
enforce its rights as seller. Thus, while ORTIGAS
effectively tolerated the non-compliance of these
other corporations, it nonetheless proceeded with the
filing of the Complaint a quo against ASB, seeking the
rescission of the original Deed of Sale on the ground
of non-compliance of the very same restriction being
violated by other property owners similarly situated.
On the basis of the foregoing acts or omissions of
ORTIGAS, and the factual milieu of the present case,
it cannot be pretended that it failed to actively pursue
the attainment of its objective of having a "controlled
real estate development project and subdivision
scheme". The Court thus concurs with the
ratiocinations of the RTC when it posited that the
restrictions imposed by ORTIGAS on ASB have been
"rendered obsolete and inexistent" for failure of
ORTIGAS to enforce the same uniformly and
indiscriminately against all non-complying property
owners. If the purpose of ORTIGAS for imposing the
restrictions was for its "controlled real estate
development project and subdivision scheme", then it
should have sought compliance from all property
owners that have violated the restriction on building
completion. As things stand, ASB would appear to
have been singled out by ORTIGAS, rendering the
present action highly suspect and a mere
afterthought.
Consequently, while it may be true that ASB was
bound by the restrictions annotated on its title,
specifically the restriction on building completion,
ORTIGAS is now effectively estopped from enforcing
the same by virtue of its inaction and silence.
xxxx
In this case, ORTIGAS acquiesced to the conveyance
of the property from AMETHYST to ASB with nary a
demand, reservation or complaint for the enforcement
of the restriction on building construction. It allowed
the four-year period within which to construct a
building to lapse before it decided that it wanted, after
all, to enforce the restriction, which cannot be allowed
lest the property rights of the registered owner, ASB,
be transgressed. Such a silence or inaction, which in
effect led ASB to believe that ORTIGAS no longer
sought the enforcement of the restrictions on the
contract, therefore bars ORTIGAS from enforcing the
restriction it imposed on the subject property.
xxxx
WHEREFORE, premises considered, the instant
appeal is DENIED. The assailed Decision is hereby
AFFIRMED.
SO ORDERED.21ChanRoblesVirtualawlibrary
Acting on Ortigas' Motion for Reconsideration,
however, the CA promulgated its assailed amended
decision on January 9, 2012,22 whereby it reversed
the decision promulgated on September 6, 2011. It
observed and ruled as follows:
It is not disputed that AMETHYST failed to finish
construction within the period stated in the 1994 Deed
of Sale. As correctly pointed out by ORTIGAS, in
accordance with Article 1144 of the Civil Code, the
prescriptive period within which to enforce remedies
under the 1994 Deed of sale is ten (10) years from
the time the right of action accrues.
ORTIGAS, therefore, had ten (10) years from 31
December 1995 or until 31 December 2005 within
which to file suit to enforce the restriction. ORTIGAS
filed the present complaint on 07 July 2000 well
within the prescriptive period for filing the same.
ASB contends that it could not have complied with the
particular restriction to finish construction of the
building as the period to finish the same had already
lapsed by the time ASB acquired the property by way
of a Deed of Assignment in Liquidation between
AMETHYST and ASB on 28 December 1996. We
hold, however, that the mere assignment or
transfer of the subject property from AMETHYST
to ASB does not serve to defeat the vested right
of ORTIGAS to avail of remedies to enforce the
subject restriction within the applicable
prescriptive period.
xxxx
As to the argument that the inaction of ORTIGAS with
respect to other non-compliant properties in the
Ortigas area is tantamount to consenting to such non-
compliance, it must be mentioned that it is the sole
prerogative and discretion of Ortigas to initiate any
action against the violators of the deed restrictions.
This Court cannot interfere with the exercise of such
prerogative/discretion. Furthermore, We cannot
sustain estoppel in doubtful inference. Absent the
conclusive proof that its essential elements are
present, estoppel must fail. Estoppel, when
misapplied, becomes an effective weapon to
accomplish an injustice, inasmuch as it shuts a man's
mouth from speaking the
truth.23ChanRoblesVirtualawlibrary
By its resolution promulgated on July 26, 2012, the
CA denied the petitioner's Motion for
Reconsideration24 for being filed out of
time.25cralawred
Issues
Hence, this appeal in which ASB submits: (1) that its
Motion for Reconsideration vis-a-vis the CA's
amended decision was filed on time; and (2) that the
amended decision promulgated on January 9, 2012
by CA be reversed and set aside, and the decision
promulgated on September 6, 2011 be reinstated.26
The petitioner essentially seeks the resolution of the
issue of whether or not Ortigas validly rescinded the
Deed of Sale due to the failure of Amethyst and its
assignee, the petitioner, to fulfil the covenants under
the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration vis-a-vis
the amended decision of the CA was timely filed
In denying the petitioner's Motion for Reconsideration,
the CA concluded as follows:
Per allegation of material dates, the Motion for
Reconsideration filed by Balgos Gumara & Jalandoni,
co-counsel with Jose, Mendoza & Associates, on
January 30, 2012 appears to have been filed on time.
However, per registry return attached at the back of p.
212 of the Rollo, the Motion for Reconsideration was
filed three (3) days late considering that the Amended
Decision was received by defendant appellee's
counsel of record, Jose, Mendoza & Associates, on
January 12, 2012.
The conclusion of the CA was unwarranted because
the petitioner established that its filing of the Motion
for Reconsideration was timely.
It is basic that the party who asserts a fact or the
affirmative of an issue has the burden of proving it. 28
Here, that party was the petitioner. To comply with its
burden, it attached to its petition for review on
certiorari: (1) the affidavit executed by Noel S.R.
Rose, Senior Partner of Jose, Mendoza & Associates
attesting that he had requested the postmaster of the
Mandaluyong City Post Office to certify the date when
Jose, Mendoza & Associates had received the copy
of the amended decision of the CA;29 and (2) the
certification issued on August 15, 2012 by Postmaster
Rufino C. Robles, and Letter Carrier, Jojo Salvador,
both of the Mandaluyong Central Post Office,
certifying that Registered Letter No. MVC 457
containing the copy of the amended decision had
been delivered to and received on January 18, 2012
by Jose, Mendoza & Associates, through Ric
Ancheta.30 It thereby sought to prove that it had
received the copy of the amended decision only on
January 18, 2012, not January 12, 2012 as stated in
the registry return card on record. Thus, it had until
February 2, 2012, or 15 days from January 18, 2012,
within which to file the same. In contrast, Ortigas
relied only on the copy of the registry return to refute
the petitioner's assertion.31 Under the circumstances,
the filing on January 30, 2012 of the Motion for
Reconsideration was timely.
2.
Ortigas' action for rescission could not prosper
The petitioner reiterates that although the restrictions
and covenants imposed by Ortigas under the Deed of
Sale with Amethyst, particularly with regard to the
construction of the building, were similarly imposed on
Ortigas' other buyers and annotated on the latter's
respective certificates of title,32 Ortigas never took to
task such other buyers and Amethyst for failing to
construct the buildings within the periods contractually
imposed.33 It maintains, therefore, that Ortigas slept
on its rights because it did not take any action against
Amethyst during the period prescribed in the Deed of
Sale.34 It argues that even assuming that it was bound
by the terms of the Deed of Sale, certain
circumstances occurred in the interim that rendered it
impossible for the petitioner to comply with the
covenants embodied in the Deed of Sale, namely: (1)
the delay in the petitioner's possession of the property
resulted from the complaint for forcible entry it had
filed in the Metropolitan Trial Court in Pasig City; (2)
at the time the property was transferred to the
petitioner, the period within which to construct the
building had already expired without Ortigas enforcing
the obligation against Amethyst; and (3) the petitioner
was placed under corporate rehabilitation by the
Securities and Exchange Commission (SEC) by virtue
of which a stay order was issued on May 4, 2000.35
In contrast, Ortigas contends that it had the sole
discretion whether or not to commence any action
against a party who violated a restriction in the Deed
of Sale;36 and that it could not be estopped because
the Deed of Sale with Amethyst and the deeds of sale
with its other buyers contained a uniform provision to
the effect that "any inaction, delay or tolerance by
OCLP (Ortigas) in respect to violation of any of the
covenants and restrictions committed by these buyers
shall not bar or estop the institution of an action to
enforce them."37
In asserting its right to rescind, Ortigas insists that the
petitioner was bound by the covenants of the Deed of
Sale annotated on TCT No. PT-10597 in the name of
the petitioner;38 and that the petitioner's privity to the
Deed of Sale was by virtue of its being the successor-
in-interest or assignee of Amethyst.39
After evaluating the parties' arguments and the
records of the case, the Court holds that Ortigas could
not validly demand the reconveyance of the property,
or the demolition of the structures thereon through
rescission.
The Deed of Assignment in Liquidation executed
between Amethyst and the petitioner expressly
stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers
and conveys unto the ASSIGNEE, its successors
and assigns, free from any lien or encumbrance
except those that are duly annotated on the Transfer
Certificate of Title (TCT), one parcel of real property
(with improvements). x x x.
xxxx
The ASSIGNEE in turn in consideration of the
foregoing assignment of assets to it, hereby
surrenders to ASSIGNOR, Amethyst Pearl
Corporation, Stock Certificate Nos. (006, 007, 008,
009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the
ASSIGNEE and its nominees in the books of
ASSIGNOR, receipt of which is hereby
acknowledged, and in addition hereby releases
ASSIGNOR from any and all claims.40
The express terms of the Deed of Assignment in
Liquidation, supra, indicate that Amethyst transferred
to the petitioner only the tangible asset consisting of
the parcel of land covered by TCT No. PT-94175
registered in the name of Amethyst. By no means did
Amethyst assign the rights or duties it had assumed
under the Deed of Sale. The petitioner thus became
vested with the ownership of the parcel of land "free
from any lien or encumbrance except those that are
duly annotated on the [title]" from the time Amethyst
executed the Deed of Assignment in Liquidation.
Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon,
or any rights thereto, shall not be transferred, sold or
encumbered before the final completion of the
building as herein provided unless it is with the prior
express written approval of ORTIGAS.41
xxxx
The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's
compliance with all conditions herein. x x x42
Ortigas apparently recognized without any reservation
the issuance of the new certificate of title in the name
of Amethyst and the subsequent transfer by
assignment from Amethyst to the petitioner that
resulted in the issuance of the new certificate of title
under the name of the petitioner. As such, Ortigas
was estopped from assailing the petitioner's
acquisition and ownership of the property.
The application of estoppel was appropriate. The
doctrine of estoppel was based on public policy, fair
dealing, good faith and justice, and its purpose was to
forbid a party to speak against his own act or
omission, representation, or commitment to the injury
of another to whom the act, omission, representation,
or commitment was directed and who reasonably
relied thereon. The doctrine sprang from equitable
principles and the equities in the case, and was
designed to aid the law in the administration of justice
where without its aid injustice would result. Estoppel
has been applied by the Court wherever and
whenever special circumstances of the case so
demanded.43
Yet, the query that persists is whether or not the
covenants annotated on TCT No. PT-10597 bound
the petitioner to the performance of the obligations
assumed by Amethyst under the Deed of Sale.
We agree with Ortigas that the annotations on TCT
No. PT-10597 bound the petitioner but not to the
extent that rendered the petitioner liable for the non-
performance of the covenants stipulated in the Deed
of Sale.
Section 39 of Act No. 496 (The Land Registration Act)
requires that every person receiving a certificate of
title in pursuance of a decree of registration, and
every subsequent purchaser of registered land who
takes a certificate of title for value in good faith shall
hold the same free of all encumbrances except those
noted on said certificate. An encumbrance in the
context of the provision is "anything that impairs the
use or transfer of property; anything which constitutes
a burden on the title; a burden or charge upon
property; a claim or lien upon property." 44 It denotes
"any right to, or interest in, land which may subsist in
another to the diminution of its value, but consistent
with the passing of the fee by conveyance."45 An
annotation, on the other hand, is "a remark, note,
case summary, or commentary on some passage of a
book, statutory provision, court decision, of the like,
intended to illustrate or explain its meaning." 46 The
purpose of the annotation is to charge the purchaser
or title holder with notice of such burden and claims.47
Being aware of the annotation, the purchaser must
face the possibility that the title or the real property
could be subject to the rights of third parties.48
By acquiring the parcel of land with notice of the
covenants contained in the Deed of Sale between the
vendor (Ortigas) and the vendee (Amethyst), the
petitioner bound itself to acknowledge and respect the
encumbrance. Even so, the petitioner did not step into
the shoes of Amethyst as a party in the Deed of Sale.
Thus, the annotation of the covenants contained in
the Deed of Sale did not give rise to a liability on the
part of the petitioner as the purchaser/successor-in-
interest without its express assumption of the duties
or obligations subject of the annotation. As stated, the
annotation was only the notice to the
purchaser/successor-in-interest of the burden, claim
or lien subject of the annotation. In that respect, the
Court has observed in Garcia v. Villar:49
The sale or transfer of the mortgaged property cannot
affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and
respect the encumbrance.
xxxx
x x x However, Villar, in buying the subject property
with notice that it was mortgaged, only undertook to
pay such mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt
matures. Villar did not obligate herself to replace the
debtor in the principal obligation, and could not do so
in law without the creditors consent. Article 1293 of
the Civil Code provides:
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will
of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage
indebtedness remains with the original debtors Galas
and Pingol. x x x
To be clear, contractual obligations, unlike contractual
rights or benefits, are generally not assignable. But
there are recognized means by which obligations may
be transferred, such as by sub-contract and novation.
In this case, the substitution of the petitioner in the
place of Amethyst did not result in the novation of the
Deed of Sale. To start with, it does not appear from
the records that the consent of Ortigas to the
substitution had been obtained despite its essentiality
to the novation. Secondly, the petitioner did not
expressly assume Amethyst's obligations under the
Deed of Sale, whether through the Deed of
Assignment in Liquidation or another document. And,
thirdly, the consent of the new obligor (i.e., the
petitioner), which was as essential to the novation as
that of the obligee (i.e., Ortigas), was not obtained.50
Even if we would regard the petitioner as the
assignee of Amethyst as far as the Deed of Sale was
concerned, instead of being the buyer only of the
subject property, there would still be no express or
implied indication that the petitioner had assumed
Amethyst's obligations. In short, the burden to perform
the covenants under the Deed of Sale, or the liability
for the non-performance thereof, remained with
Amethyst. As held in an American case:
The mere assignment of a bilateral executory contract
may not be interpreted as a promise by the assignee
to the assignor to assume the performance of the
assignor's duties, so as to have the effect of creating
a new liability on the part of the assignee to the other
party to the contract assigned. The assignee of the
vendee is under no personal engagement to the
vendor where there is no privity between them.
(Champion v. Brown, 6 Johns. Ch. 398; Anderson v.
N. Y. & H. R. R. Co., 132 App. Div. 183, 187, 188;
Hugel v. Habel, 132 App. Div. 327, 328.) The
assignee may, however, expressly or impliedly, bind
himself to perform the assignor's duties. This he may
do by contract with the assignor or with the other
party to the contract. It has been held (Epstein v.
Gluckin, 233 N. Y. 490) that where the assignee of
the vendee invokes the aid of a court of equity in an
action for specific performance, he impliedly binds
himself to perform on his part and subjects himself to
the conditions of the judgment appropriate thereto.
"He who seeks equity must do equity." The converse
of the proposition, that the assignee of the vendee
would be bound when the vendor began the action,
did not follow from the decision in that case. On the
contrary, the question was wholly one of remedy
rather than right and it was held that mutuality of
remedy is important only so far as its presence is
essential to the attainment of the ends of justice. This
holding was necessary to sustain the decision. No
change was made in the law of contracts nor in the
rule for the interpretation of an assignment of a
contract.
A judgment requiring the assignee of the vendee to
perform at the suit of the vendor would operate as the
imposition of a new liability on the assignee which
would be an act of oppression and injustice, unless
the assignee had, expressly or by implication, entered
into a personal and binding contract with the assignor
or with the vendor to assume the obligations of the
assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover
the subject property from the petitioner?
The Civil Code uses rescission in two different
contexts, namely: (1) rescission on account of breach
of contract under Article 1191; and (2) rescission by
reason of lesion or economic prejudice under Article
1381. Cogently explaining the differences between
the contexts of rescission in his concurring opinion in
Universal Food Corp. v. Court of Appeals,52 the
eminent Justice J.B.L. Reyes observed:
x x x The rescission on account of breach of
stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith
by the defendant, that violates the reciprocity between
the parties. It is not a subsidiary action, and Article
1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is
subordinated to anything; other than the culpable
breach of his obligations by the defendant. This
rescission is in principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
promises when the other violates his, as expressed in
the old Latin aphorism: "Non servanti fidem, non est
fides servanda." Hence, the reparation of damages for
the breach is purely secondary.
On the contrary, in the rescission by reason of lesion
or economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these
two articles is limited to the cases of rescission for
lesion enumerated in Article 1381 of the Civil Code of
the Philippines, and does not apply to cases under
Article 1191.
Based on the foregoing, Ortigas' complaint was
predicated on Article 1191 of the Civil Code, which
provides:
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law.
Rescission under Article 1191 of the Civil Code is
proper if one of the parties to the contract commits a
substantial breach of its provisions. It abrogates the
contract from its inception and requires the mutual
restitution of the benefits received;53 hence, it can be
carried out only when the party who demands
rescission can return whatever he may be obliged to
restore.
Considering the foregoing, Ortigas did not have a
cause of action against the petitioner for the
rescission of the Deed of Sale. Under Section 2, Rule
2 of the Rules of Court, a cause of action is the act or
omission by which a party violates a right of another.
The essential elements of a cause of action are: (1) a
right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an
obligation on the part of the defendant not to violate
such right; and (3) an act or omission on the part of
the defendant in violation of the right of the plaintiff or
constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may
maintain an action for recovery of damages or other
relief. It is only upon the occurrence of the last
element that the cause of action arises, giving the
plaintiff the right to file an action in court for the
recovery of damages or other relief.54
The second and third elements were absent herein.
The petitioner was not privy to the Deed of Sale
because it was not the party obliged thereon. Not
having come under the duty not to violate any
covenant in the Deed of Sale when it purchased the
subject property despite the annotation on the title, its
failure to comply with the covenants in the Deed of
Sale did not constitute a breach of contract that gave
rise to Ortigas' right of rescission. It was rather
Amethyst that defaulted on the covenants under the
Deed of Sale; hence, the action to enforce the
provisions of the contract or to rescind the contract
should be against Amethyst. In other words,
rescission could not anymore take place against the
petitioner once the subject property legally came into
the juridical possession of the petitioner, who was a
third party to the Deed of Sale.55
In view of the outcome, we consider to be superfluous
any discussion of the other matters raised in the
petition, like the effects of the petitioner's corporate
rehabilitation and whether Ortigas was guilty of
laches.

WHEREFORE, the Court GRANTS the petition for

review on certiorari; ANNULS and REVERSES the
amended decision promulgated on January 9, 2012
and the resolution promulgated on July 26, 2012 by
the Court of Appeals in C.A.-G.R. CV No. 94997;
DISMISSES Civil Case No. 67978 for lack of cause of
action; and ORDERS respondent ORTIGAS &
COMPANY LIMITED PARTNERSHIP to pay the
costs of suit.

SO ORDERED.