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FIRST DIVISION

G.R. No. 149004 April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,

vs.

ALEX A. JAUCIAN, respondent.

DECISION

PANGANIBAN, J.:

Iniquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to
morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised,
such authority shall not be disturbed by appellate courts.

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the July 19, 2000
Decision2 and the June 14, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 43635. The
decretal portion of the Decision is as follows:

"WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court, 5th Judicial
Region, Branch 21, Naga City, dated August 31, 1993, in Civil Case No. 89-1911 for Sum of Money, is
hereby AFFIRMED in toto."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial Court (RTC) of
Naga City (Branch 21) and affirmed by the CA, reads as follows:

"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905, series of
1982 to be of no force and legal effect, it having been promulgated by the Monetary Board of the Central
Bank of the Philippines with grave abuse of discretion amounting to excess of jurisdiction; declaring that
the rate of interest, penalty, and charges for attorney’s fees agreed upon between the parties are
unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law, as
amended; and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED SEVENTY-EIGHT
THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100 (₱478,194.54) PESOS, Philippine currency, with
regular and compensatory interests thereon at the rate of twenty-eight (28%) per centum per annum,
computed from August 31, 1993 until full payment of the said amount, and in addition, an amount
equivalent to ten (10%) per centum of the total amount due and payable, for attorney’s fees, without
pronouncement as to costs."5

The Facts

The CA summarized the facts of the case in this wise:

"The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against
Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from
plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate
promissory notes and issued several checks as guarantee for payment. When the said loans became
overdue and unpaid, especially when the defendant’s checks were dishonored, plaintiff made repeated
oral and written demands for payment.

"Specifically, the six (6) separate loans obtained by defendant from plaintiff on various dates are as
follows:

(a) November 13, 1987 ₱ 50,000.00

(b) December 28, 1987 40,000.00

(c) January 6, 1988 30,000.00

(d) January 11, 1988 50,000.00

(e) January 12, 1988 50,000.00

(f) January 13, 1988 100,000.00

Total

₱320,000.00

"The loans were covered by six (6) separate promissory notes executed by defendant. The face value of
each promissory notes is bigger [than] the amount released to defendant because said face value
already include[d] the interest from date of note to date of maturity. Said promissory notes, which
indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks
issued by defendant, penalties and attorney’s fees, are the following:

1. Exhibit ‘D’ – for loan of ₱40,000.00 on December 28, 1987, with face value of ₱65,000.00;

2. Exhibit ‘E’ – for loan of ₱50,000.00 on January 11, 1988, with face value of ₱82,000.00;

3. Exhibit ‘F’ – for loan of ₱50,000.00 on January 12, 1988, with face value of ₱82,000.00;

4. Exhibit ‘G’ – for loan of ₱100,000.00 on January 13, 1988, with face value of ₱164,000.00;
5. Exhibit ‘H’ – This particular promissory note covers the second renewal of the original loan of
₱50,000.00 on November 13, 1987, which was renewed for the first time on March 16, 1988 after
certain payments, and which was renewed finally for the second time on January 4, 1988 also after
certain payments, with a face value of ₱56,240.00;

6. Exhibit ‘I’ – This particular promissory note covers the second renewal of the original loan of
₱30,000.00 on January 6, 1988, which was renewed for the first time on June 4, 1988 after certain
payments, and which was finally renewed for the second time on August 6, 1988, also after certain
payments, with [a] face value of ₱12,760.00;

"The particulars about the postdated checks, i.e., number, amount, date, etc., are indicated in each of
the promissory notes. Thus, for Exhibit ‘D’, four (4) PB checks were issued; for Exhibit ‘E’ four (4) checks;
for Exhibit ‘F’ four (4) checks; for Exhibit ‘G’ four (4) checks; for Exhibit ‘H’ one (1) check; for Exhibit ‘I’
one (1) check;

"The arrangement between plaintiff and defendant regarding these guarantee checks was that each time
a check matures the defendant would exchange it with cash.

"Although, admittedly, defendant made several payments, the same were not enough and she always
defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount, including
accrued interest, penalties and attorney’s fees, [was] ₱2,807,784.20.

"On the other hand, defendant claims that she was extended loans by the plaintiff on several occasions,
i.e., from November 13, 1987 to January 13, 1988, in the total sum of ₱320,000.00 at the rate of sixteen
percent (16%) per month. The notes mature[d] every four (4) months with unearned interest
compounding every four (4) months if the loan [was] not fully paid. The loan releases [were] as follows:

(a) November 13, 1987 ₱ 50,000.00

(b) December 28, 1987 40,000.00

(c) January 6, 1988 30,000.00

(d) January 11, 1988 50,000.00

(e) January 12, 1988 50,000.00

(f) January 13, 1988 100,000.00

Total

₱320,000.00

"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including the usurious
interests of 16% per month, this is the reason why these were not included in the complaint.

"Defendant alleges that all the above amounts were released respectively by checks drawn by the
plaintiff, and the latter must produce these checks as these were returned to him being the drawer if
only to serve the truth. The above amount are the real amount released to the defendant but the
plaintiff by masterful machinations made it appear that the total amount released was ₱462,600.00.
Because in his computation he made it appear that the true amounts released was not the original
amount, since it include[d] the unconscionable interest for four months.

"Further, defendant claims that as of January 25, 1989, the total payments made by defendants [were]
as follows:

a. Paid releases on November 13, 1987 of ₱50,000.00 and January 6, 1988 of ₱30,000.00 these two
items were not included in the complaint affirming the fact that these were paid ₱ 80,000.00

b. Exhibit ‘26’ Receipt 231,000.00

c. Exhibit ‘8-25’ Receipt 65,300.00

d. Exhibit ‘27’ Receipt 65,000.00

Total

₱441,780.00

Less: 320,000.00

Excess Payment

₱121,780.00
"Defendant contends that from all perspectives the above excess payment of ₱121,780.00 is more than
the interest that could be legally charged, and in fact as of January 25, 1989, the total releases have been
fully paid.

"On 31 August 1993, the trial court rendered the assailed decision."6

Ruling of the Court of Appeals

On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the
constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate
court affirmed the judgment of the trial court, holding that the latter’s clear and detailed computation of
petitioner’s outstanding obligation to respondent was convincing and satisfactory.

Hence, this Petition.7

The Issues

Petitioner raises the following arguments for our consideration:

"1. That the petitioner has fully paid her obligations even before filing of this case.

"2. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is
illegal.

"3. That charging of excessive attorney’s fees is hemorrhagic.

"4. Charging of excessive penalties per month is in the guise of hidden interest.
"5. The non-inclusion of the husband of the petitioner at the time the case was filed should have
dismissed this case."8

The Court’s Ruling

The Petition has no merit.

First Issue:

Computation of Outstanding Obligation

Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the
two lower courts misappreciated the facts when they ruled that she still had an outstanding balance of
₱208,430.

This issue involves a question of fact. Such question exists when a doubt or difference arises as to the
truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence,
considering mainly the credibility of witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to the whole, and the probabilities of the
situation.9

It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari
under Rule 45 of the Rules of Court, as this remedy is generally confined to questions of law.10 The
jurisdiction of this Court over cases brought to it is limited to the review and rectification of errors of law
allegedly committed by the lower court. As a rule, the latter’s factual findings, when adopted and
affirmed by the CA, are final and conclusive and may not be reviewed on appeal.11

Generally, this Court is not required to analyze and weigh all over again the evidence already considered
in the proceedings below.12 In the present case, we find no compelling reason to overturn the factual
findings of the RTC -- that the total amount of the loans extended to petitioner was ₱320,000, and that
she paid a total of only ₱116,540 on twenty-nine dates. These findings are supported by a
preponderance of evidence. Moreover, the amount of the outstanding obligation has been meticulously
computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient reason why her
cause falls under any of the exceptions to this rule on the finality of factual findings.

Second Issue:

Rate of Interest

The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per
month or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per
month or 14 percent per annum.

Petitioner alleges that absent any written stipulation between the parties, the lower courts should have
imposed the rate of 12 percent per annum only.

The records show that there was a written agreement between the parties for the payment of interest
on the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must
be equitably reduced for being iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling
on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."13

In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent
per annum, unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as
it amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is
considered "contrary to morals, if not against the law. [Such] stipulation is void."15

Since the stipulation on the interest rate is void, it is as if there were no express contract thereon.16
Hence, courts may reduce the interest rate as reason and equity demand. We find no justification to
reverse or modify the rate imposed by the two lower courts.
Third and Fourth Issue:

Penalties and Attorney’s Fees

Article 1229 of the Civil Code states thus:

"The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable."

In exercising this power to determine what is iniquitous and unconscionable, courts must consider the
circumstances of each case.17 What may be iniquitous and unconscionable in one may be totally just
and equitable in another. In the present case, iniquitous and unconscionable was the parties’ stipulated
penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and
attorney’s fees. Also, there was partial performance by petitioner when she remitted ₱116,540 as partial
payment of her principal obligation of ₱320,000. Under the circumstances, the trial court was justified in
reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum.

The Promissory Note carried a stipulation for attorney’s fees of 25 percent of the principal amount and
accrued interests. Strictly speaking, this covenant on attorney’s fees is different from that mentioned in
and regulated by the Rules of Court.18 "Rather, the attorney’s fees here are in the nature of liquidated
damages and the stipulation therefor is aptly called a penal clause."19 So long as the stipulation does
not contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the
litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution.

Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by
ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith.
Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty
equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise,
we hold that the RTC’s reduction of attorney’s fees -- from 25 percent to 10 percent of the total amount
due and payable -- is reasonable.

Fifth Issue:
Non-Inclusion of Petitioner’s Husband

Petitioner contends that the case against her should have been dismissed, because her husband was not
included in the proceedings before the RTC.

We are not persuaded. The husband’s non-joinder does not warrant dismissal, as it is merely a formal
requirement that may be cured by amendment.20 Since petitioner alleges that her husband has already
passed away, such an amendment has thus become moot.

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 172139 December 8, 2010

JOCELYN M. TOLEDO, Petitioner,

vs.

MARILOU M. HYDEN, Respondent.

DECISION
DEL CASTILLO, J.:

It is true that the imposition of an unconscionable rate of interest on a money debt is immoral and
unjust and the court may come to the aid of the aggrieved party to that contract. However, before doing
so, courts have to consider the settled principle that the law will not relieve a party from the effects of an
unwise, foolish or disastrous contract if such party had full awareness of what she was doing.

This Petition for Review on Certiorari1 assails the Decision2 dated August 24, 2005 of the Court of
Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the Decision dated March 10, 20033 of the
Regional Trial Court (RTC), Branch 22, Cebu City in Civil Case No. CEB-22867. Also assailed is the

Resolution dated March 8, 2006 denying the motion for reconsideration.

Factual Antecedents

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College Assurance Plan
(CAP) Phils., Inc., obtained several loans from respondent Marilou M. Hyden (Marilou). The transactions
are briefly summarized below:

1) August 15, 1993 ……… ₱ 30,000.00 with 6% monthly interest

2) April 21, 1994 ……… 100,000.00

3) October 2, 1995 ……… 30,000.00

4) October 9, 1995 ……… 30,000.00

5) May 22, 1997 ……… 100,000.00 with 7% monthly interest

TOTAL AMOUNT OF LOAN ……… ₱ 290,000.00 4

From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously paying Marilou the
stipulated monthly interest by issuing checks and depositing sums of money in the bank account of the
latter. However, the total principal amount of ₱290,000.00 remained unpaid. Thus, in April 1998, Marilou
visited Jocelyn in her office at CAP in Cebu City and asked Jocelyn and the other employees who were
likewise indebted to her to acknowledge their debts. A document entitled "Acknowledgment of Debt"5
for the amount of ₱290,000.00 was signed by Jocelyn with two of her subordinates as witnesses. The
said amount represents the principal consolidated amount of the aforementioned previous debts due on
December 25, 1998. Also on said occasion, Jocelyn issued five checks to Marilou representing renewal
payment of her five previous loans, viz:

Check No. 0010761 dated September 2, 1998 ......... ₱ 30,000.00

Check No. 0010762 dated September 9, 1998 ......... 30,000.00

Check No. 0010763 dated September 15, 1998 . . . . . . . . . 30,000.00

Check No. 0010764 dated September 22, 1998 . . . . . . . . . 100,000.00

Check No. 0010765 dated September 25, 1998 . . . . . . . . . 100,000.00

TOTAL ₱ 290,000.00

In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the amount of ₱30,000.00
and replaced the same with six checks, in staggered amounts, namely:

Check No. 0010494 dated July 2, 1998 . . . . . . . . . ₱ 6,625.00

Check No. 0010495 dated August 2, 1998 ......... 6,300.00

Check No. 0010496 dated September 2, 1998 ......... 5,975.00

Check No. 0010497 dated October 2, 1998 ......... 6,500.00

Check No. 0010498 dated November 2, 1998 ......... 5,325.00

Check No. 0010499 dated December 2, 1998 ......... 5,000.00

TOTAL ₱ 35,725.00

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the stop payment on the
remaining checks and on October 27, 1998, filed with the RTC of Cebu City a complaint6 against Marilou
for Declaration of Nullity and Payment, Annulment, Sum of Money, Injunction and Damages.

Jocelyn averred that Marilou forced, threatened and intimidated her into signing the "Acknowledgment
of Debt" and at the same time forced her to issue the seven postdated checks. She claimed that Marilou
even threatened to sue her for violation of Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if
she will not sign the said document and draw the above-mentioned checks. Jocelyn further claimed that
the application of her total payment of ₱528,550.00 to interest alone is illegal, unfounded, unjust,
oppressive and contrary to law because there was no written agreement to pay interest.

On November 23, 1998, Marilou filed an Answer7 with Special Affirmative Defenses and Counterclaim
alleging that Jocelyn voluntarily obtained the said loans knowing fully well that the interest rate was at
6% to 7% per month. In fact, a 6% to 7% advance interest was already deducted from the loan amount
given to Jocelyn.

Ruling of the Regional Trial Court

The court a quo did not find any showing that Jocelyn was forced, threatened, or intimidated in signing
the document referred to as "Acknowledgment of Debt" and in issuing the postdated checks. Thus, in its
March 10, 2003 Decision the trial court ruled in favor of Marilou, viz:

WHEREFORE, premised on the foregoing, the Court hereby declares the document "Acknowledgment of
Debt" valid and binding. PLAINTIFF is indebted to DEFENDANT [for] the amount of TWO HUNDRED
NINETY THOUSAND (₱290,000.00) PESOS since December 25, 1998 less the amount of EIGHTEEN
THOUSAND NINE HUNDRED (₱18,900.00) PESOS, equivalent to the three checks made good (₱6,625.00
dated 07-02-1998; ₱6,300.00 dated 08-02-1998; and ₱5,975.00 dated 09-02-1998).

Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount of TWO HUNDRED SEVENTY
ONE THOUSAND ONE HUNDRED (₱271,100.00) PESOS due on December 25, 1998 with a 12% interest
per annum or 1% interest per month until such time that the said amount shall have been fully paid.

No pronouncement as to costs.

SO ORDERED.8
On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration,9 which was denied by the trial
court in its Order10 dated April 29, 2003 stating that it finds no sufficient reason to disturb its March 10,
2003 Decision.

Ruling of the Court of Appeals

On appeal, Jocelyn asserts that she had made payments in the total amount of ₱778,000.00 for a
principal amount of loan of only ₱290,000.00. What is appalling, according to Jocelyn, was that such
payments covered only the interest because of the excessive, iniquitous, unconscionable and exorbitant
imposition of the 6% to 7% monthly interest.

On August 24, 2005, the CA issued its Decision which provides:

WHEREFORE, premises considered, the Decision dated March 10, 2003 and the Order dated April 29,
2003, of the Regional Trial Court, 7th Judicial Region, Branch 22, Cebu City, in Civil Case No. CEB-22867
are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.11

The Motion for Reconsideration12 filed by Jocelyn was denied by the CA through its Resolution13 dated
March 8, 2006.

Issues

Hence, this petition raising the following issues:

I.
Whether the CA gravely erred when it held that the imposition of interest at the rate of six percent (6%)
to seven percent (7%) is not contrary to law, morals, good customs, public order or public policy.

II.

Whether the CA gravely erred when it failed to declare that the "Acknowledgment of Debt" is an
inexistent contract that is void from the very beginning pursuant to Article 1409 of the New Civil Code.

Petitioner’s Arguments

Jocelyn posits that the CA erred when it held that the imposition of interest at the rates of 6% to 7% per
month is not contrary to law, not unconscionable and not contrary to morals. She likewise contends that
the CA erred in ruling that the "Acknowledgment of Debt" is valid and binding. According to Jocelyn,
even assuming that the execution of said document was not attended with force, threat and
intimidation, the same must nevertheless be declared null and void for being contrary to law and public
policy. This is borne out by the fact that the payments in the total amount of ₱778,000.00 was applied to
interest payment alone. This only proves that the transaction was iniquitous, excessive, oppressive and
unconscionable.

Respondent’s Arguments

On the other hand, Marilou would like this Court to consider the fact that the document referred to as
"Acknowledgment of Debt" was executed in the safe surroundings of the office of Jocelyn and it was
witnessed by two of her staff. If at all there had been coercion, then Jocelyn could have easily prevented
her staff from affixing their signatures to said document. In fact, petitioner had admitted that she was
the one who went to the tables of her staff to let them sign the said document.

Our Ruling

The petition is without merit.

The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances of this case.

In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling on interest
effective January 1, 1983, parties to a loan agreement have wide latitude to stipulate interest rates.
Nevertheless, such stipulated interest rates may be declared as illegal if the same is unconscionable.14
There is certainly nothing in said circular which grants lenders carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.15 In
fact, in Medel v. Court of Appeals,16 we annulled a stipulated 5.5% per month or 66% per annum
interest with additional service charge of 2% per annum and penalty charge of 1% per month on a
₱500,000.00 loan for being excessive, iniquitous, unconscionable and exorbitant.

In this case, however, we cannot consider the disputed 6% to 7% monthly interest rate to be iniquitous
or unconscionable vis-à-vis the principle laid down in Medel. Noteworthy is the fact that in Medel, the
defendant-spouses were never able to pay their indebtedness from the very beginning and when their
obligations ballooned into a staggering sum, the creditors filed a collection case against them. In this
case, there was no urgency of the need for money on the part of Jocelyn, the debtor, which compelled
her to enter into said loan transactions. She used the money from the loans to make advance payments
for prospective clients of educational plans offered by her employer. In this way, her sales production
would increase, thereby entitling her to 50% rebate on her sales. This is the reason why she did not mind
the 6% to 7% monthly interest. Notably too, a business transaction of this nature between Jocelyn and
Marilou continued for more than five years. Jocelyn religiously paid the agreed amount of interest until
she ordered for stop payment on some of the checks issued to Marilou. The checks were in fact
sufficiently funded when she ordered the stop payment and then filed a case questioning the imposition
of a 6% to 7% interest rate for being allegedly iniquitous or unconscionable and, hence, contrary to
morals.

It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the same carried
with it an interest rate of 6% to 7% per month, yet she did not complain. In fact, when she availed of said
loans, an advance interest of 6% to 7% was already deducted from the loan amount, yet she never
uttered a word of protest.

After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7% per month
and paying for the same, Jocelyn cannot now go to court to have the said interest rate annulled on the
ground that it is excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting to the
conscience of man. "This is so because among the maxims of equity are (1) he who seeks equity must do
equity, and (2) he who comes into equity must come with clean hands. The latter is a frequently stated
maxim which is also expressed in the principle that he who has done inequity shall not have equity. It
signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been
inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue." 17

We are convinced that Jocelyn did not come to court for equitable relief with equity or with clean hands.
It is patently clear from the above summary of the facts that the conduct of Jocelyn can by no means be
characterized as nobly fair, just, and reasonable. This Court likewise notes certain acts of Jocelyn before
filing the case with the RTC. In September 1998, she requested Marilou not to deposit her checks as she
can cover the checks only the following month. On the next month, Jocelyn again requested for another
extension of one month. It turned out that she was only sweet-talking Marilou into believing that she
had no money at that time. But as testified by Serapio Romarate,18 an employee of the Bank of
Commerce where Jocelyn is one of their clients, there was an available balance of ₱276,203.03 in the
latter’s account and yet she ordered for the stop payments of the seven checks which can actually be
covered by the available funds in said account. She then caught Marilou by surprise when she
surreptitiously filed a case for declaration of nullity of the document and for damages.

The document "Acknowledgment of Debt" is valid and binding.

Jocelyn seeks for the nullification of the document entitled "Acknowledgment of Debt" and wants this
Court to declare that she is no longer indebted to Marilou in the amount of ₱290,000.00 as she had
already paid a total amount of ₱778,000.00. She claims that said document is an inexistent contract that
is void from the very beginning as clearly provided for by Article 140919 of the New Civil Code.

Jocelyn further claims that she signed the said document and issued the seven postdated checks
because Marilou threatened to sue her for violation of BP Blg. 22.

Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the same is not considered
as threat that would vitiate consent. Article 1335 of the New Civil Code is very specific on this matter. It
provides:

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

xxxx
A threat to enforce one’s claim through competent authority, if the claim is just or legal, does not vitiate
consent. (Emphasis supplied.)

Clearly, we cannot grant Jocelyn the relief she seeks.

As can be seen from the records of the case, Jocelyn has failed to prove her claim that she was made to
sign the document "Acknowledgment of Debt" and draw the seven Bank of Commerce checks through
force, threat and intimidation. As earlier stressed, said document was signed in the office of Jocelyn, a
high ranking executive of CAP, and it was Jocelyn herself who went to the table of her two subordinates
to procure their signatures as witnesses to the execution of said document. If indeed, she was forced to
sign said document, then Jocelyn should have immediately taken the proper legal remedy. But she did
not. Furthermore, it must be noted that after the execution of said document, Jocelyn honored the first
three checks before filing the complaint with the RTC. If indeed she was forced she would never have
made good on the first three checks.

It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a), of the Rules of Court
that, "Whenever a party has, by his own declaration, act or omission, intentionally and deliberately led
another to believe a particular thing to be true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to falsify it." This is known as the principle
of estoppel.

"The essential elements of estoppel are: (1) conduct amounting to false representation or concealment
of material facts or at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the other party; and, (3)
knowledge, actual or constructive, of the real facts."20

Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of Debt" in April 1998 and
two of her subordinates served as witnesses to its execution, knowing fully well the nature of the
contract she was entering into. Next, Jocelyn issued five checks in favor of Marilou representing renewal
payment of her loans amounting to ₱290,000.00. In June 1998, she asked to recall Check No. 0010761 in
the amount of ₱30,000.00 and replaced the same with six checks, in staggered amounts. All these are
indicia that Jocelyn treated the "Acknowledgment of Debt" as a valid and binding contract.1avvphi1
More significantly, Jocelyn already availed herself of the benefits of the "Acknowledgment of Debt," the
validity of which she now impugns. As aptly found by the RTC and the CA, Jocelyn was making a business
out of the loaned amounts. She was actually using the money to make advance payments for her
prospective clients so that her sales production would increase. Accordingly, she did not mind the 6% to
7% interest per month as she was getting a 50% rebate on her sales.

Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the "Acknowledgment of
Debt." "[A] party to a contract cannot deny the validity thereof after enjoying its benefits without
outrage to one’s sense of justice and fairness."21 "It is a long established doctrine that the law does not
relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with all the
required formalities and with full awareness of what she was doing. Courts have no power to relieve
parties from obligations voluntarily assumed, simply because their contracts turned out to be disastrous
or unwise investments."22

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 79805 dated August 24, 2005 affirming the Decision dated March 10, 2003 of the
Regional Trial Court, Branch 22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.

SO Ordered

SECOND DIVISION

G.R. No. 171925 July 23, 2010

SOLIDBANK CORPORATION, (now Metropolitan Bank and Trust Company), Petitioner,

vs.

ERMANENT HOMES, INCORPORATED, Respondent.

DECISION
CARPIO, J.:

G.R. No. 171925 is a petition for review1 assailing the Decision2 promulgated on 29 June 2005 by the
Court of Appeals (appellate court) as well as the Resolution3 promulgated on 14 March 2006 in CA-G.R.
CV No. 75926. The appellate court granted the petition filed by Permanent Homes, Incorporated
(Permanent) and reversed the decision of the Regional Trial Court of Makati City, Branch 58 (trial court)
dated 5 July 2002 in Civil Case No. 98-654. The appellate court ordered Solidbank Corporation
(Solidbank) and Permanent to enter into an express agreement about the applicable interest rates on
Permanent’s loan. Solidbank was also ordered to render an accounting of Permanent’s payments, not to
impose interest on interest upon Permanent’s loans, and to release the remaining amount available
under Permanent’s omnibus credit line.

The Facts

The appellate court narrated the facts as follows:

The records disclose that PERMANENT HOMES is a real estate development company, and to finance its
housing project known as the "Buena Vida Townhomes" located within Merville Subdivision, Parañaque
City, it applied and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit facility in the
total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as [sic] time loan for a
term of up to three hundred sixty (360) days, with interest thereon at prevailing market rates, and
subject to monthly repricing. The remaining ONE MILLION was available for domestic bills purchase.

To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three (3) townhouse units within
the Buena Vida project in Parañaque. At the time, however, the instant complaint was filed against
SOLIDBANK, a total of thirty six (36) townhouse units were mortgaged with said bank.

Of the 60 million available to PERMANENT HOMES, it availed of a total of 41.5 million pesos, covered by
three (3) promissory notes, which contain the following provisions, thus:

"xxx
5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in
this Note or Loan on the basis of, among others, prevailing rates in the local or international capital
markets. For this purpose, We/I authorize Solidbank to debit any deposit or placement account with
Solidbank belonging to any one of us. The adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice
was sent.

6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this
Note or Loan within thirty (30) days from the receipt by anyone of us of the written notice. Otherwise,
We/I shall be deemed to have given our consent to the interest rate adjustment."

Contrary, however, to the specific provisions as afore-quoted, there was a standing agreement by the
parties that any increase or decrease in interest rates shall be subject to the mutual agreement of the
parties.

For the first loan availment of PERMANENT HOMES on March 20, 1997, in the amount of 19.6 MILLION,
from the initial interest rate of 14.25% per annum (p.a.), the same was increased 15% p.a. effective May
19, 1997; it was again increased to 26% p.a. effective July 18, 1997. It was thereafter reduced to 20% p.a.
effective August 18, 1997, and then increased to 24% p.a. effective September 17, 1997. The rate was
increased further to 30% p.a. effective October 17, 1997, then decreased to 27% p.a. on November 17,
1997, and again increased to 34% p.a. effective December 17, 1997. The rate then decreased to 30% p.a.
on January 16, 1998.

For the second loan availment in the amount of 18 million, the rate was initially pegged at 15.75% p.a.
on June 24, 1997. A month later, the rate increased to 23.5% p.a. It thereafter decreased to 20% p.a.
effective August 24, 1997, but again increased to 22.5% p.a. effective September 24, 1997. For the next
month, the rate surged to 30% p.a., and decreased to 27% p.a. for the month of November. The rate
again surged to 34% p.a. for the month of December, and was decreased to 30% p.a. from January 22,
1998 to February 20, 1998.

For the third loan availment on July 15, 1997, in the amount of 3.9 million, the interest rate was initially
pegged at 35% p.a., but this was decreased to 21% p.a. from August 14 until September 11, 1997. The
rate increased slightly to 23% p.a. on September 12, 1997, and surged to 27% p.a. on October 13, 1997.
The rate went down slightly to 27% p.a. for the month of November, and to 26% p.a. for the month of
December. The rate, however, again surged to 30% p.a. on January 12, 1998 before settling at 29% p.a.
for the month of February.

It is [Permanent’s] stand that SOLIDBANK unilaterally and arbitrarily accelerated the interest rates
without any declared basis of such increases, of which PERMANENT HOMES had not agreed to, or at the
very least, been informed of. This is contrary to their earlier agreement that any interest rate changes
will be subject to mutual agreement of the parties. PERMANENT HOMES further admits that it was not
able to protest such arbitrary increases at the time they were imposed by SOLIDBANK, for fear that
SOLIDBANK might cut off the credit facility it extended to PERMANENT HOMES. Permanent was then in
the midst of the construction of its project in Merville, Parañaque City, and SOLIDBANK knew that it was
relying substantially on the credit facility the latter extended to it.

[Permanent] thus filed a case before the trial court seeking the following: (1) the annulment of the
increases in interest rates on the loans it obtained from SOLIDBANK, on the ground that it was violative
of the principle of mutuality of agreement of the parties, as enunciated in Article 1409 of the New Civil
Code, (2) the fixing of the interest rates at the applicable interest rate, and (3) for the trial court to order
SOLIDBANK to make an accounting of the payments it made, so as to determine the amount of refund
PERMANENT is entitled to, as well as to order SOLIDBANK to release the remaining available balance of
the loan it extended to PERMANENT. In addition, [Permanent] prays for the payment of compensatory,
moral and exemplary damages.

SOLIDBANK, on the other hand, avers that PERMANENT HOMES has no cause of action against it, in view
of the pertinent provisions of the Omnibus Credit Line and the promissory notes agreed to and signed by
PERMANENT HOMES. Thus, in accordance with said provisions, SOLIDBANK was authorized to, upon due
notice, periodically adjust the interest rates on PERMANENT HOMES’ loan availments during the monthly
interest repricing dates, depending on the changes in prevailing interest rates in the local and
international capital markets. In fact, SOLIDBANK avers that four (4) days before July 15, 1997, the
Bangko Sentral ng Pilipinas (BSP) declared that it could no longer support the Philippine currency from
external speculative forces, hence, the local currency was allowed to seek its own exchange rate level. As
a result of the volatile exchange rate ratio, banks were then hesitant to extend loans, and in some
instances that it granted loans, they had to ensure that they will not be at the losing end of the deal, so
to speak, by the repricing of the interest rates every month. SOLIDBANK insists that PERMANENT HOMES
should not be allowed to renege on its contractual obligations, as it freely and voluntarily bound itself to
the provisions of the Omnibus Credit Line and the promissory notes.
PERMANENT HOMES presented as witnesses Jacqueline S. Lim, its Vice President and Chief Financial
Officer, Engr. Rey A. Romasanta, its Executive Vice President and Chief Operating Officer, and Martha
Julia Flores, its Treasury Officer.

On March 24, 1998, the trial court issued a temporary restraining order (TRO), after a summary hearing,
which enjoined SOLIDBANK from implementing and collecting the increases in interest rates and from
initiating any action, including the foreclosure of the mortgaged properties.

Ms. Lim’s testimony centered on PERMANENT HOMES’ allegations that the repricing of the interest rates
was done by SOLIDBANK without any written agreement entered into between the parties. In fact, Ms.
Lim accounted that SOLIDBANK will merely advise them of the interest rate for the period, after said
period had already commenced, and at times very late in the period, by fax messages. When
PERMANENT HOMES called SOLIDBANK’s attention to the seemingly surging rates it imposed on its loan,
SOLIDBANK will merely answer that it was the bank’s policy, without offering any basis for such increase.
Furthermore, Ms. Lim also mentioned SOLIDBANK’s alleged practice of imposing interest on unpaid
interest, at the highest rate of 30% p.a.. Ms. Lim also presented a tabulation, which presents the number
of days their billing statements were sent late, from the time the interest period started. It is
PERMANENT HOMES’ stand that since the purpose of the billing statements was to inform them
beforehand of the applicable interest rate for the period, the late billings will clearly show SOLIDBANK’s
arbitrary imposition of the repriced interest rates, as well as its indifference to PERMANENT HOMES’
plight.

To illustrate, for the first loan availment in the amount of ₱19.6 million, the billing statements which
should have notified PERMANENT HOMES of the repriced interest rates were faxed to PERMANENT
HOMES between eighteen (18) to thirty-three (33) days late. For the second loan availment in the
amount of ₱18 million, the faxed billings were late between six (6) to twenty-one (21) days, and one
instance where PERMANENT HOMES received no billing at all. For the third loan availment in the amount
of ₱3.9 million, the faxed billings were late between seven (7) to twenty-nine (29) days, and also an
instance where PERMANENT HOMES received no billing at all.

This practice, according to Ms. Lim, clearly affected its operations, as the completion of its construction
project was unnecessarily delayed, to its prejudice and its buyers. This was the import of the testimony
of PERMANENT HOMES’ second witness, Engr. Rey A. Romasanta. According to Engr. Rey, the target date
of completion was August 1997, but in view of the shortage of funds by reason of SOLIDBANK’s refusal
for PERMANENT HOMES to make further availments on its omnibus credit line, the project was
completed only on February 1998.
PERMANENT HOMES’ third and final witness was Martha Julia Flores, its Treasury Officer, who explained
that as such, it was her who received the late billings from SOLIDBANK. She would also call up
SOLIDBANK to ask what the repriced interest rate for the coming interest period, to no avail, as
SOLIDBANK will merely fax its billings almost always, as abovementioned, late in the period. Ms. Flores
admitted that she prepared the tabulation presented before the court, which showed how late
SOLIDBANK’s billings were sent to PERMANENT HOMES, as well as the computation of interest rates that
SOLIDBANK had allegedly overcharged on its loan, vis-a-vis the average of the high and the low published
lending rates of SOLIDBANK.

SOLIDBANK, to establish its defense, presented its lone witness, Mr. Cesar Lugtu, who testified to the
effect that, contrary to PERMANENT HOMES’ assertions that it was not promptly informed of the
repriced interest rates, SOLIDBANK’s officers verbally advised PERMANENT HOMES of the repriced rates
at the start of the period, and even added that their transaction[s] were based on trust. Aside from these
allegations, however, no written memorandum or note was presented by SOLIDBANK to support their
assertion that PERMANENT HOMES was timely advised of the repriced interests.4

The Trial Court’s Ruling

On 5 July 2002, the trial court promulgated its Decision in favor of Solidbank. The trial court ratiocinated
and ruled thus:

It becomes crystal clear that there is sufficient proof to show that the instant case was instituted by
[Permanent] as an after-thought and as an obvious subterfuge intended to completely lay on the
defendant the blame for the debacle of its Buena Vida project. An afterthought because the records of
the case show that the complaint was filed in March 16, 1998, already after it was having difficulty
making the amortization payments, the last of which being in February 1998. A subterfuge because
plaintiff, instead of blaming itself and its own business judgment that went sour, would rather put the
blame on [Solidbank], taking advantage of every conceivable gray area of its contract with [Solidbank] to
avoid its own liabilities. In fact, this complaint was made the very basis for [Permanent] to altogether
stop the payment of its loan from [Solidbank] including the interest payment (TSN, May 07, 1998, p. 60).

xxxx
WHEREFORE, finding the complaint not impressed with merit, judgment is hereby rendered dismissing
the said complaint. The Counterclaim is likewise dismissed for lack of evidence to support the same.

SO ORDERED.5

Permanent filed an appeal before the appellate court.

The Appellate Court’s Ruling

The appellate court granted Permanent’s appeal, and set aside the trial court’s ruling. The appellate
court not only recognized the validity of escalation clauses, but also underscored the necessity of a basis
for the increase in interest rates and of the principle of mutuality of contracts.

The dispositive portion of the appellate court’s decision reads, thus:

THE FOREGOING CONSIDERED, the instant appeal is hereby GRANTED, the assailed decision dated July 5,
2002 is REVERSED and SET ASIDE, and a new one is hereby entered as follows:

(1) Unless the parties herein subsequently enter into an express agreement regarding the applicable
interest rates on PERMANENT HOMES’ loan availments subsequent to the initial thirty-day (30) period,
the legal rate of twelve percent (12%) per annum is hereby FIXED, to be applied on the outstanding
balance of the loan;

(2) SOLIDBANK is ordered to render an accounting of all the payments made by PERMANENT HOMES,
and in case there is excess payment by reason of the wrongful imposition of the repriced interest rates,
to apply such amount to the interest payment at the legal rate, and thereafter to the outstanding
principal amount;

(3) SOLIDBANK is directed not to impose penalties, particularly interest on interest, upon PERMANENT
HOMES’ loan, there being no evidence that the latter was in default on its payments;
(4) SOLIDBANK is hereby ordered to release the remaining amount available under the omnibus credit
line, subject, however, to availability of funds on the part of SOLIDBANK.

No pronouncement as to costs.

SO ORDERED.6

The appellate court resolved to deny Solidbank’s Motion for Reconsideration for lack of merit.7

The Issues

Solidbank raised the following issues in their petition:

(A) Whether the Honorable Court of Appeals was correct in ruling that the increases in the interest rates
on [Permanent’s] loans are void for having been unilaterally imposed without basis.

(B) Whether the Honorable Court of Appeals was correct in ordering the parties to enter into an express
agreement regarding the applicable interest rates on Permanent’s loan availments subsequent to the
initial thirty-day (30) period.

(C) Whether the Honorable Court of Appeals was correct in ruling that [Permanent] is entitled to
attorney’s fees notwithstanding the absence of bad faith or malice on the part of [Solidbank].8

The Court’s Ruling

The petition has merit.

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of
the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on
1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that
may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which
courts are bound to take into account.9 Although interest rates are no longer subject to a ceiling, the
lender still does not have an unbridled license to impose increased interest rates. The lender and the
borrower should agree on the imposed rate, and such imposed rate should be in writing.

The three promissory notes between Solidbank and Permanent all contain the following provisions:

5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in
this Note or Loan on the basis of, among others, prevailing rates in the local or international capital
markets. For this purpose, We/I authorize Solidbank to debit any deposit or placement account with
Solidbank belonging to any one of us. The adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice
was sent.

6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this
Note or Loan within thirty (30) days from the receipt by anyone of us of the written notice. Otherwise,
We/I shall be deemed to have given our consent to the interest rate adjustment.

The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said
stipulations; (2) repricing takes effect only upon Solidbank’s written notice to Permanent of the new
interest rate; and (3) Permanent has the option to prepay its loan if Permanent and Solidbank do not
agree on the new interest rate. The phrases "irrevocably authorize," "at any time" and "adjustment of
the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or
if no date is indicated, from the time the notice was sent," emphasize that Permanent should receive a
written notice from Solidbank as a condition for the adjustment of the interest rates.

In order that obligations arising from contracts may have the force of law between the parties, there
must be a mutuality between the parties based on their essential equality.10 A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties is void.11 There was no showing that either Solidbank or Permanent coerced each
other to enter into the loan agreements. The terms of the Omnibus Line Agreement and the promissory
notes were mutually and freely agreed upon by the parties.

Moreover, Solidbank’s range of lending rates were consistent with "prevailing rates in the local or
international capital markets." Permanent presented a tabulation12 of the range of Solidbank’s lending
rates, as reported to Bangko Sentral ng Pilipinas and compared the lending rates with the interest rates
charged by Solidbank on Permanent’s loans, thus:

Solidbank’s range of lending rates as per BSP records

High Low Interest rates charged by Solidbank on Permanent’s loans Excess Interest
Rate Over the Average of High and Low Rates

Sept. 12, 1997 25.0% 22.0% 23.0%

Sept. 17, 1997 27.0% 24.0% 24.0%

Sept. 22, 1997 26.0% 23.0% 22.5%

Oct. 13, 1997 29.0% 26.0% 28.0%

Oct. 17, 1997 30.0% 27.0% 30.0%

Oct. 22, 1997 32.0% 29.0% 30.0%

Nov. 12, 1997 28.0% 25.0% 27.0%

Nov. 17, 1997 28.0% 25.0% 27.0%

Nov. 21, 1997 27.0% 24.0% 27.0%

Dec. 12, 1997 25.0% 23.0% 26.0% 2.0%

Dec. 17, 1997 25.0% 23.0% 34.0% 10.0%

Dec. 22, 1997 25.0% 23.0% 32.0% 8.0%

Jan. 12, 1998 26.0% 24.0% 30.0% 5.0%

Jan. 16, 1998 28.0% 25.0% 30.0% 3.5%

Jan. 22, 1998 28.0% 25.0% 30.0% 3.5%

Feb. 9, 1998 27.0% 24.0% 30.0% 3.5%

Feb. 11, 1998 27.0% 24.0% 29.0% 4.5%

Feb. 12, 1998 27.0% 24.0% 30.0% 4.5%

The repriced interest rates from 12 September to 21 November 1997 conformed to the range of
Solidbank’s lending rates to other borrowers. The 12 December 1997 to 12 February 1998 repriced
interest rates were not unconscionably out of line with the upper range of lending rates to other
borrowers. The interest rate repricing happened at the height of the Asian financial crises in late 1997,
when banks clamped down on lendings because of higher credit risks across industries, particularly the
real estate industry.

We also recognize that Solidbank admitted that it did not promptly send Permanent written repriced
rates, but rather verbally advised Permanent’s officers over the phone at the start of the period.
Solidbank did not present any written memorandum to support its allegation that it promptly advised
Permanent of the change in interest rates.13 Solidbank advised Permanent on the repriced interest rate
applicable for the 30-day interest period only after the period had begun. Permanent presented a
tabulation which showed that Solidbank either did not send a billing statement, or sent a billing
statement 6 to 33 days late.14 We reproduce the tabulation below:

PN #435 – P19.6MM

Reference No. Interest Period Date Billing Statements were faxed to Permanent Number of days
Billing Statement was Late

1 03/20/97 04/18/97 04/17/97 28

2 04/18/97 05/19/97 05/16/97 28

05/19/97 06/19/97 no statement received

3 06/19/97 07/18/97 07/12/97 23

4 07/18/97 08/18/97 08/05/97 18

5 08/18/97 09/17/97 09/10/97 23

6 09/17/97 10/17/97 10/06/97 19

7 10/17/97 11/17/97 11/11/97 25

8 11/17/97 12/17/97 12/12/97 25

9 12/17/97 01/16/98 01/09/98 23

14 01/16/98 02/20/98 02/18/98 33

PN #969 – P18MM

Reference No. Interest Period Date Billing Statements were faxed to Permanent Number of days
Billing Statement was Late

3 06/24/97 07/24/97 07/12/97 18

4 07/24/97 08/22/97 08/05/97 12

5 08/22/97 09/22/97 09/10/97 19

6 09/22/97 10/22/97 10/06/97 14

7 10/22/97 11/21/97 11/11/97 20

8 11/21/97 12/22/97 12/12/97 21

9 12/22/97 01/22/98 01/09/98 18

01/22/98 02/12/97 no statement received

14 02/12/98 02/20/98 02/18/98 6

PN #1077 – P3.9MM

Reference No. Interest Period Date Billing Statements were faxed to Permanent Number of days
Billing Statement was Late

10 07/15/97 08/14/97 08/14/97 30

11 08/14/97 08/26/97 08/26/97 12

5 08/26/97 09/12/97 09/10/97 15

6 09/12/97 10/13/97 10/06/97 24

7 10/13/97 11/12/97 11/11/97 29

12 11/12/97 12/12/97 12/10/97 28

9 12/12/97 01/12/98 01/09/98 28

13 01/12/98 02/09/98 02/09/98 28

 02/09/98 02/11/98 no statement received

14 02/11/98 03/13/98 02/18/98 7

We rule that Solidbank’s computation of the interest due from Permanent should be adjusted to take
effect only upon Permanent’s receipt of the written notice from Solidbank.1avvphi1

WHEREFORE, we GRANT the petition in part. We SET ASIDE the Decision of the Court of Appeals
promulgated on 29 June 2005 as well as the Resolution promulgated on 14 March 2006 in CA-G.R. CV
No. 75926 and AFFIRM the decision of the Regional Trial Court of Makati City, Branch 58 dated 5 July
2002 in Civil Case No. 98-654 with the MODIFICATION that the repricing of the interest rates should take
effect only upon Permanent Homes, Incorporated’s receipt of the written notice from Solidbank
Corporation of the adjustment in interest rate. The records of this case are therefore remanded to the
trial court for the computation of the proper interest payments based on the dates of receipt of written
notice.

SO ORDERED.

Today is Monday, January 28, 2019 home

Custom Search

Republic of the Philippines

SUPREME COURT

Manila

EN BANC
G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.

GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court
of Appeals (CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s
motion for reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the
National Labor Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe
Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he
was dismissed from employment without a valid or just cause. Thus, petitioner was awarded backwages
and separation pay in lieu of reinstatement in the amount of ₱158,919.92. The dispositive portion of the
decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that
complainant was dismissed from employment for a just or valid cause. All the more, it is clear from the
records that complainant was never afforded due process before he was terminated. As such, we are
perforce constrained to grant complainant’s prayer for the payments of separation pay in lieu of
reinstatement to his former position, considering the strained relationship between the parties, and his
apparent reluctance to be reinstated, computed only up to promulgation of this decision as follows:

SEPARATION PAY

Date Hired = August 1990

Rate = ₱198/day

Date of Decision = Aug. 18, 1998

Length of Service = 8 yrs. & 1 month

₱198.00 x 26 days x 8 months = ₱41,184.00

BACKWAGES

Date Dismissed = January 24, 1997

Rate per day = ₱196.00

Date of Decisions = Aug. 18, 1998

a) 1/24/97 to 2/5/98 = 12.36 mos.

₱196.00/day x 12.36 mos. = ₱62,986.56

b) 2/6/98 to 8/18/98 = 6.4 months

Prevailing Rate per day = ₱62,986.00

₱198.00 x 26 days x 6.4 mos. = ₱32,947.20

TOTAL = ₱95.933.76

xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of

constructive dismissal and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six
pesos and 56/100 (₱62,986.56) Pesos representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-
three and 36/100 (₱95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated
February 29, 2000. Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a
motion for reconsideration, but it was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the
CA issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it
was likewise denied in a Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court denied the petition in the Resolution dated April 17,
2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May
27, 2002.9 The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was
consequently scheduled, but respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be
computed from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the
Supreme Court on May 27, 2002.11 Upon recomputation, the Computation and Examination Unit of the
NLRC arrived at an updated amount in the sum of ₱471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to
collect from respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of
Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of
₱62,986.56 and limited backwages of ₱95,933.36, no more recomputation is required to be made of the
said awards. They claimed that after the decision becomes final and executory, the same cannot be
altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an Order15 denying the
motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting
the appeal in favor of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final
and executory. Consequently, another pre-execution conference was held, but respondents failed to
appear on time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued to enforce the
earlier recomputed judgment award in the sum of ₱471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for
recomputation, where the judgment award of petitioner was reassessed to be in the total amount of
only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original
amount as determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award
that was due to petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award
to include the appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of
₱11,459.73. The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced
considering that it was the one that became final and executory. However, the Labor Arbiter reasoned
that since the decision states that the separation pay and backwages are computed only up to the
promulgation of the said decision, it is the amount of ₱158,919.92 that should be executed. Thus, since
petitioner already received ₱147,560.19, he is only entitled to the balance of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22
dated September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in
the Resolution23 dated January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since
petitioner no longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became
final and executory, a belated correction thereof is no longer allowed. The CA stated that there is nothing
left to be done except to enforce the said judgment. Consequently, it can no longer be modified in any
respect, except to correct clerical errors or mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9,
2009.

Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE
ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED
RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER
MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER
LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor
Arbiter’s decision, the same is not final until reinstatement is made or until finality of the decision, in
case of an award of separation pay. Petitioner maintains that considering that the October 15, 1998
decision of the Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of
the Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages and separation pay should be on May 27, 2002
and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner
posits that he is also entitled to the payment of interest from the finality of the decision until full
payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to
be made of said awards. Respondents insist that since the decision clearly stated that the separation pay
and backwages are "computed only up to [the] promulgation of this decision," and considering that
petitioner no longer appealed the decision, petitioner is only entitled to the award as computed by the
Labor Arbiter in the total amount of ₱158,919.92. Respondents added that it was only during the
execution proceedings that the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further recomputation of the backwages to
be awarded to petitioner at this point of the proceedings would substantially vary the decision of the
Labor Arbiter as it violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division),27 wherein the issue submitted to the Court for resolution was the propriety of the
computation of the awards made, and whether this violated the principle of immutability of judgment.
Like in the present case, it was a distinct feature of the judgment of the Labor Arbiter in the above-cited
case that the decision already provided for the computation of the payable separation pay and
backwages due and did not further order the computation of the monetary awards up to the time of the
finality of the judgment. Also in Session Delights, the dismissed employee failed to appeal the decision of
the labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor
arbiter's original computation of the awards made, pegged as of the time the decision was rendered and
confirmed with modification by a final CA decision, is legally proper. The question is posed, given that the
petitioner did not immediately pay the awards stated in the original labor arbiter's decision; it delayed
payment because it continued with the litigation until final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the
original labor arbiter framed his decision. The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it has been confirmed with
finality. This is the finding of the illegality of the dismissal and the awards of separation pay in lieu of
reinstatement, backwages, attorney's fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter
made shows that it was time-bound as can be seen from the figures used in the computation. This part,
being merely a computation of what the first part of the decision established and declared, can, by its
nature, be re-computed. This is the part, too, that the petitioner now posits should no longer be re-
computed because the computation is already in the labor arbiter's decision that the CA had affirmed.
The public and private respondents, on the other hand, posit that a re-computation is necessary because
the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is to be
made, or up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place,
also made a computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC
Rules of Procedure which requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable,
shall embody in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's
decision. As we noted above, this implication is apparent from the terms of the computation itself, and
no question would have arisen had the parties terminated the case and implemented the decision at
that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of
illegality as well as on all the consequent awards made. Hence, the petitioner appealed the case to the
NLRC which, in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is final, reviewable
only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a
timely filed Rule 65 petition for certiorari. The CA decision, finding that NLRC exceeded its authority in
affirming the payment of 13th month pay and indemnity, lapsed to finality and was subsequently
returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the
original labor arbiter's decision, the implementing labor arbiter ordered the award re-computed; he
apparently read the figures originally ordered to be paid to be the computation due had the case been
terminated and implemented at the labor arbiter's level. Thus, the labor arbiter re-computed the award
to include the separation pay and the backwages due up to the finality of the CA decision that fully
terminated the case on the merits. Unfortunately, the labor arbiter's approved computation went
beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards the
final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity awards.
Hence, the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially

considered the labor arbiter's original decision in accordance with its basic component parts as we
discussed above. To reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or monetary consequences of the
illegal dismissal, computed as of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be
executed by the petitioner, no essential change is made by a recomputation as this step is a necessary
consequence that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in that
decision.29 A recomputation (or an original computation, if no previous computation has been made) is
a part of the law – specifically, Article 279 of the Labor Code and the established jurisprudence on this
provision – that is read into the decision. By the nature of an illegal dismissal case, the reliefs continue to
add up until full satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the
consequences of illegal dismissal upon execution of the decision does not constitute an alteration or
amendment of the final decision being implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal is affected, and this is not a violation of the
principle of immutability of final judgments.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid
as it is the risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article
279 provides for the consequences of illegal dismissal in no uncertain terms, qualified only by
jurisprudence in its interpretation of when separation pay in lieu of reinstatement is allowed. When that
happens, the finality of the illegal dismissal decision becomes the reckoning point instead of the
reinstatement that the law decrees. In allowing separation pay, the final decision effectively declares that
the employment relationship ended so that separation pay and backwages are to be computed up to
that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court
of Appeals,32 the Court laid down the guidelines regarding the manner of computing legal interest, to
wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796
dated May 16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of
which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2
of Circular No. 905, Series of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six
percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and
Sections 4305Q.1,37 4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would
govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and
the rate allowed in judgments shall no longer be twelve percent (12%) per annum - as reflected in the
case of Eastern Shipping Lines40 and Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but will now be six percent (6%) per annum effective
July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and
not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko
Sentral Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to
issue and enforce Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different
maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013,
said judgments shall not be disturbed and shall continue to be implemented applying the rate of interest
fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42
are accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.1âwphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages,
the rate of interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in
CA-G.R. SP No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
Respondents are Ordered to Pay petitioner:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per
year of service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27,
2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits
awarded and due to petitioner in accordance with this Decision.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

ANTONIO T. CARPIO

Associate Justice PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice ARTURO D. BRION

Associate Justice

LUCAS P. BERSAMIN

Associate Justice MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD

Associate Justice MARTIN S VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice JOSE CATRAL MENDOZA

Associate Justice

BIENVENIDO L. REYES

Associate Justice ESTELA M. PERLAS-BERNABE

Associate Justice
MARVIC MARIO VICTOR F. LEONEN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

1 Penned by Associate Justice Vicente S. E. Veloso, with Associate Justices Rebecca De Guia-Salvador and
Ricardo R. Rosario, concurring; rollo, pp. 33-48.

2 Id. at 32.

3 Id. at 79-84.

4 Id. at 82-84. (Emphasis supplied.)

5 Id. at 85-93.

6 Resolution dated July 24, 2000, id. at 94-96.

7 Rollo, p. 35.

8 Id. at 35-36.

9 Id. at 36.

10 Id. at 100.

11 Id.

12 Id. at 101.

13 Id. at 97-102.

14 Id. at 37.

15 Id. at 103-108.

16 Id. at 109-113.

17 Id. at 114-117.

18 Id. at 101.
19 Id. at 40.

20 Id. at 65-69.

21 Id. at 70-74.

22 Id. at 60-64.

23 Id. at 58-59.

24 Id. at 33-48.

25 Id. at 32.

26 Id. at 27.

27 G.R. No. 172149, February 8, 2010, 612 SCRA 10.

28 Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth Division), supra, at 21-23.

29 Id. at 25.

30 Id. at 25-26.

31 Id. at 26.
32 G.R. No. 97412, July 12, 1994, 234 SCRA 78.

33 Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at 95-97. (Citations omitted; italics in the
original).

34 SECTION 2. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of express contract as to such rate of interest, shall continue to
be twelve percent (12%) per annum.

35 Rate of interest in the absence of stipulation; Dated June 21, 2013.

36 § X305.1 Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in judgments, in the absence of expressed contract
as to such rate of interest, shall be twelve percent (12%) per annum.

37 The Section is under Q Regulations or Regulations Governing Non-Bank Financial Institutions

Performing Quasi-Banking Functions. It reads:

§ 4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of stipulation. The rate of interest for the
loan or forbearance of any money, goods or credit and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve percent (12%) per annum.

38 The Section is under S Regulations or Regulations Governing Non-Stock Savings and Loan
Associations. It reads:
§ 4305S.3 Interest in the absence of contract. In the absence of express contract, the rate of interest for
the loan or forbearance of any money, goods or credit and the rate allowed in judgment shall be twelve
percent (12%) per annum.

39 The Section is under P Regulations or Regulations Governing Pawnshops. It reads:

§ 4303P.1 Rate of interest in the absence of stipulation. The rate of interest for a loan or forbearance of
money in the absence of an expressed contract as to such rate of interest, shall be twelve percent (12%)
per annum. (Circular No. 656 dated 02 June 2009)

40 Supra note 32, at 95-97.

41 G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.

42 Supra note 32.

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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 118203 July 5, 1996

EMILIO A. SALAZAR and TERESITA DIZON, petitioners,

vs.

COURT OF APPEALS and JONETTE BORRES, respondents.

DAVIDE, JR., J.:p

Petitioners seek to set aside the decision 1 of 29 November 1994 of the Court of Appeals in CA-G.R. CV
No. 40197, which reversed the decision 2 of 3 September 1992 of Branch 66 of the Regional Trial Court
(RTC) of Makati, Metro Manila, in Civil Case No. 89-4468.

The primary issues presented for our resolution are whether (a) the so-called Deed of Absolute Sale
executed by petitioner Emilio A. Salazar in favor of private respondent Jonette Borres is a perfected
contract of sale or a mere contract to sell, and (b) the action for specific performance which the latter
filed will lie to compel the former to deliver the Deed of Absolute Sale, the Transfer Certificates of Title,
and other documents relative to the property in question.
The factual antecedents of this case, as summarized by the trial court, are as follows:

That defendant Dr. Salazar is the owner of the two (2) parcels of land with improvements thereon
located at 2914 Finlandia Street, Makati, Metro Manila and covered by Transfer Certificate of Title Nos.
31038 and 31039 of the Registry of Deeds of Makati; that Dr. Salazar offered to sell his properties to
Jonette Borres for One Million pesos (P1,000,000.00) (TSN pp. 7 and 8, November 5, 1991). The initial
proposal took place at the Dimsum Restaurant, Makati, whereby it was proposed that the payment of
the consideration was to be made within six (6) months but was objected to by Dr. Salazar and he
reduced it to a three (3) months period (TSN Direct Examination on Jonette Borres p. 22, November 12,
1991); that sometime on [May] 28, 1989, Jonette Borres together with a certain Emilio T. Salazar went to
see Dr. Salazar at the latter's residence in Bataan bearing a copy of a Deed of Absolute Sale (Exhibit ("C")
and Deed of Warranty (Exhibit "D") but Dr. Salazar refused to sign because Jonette Borres did not have
the money ready then. In said occasion Dr. Salazar further reduced the period within which plaintiff may
purchase the lots, to one (1) month or up to June 30, 1989 (TSN Direct Examination on Jonette Borres
November 5, [1991], pp. 10 and 11).

Jonette Borres then met again Dr. Salazar on June 2, 1989 at the Ninoy International Airport who was
about to leave for the United States of America where he is a resident. Jonette Borres had with her the
Deed of Absolute Sale and asked Dr. Salazar to sign said document. Dr. Salazar reluctantly agreed to sign
the document provided that Jonette Borres pays one half (1/2) of the consideration or P500,000.00 in
"cash" by June 15, 1989 and the balance was payable on June 30, 1989 (TSN Direct Examination on
Emilio A. Salazar, May 21, [1991], p. 9; TSN Cross Examination on Jonette Borres, November 12, [1991],
pp. 29 and 30). It was during this occasion that Dr. Salazar again emphasized to Jonette Borres that he
needed the money because he was then buying a property in the United States (TSN pp. 15-20,
November 5, 1991; pp. 22 and 23, May 21, 1991; and pp. 56-57, May 21, 1991).

Plaintiff agreed to the above conditions (TSN Cross Examination on Jonette Borres November 12, 1989,
p. 32) and Dr. Salazar constituted co-defendant Teresa Dizon as custodian at the Deed of Absolute Sale
(Exhibit "C") together with the Titles of the Land in question with the instruction to Teresa Dizon not to
surrender said documents to Jonette Borres until upon payment of the full price in "cash" (TSN Direct
Examination on Emilio A. Salazar, May 21, [1991], p. 11).

On June 14, 1989 Jonette Borres informed defendant Dizon that she will be able to pay the full amount
of P1,000,000.00 on June 15, 1989 (TSN Direct Examination Jonette Borres, November 5, [1991], p. 25)
and on the next day, she then went to the house of Teresa Dizon to see and get the documents entrusted
to her by Dr. Salazar. The documents not being in Dizon's possession, they agreed to meet at Metro Bank
West Avenue Branch to get the documents and then to proceed to Makati to meet the plaintiff's
business partner a certain Balao who allegedly gave plaintiff a Far East Bank and Trust Company check for
the amount of P1,500,000.00 (Exhibit "F") with which to buy the property (TSN Direct Examination on
Jonette Borres November 5, [1991], pp. 30, 32 and 33). For some reason or another Jonette Borres and
defendant Dizon failed to proceed to Makati.

In the meantime or on June 16, 1992, Dr. Salazar made an overseas call to co-defendant Dizon to inquire
if Jonette Borres had already paid the down payment of P500,000.00 and Teresa Dizon replied to Dr.
Salazar that Jonette Borres had not paid the down payment. Dr. Salazar then ordered Dizon to stop the
sale (TSN Direct Examination on Emilio A. Salazar, May 21, [1991], pp. 12 and 13).

As maybe seen from the evidence presented by the plaintiff and the defendants, the terms and
conditions of the agreement for the sale of the two (2) parcels of land owned by Dr. Salazar in favor of
the plaintiff Jonette Borres, are that the purchase price is in the amount of P1,000,000.00, fifty percent
(50%) of which or P500,000.00 was to paid on or before June 15, 1989 while the balance thereof was to
be paid on or before June 30, 1989 (TSN May 21, 1991, p. 27); that the payment was to be made in
"cash" (TSN May 21, 1991, p. 55); that the place of payment is at defendant's bank, Metropolitan Bank
Quezon City Branch (TSN October 21, 1991, p. 23). 3

The trial court held that the Deed of Absolute Sale was in reality a contract to sell, and that since Borres
failed to pay Salazar the downpayment of P500,000.00 on the agreed date, 15 June 1989, the complaint
for specific performance cannot prosper. It then dismissed the complaint and ordered Borres to pay the
petitioners P5,000.00 each as attorney's fees and litigation expenses. 4

In ruling that the Deed of Absolute Sale was a contract to sell, the trial court considered pertinent the
circumstances attending its execution. First, that the Deed of Absolute Sale was "reluctantly signed" by
Dr. Salazar, who was then about to leave for the United States of America, in order that if Borres would
comply with the terms and conditions of their agreement, he need not come to the Philippines just to
sign it; hence, it does not bind Dr. Salazar until the suspensive condition, i.e., the downpayment of
P500,000.00 to be effected on or before 15 June 1989 and the balance to be paid on or before 30 June
1989, is complied with. Second, Borres was not, in fact, financially prepared to buy the parcels of land on
or before 15 June 1989 considering that

[s]he was just looking for possible buyers or business partners. First, she requested that the pertinent
documents like the Deed of Sale (Exhibit "C") and the corresponding Transfer Certificates of Titles Nos.
31038 and 31039 of the Register of Deeds of Rizal (Exhibits "A" and "B") be entrusted to her even before
making the downpayment of P500,000.00 purposely to raise the amount needed. When Dr. Salazar
refused her request, Jonette Borres approached a certain businessman P.D. Dionisio for loan and was
turned down when Jonette Borres cannot [sic] produce the Deed of Absolute Sale and the Titles of the
parcels of land in question (TSN November 5, 1991, pp. 20-25). Then she approached a certain Benjamin
Balao a realtor developer. Although Balao had issued to her his check in the amount of P1,500,000.00
(Exhibit "F") he instructed his bank not to honor his check without his presence (TSN November 14,
1991, pp. 81 to 84). Jonette Borres admitted that she was not in a position to encash the check (Exhibit
"F") although it was payable to "cash" (TSN November 21, 1991, pp. 41 and 44). 5

Salazar's victory was short-lived. On Borre's appeal from the decision of the trial court, the Court of
Appeals, in its challenged decision of 29 November 1994, ruled that the Deed of Absolute Sale, whose
existence and due execution was undisputed, is perfected contract of sale, with a definite object and a
specific consideration which the parties had agreed upon. As proof that it is a contract of sale and not a
contract to sell, the Court of Appeals stressed the absence of a proviso that the title to the property is
reserved in the vendor until full payment of the purchase price or that the vendor may unilaterally
rescind the contract the moment the vendee fails to pay within the fixed period. 6 Salazar's reluctance to
sign it is of no moment, since there is no allegation of fraud, forgery, or duress. And even assuming that
Borres failed to pay the contract price, such failure did not convert the contract into one without cause
or consideration as to vitiate the validity of the contract, it not being essential for the existence of cause
that payment or full payment be made at the time of the contract. Neither did such failure ipso facto
resolve the contract in question. The remedy of the vendor, Dr. Emilio A. Salazar, is to demand specific
performance or rescission, with damages in either case. On the other hand, the vendee, Jonette Borres,
may demand specific performance, i.e., compel the vendor to accept the price and deliver the title of the
land object of the contract.

The Court of Appeals disagreed with the trial court's finding that Borres was not in a position to pay the
downpayment because

[o]n June 15, 1989, plaintiff-appellant had a Far East Bank check payable to her order, in the amount of
P1,500,000.00 — more than the whole agreed purchase price of P1,000,000.00. Defendant-appellee
Teresa Dizon agreed (on June 14, 1989) to meet her on June 15, 1989, at Metro Bank West and
thereafter to proceed to Makati in order to encash the Far East Bank check. Defendant-appellee Teresa
Dizon somehow managed to manipulate things by making herself unavailable so that the payment could
not be made on June 15, 1989. (TSN, Nov. 5, 1991, pp. 27-41). On the next day, June 16, 1989,
defendant-appellee Teresa Dizon informed plaintiff-appellant that defendant-appellee Dr. Emilio A.
Salazar called up in the evening of June 15, 1989 asking whether plaintiff-appellant paid on that day and
upon being answered in the negative, said vendor said that he is revoking the contract. (TSN, Nov. 5,
1991, pp. 41-42). Defendant-appellee Teresa Dizon having her own interested buyer, evidently acted in
bad faith, tried and indeed succeeded to frustrate the efforts of plaintiff-appellant to comply with her
reciprocal obligation to pay the agreed purchase price.

The fact that the Far East Bank check was payable to the Order of plaintiff-appellant, and it covers the
amount of P1,500,000.00 — which is much more than the agreed purchase price of P1,000,000.00 —
reveals that plaintiff-appellant was financially prepared to comply with her reciprocal obligation. That
plaintiff-appellant filed the present suit for specific performance on July 6, 1989, bolsters the fact that
she is really willing and able to pay the agreed purchase price. How and from whom she
borrowed/obtained the said amount, is of no consequence. 7

Accordingly, the respondent Court reversed the decision of the trial court and handed down a new
judgment ordering Emilio A. Salazar to accept from Jonette Borres the payment representing the
purchase price in the amount of P1 million and thereafter to comply with his reciprocal obligation to
surrender the original copies of the deed of absolute sale and torrens title covering the parcels of land
subject of the contract. Finding petitioner Teresita Dizon to have "acted in bad faith in frustrating the
efforts" of Borres to comply with her obligation to pay the purchase price, the appellate court ordered
her to pay Borres the amounts of P80,000.00 as moral damages; P50,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.

Unable to accept the reversal of the trial court's decision, the petitioners filed the instant petition
wherein they submit that the Court of Appeals committed grave and serious errors:

A. . . . in relying on the Deed of Absolute Sale dated May 30, 1989 notwithstanding the fact that:

1. BORRES EXECUTED A DEED OF WARRANTY (EXHS. "D" AND "2") STATING THEREIN THAT UNTIL
AND UNLESS THE AMOUNT OF P1,000,000.00 REPRESENTING THE PURCHASE PRICE FOR THAT PARCELS
OF LAND COVERED BY TCT NOS. S-31038 AND S-31039 BE PAID BY HER TO SALAZAR, SHE HAS NO RIGHT
WHATSOEVER TO THE ORIGINAL COPIES OF THE DEED OF ABSOLUTE SALE AND THAT SHE HAS NO LEGAL
RIGHT WHATSOEVER TO ANY AND ALL PERTINENT RECORDS OF THE ABOVE-MENTIONED LOTS;

2. UPON HERE BEHEST, BORRES WAS GIVEN A PHOTOCOPY OF THE DEED OF ABSOLUTE SALE BY
DIZON BUT ONLY AFTER THE LATTER ERASED THE SIGNATURE OF SALAZAR AS THE VENDEE THEREIN.
3. BORRES HAD NOT PAID ANY PORTION OF THE AGREED PURCHASE PRICE AND THUS RENDERS
THE DEED OF ABSOLUTE SALE VOID AB INITIO.

B. . . . in concluding that the agreement between SALAZAR and BORRES is a contract of sale and
thus, perfected upon agreement on the subject matter and consideration, notwithstanding the fact that:

1. THE AGREEMENT BETWEEN THE PARTIES IS ESSENTIALLY A CONTRACT TO SELL SUBJECT TO A

SUSPENSIVE CONDITION, THE BIRTH OR EFFECTIVITY OF WHICH SHOULD TAKE PLACE ONLY IF AND
WHEN THE EVENT WHICH CONSTITUTES THE CONDITION HAPPENS OR IS FULFILLED. SINCE BORRES
FAILED TO COMPLY WITH HER OBLIGATION, THE AGREEMENT TO SELL BECAME STILLBORN;

2. THERE WAS AN EXPRESS AGREEMENT BETWEEN THE PARTIES THAT BORRES SHALL BE ENTITLED
TO THE PROPERTY OR ANY RECORDS PERTAINING THERETO OR ORIGINAL COPIES OF THE DEED OF
ABSOLUTE SALE ONLY UPON FULL PAYMENT OF THE PURCHASE PRICE.

C. . . . in holding that DIZON acted in bad faith and succeeded to frustrate the efforts of BORRES to
comply with her reciprocal obligation to pay the purchase price notwithstanding the fact that:

1. AT THE TIME THAT BORRES WAS OBLIGED TO PAY AT LEAST 50% OF THE PURCHASE PRICE OR ON
JUNE 15, 1989, SHE WAS NOT READY, WILLING AND ABLE TO DO SO. EVEN ASSUMING FOR THE SAKE OF
ARGUMENT THAT THE LATTER HAD THE FINANCIAL CAPABILITY TO MEET HER OBLIGATION, THE FACT
REMAINS THAT SHE FAILED TO PROPERLY TENDER PAYMENT OF HER OBLIGATION AND IN CASE TENDER
OF PAYMENT WAS REFUSED, TO CONSIGN THE SAME IN COURT;

2. DIZON HAD NO REASON TO FRUSTRATE THE EFFORTS OF BORRES TO COMPLY WITH HER
OBLIGATION TO PAY THE AGREED PURCHASE PRICE SINCE SHE WAS MERELY CONSTITUTED AS
CUSTODIAN OF THE DEED OF ABSOLUTE SALE AND TITLES OF THE PROPERTY WITH SPECIFIC
INSTRUCTIONS TO RELEASE THE SAME TO BORRES ONLY UPON RECEIPT OF THE PURCHASE PRICE IN FULL
AND IN CASH WITHIN THE AGREED PERIOD.
D. . . . in ordering Dizon to pay Borres the amount of P80,000.00 moral damages; P50,000.00
exemplary damages and P100,000.00 as attorney's fees by way of damages notwithstanding the fact that
the evidence adduced before the trial court clearly shows that BORRES had no cause of action against
the former. 8

We shall first the issue of whether the agreement between petitioner Salazar and private respondent
Borres is a contract of sale or a contract to sell.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an
event prevents the obligation of the vendor to convey title from becoming effective. 9

If we are to consider only the Deed of Absolute Sale, 10 we can easily say that the contract between
Salazar and Borres is one of sale. However, the Deed of Warranty 11 and the oral testimony on the
circumstances surrounding the execution of the Deed of Absolute Sale, as well as the other pieces of
evidence submitted by Borres, sustain the finding and conclusion of the trial court that the true
agreement between the parties was a contract to sell in that the true intent of Salazar was to transfer
ownership of the property to Borres only after the latter pays the full consideration.

From the beginning to the end, such intention of Salazar was unequivocal and manifest. He rejected
Borre's offer to pay the consideration within six months to give her time to secure a loan. When Borres
proposed that he lend her the certificates of title of the lots so that she could secure a loan from the
banks in Manila and be able to pay, within three months, 12 the consideration out of the proceeds of the
loan, Salazar agreed provided that she would assure him that the title would not pass to her until he is
fully paid. Borres forthwith promised to execute a warranty. She then prepared a Deed of Absolute Sale
for Salazar's signature and a Deed of Warranty for her signature. When finally she presented to him the
Deed of Absolute Sale, Salazar did not sign it and insisted that he be paid the purchase price at the end
of June 1989; he further told her that he would not lend her the certificates of title until he is so paid. He
signed it only after Borres agreed to pay by the end of June 1989 at a bank in Makati. But he did not give
the Deed of Absolute Sale to her; instead, he told her to just meet him at the Ninoy Aquino International
Airport on 2 June 1989, when he would leave for the United States of America, so she would know to
whom he would entrust the document and other papers relative to the property. We quote verbatim
Borre's own testimony on direct examination upon these points:

Q Have you met the owner of the lot mentioned a while ago?

A Yes, your Honor, I met Dr. Salazar, the owner, sometime last week of April, 1989 at Dimsum
Restaurant.

Q You met at Dimsum, in what particular place was that?

A We met at Dimsum Restaurant in Makati after I was called by Emilio T. Salazar to meet at
Dimsum because Dr. Salazar wanted to sell the property and he wanted to talk to you [sic].

COURT:

Talk to you?

A To discuss the matter of sale to me at Dimsum Sir

ATTY. BORRES:

Q And so you really met at Dimsum.

A Yes, Ma'am.

Q What transpired at Dimsum?

A Dr. Salazar offered me to buy the properties for a total of ONE MILLION PESOS (P1,000,000.00)
excluding all and any other expenses that may be involved in the transfer of the properties in case I am
interested to by [sic], in case Atty. Borres wanted to buy.

Q What then was your reply?

A I am interested to buy.

Q Dr. Salazar. . . I asked . . . what did Dr. Salazar say after that?

A I answered Dr. Salazar that I could buy or able to buy the properties within six (6) months
because I have to go home to the province to secure a loan.

Q What did Dr. Salazar say regarding your proposal?

A I told Dr. Salazar. Dr. Salazar said that he could not wait for that six (6) months is a very long time.

Q What else did you say?

A I told Dr. Salazar that "it is possible I can pay within three (3) months' time if your can lend me
the title of your property because banks here in Manila usually release loans in three months' time and I
will have less problem to complete the payment of ONE MILLION PESOS (P1,000,000.00)."

Q So, what did Dr. Salazar say?

A Dr. Salazar said that "if it is the best for our transaction I can lend you the title provided I can be
assured that the title will not pass on you until you are fully paid.
Q What was your answer then?

A I told Dr. Salazar that I can execute a warranty to the effect that the property could not be
transferred to me until I have fully paid him.

Q What did Dr. Salazar say?

A Dr. Salazar said "I will agree to that"

COURT:

Dr. Salazar told you that he is agreeable to the proposal.

A Yes, Dr. Salazar said "you prepare a craft, the necessary document and bring it to Bataan.

ATTY. BORRES:

Q And what was your answer to Dr. Salazar

A I answered Dr. Salazar that "I will be ever willing to go to Bataan any time you wanted me to go.

Q And you really did go to Bataan.

A Yes, I did.

xxx xxx xxx

ATTY BORRES:

Q And what happened while there in Bataan?

xxx xxx xxx

Q And what happened while you got all seated in the sala of Dr. Salazar.

A I showed him a document which he instructed me to prepare and he has read it and agreed to
the Deed of Absolute Sale and the warranty I made. He gave me back the documents for signing.

Q And you did sign the document?

A Yes, I did sign it and passed it on to Dr. Salazar.

Q After you passed it to Dr. Salazar, what happened?

A Dr. Salazar did not sign the document and told me that he is only going to sign it if I am going to
pay by the end of June and that he could not lend me the title and he said he is going to sign it and not
to give me a copy until the purchase price is fully paid.

Q And what was your reaction with the statement?

A I said "what about the loan that we have a greed at Dimsum if you will not lend me the title and
the document that we have signed new?" Dr. Salazar said "I could not lend you the title and I care less
how your are going to loan the property and raise the money you are going to pay me, what is important
to me is you pay me the whole amount of One Million Pesos (P1,000,000.00) not late than June 30,
1989."

Q And what did you say?

A Since I could not do anything and I really wanted to buy the property, I agreed to Dr. Salazar's
condition that I pay the property by the end of June and I will pay only at the bank in Makati.

Q And what did Dr. Salazar say?

A Dr. Salazar said "okey I will sign this and have this notarized but I could not lend you and never
have a [copy] of the title as well as the Deed of Sale and you just wait oat NAIA and wait if you could
have this document because I am leaving on June 2 for the US. You meet me there".

Q And after that what did Dr. Salazar do?

A It was only when that he signed the document after I have agreed to his proposal but he was
very much stand [sic] to the payments and he was no longer the same when I met him at Dimsum. 13

Clearly then, the original intention in the execution of the Deed of Absolute Sale was to implement the
proposal of Borres that Salazar "lend" her the transfer certificates of title so that she could secure a loan
from a bank in Manila whose proceeds would be applied to the payment of the purchase price of the
property, and the original purpose of the Deed of Warranty was to assure Salazar that, as demanded by
him, title to the lots will not pass to her until she pays the full consideration. The lending of the
certificates of title for the above purpose could have been accomplished through a special power of
attorney under which Salazar will authorize her to obtain a loan and to mortgage the property as security
therefor. But, perhaps anticipating Salazar's departure to the United States of America where he resides,
Borres, who is a lawyer, prepared instead a Deed of Absolute Sale and Deed of Warranty.
Notwithstanding Borre's deliberate characterizations of the documents, we are convinced that they were
prepared in connection with and in the implementation of the agreement regarding the lending of the
certificates of title. They do not weaken the adamantine position of Salazar not to part with his title to
the two lots until full payment of the agreed price therefor. Borre's execution of the Deed of Warranty
was in fact a recognition of Salazar's position. Despite its careful wordings and phraseology to make
some sort of distinction between Borre's right to the ownership or title over the lots on the one hand,
and her right to possess or keep the Deed of Absolute Sale and the other documents relative to the lots,
the totality of the Deed of Warranty manifests an indubitable recognition by Borres of the
aforementioned intention of Salazar. She declares therein as follows:

1. That until and unless the amount of ONE MILLION (P1,000,000.00) PESOS representing the
purchase price for that parcels of land covered by Transfer Certificate of Title Nos. S-31038 and S-31039
be paid by the undersigned unto Dr. Emilio A. Salazar, the undersigned has no absolute right whatsoever
to the original copies of the Deed of Absolute Sale executed by said Dr. Emilio A. Salazar date May ____,
1989;

2. That she has no legal right whatsoever to any and all pertinent records of the aforementioned
lots;

3. That upon payment of the aforementioned amount, Dr. Emilio A. Salazar or his representative is
obliged to surrender the original of these presents together with all the original documents and titles
covering the sale of the aforementioned lots unto the undersigned. 14

Then, too, in her Memorandum of Agreement with Monteland Realty Corporation, 15 dated 15 June
1989, Borres explicitly mentioned only her "rights and interests" under the Deed of Absolute Sale signed
by Salazar and therein conveyed, transferred, and assigned to the said corporation only such "rights and
interest." Also worth noting is the statement in the second whereas clause of the Memorandum of
Agreement that Monteland Realty Corporation

has full knowledge of the sales [sic] and conditions of the SELLER-OWNER of the property . . . that the
buyer [Borres] has an obligation to pay DR. EMILIO SALAZAR the amount of ONE MILLION PESOS
(P1,000,000.00) and that there is already a Deed of Absolute Deed of [sic] Sale in favor of [Borres] of
which both copies of the titles of the properties for sale and all documents including the Deed of
Absolute Sale aforementioned are including the Deed of Absolute Sale aforementioned are under the
custody of MS. TERESA DIZON who will only release the Title and the Deed of Absolute Sale after the
obligation of [Borres] is fully

paid. 16
The withholding by Salazar through Dizon of the Deed of Absolute Sale, the certificates of title, and all
other documents relative to the lots is an additional indubitable proof that Salazar did not transfer to
Borres either by actual or constructive delivery the ownership of the two lots. While generally the
execution of a deed of absolute sale constitutes constructive delivery of ownership, the withholding by
the vendor of that deed under explicit agreement that it be delivered together with the certificates of
titles to the vendee only upon the latter's full payment of the consideration amounts to a suspension of
the effectivity of the deed of sale as a binding contract.

Undoubtedly, Salazar and Borres mutually agreed that despite the Deed of Absolute Sale title to the two
lots in question was not to pass to the latter until full payment of the consideration of P1 million. The
form of the instrument cannot prevail over the true intent of the parties as established by the evidence.

Accordingly, since Borres was unable to pay the consideration, which was a suspensive condition, Salazar
cannot be compelled to deliver to her the deed of sale, certificates of title, and other documents
concerning the two lots. In other words, no right in her favor and no corresponding obligation on the
part of Salazar were created. Article 1181 of the Civil Code provides:

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired shall depend upon the happening of the event which constitutes the condition.

Even granting for the sake of argument that, as ruled by the court of Appeals, the agreement of Salazar
and Borres as evidenced by the Deed of Absolute Sale was a perfected contract of sale, Borre's action for
specific performance must likewise fail. We are in full accord with the trial court and, perforce, disagree
with the Court of Appeals, that Borres was not ready to pay P500,000.00 on or before 15 June 1989. That
Borres had a check of P1.5 million, or of more than the full consideration of the two lots, is of no
moment. The check, 17 dated 15 June 1989, is a crossed check payable to "Atty. Jonette Borres," or
herein private respondent. The crossing is of simple type — two parallel lines at the upper left hand
corner without the words "and company" between the lines. Accordingly, it cannot be paid to anyone
except Borres, or it can be deposited with a bank where she keeps an account. 18

There is absolutely no evidence that Borres encashed the check and tendered to Salazar thru Dizon the
sum of P500,000.00 on 15 June 1989. On the contrary, the check itself was cancelled as shown by the
word cancelled handwritten across it. Moreover, the delivery of the check by Monteland Realty
Corporation through Balao was not unconditional. Per the receipt 19 Borres signed on 15 June 1989,
encashment of the check "it subject to the verifications as to the authenticity of documents pertaining to
the subject property." Neither is there evidence that Borres paid the downpayment on 15 June 1989
with money she got from other sources. No payment appears to have been made thereafter or during
the pendency of the case before the trial court or the Court of Appeals. She should have consigned the
payment in court pursuant to Article 1256 of the Civil Code for her to be released from her obligation
and, consequently, exact fulfillment by Salazar of his corresponding obligation.

The challenged decision of the Court of Appeals must then be reversed. That of the trial court must be
affirmed, with the modification consisting in the deletion of the award of attorney's fees in favor of the
petitioners which we find to be without basis. The award of attorney's fees as damages is the exception
rather than the rule; it is not to be given to the defendant every time the latter prevails. The right to
litigate is so precious that a penalty should not be charged on those who may exercise it erroneously,
unless, of course such party acted in bad faith. 20

WHEREFORE, the instant petition is hereby GRANTED. The challenged decision of 29 November 1994 of
the Court of Appeals in CA-G.R. CV No. 40197 is REVERSED and SET ASIDE, and the decision of 3
September 1992 of Branch 66 of the Regional Trial Court of Manila in Civil Case No. 89-4468 is
AFFIRMED, subject to the modification that the award for attorney's fees is deleted.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

Footnotes

1 Rollo, 40-46. Per Ishani, A., J., with Ibay-Somera, C., and Lipana-Revs, C., JJ., concurring.

2 Original Records (OR) 286-295. Per Judge Eriberto U. Rosario, Jr.

3 OR, 287-291.

4 Id., 294-295.

5 OR, 293-294.

6 Citing Visayan Sawmill Co., Inc. vs. Court of Appeals, 219 SCRA 378 [1993].

7 Rollo, 44-45.

8 Rollo, 16-18.

9 Luzon Brokerage Co. Inc. vs. Maritime Building Co., Inc. 46 SCRA 381, 387 [1972]; Jacinto vs.
Kaparaz, 209 SCRA 246 254 [1992]; Visayan Sawmill Co., Inc. vs. Court of Appeals, supra note 6, at 389;
Pingol vs. Court of Appeals, 226 SCRA 118, 126 [1993].

10 Exhibits "C" and "1," Folder of Exhibits, 6 and 22.

11 Exhibit "2," Id., 24.

12 TSN, 5 November 1991, 8.

13 TSN, 5 November 1991, 6-14.

14 Exhibit "2," Folder of Exhibits, 24.

15 Exhibit "6," Id., 16-17.

16 Exhibit "G," Folder of Exhibits, 16.

17 Exhibit "F," Folder of Exhibits, 15.

18 AGUEDO F. AGBAYANI, Commentaries and Jurisprudence on the Commercial laws of the

Philippines, vol. 1 [1987 ed.], 449.

19 Exhibit "D," Folder of Exhibits, 8.

20 Tierra International Construction Corp. vs. NLRC, 211 SCRA 73, 81 [1992]; Albenson Enterprises
Corp. vs. Court of Appeals, 217 SCRA 16, 31 [1993]; De La Peña vs. Court of Appeals, 231 SCRA 456, 462
[1994].

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Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for

herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
ALMONTE, and CATALINA BALAIS MABANAG, petitioners,

vs.

THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by
GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p

The petition before us has its roots in a complaint for specific performance to compel herein petitioners
(except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels)
executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia
Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment

———————————

P1,190,000.00 — Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos
purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel,
the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute
sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the
P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the
document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered in the
name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of
absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One
Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as
Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh.
"B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels' father was
transferred in their names under TCT

No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-
appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty
Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos
(Exhs. "F-3"; Exh. "6-C")

For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the
down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels
and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property
with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of
Catalina (Exh. "G"; Exh. "7").

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No.
351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed
to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now
private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through
"J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then
defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise
inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them
thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15
days within which to submit their corresponding comment or reply thereof, after which, the case would
be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then
temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment
was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in
favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by
Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City,
together with all the improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof,
the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay
defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is
hereby canceled and declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property and deliver possession
thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of
defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City
RTC but the same was denied by Judge Estrella T. Estrada, thusly:

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

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the
instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she is convinced that the Decision
of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render
Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents'
Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned
ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was
last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court in
the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at
bar is the precise determination of the legal significance of the document entitled "Receipt of Down
Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the
heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract
absolute sale.

Plainly, such variance in the contending parties' contentions is brought about by the way each interprets
the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this, Court, as were the courts below, is now called
upon to adjudge what the real intent of the parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential
elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective buyer. In
Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell
where the ownership or title is retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring
binding force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a contract
of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code
which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf.
Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases
where the subject property is sold by the owner not to the party the seller contracted with, but to a third
person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third
person buying such property despite the fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there is no defect in the owner-seller's title
per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer have any title to transfer to any third person.
Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of
the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their natural
and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586
[1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos
purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary
idea conveyed is that they sold their property.

When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there
was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate
of title was still in the name of petitioner's father, they could not fully effect such transfer although the
buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the
issuance of a new certificate of title in their names from that of their father, after which, they promised
to present said title, now in their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves
(the certificate of title was not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that, had the certificate
of title been in the names of petitioners-sellers at that time, there would have been no reason why an
absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the
properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having
already agreed to sell the subject property, they undertook to have the certificate of title changed to
their names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the
buyer with certain terms and conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title was then still in the name of their father. It was
more expedient to first effect the change in the certificate of title so as to bear their names. That is why
they undertook to cause the issuance of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is
issued in their names, petitioners were committed to immediately execute the deed of absolute sale.
Only then will the obligation of the buyer to pay the remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect
the seller against a buyer who intends to buy the property in installment by withholding ownership over
the property until the buyer effects full payment therefor, in the contract entered into in the case at bar,
the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact
that the certificate of title to the property was still in the name of their father. It was the sellers in this
case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of
absolute sale.

What is clearly established by the plain language of the subject document is that when the said "Receipt
of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had
agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names.

The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh.
"D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private
respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof
being the delivery of the property by means of the execution of the deed of absolute sale in a public
instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt
of Down Payment."

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench.
Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.

From the moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of the event which constitutes the
condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the
contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the
transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer,
and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively
admitted that:

3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our
deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:

. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property
under their names, there could be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly
provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by
TCT No. 327403 (Exh. "D"; Exh. "4").

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as
"Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only
to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of
their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D";
Exh. "4").

We, therefore, hold that, in accordance with Article 1187 which pertinently provides —

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation . . .

In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually
due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February
6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they were
then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to be extent and value of the inheritance of a person are transmitted through his death to
another or others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel
are compulsory heirs who were called to succession by operation of law. Thus, at the point their father
drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such
that any rights or obligations pertaining thereto became binding and enforceable upon them. It is
expressly provided that rights to the succession are transmitted from the moment of death of the
decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have
been paid is rendered moot by the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an
agreement at that time and they cannot be allowed to now take a posture contrary to that which they
took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code
expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject property at the time of sale,
petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and
Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the
consummation thereof by going to the United States of America, without leaving her address, telephone
number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to
the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct
in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant
case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in
their responsive pleadings, which by express provision of the rules, are deemed controverted even if no
reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft
of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro
vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376
[1947]).

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6,
1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of
sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of
sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer,
the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in
behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by
Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to
represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay
the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the
physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that
they actually presented the new transfer certificate of title in their names and signified their willingness
and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's
corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as
buyer) never became due and demandable and, therefore, she cannot be deemed to have been in
default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be
considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.

xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill
his obligation, delay by the other begins. (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case
of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof to the person who presents the oldest title, provided there is
good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second
contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a
new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph
of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer,
and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the
first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first
registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to register, since
knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is
essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act
in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo
vs. CA, G.R. No. 95843, 02 September 1992).

(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and
petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed
is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she
was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer
was a buyer in good faith but whether or not said second buyer registers such second sale in good faith,
that is, without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of
lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas
petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration,
therefore, petitioner Mabanag knew that the same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the
same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the
property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous
sale of the same property to a third party or that another person claims said property in a pervious sale,
the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro
vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on
February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was
correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as principal
and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of
whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the
instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch
this issue and no longer disturb the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment
AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

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G.R. No. 131784 September 16, 1999

FELIX I. GONZALES vs. THOMAS and PAULA CRUZ, ET AL.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 131784 September 16, 1999

FELIX I. GONZALES, petitioner,

vs.

THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by ELENA C. TALENS, respondents.

PANGANIBAN, J.:

If a stipulation in a contract admits of several meanings, it shall be understood as bearing that import
most adequate to render it effectual. An obligation cannot be enforced unless the plaintiff has fulfilled
the condition upon which it is premised. Hence, an obligation to purchase cannot be implemented
unless and until the sellers have shown their title to the specific portion of the property being sold.

The Case

Before us is a Petition for Review on Certiorari assailing the August 13, 1997 Decision 1 of the Court of
Appeals 2 in CA-GR CV No. 303754, which disposed as follows:
WHEREFORE, the decision of the trial court dated November 16, 1990 is hereby REVERSED. The appellee
FELIX GONZALES is hereby ordered to surrender possession of the property covered by the Contract of
Lease/Purchase to the appellants, Heirs of Thomas and Paula Cruz, and to pay to the appellants the
following amounts:

1. P15,000.00 per annum as rentals counted from December 1, 1984 until the appellants shall have
recovered possession of the property subject of the Contract of Lease/Purchase;

2. P5,000.00 as attorney's fees; and

3. Costs of suit. 3

On the other hand, the trial court 4 Decision, 5 which was by the CA, ruled as follows:

WHEREFORE, premises considered, this Court hereby renders judgment in favor of the defendant, Felix
Gonzales, and against the plaintiffs, as follows:

(1) Ordering the dismissal of the case;

(2) Sentencing the plaintiffs, jointly and severally, the sum of P20,000.00 as moral damages and the
other sum of P10,000.00 as and for attorney's fees; and

(3) To pay the costs. 6

The Facts

We hereby reproduce, unedited, the Court of Appeals' summary of the facts of this case as follows:
On December 1, 1983, Paula Año Cruz together with the plaintiffs heirs of Thomas and Paula Cruz,
namely Ricardo A. Cruz, Carmelita M. Cruz, Salome A Cruz, Irenea C. Victoria, Leticia C. Salvador and
Elena C. Talens, entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, the sole
proprietor and manager of Felgon Farms, of a half-portion of a "parcel of land containing an area 12
hectares, more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town, Province
of Rizal" and covered by Transfer Certificate of Title No. 12111 (Exhibit A, p. 157, Records). The contract
of Lease/Purchase contains the following provisions:

1. The terms of this Contract is for a period of one year upon the signing thereof. After the period
of this Contract, the LESSEE shall purchase the property on the agreeable price of One Million Pesos
(P1,000,000.00) payable within Two (2) years period with an interest of 12% per annum subject to the
devalued amount of the Philippine Peso, according to the following schedule of payment:

Upon the execution of the Deed of Sale 50% — and thereafter 25% every six (6) months thereafter,
payable within the first ten (10) days of the beginning of each period of six (6) months.

2. The LESSEE shall pay by way of annual rental an amount equivalent to Two Thousand Five
Hundred (P2,500.00) Pesos per hectare, upon the signing of this contract on Dec. 1, 1983.

xxx xxx xxx

9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct
T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time which shall not in
any case exceed four (4) years, after which a new Contract shall be executed by the herein parties which
shall be the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions
are concerned.

xxx xxx xxx

(Exhibits A, A-1; pp. 157-158. Records)

The defendant Gonzales paid the P2,500.00 per hectare of P15,000.00 annual rental on the half-portion
of the property covered by Transfer Certificate of Title No. 12111 in accordance with the second
provision of the Contract of Lease/Purchase (p. 12, TSN, September 14, 1989) and thereafter took
possession of the property, installing thereon the defendant Jesus Sambrano as his caretaker (pp. 16-17,
27 TSN, December 12, 1989). The defendant Gonzales did not, however, exercise his option to purchase
the property immediately after the expiration of the one-year lease on November 30, 1984 (pp. 19-20,
TSN, September 14, 1989). He remained in possession of the property without paying the purchase price
provided for in the Contract of Lease/Purchase (Ibid.) and without paying any further rentals thereon (p.
36, TSN, November 7, 1989).

A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales informing him of
the lessors' decision to rescind the Contract of Lease/Purchase due to a breach thereof committed by the
defendant (Exhibit C; p. 162, Records) The letter also served as a demand on the defendant to vacate the
premises within 10 days from receipt of said letter (Ibid.).

The defendant Gonzales refused to vacate the property and continued possession thereof (p. 2, Record).
The matter was therefore brought before the barangay captain of San Isidro, but owing to the
defendant's refusal to appear before the barangay, a certification allowing the case to be brought to
Court was issued on March 18, 1987 (Exhibit E; p. 165, Records).

The lessor, Paula Año Cruz died the following day, March 19, 1987 (p. 9, TSN, September 14, 1989).

A final demand letter to vacate the premises was sent by the remaining lessors who are also the heirs of
the deceased lessor Paula Año Cruz, through their counsel on August 24, 1987 which the defendant
Gonzales received but did not heed (Exhibits D and D-1; pp. 163-164, Records).

The property subject of the Contract of Lease/Purchase is currently the subject of an Extra-Judicial
Partition (Exhibits G and G-1; pp. 168-169, Records). Title to the property remains in the name of the
plaintiffs' predecessors-in-interest, Bernardina Calixto and Severo Cruz (Exhibit B; p. 160, Records).

Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint for
recovery of possession of the property — subject of the contract with damages, both moral and
compensatory and attorney's fees and litigation expenses (p. 3, Records).
Alleging breach of paragraph nine of the Contract of Lease/Purchase, and payment of only P50,000.00 of
the P500,000.00 agreed down payment on the purchase price of P1,000,000.00, the defendant Gonzales
filed his answer on November 23, 1987 praying for a dismissal of the complaint filed against him and an
award of moral, exemplary and actual damages, as well as litigation expenses (pp. 19-22, Records).

The defendant Sambrano was, upon motion, declared in default for failure to file an answer despite valid
service of summons (p. 30, Records).

The parties limited the issues to be resolved to:

(1) Whether or not paragraph 9 of the contract is a condition precedent before the defendant is to
pay the down payment;

(2) Whether or not plaintiffs can rescind the Contract of Lease/Purchase; and

(3) Whether or not plaintiffs can terminate the Contract of Lease. (p. 4, Decision; p. 262, Records).

After the termination of the pre-trial conference, the trial court proceeded to hear the case on the
merits and arrived at its appealed decision based on the following findings and conclusions:

Paragraph 9 of the contract clearly indicates that the lessors-plaintiffs shall obtain a Transfer Certificate
of Title in the name of the lessee within 4 years before a new contract is to be entered into under the
same terms and conditions as the original Contract of Lease/Purchase. Thus, before a deed of Sale can
be entered into between the plaintiffs and the defendant, the plaintiffs have to obtain the Transfer
Certificate of Title in favor of the defendant. Article 1181 of the New Civil Code states that: "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." When the
obligation assumed by a party to a contract is expressly subjected to a condition, the obligation cannot
be enforced against him unless the condition is complied with (Wise & Co. vs. Kelly, 37 Phil. 695; PNB vs.
Philippine Trust Co., 68. Phil. 48).
The failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in the contract, does
not entitle them to rescind the contract[.] Article 1191 of the New Civil Code states that: "The power to
rescind obligations is implied in reciprocal ones, in case one of the obligers should not comply with what
is incumbent upon him. The injured party may choose between the fulfillment of the obligation, with the
payment of damages in either case. He may seek rescission, even after he has chosen fulfillment, if the
latter should become impossible. . . ." The power to rescind is given to the injured party. Where the
plaintiff is the party who did not perform, he is not entitled to insist upon the performance of the
contract by the defendant or recover damages by reason of his own breach (Mateos vs. Lopez, 6 Phil.
206; Borque vs. Yu Chipco, 14 Phil. 95). An action for specific performance of a contract is an equitable
proceeding, and he who seeks to enforce it must himself be fair and reasonable, and do equity (Seva vs.
Berwin, 48 Phil. 581). In this case, plaintiffs failed to comply with the conditions precedent after 2-1/2
years from the execution of the contract so as to entitle them to rescind the contract. Although the
contract stated that the same be done within 4 years from execution, still, the defendant has to be
assured that the land subject of the case will be transferred in his name without any encumbrances, as
the Extra-Judicial Partition dated July 17, 1989 was being processed, and continues to be in process to
this date. The failure to secure the Transfer Certificate of Title in favor of the defendant entitles not the
plaintiffs but, rather, the defendant to either rescind or to ask for specific performances.

Are the plaintiffs entitled to terminate the Contract of Lease? Article 1670 of the New Civil Code states
that:

If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with
the acquies[c]ence of the lessor and unless a notice to the contrary by either party has previously been
given, it is understood that there is an implied new lease, not for the period of the original contract, but
for the time established in Articles 1682 and 1687. The other terms of the original contract shall be
revived.

Article 1682 of the New Civil Code states that:

The lease of a piece of rural land, when its duration has not been fixed, is understood to have been made
for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one
year, or which it may yield once, although two or more years may have to elapse for the purpose.
The plaintiffs filed the complaint on October 12, 1987 after making an extra-judicial demand on July 2,
1986. The contract was entered into on December 1, 1983. The demand was thus made more than a
year and a half from the expiry date of the original lease considering that there was no payment made
for the second year of the lease. If one has to consider the fact that the defendant was given the option
to purchase the property after two years, then, the lease would presumably run for at least two years. If
that is so, then, the demand was made seven months after the expiration of the two-year lease. Still, this
demand by the plaintiffs will come under the implied new lease of Articles 1682 and 1670 so that the
plaintiffs are not entitled to terminate the Contract of Lease.

In sum, the plaintiffs cannot terminate the Contract of Lease due to their failure to notify the defendant
in due time of their intention to that effect. Nor can they rescind the Contract of Purchase in view of the
fact that there is a condition precedent which the plaintiffs have not fulfilled. It is the defendant now
who has the option to either rescind or demand the performance of the contract. Moreover, according
to Article 1654 of the New Civil Code, the lessor is obliged to deliver the thing which is the object of the
contract in such condition as to render it fit for the use intended. Considering that the lessors-plaintiffs
have not delivered the property in whole over the protest of the defendant, the latter suffered damages
therefor. (p. 4-6, Decision; pp. 262-264, Records)

Their complaint thus dismissed, the plaintiffs, now appellants, assign the trial court of having committed
the following errors:

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS COULD NOT VALIDLY
RESCIND AND TERMINATE THE LEASE/PURCHASE CONTRACT (EXHIBIT "A") AND THEREAFTER TO TAKE
POSSESSION OF THE LAND IN QUESTION AND EJECT THEREFROM DEFENDANTS-APPELLEES.

II

THE TRIAL COURT EQUALLY ERRED IN NOT GRANTING THE RELIEFS PLEADED AND PRAYED FOR BY
PLAINTIFFS-APPELLANTS IN THEIR COMPLAINT. (p. 42, Rollo)
The case was submitted for decision without the appellee's brief as per the Court's resolution dated July
8, 1992 (p. 71, Rollo).

Ruling of the Court of Appeals

The Court of Appeals reversed the trial court in this wise:

The trial court, in its decision interpreted the ninth provision of the Contract of Lease/Purchase to mean
that before the appellee exercises his option to purchase the property by paying the 50% plus interest on
the P1,000,000.00 purchase price, the appellants must first transfer the title to the property in the
appellee's name. The Court finds this interpretation of the provision strained if not altogether absurd.
The transfer of title to the property in the appellee's name cannot be interpreted as a condition
precedent to the payment of the agreed purchase price because such interpretation not only runs
counter [to] the explicit provisions of the contract but also is contrary to the normal course of things
anent the sale of real properties. The terms of the contract [are] explicit and require no interpretation.
Upon the expiration of the lease, the lessee shall purchase the property. Besides, the normal course of
things anent the sale of real properties dictates that there must first be payment of the agreed purchase
price before transfer of title to the vendee's name can be made.

This was precisely what the appellants and Paula Año Cruz had in mind when they had the ninth
provision incorporated in the Contract of Lease/Purchase. They had asked for a period of 4 years from
the time they receive the downpayment of 50% within which to have [the] title to the property
transferred in the name of the appellee The reason for this four (4) year period is [that] title to the
property still remains in the name of the original owners, the predecessors-in-interest of the herein
appellants and [transferring] the title to their names and eventually to the lessee-purchaser, appellee
herein, would take quite some time.

The appellee wanted to have the title to the property transferred in his name first before he exercises his
option to purchase allegedly in accordance with the ninth provision of the contract. But the ninth
provision does not give him this right. A reading of the contract in its entirety shows that the 4 year
period asked for by the appellants within which to have title to the property transferred in the appellee's
name will only start to run when the appellee exercises his option to purchase. Since the appellee never
exercised his option to purchase, then appellee is not entitled to have the title to the property
transferred in his name.
Attributing reversible errors to the appellate court, petitioner elevated the case to this Court. 7

The Issues

In his Memorandum, 8 petitioner submits the "following main issues":

I. Whether or not the Court of Appeals has gravely erred and committed grave abuse of discretion
in the interpretation of [the] law between the parties.

II. Whether or not the Court of Appeals committed serious mistakes in the finding of facts which
resulted [in] departing from the usual course of judicial proceedings.

For these issues to be resolved, petitioner asks this Court to answer the following questions:

1. Is there a conflict between the statement in paragraph 1 of the Lease/Purchase Contract and
that [in] paragraph No. 9 thereof?

2. Is paragraph 9 of the Lease/Purchase Contract a condition precedent before petitioner could

exercise his option to buy the property?

3. Can plaintiff rescind or terminate the Contract of Lease after the one-year period?

In fine, the resolution of this case depends upon the proper interpretation of paragraph nine of the
Contract.

The Court's Ruling

The Petition is meritorious.

Main Issue:

Interpretation of Paragraph Nine

In its first paragraph, the disputed agreement provides that petitioner shall lease the property for one
year, after which he "shall purchase" it. Paragraph nine, on the other hand, requires herein respondents
to obtain a separate and distinct Transfer Certificate of Title (TCT) over the property, viz.:

9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct
T.C.T. over the lease portion to the LESSEE within a reasonable period of time which shall not in any case
exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be
the same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are
concerned.

Alleging that petitioner has not purchased the property after the lapse of one year, respondents seek to
rescind the Contract and to recover the property. Petitioner, on the other hand, argues that he could not
be compelled to purchase the property, because respondents have not complied with paragraph nine,
which obligates them to obtain a separate and distinct title in their names. He contends that paragraph
nine was a condition precedent to the purchase of the property.

To be sure, this paragraph — and the entire agreement, for that matter — is not a model of how a
contract should be worded. It is an invitation to a litigation, as in fact the parties had to go all to way up
to this Court to plead for a resolution of their conflict which is rooted in their failure to express
themselves clearly. Small wonder, even the two lower courts gave contradictory understanding of this
provision, thereby necessitating the intervention of the highest court of the land.

Both the trial court: and the Court of Appeals (CA) interpreted this provision to mean that the
respondents had obliged themselves to obtain a TCT in the name of petitioner-lessee. The trial court
held that this obligation was a condition precedent to petitioner's purchase of the property. Since
respondents had not performed their obligation, they could not compel petitioner to buy the parcel of
land. The CA took the opposite view, holding that the property should be purchased first before
respondents may be obliged to obtain a TCT in the name of petitioner-lessee-buyer.

As earlier noted, petitioner disagrees with the interpretation of the two courts and maintains that
respondents were obligated to procure a TCT in their names before he could be obliged to purchase the
property in question.

Basic is the rule in the interpretation of contracts that if some stipulation therein should admit of several
meanings, it shall be understood as bearing that import most adequate to render it effectual. 9
Considering the antecedents of the ownership of the disputed lot, it appears that petitioner's
interpretation renders clause nine most effectual.

The record shows that at the time the contract was executed, the land in question was still registered in
the name of Bernardina Calixto and Severo Cruz, respondents' predecessors-in-interest. There is no
showing whether respondents were the only heirs of Severo Cruz or whether the other half of the land
in the name of Bernardina Calixto was adjudicated to them by any means. In fact, they admit that
extrajudicial proceedings were still ongoing. Hence, when the Contract of Lease/Purchase was executed,
there was no assurance that the respondents were indeed the owners of the specific portion of the lot
that petitioner wanted to buy, and if so, in what concept and to what extent.

Thus, the clear intent of the ninth paragraph was for respondents to obtain a separate and distinct TCT in
their names. This was necessary to enable them to show their ownership of the stipulated portion of the
land and their concomitant right to dispose of it. Absent any title in their names, they could not have
sold the disputed parcel of land.

It is well-settled principle in law that no one can five what one does not have — nemo dat quod non
habet. Accordingly, one can sell only what one owns or is authorized to sell, and the buyer can acquire
no more than what the seller can transfer legally. 10

Because the property remained registered in the names of their predecessors-in-interest, private
respondents could validly sell only their undivided interest in the estate of Severo Cruz, the extent of
which was however not shown in the records. There being no partition of the estate thus, far, there was
no guarantee as to how much and which portion would be adjudicated to respondents.
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold. 11
In this case, the respondent could not deliver ownership or title to a specific portion of the yet undivided
property. True, they could have intended to sell their hereditary interest, but in the context of the
Contract of Lease/Purchase, the parties under paragraph nine wanted the specific portion of the land to
be segregated, identified and specifically titled. Hence, by the said Contract, the respondents as sellers
were given a maximum of four years within which to acquire a separate TCT in their names, preparatory
to the execution of the deed of sale and the payment of the agreed price in the manner described in
paragraph nine.

This interpretation is bolstered by the P50,000 petitioner advanced to respondents in order to help them
expedite the transfer of the TCT to their names. Ineluctably, the intention of the parties was to have the
title transferred first to respondents' names as a condition for the completion of the purchase.

In holding that clause nine was not a condition precedent to the purchase of the property, the CA relied
on a literal interpretation to the effect that the TCT should be obtained in the name of the petitioner-
vendee. It reasoned that the title could be transferred to the name of the buyer only after the
completion of the purchase. Thus, petitioner should first purchase the property before respondents
could be obliged to transfer the TCT to his name.

We disagree. The literal interpretation not only ignores the factual backdrop of the case; it also utilizes a
faulty parsing of paragraph nine, which should purportedly read as follows: "The lessors . . . shall
undertake to obtain a separate and distinct TCT . . . to the LESSEE within a reasonable period of time
which shall not in any case exceed four (4) years . . .. " Read in its entirety, however, paragraph nine does
not say that the TCT should be obtain in the name of the lessee. In fact, paragraph nine requires
respondents to obtain a "TCT over the herein leased portion to the LESSEE," thereby showing that the
crucial phrase "to the LESSEE" adverts to "the leased portion" and not to the name which should appear
in the new TCT.

Furthermore, the CA interpretation ignores the other part of paragraph nine, stating that after a separate
TCT had been obtained, "a new contract shall be executed by the herein parties which shall be the same
in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned."
If, as the CA held, petitioner should purchase the property first before the title can be transferred to his
name, why should there be a waiting period of four years before the parties can execute the new
contract evidencing the sale? Why should the petitioner still be required to pay rentals after it purchases
and pays for the property? The Contract could not have envisioned this absurd scenario.

Clearly, the appellate court's literal interpretation of the first portion of paragraph nine renders the latter
portion thereof ineffectual. In other words, that portion can only mean that the respondents should first
obtain a TCT in their names, after which petitioner is given time to purchase and pay for the property.

Respondents insist that "the obligation of petitioner to buy the disputed land immediately after the
termination of the one year lease period is

explicit." 12 However, it is more reasonable to state that the first paragraph was effectively modified by
the ninth. To repeat, petitioner can be compelled to perform his obligation under the first paragraph,
only after respondents have complied with the ninth. Unless and until respondents have done so, the
first paragraph cannot be enforced against the petitioner.

In sum, we hold that the ninth provision was intended to ensure that respondents would have a valid
title over the specific portion they were selling to petitioner. Only after the title is assured may the
obligation to buy the land and to pay the sums stated in the Contract be enforced within the period
stipulated. Verily, the petitioner's obligation to purchase has not yet ripened and cannot be enforced
until and unless respondents can prove their title to the property subject of the Contract.

Secondary Issues

Ninth Clause Was

a Condition Precedent

Because the ninth clause required respondents to obtain a separate and distinct TCT in their names and
not in the name of petitioner, it logically follows that such undertaking was a condition precedent to the
latter's obligation to purchase and pay for the land. Put differently, petitioner's obligation to purchase
the land is a conditional one and is governed by Article 1181 of the Civil
Code. 13

Condition has been defined as "every future and uncertain event upon which an obligation or provision
is made to depend. It is a future and uncertain event upon which the acquisition or resolution of rights is
made to depend by those who execute the juridical act." 14 Without it, the sale of the property under
the Contract cannot be perfected, and petitioner cannot be obliged to purchase the property. "When the
consent of a party to a contract is given subject to the fulfillment of a suspensive condition, the contract
is not perfected unless that condition is first complied with." 15

The Court has held that "[w]hen the obligation assumed by a party to a contract is expressly subjected to
a condition, the obligation cannot be enforced against him unless the condition is complied with." 16
Furthermore, "[t]he obligatory force of a conditional obligation is subordinated to the happening of a
future and uncertain event, so that if that event does not take place, the parties would stand as if the
conditional obligation had never existed." 17

In this case, the obligation of the petitioner to buy the land cannot be enforced unless respondents
comply with the suspensive condition that they acquire first a separate and distinct TCT in their names.
The suspensive condition not having been fulfilled, then the obligation of the petitioner to purchase the
land has not arisen.

Respondents Cannot

Rescind the Contract

In the same vein, respondents cannot rescind the contract, they have not caused the transfer of the TCT
to their names, which is a condition precedent to petitioner's obligation. This Court has held that "there
can be no rescission (or more properly, resolution) of an obligation as yet non-existent, because the
suspensive condition has not happened." 18

Since the reversal of the CA Decision is inevitable, the trial court's judgment should be reinstated.
However, we find no sufficient factual or legal justifications for the award of moral damages and
attorney's fees.
WHEREFORE, the petition is GRANTED and the appealed Decision is REVERSED and SET ASIDE. The
Decision of the trial court is REINSTATED, but the award of moral damages and attorney's fees is DELETED
for lack of basis. No costs.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., took no part.

Footnotes

1 Penned by Justice Ramon A. Barcelona; concurred in by Justices Jesus M. Elbinias (chairman) and
Artemio G. Tuquero (member).

2 Eleventh Division.

3 CA Decision, p. 14; rollo, p. 59.

4 Regional Trial Court of San Mateo, Rizal, Branch 75.

5 Written by Judge Cipriano D. Roma.

6 RTC Decision, pp. 6-7; rollo, pp. 43-44.

7 This case was deemed submitted for decision on January 6, 1999, upon receipt by this Court of
respondents' Memorandum. Petitioner's Memorandum was filed earlier.

8 See pp. 10-11; rollo, pp. 103-104.

9 Art. 1373, Civil Code.

10 Segura v. Segura, 165 SCRA 368, September 19, 1988.

11 Dawson v. Register of Deeds, GR No. 120600, September 22, 1998, per Panganiban, J.; Salazar v.
Court of Appeals, 258 SCRA 317, July 5, 1996; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 46
SCRA 381, August 18, 1972; Pingol v. Court of Appeals, 226 SCRA 118, September 6, 1993.

12 Respondents' Memorandum, p. 11; rollo, p. 123.

13 The provision reads:

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss
of those already acquired, shall depend upon the happening of the event which constitutes the
condition.

14 Arturo Tolentino, Civil Code of the Philippines, Vol. IV, p. 144; citing Brugi, p. 108; 1 Rugigiero
289; 1 Colin & Capitant 194.

15 Ruperto v. Kosea, 26 Phil 227, December 4, 1913, per Torres, J.

16 Wise & Co. v. Kelly, 37 Phil 696, February 21, 1918, per Fisher J.; PNB v. Philippine Trust Co., 68
Phil 48, May 12, 1939, per Diaz, J.; Roque v. Lapuz, 96 SCRA 741.
17 Rose Packing Company, Inc. v. Court of Appeals, 167 SCRA 309, November 14, 1988, per Paras, J.;
Gaite v. Fonacier, 2 SCRA 831.

18 Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 46 SCRA 381, August 18, 1972, per Reyes,
J.B.L., J.

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FIRST DIVISION

G.R. No. 119255 April 9, 2003

TOMAS K. CHUA, petitioner,

vs.

COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.

CARPIO, J.:
The Case

This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in an
action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua ("Chua")
against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-Choy to
consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the
decision4 rendered by the trial court in favor of Chua.

The Facts

Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718 square
meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. The
Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds of
Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings,
Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash.

On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt")
evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:

30 June 1989

RECEIPT

RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at 40
Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).

The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 155
July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July 1989
forfeits the earnest money. This provided that all papers are in proper order.6
CONFORME:

ENCARNACION VALDES

Seller

TOMAS K. CHUA

Buyer

x x x.7

In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a manager's
check for P480,000.00. Strangely, after securing the manager's check, Chua immediately gave PBCom a
verbal stop payment order claiming that this manager's check for P480,000.00 "was lost and/or
misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant Vice–President Julie
C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment order.

In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute
the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as vendee
signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the house and lot for
the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and
movable properties contained in the house for the purchase price of P2,800,000.00.12 The parties also
computed the capital gains tax to amount to P485,000.00.

On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to Valdes-
Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax as she
did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED
EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property
located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq.
meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila.

The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND
PESOS only, broken down as follows:

SELLING PRICE

P10,800,000.00

EARNEST MONEY

P100,000.00

PARTIAL PAYMENT

485,000.00
 585,000.00

BALANCE DUE TO

ENCARNACION VALDEZ-CHOY

P10,215,000.00

PLUS P80,000.00 for documentary stamps paid in advance by seller

80,000.00

P10,295,000.00

x x x.13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00
manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank
manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital gains
tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the Traders Royal
Bank check to the counsel who undertook to pay the capital gains tax. It was then also that Chua showed
to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the balance of the purchase
price. Chua, however, did not give this PBCom manager's check to Valdes-Choy because the TCT was still
registered in the name of Valdes-Choy. Chua required that the Property be registered first in his name
before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of
Sale, claiming that what Chua required was not part of their agreement.14

On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an
affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe,
however, testified that the manager's check was nevertheless honored because Chua subsequently
verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement"
with the bank.16

On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy
suggested to her counsel that to break the impasse Chua should deposit in escrow the P10,215,000.00
balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new TCT in the name
of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the
only way she could protect herself if the certificate of title is transferred in the name of the buyer before
she is fully paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but
nothing came out of it.

On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial
court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific
performance with damages. After trial in due course, the trial court rendered judgment in favor of Chua,
the dispositive portion of which reads:

Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific
performance where the plaintiff, as vendee, wants to pursue the sale, and in order that the fears of the
defendant may be allayed and still have the sale materialize, judgment is hereby rendered:

I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this
decision:

a. the owner's duplicate copy of TCT No. 162955 registered in her name;

b. the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes;
c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in
favor of the plaintiff, whether notarized or not; and

2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to
the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the
consideration (with the sum of P80,000.00 for stamps already included);

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

a. to make representations with the BIR for the payment of capital gains tax for the sale of the house and
lot (not to include the fixtures) and to pay the same from the funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the owner's duplicate copy
of TCT No. 162955, real estate tax receipt and proof of payment of capital gains tax, to the Makati
Register of Deeds;

c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed
update the real estate taxes all to be taken from the funds deposited with her; and

d. surrender to the plaintiff the new Torrens title over the property;

4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and the
fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court
of this Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for
and in behalf of the defendant;

5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and

b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation.

6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the
funds said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above;

7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following
amounts:

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title;
and

c. the amounts paid under this judgment to the plaintiff.

8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with the
furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;

9. No interest is imposed on the payment to be made by the plaintiff because he had always been ready
to pay the balance and the premises had been used or occupied by the defendant for the duration of this
case.

II. In the event that specific performance cannot be done for reasons or causes not attributable to the
plaintiff, judgment is hereby rendered ordering the defendant:

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate
from June 30, 1989 until fully paid;
2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until
fully paid;

3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional
sum of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost of
litigation.

SO ORDERED.18

Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court
of Appeals handed down a new judgment, disposing as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is
rendered:

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendant-
appellant;

(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee

without interest;

(4) Dismissing defendant-appellant's compulsory counter-claim; and

(5) Ordering the plaintiff-appellee to pay the costs.19

Hence, the instant petition.

The Trial Court's Ruling

The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid
the full consideration before a new TCT covering the Property is issued in the name of Chua. On the
other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his
name. The trial court faulted Valdes-Choy for this impasse.

The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the
Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was
subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July
1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in
proper order" before full payment is made.

The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was
prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of
15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom
two manager's checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the
capital gains tax. The second check for P10,215,000.00 was to pay the balance of the purchase price. The
trial court was convinced that Chua demonstrated his capacity and readiness to pay the balance on 13
July 1989 with the production of the PBCom manager's check for P10,215,000.00.

On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation
under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the
capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the tax did
not do so. The trial court declared that Valdes-Choy was in a position to deliver only the owner's
duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt.
The trial court concluded that these documents were all useless without the Bureau of Internal Revenue
receipt evidencing full payment of the capital gains tax which is a pre-requisite to the issuance of a new
certificate of title in Chua's name.
The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was
due to Valdes-Choy's fault.

The Court of Appeals' Ruling

In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration
only after the Property is registered in his name was not the agreement of the parties. The Court of
Appeals noted that there is a whale of difference between the phrases "all papers are in proper order" as
written on the Receipt, and "transfer of title" as demanded by Chua.

Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order
and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to
deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. The Property was also free from all liens and encumbrances.

The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-Choy of
the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay on or
before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the check
unless "the property was already in his name."20 Although Chua demonstrated his capacity to pay, this
could not be equated with actual payment which he refused to do.

The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy
to put the papers "in proper order." The Court of Appeals explained that the payment of the capital gains
tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are signed and notarized
can the final computation and payment of the capital gains tax be made.

The Issues

In his Memorandum, Chua raises the following issues:

1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;

2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT OBSERVING THE
PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;

3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON THE PART
OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS
GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;

4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE THE
"EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;

5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY DESERVING
OF BEING REINSTATED AND AFFIRMED.21

The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a
perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy to
cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.

The Court's Ruling

The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her
name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing to
deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and
the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received PBCom
Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise, there is no controversy that
the Receipt for the P100,000.00 earnest money embodied the terms of the binding contract between
Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the
following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital
gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on
or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers
are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom manager's check for
P485,000.00 to pay the capital gains tax.

Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to
Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom manager's
check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give this check to
Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or, as the trial court put
it, until there is proof of payment of the capital gains tax which is a pre-requisite to the issuance of a new
certificate of title.

First and Second Issues: Contract of Sale or Contract to Sell?

Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a
contract to sell and not a contract of sale. This has been Chua's persistent contention in his pleadings
before the trial and appellate courts.

Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell.
He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain title to
the Property until after the sale. There was no agreement for an automatic rescission of the contract in
case of Chua's default. He argues for the first time that his payment of earnest money and its acceptance
by Valdes-Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua
claims that Valdes-Choy may not validly rescind the contract of sale without following Article 159222 of
the Civil Code which requires demand, either judicially or by notarial act, before rescission may take
place.

Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court
below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play,
justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the case is
tried and decided on that theory in the court below, the party will not be permitted to change his theory
on appeal. To permit him to change his theory will be unfair to the adverse party.24
Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua
and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The
distinction between a contract of sale and contract to sell is well-settled:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective.25

A perusal of the Receipt shows that the true agreement between the parties was a contract to sell.
Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.

First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the
balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the Property
to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push through
with the sale upon Chua's failure to remit the balance of the purchase price before the deadline. This is
in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price.
This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer
fails to pay within a fixed period.26

Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed
of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when
Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price.
The absence of a formal deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment of the purchase price.27

Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the
sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also refused
to turn-over to Chua these documents.28 These are additional proof that the agreement did not transfer
to Chua, either by actual or constructive delivery, ownership of the Property.29

It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a
contract of sale, it shall be considered as part of the price and proof of the perfection of the contract."
However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money
was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest
money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the
balance of the purchase price. The earnest money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should
have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to
walk away from the transaction, with no obligation to pay the balance, although he will forfeit the
earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell,
and thus Article 1482, which speaks of a contract of sale, is not applicable.

Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the
purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the
obligation to sell from arising and ownership is retained by the seller without further remedies by the
buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been made upon him either judicially or by
notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the
ownership until full payment of the price.31

Third and Fourth Issues: Withholding of Payment of the

Balance of the Purchase Price and Forfeiture of the Earnest Money

Chua insists that he was ready to pay the balance of the purchase price but withheld payment because
Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order." Specifically,
Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid after he had
advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit
the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase "all papers are in proper order" as written in the
Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy has
the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.

The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of
Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote verbatim
the ruling of the Court of Appeals on this matter:

The trial court made much fuss in connection with the payment of the capital gains tax, of which Section
33 of the National Internal Revenue Code of 1977, is the governing provision insofar as its computation is
concerned. The trial court failed to consider Section 34-(a) of the said Code, the last sentence of which
provides, that "[t]he amount realized from the sale or other disposition of property shall be the sum of
money received plus the fair market value of the property (other than money) received;" and that the
computation of the capital gains tax can only be finally assessed by the Commission on Internal Revenue
upon the presentation of the Deeds of Absolute Sale themselves, without which any premature
computation of the capital gains tax becomes of no moment. At any rate, the computation and payment
of the capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale in
question are concerned, because it is only after the contracts of sale are finally executed in due form and
have been duly notarized that the final computation of the capital gains tax can follow as a matter of
course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00,
which is considered as part of the consideration of the sale, was deposited in the name of appellant,
from which she in turn, purchased the corresponding check in the amount representing the sum to be
paid for capital gains tax and drawn in the name of the Commissioner of Internal Revenue, which then
allayed any fear or doubt that that amount would not be paid to the Government after all.32

We see no reason to disturb the ruling of the Court of Appeals.

In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of
the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price
by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the
ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.

x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the
buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of
sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is
in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the
execution of the contract of sale, in the absence of a contrary stipulation.

In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as
follows:

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing
which is the object of the sale. (Emphasis supplied)

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real
property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. There is a difference between transfer of the certificate
of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the
owner of the real property even if the certificate of title is still registered in the name of the seller. As
between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in
the name of the buyer but by the execution of the instrument of sale in a public document.

In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law
commentator Arturo M. Tolentino explains it, -

Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring
dominion and determines the transmission of ownership, the birth of the real right. The delivery,
therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place. The delivery of the thing constitutes an indispensable
requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of
property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x
x x.33 (Emphasis supplied)

In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a
public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of
the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that
–

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred.

x x x.

Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of
absolute sale before a notary public, the seller is in a position to transfer ownership of the real property
to the buyer. At this point, the seller complies with his undertaking to sell the real property in
accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of
sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to
transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate
of title in the name of the buyer. However, the seller must put all his papers in proper order to the point
that he is in a position to transfer ownership of the real property to the buyer upon the signing of the
contract of sale.

In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the
contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the presence of
the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to the buyer, along
with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able
and willing to transfer ownership of the Property to the buyer as required by the contract to sell, and by
Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the
purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt. Thus, at
this point Chua was not ready, able and willing to pay the full purchase price which is his obligation
under the contract to sell. Chua was also not in a position to assume the principal obligation of a vendee
in a contract of sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the
Civil Code provides that –

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and
place stipulated in the contract.

x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or
before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the
purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows:

Deed of Absolute Sale covering the lot:

xxx

For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,
receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said parcel of land,
together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis
supplied)

Deed of Absolute Sale covering the furnishings:

xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS
(P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR
from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and
assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and
encumbrances.35 (Emphasis supplied)

However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the
contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was therefore in
default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order."
Article 1376 of the Civil Code provides that:

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer
of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens
title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer
can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can
pay the tax, depending on the agreement of the parties.

The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite
to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned,
the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of
the real estate. Payment of the capital gains tax, however, is not a pre-requisite to the transfer of
ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the
deed of absolute sale.

The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in
the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As
between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public
instrument conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the
issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or
issuance of a new certificate of title is not one of the modes of acquiring ownership.40

In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily
would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition
that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing
94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in
the contract to sell as evidenced by the Receipt, cannot be considered part of the "omissions of
stipulations which are ordinarily established" by usage or custom.41 What is increasingly becoming
customary is to deposit in escrow the balance of the purchase price pending the issuance of a new
certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it
drew no response from Chua.

Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the owner's
duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt.
There was no hindrance to paying the capital gains tax as Chua himself had advanced the money to pay
the same and Valdes-Choy had procured a manager's check payable to the Bureau of Internal Revenue
covering the amount. It was only a matter of time before the capital gains tax would be paid. Chua acted
precipitately in filing the action for specific performance a mere two days after the deadline of 15 July
1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did not
waste any time in re-filing the same on 29 November 1989.

Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive
condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the
Civil Code provides that -

ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired shall depend upon the happening of the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the
suspensive condition - the full payment of the purchase price - did not happen. There is no correlative
obligation on the part of Valdes-Choy to transfer ownership of the Property to Chua. There is also no
obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since
unless expressly stipulated, this is not one of the obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is
AFFIRMED in toto.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

1 In CA-G.R. CV No. 37652, dated 23 February 1995, penned by Associate Justice Artemon D. Luna with
Associate Justices Cancio C. Garcia and Godardo A. Jacinto concurring.

2 Civil Case No. 89-5772.

3 Branch 142, Makati, National Capital Judicial Region, presided by Judge Salvador P. De Guzman, Jr.

4 Dated 29 August 1991.

5 The typewritten figure "30" was corrected in ink to "15".

6 The italicized portions were also handwritten in ink and initialed by Chua.

7 Annex "A," Records, p. 7.

8 TSN, 24 July 1990, pp. 20-28.

9 Exhibit "8," Records, p. 140.

10 TSN, 25 January 1990, p. 87.

11 Exhibit "B," Records, pp. 107-109.

12 Exhibit "C," Records, pp. 110-112.

13 Records, p. 73.

14 TSN, 25 January 1990, p. 226.

15 Exhibit "9," Records, p. 141.

16 TSN, 24 July 1989, p. 37.

17 TSN, 5 February 1990, pp. 37-38.

18 Rollo, pp. 71-72.

19 Ibid., p. 62.

20 Rollo, p. 60.
21 Ibid., p. 203.

22 Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court may
not grant him a new term.

23 Rivera v. Court of Appeals, G.R. No. 44111, 10 August 1989, 176 SCRA 169.

24 FMIC v. Court of Appeals, G.R. No. 85141, 28 November 1989, 179 SCRA 638.

25 Salazar v. Court of Appeals, G.R. No. 118203, 5 July 1996, 258 SCRA 317.

26 Philippine National Bank v. Court of Appeals, G.R. No. 119580, 26 September 1996, 262 SCRA 464.

27 Alfonso v. Court of Appeals, G.R. No. 63745, 8 June 1990, 186 SCRA 400.

28 TSN, 5 February 1990, pp. 33-34.

29 Salazar v. Court of Appeals, supra, see note 25.

30 Roque v. Lapuz, G.R. No. L-32811, 31 March 1980, 96 SCRA 741.

31 Alfonso v. Court of Appeals, supra, see note 27.

32 Rollo, pp. 60-61.

33 ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES, VOL. V, p. 51 (1992).

34 Exhibit "B," Records, pp. 51-53.

35 Exhibit "C," Records, pp. 54-54-(A).

36 Section 53 of PD No. 1529 provides:

Section 53. Presentation of owner's duplicate upon entry of new certificate. — No voluntary instrument
shall be registered by the Register of Deeds, unless the owner's duplicate certificate is presented with
such instrument, except in cases expressly provided for in this Decree or upon order of the court, for
cause shown.

The production of the owner's duplicate certificate, whenever any voluntary instrument is presented for
registration, shall be conclusive authority from the registered owner to the Register of Deeds to enter a
new certificate or to make a memorandum of registration in accordance with such instrument, and the
new certificate or memorandum shall be binding upon the registered owner and upon all persons
claiming under him, in favor of every purchaser for value and in good faith.

x x x.

37 Garcia v. Court of Appeals, G.R. Nos. L-48971 and 49011, 22 January 1980, 95 SCRA 380.

38 Sections 51 and 52, Property Registration Decree (PD No.1529).

39 Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et al. v. De Suazo, 124 Phil.1138 (1966); Philippine
Suburban Development Corp. v. Auditor General, G.R. No. L-19545, 18 April 1975, 63 SCRA 397.
40 Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11 November 1987, 155 SCRA 506.

41 Mirasol v. Yusay, et al., 120 Phil. 407 (1964).

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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.

Quiason and Kapunan, JJ., concur.

Separate Opinions
DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the
conditions imposed by the donor on the donee which created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.

First of all, may I point out an inconsistency in the majority opinion's description of the donation in
question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:

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., give 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 . . . . (emphasis
supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent
portion thereof reads:

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 interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to

speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used in the law of obligations. In his annotation of
Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term
"conditions" is used in the law of donations, to wit:

The word "conditions" in this article does not refer to uncertain events on which the birth or
extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges
imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are
referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and
which would characterize the donation as onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor
imposes a prestation upon the donee. The establishment of the medical college as the condition of the
donation in the present case is one such prestation.

The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation — to
build the medical college and use the property for the purposes specified in the deed of donation. It is
very clear that those obligations are unconditional, the fulfillment, performance, existence or
extinguishment of which is not dependent on any future or uncertain event or past and unknown event,
as the Civil Code would define a conditional obligation.2

Reliance on the case of Parks vs. Province of Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to
the present case. A more careful reading of this Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to
build a school and a public park upon the property donated, is a resolutory condition.4 It is incorrect to
say that the "conditions" of the donation there or in the present case are resolutory conditions because,
applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the
rights already acquired will be extinguished. Obviously, that could not have been the intention of the
parties.

What the majority opinion probably had in mind was that the conditions are resolutory because if they
are not complied with, the rights of the donee as such will be extinguished and the donation will be
revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory
conditions but, for the reasons stated above, are the obligations imposed by the donor.

Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based
on our previous ruling which, although made almost 90 years ago, still finds application in the present
case. In Barretto vs. City of Manila,5 we said that when the contract of donation, as the one involved
therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now
Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present
donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not
have intended his property to remain idle for a long period of time when in fact, he specifically burdened
the donee with the obligation to set up a medical college therein and thus put his property to good use.
There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.

It is also important to fix the duration or period for the performance of the conditions/obligations in the
donation in resolving the petitioner's claim that prescription has already barred the present action. I
disagree once more with the ruling of the majority that the action of the petitioners is not barred by the
statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmeña
vs. Rama.6 That case does not speak of a deed of donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a
condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the
fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for
a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present
donation may be dependent on the will of the donee as to when it will comply therewith, this did not
arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to
and does not have absolute control over the time within which it will perform its obligations. It must still
do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to
determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are
to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the
action to revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmeña, being one involving a contract, may apply. But we must
not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to
resolve situations such as this. That the action to revoke the donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in
this case. There, this Court said,

[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal
provision which excludes this class of action from the statute of limitations. And not only this, the law
itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special
period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and
. . . by reason of ingratitude. If no special period is provided for the prescription of the action for
revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in
this respect the donation is considered onerous and is governed by the law of contracts and the general
rules of prescription.7

More recently, in De Luna v. Abrigo,8 this Court reiterated the ruling in Parks and said that:

It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be
brought within four (4) years from the non-compliance of the conditions of the donation. However, it is
Our opinion that said article does not apply to onerous donations in view of the specific provision of
Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the rules
on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written
contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the
time the cause of action accrues, and that is, from the expiration of the time within which the donee
must comply with the conditions/obligations of the donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed upon them by Article 1197.

For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals
must be upheld, except its ruling that the conditions of the donation are resolutory.

Padilla, J., dissents

Separate Opinions

DAVIDE, JR., J., dissenting:

I agree with the view in the majority opinion that the donation in question is onerous considering the
conditions imposed by the donor on the donee which created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.

First of all, may I point out an inconsistency in the majority opinion's description of the donation in
question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states:

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., give 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 . . . . (emphasis
supplied)

Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent
portion thereof reads:

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 interest . . . (emphasis supplied)

Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to

speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used in the law of obligations. In his annotation of
Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term
"conditions" is used in the law of donations, to wit:

The word "conditions" in this article does not refer to uncertain events on which the birth or
extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges
imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are
referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and
which would characterize the donation as onerous. In the present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor
imposes a prestation upon the donee. The establishment of the medical college as the condition of the
donation in the present case is one such prestation.

The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation — to
build the medical college and use the property for the purposes specified in the deed of donation. It is
very clear that those obligations are unconditional, the fulfillment, performance, existence or
extinguishment of which is not dependent on any future or uncertain event or past and unknown event,
as the Civil Code would define a conditional obligation.2

Reliance on the case of Parks vs. Province of Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to
the present case. A more careful reading of this Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to
build a school and a public park upon the property donated, is a resolutory condition.4 It is incorrect to
say that the "conditions" of the donation there or in the present case are resolutory conditions because,
applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the
rights already acquired will be extinguished. Obviously, that could not have been the intention of the
parties.

What the majority opinion probably had in mind was that the conditions are resolutory because if they
are not complied with, the rights of the donee as such will be extinguished and the donation will be
revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory
conditions but, for the reasons stated above, are the obligations imposed by the donor.

Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based
on our previous ruling which, although made almost 90 years ago, still finds application in the present
case. In Barretto vs. City of Manila,5 we said that when the contract of donation, as the one involved
therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now
Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present
donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not
have intended his property to remain idle for a long period of time when in fact, he specifically burdened
the donee with the obligation to set up a medical college therein and thus put his property to good use.
There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled.

It is also important to fix the duration or period for the performance of the conditions/obligations in the
donation in resolving the petitioner's claim that prescription has already barred the present action. I
disagree once more with the ruling of the majority that the action of the petitioners is not barred by the
statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmeña
vs. Rama.6 That case does not speak of a deed of donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a
condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the
fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for
a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present
donation may be dependent on the will of the donee as to when it will comply therewith, this did not
arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to
and does not have absolute control over the time within which it will perform its obligations. It must still
do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to
determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are
to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the
action to revoke the donation becomes imprescriptible.

Admittedly, the donation now in question is an onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmeña, being one involving a contract, may apply. But we must
not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to
resolve situations such as this. That the action to revoke the donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in
this case. There, this Court said,

[that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal
provision which excludes this class of action from the statute of limitations. And not only this, the law
itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special
period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and
. . . by reason of ingratitude. If no special period is provided for the prescription of the action for
revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in
this respect the donation is considered onerous and is governed by the law of contracts and the general
rules of prescription.7

More recently, in De Luna v. Abrigo,8 this Court reiterated the ruling in Parks and said that:

It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be
brought within four (4) years from the non-compliance of the conditions of the donation. However, it is
Our opinion that said article does not apply to onerous donations in view of the specific provision of
Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the rules
on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written
contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the
time the cause of action accrues, and that is, from the expiration of the time within which the donee
must comply with the conditions/obligations of the donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed upon them by Article 1197.

For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals
must be upheld, except its ruling that the conditions of the donation are resolutory.

Padilla, J., dissents

Footnotes

1 Rollo, p. 23.

2 Rollo, p. 8.
3 City of Manila v. Rizal Park Co., 53 Phil. 515 (1929).

4 Parks v. Province of Tarlac, 49 Phil. 142 (1926).

5 Ibid.

6 Osmeña v. Rama, 14 Phil. 99 (1909).

7 Arturo M. Tolentino, The Civil Code of the Philippines, 1986 Ed., Vol. IV, p. 42.

8 Concepcion v. People, 74 Phil. 63 (1942).

9 Tiglao v. Manila Railroad Co., 52 O.G., p. 179.

10 Art. 1378, Civil Code.

DAVIDE, JR. J., dissenting:

1 ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines
535, vol. 2 [1983].

2 Article 1179.

3 49 Phil. 142 [1926].

4 Id. at 145-146.

5 7 Phil. 416 [1907].

6 14 Phil. 99 [1909].

7 Parks vs. Province of Tarlac, supra note 3, at 146.

8 181 SCRA 150 [1990].

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