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February 12, 1913
G.R. No. 7859
VICTORIA SEOANE, administratrix of The Intestate Estate of Eduardo Fargas, plaintiff-appellee,
vs.
CATALINA FRANCO, administratrix of The Intestate Estate of Manuel Franco, defendant-appellant.
Ramon Salinas, for appellant.
Gibbs, McDonough and Blanco, for appellee.
MORELAND, J.:
This is an appeal from a judgment of the Court of First Instance of Zamboanga in favor of the plaintiff,
holding that the right of action upon the mortgage debt which was the basis of the claim presented
against the plaintiff's estate had prescribed.
The mortgage in question was executed on the 13th of October, 1884, to secure the payment of the sum
of P4,876.01, the mortgagor agreeing to pay the sum "little by little." The claim appears to have been
presented to the plaintiff's intestate on the 8th of August, 1911. Nothing has been paid either of
principal or of interest.
We are of the opinion that this case falls within the provisions of article 1128 of the Civil Code, which
reads as follows:
1128. When the obligation does not fix a term, but it can be inferred from its nature and circumstance
that there was an intention of granting it to the debtor, the courts shall fix the duration of such a term.
The courts shall also fix the duration of a term when it may have been left at the will of the debtor.
The obligation in question seems to leave the duration of the period for the payment thereof to the will
of the debtor. It appears also that it was the intention of the instrument to give the debtor time within
which to pay the obligation. In such cases this court has held, on several occasions, that the obligation
is not due and payable until an action has been commenced by the mortgagee against the mortgagor for
the purpose of having the court fix the date on and after which the instrument shall be payable and the
date of maturity is fixed in pursuance thereof. The case of Eleizegui vs. The Manila Lawn Tennis Club
(2 Phil. Rep., 309), in which the opinion was written by the Chief Justice of the court, is the leading
case upon the subject. In that case the question was over the duration of a lease concerning "a piece of
land for a fixed consideration and to endure at the will of the lessee." In discussing the question the
court said (p. 310):
With respect to the term of the lease the present question has arisen. In its discussion three theories
have been presented: One which makes the duration depend upon the will of the lessor, who, upon one
month's notice given to the lessee, may terminate the lease so stipulated; another which, on the
contrary, makes it dependent upon the will of the lessee, as stipulated; and the third, in accordance with
which the right is reserved to the court to fix the duration of the term.

The clause on which the case turns is as follows (p. 312):

Mr. Williamson, or whoever may succeed him as secretary of the club, may terminate this lease
whenever desired without other formality than that of giving a month's notice. The owners of the land
undertake to maintain the club as tenant as long as the latter shall see fit.
Considering the case the court said (314):
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of
obligations with a term it has supplied the deficiency of the former law with respect to the "duration of
the term when it has been left to the will of the debtor," and provides that in this case the term shall be
fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is
always a creditor who is entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting parties are mutually
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the rights
enumerated in article 1554, and is the debtor with respect to the obligations imposed by articles 1555
and 1561. The term within which performance of the latter obligation is due is what has been left to the
will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that bywhich it is sought to
be obtain from the judge the determination of this period, and not the unlawful detainer action which
has been brought an action which presupposes the expiration of the term and makes it the duty of
the judge to simply the decree the eviction. To maintain the latter action it is sufficient to show the
expiration of the term of the contract, whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look into the character and conditions of the
mutual undertakings with a view to supplying the lacking element of a time at which the lease is to
expire.
The case of Barreto vs. The City of Manila (7 Phil. Rep., 416) dealt with a case where the terms of a
donation did not fix the time of the performance of the condition placed upon the donation, and the
court held that the period must be determined by the court in a proper action in accordance with article
1128 of the Civil Code, saying (p. 420):
The contract having fixed no period in which the condition should be fulfilled, the provisions of article
1128 of the Civil Code are applicable and it is the duty of the court to fix a suitable time for its
fulfillment. Eleizegui vs. The Manila Lawn Tennis Club, 2 Phil. Rep., 309. (11 Phil. Rep., 624.[[1]])
In the case of Levy Hermanos vs. Paterno (18 Phil. Rep., 353) the court said (p. 355):
The defendant having bound himself to pay his debt to the plaintiffs in partial payments, as set forth in
the note in question, it is seen that the obligation is one of payment by installments, since its fulfillment
cannot be required immediately nor does its existence depend upon the happening of any particular
event. But, thought the obligation is one of payment by installments, nevertheless no fixed day was
specified for its fulfillment, so that the period for payment is undetermined or was not fixed by the
parties when they executed the contract. Besides, it is evident that the term for payment was granted for
the exclusive benefit of the defendant and for his own convenience, as by the language of the
document, the plaintiffs gained nothing by the fact that the debt was not immediately demandable. Nor
was any interest stipulated on the debt during the time that it should remain unpaid by the defendant.
For the foregoing reasons, and in whatever manner this case be considered, it is unquestionable that it

falls within the provisions of article 1128 of the Civil Code. . . .

The obligation being manifestly defective with regard to the duration of the period granted to the
debtor, that is, to the defendant, that defect must be cured by the courts through judicial decision which
shall determine the said duration, under the power expressly granted them for such purpose by the legal
provisions just above transcribed.
The trial court, therefore, acted in accordance with the law in exercising the said power in the present
case, by fixing the duration of the period on the basis that the payment of the debt should be made at
the rate of P200 a month; and we see no abuse of judicial discretion of fixing such a rate, considering
the importance of the obligation and the absence of any stipulation of interest in favor of the creditors.
From these decisions it is clear that the instrument sued upon in the case at bar is one which leaves the
period of payment at the will of the mortgagor. Such being the case, an action should have been
brought for the purpose of having the court set a date on which the instrument should become due and
payable. Until such action was prosecuted no suit could be brought for the recovery of the amount
named in the instrument. It is, therefore, clear that this action is premature. The instrument has been
sued upon before it is due. The action must accordingly be dismissed.
Ordinarily when an action of this sort is dismissed the plaintiff may at once begin his action for the
purpose of fixing a date upon which the instrument shall become due. From the undisputed facts in this
case and from the facts and conditions that very probably cannot be charged hereafter, it is our present
opinion that such action is itself prescribed. Section 38 of the Code of Civil Procedure reads as follows:
SEC. 38. To what this chapter does not apply. This chapter shall not apply to actions already
commenced, or to cases wherein the right of action has already accrued; but the statutes in force when
the action or right of action accrued shall be applicable to such cases according to the subject of the
action and without regard to the form; nor shall this chapter apply in the case of a continuing and
subsisting trust, nor to an action by the vendee of real property in possession thereof to obtain the
conveyance of it: Provided, nevertheless, That all rights of action which have already accrued, except
those named in the last preceding paragraph, must be vindicated by the commencement of an action or
proceeding to enforce the same within ten years after this Act comes into effect.
This section evidently covers all rights of action of whatever kind or nature, except those which have
special limitations and are referred to in subsequent sections. A right of action to fix a day for the
determination of the time of payment is included within the terms of this section. The mortgage in
question having left the period of payment to the will of the mortgagor, an action could have been
maintained by the mortgagee at any time after its execution for the naming of a date on which the
instrument must be paid in full. The right of action accrued as soon as the instrument was executed.
Such action, therefore, falls within the provisions of section 38, and not having been commenced
within the ten years next following the 1st day of October, 1901, such action cannot, under the facts as
they now appear, be maintained.
While the expression of an opinion as to the prescription of the action to fix a date for the maturity of
the obligation in question is unnecessary for a complete resolution of the case before us, still we do not
hesitate to express that opinion for the reasons which we have heretofore given in one or two cases,
particularly that of Lichauco vs. Limjuco (19 Phil. Rep., 12). That case went off upon the finding of the
court that the action could not be maintained by the plaintiff, Lichauco, on behalf of his brothers and
sisters and upon that finding the complaint was dismissed. While the merits in that case were not

necessarily before us, we nevertheless took up the facts as they appeared and expressed our opinion of
what the result of the case would be upon the merits if it subsequently came before us upon the same
facts. In that case we said (p. 17):
We believe, however, that, for the information of the parties interested in the subject matter of this
action and to the end that unnecessary litigation may be avoided, the opinion of the court should be
given upon the facts presented in this case. Knowing what our opinion is upon these facts it is probable
that the heirs will not care to pursue the litigation further unless, which is somewhat unlikely, they are
able to present new facts. We, therefore, proceed to a consideration of the case upon the merits as
presented by the record.
The judgment is affirmed, with the costs against the appellant. So ordered.
Arellano, C.J., Torres, Mapa, and Trent, JJ., concur.
http://www.lawphil.net/judjuris/juri1926/jul1926/gr_l-24190_1926.html
G.R. No. L-24190

July 13, 1926

GEORGE L. PARKS, plaintiff-appellant,

vs.
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES
HILL, her husband, defendants-appellees.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.
AVANCEA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred to
in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain
conditions specified in the public document in which they made this donation. The donation was
accepted by Mr. Santiago de Jesus in the same document on behalf of the municipal council of Tarlac
of which he was the municipal president. The parcel thus donated was later registered in the name of
the donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this
parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac
transferred the parcel to the Province of Tarlac which, by reason of this transfer, applied for and
obtained the registration thereof in its name, the corresponding certificate of title having been issued to
it.
The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied with
and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his favor,
brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and
James Hill and prayed that he be declared the absolute owner entitled to the possession of this parcel,
that the transfer of the same by the municipality of Tarlac to the Province of Tarlac be annulled, and the
transfer certificate issued to the Province of Tarlac cancelled.
The lower court dismissed the complaint.

The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by
Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot have any effect.
This parcel having been donated by Concepcion Cirer and James Hill to the municipality of Tarlac,
which donation was accepted by the latter, the title to the property was transferred to the municipality
of Tarlac. It is true that the donation might have been revoked for the causes, if any, provided by the
law, but the fact is that it was not revoked when Concepcion Cirer and James Hill made the sale of this
parcel to the plaintiff. Even supposing that causes existed for the revocation of this donation, still, it
was necessary, in order to consider it revoked, either that the revocation had been consented to by the
donee, the municipality of Tarlac, or that it had been judicially decreed. None of these circumstances
existed when Concepcion Cirer and James Hill sold this parcel to the plaintiff. Consequently, when the
sale was made Concepcion Cirer and James Hill were no longer the owners of this parcel and could not
have sold it to the plaintiff, nor could the latter have acquired it from them.
But the appellant contends that a condition precedent having been imposed in the donation and the
same not having been complied with, the donation never became effective. We find no merit in this
contention. The appellant refers to the condition imposed that one of the parcels donated was to be used
absolutely and exclusively for the erection of a central school and the other for a public park, the work
to commence in both cases within the period of six months from the date of the ratification by the
partes of the document evidencing the donation. It is true that this condition has not been complied
with. The allegation, however, that it is a condition precedent is erroneous. The characteristic of a
condition precedent is that the acquisition of the right is not effected while said condition is not
complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an
expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be
effected except when the right is deemed acquired, such condition cannot be a condition precedent. In
the present case the condition that a public school be erected and a public park made of the donated
land, work on the same to commence within six months from the date of the ratification of the donation
by the parties, could not be complied with except after giving effect to the donation. The donee could
not do any work on the donated land if the donation had not really been effected, because it would be
an invasion of another's title, for the land would have continued to belong to the donor so long as the
condition imposed was not complied with.
The appellant also contends that, in any event, the condition not having been complied with, even
supposing that it was not a condition precedent but subsequent, the non-compliance thereof is sufficient
cause for the revocation of the donation. This is correct. But the period for bringing an action for the
revocation of the donation has prescribed. That this action 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 five years for the revocation by the subsequent birth of children (art. 646, Civil
Code), and one year for the revocation 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,
Civil Code), 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. Under the law in force (sec. 43, Code of Civ. Proc.)
the period of prescription of this class of action is ten years. The action for the revocation of the
donation for this cause arose on April 19, 1911, that is six months after the ratification of the instrument
of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than
ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the appellant.

So ordered.
Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
http://www.lawphil.net/judjuris/juri1990/mar1990/gr_l_48194_1990.html
G.R. No. L-48194

March 15, 1990

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

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

REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No. 52296R, dated March 6, 1978, 1 the dispositive portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby set aside and another one entered ordering the
defendants-appellees, jointly and solidarily, to pay plaintiff-appellant the sum of P79,338.15 with legal
interest thereon from the filing of the complaint, plus attorney's fees in the amount of P8,000.00. Costs
against defendants-appellees. 2
As found by respondent court or disclosed by the records, 3 this case was generated by the following
antecedent facts.
Private respondent is a holder of an ordinary timber license issued by the Bureau of Forestry covering
2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966 he executed a "Deed of
Assignment" 4 in favor of herein petitioners the material parts of which read as follows:
xxx

xxx

xxx

I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis Oriental, for and in
consideration of the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00),
Philippine Currency, do by these presents, ASSIGN, TRANSFER AND CONVEY, absolutely and
forever unto JOSE M. JAVIER and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of
2897 F.B. Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH CORPORATION in the
total amount of P120,000.00, payment of which shall be made in the following manner:
1.

Twenty thousand (P20,000.00) Pesos upon signing of this contract;

2.
The balance of P100,000.00 shall be paid P10,000.00 every shipment of export logs actually
produced from the forest concession of Timberwealth Corporation.

That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs. Jose M. Javier, as
soon as stock certificates are issued.
xxx

xxx

xxx

At the time the said deed of assignment was executed, private respondent had a pending application,
dated October 21, 1965, for an additional forest concession covering an area of 2,000 hectares
southwest of and adjoining the area of the concession subject of the deed of assignment. Hence, on
February 28, 1966, private respondent and petitioners entered into another "Agreement" 5 with the
following stipulations:
xxx

xxx

xxx

1.
That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and convey
whatever rights he may acquire, absolutely and forever, to TIMBERWEALTH CORPORATION, a
corporation duly organized and existing under the laws of the Philippines, over a forest concession
which is now pending application and approval as additional area to his existing licensed area under
O.T. License No. 391-103166, situated at Medina, Misamis Oriental;
2.
That for and in consideration of the aforementioned transfer of rights over said additional area
to TIMBERWEALTH CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER, both directors
and stockholders of said corporation, do hereby undertake to pay LEONARDO TIRO, as soon as said
additional area is approved and transferred to TIMBERWEALTH CORPORATION the sum of
THIRTY THOUSAND PESOS (P30,000.00), which amount of money shall form part of their paid up
capital stock in TIMBERWEALTH CORPORATION;
3.
That this Agreement is subject to the approval of the members of the Board of Directors of the
TIMBERWEALTH CORPORATION.
xxx

xxx

xxx

On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest
concession was renewed up to May 12, 1967 under O.T.L. No. 391-51267, but since the concession
consisted of only 2,535 hectares, he was therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are hereby given until May 12, 1967 to
form an organization such as a cooperative, partnership or corporation with other adjoining licensees so
as to have a total holding area of not less than 20,000 hectares of contiguous and compact territory and
an aggregate allowable annual cut of not less than 25,000 cubic meters, otherwise, your license will not
be further renewed. 6
Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment
executed by private respondent in their favor, entered into a Forest Consolidation Agreement 7 on April
10, 1967 with other ordinary timber license holders in Misamis Oriental, namely, Vicente L. De Lara,
Jr., Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement, they all
agreed to pool together and merge their respective forest concessions into a working unit, as envisioned
by the aforementioned directives. This consolidation agreement was approved by the Director of
Forestry on May 10, 1967. 8 The working unit was subsequently incorporated as the North Mindanao
Timber Corporation, with the petitioners and the other signatories of the aforesaid Forest Consolidation

Agreement as incorporators. 9
On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of assignment,
private respondent filed an action against petitioners, based on the said contracts, for the payment of the
amount of P83,138.15 with interest at 6% per annum from April 10, 1967 until full payment, plus
P12,000.00 for attorney's fees and costs.
On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts but
interposing the special defense of nullity thereof since private respondent failed to comply with his
contractual obligations and, further, that the conditions for the enforceability of the obligations of the
parties failed to materialize. As a counterclaim, petitioners sought the return of P55,586.00 which
private respondent had received from them pursuant to an alleged management agreement, plus
attorney's fees and costs.
On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts in
this wise:
What were actually transferred and assigned to the defendants were plaintiff's rights and interest in a
logging concession described in the deed of assignment, attached to the complaint and marked as
Annex A, and agreement Annex E; that the "shares of stocks" referred to in paragraph II of the
complaint are terms used therein merely to designate or identify those rights and interests in said
logging concession. The defendants actually made use of or enjoyed not the "shares of stocks" but the
logging concession itself; that since the proposed Timberwealth Corporation was owned solely and
entirely by defendants, the personalities of the former and the latter are one and the same. Besides,
before the logging concession of the plaintiff or the latter's rights and interests therein were assigned or
transferred to defendants, they never became the property or assets of the Timberwealth Corporation
which is at most only an association of persons composed of the defendants. 10
and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a part
of the sum of P69,661.85 paid by the latter to the former in partial satisfaction of the latter's claim. 11
After trial, the lower court rendered judgment dismissing private respondent's complaint and ordering
him to pay petitioners the sum of P33,161.85 with legal interest at six percent per annum from the date
of the filing of the answer until complete payment. 12
As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which
reversed the decision of the court of a quo.
On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a motion
for reconsideration, for the reason that they needed to change counsel. 13 Respondent court, in its
resolution dated March 31, 1978, gave petitioners fifteen (15) days from March 28, 1978 within which
to file said motion for reconsideration, provided that the subject motion for extension was filed on time.
14 On April 11, 1978, petitioners filed their motion for reconsideration in the Court of Appeals. 15 On
April 21, 1978, private respondent filed a consolidated opposition to said motion for reconsideration on
the ground that the decision of respondent court had become final on March 27, 1978, hence the motion
for extension filed on March 28, 1978 was filed out of time and there was no more period to extend.
However, this was not acted upon by the Court of Appeals for the reason that on April 20, 1978, prior
to its receipt of said opposition, a resolution was issued denying petitioners' motion for reconsideration,
thus:

The motion for reconsideration filed on April 11, 1978 by counsel for defendants-appellees is denied.
They did not file any brief in this case. As a matter of fact this case was submitted for decision without
appellees' brief. In their said motion, they merely tried to refute the rationale of the Court in deciding to
reverse the appealed judgment. 16
Petitioners then sought relief in this Court in the present petition for review on certiorari. Private
respondent filed his comment, reiterating his stand that the decision of the Court of Appeals under
review is already final and executory.
Petitioners countered in their reply that their petition for review presents substantive and fundamental
questions of law that fully merit judicial determination, instead of being suppressed on technical and
insubstantial reasons. Moreover, the aforesaid one (1) day delay in the filing of their motion for
extension is excusable, considering that petitioners had to change their former counsel who failed to
file their brief in the appellate court, which substitution of counsel took place at a time when there were
many successive intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension can justifiably be excused,
considering that aside from the change of counsel, the last day for filing the said motion fell on a
holiday following another holiday, hence, under such circumstances, an outright dismissal of the
petition would be too harsh. Litigations should, as much as possible, be decided on their merits and not
on technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the
stringent application of technical rules in order to resolve the case on its merits. 17 Rules of procedure
are intended to promote, not to defeat, substantial justice and, therefore, they should not be applied in a
very rigid and technical sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central issue of whether the deed of assignment
dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the former for total
absence of consideration and the latter for non-fulfillment of the conditions stated therein.
Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as stated in the deed itself. Since said corporation never came
into existence, no share of stocks was ever transferred to them, hence the said deed is null and void for
lack of cause or consideration.
We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed was the
transfer of the forest concession of private respondent to petitioners for P120,000.00. This finding is
supported by the following considerations, viz:
1.
Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth
Corporation stated therein was non-existent. 18
2.
In their subsequent agreement, private respondent conveyed to petitioners his inchoate right
over a forest concession covering an additional area for his existing forest concession, which area he
had applied for, and his application was then pending in the Bureau of Forestry for approval.

3.
Petitioners, after the execution of the deed of assignment, assumed the operation of the logging
concessions of private respondent. 19
4.
The statement of advances to respondent prepared by petitioners stated: "P55,186.39 advances
to L.A. Tiro be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every
after (sic) shipment. We had only 2 shipments" 20
5.
Petitioners entered into a Forest Consolidation Agreement with other holders of forest
concessions on the strength of the questioned deed of assignment. 21
The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal that
the cause stated in the questioned deed of assignment is false. It is settled that the previous and
simultaneous and subsequent acts of the parties are properly cognizable indica of their true intention.
22 Where the parties to a contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in construing the contract,
determining its meaning and ascertaining the mutual intention of the parties at the time of contracting.
23 The parties' practical construction of their contract has been characterized as a clue or index to, or as
evidence of, their intention or meaning and as an important, significant, convincing, persuasive, or
influential factor in determining the proper construction of the agreement. 24
The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false
cause or consideration, or one where the parties conceal their true agreement. 25 A contract with a false
consideration is not null and void per se. 26 Under Article 1346 of the Civil Code, a relatively
simulated contract, when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the parties to their real
agreement.
The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in
ruling that
. . . In view of the analysis of the first and second assignment of errors, the defendants-appellees are
liable to the plaintiff-appellant for the sale and transfer in their favor of the latter's forest concessions.
Under the terms of the contract, the parties agreed on a consideration of P120,000.00. P20,000.00 of
which was paid, upon the signing of the contract and the balance of P100,000.00 to be paid at the rate
of P10,000.00 for every shipment of export logs actually produced from the forest concessions of the
appellant sold to the appellees. Since plaintiff-appellant's forest concessions were consolidated or
merged with those of the other timber license holders by appellees' voluntary act under the Forest
Consolidation Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3), then the
unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by the plaintiffappellant from the defendants-appellees) became due and demandable. 27
As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that they
cannot be held liable thereon. The efficacy of said deed of assignment is subject to the condition that
the application of private respondent for an additional area for forest concession be approved by the
Bureau of Forestry. Since private respondent did not obtain that approval, said deed produces no effect.
When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and
when the event which constitutes the condition happens or is fulfilled. 28 If the suspensive condition
does not take place, the parties would stand as if the conditional obligation had never existed. 29

The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the
obligation of private respondent to transfer his rights in the forest concession over the additional area
and, on the other hand, the obligation of petitioners to pay P30,000.00. The demandability of the
obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the
failure of private respondent to comply with his obligation negates his right to demand performance
from petitioners. Delivery and payment in a contract of sale, are so interrelated and intertwined with
each other that without delivery of the goods there is no corresponding obligation to pay. The two
complement each other. 30
Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a
mere hope or expectancy is deemed subject to the condition that the thing will come into existence. In
this case, since private respondent never acquired any right over the additional area for failure to secure
the approval of the Bureau of Forestry, the agreement executed therefor, which had for its object the
transfer of said right to petitioners, never became effective or enforceable.
WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED. The agreement of
the parties dated February 28, 1966 is declared without force and effect and the amount of P30,000.00
is hereby ordered to be deducted from the sum awarded by respondent court to private respondent. In
all other respects, said decision of respondent court is affirmed.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento JJ., concur.
http://www.lawphil.net/judjuris/juri1994/feb1994/gr_107112_1994.html
G.R. No. 107112

February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,

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

NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a person by his
contract charges himself with an obligation possible to be performed, he must perform it, unless its
performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule
that in case the party desires to be excused from performance in the event of contingencies arising
thereto, it is his duty to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely, Article 1267

which provides:
When the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in part.
In the report of the Code Commission, the rationale behind this innovation was explained, thus:
The general rule is that impossibility of performance releases the obligor. However, it is submitted that
when the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the court should be authorized to release the obligor in whole or in part. The intention of the parties
should govern and if it appears that the service turns out to be so difficult as to have been beyond their
contemplation, it would be doing violence to that intention to hold their contemplation, it would be
doing violence to that intention to hold the obligor still responsible. 2
In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a cause
of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as
long distance telephone service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating an
electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for
the use by private respondent in the following places:
(a)

3 units The Main Office of (private respondent);

(b)

2 Units The Warehouse of (private respondent);

(c)

1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;

(d)

1 Unit The Residence of (private respondent's) President;

(e)

1 Unit The Residence of (private respondent's) Acting General Manager; &

(f)

2 Units To be determined by the General Manager. 3

Said contract also provided:

(a)
That the term or period of this contract shall be as long as the party of the first part has need for
the electric light posts of the party of the second part it being understood that this contract shall

terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned
[sic] its operation as a public service and it becomes necessary to remove the electric lightpost; (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel of
petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2,
1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided in favor of petitioners;
that it is not in conformity with the guidelines of the National Electrification Administration (NEA)
which direct that the reasonable compensation for the use of the posts is P10.00 per post, per month;
that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by them thereon
have become much heavier with the increase in the volume of their subscribers, worsened by the fact
that their linemen bore holes through the posts at which points those posts were broken during
typhoons; that a post now costs as much as P2,630.00; so that justice and equity demand that the
contract be reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that starting with the year 1981, petitioners have
used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga
City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay private
respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filing of its
complaint; and that petitioners had refused to pay private respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by petitioners of
the ten (10) telephone units which had caused it great inconvenience and damages to the tune of not
less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it
does not sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription,
the same having been filed more than ten (10) years after the execution of the contract; and (3) it is
barred by estoppel, since private respondent seeks to enforce the contract in the same action. Petitioners
further alleged that their utilization of private respondent's posts could not have caused their
deterioration because they have already been in use for eleven (11) years; and that the value of their
expenses for the ten (10) telephone lines long enjoyed by private respondent free of charge are far in
excess of the amounts claimed by the latter for the use of the posts, so that if there was any inequity, it
was suffered by them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if petitioners
had refused to comply with private respondent's demands for payment for the use of the posts outside
Naga City, it was probably because what is due to them from private respondent is more than its claim
against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service
had been categorized by the National Telecommunication Corporation (NTC) as "very high" and of
"superior quality."
During the trial, private respondent presented the following witnesses:

(1)
Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it
was petitioner Maggay who prepared the contract; that the understanding between private respondent
and petitioners was that the latter would only use the posts in Naga City because at that time,
petitioners' capability was very limited and they had no expectation of expansion because of legal
squabbles within the company; that private respondent agreed to allow petitioners to use its posts in
Naga City because there were many subscribers therein who could not be served by them because of
lack of facilities; and that while the telephone lines strung to the posts were very light in 1977, said
posts have become heavily loaded in 1989.
(2)
Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance
Department, declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of
which were in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1");
that petitioners' cables strung to the posts in 1989 are much bigger than those in November, 1977; that
in 1987, almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between
Naga City and the town of Pili while the posts in barangay Concepcion, Naga City were broken at the
middle which had been bored by petitioner's linemen to enable them to string bigger telephone lines;
that while the cost per post in 1977 was only from P700.00 to P1,000.00, their costs in 1989 went up
from P1,500.00 to P2,000.00, depending on the size; that some lines that were strung to the posts did
not follow the minimum vertical clearance required by the National Building Code, so that there were
cases in 1988 where, because of the low clearance of the cables, passing trucks would accidentally
touch said cables causing the posts to fall and resulting in brown-outs until the electric lines were
repaired.
(3)
Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the
use by private telephone systems of electric cooperatives' posts, they should pay a minimum monthly
rental of P4.00 per post, and considering the escalation of prices since 1985, electric cooperatives have
been charging from P10.00 to P15.00 per post, which is what petitioners should pay for the use of the
posts.
(4)
Engineer Antonio Macandog, Department Head of the Office of Services of private respondent,
testified on the poor service rendered by petitioner's telephone lines, like the telephone in their
Complaints Section which was usually out of order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it would take two to three hours for petitioners
to reactivate them notwithstanding their calls on the emergency line.
(5)
Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors
asked him to study the contract sometime during the latter part of 1982 or in 1983, as it had appeared
very disadvantageous to private respondent. Notwithstanding his recommendation for the filing of a
court action to reform the contract, the former general managers of private respondent wanted to adopt
a soft approach with petitioners about the matter until the term of General Manager Henry Pascual
who, after failing to settle the matter amicably with petitioners, finally agreed for him to file the present
action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1)
It is true that he was a member of the Board of Directors of private respondent and at the same
time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also a

member of the Board of Directors of private respondent, was the one who saw to it that the contract
was fair to both parties.
(2)

With regard to the first cause of action:

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

On private respondent's second cause of action, the trial court found that the contract does not mention
anything about the use by petitioners of private respondent's posts outside Naga City. Therefore, the
trial court held that for reason of equity, the contract should be reformed by including therein the
provision that for the use of private respondent's posts outside Naga City, petitioners should pay a
monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on January 2,
1989, and private respondent should also pay petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989.
And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the reformation of
the agreement (Exh. A); ordering the defendants to pay plaintiff's electric poles in Naga City and in the
towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where defendant
NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole, per
month beginning January, 1989 and ordering also the plaintiff to pay defendant NATELCO the monthly
dues of all its telephones including those installed at the residence of its officers, namely; Engr.
Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and Atty. Luis
General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and expenses of litigation and
defendants' counterclaim are both hereby ordered dismissed. Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the
decision dated May 28, 1992, respondent court affirmed the decision of the trial court, 5 but based on
different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void. The motion for
reconsideration was denied in the resolution dated September 10, 1992. 6 Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1)

in making a contract for the parties by invoking Article 1267 of the New Civil Code;

2)
in ruling that prescription of the action for reformation of the contract in this case commenced
from the time it became disadvantageous to private respondent; and
3)

in ruling that the contract was subject to a potestative condition in favor of petitioners.

Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because
the contract does not involve the rendition of service or a personal prestation and it is not for future
service with future unusual change. Instead, the ruling in the case of Occea, et al. v. Jabson, etc., et al.,
7 which interpreted the article, should be followed in resolving this case. Besides, said article was
never raised by the parties in their pleadings and was never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of contract would lie and may
prosper, there must be sufficient allegations as well as proof that the contract in question failed to

express the true intention of the parties due to error or mistake, accident, or fraud. Indeed, in
embodying the equitable remedy of reformation of instruments in the New Civil Code, the Code
Commission gave its reasons as follows:
Equity dictates the reformation of an instrument in order that the true intention of the contracting
parties may be expressed. The courts by the reformation do not attempt to make a new contract for the
parties, but to make the instrument express their real agreement. The rationale of the doctrine is that it
would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that a written
instrument should be the final and inflexible criterion and measure of the rights and obligations of the
contracting parties is thus tempered to forestall the effects of mistake, fraud, inequitable conduct, or
accident. (pp. 55-56, Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in essence that where
through mistake or accident on the part of either or both of the parties or mistake or fraud on the part of
the clerk or typist who prepared the instrument, the true intention of the parties is not expressed therein,
then the instrument may be reformed at the instance of either party if there was mutual mistake on their
part, or by the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was a
mistake on its part or mutual mistake on the part of both parties when they entered into the agreement
Exh. "A", and that because of this mistake, said agreement failed to express their true intention. Rather,
plaintiff's evidence shows that said agreement was prepared by Atty. Luciano Maggay, then a member
of plaintiff's Board of Directors and its legal counsel at that time, who was also the legal counsel for
defendant-appellant, so that as legal counsel for both companies and presumably with the interests of
both companies in mind when he prepared the aforesaid agreement, Atty. Maggay must have
considered the same fair and equitable to both sides, and this was affirmed by the lower court when it
found said contract to have been fair to both parties at the time of its execution. In fact, there were no
complaints on the part of both sides at the time of and after the execution of said contract, and
according to 73-year old Justino de Jesus, Vice President and General manager of appellant at the time
who signed the agreement Exh. "A" in its behalf and who was one of the witnesses for the plaintiff
(sic), both parties complied with said contract "from the very beginning" (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or disadvantageous to the plaintiff
with the expansion of the business of appellant and the increase in the volume of its subscribers in
Naga City and environs through the years, necessitating the stringing of more and bigger telephone
cable wires by appellant to plaintiff's electric posts without a corresponding increase in the ten (10)
telephone connections given by appellant to plaintiff free of charge in the agreement Exh. "A" as
consideration for its use of the latter's electric posts in Naga City, appear, however, undisputed from the
totality of the evidence on record and the lower court so found. And it was for this reason that in the
later (sic) part of 1982 or 1983 (or five or six years after the subject agreement was entered into by the
parties), plaintiff's Board of Directors already asked Atty. Luis General who had become their legal
counsel in 1982, to study said agreement which they believed had become disadvantageous to their
company and to make the proper recommendation, which study Atty. General did, and thereafter, he
already recommended to the Board the filing of a court action to reform said contract, but no action
was taken on Atty. General's recommendation because the former general managers of plaintiff wanted
to adopt a soft approach in discussing the matter with appellant, until, during the term of General
Manager Henry Pascual, the latter, after failing to settle the problem with Atty. Luciano Maggay who
had become the president and general manager of appellant, already agreed for Atty. General's filing of

the present action. The fact that said contract has become inequitous or disadvantageous to plaintiff as
the years went by did not, however, give plaintiff a cause of action for reformation of said contract, for
the reasons already pointed out earlier. But this does not mean that plaintiff is completely without a
remedy, for we believe that the allegations of its complaint herein and the evidence it has presented
sufficiently make out a cause of action under Art. 1267 of the New Civil Code for its release from the
agreement in question.
xxx

xxx

xxx

The understanding of the parties when they entered into the Agreement Exh. "A" on November 1, 1977
and the prevailing circumstances and conditions at the time, were described by Dioscoro Ragragio, the
President of plaintiff in 1977 and one of its two officials who signed said agreement in its behalf, as
follows:
Our understanding at that time is that we will allow NATELCO to utilize the posts of CASURECO II
only in the City of Naga because at that time the capability of NATELCO was very limited, as a matter
of fact we do [sic] not expect to be able to expand because of the legal squabbles going on in the
NATELCO. So, even at that time there were so many subscribers in Naga City that cannot be served by
the NATELCO, so as a mater of public service we allowed them to sue (sic) our posts within the Naga
City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were very
light and that very few telephone lines were attached to the posts of CASURECO II in 1977, said posts
have become "heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the volume of appellant's
subscribers and the corresponding increase in the telephone cables and wires strung by it to plaintiff's
electric posts in Naga City for the more 10 years that the agreement Exh. "A" of the parties has been in
effect, there has been no corresponding increase in the ten (10) telephone units connected by appellant
free of charge to plaintiff's offices and other places chosen by plaintiff's general manager which was the
only consideration provided for in said agreement for appellant's use of plaintiffs electric posts. Not
only that, appellant even started using plaintiff's electric posts outside Naga City although this was not
provided for in the agreement Exh. "A" as it extended and expanded its telephone services to towns
outside said city. Hence, while very few of plaintiff's electric posts were being used by appellant in
1977 and they were all in the City of Naga, the number of plaintiff's electric posts that appellant was
using in 1989 had jumped to 1,403,192 of which are outside Naga City (Exh. "B"). Add to this the
destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in 1987 because
of the heavy telephone cables attached thereto, and the escalation of the costs of electric poles from
1977 to 1989, and the conclusion is indeed ineluctable that the agreement Exh. "A" has already become
too one-sided in favor of appellant to the great disadvantage of plaintiff, in short, the continued
enforcement of said contract has manifestly gone far beyond the contemplation of plaintiff, so much so
that it should now be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's
unjust enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil
Code citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium between the
prestation and the counter-prestation, and does not permit the unlimited impoverishment of one party
for the benefit of the other by the excessive rigidity of the principle of the obligatory force of contracts
(IV Tolentino, Civil Code of the Philippines, 1986 ed.,
pp. 247-248).

We therefore, find nothing wrong with the ruling of the trial court, although based on a different and
wrong premise (i.e., reformation of contract), that from the date of the filing of this case, appellant must
pay for the use of plaintiff's electric posts in Naga City at the reasonable monthly rental of P10.00 per
post, while plaintiff should pay appellant for the telephones in the same City that it was formerly using
free of charge under the terms of the agreement Exh. "A" at the same rate being paid by the general
public. In affirming said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered by both parties
herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff, said
arrangement to continue only until such time as said parties can re-negotiate another agreement over
the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and executed by the
parties, the aforesaid ruling of the lower court and affirmed by us shall cease to exist and shall be
substituted and superseded by their new agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale
behind this provision, 9 the term "service" should be understood as referring to the "performance" of
the obligation. In the present case, the obligation of private respondent consists in allowing petitioners
to use its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare
reading of this article reveals that it is not a requirement thereunder that the contract be for future
service with future unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in
our law the doctrine of unforseen events. This is said to be based on the discredited theory of rebus sic
stantibus in public international law; under this theory, the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist the contract also ceases to exist.
Considering practical needs and the demands of equity and good faith, the disappearance of the basis of
a contract gives rise to a right to relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the trial
court praying for modification of the terms and conditions of the contract that they entered into by
fixing the proper shares that should pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficient cause
of action. We rationalized that the Court of Appeals misapplied Article 1267 because:
. . . respondent's complaint seeks not release from the subdivision contract but that the court "render
judgment modifying the terms and conditions of the contract . . . by fixing the proper shares that should
pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subject
subdivision". The cited article (Article 1267) does not grant the courts (the) authority to remake,
modify or revise the contract or to fix the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to substitute its own terms for those
covenanted by the parties themselves. Respondent's complaint for modification of contract manifestly
has no basis in law and therefore states no cause of action. Under the particular allegations of
respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant
the relief sought. 11
The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made out a
cause of action under Article 1267. We, therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present controversy does not end here. We have to
take into account the possible consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent, resulting in disruption of their

service to the public; while private respondent, in consonance with the contract 12 will return all the
telephone units to petitioners, causing prejudice to its business. We shall not allow such eventuality.
Rather, we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of
its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in
other places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post,
per month, beginning January, 1989; and 2) private respondent to pay petitioner the monthly dues of all
its telephones at the same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occea case, necessitates exercise
of our equity jurisdiction. 13 By way of emphasis, we reiterate the rationalization of respondent court
that:
. . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered by both parties
herein to the public and to avoid unjust enrichment by appellant at the expense of plaintiff . . . . 14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never
the subject of trial and evidence has been passed upon by respondent court in its well reasoned
resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of the New Civil Code to this
case, we have changed its theory and decided the same on an issue not invoked by plaintiff in the lower
court. For basically, the main and pivotal issue in this case is whether the continued enforcement of the
contract Exh. "A" between the parties has, through the years (since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution
must be found to relieve plaintiff from the continued operation of said agreement and to prevent
defendant-appellant from further unjustly enriching itself at plaintiff's expense. It is indeed unfortunate
that defendant had turned deaf ears to plaintiffs requests for renegotiation, constraining the latter to go
to court. But although plaintiff cannot, as we have held, correctly invoke reformation of contract as a
proper remedy (there having been no showing of a mistake or error in said contract on the part of any
of the parties so as to result in its failure to express their true intent), this does not mean that plaintiff is
absolutely without a remedy in order to relieve itself from a contract that has gone far beyond its
contemplation and has become so highly inequitous and disadvantageous to it through the years
because of the expansion of defendant-appellant's business and the increase in the volume of its
subscribers. And as it is the duty of the Court to administer justice, it must do so in this case in the best
way and manner it can in the light of the proven facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a certain ground, the appellant
court may uphold the decision below upon some other point which was ignored or erroneously decided
by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v.
Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the discretion to consider an
unassigned error that is closely related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631;
Hernandez v. Andal, 78 Phil. 196). It has also been held that the Supreme Court (and this Court as well)
has the authority to review matters, even if they are not assigned as errors in the appeal, if it is found
that their consideration is necessary in arriving at a just decision of the case (Saura Import & Export
Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143). For it is the material allegations of
fact in the complaint, not the legal conclusion made therein or the prayer, that determines the relief to
which the plaintiff is entitled, and the plaintiff is entitled to as much relief as the facts warrant although
that relief is not specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495;
Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very illuminating

decision of our Supreme Court through the pen of American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to grant the relief to which the parties are
shown to be entitled by the allegations in their pleadings and the facts proven at the trial, and the mere
fact that they themselves misconstrue the legal effect of the facts thus alleged and proven will not
prevent the court from placing the just construction thereon and adjudicating the issues accordingly."
(Alzua v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable Supreme Court
also held:
We rule that the respondent court did not commit any error in taking cognizance of the aforesaid issues,
although not raised before the trial court. The presence of strong consideration of substantial justice has
led this Court to relax the well-entrenched rule that, except questions on jurisdiction, no question will
be entertained on appeal unless it has been raised in the court below and it is within the issues made by
the parties in their pleadings (Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that this Court did not err in applying Art. 1267 of
the New Civil Code to this case. Defendant-appellant stresses that the applicability of said provision is
a question of fact, and that it should have been given the opportunity to present evidence on said
question. But defendant-appellant cannot honestly and truthfully claim that it (did) not (have) the
opportunity to present evidence on the issue of whether the continued operation of the contract Exh.
"A" has now become too one-sided in its favor and too inequitous, unfair, and disadvantageous to
plaintiff. As held in our decision, the abundant and copious evidence presented by both parties in this
case and summarized in said decision established the following essential and vital facts which led us to
apply Art. 1267 of the New Civil Code to this case:
xxx

xxx

xxx 15

On the issue of prescription of private respondent's action for reformation of contract, petitioners allege
that respondent court's ruling that the right of action "arose only after said contract had already become
disadvantageous and unfair to it due to subsequent events and conditions, which must be sometime
during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts, what is
reformed is not the contract itself, but the instrument embodying the contract. It follows that whether
the contract is disadvantageous or not is irrelevant to reformation and therefore, cannot be an element
in the determination of the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period
is to be reckoned from the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private respondent's right of action
arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . .,
he was asked by (private respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's) cause of
action to ask for reformation of said contract should thus be considered to have arisen only in 1982 or
1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had
not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations

of either party because petitioner's permission for free use of telephones is not made to depend purely
on their will, neither is private respondent's permission for free use of its posts dependent purely on its
will.
Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:
. . . we believe that the provision in said agreement
(a)
That the term or period of this contract shall be as long as the party of the first part [herein
appellant] has need for the electric light posts of the party of the second part [herein plaintiff] it being
understood that this contract shall terminate when for any reason whatsoever, the party of the second
part is forced to stop, abandoned [sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied)
is invalid for being purely potestative on the part of appellant as it leaves the continued effectivity of
the aforesaid agreement to the latter's sole and exclusive will as long as plaintiff is in operation. A
similar provision in a contract of lease wherein the parties agreed that the lessee could stay on the
leased premises "for as long as the defendant needed the premises and can meet and pay said increases"
was recently held by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of
Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely potestative condition because it
leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee."
Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively
upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or
not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a
contract of lease of no equality exists between the lessor and the lessee since the life of the contract is
dictated solely by the lessee.
The above can also be said of the agreement Exh. "A" between the parties in this case. There is no
mutuality and equality between them under the afore-quoted provision thereof since the life and
continuity of said agreement is made to depend as long as appellant needs plaintiff's electric posts. And
this is precisely why, since 1977 when said agreement was executed and up to 1989 when this case was
finally filed by plaintiff, it could do nothing to be released from or terminate said agreement
notwithstanding that its continued effectivity has become very disadvantageous and inequitous to it due
to the expansion and increase of appellant's telephone services within Naga City and even outside the
same, without a corresponding increase in the ten (10) telephone units being used by plaintiff free of
charge, as well as the bad and inefficient service of said telephones to the prejudice and inconvenience
of plaintiff and its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation
is void. 19 Based on this definition, respondent court's finding that the provision in the contract, to wit:
(a)
That the term or period of this contract shall be as long as the party of the first part (petitioner)
has need for the electric light posts of the party of the second part (private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other conditions in the same

provision, to wit:
. . . it being understood that this contract shall terminate when for any reason whatsoever, the party of
the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service
and it becomes necessary to remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In
sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and
partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by
petitioners, there is no reason to set aside the questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28,
1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
http://www.lawphil.net/judjuris/juri1922/oct1922/gr_l-16109_1922.html
G.R. No. L-16109

October 2, 1922

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

STREET, J.:
This case comes by appeal from the Court of First Instance of the city of Manila, in a case where the
court awarded to the plaintiff the sum of P300, as damages for breach of contract. The plaintiff appeals
on the ground that the amount of damages awarded is inadequate; while the defendant Uy Tieng Piao
appeals on the ground that he is not liable at all. The judgment having been heretofore affirmed by us in
a brief opinion, we now avail ourselves of the occasion of the filing of a motion to rehear by the
attorneys for the plaintiff to modify the judgment in a slight measure and to state more fully the reasons
underlying our decision.
It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as
superintendent of an oil factory which the latter contemplated establishing in this city. The period of the
contract extended over two years from the date mentioned; and the salary was to be at the rate of P600
per month during the first year and P700 per month during the second, with electric light and water for

domestic consumption, and a residence to live in, or in lieu thereof P60 per month.
At the time this agreement was made the machinery for the contemplated factory had not been
acquired, though ten expellers had been ordered from the United States; and among the stipulations
inserted in the contract with the plaintiff was a provision to the following effect:
It is understood and agreed that should the machinery to be installed in the said factory fail, for any
reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may
be cancelled by the party of the second part at its option, such cancellation, however, not to occur
before the expiration of such six months.
The machinery above referred to did not arrive in the city of Manila within the six months succeeding
the making of the contract; nor was other equipment necessary for the establishment of the factory at
any time provided by the defendants. The reason for this does not appear with certainty, but a
preponderance of the evidence is to the effect that the defendants, in the first months of 1919, seeing
that the oil business no longer promised large returns, either cancelled the order for the machinery from
choice or were unable to supply the capital necessary to finance the project. At any rate on June 28,
1919, availing themselves in part of the option given in the clause above quoted, the defendants
communicated in writing to the plaintiff the fact that they had decided to rescind the contract, effective
June 30th then current, upon which date he was discharged. The plaintiff thereupon instituted this
action to recover damages in the amount of P13,000, covering salary and perquisites due and to become
due under the contract.
The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the
defendants the right to cancel the contract upon the contingency of the nonarrival of the machinery in
Manila within six months, must be understood as applicable only in those cases where such nonarrival
is due to causes not having their origin in the will or act of the defendants, as delays caused by strikes
or unfavorable conditions of transporting by land or sea; and it is urged that the right to cancel cannot
be admitted unless the defendants affirmatively show that the failure of the machinery to arrive was due
to causes of that character, and that it did not have its origin in their own act or volition. In this
connection the plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity
and fulfillment of contracts cannot be left to the will of one of the contracting parties, and to article
1119, which says that a condition shall be deemed fulfilled if the obligor intentially impedes its
fulfillment.
It will be noted that the language conferring the right of cancellation upon the defendants is broad
enough to cover any case of the nonarrival of the machinery, due to whatever cause; and the stress in
the expression "for any reason" should evidently fall upon the word "any." It must follow of necessity
that the defendants had the right to cancel the contract in the contingency that occurred, unless some
clear and sufficient reason can be adduced for limiting the operation of the words conferring the right
of cancellation. Upon this point it is our opinion that the language used in the stipulation should be
given effect in its ordinary sense, without technicality or circumvention; and in this sense it is believed
that the parties to the contract must have understood it.
Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the cancellation of the contract by one of the
parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of
the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for
where the contracting parties have agreed that such option shall exist, the exercise of the option is as

much in the fulfillment of the contract as any other act which may have been the subject of agreement.
Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehands is
fulfillment.
In this connection, we note that the commentator Manresa has the following observation with respect to
article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will of either of the
parties in the negative form of rescission, a case frequent in certain contracts (the letting of service for
hire, the supplying of electrical energy, etc.), for in such supposed case neither is the article infringed,
nor is there any lack of equality between the persons contracting, since they remain with the same
faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net
Undoubtedly one of the consequences of this stipulation was that the employers were left in a position
where they could dominate the contingency, and the result was about the same as if they had been
given an unqualified option to dispense with the services of the plaintiff at the end of six months. But
this circumstance does not make the stipulation illegal.
The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially
somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to render
competent and efficient service as manager of a corporation, to which position it was understood he
was to be appointed. In the same contract it was stipulated that if "for any reason" Hardaker should not
be given that position, or if he should not be permitted to act in that capacity for a stated period, certain
things would be done by Hall. Upon being installed in the position aforesaid, Hardaker failed to render
efficient service and was discharged. It was held that Hall was released from the obligation to do the
things that he had agreed to perform. Some of the judges appear to have thought that the case turned on
the meaning of the phrase "for any reason," and the familiar maxim was cited that no man shall take
advantage of his own wrong. The result of the case must have been the same from whatever point of
view, as there was an admitted failure on the part of Hardaker to render competent service. In the
present case there was no breach of contract by the defendants; and the argument to the contrary
apparently suffers from the logical defect of assuming the very point at issue.
But it will be said that the question is not so much one concerning the legality of the clause referred to
as one concerning the interpretation of the resolutory clause as written, the idea being that the court
should adjust its interpretation of said clause to the supposed precepts of article 1256, by restricting its
operation exclusively to cases where the nonarrival of the machinery may be due to extraneous causes
not referable to the will or act of the defendants. But even when the question is viewed in this aspect
their result is the same, because the argument for the restrictive interpretation evidently proceeds on the
assumption that the clause in question is illegal in so far as it purports to concede to the defendants the
broad right to cancel the contract upon nonarrival of the machinery due to any cause; and the debate
returns again to the point whether in a contract for the prestation of service it is lawful for the parties to
insert a provision giving to the employer the power to cancel the contract in a contingency which may
be dominated by himself. Upon this point what has already been said must suffice.
As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the
language used by the parties from its natural meaning and thereby in legal effect to restrict the words
"for any reason," as used in the contract, to mean "for any reason not having its origin in the will or acts
of the defendants." To impose this interpretation upon those words would in our opinion constitute an
unjustifiable invasion of the power of the parties to establish the terms which they deem advisable, a
right which is expressed in article 1255 of the Civil Code and constitutes one of the most fundamental
conceptions of contract right enshrined in the Code.

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

http://www.lawphil.net/judjuris/juri1995/oct1995/gr_117009_1995.html
G.R. No. 117009

October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,

vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.

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

P24,000.00 as actual damages;

c)

P20,000.00 as moral damages;

d)

P20,000.00 as exemplary damages;

e)

attorney's fees equivalent to 25% of the principal amount due; and

f)

costs of suit.

On appeal, the Court of Appeals affirmed the trial court decision.

In the present petition for review, petitioners assign the following errors to the appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE
SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.
. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE
CONSTRUCTION CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT,
THE LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL
GUARANTY OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1
Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the
price of labor and/or materials resulting in an increase in construction cost above the stipulated contract
price will not automatically make petitioners liable to pay for such increased cost, as any payment
above the stipulated contract price has been made subject to the condition that the "appropriate
adjustment" will be made "upon mutual agreement of both parties". It is contended that since there was
no mutual agreement between the parties, petitioners' obligation to pay amounts above the original
contract price never materialized.
Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by
petitioners. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly
refute the arguments raised by petitioners, as the contents of said pleadings are mostly quoted portions
of the decision of the Court of Appeals, devoid of adequate discussion of the merits of respondent's
case. The Court, to be sure, expects more diligence and legal know-how from lawyers than what has
been exhibited by counsel for respondent in the present case. Under these circumstances, the Court had
to review the entire records of this case to evaluate the merits of the issues raised by the contending
parties.
Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet
lecupletari (no man ought to be made rich out of another's injury) states:
Art. 22.
Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal ground,
shall return the same to him.
The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of
which were formulated as "basic principles to be observed for the rightful relationship between human

beings and for the stability of the social order, . . . designed to indicate certain norms that spring from
the fountain of good conscience, . . . guides for human conduct [that] should run as golden threads
through society to the end that law may approach its supreme ideal which is the sway and dominance of
justice." 2
In the present case, petitioners' arguments to support absence of liability for the cost of construction
beyond the original contract price are not persuasive.
Under the previously quoted Article IX of the construction contract, petitioners would make the
appropriate adjustment to the contract price in case the cost of the project increases through no fault of
the contractor (private respondent). Private respondent informed petitioners of the drastic increase in
construction cost as early as March 1980.
Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded
payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the bank's architectural
consultant were directed by the bank to verify and compute private respondent's claims of increased
cost. A recommendation was then made to settle private respondent's claim for P200,000.00. Despite
this recommendation and several demands from private respondent, SBTC failed to make payment. It
denied authorizing anyone to make a settlement of private respondent's claim and likewise denied any
liability, contending that the absence of a mutual agreement made private respondent's demand
premature and baseless.
Petitioners' arguments are specious.
It is not denied that private respondent incurred additional expenses in constructing petitioner bank's
building due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted
liability for increased cost when a recommendation was made to settle private respondent's claim for
P200,000.00. Private respondent's claim for the increased amount was adequately proven during the
trial by receipts, invoices and other supporting documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends
upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which
petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a
condition dependent on petitioner bank's sole will, since private respondent would naturally and
logically give consent to such an agreement which would allow him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private respondent completed
the construction even at an increased cost.
Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of
private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.
Finally, with respect to the award of attorney's fees to respondent, the Court has previously held that,
"even with the presence of an agreement between the parties, the court may nevertheless reduce
attorney's fees though fixed in the contract when the amount thereof appears to be unconscionable or
unreasonable." 3 As previously noted, the diligence and legal know-how exhibited by counsel for
private respondent hardly justify an award of 25% of the principal amount due, which would be at least
P60,000.00. Besides, the issues in this case are far from complex and intricate. The award of attorney's

fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed
decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.
http://www.chanrobles.com/cralaw/2011marchdecisions.php?id=279
[G.R. No. 146839, March 23 : 2011]
ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL AND
ERLINDA CATUNGAL-WESSEL, PETITIONERS, VS. ANGEL S. RODRIGUEZ, RESPONDENT.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court
of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8,
2000 Decision,[1] which affirmed the Decision[2] dated May 30, 1992 of the Regional Trial Court
(RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001
Resolution,[3] denying herein petitioners' motion for reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with Preliminary
Injunction/Restraining Order[4] filed on December 10, 1990 by herein respondent Angel S. Rodriguez
(Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L
against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot
10963) with an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 105[5]
in her name situated in the Barrio of Talamban, Cebu City. The said property was allegedly the
exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell[6]
with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a
Conditional Deed of Sale dated July 26, 1990 between the same parties. Both the Contract to Sell and
the Conditional Deed of Sale were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:
1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS
(25,000,000.00) payable as follows:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this

agreement, receipt of which sum is hereby acknowledged in full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESO'S
(P24,500,000.00) shall be payable in five separate checks, made to the order of JOSE Ch.
CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED THOUSAND PESOS
(P4,500,000.00) and the remaining balance to be paid in four checks in the amounts of FIVE MILLION
PESOS (P5,000,000.00) each after the VENDEE have (sic)' successfully negotiated, secured and
provided a Road Right of Way consisting of 12 meters in width cutting across Lot 10884 up to the
national road, either by widening the existing Road Right of Way or by securing a new Road Right of
Way of 12 meters in width. If however said Road Right of Way could not be negotiated, the VENDEE
shall give notice to the VENDOR for them to reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he shall take steps to rescind or cancel the herein
Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the
VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL
DEED OF SALE to VENDEE, his heirs, successors and assigns, the real property described in the
Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option
to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a
written notice relinquishing his rights over the property. The VENDEE shall then be reimbursed by the
VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the
downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been
able to sell the property to another party.[8]
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys
and plans and through his efforts, the properly was reclassified from agricultural land into residential
land which he claimed substantially increased the property's value. He likewise alleged that he actively
negotiated for the road right of way as stipulated in the contract.[9]
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of
P5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground
that the amount was substantial and was not due under the terms of their agreement. Shortly after his
refusal to pay the advance, he purportedly learned that the Catungals were offering the property for sale
to third parties.[10]
Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, 1990[12] and October
29, 1990,[13] all signed by Jose Catungal who was a lawyer, essentially demanding that the former
make up his mind about buying the land or exercising his "option" to buy because the spouses Catungal
allegedly received other offers and they needed money to pay for personal obligations and for investing
in other properties/business ventures. Should Rodriguez fail to exercise his option to buy the land, the
Catungals warned that they would consider the contract cancelled and that they were free to look for

other buyers.
In a letter dated November 4, 1990,[14] Rodriguez registered his objections to what he termed the
Catungals' unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed
him sufficient time to negotiate a road right of way and granted him, the vendee, the exclusive right to
rescind the contract. Still, on November 15, 1990, Rodriguez purportedly received a letter dated
November 9, 1990[15] from Atty. Catungal, stating that the contract had been cancelled and terminated.
Contending that the Catungals' unilateral rescission of the Conditional Deed of Sale was unjustified,
arbitrary and unwarranted, Rodriquez prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses
Catungal], their employees, agents, representatives or other persons acting in their behalf from offering
the property subject of this case for sale to third persons; from entertaining offers or proposals by third
persons to purchase the said property; and, in general, from performing acts in furtherance or
implementation of defendants' rescission of their Conditional Deed of Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed
by the court enjoining defendants and other persons acting in their behalf from performing any of the
acts mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and solidarily:
Actual damages in the amount of P400,000.00 for their unlawful rescission of the Agreement and their
performance of acts in violation or disregard of the said Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorney's fees in the
amount of P100,000.00; and Costs of suit.[16]
On December 12, 1990, the trial court issued a temporary restraining order and set the application for a
writ of preliminary injunction for hearing on December 21, 1990 with a directive to the spouses
Catungal to show cause within five days from notice why preliminary injunction should not be granted.
The trial court likewise ordered that summons be served on them.[17]
Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a writ of preliminary
injunction and later filed a motion to dismiss[19] on the ground of improper venue. According to the
Catungals, the subject property was located in Cebu City and thus, the complaint should have been
filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the ground that his
action was a personal action as its subject was breach of a contract, the Conditional Deed of Sale, and
not title to, or possession of real property.[20]
In an Order dated January 17, 1991,[21] the trial court denied the motion to dismiss and ruled that the
complaint involved a personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary
injunction upon posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages
that the defendants may sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim[22] alleging that they
had the right to rescind the contract in view of (1) Rodriguez's failure to negotiate the road right of way
despite the lapse of several months since the signing of the contract, and (2) his refusal to pay the
additional amount of P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds
to purchase the property. The Catungals likewise contended that Rodriguez did not have an exclusive
right to rescind the contract and that the contract, being reciprocal, meant both parties had the right to
rescind.[23] The spouses Catungal further claimed that it was Rodriguez who was in breach of their
agreement and guilty of bad faith which justified their rescission of the contract.[24] By way of
counterclaim, the spouses Catungal prayed for actual and consequential damages in the form of
unearned interests from the balance (of the purchase price in the amount) of P24,500,000.00, moral and
exemplary damages in the amount of P2,000,000.00, attorney's fees in the amount of P200,000.00 and
costs of suits and litigation expenses in the amount of P10,000.00.[25] The spouses Catungal prayed for
the dismissal of the complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,[26] retaining their basic allegations but amplifying their
charges of contractual breach and bad faith on the part of Rodriguez and adding the argument that in
view of Article 1191 of the Civil Code, the power to rescind reciprocal obligations is granted by the law
itself to both parties and does not need an express stipulation to grant the same to the injured party. In
the Second Amended Answer with Counterclaim, the spouses Catungal added a prayer for the trial
court to order the Register of Deeds to cancel the annotations of the two contracts at the back of their
OCT.
On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding allegations to the effect that
the Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy
the property at the price of P25,000,000.00. Among others, it was alleged that the spouses Catungal
misrepresented that their Lot 10963 includes a flat portion of land which later turned out to be a
separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned by
Anatolia Tudtud and her daughter Sally who were their relatives and who had already agreed to sell a
portion of the said lots for the road right of way at a price of P550.00 per square meter. However,
because of the Catungals' acts of offering the property to other buyers who offered to buy the road lots
for P2,500.00 per square meter, the adjacent lot owners were no longer willing to sell the road lots to
Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per square meter. In
other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguez's negotiations for a road right of
way in order to justify rescission of the said contract and enable them to offer the property to other
buyers.
Despite requesting the trial court for an extension of time to file an amended Answer,[29] the Catungals
did not file an amended Answer and instead filed an Urgent Motion to Dismiss[30] again invoking the
ground of improper venue. In the meantime, for failure to file an amended Answer within the period
allowed, the trial court set the case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals'

Urgent Motion to Dismiss for violation of the rules and for being repetitious and having been
previously denied. However, Atty. Catungal refused to enter into pre-trial which prompted the trial
court to declare the defendants in default and to set the presentation of the plaintiffs evidence on
February 14, 1992;[32]
On December 23, 1991, the Catungals filed a motion for reconsideration[33] of the December 20, 1991
Order denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order
dated February 3, 1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to Set
Aside Order of Default[35] but it was likewise denied for being in violation of the rules and for being
not meritorious.[36] On February 28, 1992, the Catungals filed a Petition for Certiorari and
Prohibition[37] with the Court of Appeals, questioning the denial of their motion to dismiss and the
order of default. This was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the
contract it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguez's
obligation to pay the balance of the purchase price arises only upon successful negotiation of the road
right of way; (c) he proved his diligent efforts to negotiate the road right of way; (d) the spouses
Catungal were guilty of misrepresentation which defeated Rodriguez's efforts to acquire the road right
of way; and (e) the Catungals' rescission of the contract had no basis and was in bad faith. Thus, the
trial court made the injunction permanent, ordered the Catungals to reduce the purchase price by the
amount of acquisition of Lot 10963 which they misrepresented was part of the property sold but was in
fact owned by a third party and ordered them to pay P100,000.00 as damages, P30,000.00 as attorney's
fees and costs.
The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following
errors by the trial court in their appellants' brief8 dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF
IMPROPER VENUE AND LACK OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A
REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS
A PERSONAL ACTION, THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN
DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD
ALREADY FILED THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR

LEGAL STANDING IN COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN

DEFAULT AND STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS
ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION
RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURT'S TERRITORIAL JURISDICTION AND INCLUDING
PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM
CONTINUING WITH THE PROCEEDINGS IN THE CASE AND IN RENDERING DECISION
THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS BEING MANDATED AS
DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR
FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR
CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN
FACT NOTICES FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN SENT
OUT BY THE HONORABLE COURT OF APPEALS, SECOND DIVISION, AND THE COURT A
QUO WAS FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND
AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY,
FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF
THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE.[39]
On August 31, 1995, after being granted several extensions, Rodriguez filed his appellee's brief,[40]
essentially arguing the correctness of the trial court's Decision regarding the foregoing issues raised by
the Catungals. Subsequently, the Catungals filed a Reply Brief[41] dated October 16, 1995.
From the filing of the appellants' brief in 1994 up to the filing of the Reply Brief, the spouses Catungal
were represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty.
Jesus N. Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on
September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for Leave of Court to File
Citation of Authorities[43] and a Citation of Authorities.[44] This would be followed by Atty.
Borromeo's filing of an Additional Citation of Authority and Second Additional Citation of Authority
both on November 17, 1997.[45]
During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus,
her husband, Jose, filed on February 17, 1999 a motion for Agapita's substitution by her surviving
children[46]
On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV
No. 40627 and CA-G.R. SP No. 27565,[47] affirming the trial court's Decision.

In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the Catungals, Atty. Borromeo,
argued for the first time that paragraphs 1(b) and 5[49] of the Conditional Deed of Sale, whether taken
separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil
Code and thus, said contract was void ab initio. He adverted to the cases mentioned in his various
citations of authorities to support his argument of nullity of the contract and his position that this issue
may be raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution[50] was filed by Atty. Borromeo in view of the death of
Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased
Agapita and Jose Catungal by their surviving heirs and denied the motion for reconsideration for lack
of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 2001 the present petition for review,[51]
which essentially argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of
the Conditional Deed of Sale, violated the principle of mutuality of contracts under Article 1308 of the
Civil Code. Thus, said contract was supposedly void ab initio and the Catungals' rescission thereof was
superfluous.
In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new matters that cannot be
passed upon on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and
petitioners cannot be allowed to change theories on appeal; (c) the questioned paragraphs of the
Conditional Deed of Sale were valid; and (d) petitioners were the ones who committed fraud and
breach of contract and were not entitled to relief for not having come to court with clean hands.
The Court gave due course to the Petition[53] and the parties filed their respective Memoranda.
The issues to be resolved in, the case at bar can be summed into two questions:
Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time
on appeal?
Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts
under Article 1308 of the Civil Code?
On petitioners' change of theory
Petitioners claimed that the Court of Appeals should have reversed the trial courts' Decision on the
ground of the alleged nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding
that the same was not raised as an error in their appellants' brief. Citing Catholic Bishop of Balanga v.
Court of Appeals,[54] petitioners argued in the Petition that this case falls under the following
exceptions:
(3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just
decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing
piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of
record having some bearing on the issue submitted which the parties failed to raise or which the lower
court ignored;
(5) Matters not assigned as errors on appeal but closely related to an error assigned; and
(6) Matters not assigned as errors but upon which the determination of a question properly assigned is
dependent.
We are not persuaded.
This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed
to argue a material point on appeal that was raised in the trial court and supported by the record.
Neither is this a case where a party raised an error closely related to, nor dependent on the resolution
of, an error properly assigned in his brief. This is a situation where a party completely changes his
theory of the case on appeal and abandons his previous assignment of errors in his brief, which plainly
should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the
litigants and to indicate fairly the nature of the claims or defenses of both parties.[56] In Philippine
National Construction Corporation v. Court of Appeals,[57] we held that "[w]hen a party adopts a
certain theory in the trial court, he will not be permitted to change his theory on appeal, for to permit
him to do so would not only be unfair to the other party but it would also be offensive' to the basic rules
of fair play, justice and due process."
We have also previously ruled that "courts of justice have no jurisdiction or power to decide a question
not in issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on
which the court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule
rests on the fundamental tenets of fair play."[59]
During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in
the Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was
contingent upon the successful negotiation of a road right of way (paragraph 1[b]) and granting
Rodriguez the option to rescind (paragraph 5), were void for allegedly making the fulfillment of the
contract dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its
amended versions) that the payment of the purchase price was subject to the will of Rodriguez but
rather they claimed that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given
to Rodriguez to negotiate the road right of way. However, it was petitioners' theory that more than
sufficient time had already been given Rodriguez to negotiate the road right of way. Consequently,
Rodriguez's refusal/failure to pay the balance of the purchase price, upon demand, was allegedly
indicative of lack of funds and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez's option to rescind, it was
petitioners' theory in the court a quo that notwithstanding such provision, they retained the right to
rescind the contract for Rodriguez's breach of the same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in

view of the questioned provisions was only in their Motion for Reconsideration of the Court of
Appeals' Decision, affirming the trial court's judgment. The previous filing of various citations of
authorities by Atty. Borromeo and the Court of Appeals' resolutions noting such citations were of no
moment. The citations of authorities merely listed cases and their main rulings without even any
mention of their relevance to the present case or any prayer for the Court of Appeals to consider them.
In sum, the Court of Appeals did not err in disregarding the citations of authorities or in denying
petitioners' motion for reconsideration of the assailed August 8, 2000 Decision in view of the
proscription against changing legal theories on appeal.
Ruling on the questioned provisions of the
Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the procedural misstep of
petitioners, we still cannot uphold their belatedly proffered arguments.
At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale,
whereby the spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on
the payment of a certain price but the payment of the purchase price was additionally made contingent
on the successful negotiation of a road right of way. It is elementary that "[i]n conditional obligations,
the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition."[60]
Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed
nullity of the aforementioned provisions. Article 1308 states that "[t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed on the perfection of a contract
and a condition imposed merely on the performance of an obligation. While failure to comply with the
first condition results in the failure of a contract, failure to comply with the second merely gives the
other party the option to either refuse to proceed with the sale or to waive the condition.[61] This
principle is evident in Article 1545 of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with the contract or he may waive performance of the
condition x x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the
purchase price when he has successfully negotiated and secured a road right of way, is not a condition
on the perfection of the contract nor on the validity of the entire contract or its compliance as
contemplated in Article 1308. It is a condition imposed only on respondent's obligation to pay the
remainder of the purchase price. In our view and applying Article 1182, such a condition is not purely
potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will
of third persons who own the adjacent land and from whom the road right of way shall be negotiated.

In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that
respondent and the third party-landowners would come to an agreement regarding the road right of
way. This type of mixed condition is expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,[62] wherein the Court interpreted the
legal effect of a condition in a deed of sale that the balance of the purchase price would be paid by the
vendee when the vendor has successfully ejected the informal settlers occupying the property. In
Romero, we found that such a condition did not affect the perfection of the contract but only imposed a
condition on the fulfillment of the obligation to pay the balance of the purchase price, to wit:
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict
the squatters on the property. The ejectment of the squatters is a condition the operative act of which
sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of
the purchase price. Private respondent's failure "to remove the squatters from the property" within the
stipulated period gives petitioner the right to either refuse to proceed! with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner
and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does not
constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of
the vendor alone but also of third persons like the squatters and government agencies and personnel
concerned." We must hasten to add, however, that where the so-called "potestative condition" is
imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving
unaffected the obligation itself.[63] (Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee
(Rodriguez) that had the obligation to successfully negotiate and secure the road right of way.
However, in the decision of the trial court, which was affirmed by the Court of Appeals, it was found
that respondent Rodriguez diligently exerted efforts to secure the road right of way but the spouses
Catungal, in bad faith, contributed to the collapse of the negotiations for said road right of way. To
quote from the trial court's decision:
It is therefore apparent that the vendee's obligations (sic) to pay the balance of the purchase price arises
only when the road-right-of-way to the property shall have been successfully negotiated, secured and
provided. In other words, the obligation to pay the balance is conditioned upon the acquisition of the
road-right-of-way, in accordance with paragraph 2 of Article 1181 of the New Civil Code. Accordingly,
"an obligation dependent upon a suspensive condition cannot be demanded until after the condition
takes place because it is only after the fulfillment of the condition that the obligation arises." (Javier
v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was
diligent in his efforts to negotiate for a road-right-of-way to the property. The written offers, proposals
and follow-up of his proposals show that plaintiff [Rodriguez] went all out in his efforts to immediately
acquire an access road to the property, even going to the extent of offering P3,000.00 per square meter
for the road lots (Exh. Q) from the original P550.00 per sq. meter. This Court also notes that defendant
(sic) [the Catungals] made misrepresentation in the negotiation they have entered into with plaintiff
[Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as to the third
lot (Lot 10986) to be part and parcel of the subject property [(]Lot 10963) contributed in defeating the

plaintiffs [Rodriguez's] effort in acquiring the road-right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of the condition in the contract as a ground for
rescission when defendants [the Catungals] themselves are guilty of preventing the fulfillment of such
condition.
From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale
by the defendants is without any legal or factual basis.[64] x x x. (Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for
respondent's obligation to pay the balance of the purchase price to arise) in itself partly involves an
obligation to do, i.e., the undertaking of respondent to negotiate and secure a road right of way at his
own expense.[65] It does not escape our notice as well, that far from disclaiming paragraph 1(b) as
void, it was the Catungals' contention before the trial court that said provision should be read in relation
to paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the
VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor;
granting him a free hand in negotiating for the passage.[66] (Emphasis supplied.)
The Catungals' interpretation of the foregoing stipulation was that Rodriguez's obligation to negotiate
and secure a road right of way was one with a period and that period, i.e., "enough time" to negotiate,
had already lapsed by the time they demanded the payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct that the respondent's obligation to negotiate a road
right of way was one with an uncertain period, their rescission of the Conditional Deed of Sale would
still be unwarranted. Based on their own theory, the Catungals had a remedy under Article 1197 of the
Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in court to fix the period within which
Rodriguez should accomplish the successful negotiation of the road fight of way pursuant to the above
quoted provision. Thus, the Catungals' demand for Rodriguez to make an additional payment of
P5,000,000.00 was premature and Rodriguez's failure to accede to such demand did not justify the
rescission of the contract.
With respect to petitioners' argument that paragraph 5 of the Conditional Deed of Sale likewise
rendered the said contract void, we find no merit to this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option
to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a

written notice relinquishing his rights over the property. The VENDEE shall then be reimbursed by the
VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (500,000,00) representing the
downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been
able to sell the property to another party.[67]
Petitioners posited that the above stipulation was the "deadliest" provision in the Conditional Deed of
Sale for violating the principle of mutuality of contracts since it purportedly rendered the contract
subject to the will of respondent.
We do not agree.
It is petitioners' strategy to insist that the Court examine the first sentence of paragraph 5 alone and,
resist a correlation of such sentence with other provisions of the contract. Petitioners' view, however,
ignores a basic rule in the interpretation of contracts - that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken jointly."
The same Code further sets down the rule that "[i]f some stipulation of any contract should admit of
several meanings, it shall be understood as bearing that import which is most adequate to render it
effectual."[68]
Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an instrument where
there are several provisions or particulars, such a construction is, if possible, to be adopted as will give
effect to all"[69] and "for the proper construction of an instrument, the circumstances under which it
was made, including the situation of the subject thereof and of the parties to it, may be shown, so that
the judge may be placed in the position of those whose language he is to interpret."[70]
Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5
must be taken in relation with the rest of paragraph 5 and with the other provisions of the Conditional
Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez's option to rescind the contract is not
absolute as it is subject to the requirement that there should be written notice to the vendor and the
vendor shall only return Rodriguez's downpayment of P500,000.00, without interest, when the vendor
shall have been able to sell the property to another party. That what is stipulated to be returned is oniy
the downpayment of P500,000.00 in the event that Rodriguez exercises his option to rescind is
significant. To recall, paragraph 1(b) of the contract clearly states that the installments on the balance of
the purchase price shall only be paid upon successful negotiation and procurement of a road right of
way. It is clear from such provision that the existence of a road right of way is a material consideration
for Rodriguez to purchase the property. Thus, prior to him being able to procure the road right of way,
by express stipulation in the contract, he is not bound to make additional payments to the Catungals. It
was further stipulated in paragraph 1(b) that: "[i]f however said road right of way cannot be negotiated,
the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking
other options and should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind
or [cancel] the herein Conditional Deed of Sale." The intention of the parties for providing
subsequently in paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited
to the contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the parties
intended to give Rodriguez the absolute option to rescind the sale at any time, the contract would have
provided for the return of all payments made by Rodriguez and not only the downpayment. To our

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

balance of the deducted purchase price as determined in the RTC Decision dated May 30, 1992.
WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the
Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED
with the following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality
of this Decision to negotiate a road right of way. In the event no road right of way is secured by
respondent at the end of said period, the parties shall reassess and discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of thirty
(30) days to agree on a course of action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may
(a) exercise his option to rescind the contract, subject to the return of his downpayment, in accordance
with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right
of way and pay the balance of the deducted purchase price as determined in the RTC Decision dated
May 30, 1992.
No pronouncement as to costs.
SO ORDERED.
Corona, C.J., (Chairperson), Velasco, Jr., Del Castillo, and Perez, JJ., concur.
http://www.lawphil.net/judjuris/juri1925/sep1925/gr_23769_1925.html
G.R. No. 23769

September 16, 1925

SONG FO & COMPANY, plaintiff-appellee,

vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two
causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which
judgment was asked for P70,369.50, with legal interest, and costs. In an amended answer and crosscomplaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment
for the molasses delivered to it by the defendant under the contract between the parties, the latter was
compelled to cancel and rescind the said contract. The case was submitted for decision on a stipulation
of facts and the exhibits therein mentioned. The judgment of the trial court condemned the defendant to
pay to the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the
complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has
made the following assignment of errors: "I. The lower court erred in finding that appellant had agreed
to sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in

finding that the appellant rescinded without sufficient cause the contract for the sale of molasses
executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the
appellee and not in favor of the appellant in accordance with the prayer of its answer and crosscomplaint. IV. The lower court erred in denying appellant's motion for a new trial." The specified errors
raise three questions which we will consider in the order suggested by the appellant.
1.
Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of
molasses? The trial court found the former amount to be correct. The appellant contends that the
smaller amount was the basis of the agreement.
The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The
First mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to
Song Fo & Company on December 13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.
December 13, 1922
Messrs. SONG FO AND CO.
Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this
Central, we wish to state as follows:
He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same
condition, and the same to start after the completion of our grinding season. He requested if possible to
let you have molasses during January, February and March or in other words, while we are grinding,
and we agreed with him that we would to the best of our ability, altho we are somewhat handicapped.
But we believe we can let you have 25,000 gallons during each of the milling months, altho it interfere
with the shipping of our own and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply
him with another 100,000 gallons of molasses, and we stated we believe that this is possible and will do
our best to let you have these extra 100,000 gallons during the next year the same to be taken by you
before November 1st, 1923, along with the 300,000, making 400,000 gallons in all.
Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at
the end of each month for molasses delivered to you.
Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain.
Yours very truly,
HAWAIIAN-PHILIPPINE COMPANY
BY R. C. PITCAIRN
Administrator.
Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on
December 16, 1922. This letter reads:
December 16th, 1922.

Messrs. HAWAIIAN-PHILIPPINE CO.,

Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all their
contents.
In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one who
visited your Central, but it was not for he was Mr. Song Heng, the representative and the manager of
Messrs. Song Fo & Co.
With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you
have stated and in order to make the contract clear, we hereby quote below our old contract as
amended, as per our new arrangements.
(a)

Price, at 2 cents per gallon delivered at the central.

(b)

All handling charges and expenses at the central and at the dock at Mambaguid for our account.

(c)
For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the
round trip dock to central and central to dock. This service to be restricted to one trip for the six tanks.
Yours very truly,
SONG FO & COMPANY
By __________________________
Manager.
We agree with appellant that the above quoted correspondence is susceptible of but one interpretation.
The Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses.
The Hawaiian-Philippine Co. also believed it possible to accommodate Song Fo & Company by
supplying the latter company with an extra 100,000 gallons. But the language used with reference to
the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not
consider itself obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A,
a letter written by the manager of Song Fo & Company on October 17, 1922, expressly mentions an
understanding between the parties of a contract for P300,000 gallons of molasses.
We sustain appellant's point of view on the first question and rule that the contract between the parties
provided for the delivery by the Hawaiian-Philippine Co. to song Fo & Company of 300,000 gallons of
molasses.
2.
Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo &
Company? The trial judge answers No, the appellant Yes.
Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo
(Mr. Song Heng) gave us to understand that you would pay us at the end of each month for molasses
delivered to you." In Exhibit G, we find Song Fo & Company stating that they understand the contents
of Exhibit F, and that they confirm all the arrangements you have stated, and in order to make the

contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a)
Price, at 2 cents per gallon delivered at the central." In connection with the portion of the contract
having reference to the payment for the molasses, the parties have agree on a table showing the date of
delivery of the molasses, the amount and date thereof, the date of receipt of account by plaintiff, and
date of payment. The table mentioned is as follows:
Date of delivery
Account and date thereof
Date of receipt of account by plaintiff
Date of payment
1922
1923
1923
Dec. 18
P206.16
Dec. 26/22
Jan. 5
Feb. 20
Dec. 29
206.16
Jan. 3/23
do
Do
1923
Jan. 5
206.16
Jan. 9/23
Mar. 7 or 8

Mar. 31
Feb. 12
206.16
Mar. 12/23
do
Do
Feb. 27
206.16
do
do
Do
Mar. 5
206.16
do
do
Do
Mar. 16
206.16
Mar. 20/23
Apr. 2/23
Apr. 19
Mar. 24
206.16
Mar. 31/23

do
Do
Mar. 29
206.16
do
do
Do
Some doubt has risen as to when Song Fo & Company was expected to make payments for the
molasses delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the
point. Exhibit M, a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the
Hawaiian-Philippine Co. to Song Fo & Company, mentions "payment on presentation of bills for each
delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated
April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine
Co. to Song Fo & Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the
termination of the contract, gave as the reason for the rescission, the breach by Song Fo & Company of
this condition: "You will recall that under the arrangements made for taking our molasses, you were to
meet our accounts upon presentation and at each delivery." Not far removed from this statement, is the
allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant, at the end of each month
upon presentation accounts."
Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable
deduction is that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of
accounts at the end of each month. Under this hypothesis, Song Fo & Company should have paid for
the molasses delivered in December, 1922, and for which accounts were received by it on January 5,
1923, not later than January 31 of that year. Instead, payment was not made until February 20, 1923.
All the rest of the molasses was paid for either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the
contract should be treated as of the essence of the contract. Theoretically, agreeable to certain
conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to
rescind the contract because of the breach of Song Fo & Company. But actually, there is here present
no outstanding fact which would legally sanction the rescission of the contract by the HawaiianPhilippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are so substantial and fundamental as to defeat the object of the parties in
making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not
such a violation of an essential condition of the contract was warrants rescission for non-performance.
Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting
payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company
was not in default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing
its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil.,

505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of
Song Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain the
finding of the trial judge in this respect.
3.
On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract
imprudently breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn
to the facts as agreed upon by the parties.
The first cause of action of the plaintiff is based on the greater expense to which it was put in being
compelled to secure molasses from other sources. Three hundred thousand gallons of molasses was the
total of the agreement, as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were
delivered by the defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses
undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the
plaintiff at page 25 of its brief, 100,000 gallons of molasses were secured from the Central North
Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price specified in the contract
between the plaintiff and the defendant, the plaintiff accordingly suffered no material loss in having to
make this purchase. So 244,994 gallons minus the 100,000 gallons just mentioned leaves as a result
144,994 gallons. As to this amount, the plaintiff admits that it could have secured it and more from the
Central Victorias Milling Company, at three and one-half centavos per gallon. In other words, the
plaintiff had to pay the Central Victorias Milling company one and one-half centavos a gallon more for
the molasses than it would have had to pay the Hawaiian-Philippine Co. Translated into pesos and
centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions existing at the
central of the Hawaiian-Philippine Co. may have been different than those found at the Central North
Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay
but through expenses of transportation and incidental expenses, the plaintiff may have been put to
greater cost in making the purchase of the molasses in the open market, we would concede under the
first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach of the contract. The only
evidence in the record on this question is the stipulation of counsel to the effect that had Mr. Song
Heng, the manager of Song Fo & Company, been called as a witness, he would have testified that the
plaintiff would have realized a profit of P14,948.43, if the contract of December 13, 1922, had been
fulfilled by the defendant. Indisputably, this statement falls far short of presenting proof on which to
make a finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the
same line of thought as found in the decision of the trial court, which we have found to be
unsustainable. In the second place, had Mr. Song Heng taken the witness-stand and made the statement
attributed to him, it would have been insufficient proof of the allegations of the complaint, and the fact
that it is a part of the stipulation by counsel does not change this result. And lastly, the testimony of the
witness Song Heng, it we may dignify it as such, is a mere conclusion, not a proven fact. As to what
items up the more than P14,000 of alleged lost profits, whether loss of sales or loss of customers, or
what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the
first cause of action in the amount of P3,000 and on the second cause of action in no amount.
Appellant's assignments of error are accordingly found to be well taken in part and not well taken in

part.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have
and recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until
payment. Without special finding as to costs in either instance, it is so ordered.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
http://www.lawphil.net/judjuris/juri1987/jun1987/gr_l_55526_1987.html
G.R. No. L-55526

June 15, 1987

FILOIL REFINERY CORPORATION, PETROPHIL CORPORATION and FILOIL MARKETING

CORPORATION, petitioners,
vs.
HON. RAFAEL T. MENDOZA and HON. MARIANO A. ZOSA, in their capacity as Judge, Branch V,
Court of First Instance of Cebu, JESUS P. GARCIA and SEVERINA B. GARCIA, respondents.
Jesus P. Garcia for respondents.

PARAS, J.:
This is a petition for the issuance of the writs of 1) certiorari to annul and set aside: (a) the order issued
on September 24, 1979, by the Court of First Instance of Cebu in Civil Case No. R-14164, entitled
"Jesus P. Garcia, et al. vs. Filoil Refinery Corporation, et al.", dismissing petitioners' appeal from the
decision rendered in the same case on May 14, 1976; and (b) the order issued on October 20, 1980, in
the same case denying petitioners' motion for reconsideration of the dismissal of their appeal and 2)
mandamus to compel respondent Honorable Rafael T. Mendoza, as Presiding Judge of Branch V, Court
of First Instance of Cebu, to give due course to petitioners' appeal.
In a complaint filed by herein private respondents, the lower court rendered on May 14, 1976, a
decision rescinding the contract of lease over a 750 square meters lot situated in Cebu City covered by
TCT No. 30712 entered into between Filoil Refinery Corporation and private respondents Jesus P.
Garcia and Severina B. Garcia and ordering the petitioner herein to vacate the leased premises. It
appears that the herein petitioners violated the terms and conditions of the lease agreement in the sense
that the signatory Filoil Refinery Corporation subleased it to Filoil Marketing and subsequently to
petitioner Petrophil Corporation and that herein petitioners were delayed several times in the payment
of the monthly rentals.
On June 11, 1976, private respondents filed their Motion for execution of the aforementioned decision
pending appeal. Petitioners opposed said motion and on July 15, 1976 petitioners filed their notice of
appeal. On July 30, 1976 they filed their Record on Appeal.
On November 10, 1976, the private respondents filed a Motion for Execution pending appeal which
was opposed by petitioners in their Motion for Reconsideration. Said Motion for Reconsideration was
denied by the lower court prompting petitioners to file a Petition for certiorari and Review with the
Court of Appeals docketed as CA-G.R. No. 06145-SP. On September 29, 1980, the Court of Appeals

rendered its decision denying the petition for certiorari and review to annul and set aside the order of
the lower court granting the Motion for Execution pending appeal.
Meanwhile herein private respondents filed a motion to dismiss the appeal of petitioners in the original
complaint on the ground of alleged abandonment thereof by reason of the failure of the petitioners to
amend their record on appeal so as to include in their Record on Appeal two important orders of the
lower court dated July 30, 1975 and February 4, 1976, the "Motion for Execution Pending Appeal," and
the "Order" of the lower court granting said "Motion for Execution Pending Appeal."
The lower court issued an order dismissing the appeal on September 24, 1979 stating as follows:
Let it be remembered that the Order of this Court of July 30, 1975, authorized the plaintiffs to implead
the Filoil Marketing Corporation as one of the defendants in this case; the Order dated February 4,
1976, contained the agreement of the parties to submit this case for summary judgment and listed the
exhibits presented by both parties which were admitted in evidence. There is no gainsaying that the
inclusion of these orders in defendants' record on appeal is necessary for a proper understanding of the
issues involved in the appeal. Without them, it is believed the Court of Appeals will not be in a position
to know why the case was decided on summary judgment, what exhibits have been admitted in
evidence and why Filoil Marketing Corporation had been ordered impleaded. (Rollo, pp. 69-70)
Petitioners filed their Motion for Reconsideration of the said Order which was denied by the lower
court in its Order dated October 20, 1980. Hence, the present petition for certiorari and mandamus.
Petitioners' contentions merit Our consideration
The records reveal that the lower court dismissed petitioners' appeal because of their failure to amend
or to complete their record on appeal. Such alleged failure was brought to the attention of the lower
court by private respondents in their opposition to the approval of the Record on Appeal on the ground
that petitioners failed to include in the Record of Appeal the Motion for Execution pending appeal
dated July 30, 1975 and the Order granting the motion for execution pending appeal dated February 4,
1976. However it is a fact that petitioners filed their record on appeal well within the reglementary
period and that the lower court never issued an order declaring the Record on Appeal incomplete or
defective nor an order ordering petitioners to complete or correct the same. The lower court did not act
on the record on appeal filed by petitioners despite the opposition of the private respondents to the
approval of the same. Obviously as there was no order by a competent court requiring them to complete
their record on appeal, the petitioners were under no obligation to amend the same, petitioners having
the impression that their record on appeal was then adequate and regular. Petitioners were also under
the belief that the failure of the lower court in not acting immediately on their record on appeal was
because at the time the record on appeal was awaiting approval by the lower court, the petition for
certiorari filed with the Court of Appeals to question the execution of the decision pending appeal was
still unresolved by the Court of Appeals; and that had the lower court approved outright the record on
appeal, or had it required petitioners to amend the same and petitioners complied, constraining it to
give its approval thereto, it would have lost its jurisdiction to order execution of the decision pending
appeal. Petitioners cited the ruling handed by Us in the case of De Leon vs. De Los Santos 1 to invoke
the rule that once an appeal has been perfected, the trial court loses jurisdiction over the case and
cannot generally act anymore on any matter raised therein. It was more for these reasons that
petitioners felt there was no need to follow up or to inquire about the approval of their record on appeal
rather than an act of abandonment of their appeal as theorized by private respondents.

Anent petitioners' grounds for appealing, petitioners aver that they have good and valid grounds. In
rescinding the contract of lease between petitioner Filoil Refinery Corporation and private respondents,
the lower court found that petitioners illegally subleased the lot to petitioner Filoil Marketing
Corporation and that the latter, in turn, assigned its sublease to petitioner Petrophil Corporation.
However an examination of the lease contract reveals that there is no express prohibition against the
assignment of the leasehold right. Under the law, when there is no express prohibition, the lessee may
sublet the thing leased 2 and all rights acquired by virtue of an obligation are transmissible, if there has
been no stipulation to the contrary. 3
Petitioners admit that on a few occasions, they were late in paying the rentals which were due within
the first 15 days of each month but their delay was only for a few days. The delayed rentals for the
months of May, July, August and September, 1974 were remitted to private respondents on May 21,
July 19, August 19 and September 16, 1974, respectively. Such breaches were not so substantial and
fundamental as to defeat the object of the parties in making the agreement because the law is not
concerned with such trifles.
All these arguments however have become moot and academic considering that the contract of lease
sought to be rescinded expired or terminated last September 16, 1982 or almost 5 years ago by its own
terms as provided for in the Lease Contract. Petitioners have won the case without the necessity of an
order by this Court to reverse the judgment of the respondent court and/or to grant the petition as
prayed for.
WHEREFORE premises considered the petition is hereby DISMISSED, with the petitioners ordered to
VACATE the premises.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortes, JJ., concur.
http://www.lawphil.net/judjuris/juri1974/jan1974/gr_l_26578_1974.html
G.R. No. L-26578

January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,

vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.

TEEHANKEE, J.:1wph1.t
The Court, in affirming the decision under review of the Court of Appeals, which holds that the
respondent buyer of two small residential lots on installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the principal alone already more than the value of one lot,
besides the larger stipulated interests on both lots, is entitled to the conveyance of one fully paid lot of

his choice, rules that the judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for
execution of the corresponding deed of conveyance after payment of the balance still due on their
purchase price. Private respondent as plaintiff had entered into two written contracts with petitioner
Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots Nos. 7
and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum of
P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments of
P19.83 with 10% interest per annum, to commence on May 26, 1948, date of execution of the
contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters,
and the two lots were among those allotted to co-petitioner Jose Legarda who was then included as codefendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the stipulated
120) monthly installments totalling P3,582.06 up to the month of February, 1956, which as per
petitioners' own statement of account, Exhibit "1", was applied to respondent's account (without
distinguishing the two lots), as follows:
To interests

P1,889.78

To principal

1,682.28

Total

P3,582.06 1

It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the
Manila court of first instance in 1961, respondent did not make further payments. The account thus
shows that he owed petitioners the sum of P1,317.72 on account of the balance of the purchase price
(principal) of the two lots (in the total sum of P3,000.00), although he had paid more than the stipulated
purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote
petitioners stating that his desire to build a house on the lots was prevented by their failure to introduce
improvements on the subdivision as "there is still no road to these lots," and requesting information of
the amount owing to update his account as "I intend to continue paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete total
payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the
provisions of both contracts all the amounts paid in accordance with the agreement together with the
improvements on the premises have been considered as rents paid and as payment for damages suffered
by your failure," 2 and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of the
contracts and dismissing respondent's complaint, respondent appellate court on appeal rendered its
judgment of July 27, 1966 reversing the lower court's judgment and ordering petitioners "to deliver to
the plaintiff possession of one of the two lots, at the choice of defendants, and to execute the
corresponding deed of conveyance to the plaintiff for the said lot," 3 ruling as follows:
During the hearing, plaintiff testified that he suspended payments because the lots were not actually
delivered to him, or could not be, due to the fact that they were completely under water; and also

because the defendants-owners failed to make improvements on the premises, such as roads, filling of
the submerged areas, etc., despite repeated promises of their representative, the said Mr. Cenon. As
regards the supposed cancellation of the contracts, plaintiff averred that no demand has been made
upon him regarding the unpaid installments, and for this reason he could not be declared in default so
as to entitle the defendants to cancel the said contracts.
The issue, therefore, is: Under the above facts, may defendants be compelled, or not, to allow plaintiff
to complete payment of the purchase price of the two lots in dispute and thereafter to execute the final
deeds of conveyance thereof in his favor?
xxx

xxx

xxx

Whether or not plaintiffs explanation for his failure to pay the remaining installments is true,
considering the circumstances obtaining in this case, we elect to apply the broad principles of equity
and justice. In the case at bar, we find that the plaintiff has paid the total sum of P3,582.06 including
interests, which is even more than the value of the two lots. And even if the sum applied to the principal
alone were to be considered, which was of the total of P1,682.28, the same was already more than the
value of one lot, which is P1,500.00. The only balance due on both lots was P1,317.72, which was even
less than the value of one lot. We will consider as fully paid by the plaintiff at least one of the two lots,
at the choice of the defendants. This is more in line with good conscience than a total denial to the
plaintiff of a little token of what he has paid the defendant Legarda Hermanos. 4
Hence, the present petition for review, wherein petitioners insist on their right of cancellation under the
"plainly valid written agreements which constitute the law between the parties" as against "the broad
principles of equity and justice" applied by the appellate court. Respondent on the other hand while
adhering to the validity of the doctrine of the Caridad Estates cases 5 which recognizes the right of a
vendor of land under a contract to sell to cancel the contract upon default, with forfeiture of the
installments paid as rentals, disputes its applicability herein contending that here petitioners-sellers
were equally in default as the lots were "completely under water" and "there is neither evidence nor a
finding that the petitioners in fact cancelled the contracts previous to receipt of respondent's letter." 6
The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06 (including
interests of P1,889.78) already paid by respondent (which was more than the value of two lots), the
sum applied by petitioners to the principal alone in the amount of P1,682.28 was already more than the
value of one lot of P1,500.00 and hence one of the two lots as chosen by respondent would be
considered as fully paid, is fair and just and in accordance with law and equity.
As already stated, the monthly payments for eight years made by respondent were applied to his
account without specifying or distinguishing between the two lots subject of the two agreements under
petitioners' own statement of account, Exhibit "1". 7 Even considering respondent as having defaulted
after February 1956, when he suspended payments after the 95th installment, he had as of the already
paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00). The judgment
recognizing this fact and ordering the conveyance to him of one lot of his choice while also recognizing
petitioners' right to retain the interests of P1,889.78 paid by him for eight years on both lots, besides the
cancellation of the contract for one lot which thus reverts to petitioners, cannot be deemed to deny
substantial justice to petitioners nor to defeat their rights under the letter and spirit of the contracts in
question.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier 8 is fully applicable to

the present case, with the respondent at bar being granted lesser benefits, since no rescission of contract
was therein permitted. There, where the therein buyer-appellee identically situated as herein respondent
buyer had likewise defaulted in completing the payments after having religiously paid the stipulated
monthly installments for almost eight years and notwithstanding that the seller-appellant had duly
notified the buyer of the rescission of the contract to sell, the Court upheld the lower court's judgment
denying judicial confirmation of the rescission and instead granting the buyer an additional grace
period of sixty days from notice of judgment to pay all the installment payments in arrears together
with the stipulated 10% interest per annum from the date of default, apart from reasonable attorney's
fees and costs, which payments, the Court observed, would have the plaintiff-seller "recover everything
due thereto, pursuant to its contract with the defendant, including such damages as the former may have
suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592
thereto, We find that plaintiff herein has not been denied substantial justice, for, according to Art. 1234
of said Code: 'If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee,'" and
"that in the interest of justice and equity, the decision appealed from may be upheld upon the authority
of Article 1234 of the Civil Code." 9
ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without
pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur.1wph1.t
http://sc.judiciary.gov.ph/jurisprudence/2010/july2010/176868.htm
SOLAR HARVEST, INC.,
Petitioner,

- versus -

DAVAO CORRUGATED CARTON CORPORATION,

Respondent.
G.R. No. 176868
Present:
CARPIO, J.,
Chairperson,
NACHURA,
PERALTA,
ABAD, and

MENDOZA, JJ.
Promulgated:
July 26, 2010
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September 21, 2006
and Resolution[2] dated February 23, 2007, which denied petitioners motion for reconsideration. The
assailed Decision denied petitioners claim for reimbursement for the amount it paid to respondent for
the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with
respondent, Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioners business of exporting fresh bananas, at US$1.10 each. The
agreement was not reduced into writing. To get the production underway, petitioner deposited, on
March 31, 1998, US$40,150.00 in respondents US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001,
petitioner wrote a demand letter for reimbursement of the amount paid.[3] On February 19, 2001,
respondent replied that the boxes had been completed as early as April 3, 1998 and that petitioner failed
to pick them up from the formers warehouse 30 days from completion, as agreed upon. Respondent
mentioned that petitioner even placed an additional order of 24,000 boxes, out of which, 14,000 had
been manufactured without any advanced payment from petitioner. Respondent then demanded
petitioner to remove the boxes from the factory and to pay the balance of US$15,400.00 for the
additional boxes and P132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and damages against
respondent. The Complaint averred that the parties agreed that the boxes will be delivered within 30
days from payment but respondent failed to manufacture and deliver the boxes within such time. It
further alleged
6. That repeated follow-up was made by the plaintiff for the immediate production of the
ordered boxes, but every time, defendant [would] only show samples of boxes and ma[k]e repeated
promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered boxes, plaintiff ha[d] to

cancel the same and demand payment and/or refund from the defendant but the latter refused to pay
and/or refund the US$40,150.00 payment made by the former for the ordered boxes.[4]
In its Answer with Counterclaim,[5] respondent insisted that, as early as April 3, 1998, it had
already completed production of the 36,500 boxes, contrary to petitioners allegation. According to
respondent, petitioner, in fact, made an additional order of 24,000 boxes, out of which, 14,000 had been
completed without waiting for petitioners payment. Respondent stated that petitioner was to pick up
the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred that, on
October 8, 1998, petitioners representative, Bobby Que (Que), went to the factory and saw that the
boxes were ready for pick up. On February 20, 1999, Que visited the factory again and supposedly
advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because
petitioners transaction to ship bananas to China did not materialize. Respondent claimed that the
boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60.00
per square meter for every month from April 1998. As counterclaim, respondent prayed that judgment
be rendered ordering petitioner to pay $15,400.00, plus interest, moral and exemplary damages,
attorneys fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and that respondent
already completed the initial order of 36,500 boxes and 14,000 boxes out of the second
order. It maintained that
respondent only manufactured a sample of the ordered boxes and that respondent could not have
produced 14,000 boxes without the required pre-payments.[6]
During trial, petitioner presented Que as its sole witness. Que testified that he ordered the boxes
from respondent and deposited the money in respondents account.[7] He specifically stated that, when
he visited respondents factory, he saw that the boxes had no print of petitioners logo.[8] A few months
later, he followed-up the order and was told that the company had full production, and thus, was
promised that production of the order would be rushed. He told respondent that it should indeed rush
production because the need for the boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to
cancel the order because it was already late for them to meet their commitment to ship the bananas to
China.[9] On cross-examination, Que further testified that China Zero Food, the Chinese company that
ordered the bananas, was sending a ship to Davao to get the bananas, but since there were no cartons,
the ship could not proceed. He said that, at that time, bananas from Tagum Agricultural Development
Corporation (TADECO) were already there. He denied that petitioner made an additional order of
24,000 boxes. He explained that it took three years to refer the matter to counsel because respondent
promised to pay.[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October
1998 to inspect the boxes and that the latter got samples of them. In February 2000, they inspected the
boxes again and Que got more samples. Estanislao said that petitioner did not pick up the boxes
because the ship did not arrive.[11] Jaime Tan (Tan), president of respondent, also testified that his
company finished production of the 36,500 boxes on April 3, 1998 and that petitioner made a second
order of 24,000 boxes. He said that the agreement was for respondent to produce the boxes and for
petitioner to pick them up from the warehouse.[12] He also said that the reason why petitioner did not
pick up the boxes was that the ship that was to carry the bananas did not arrive.[13] According to him,
during the last visit of Que and Estanislao, he asked them to withdraw the boxes immediately because
they were occupying a big space in his plant, but they, instead, told him to sell the cartons as rejects. He
was able to sell 5,000 boxes at P20.00 each for a total of P100,000.00. They then told him to apply the

said amount to the unpaid balance.

In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that respondent did not
commit any breach of faith that would justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the
ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive. It thus
dismissed the complaint and respondents counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of defendant and
against the plaintiff and, accordingly, plaintiffs complaint is hereby ordered DISMISSED without
pronouncement as to cost. Defendants counterclaims are similarly dismissed for lack of merit.
SO ORDERED.[14]
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit.[15] The appellate court held
that petitioner failed to discharge its burden of proving what it claimed to be the parties agreement
with respect to the delivery of the boxes. According to the CA, it was unthinkable that, over a period of
more than two years, petitioner did not even demand for the delivery of the boxes. The CA added that
even assuming that the agreement was for respondent to deliver the boxes, respondent would not be
liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes.[16]
Petitioner moved for reconsideration,[17] but the motion was denied by the CA in its Resolution
of February 23, 2007.[18]
In this petition, petitioner insists that respondent did not completely manufacture the boxes and
that it was respondent which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant of this petition.
Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract
under Article 1191 of the Civil Code, which reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in the performance of his obligation.

In determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the
same law, which provides:
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.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1)

When the obligation or the law expressly so declares; or

(2)
When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3)
perform.

When demand would be useless, as when the obligor has rendered it beyond his power to

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the
parties respective obligations should be simultaneous. Hence, no demand is generally necessary
because, once a party fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for performance of the obligations are fixed,
the default for each obligation must be determined by the rules given in the first paragraph of the
present article,[19] that is, the other party would incur in delay only from the moment the other party
demands fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period for
the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor
can be considered in default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the complaint was the lack of demand
by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a follow-up upon respondent, which, however, would
not qualify as a demand for the fulfillment of the obligation. Petitioners witness also testified that they
made a follow-up of the boxes, but not a demand. Note is taken of the fact that, with respect to their
claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was sent
to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not
have a cause of action for rescission against respondent as the latter would not yet be considered in
breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the present case,
petitioners claim for reimbursement would still fail, as the circumstances would show that respondent
was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually reviewed in a petition for
review under Rule 45.[20] The Court, in petitions for review, limits its inquiry only to questions of
law. After all, it is not a trier of facts, and findings of fact made by the trial court, especially when
reiterated by the CA, must be given great respect if not considered as final.[21] In dealing with this

petition, we will not veer away from this doctrine and will thus sustain the factual findings of the CA,
which we find to be adequately supported by the evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes and the
production report thereof, there is ample showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who accompanied Que to the factory, attesting that,
during their first visit to the company, they saw the pile of petitioners boxes and Que took samples
thereof. Que, petitioners witness, himself confirmed this incident. He testified that Tan pointed the
boxes to him and that he got a sample and saw that it was blank. Ques absolute assertion that the
boxes were not manufactured is, therefore, implausible and suspicious.
In fact, we note that respondents counsel manifested in court, during trial, that his client was
willing to shoulder expenses for a representative of the court to visit the plant and see the boxes.[22]
Had it been true that the boxes were not yet completed, respondent would not have been so bold as to
challenge the court to conduct an ocular inspection of their warehouse. Even in its Comment to this
petition, respondent prays that petitioner be ordered to remove the boxes from its factory site,[23]
which could only mean that the boxes are, up to the present, still in respondents premises.
We also believe that the agreement between the parties was for petitioner to pick up the boxes
from respondents warehouse, contrary to petitioners allegation. Thus, it was due to petitioners fault
that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for respondent to deliver the
boxes within 30 days from payment, as alleged in the Complaint. Its sole witness, Que, was not even
competent to testify on the terms of the agreement and, therefore, we cannot give much credence to his
testimony. It appeared from the testimony of Que that he did not personally place the order with Tan,
thus:
Q.
A.

No, my question is, you went to Davao City and placed your order there?
I made a phone call.

Q.
A.

You made a phone call to Mr. Tan?

The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a contact with Mr. Tan.

Q.
So, your first statement that you were the one who placed the order is not true?
A.
Thats true. The Solar Harvest made a contact with Mr. Tan and I deposited the money in the
bank.
Q.
You said a while ago [t]hat you were the one who called Mr. Tan and placed the order for
36,500 boxes, isnt it?
A.
First time it was Mr. Alfred Ong.
Q.
A.

It was Mr. Ong who placed the order[,] not you?

Yes, sir.[24]

Q.
A.

Is it not a fact that the cartons were ordered through Mr. Bienvenido Estanislao?
Yes, sir.[25]

Moreover, assuming that respondent was obliged to deliver the boxes, it could not have complied with

such obligation. Que, insisting that the boxes had not been manufactured, admitted that he did not give
respondent the authority to deliver the boxes to TADECO:
Q.
Did you give authority to Mr. Tan to deliver these boxes to TADECO?
A.
No, sir. As I have said, before the delivery, we must have to check the carton, the quantity and
quality. But I have not seen a single carton.
Q.
Are you trying to impress upon the [c]ourt that it is only after the boxes are completed, will you
give authority to Mr. Tan to deliver the boxes to TADECO[?]
A.
Sir, because when I checked the plant, I have not seen any carton. I asked Mr. Tan to rush the
carton but not[26]
Q.
A.

Did you give any authority for Mr. Tan to deliver these boxes to TADECO?
Because I have not seen any of my carton.

Q.
A.

You dont have any authority yet given to Mr. Tan?

None, your Honor.[27]

Surely, without such authority, TADECO would not have allowed respondent to deposit the boxes
within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the
evidence having shown that respondent did not commit any breach of its contractual obligation. As
previously stated, the subject boxes are still within respondents premises. To put a rest to this dispute,
we therefore relieve respondent from the burden of having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after petitioner is given a period of time within which
to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision
dated September 21, 2006 and Resolution dated February 23, 2007 are AFFIRMED. In addition,
petitioner is given a period of 30 days from notice within which to cause the removal of the
36,500
boxes from respondents warehouse. After the lapse of said period and petitioner fails to effect such
removal, respondent shall have the right to dispose of the boxes in any manner it may deem fit.
SO ORDERED.
LORENZO SHIPPING CORP., petitioner, vs. BJ MARTHEL INTERNATIONAL, INC., respondent.
DECISION
CHICO-NAZARIO, J.:
This is a petition for review seeking to set aside the Decision[1] of the Court of Appeals in CA-G.R.
CV No. 54334 and its Resolution denying petitioners motion for reconsideration.
The factual antecedents of this case are as follows:
Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It
used to own the cargo vessel M/V Dadiangas Express.

Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading,
marketing, and selling of various industrial commodities. It is also an importer and distributor of
different brands of engines and spare parts.
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the
latters marine engines. Sometime in 1989, petitioner asked respondent for a quotation for various
machine parts. Acceding to this request, respondent furnished petitioner with a formal quotation,[2]
thus:
May 31, 1989
MINQ-6093
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila
SUBJECT: PARTS FOR ENGINE MODEL
MITSUBISHI 6UET 52/60
Dear Mr. Go:
We are pleased to submit our offer for your above subject requirements.
Description

Qty.

Unit Price

Nozzle Tip
6 pcs.
P 5,520.00
Plunger & Barrel
6 pcs.
27,630.00
Cylinder Head
2 pcs.
1,035,000.00
Cylinder Liner
1 set
TOTAL PRICE FOB
P2,745,900.00
MANILA
___________

Total Price
33,120.00
165,780.00
2,070,000.00
477,000.00

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
We trust you find our above offer acceptable and look forward to your most valued order.
Very truly yours,
(SGD) HENRY PAJARILLO
Sales Manager
Petitioner thereafter issued to respondent Purchase Order No. 13839,[3] dated 02 November 1989, for
the procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas
Express. The purchase order was co-signed by Jose Go, Jr., petitioners vice-president, and Henry
Pajarillo. Quoted hereunder is the pertinent portion of the purchase order:
Name of Description

Qty.

Amount

CYL. LINER M/E

1 SET

P477,000.00

NOTHING FOLLOW
INV. #
TERM OF PAYMENT: 25% DOWN PAYMENT
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of
respondent ten postdated checks[4] to be drawn against the formers account with Allied Banking
Corporation. The checks were supposed to represent the full payment of the aforementioned cylinder
liner.
Subsequently, petitioner issued Purchase Order No. 14011,[5] dated 15 January 1990, for yet another
unit of cylinder liner. This purchase order stated the term of payment to be 25% upon delivery,
balance payable in 5 bi-monthly equal installment[s].[6] Like the purchase order of 02 November
1989, the second purchase order did not state the date of the cylinder liners delivery.
On 26 January 1990, respondent deposited petitioners check that was postdated 18 January 1990,
however, the same was dishonored by the drawee bank due to insufficiency of funds. The remaining
nine postdated checks were eventually returned by respondent to petitioner.
The parties presented disparate accounts of what happened to the check which was previously
dishonored. Petitioner claimed that it replaced said check with a good one, the proceeds of which were
applied to its other obligation to respondent. For its part, respondent insisted that it returned said
postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei
Sangyo Co. Ltd., by opening a letter of credit on 23 February 1990 under its own name with the First
Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioners warehouse in North Harbor,
Manila. The sales invoices[7] evidencing the delivery of the cylinder liners both contain the notation
subject to verification under which the signature of Eric Go, petitioners warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15 November 1990[8] to petitioner. While the
other items listed in said statement of account were fully paid by petitioner, the two cylinder liners
delivered to petitioner on 20 April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr.,
respondents vice-president, sent a demand letter dated 02 January 1991[9] to petitioner requiring the
latter to pay the value of the cylinder liners subjects of this case. Instead of heeding the demand of
respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter
dated 12 March 1991[10] offering to pay only P150,000 for the cylinder liners. In said letter, petitioner
claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas
Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the
proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 1991[11] was furnished petitioner by
respondents counsel requiring the former to settle its obligation to respondent together with accrued
interest and attorneys fees.

Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and
damages before the Regional Trial Court (RTC) of Makati City. In its complaint,[12] respondent
(plaintiff below) alleged that despite its repeated oral and written demands, petitioner obstinately
refused to settle its obligations. Respondent prayed that petitioner be ordered to pay for the value of
the cylinder liners plus accrued interest of P111,300 as of May 1991 and additional interest of 14% per
annum to be reckoned from June 1991 until the full payment of the principal; attorneys fees; costs of
suits; exemplary damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended
complaint with preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of
Court.[13] Aside from the prayer for the issuance of writ of preliminary attachment, the amendments
also pertained to the issuance by petitioner of the postdated checks and the amounts of damages
claimed.
In an Order dated 25 July 1991,[14] the court a quo granted respondents prayer for the issuance of a
preliminary attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge
Writ of Attachment[15] attaching thereto a counter-bond as required by the Rules of Court. On even
date, the trial court issued an Order[16] lifting the levy on petitioners properties and the garnishment
of its bank accounts.
Petitioner afterwards filed its Answer[17] alleging therein that time was of the essence in the delivery
of the cylinder liners and that the delivery on 20 April 1990 of said items was late as respondent
committed to deliver said items within two (2) months after receipt of firm order[18] from petitioner.
Petitioner likewise sought counterclaims for moral damages, exemplary damages, attorneys fees plus
appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25
October 1991.[19] The amendment introduced dealt solely with the number of postdated checks issued
by petitioner as full payment for the first cylinder liner it ordered from respondent. Whereas in the first
amended complaint, only nine postdated checks were involved, in its second amended complaint,
respondent claimed that petitioner actually issued ten postdated checks. Despite the opposition by
petitioner, the trial court admitted respondents Second Amended Complaint with Preliminary
Attachment.[20]
Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners)[21]
alleging therein that [w]ith the passage of time and with no definite end in sight to the present
litigation, the cylinder liners run the risk of obsolescence and deterioration[22] to the prejudice of the
parties to this case. Thus, petitioner prayed that it be allowed to sell the cylinder liners at the best
possible price and to place the proceeds of said sale in escrow. This motion, unopposed by respondent,
was granted by the trial court through the Order of 17 March 1991.[23]
After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to
pay P50,000.00 to the defendant as and by way of attorneys fees.[24]
The trial court held respondent bound to the quotation it submitted to petitioner particularly with
respect to the terms of payment and delivery of the cylinder liners. It also declared that respondent had
agreed to the cancellation of the contract of sale when it returned the postdated checks issued by

petitioner. Respondents counterclaims for moral, exemplary, and compensatory damages were
dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial courts Decision but the motion was denied for
lack of merit.[25]
Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals[26]
which reversed and set aside the Decision of the court a quo. The appellate court brushed aside
petitioners claim that time was of the essence in the contract of sale between the parties herein
considering the fact that a significant period of time had lapsed between respondents offer and the
issuance by petitioner of its purchase orders. The dispositive portion of the Decision of the appellate
court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is
hereby ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at
14% per annum reckoned from May, 1991.[27]
The Court of Appeals also held that respondent could not have incurred delay in the delivery of
cylinder liners as no demand, judicial or extrajudicial, was made by respondent upon petitioner in
contravention of the express provision of Article 1169 of the Civil Code which provides:
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.
Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders
by petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the
circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals
but this was denied through the resolution of 06 October 2000.[28] Hence, this petition for review
which basically raises the issues of whether or not respondent incurred delay in performing its
obligation under the contract of sale and whether or not said contract was validly rescinded by
petitioner.
That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains
that its obligation to pay fully the purchase price was extinguished because the adverted contract was
validly terminated due to respondents failure to deliver the cylinder liners within the two-month period
stated in the formal quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify
petitioner to disregard the terms of the contract considering that time was of the essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the actual or
apparent intention of the parties and before time may be so regarded by a court, there must be a
sufficient manifestation, either in the contract itself or the surrounding circumstances of that intention.
[29] Petitioner insists that although its purchase orders did not specify the dates when the cylinder
liners were supposed to be delivered, nevertheless, respondent should abide by the term of delivery
appearing on the quotation it submitted to petitioner.[30] Petitioner theorizes that the quotation
embodied the offer from respondent while the purchase order represented its (petitioners) acceptance

of the proposed terms of the contract of sale.[31] Thus, petitioner is of the view that these two
documents cannot be taken separately as if there were two distinct contracts.[32] We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as
to the intention of the contracting parties, the literal meaning shall control.[33] However, in order to
ascertain the intention of the parties, their contemporaneous and subsequent acts should be considered.
[34] While this Court recognizes the principle that contracts are respected as the law between the
contracting parties, this principle is tempered by the rule that the intention of the parties is
primordial[35] and once the intention of the parties has been ascertained, that element is deemed as an
integral part of the contract as though it has been originally expressed in unequivocal terms.[36]
In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves,
embody the terms of the sale of the cylinder liners. One can easily glean the significant differences in
the terms as stated in the formal quotation and Purchase Order No. 13839 with regard to the due date of
the down payment for the first cylinder liner and the date of its delivery as well as Purchase Order No.
14011 with respect to the date of delivery of the second cylinder liner. While the quotation provided by
respondent evidently stated that the cylinder liners were supposed to be delivered within two months
from receipt of the firm order of petitioner and that the 25% down payment was due upon the cylinder
liners delivery, the purchase orders prepared by petitioner clearly omitted these significant items. The
petitioners Purchase Order No. 13839 made no mention at all of the due dates of delivery of the first
cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did
not indicate the due date of delivery of the second cylinder liner.
In the case of Bugatti v. Court of Appeals,[37] we reiterated the principle that [a] contract undergoes
three distinct stages preparation or negotiation, its perfection, and finally, its consummation.
Negotiation begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The perfection or birth of the contract
takes place when the parties agree upon the essential elements of the contract. The last stage is the
consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.
In the instant case, the formal quotation provided by respondent represented the negotiation phase of
the subject contract of sale between the parties. As of that time, the parties had not yet reached an
agreement as regards the terms and conditions of the contract of sale of the cylinder liners. Petitioner
could very well have ignored the offer or tendered a counter-offer to respondent while the latter could
have, under the pertinent provision of the Civil Code,[38] withdrawn or modified the same. The parties
were at liberty to discuss the provisions of the contract of sale prior to its perfection. In this connection,
we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed,
renegotiated prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping
Corporation dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder
liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that

the delivery of the cylinder liner will be made in two months time from the time you received the
confirmation of the order. Is that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant
make a confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of
payment which you required of them of 25% down payment, now, it is stated in the purchase order the
date of delivery, will you explain to the court why the date of delivery of the cylinder liner was not
mentioned in the purchase order which is the contract between you and Lorenzo Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired
[with] our supplier in Japan to give us the price and delivery of that item. When we received that
quotation from our supplier it is stated there that they can deliver within two months but we have to get
our confirmed order within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese
supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the
order with your Japanese supplier after receiving the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%.[39]
For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in
the following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed
upon by both parties was 25% down payment.
Q: When?

A: Upon confirmation of the order.

...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the
earliest possible time. Again, that would depend on the customers. Even after receipt of the purchase
order which was what happened here, they re-negotiated the terms and sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.[40]
The above declarations remain unassailed. Other than its bare assertion that the subject contracts of
sale did not undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the
above testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No.
14011 yet it utterly failed to adduce any justification as to why said documents contained terms which
are at variance with those stated in the quotation provided by respondent. The only plausible reason for
such failure on the part of petitioner is that the parties had, in fact, renegotiated the proposed terms of
the contract of sale. Moreover, as the obscurity in the terms of the contract between respondent and
petitioner was caused by the latter when it omitted the date of delivery of the cylinder liners in the
purchase orders and varied the term with respect to the due date of the down payment,[41] said
obscurity must be resolved against it.[42]
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti,[43] instructive.
There, we held that
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the
essence of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in
the absence of anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for
dry dock repair and maintenance of its M/V Dadiangas Express between the later part of December

1989 to early January 1990, the record is bereft of any indication that respondent was aware of such
fact. The failure of petitioner to notify respondent of said date is fatal to its claim that time was of the
essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:
. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and
January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence
as claimed by the appellee, they should have stated the same in the said purchase orders, and not
merely relied on the quotation issued by the appellant considering the lapse of time between the
quotation issued by the appellant and the purchase orders of the appellee.
In the instant case, the appellee should have provided for an allowance of time and made the purchase
order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the
first week of January, 1990. In fact, the appellee should have cancelled the first purchase order when
the cylinder liner was not delivered on the date it now says was necessary. Instead it issued another
purchase order for the second set of cylinder liner. This fact negates appellees claim that time was
indeed of the essence in the consummation of the contract of sale between the parties.[44]
Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent
as full payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January
1990 fail to impress. It is not an indication of failure to honor a commitment on the part of the
respondent. The earliest maturity date of the checks was 18 January 1990. As delivery of said checks
could produce the effect of payment only when they have been cashed,[45] respondents obligation to
deliver the first cylinder liner could not have arisen as early as 02 January 1990 as claimed by
petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for the value of the
first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the
cylinder liners with its principal in Japan solely on the basis of its previously harmonious business
relationship with petitioner.
As an aside, let it be underscored that [e]ven where time is of the essence, a breach of the contract in
that respect by one of the parties may be waived by the other partys subsequently treating the contract
as still in force.[46] Petitioners receipt of the cylinder liners when they were delivered to its
warehouse on 20 April 1990 clearly indicates that it considered the contract of sale to be still subsisting
up to that time. Indeed, had the contract of sale been cancelled already as claimed by petitioner, it no
longer had any business receiving the cylinder liners even if said receipt was subject to verification.
By accepting the cylinder liners when these were delivered to its warehouse, petitioner indisputably
waived the claimed delay in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the
cylinder liners on 20 April 1990 was made within a reasonable period of time considering that
respondent had to place the order for the cylinder liners with its principal in Japan and that the latter
was, at that time, beset by heavy volume of work.[47]
There having been no failure on the part of the respondent to perform its obligation, the power to
rescind the contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The law explicitly gives either party the right to rescind the contract only upon the failure of the other
to perform the obligation assumed thereunder.[48] The right, however, is not an unbridled one. This
Court in the case of University of the Philippines v. De los Angeles,[49] speaking through the eminent
civilist Justice J.B.L. Reyes, exhorts:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denied that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to
court. Then, should the court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the party prejudiced. (Emphasis supplied)
In other words, the party who deems the contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the others breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages.[50]
Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of
sale between them. Quite the contrary, respondents act of proceeding with the opening of an
irrevocable letter of credit on 23 February 1990 belies petitioners claim that it notified respondent of
the cancellation of the contract of sale. Truly, no prudent businessman would pursue such action
knowing that the contract of sale, for which the letter of credit was opened, was already rescinded by
the other party.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The
Decision of the Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are
hereby AFFIRMED. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
http://sc.judiciary.gov.ph/jurisprudence/1998/mar1998/109373.htm
PACIFIC BANKING CORPORATION EMPLOYEES ORGANIZATION, PAULA S. PAUG, and its
officers and members, petitioners, vs. THE HONORABLE COURT OF APPEALS and VITALIANO
N. NAAGAS II, as Liquidator of Pacific Banking Corporation, respondents.
[G.R. No. 112991. March 27, 1998]
THE PRESIDENT OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, as Liquidator of
the Pacific Banking Corporation, petitioner, vs. COURT OF APPEALS, HON. JUDGE REGINO T.
VERIDIANO II, DEPUTY SHERIFF RAMON ENRIQUEZ and ANG ENG JOO, ANG KEONG LAN

and E.J ANG INTL. LTD., represented by their Attorney-in-fact, GONZALO C. SY, respondents.
RESOLUTION
MENDOZA, J.:
For consideration are (1) petitioner's Omnibus Motion in G.R. No. 112991 seeking reconsideration of
the Court's resolution dated October 9, 1995, which denied the reconsideration of the decision in this
case promulgated on March 20, 1995, and the resolution of October 13, 1995 which absolved the
branch clerk of court of the RTC of Manila, Branch 31, of charges of wrongdoing; and (2) the
manifestation and motions for clarification filed by the Land Bank of the Philippines (LBP) concerning
the request of petitioner in G.R. No. 112991 for the transfer of the funds of the Pacific Banking
Corporation (PaBC) to its other account in another branch of LBP and the alleged garnishment of the
funds of PaBC deposited in LBP in favor of the Bureau of Internal Revenue.
The antecedent facts are as follows:
On March 20, 1995, the Court rendered a decision holding that a petition for liquidation under Sec. 29
of the Central Bank Act, R.A.No. 265[1] is a special proceeding and , therefore, the rules prescribing a
period of 30 days for appealing and requiring a record on appeal apply. Accordingly, the appeal in G.R.
No. 109373 was held to have been duly perfected but the appeal in G.R. No. 112991 had not been
perfected because of petitioner's failure to file a record on appeal.
Petitioner in G.R. No. 112991 moved for a reconsideration of the aforesaid decision but the Court
denied his motion in its resolution of October 9, 1995 on the following grounds (1) the clerks of the
RTC and the Court of Appeals certified that no record on appeal had been filed; (2) the branch clerk
denied that the signature on the alleged copy of the record on appeal was his; (3) counsel for private
respondents and his clerk denied in their respective affidavits that they had been served a copy of the
record on appeal; (4) the identity of the person who allegedly received the record on appeal filed in the
trial court and whose initials appear on the first page of the alleged copy of the said record had never
been established; and (5) the copy of the record on appeal allegedly filed did not bear the stamp of the
RTC showing due receipt thereof.
In the resolution of October 13, 1995, the Court held Judge Regino Veridiano II, Deputy Sheriff
Carmelo Cachero and private respondent's counsel, Atty. Marino Eslao, guilty of indirect contempt for
executing the decision of the trial court despite the temporary restraining order issued by this Court.
The Court, however, found no basis of holding branch clerk Antonio Valencia Jr. guilty of any
wrongdoing in certifying that petitioner failed to file a record on appeal.
On November 6, 1995, petitioner then filed the Omnibus Motion in question seeking to (1) reopen the
case and/or consider the resolution of October 9, 1995 which denied his motion for reconsideration,
and (2) reconsider the October 13, 1995 resolution absolving the branch clerk of the trial court from
contempt charges.
In his omnibus motion, petitioner insists that he filed a record on appeal. As proof, he presents a
photocopy of the record on appeal allegedly received by the branch clerk of the trial court bearing the
handwritten notation "Received, 10-15-92, 3:45 PM" and the alleged initials of the said clerk.
Petitioner explains that the record on appeal does not have the RTC stamp "Received" because the trial
court does not use a stamp but receipt of pleadings is acknowledged simply by nothing this fact by
hand. Petitioner submitted certain pleadings filed in the trial court which were acknowledged by the
branch clerk in the same way he allegedly acknowledged by the branch clerk in the same way he

allegedly acknowledged receipt of petitioner's record on appeal. These are the notice of appeal filed by
petitioner on October 14, 1992 (Annex E, Omnibus Motion), Motion to Strike Out the Notice of Appeal
with Motion for Issuance of Writ of Execution filed by the private respondents (Annex G) and
Comment filed by another claimant (Solid Bank) dated May 26, 1995 (Annex H).
In addition, petitioner claims that the certifications by the clerks of the RTC and the Court of Appeals
that no record on appeal was filed are unreliable, that his record on appeal was suppressed from the
records of the case, and that the certification of the Court of Appeals that no record on appeal was filed
therein was to be expected because the record on appeal was filed with the RTC and not with the Court
of Appeals.
Commenting, private respondents contend that the Omnibus Motion is actually a second motion for
reconsideration which is not allowed by the rules since the issues raised therein had been fully
considered and passed upon by the Court and that there is no compelling reason to grant the motion.
They maintain that petitioner's appeal was not perfected because of the non-filing of a record on appeal.
Branch Clerk of court Antonio Valencia, on the other hand, maintains that "no record on appeal was
filed and therefore none could be found in the expediente (records of the case)." He claims that the
record on appeal allegedly filed in the trial court could not have been unlawfully removed from the
records because all pleadings received by the court are immediately attached to the records. He denies
that the signature appearing on the alleged record on appeal was his.
Because of the serious ness of the petitioner's allegation that its record on appeal had been suppressed,
the Court on December 11, 1996, referred the question to the Office of the Court Administrator (OCA)
for investigation, report and recommendation.
On June 18, 1997, the OCA submitted its report and recommendation, the pertinent portions of which
state:[2]
In the formal investigation conducted (please see attached transcript) it was disclosed that Atty. Antonio
Valencia Jr. was appointed as the Clerk of Court V on June 18, 1992 and officially assumed office on
July 1, 1992.
As the Clerk of Court of RTC, Branch 31, it is his duty to exercise control and supervision over the
personnel of the said court; examines records of all cases filed and calendared; issues court processes,
prepares drafts of orders and other matters which are assigned by the Judge Regino Verediano.
In their sala each personnel have their respective duties , from receipt of pleadings that are being filed
to their safekeeping. In no case is anyone allowed to interfere with the duties of each personnel except
under extreme urgency. Thus, receiving of pleadings is normally entrusted to the receiving clerk and
no one else. It is, as claimed by Atty. Valencia, only in the absence of the said receiving clerk that other
employees are authorized to receive pleadings.
For his part, Atty. Valencia claims that he rarely receives pleadings since before it reaches his table, the
same are already duly received. Besides, it is not one of his duties to receive pleadings.
With respect to the alleged receipt of the record on appeal by their office, specifically to him, Atty.
Valencia vehemently denied having received the same. First, because the stroke of the alphabet
indicating his initials is very different and so with the dates, secondly, if it was actually received it
could have been brought to attention of the late Judge Verediano who thereafter would have made a

notation of the same, like all other pleadings received in their office or simply instruct the preparation
of an order if necessary and lastly, it would have been included in their court calendar as there was a
notice of hearing attached thereto.
In the court's calendar dated October 23, 1992, Sp. Proc. No. 35313 was never scheduled for hearing.
Under normal circumstances, if there was notice of hearing it would be outrightly included in the
court's calendar for October 23, 1992 as requested.
To substantiate the aforesaid allegations Atty. Valencia submitted copies of pleadings filed relative to
the subject case bearing the notation of then Judge Verediano and the Court's calendar for October 22
and 23, 1992.
In addition, he pointed out that if the Notice of Appeal (Record on Appeal) was actually filed in their
sala, why was it raised for the first time only in PDIC's Motion for Reconsideration. This according to
him is suspicious. He even insinuated that nobody could have done this (meaning inserted the notice of
appeal [record on appeal] in their pleadings) except the interested lawyer/s.
Moreover, Atty. Valencia vouches for the honesty and integrity of his staff, and if there be a need for
the examination of their signatures they would be very willing to go for a specimen signature
examination only to clear his/their names.
The office of the undersigned believes the claim of Atty. Valencia that no Notice of Appeal [Record on
Appeal] was filed at RTC Branch 31, Manila. As a CPA/lawyer, he was very well aware of his duties
and responsibilities as a Branch Clerk of Court. This is evidenced by the fact that in his more than five
(5) years stay as a Branch Clerk of Court, no single administrative complaint has ever been lodged
against him, be it a harassment suit or otherwise.
Moreover, if it has been actually filed it would not have passed unnoticed by then Judge Verediano who
had to approve the same.
The undersigned is in accord with the claim of Atty. Valencia as presented by him to Atty. Cunanan of
this Office that indeed no record on appeal was filed by the counsels of PDIC in the subject case, thus
no administrative action should be taken against him. (Memorandum dated June 5, 1997, pp. 1-2;
Rollo, p. 538-539)
On July 23, 1997, after considering the report and it appearing that the investigation conducted by the
OCA was limited to hearing the evidence of the branch clerk of court and his witnesses, the required
the OCA to hear the evidence of petitioner that he had filed a record on appeal but it was suppressed
and, after considering that totality of the evidence presented, to determine liability for any wrongful act
committed, and to submit its findings and recommendations.
On January 27, 1998, the OCA submitted its report and recommendation on the additional investigation
it conducted from which it appears that hearings were held on three dates; the parties, through their
counsel, were duly notified of the same; and that at the first scheduled hearing on October 7, 1997, only
Atty. Marino E. Eslao, counsel for private respondent, appeared. In order to expidite the proceedings,
he was allowed to present documentary evidence without prejudice to the right of the petitioner to
comment thereon. During the hearing on November 5, 1997, the parties agreed to file position papers
after the testimony of branch clerk Atty. Valencia. On November 6, 1997, the respective testimonies of
Atty. Valencia and Atty. Pablo Romero, the sole witness for petitioner, were taken. In his report dated

December 1, 1997,[3] Senior Deputy Court Administrator Reynaldo L. Suarez summarized the
evidence presented by the parties and his findings on the same, to wit:
Atty. Pablo Romero, Manager of R&L Litigation Center, PDIC testifies that he was the one who
prepared the subject Record on Appeal. He likewise confirmed the fact that the President of the PDIC,
Mr. Ernest Leung, Atty. Rosalinda Casiguran and he then went to see Judge Veridiano and was
informed by Atty. Valencia that he cannot find a copy of the Record on Appeal which was allegedly
filed. He cannot recall if Atty. Valencia ever demanded from him a copy of said record (pp. 28-29,
TSN dated November 6, 1997). No other relevant information were given by Atty. Romero.
Atty. Antonio Valencia, Branch Clerk of Court, RTC, Branch 31, Manila, was invited to testify as to
whether a Record on Appeal was actually filed before their court and the same was duly received by
him. He was examined by the parties, principally the counsel for PDIC.
In his testimony, Atty. Valencia, reiterated his previous stand that he never saw a copy of the Record on
Appeal and he was positive that indeed there was no Record on Appeal having been filed in his court.
Counsel of PDIC however insinuated that record on appeal might have been filed but the same was
misplaced. Atty. Valencia assured that "this is very remote". (TSN, p. 8, November 6, 1997).
He even stressed that when he was made earlier to comment on whether or not a record on appeal was
actually filed, he checked and double checked the original records, inquired from the employees of
RTC, Manila including the Judge whether they have knowledge of any record on appeal which was
filed in their sala but all answered in the negative. (pp. 21 & 22, TSN, Nov. 6, 1997).
Moreover, he also firmly denied having received the alleged copy of the record on appeal which was
presented to him for identification during his direct testimony since the signatures appearing therein are
totally different from his actual signature (pp. 23, TSN, November 6, 1997).
It is to be noted that the alleged duplicate original copy of the Notice of Appeal [Record on Appeal]
which is supposed to be with the counsels of PDIC was not presented as evidence. In fact when the
counsel of PDIC Atty. Romero was asked if the PDIC employee who allegedly filed the Record on
Appeal could testify he answered in the negative and claimed that the said employee is already in
Riyadh, Saudi Arabia. No evidence was likewise presented to prove the same. No effort was exerted
by PDIC to prove the authenticity of the signature of Clerk of Court Valencia appearing in PDIC's copy
of the Record on Appeal.
It is also worthy to note that other than the bare testimony of Atty. Romero, no other evidence were
presented by petitioner PDIC to substantiate their claim that a Record on Appeal was filed at the RTC
of Manila and the same was duly received by Atty. Valencia. The testimony was not even corroborated.
Be that as it may this Office still has to determine as to whether a Record on Appeal was actually filed
at the court a quo.
A review of the record impels a rejection of the petitioner's claim that a Record on Appeal was filed.
The private respondent was able to present proof which are affirmative, unequivocal convincing, and
consistent. In fact the testimony alone of Atty. Valencia which was a reiteration of his previous
testimonies were very clear, concise, and moreover consistent. For the record Atty. Valencia is viewed
by the undersigned who personally conducted the investigation as a plain, sincere and honest man who,

not having been shown of any reason to be bias or to favor any party, had no reason to deliberately tell
a falsehood relative to his official functions. The fact therefore that he submitted himself to an
investigatin twice and in different occassions shows his determination to vindicate his honor by proving
the integrity of the records of his office.
From all indications and as the records of the case will show NO RECORD ON APPEAL was actually
filed in the court a quo.
Apparently, RTC, Branch 31, Manila has an effective records management (system) and it is
improbable to have missed one important document (RECORD ON APPEAL). In the absence of any
convincing proof to the contrary, the regularity of official function must be upheld.
Far from the assertions of the petitioner we conclude that there was no Record on Appeal actually filed.
(Memorandum dated December 11, 1997, pp. 3-5; Rollo, pp. 557-559)
The findings of the OCA are well taken.
In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on the
either side. Plaintiff must therefore establish his case by a preponderance of evidence, i.e. evidence as
a whole which is superior to that of the defendant.[4] In other words, the party who alleges a fact has
the burden of proving it.[5] In this case, petitioner, as the party claiming affirmative relief from this
Court by contending that he had filed a record on appeal in the trial court, must discharge the burden of
convincingly proving his claim.[6] As found by the OCA, however, the evidence of the respondents
even outweighs that of petitioner. Private respondents presented proof which are affirmative,
unequivocal, convincing, and consistent that no record on appel had been filed. As the OCA noted,
petitioner not only failed to present the PDIC employee who allegedly filed on the record appeal in the
trial court but more importantly, he failed to prove the authenticity of the alleged signature of Branch
Clerk Antonio Valencia appearing in his copy of the record on appeal.
The firm and consistent denial of the branch clerk that he was the one who received the record on
appeal and acknowledged its filing was disputed by petitioner. But petitioner's witness, Atty. Romero,
who allegedly prepared the said record did not file it in the trial court. Nor did he have any personal
knowledge of the actual filing of the record on appeal in the trial court. According to Atty. Romero, the
PDIC employee who allegedly filed the record on appeal in the trial court could not testify because the
said employee was already in Riyadh, Saudi Arabia. This allegation is not persuasive since no
evidence was presented to prove the same.[7]
Even the documentary evidence submitted by petitioner to prove the authenticity of the signature of the
branch clerk on the alleged duplicate original copy of the record on appeal[8] is not convincing. The
signature and notation on the alleged duplicate original copy of the record on appeal do not match the
actual signature and handwriting of the branch clerk as shown in the pleadings submitted by petitioner
himself, namely, the notice of appeal filed by petitioner (Annex E, Omnibus Motion), motion to strike
out notice of appeal filed by private respondents (Annex G) and comment filed by another claimant
(Annex H). The branch clerk's alleged signature and notation are markedly different from his signature
and handwriting appearing in the submitted documentary evidence.[9] For one, the branch clerk's initial
"AV" appear "HV" in the alleged duplicate original copy of the record. In addition, numeral "5" was
written with a rounded stroke instead of a sharp one. Clearly, petitioner failed to discharge the required
burden of proof. Hence, petitioner's assertion that he had filed a record on appeal is not worthy of
belief.

As regards petitioner's prayer that the Court reconsider its resolution of October 13, 1995 absolving the
branch clerk of court of charges of wrongdoing, suffice it to state here that no ground exists to impute
bad faith on the part of the branch clerk. Good faith is presumed and the complainant has the burden of
proving any wrongdoing.[10] Petitioner simply failed to prove that the branch clerk either suppressed
the record on appeal allegedly filed by petitioner did not file the said record. The Court cannot find the
branch clerk guilty of any wrongdoing in certifying that petitioner failed to file a record on appeal in
the trial court in the face of petitioner's failure to adduce convincing proof that such a record was in fact
filed therein.
Also for consideration are two (2) manifestations and motions for clarification filed by the Land Bank
of the Philippines (LBP). In its Manifestation/Motion dated May 20, 1996, LBP alleges that on or
about March 24, 1995, petitioner's deposit accounts in LBP were garnished by Sheriff Carmelo
Cachero in favor of private respondents pursuant to the writ of execution issued by RTC Branch 31,
Manila acting as the liquidation court; that on April 10, 1995, it received from petitioner a copy of the
April 7, 1995 order of this Court directing the parties to maintain the status quo in the case; that on
November 20, 1995, the Court issued another resolution directing the parties to maintain the status quo
until further orders; and that on April 1, 1996, it received as request from the petitioner to transfer the
garnished funds to a different account maintained by petitioner in another branch of LBP. LBP seeks
clarification whether or not the garnishment of petitioner's deposit accounts on March 24, 1995 is null
and void considering the status quo orders issued by the Court. It further inquires whether or not it may
acquiesce to petitioner's request to transfer the garnished funds to petitioner's other account in another
branch of LBP.[11] In its Manifestation dated October 7, 1996, on the other hand, LBP alleges that on
September 9, 1996, it received from Sheriff Adolfo Garcia a notice of garnishment over the same
deposit accounts of petitioner implementing the writ of execution issued also by the RTC, Branch 31,
Manila, but for another claimant, the Bureau of Internal Revenue (BIR); that on September 25, 1996, it
wrote Sheriff Garcia informing him that the accounts sought to be garnished were already garnished
pursuant to the processes of the same court for another claimant (herein private respondents); that on
September 27, 1996, it received a letter from petitioner urging it to effect the immediate release of the
garnished funds to the BIR and that on October 2, 1996, it received from Sheriff Garcia the order to
deliver to him the garnished amount of P179,971,860.13. LBP manifests that it is holding in abeyance
action on the order to Sheriff Garcia and the letter of petitioner until the incidents in this case are finally
resolved by this Court.[12]
These are matters largely relating to the execution of the decision of the trial court. As far as this Court
is concerned, its decision is now final and it no longer has any jurisdiction to pass upon these incidents,
not to mention the fact that the manifestation filed by LBP are in the nature of consultation by one not a
party to this case.
WHEREFORE, the Court RESOLVED to DENY petitioner's Omnibus Motion for lack of merit. The
manifestations and motions dated May 20, 1996 and October 7, 1996 by the Land Bank of the
Philippines are NOTED.
SO ORDERED.
Regalado, (Chairman), Melo, Puno, and Martinez, JJ., concur.
http://www.lawphil.net/judjuris/juri1993/mar1993/gr_100594_1993.html

G.R. No. 100594. March 10, 1993.]

BINALBAGAN TECH. INC., and HERMILO J. NAVA, petitioners, vs. THE COURT OF APPEALS,
MAGDALENA L. PUENTEVELLA, ANGELINA P. ECHAUS, ROMULO L. PUENTEVELLA,
RENATO L. PUENTEVELLA, NOLI L. PUENTEVELLA and NELIA LOURDES P. JACINTO,
respondents.
Mateo Valenzuela for petitioners.
Hilado, Hagad & Hilado for private respondents.
SYLLABUS
1.
CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTY CANNOT DEMAND
PERFORMANCE OF AN OBLIGATION UNLESS HE IS IN A POSITION TO COMPLY WITH HIS
OWN OBLIGATIONS. A party to a contract cannot demand performance of the other party's
obligations unless he is in a position to comply with his own obligations. Similarly, the right to rescind
a contract can be demanded only if a party thereto is ready, willing and able to comply with his own
obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code
of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the
ownership of and deliver, as well as warrant, the thing which is the object of the sale (Art. 1495, Civil
Code); he warrants that the buyer shall, from the time ownership is passed, have and enjoy the legal
and peaceful possession of the thing.
2.
ID.; PRESCRIPTIVE PERIOD WITHIN WHICH TO INSTITUTE ACTION UPON A
WRITTEN CONTRACT; CASE AT BAR. The prescriptive period within which to institute an
action upon a written contract is ten years (Art. 1144, Civil Code). The cause of action of private
respondent Echaus is based on the deed of sale executed on May 11, 1967, whereby ownership of the
subdivision lots was transferred to petitioner. She filed Civil Case No. 1354 for recovery of title and
damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years
elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to
recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive
period for the reason that from 1974 to 1982, private respondent Echaus was not in a legal position to
initiate action against petitioner since as aforestated, through no fault of hers, her warranty against
eviction was breached. Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven
years elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period.
DECISION
MELO, J p:
The petition for review on certiorari now before us seeks to reverse the decision of the Court of
Appeals promulgated on March 27, 1991 in CA-G.R. CV No. 24635 (de Pano, Cacdac (P), and
Vailoces, JJ .).
The facts of the case, as borne out by the record, are as follows:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial
Administrator of the intestate estate of Luis B. Puentevella, executed a Contract to Sell and a Deed of

Sale of forty-two subdivision lots within the Phib-Khik Subdivision of the Puentebella family,
conveying and transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as
Binalbagan). In turn Binalbagan, through its president, petitioner Hermilio J. Nava (hereinafter referred
to as Nava), executed an Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in
favor of the estate of Puentebella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of
the lots and the building and improvements thereon. Binalbagan started operating a school on the
property from 1967 when the titles and possession of the lots were transferred to it.
It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at
Himamaylan, Negros Occidental. Relative to said case we shall quote the findings of fact of the Court
of Appeals in its decision dated October 30, 1978 in CA-G.R. No. 4211-R:
To have a better perspective of the background facts leading to the filing of this instant case on appeal,
there is a need to make reference to the circumstances surrounding the filing of Civil Case No. 7435, to
wit:
The intestate estate of the late Luis B. Puentebella as registered owner of several subdivision lots,
specifically mentioned in paragraph 2 of plaintiffs' complaint, thru Judicial Administratrix, Angelina L.
Puentevella sold said aforementioned lots to Raul Javellana with the condition that the vendeepromisee would not transfer his rights to said lots without the express consent of Puentevella and that
in case of the cancellation of the contract by reason of the violation of any of the terms thereof, all
payments therefor made and all improvements introduced on the property shall pertain to the promissor
and shall be considered as rentals for the use and occupation thereof.
Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed
by defendant Puentevella against Raul Javellana and the Southern Negros Colleges which was
impleaded as a party defendant it being in actual possession thereof, for the rescission of their contract
to sell and the recovery of possession of the lots and buildings with damages.
Accordingly, after trial, judgment was rendered in favor of Puentevella and thereafter, defendants
Deputy Sheriffs served a copy of the writ of execution on the Acting Director of the Southern Negros
College and delivered possession of the lots and buildings to defendant Puentevella's representative,
Mrs. Manuel Gentapanan, and further levied execution on the books and school equipment, supplies,
library, apparatus, etc. to satisfy the monetary portion of the judgment under execution on October 27,
1967. Said books, equipment, etc. as reflected in the Depositary Receipt, (Exh. "B") dated October 28,
1965, were delivered by the Sheriffs to the Acting Director of the Southern Negros College as
depositary of the same.
Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim
based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita Lopez, thus
Puentevella was constrained to assert physical possession of the premises to counteract the fictitious
and unenforceable claim of herein plaintiffs.
Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of
preliminary injunction was issued by the Honorable Presiding Judge Carlos Abiera, which order,
however, was elevated to the Honorable Court of Appeals which issued a writ of preliminary injunction
ordering Judge Carlos Abiera or any other persons or persons in his behalf to refrain from further

enforcing the injunction issued by him in this case and from further issuing any other writs or
prohibitions which would in any manner affect the enforcement of the judgment rendered in Civil Case
7435, pending the finality of the decision of the Honorable Court of Appeals in the latter case. Thus,
defendant Puentevella was restored to the possession of the lots and buildings subject of this case.
However, plaintiffs filed a petition for review with the Supreme Court which issued a restraining order
against the sale of the properties claimed by the spouses-plaintiffs [in Abierra vs. Court of Appeals, 45
SCRA 314].
When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession
of the building and other property was taken from petitioner Binalbagan and given to the third-party
claimants, the de la Cruz spouses. Petitioner Binalbagan transferred its school to another location. In
the meantime, an appeal was interposed by the defendants in Civil Case No. 293 with the Court of
Appeals where the appeal was docketed as CA-G.R. No. 42211-R. On October 30, 1978, the Court of
Appeals rendered judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981,
judgment was entered in CA-G.R. No. 42211, and the record of the case was remanded to the court of
origin on December 22, 1981. Consequently, in 1982 the judgment in Civil Case No. 7435 was finally
executed and enforced, and petitioner was restored to the possession of the subdivision lots on May 31,
1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, 1982.
After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent
Angelina Echaus demanded payment from petitioner Binalbagan for the subdivision lots, enclosing in
the letter of demand a statement of account as of September 1982 showing a total amount due of
P367,509.93, representing the price of the land and accrued interest as of that date.
As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on
October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the Sixth Judicial Region stationed
in Himamaylan, Negros Occidental against petitioners for recovery of title and damages. An amended
complaint was filed by private respondent Angelina P. Echaus by including her mother, brothers, and
sisters as co-plaintiffs, which was admitted by the trial court on March 18, 1983.
After trial, the trial court rendered a decision on August 30, 1989, the dispositive portion of which reads
as follows:
IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the action on the written
contract, Exh. "C", has long prescribed, judgment is hereby rendered in favor of the defendants and
against the plaintiffs dismissing the amended complaint.
The counterclaim is likewise dismissed for lack of sufficient proof. Each shall bear their respective
expenses of litigation (pp. 71-72, Rollo).
Private respondents appealed to the Court of Appeals which rendered a decision on March 27, 1991,
disposing:
WHEREFORE, premises considered, the appealed decision is REVERSED and SET ASIDE and a new
one is rendered ordering the appellee Binalbagan Tech. Inc., through any of its officers, to execute a
deed of conveyance or any other instrument, transferring and returning unto the appellants the
ownership and titles of the subject 42 subdivision lots. Costs against appellees. (pp. 51-52, Rollo)
Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the

Court of Appeals:
First Error
The Court of Appeals erred in holding that the cause of action of the respondents has not prescribed.
Second Error
The Court of Appeals erred in holding that Civil Case No. 293 interrupts the running of the period of
the prescription.
Third Error
The Court of Appeals erred in citing the cases of David-Garlitos and Rivero vs. Rivero to support its
contention that the period of prescription was interrupted in the case at bar.
Fourth Error
The finding of facts of the Honorable Court of Appeals in reversing the lower court decision has no
basis and is contradicted by the evidence on record of the case at bar as well as the admission of
parties." (p. 16, Rollo)
The main issue of this case is: Whether private respondents' cause of action in Civil Case No. 1354 is
barred by prescription.
On this point the Court of Appeals held:
As it is evident that there was an interruption during the period from 1974 up to 1982, the period of
prescription, as correctly maintained by the appellants, was tolled during such period, due to the
injunctive writ in Civil Case No. 293 as discussed earlier when the vendors could not maintain the
vendee in possession, and consequently was in no position to legally demand payment of the price.
Accordingly, while it may be conceded that appellants' cause of action to demand performance had
accrued on June 10, 1967 due to the appellee institution's default in the payment of the first installment
which became due on that date, the running of prescription was interrupted in 1974 when, from the
words of the lower court itself, "the Supreme Court reversed the Court of Appeal's decision and
dissolved the injunction which the latter court had earlier issued in Civil Case No. 293, possession of
the building and other properties was taken from defendant Binalbagan Tech. Inc. and given to the de la
Cruz spouses, through Southern Negros College". And the period of prescription commenced to run
anew only on May 31, 1982 when the appellants were finally able to fully implement the already
executory judgment in Case No. 7435, and thus restore appellees in possession of the 42 subdivision
lots.
In other words, the period of prescription was interrupted, because from 1974 up to 1982, the
appellants themselves could not have restored unto the appellees the possession of the 42 subdivision
lots precisely because of the preliminary injunction mentioned elsewhere. Consequently, the appellants
could not have prospered in any suit to compel performance or payment from the appellees-buyers,
because the appellants themselves were in no position to perform their own corresponding obligation to
deliver to and maintain said buyers in possession of the lots subject matter of the sale. (Article 1458,
1495, 1537, Civil Code). (pp 49-50, Rollo)

We agree with the Court of Appeals.

A party to a contract cannot demand performance of the other party's obligations unless he is in a
position to comply with his own obligations. Similarly, the right to rescind a contract can be demanded
only if a party thereto is ready, willing and able to comply with his own obligations thereunder (Art.
1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code of the Philippines, 12th ed.
Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as
well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed, have and enjoy the legal and peaceful possession of the
thing
ARTICLE 1547.

In a contract of sale, unless a contrary intention appears, there is:

(1)
An implied warranty on the part of the seller that he has a right to sell the thing at the time when
the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing.
xxx xxx xxx
As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court
order in Civil Case No. 293 and reinstated to the possession thereof only in 1982. During the period,
therefore, from 1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction
given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows that
during that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand
compliance of the prestation of petitioner to pay the price of said subdivision lots. In short, her right to
demand payment was suspended during that period, 1974-1982.
The prescriptive period within which to institute an action upon a written contract is ten years (Art.
1144, Civil Code). The cause of action of private respondent Echaus is based on the deed of sale
aforementioned. The deed of sale whereby private respondent Echaus transferred ownership of the
subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of title and
damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years
elapsed. Seemingly, the 10-year prescriptive period had expired before she brought her action to
recover title. However, the period 1974 to 1982 should be deducted in computing the prescriptive
period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus was not in
a legal position to initiate action against petitioner since as aforestated, through no fault of hers, her
warranty against eviction was breached. In the case of Daniel vs. Garlitos, (95 Phil. 387 [1954]), it was
held that a court order deferring action on the execution of judgment suspended the running of the 5year period for execution of a judgment. Here the execution of the judgment in Civil Case No. 7435
was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil
Case No. 293 was dismissed that the writ of execution in Civil Case Na. 7435 could be implemented
and petitioner Binalbagan restored to the possession of the subject lots.
Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed.
Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period. Working against
petitioner's position too is the principle against unjust enrichment which would certainly be the result if
petitioner is allowed to own the 42 lots without full payment thereof.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No.
24635 is AFFIRMED.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ ., concur.
Gutierrez, Jr., J ., on terminal leave.
http://sc.judiciary.gov.ph/jurisprudence/2011/july2011/185440.htm
VICELET LALICON and
VICELEN LALICON,
Petitioners,

G.R. No. 185440

Present:
CARPIO,* J.,
VELASCO, JR., Chairperson,
ABAD,

- versus MENDOZA, and

SERENO,** JJ.
NATIONAL HOUSING AUTHORITY,
Respondent.

Promulgated:

July 13, 2011

x --------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This case is about (a) the right of the National Housing Authority to seek annulment of sales
made by housing beneficiaries of lands they bought from it within the prohibited period and (b) the
distinction between actions for rescission instituted under Article 1191 of the Civil Code and those
instituted under Article 1381 of the same code.
The Facts and the Case
On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with
Mortgage over a Quezon City lot[1] in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). In
due time, the Quezon City Registry of Deeds issued Transfer Certificate of Title (TCT) 277321 in the
name of the Alfaros. The deed of sale provided, among others, that the Alfaros could sell the land
within five years from the date of its release from mortgage without NHAs prior written consent.
Thus:
x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof,
cannot be alienated, transferred or encumbered within five (5) years from the date of release of herein
mortgage without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x
x x.[2] (Emphasis supplied)

The mortgage and the restriction on sale were annotated on the Alfaros title on April 14, 1981.
About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the
Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with
whom he had two daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons). Cecilia, who had
the means, had a house built on the property and paid for the amortizations. After full payment of the
loan or on March 21, 1991 the NHA released the mortgage. Six days later or on March 27 Victor
transferred ownership of the land to his illegitimate daughters.
About four and a half years after the release of the mortgage or on October 4, 1995, Victor registered
the November 30, 1990 sale of the land in his favor, resulting in the cancellation of his parents title.
The register of deeds issued TCT 140646 in Victors name. On December 14, 1995 Victor mortgaged
the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See. Subsequently, on February 14,
1997 Victor sold the property to Chua, one of the mortgagees, resulting in the cancellation of his TCT
140646 and the issuance of TCT N-172342 in Chuas name.
A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial
Court (RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale
of the land to their son Victor, and the subsequent sale of the same to Chua, made in violation of NHA
rules and regulations.
On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although the Alfaros
clearly violated the five-year prohibition, the NHA could no longer rescind its sale to them since its
right to do so had already prescribed, applying Article 1389 of the New Civil Code. The NHA and the
Lalicons, who intervened, filed their respective appeals to the Court of Appeals (CA).
On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to rescission.
The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles and deeds of sale null
and void. It ordered Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons
the full amount of their amortization, plus interest, and the value of the improvements they constructed
on the property.
The Issues Presented
The issues in this case are:
1.

Whether or not the CA erred in holding that the Alfaros violated their contract with the NHA;

2.

Whether or not the NHAs right to rescind has prescribed; and

3.
Whether or not the subsequent buyers of the land acted in good faith and their rights, therefore,
cannot be affected by the rescission.
The Rulings of the Court
First. The contract between the NHA and the Alfaros forbade the latter from selling the land
within five years from the date of the release of the mortgage in their favor.[3] But the Alfaros sold the
property to Victor on November 30, 1990 even before the NHA could release the mortgage in their

favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction, thus entitling the NHA
to rescind the contract.
The Lalicons contend, however, that the Alfaros did not violate the five-year restriction against resale
since what the contract between the parties barred was a transfer of the property within five years from
the release of the mortgage, not a transfer of the same prior to such release.
But the Lalicons are trying to be clever. The restriction clause is more of a condition on the sale of the
property to the Alfaros rather than a condition on the mortgage constituted on it. Indeed, the
prohibition against resale remained even after the land had been released from the mortgage. The fiveyear restriction against resale, counted from the release of the property from the NHA mortgage,
measures out the desired hold that the government felt it needed to ensure that its objective of
providing cheap housing for the homeless is not defeated by wily entrepreneurs.
The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the
resale of the subject property. They also claim that their failure to get NHAs prior written consent was
not such a substantial breach that warranted rescission.
But the NHA had no obligation to grant the Lalicons request for exemption from the five-year
restriction as to warrant their proceeding with the sale when such consent was not immediately
forthcoming. And the resale without the NHAs consent is a substantial breach. The essence of the
governments socialized housing program is to preserve the beneficiarys ownerships for a reasonable
length of time, here at least within five years from the time he acquired it free from any encumbrance.
Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil Code
the action to claim rescission must be commenced within four years from the time of the commission
of the cause for it.
But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that
Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old
Civil Code which uses the term resolution. Resolution applies only to reciprocal obligations such
that a breach on the part of one party constitutes an implied resolutory condition which entitles the
other party to rescission. Resolution grants the injured party the option to pursue, as principal actions,
either a rescission or specific performance of the obligation, with payment of damages in either case.
Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code,
which is a subsidiary action, not based on a partys breach of obligation.[4] The four-year prescriptive
period provided in Article 1389 applies to rescissions under Article 1381.
.
Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the fiveyear restriction against such sale provided in their contract. Thus, the CA correctly ruled that such
violation comes under Article 1191 where the applicable prescriptive period is that provided in Article
1144 which is 10 years from the time the right of action accrues. The NHAs right of action accrued on
February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the
NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year
prescriptive period.
Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good
faith. Since the five-year prohibition against alienation without the NHAs written consent was

annotated on the propertys title, the Lalicons very well knew that the Alfaros sale of the property to
their father, Victor, even before the release of the mortgage violated that prohibition.
As regards Chua, she and a few others with her took the property by way of mortgage from Victor in
1995, well within the prohibited period. Chua knew, therefore, based on the annotated restriction on
the property, that Victor had no right to mortgage the property to her group considering that the Alfaros
could not yet sell the same to him without the NHAs consent. Consequently, although Victor later sold
the property to Chua after the five-year restriction had lapsed, Chua cannot claim lack of awareness of
the illegality of Victors acquisition of the property from the Alfaros.
Lastly, since mutual restitution is required in cases involving rescission under Article 1191,[5]
the NHA must return the full amount of the amortizations it received for the property, plus the value of
the improvements introduced on the same, with 6% interest per annum from the time of the finality of
this judgment. The Court will no longer dwell on the matter as to who has a better right to receive the
amount from the NHA: the Lalicons, who paid the amortizations and occupied the property, or Chua,
who bought the subject lot from Victor and obtained for herself a title to the same, as this matter was
not raised as one of the issues in this case. Chuas appeal to the Court in a separate case[6] having been
denied due course and NHA failing to file its own petition for review, the CA decision ordering the
restitution in favor of the Lalicons has now become final and binding against them.
WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals in CA-G.R. CV 82298
dated August 1, 2008.
SO ORDERED.
http://sc.judiciary.gov.ph/jurisprudence/2006/jan2006/163075.htm
AYALA LIFE ASSURANCE, INC.,
Petitioner,

- versus -

RAY BURTON DEVELOPMENT CORPORATION,

Respondent.
G.R. No. 163075
Present:
PUNO, J., Chairman,
SANDOVAL-GUTIERREZ,
CORONA,

AZCUNA, and
GARCIA, JJ.
Promulgated:
January 23, 2006
x-----------------------------------------------------------------------------------------x
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us for resolution is the petition for review on certiorari[1] assailing the Decision[2] dated
January 21, 2004 of the Court of Appeals in CA-G.R. CV No. 74635,[3] as well as its Resolution dated
April 2, 2004 denying petitioners motion for reconsideration.
The facts are:
On December 22, 1995, Ayala Life Assurance, Inc., petitioner, and Ray Burton Development
Corporation, respondent, entered into a contract denominated as a Contract to Sell, with a Side
Agreement of even date. In these contracts, petitioner agreed to sell to respondent a parcel of land,
with an area of 1,691 square meters, situated at Madrigal Business Park, Ayala Alabang Village,
Muntinlupa City, covered by Transfer Certificate of Title No. 186485 of the Registry of Deeds of
Makati City. The purchase price of the land is P55,000.00 per square meter or a total of
P93,005,000.00, payable as follows:
(a)
On contract date P24,181,300.00 representing 26 percent of the purchase price, inclusive of the
P1,000,000.00 option money;
(b) Not later than January 6, 1996 P3,720,200.00 representing 4 percent of the purchase price to
complete 30 percent down payment; and
(c) In consecutive quarterly installments for a period of 5 years from December 22, 1995
P65,103,500.00 representing the 70 percent balance of the purchase price.

The contract contains a stipulation in paragraphs 3 and 3.1 for an Event of Default. It provides that
in case the purchaser (respondent) fails to pay any installment for any reason not attributable to the
seller (petitioner), the latter has the right to assess the purchaser a late penalty interest on the unpaid
installment at two (2%) percent per month, computed from the date the amount became due until full
payment thereof. And if such default continues for a period of six (6) months, the seller has the right
to cancel the contract without need of court declaration by giving the purchaser a written notice of
cancellation. In case of such cancellation, the seller shall return to the purchaser the amount he
received, less penalties, unpaid charges and dues on the property.

Respondent paid thirty (30%) down payment and the quarterly amortization, including the one that fell
due on June 22, 1998.
However, on August 12, 1998, respondent notified petitioner in writing that it will no longer continue
to pay due to the adverse effects of the economic crisis to its business. Respondent then asked for the
immediate cancellation of the contract and for a refund of its previous payments as provided in the
contract.
Petitioner refused to cancel the contract to sell. Instead, on November 25, 1999, it filed with the
Regional Trial Court, Branch 66, Makati City, a complaint for specific performance against respondent,
docketed as Civil Case No. 99-2014, demanding from the latter the payment of the remaining unpaid
quarterly installments beginning September 21, 1999 in the total sum of P33,242,382.43, inclusive of
interest and penalties.
Respondent, in its answer, denied any further obligation to petitioner, asserting that on August 12,
1998, it (respondent) notified the latter of its inability to pay the remaining installments. Respondent
invoked the provisions of paragraphs 3 and 3.1 of the contract to sell providing for the refund to it of
the amounts paid, less interest and the sum of 25% of all sums paid as liquidated damages.
After pre-trial, petitioner moved for a summary judgment on the ground that respondents answer failed
to tender any genuine issue as to any material fact, except as to the amount of damages. The trial court
granted the motion and ordered the parties to submit their memoranda.
On December 10, 2001, the trial court rendered a Decision holding that respondent transgressed the law
in obvious bad faith. The dispositive portion reads:
WHEREFORE, defendant (now respondent) is hereby sentenced and ordered to pay plaintiff (now
petitioner) the sum of P33,242,383.43, representing the unpaid balance of the principal amount owing
under the contract, interest agreed upon, and penalties. Defendant is further ordered to pay plaintiff
the sum of P200,000.00 as attorneys fees and the costs of suit.
Upon full payment of the aforementioned amounts by defendant, plaintiff shall, as it is hereby ordered,
execute the appropriate deed of absolute sale conveying and transferring full title and ownership of the
parcel of land subject of the sale to and in favor of defendant.

On appeal, the Court of Appeals rendered a Decision dated

No. 74635, reversing the trial courts Decision, thus:

January 21, 2004 in CA-G.R. CV

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE. Ayala Life is
hereby ordered to refund all sums paid under the Contract to Sell, with interest of twelve percent (12%)
per annum from 12 August 1998 until fully paid, less the amount equivalent to 25% of the total amount
paid as liquidated damages.
SO ORDERED.

The Court of Appeals ruled that the parties transaction in question is in the nature of a contract to sell,
as distinguished from a contract of sale. Under their contract, ownership of the land is retained by
petitioner until respondent shall have fully paid the purchase price. Its failure to pay the price in full is
not a breach of contract but merely an event that prevents petitioner from conveying the title to
respondent. Under such a situation, a cause of action for specific performance does not arise. What
should govern the parties relation are the provisions of their contract on the Event of Default stated
earlier.
Hence, the instant petition for review on certiorari.
Petitioner contends that the Court of Appeals committed a reversible error in holding that: (a) the
remedy of specific performance is not available in a contract to sell, such as the one at bar; and (b)
petitioner is liable to refund respondent all the sums the latter paid under the contract to sell, with
interest at 12% per annum from August 12, 1998 until fully paid, less the amount equivalent to 25% of
the total amount paid as liquidated damages.
Petitioner argues that by virtue of the contract to sell, it has the right to choose between fulfillment and
rescission of the contract, with damages in either case. Thus, it is immaterial to determine whether the
parties subject agreement is a contract to sell or a contract of sale.
In its comment, respondent disputed petitioners allegations and prayed that the petition be denied for
lack of merit.
The issues are:
1. Whether respondents non-payment of the balance of the purchase price gave rise to a cause of
action on the part of petitioner to demand full payment of the purchase price; and
2. Whether petitioner should refund respondent the amount the latter paid under the contract to sell.

At the outset, it is significant to note that petitioner does not dispute that its December 22, 1995
transaction with respondent is a contract to sell. It bears stressing that the exact nature of the parties
contract determines whether petitioner has the remedy of specific performance.
It is thus imperative that we first determine the nature of the parties contract.
The real nature of a contract may be determined from the express terms of the written agreement and
from the contemporaneous and subsequent acts of the contracting parties.[4] In the construction or
interpretation of an instrument, the intention of the parties is primordial and is to be pursued.[5] If the
terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.[6] If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former.[7] The denomination or title given by
the parties in their contract is not conclusive of the nature of its contents.[8]
Here, the questioned agreement clearly indicates that it is a contract to sell, not a contract of sale.
Paragraph 4 of the contract provides:

4. TITLE AND OWNERSHIP OF THE PROPERTY. The title to the property shall transfer to the
PURCHASER upon payment of the balance of the Purchase Price and all expenses, penalties and other
costs which shall be due and payable hereunder or which may have accrued thereto. Thereupon, the
SELLER shall execute a Deed of Absolute Sale in favor of the PURCHASER conveying all the
SELLERS rights, title and interest in and to the Property to the PURCHASER.[9]

As correctly stated by the Court of Appeals in its assailed Decision, The ruling of the Supreme
Court in Lim v. Court of Appeals (182 SCRA 564 [1990]) is most illuminating. In the said case, a
contract to sell and a contract of sale were clearly and thoroughly distinguished from each other, with
the High Tribunal stressing that in a contract of sale, the title passes to the buyer upon the delivery of
the thing sold. In a contract to sell, the ownership is reserved in the seller and is not to pass until the
full payment of the purchase price is made. In the first case, non-payment of the price is a negative
resolutory condition; in the second case, full payment is a positive suspensive condition. In the first
case, the vendor has lost and cannot recover the ownership of the property until and unless the contract
of sale is itself resolved and set aside. In the second case, the title remains in the vendor if the vendee
does not comply with the condition precedent of making payment at the time specified in the
contract.[10]
Considering that the parties transaction is a contract to sell, can petitioner, as seller, demand specific
performance from respondent, as buyer?
Blacks Law Dictionary defined specific performance as (t)he remedy of requiring exact performance
of a contract in the specific form in which it was made, or according to the precise terms agreed upon.
The actual accomplishment of a contract by a party bound to fulfill it.[11]
Evidently, before the remedy of specific performance may be availed of, there must be a breach of the
contract.
Under a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser
makes full payment of the agreed purchase price. Such payment is a positive suspensive condition, the
non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from
conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell
ineffective and without force and effect. Thus, a cause of action for specific performance does not
arise.
In Rayos v. Court of Appeals,[12] we held:
x x x. Under the two contracts, the petitioners bound and obliged themselves to execute a deed
of absolute sale over the property and transfer title thereon to the respondents after the payment of the
full purchase price of the property, inclusive of the quarterly installments due on the petitioners loan
with the PSB:
xxx

Construing the contracts together, it is evident that the parties executed a contract to sell and not

a contract of sale. The petitioners retained ownership without further remedies by the respondents
until the payment of the purchase price of the property in full. Such payment is a positive suspensive
condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the
obligation of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil
Code (Leano v. Court of Appeals, 369 SCRA 36 [2001]; Lacanilao v. Court of Appeals, 262 SCRA 486
[1996]).
The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition
to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to
sell ineffective and without force and effect (Agustin v. Court of Appeals, 186 SCRA 375 [1990]). The
parties stand as if the conditional obligation had never existed. Article 1191[13] of the New Civil Code
will not apply because it presupposes an obligation already extant (Padilla v. Posadas, 328 SCRA 434
[2001]. There can be no rescission of an obligation that is still non-existing, the suspensive condition
not having happened (Rillo v. Court of Appeals, 274 SCRA 461 [1997]). (Underscoring supplied)

Here, the provisions of the contract to sell categorically indicate that respondents default in the
payment of the purchase price is considered merely as an event, the happening of which gives rise to
the respective obligations of the parties mentioned therein, thus:
3. EVENT OF DEFAULT. The following event shall constitute an Event of Default under this contract:
the PURCHASER fails to pay any installment on the balance, for any reason not attributable to the
SELLER, on the date it is due, provided, however, that the SELLER shall have the right to charge the
PURCHASER a late penalty interest on the said unpaid interest at the rate of 2% per month computed
from the date the amount became due and payable until full payment thereof.
3.1. If the Event of Default shall have occurred, then at any time thereafter, if any such event shall then
be continuing for a period of six (6) months, the SELLER shall have the right to cancel this Contract
without need of court declaration to that effect by giving the PURCHASER a written notice of
cancellation sent to the address of the PURCHASER as specified herein by registered mail or personal
delivery. Thereafter, the SELLER shall return to the PURCHASER the aggregate amount that the
SELLER shall have received as of the cancellation of this Contract, less: (i) penalties accrued as of the
date of such cancellation, (ii) an amount equivalent to twenty five percent (25%) of the total amount
paid as liquidated damages, and (iii) any unpaid charges and dues on the Property. Any amount to be
refunded to the PURCHASER shall be collected by the PURCHASER at the office of the SELLER.
Upon notice to the PURCHASER of such cancellation, the SELLER shall be free to dispose of the
Property covered hereby as if this Contract had not been executed. Notice to the PURCHASER sent by
registered mail or by personal delivery to its address stated in this Contract shall be considered as
sufficient compliance with all requirements of notice for purposes of this Contract.[14]

Therefore, in the event of respondents default in payment, petitioner, under the above provisions of the
contract, has the right to retain an amount equivalent to 25% of the total payments. As stated by the
Court of Appeals, petitioner having been informed in writing by respondent of its intention not to
proceed with the contract on August 12, 1998, or prior to incurring delay in payment of succeeding
installments,[15] the provisions in the contract relative to penalties and interest find no application.

The Court of Appeals further held that with respect to the award of interest, petitioner is liable to pay
interest of 12% per annum upon the net refundable amount due from the time respondent made the
extrajudicial demand upon it on August 12, 1998 to refund payment under the Contract to Sell,[16]
pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.[17]
In sum, we find that the Court of Appeals, in rendering the assailed Decision and Resolution, did not
commit any reversible error.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of
Appeals are AFFIRMED. Costs against petitioner.
SO ORDERED.
http://www.lawphil.net/judjuris/juri1955/jul1955/gr_l-6648_1955.html
G.R. No. L-6648

July 25, 1955

VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS ASSOCIATION,

INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on their own behalf and on
behalf of other sugar cane planters in Manapla, Cadiz and Victorias Districts, petitioners-appellees,
vs.
VICTORIAS MILLING CO., INC., respondent-appellant.
Ross, Selph, Carrascoso and Janda for appellant.
Taada, Pelaez and Teehankee for appellees.
PADILLA, J.:
This is an action for declaratory judgment under Rule 66. The relief prayed for calls for an
interpretation of contracts entered into by and between the sugar cane planters in the districts of
Manapla, Cadiz and Victorias, Occidental Negros, and the Victorias Milling Company, Inc. After issues
had been joined the parties submitted the case for judgment upon the testimony of Jesus Jose Ossorio
and the following stipulation of facts:
1. That petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc. are
non-stock corporations duly established and existing under and by virtue of the laws of the Philippines,
with main offices at Victorias, Negros Occidental, and Manapla, Negros Occidental, respectively, and
were organized by, and are composed of, sugar cane planters in the districts of Victorias, Manapla and
Cadiz, respectively, having been established principally as the representative entities of the numerous
sugar cane planters in said districts whose sugar cane productions are milled by the respondent
corporation, with the main object of safeguarding their interests and of taking up with the latter
problems and questions which from time to time, may come up between the said respondent
corporation the said sugar cane planters; the other petitioners are Filipinos, of legal age, and together
with numerous other sugar cane planters who own sugar cane producing properties at Victorias,
Manapla, and Cadiz Districts, Negros Occidental, are bona fide officials and members of either one of

the two petitioner associations; that petitioner Fernando Gonzaga is a resident of Victorias, Negros
Occidental, petitioner Jose Gaston is a resident of Victorias, Negros Occidental, and petitioner Cesar L.
Lopez is a resident of Bacolod City, Negros Occidental; and that said petitioners bring this action for
the benefit and on behalf of all their fellow sugar cane planters, owners of sugar cane producing lands
in the said districts of Victorias, Manapla, and Cadiz, whose sugar cane productions are milled by
respondent corporation, and who are so numerous that it would be impractical to include them all as
parties herein;
2. That respondent Victorias Milling Co., Inc. is a corporation likewise duly organized and established
under and by virtue of the laws of the Philippines, with main offices at Ayala Building Manila, where it
may be served with summons;
3. That at various dates, from the year 1917 to 1934, the sugar cane planters pertaining to the districts
of Manapla and Cadiz, Negros Occidental, executed identical milling contracts, setting forth the terms
and conditions under which the sugar central "North Negros Sugar Co. Inc." would mill the sugar
produced by the sugar cane planters of the Manapla and Cadiz districts;
A copy of the standard form of said milling contracts with North Negros Sugar Co., Inc. is hereto
attached and made an integral part hereof as Annex "A.
As may be seen from the said standard form of milling contract, Annex "A," the sugar cane planters of
Manapla and Cadiz, Negros Occidental had executed on November 17, 1916 with Miguel J. Ossorio, a
contract entitled "Contrato de la Central Azucarrera de 300 Toneladas," whereby said Miguel J. Ossorio
was given a period up to December 31, 1916 within which to make a study of and decide whether he
would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours
and setting forth the mutual obligations and undertakings of such central and the planters and the terms
and conditions under which the sugar cane produced by said sugar can planters would be milled in the
event of the construction of such sugar central by said Miguel J. Ossorio. Such central was in fact
constructed by said Miguel J. Ossorio in Manapla, Negros Occidental, through the North Negros Sugar
Co., Inc., where after the standard form of milling contracts (Annex "A") were executed, as above
stated.
The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros
Occidental, other than as follows; a number of them executed such milling contracts with the North
Negros Sugar Co., Inc., as per the standard forms hereto attached and made an integral part as Annexes
"B" and "B-1," while a number of them executed milling contracts with the Victorias Milling Co., Inc.,
which was likewise organized by Miguel J. Ossorio and which had constructed another Central at
Victorias, Negros Occidental, as per the standard form hereto attached and made an integral part hereof
as Annex "C".
4. The North Negros Sugar Co., Inc. had its first molienda or milling during the 1918-1919 crop year,
and the Victorias Milling Co., had its first molienda or milling during the 1921-1922 crop year.
Subsequent moliendas or millings took place every successive crop year thereafter, except the 6-year
period, comprising 4 years of the last World War II and 2 years of post-war reconstruction of
respondent's central at Victorias, Negros Occidental.
5. That after the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at
Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters Association, Inc. that it

had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent corporation
to mill the sugar cane produced by the planters of Manapla and Cadiz holding milling contracts with it.
Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in Manapla,
Cadiz, as well as in Victorias, who held milling contracts, were milled in only one central, that of the
respondent corporation at Victorias;
6. Beginning with the year 1948, and in the following years, when the planters-members of the North
Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts
executed in the year 1918 had already expired and terminated in the crop year 1947-1948, and the
planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated 30-year
period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949,
under the pertinent provisions of the standard milling contract (Annex "A") on the duration thereof,
which provided in Par. 21 thereof as follows:
(a) Que entregaran a la Central de la `North Negros Sugar Co., Inc.' o a la que se construya en Victorias
por Don Miguel J. Ossorio o sus cesionarios por espacio de treinta (30) aos desde la primera
molienda, la caa que produzcan sus respectivas haciendas, obligandose ademas a sembrar anualmente
con caadulce por lo menos en tres quintas partes de su extension total apropiado para caa, incluyendo
en esta denominacion tanto la siembra con puntas nuevas como el cultivo del retoo o cala-anan y
sujetando la siembra a las epocas convenientes designadas por el comite de hacenderos a fin de poder
proporcionar caa a la Central de conformidad con las clausulas 17 y 18 de esta escritura.
xxx

xxx

xxx

(i) Los hacenderos' imponen sobre sus haciendas mencionadas y citadas en esta escritura servidumbres
voluntarias a favor de Don Miguel J. Ossorio de sembrar caa por lo menos en tres quintas partes (3/5)
de su extension superficial y entregar la caa que produzcan a Don Miguel J. Ossorio, de acuerdo con
este contrato, por espacio de treinta (30) aos, a contar un (1) ao desde la fecha de la primera
molienda. repeated representation were made with respondent corporation for negotiations regarding
the execution of new milling contracts which would take into consideration the charged circumstances
presently prevailing in the sugar industry as compared with those prevailing over 30 years ago and
would provide for an increased participation in the milled sugar for the benefit of the planters and their
workers.
7. That notwithstanding these repeated representations made by the herein petitioners with the
respondent corporation for the negotiation and execution of new milling contracts, the herein
respondent has refused and still refuses to accede to the same, contending that under the provisions of
the mining contract (Annex "A".) "It is the view of the majority of the stockholder-investors, that our
contracts with the planters call for 30 years of milling not 30 years in time" and that "as there was
no milling during 4 years of the recent war and two years of reconstruction, when these six years are
added on to the earliest of our contracts in Manapla, the contracts by this view terminate in the autumn
of 1952," and the "the contracts for the Victorias Planters would terminate in 1957, and still later for
those in the Cadiz districts," and that "apart from the contractual agreements, the Company believes
these war and reconstruction years accrue to it in equity.
The trial court rendered judgment the dispositive part of which is
Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and
declares that the milling contracts executed between the sugar cane planters of Victorias, Manapla and

Cadiz, Negros Occidental, and the respondent corporation or its predecessors-in-interest, the North
Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30-year period,
and that respondent corporation is not entitled to claim any extension of or addition to the said 30-year
term or period of said milling contracts by virtue of an equivalent to 6 years of the last war and
reconstruction of its central, during which there was no planting and/or milling.
From this judgment the respondent corporation has appealed.
The appellant contends that the term stipulated in the contracts is thirty milling years and not thirty
calendar years and postulates that the planters fulfill their obligation the six installments of their
indebtedness--which they failed to perform during the six milling years from 1941-42 to 1946-47. The
reason the planters failed to deliver the sugar cane was the war or a fortuitious event. The appellant
ceased to run its mill due to the same cause.
Fortuitious event relieves the obligor from fulfilling a contractual obligation.1 The fact that the
contracts make reference to "first milling" does not make the period of thirty years one of thirty milling
years. The term "first milling" used in the contracts under consideration was for the purpose of
reckoning the thirty-year period stipulated therein. Even if the thirty-year period provided for in the
contracts be construed as milling years, the deduction or extension of six years would not be justified.
At most on the last year of the thirty-year period stipulated in the contracts the delivery of sugar cane
could be extended up to a time when all the amount of sugar cane raised and harvested should have
been delivered to the appellant's mill as agreed upon. The seventh paragraph of Annex "C", not found
in the earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in its brief, where the
parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure, war,
insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during
said period, does not mean that the happening of any of those events stops the running of the period
agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that
time the planters from delivering sugar cane and the central from milling it. In order that the central,
the herein appellant, may be entitled to demand from the other parties the fulfillment of their part in the
contracts, the latter must have been able to perform it but failed or refused to do so and not when they
were prevented by force majeure such as war. To require the planters to deliver the sugar cane which
they failed to deliver during the four years of the Japanese occupation and the two years after liberation
when the mill was being rebuilt is to demand from the obligors the fulfillment of an obligation which
was impossible of performance at the time it became due. Nemo tenetur ad impossibilia. The obligee
not being entitled to demand from the obligors the performance of the latters' part of the contracts
under those circumstances cannot later on demand its fulfillment. The performance of what the law has
written off cannot be demanded and required. The prayer that the plaintiffs be compelled to deliver
sugar cane to the appellant for six more years to make up for what they failed to deliver during those
trying years, the fulfillment of which was impossible, if granted, would in effect be an extension of the
term of the contracts entered into by and between the parties.
In accord with the rule laid down in the case of Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337,
where despite the fact that the lease contract stipulated seven sugar crops and not seven crop years as
the term thereof, we held that such stipulation contemplated seven consecutive agricultural years and
affirmed the judgment which declared that the leasee was not entitled to an extension of the term of the
lease for the number of years the country was occupied by the Japanese Army during which no sugar
cane was planted2 we are of the opinion and so hold that the thirty-year period stipulated in the
contracts expired on the thirtieth agricultural year. The period of six years four during the Japanese
occupation when the appellant did not operate its mill and the last two during which the appellant

reconstructed its mill cannot be deducted from the thirty-year period stipulated in the contracts.
The judgment appealed from is affirmed, with costs against the appellant.
Bengzon, Acting C. J., Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and
Reyes, J. B. L., JJ., concur.
http://www.lawphil.net/judjuris/juri1951/oct1951/gr_l-3316_1951.html
G.R. No. L-3316

October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,

vs.
SANTIAGO SYJUCO, INC., defendant-appellant,
PHILIPPINE NATIONAL BANK, defendant-appellee.
Jose D. Cortes and Claro M. Recto for plaintiff and appellant.
Ramon Diokno and Jose Diokno for defendant and appellant.
Hilarion U. Jarencio for defendant and appellee.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of Manila absolving defendant Santiago
Syjuco, Inc. of the complaint and condemning the plaintiff to pay to said defendant the sum of P18,000
as principal and the further sum of P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a
total of P23,130, Philippine currency, with interest thereon at the rate of 6% per annum from May 6,
1949, until said amount is paid in full, with costs against the plaintiff.
The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary details, are
well narrated in the brief submitted by counsel for the Philippine National Bank, and which for
purposes of this decision are hereunder reproduced:
The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the owner of two
(2) parcels of land known as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental, more
particularly described in Transfer Certificates of Titles Nos. 17176 and 17175, respectively. On March
9, 1936 the Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon,
hereinafter to be referred to as Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630
upon the execution of the said deed; and (b) the balance P23,670 in ten (10) annual amortizations, the
first amortization to fall due one year after the execution of the said contract (See annex "A" Syjuco's
Segunda Contestacion Enmendada).
On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter to be referred
to a s Syjuco, in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from
May 5, 1948. It was also provided in said promissory note that the promisor (Ponce de Leon) could not
pay, and the payee (Syjuco) could not demand, the payment of said note except within the
aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged in favor of
Syjuco the parcels of land which he agreed to purchase from the Bank (See Annex "B", Syjuco's
Segunda Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to
P23,670 in Japanese Military notes and, on the same date, the Bank executed in favor of Ponce de
Leon, a deed of absolute sale of the aforementioned parcels of land (See Annex "F", Syjuco's Segunda
Contectacion Enmendada).
The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed
by Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds of Negros
Occidental and, as a consequence of such registration, Transfer Certificate of Title Nos. 17175 and
17176 in the name of the Bank were cancelled and Transfer Certificate of Title No. 398 (P.R.) and No.
399 (P.R.), respectively, were issued in the name of Ponce de Leon. The mortgage in favor of Syjuco
was annotated on the back of said certificates.
On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount of P16,000 in
Japanese Military notes and executed in the latter's favor of promissory note of the same tenor as the
one had previously executed (R. on Appeal, pp. 23-24)
On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in
Japanese military notes in full payment of his indebtedness to Syjuco. The amount tendered included
not only the interest up to the time of the tender, but also all the interest up to May 5, 1948. Ponce de
Leon also wrote to Syjuco a letter tendering the payment of his indebtedness, including interests up to
May 5, 1948, Syjuco, however, refused to accept such repeated tenders. During the trial, Ponce de Leon
explained that he wanted to settle his obligations because as a member of the guerilla forces he was
being hunted by the Japanese and he was afraid of getting caught and killed (t.s.n. pp. 14-15).
In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with
the Clerk of Court, of First Instance of Manila the amount of P254,880 and, on November 4, 1944, he
filed a complaint consigning the amount so deposited to Syjuco. To this complaint Syjuco filed his
answer. The records of this case were destroyed as a result of the war and after the liberation the same
were reconstituted (R. on A., pp. 1-17)
On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros Occidental
for the reconstitution of transfer Certificates of Titles Nos. 17175 and 17176 in the name of the Bank
and, in an order dated June 4, 1946, the Court ordered the reconstitution of said titles. In compliance
with said order, the Register of Deeds of Negros Occidental issued Certificates of Title Nos. 1297-R
and 1298-R in the names of the Bank. Ponce de Leon then filed with the Register of Deeds a copy of
the deed of sale of the properties covered by the said certificates of title issued by the Bank in his
(Ponce de Leon's) favor and the Register of Deeds cancelled the said Certificates of Title Nos. 1297-R
and 1298-R and issued in favor of Ponce de Leon Transfer Certificates of Title Nos. 526-N and 527-N
(R. on A., pp. 48-50).
On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not
exceeding P135,000 and, on the same date, he executed a mortgage of the two parcels of land covered
by the reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in favor of the said Bank to
secure the payment of any amount which he may obtain from the Bank under aforementioned overdraft
account. The overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not
being aware of the mortgage which Ponce de Leon had executed in favor of Syjuco during the Japanese
occupation, and said Bank believing that the said properties had no lien or encumbrance appeared
annotated on the reconstituted certificates of Title Nos. 526-N and 527-N in the name of Ponce de Leon
(See Testimony of Atty. Endriga).

On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's complaint and, in
its "Tercera Reconvention", it claimed that Ponce de Leon, by reconstituting the titles in the name of
the Bank, by causing the Register of Deeds to have the said titles transferred in his (Ponce de Leon's
name, and by subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft
account, had violated the conditions of the morgage which Ponce de Leon has executed in its favor
during the Japanese occupation. Syjuco then prayed that the mortgage executed by Ponce de Leon in
favor of the Bank be declared null and void. (R. on A., pp. 32-53).
Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp. 55-58).
Notwithstanding said objection, however, the lower court ordered the inclusion of the Bank as a crossdefendant (R. on A., pp. 59-60).
On June 28, 1947, the Bank filed a motion to drop on the ground that it had been misjoined and to
dismiss on the ground that the venue was improperly laid and there is another action pending between
the same parties for the same cause (R. on A., pp. 65-75). The said motion was denied by the lower
court in its order dated October 7, 1947 (R. on A., pp. 95-100). In view of such denial, the Bank filed
its answer on October 29, 1947 (R. on A., pp. 101-106).
On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's
complaint and condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at
the legal rate from May 6, 1949, until fully paid (R. on A., pp. 107-135). Both Ponce de Leon and
Syjuco file their appeal from this decision.
The principal questions to be determined in this appeal are: (1) Did the lower court err in not giving
validity to the consignation made by the plaintiff of the principal and interest of his two promissory
notes with the clerk of court?; (2) did the lower court err in reducing the principal and interest of said
promissory notes to their just proportions using as a pattern the Ballantyne schedule in effecting the
reduction?; (3) did the lower court err in disregarding the defense of moratorium set up by the plaintiff
against the counterclaim of defendant Syjuco?; and (4) did the lower court err in not passing on the
question of priority between the mortgage claim of defendant Syjuco and that of the Philippine
National Bank on the same set of properties on the ground that they are situated in a province different
from that in which this action was brought? We will discuss these issues in the order in which they are
propounded.
1.
It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000
obtained on May 5, 1944, and another for P16,000 obtained on July 31, 1944. These two loans appear
in two promissory notes signed by the plaintiff which were couched in practically the same terms and
conditions and were secured by two deeds of mortgage covering the same parcels of land. In said
promissory notes it was expressly agreed upon that plaintiff shall pay the loans "within one year from
May 5, 1948, . . . peso for peso in the coin or currency of the Government of the Philippines that, at the
time of payment above fixed it is the legal tender for public and private debts, with interests at the rate
of 6% per annum, payable in advance for the first year, and semi-annually in advance during the
succeeding years", and that, the period above set forth having been established for the mutual benefit of
the debtor and creditor, the former binds himself to pay, and the latter not to demand the payment of,
the loans except within the period above mentioned. And as corollary to have the above stipulations, it
was likewise agreed upon in the two deeds of mortgage that "if either party should attempt to annul or
alter any of the stipulations of this deed or of the note which it secures, or do anything which has for its
purpose or effect an alteration or annulment of any of said stipulations, he binds himself to indemnify

the other for the losses and damages, which the parties hereby liquidate and fix at the amount of
P200,000".
The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above
mentioned, plaintiff offered to pay to the defendant not only the principal sum due on the two
promissory notes but also all the interests which said principal sum may earn up to the dates of maturity
of the two notes, and as the defendant refused to accept the payment so tendered, plaintiff deposited the
money with the clerk of court and brought this action to compel the defendant to accept it to relieve
himself of further liability.
The question now to be determined is, is the consignation made by the plaintiff valid in the light of the
law and the stipulations agreed upon in the two promissory notes signed by the plaintiff? Our answer is
in the negative.
In order that cogsignation may be effective, the debtor must first comply with certain requirements
prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the
obligation had been made bacause the creditor to whom tender of payment was made refused to accept
it, or because he was absent for incapacitated, or because several persons claimed to be entitled to
receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been
given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the
amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the
consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). In the
instant case, while it is admitted a debt existed, that the consignation was made because of the refusal
of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the
creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears
that at least two of the above requirements have not been complied with. Thus, it appears that plaintiff,
before making the consignation with the clerk of the court, failed to give previous notice thereof to the
person interested in the performance of the obligation. It also appears that the obligation was not yet
due and demandable when the money was consigned, because, as already stated, by the very express
provisions of the document evidencing the same, the obligation was to be paid within one year after
May 5, 1948, and the consignation was made before this period matured. The failure of these two
requirements is enough ground to render the consignation ineffective. And it cannot be contended that
plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the
interests due up to the date of its maturity, because, under the law, in a monetary obligation contracted
with a period, the presumption is that the same is deemed constituted in favor of both the creditor and
the debtor unless from its tenor or from other circumstances it appears that the period has been
established for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception or
circumstance exists.
It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of
payment of the obligation because the debtor has offered to pay all the interests up to the date it would
become due, but this argument loses force if we consider that the payment of interests is not the only
reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other
reasons why this cannot be done. One of them is that the creditor may want to keep his money invested
safely instead of having it in his hands (Moore vs. Cord 14 Wis. 231). Another reason is that the
creditor by fixing a period protects himself against sudden decline in the purchasing power of the
currency loaned specially at a time when there are many factors that influence the fluctuation of the
currency (Kemmerer on Money, pp. 9-10). And all available authorities on the matter are agreed that,
unless the creditor consents, the debtor has no right to accelerate the time of payment even if the

premature tender "included an offer to pay principal and interest in full" (17 A.L.R. 866-867; 23 L.R.A.
(N.S.) 403; see ruling of this Court in the recent case of Ilusorio vs. Busuego, 84 Phil., 630).
Tested by the law and authorities we have cited above, the conclusion is inescapable that the
consignation made by the plaintiff is invalid and, therefore, did not have the effect of relieving him of
his obligation.
2.
The next question to be determined is whether the lower court erred in reducing the amount of
the loans by applying the Ballantyne schedule.
This is not the first time that this question has been raised. On two previous occasions this Court had
been called upon to rule on a similar question and has decided that when the creditor and the debtor
have agreed on a term within which payment of the obligation should be paid and on the currency in
which payment should be made, that stipulation should be given force and effect unless it appears
contrary to law, moral or public order. Thus, in one case this Court said: "One who borrowed P4,000 in
Japanese military notes on October 5, 1944, to be paid one year after, in currency then prevailing, was
ordered by the Supreme Court to pay said sum after October 5, 1945, that is, after liberation, in
Philippine currency (Roo vs. Gomez et al., 83 Phil., 890). In another case, wherein the parties
executed a deed of sale with pacto de retro of a parcel of land for the sum of P5,000 in Japanese
military notes agreeing that within 30 days after the expiration of one year from June 24, 1944, the
aforementioned land may be redeemed sa ganito ding halaga (at the same price), the Court held that the
"phrase sa ganito ding halaga meant the same price of P5,000 in Japanese war notes". The Court further
said, "The parties herein gambled and speculated on the date of the termination of the war and the
liberation of the Philippines by America. This can be gleaned from the stipulation about redemption,
particularly that portion to the effect that redemption could be effected not before the expiration of one
year from June 24, 1844. This kind of agreement is permitted by law. We find nothing immoral or
unlawful in it" (Gomez vs. Tabia Off. Gaz., 641; 84 Phil., 269).
In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited
because the plaintiff agreed not only to pay the obligation within one year from May 5, 1948, but also
to pay peso for peso in the coin or currency of the Government that at the time of payment it is the legal
tender for public and private debts. This stipulation is permitted by law because there is nothing
immoral or improper in it. And it is not oppressive because it appears that plaintiff used a great portion
of that money to pay his obligations during the Japanese occupation as shown by the fact that he settled
his account with the Philippine National Bank and other accounts to the tune of P100,000. It would
seem therefore clear that plaintiff has no other alternative than to pay the defendant his obligation peso
for peso in the present currency as expressly agreed upon in the two promissory notes in question. The
decision of the lower court on this point should, therefore, be modified.
As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to the
following finding of the court a quo: "The attempt made by the plaintiff to pay the obligation before the
arrival of the term fixed for the purpose may be wrong; but it may be attributed to an honest belief that
the term was not binding and not to a desire to modify the contract". This penal clause should be
strictly construed.
3.
As regards the third question, we find that the lower court erred in disregarding the defense of
moratorium set up by the plaintiff against the counterclaim of the defendant on the sole ground that this
defense was not raised by the plaintiff in his pleadings. An examination of the record shows that the
plaintiff raised this question in his pleadings. This must have been overlooked by the court.

The lower court, therefore, should have passed upon this defense in the light of Executive Order No.
32, which suspended payment of all obligations contracted before March 10, 1945. We note, however,
that said moratorium orders have already been modified by Republic Act No. 342 in the sense of
limiting the ban on obligations contracted before the outbreak of the war to creditors who have filed
claims for reparations with the Philippine War Damage Commission, leaving them open to obligations
contracted during the Japanese occupation (Uy vs. Kalaw Katigbak, G.R. No. L-1830, December 1,
1949). As the obligation in question has been contracted during enemy occupation the same is still
covered by the moratorium orders. The claim of counsel for the defendant that the moratorium orders
cannot be invoked because they are unconstitutional cannot now be determined it appearing that it has
been raised for the first time in this instance. This defense of moratorium was raised by plaintiff in his
reply to the amended answer of the defendant dated August 1, 1946, and in his motion to dismiss the
counterclaim dated October 29, 1946, but the defendant did not traverse that allegation nor raise the
constitutionality of the moratorium orders in any of its pleadings filed in the lower court. It is a well
known rule that this Court can only considera question of constitutionality when it has been raised by
any of the parties in the lower court (Laperal vs. City of Manila, 62 Phil., 352; Macondray and Co. vs.
Benito and Ocampo, 62 Phil., 137).
4.
The facts relative to the execution of the deed of mortgage in favor of the Philippine National
Bank on the two lots in question are as follows: On March 9, 1936, the Philippine National Bank was
the owner of the lots Nos. 872 and 871 of the Murcia Cadastre, Negros Occidental, covered by
Certificates of Titles Nos. 17175 and 17176 respectively. On the same date, the Bank sold the two lots
to the plaintiff and as a result Transfer Certificates of Titles Nos. 398 and 399 were issued in the name
of the plaintiff. On May 5, 1944, plaintiff mortgaged these two lots to defendant Syjuco to guarantee
the payment of two loans, one for P200,000 and another for P16,000. The mortgage was registered in
accordance with the law. Then liberation came. Plaintiff taking advantage of the destruction of the
records of the office of the Register of Deeds of Negros Occidental, obtained from the Court of First
Instance of said province the 33 reconstitution of Transfer Certificate of Titles Nos. 17175 and 17176
and by virtue thereof, the register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R
in the name of the Philippine National Bank. Then he secured the cancellation of the titles last named
and the issuance of Transfer Certificates of Titles Nos. 526-N and 527-N in his name without informing
the court of the encumbrance existing in favor of defendant Syjuco. After securing the new titles in his
name, plaintiff obtained a loan from the Philippine National Bank for the sum of P135,000 on the
security of the property covered by said reconstituted titles. On said titles no encumbrance appears
annotated, but it was noted thereon that they would be subject to whatever claim may be filed by virtue
of documents or instruments previously registered but which, for some reason, do not appear annotated
thereon, as required by a circular of the Department of Justice.
From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant Syjuco
is prior in point of time and in point of registration to that executed in favor of the Philippine National
Bank, let alone the fact that when the later mortgage was executed, the Bank must have known, as it
was its duty to find out, that there was a warning appearing in reconstituted titles that the same were
subject to whatever encumbrance may exist which for one reason or another does not appear in said
titles. With such warning, the Bank should have taken the necessary precaution to inquire into the
existence of any hidden transaction or encumbrance that might affect the property that was being
offered in security such as the one existing in favor of the defendant, and when the Bank accepted as
security the titles offered by the plaintiff without any further inquiry, it assumed the risk and the
consequences resulting therefrom. Moreover, it also appears that this same question of priority has
already been threshed out and determined by the Court of First Instance of Negros Occidental in the

cadastral proceedings covered the two lots in question wherein the court ordered the cancellation of the
reconstituted titles issued in the name of the plaintiff and the reconstitution of the former titles copies
of which were in the possession of defendant Syjuco, subject only to the requirement that the mortgage
in favor of the Philippine National Bank be annotated on said new titles. In other words, the court
declared valid the titles originally issued in the name of the plaintiff wherein the encumbrance in favor
of the defendant Syjuco appears and declared invalid the reconstituted titles secured by plaintiff
through fraud and misinterpretation. This order is now final because no appeal has been taken
therefrom by any interested party.
We have, therefore, no other alternative than to declare that the mortgage claim of the defendant Syjuco
is entitled to priority over that of the Philippine National Bank. This question can be threshed out here
regardless of venue because the counterclaim is but ancillary to the main case (1 Moran, Comments on
the Rules of Court, 2nd ed., 201).
In view of the foregoing, the decision appealed from should be modified in the sense of ordering the
plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two
promissory notes, with interest thereon at the rate of 6% per annum from May 6, 1949, until said
amount is paid in full. It is further ordered that should said amount, together with the corresponding
interests, be not paid within 90 days from the date this judgment in accordance with law, with costs
against the plaintiff.
However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued,
until after the moratorium orders shall have been lifted.
Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.
Separate Opinions
PARAS, C.J., dissenting:
The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31,
1944, another loan of P16,000, payable within one year from May 5, 1948." On November 15, 1944,
the plaintiff offered to pay the entire indebtedness plus all the interest up to the date of maturity. Upon
Syjuco's refusal to accept the tendered payment, the plaintiff deposited the amount with the clerk of the
Court of First Instance of Manila and instituted the present action to compel Syjuco to accept payment.
The records of the case were destroyed during the war, but they were duly reconstituted after the
liberation. The trial court sentenced the plaintiff to pay Syjuco the total sum of P23,130, representing
the whole indebtedness plus all the interest from August 6, 1944, to May 5, 1949, computed according
to the Ballantyne scale of values. From this judgment Syjuco has appealed, claiming his right to be paid
the sum of P216,000, actual Philippine currency, plus P200,000, as penalty agreed upon in the contract.
The majority of this Court sustains Syjuco's claim for P216,000.
As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30, 19491,
Roo vs. Gomez, May 31, 19492, 46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs. Tabia, August
5, 19493, 47 Off. Gaz., 644, in which I dissented, I have to disagree with the majority in the case at bar.
On the question whether a debtor can pay an indebtedness before the date of maturity provided
corresponding interest is paid, I said the following in Ilusorio vs. Busuego:

In other words, I hold that the mortgagor has the right to pay the indebtedness at any time within three
years provided that, as in this case, he pays the interest for the whole term of the mortgage. In the
ordinary course of things, a loan is granted in consideration of interest, and if by the early payment of
the obligation, the creditor would not lose any part of the stipulated interest, both paragraphs 3 and 4
would practically be enforced. It cannot be alleged that the creditor herein, in addition to interest,
wanted to have his money in the safekeeping of the debtor because the contract is one of the loan and
not of deposit. It is to be remembered, moreover, that the debt was being paid in the same currency
loaned (Japanese money). The effect of inflation is one of the risks naturally incident to the moneylending business, and the lender should protect himself against it by plain covenants.
On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in
equivalent Philippine currency, I am hereinbelow reproducing at length what I stated in Roo vs,
Gomez which should have greater application and force, because while in the Roo case the amount of
the loan is only P4,000, in the case at bar the debtor is being ordered to pay the large sum of P216,000:
The principal defense set up by Roo in that the note is contrary to law, morals or public order. This
defense was flatly overruled in the court of origin, seconded by the Court of Appeals. The judgment of
the latter court is now before us upon appeal by certiorari of Cristobal Roo.
The situation in which a borrower of P4,000 in Japanese war notes is made to pay the same amount in
currency of the present Philippine Republic. In other words, the borrower of P4,000 during the latter
part of the Japanese Military occupation which, in ordinary practical terms, could hardly purchase a
cavan of rice, is now compelled to pay P4,000 in actual Philippine currency which, in the same
ordinary practical terms, may be held equivalent to at least 100 cavanes of rice. Said borrower is
compelled to do so, merely because in his promissory note he agreed to pay after one year in pesos of
the Philippine Currency, and expressly waived any postwar arraignment devaluating the amount
borrowed in October, 1944.
The Court of Appeals held that the commitment of Cristobal Roo settle his indebtedness in the legal
tender at the time of payment is not against the law, morals or public order. We readily acquiesce in the
proposition that the contract is not contrary to law or public order, for we are aware of no statute or
public policy which prohibits a person from bringing about or causing his own financial reverses. But
we are of the opinion that, if enforced to the letter, it is against morals. If the contract was entered into
in times of peace, its obligations should have the force of law between the parties and must be
performed in accordance with their stipulations (Art. 1091, Civil Code). But when as in the case at bar,
the borrower had to obtain a loan during war time, when living conditions were abnormal and
oppressive, everything was uncertain, and everybody was fighting for his survival, our conscience and
common sense demand that his acts be judged by compatible standards.
The Court of Appeals found that everybody was aware of the developments of the war outside of
official propaganda and that, in so far as knowledge of war events is concerned, Roo was on more or
less on an equal footing with Gomez. This means that all knew the bombings by the american air forces
of various parts of the islands in September, 1944, and of the decisive defeats of the Axis powers in
Europe, and that the mighty forces of the Allies would soon, as in fact they did, concentrate on and
crush Japan, with the result that the Japanese war notes would accordingly become worthless. It may of
course be opposed that Roo knowingly bound himself to his pact. But this is true merely in theory.
Although, as found also by the Court of Appeals, Roo was not entirely an ignorant man because he is
a mechanic and knows English, the fact nevertheless remains that the lender, Jose L. Gomez, was a

lawyer, and the exaggerated way the promissory word is worded plainly shows that the latter must have
thoroughly studied the transaction with Roo imposed the conditions evidenced therein to his one-sided
advantage. It is needless to say that borrowers are always at the mercy of unscrupulous money lenders.
"Neccesitous men are not, truly speaking, free men; but, to answer a present emergency, will submit to
any terms that the crafty may impose upon them." (Marquez et al. vs. Valencia, 44 Off. Gaz., pp. 895,
897*, quoting Villa vs. Santiago, 38 Phil., 157, 164). We cannot believe, as intimated in the testimony
of Sinforosa A. de Gomez (wife of Jose L. Gomez), that Roo informed them that he would use the
money to purchase a jitney, for the simple reason that, in view of the inflated value of the Japanese war
notes on October, 1944, the amount of P4,000 could not possibly purchase a jitney. At any rate, even
accepting the conjecture that said amount was invested by Roo in his business, the circumstance still
makes him a necessitous man that had to submit to the terms of his lender. That a contract like the one
in question is shocking to the conscience and therefore immoral becomes patent when we resort to the
example of a borrower of P2,000 just before the liberation, when a kilo of sugar already cost P2,000,
being compelled to pay the same in Philippine currency now when a kilo of sugar hardly costs P0.50.
Where is the conscience of anyone who will collect P2,000 for a loan of virtually fifty centavos?
The Court of Appeals argued that the parties took equal risks, since it was impossible to predict the
exact time at which the Philippines would be liberated and that, supposing that the liberation had been
delayed for more than one year, Gomez might have been the loser and Roo the winner, for the
Japanese currency might have further diminished in value. To this we would answer that Gomez would
then be paid in the same currency that was borrowed and during the same war time when the loan was
extended. This would not be unusual, as the parties are still under the very environments that
surrounded the execution of the contract.
I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia:
The majority also hold that the contract here in question is aleatory. This is open to doubt. Aleatory
contracts, or those depending on chance, are covered by Title XII, Book IV, of the Civil Code. It is to
be noted that, under article 1790, an aleatory contract involves the occurrence of an event which is
uncertain or will happen at an indeterminate time. Moreover, the contracts contemplated by the Code as
being aleatory, are grouped under insurance, contracts, gambling and betting, and life annuities. It
follows that the contract now under consideration, which is one of loan does not fall under any of those
groups of aleatory contracts. At any rate, the contract of loan herein involved is clearly not dependent
upon any uncertain event. The loan was granted on a definite date and has to be paid on a definite date.
Both dates are certain. The payment of the loan has to be effected regardless of the result of the war.
As the contract in question contemplated that the payment is to be made in the same currency that was
loaned, and the parties are presumed never to have intended that said payment would be made in what
has become valueless money, justice demands that the indebtedness be paid in actual Philippine
currency at an equivalent amount determined in the Ballantyne schedule, in the absence of evidence as
to such value. The exceptions mentioned in the Ballantyne schedule refers to contracts in which the
obligation is payable by something other than legal tender. Indeed, the majority in Hilado vs. De la
Costa et al.,** G.R. No. L-150, decided on April 30, 1949, held that "what the debtor should pay is the
value of the Japanese war notes in relation the peso of Philippine currency obtaining on the date when
at the place where the obligation was incurred, unless the parties had agreed otherwise." This
underscored clause undoubtedly contemplates an agreement to pay in a consideration other than legal
tender of the Philippines, such as gold dollars, pounds sterling, Spanish pesetas, or the like. It cannot be
otherwise, since if the intention is merely to pay in legal tenders, no express stipulation is necessary,
because under section 1612 of the Revised Administrative Code, the Philippine currency is the legal

tender for all debts.

In reiteration of my stand in the case of Roo vs. Gomez, supra, I wish to emphasize that to require the
herein respondent to pay the sum of P5,000 actual Philippine currency, in return for an indebtedness
obtained in Japanese military notes equivalent in actual Philippine currency according to the Ballantyne
schedule, to only P790.26 as found by the Court of Appeals, is unconscionable.
In my considered opinion, the appealed judgment should at most be affirmed.
Pablo, J., concurs:
PADILLA, J., dissenting:
I dissent. A loan of a sum of money is usually made for the purpose of earning interest. The creditor
should not be allowed to exact and impose unfair terms and conditions, such as that of barring the
debtor from paying the principal of the loan before the time agreed upon. By the payment of the
principal of the loan together with the stipulated interests accrued and to accrue up to the time agreed
upon for the payment of the principal, the purpose or aim of the loan is attained all to the advantage
and benefit of the creditor. The stipulated sum to be paid by the debtor as penalty or liquidated damages
equal to the principal of the loan if payment thereof be made before the time agreed upon, even if the
debtor pays at the same time the stipulated interests accrued and to accrue up to the time agreed upon
for the payment of the principal, is contra bonos mores, against public policy, and should be
disregarded and deemed as not written in the contract.
A loan of P200,000 in Japanese war notes was made on 5 May 1944, payable within one year from 5
May 1948. An additional loan of P16,000 in Japanese war notes was made on 31 July 1944, payable
within the same period of time as the previous one. On different occasions in October 1944, the debtor
tendered the sum of P254,880 in full payment of the principal of the loan and the stipulated interests up
to 5 May 1948, a tender refused by the creditor. In view of this refusal, the debtor deposited the sum
and filed a complaint in the competent court to compel the creditor to accept the sum thus tendered and
deposited.
To compel the debtor after the moratorium shall have been removed to pay in the present currency the
principal of the loan made in Japanese war notes which at the time of the loan had very little value or
purchasing power, and the stipulated interests up to the date of payment thereof, is so shocking to the
conscience of a fair-minded person that it will constitute a blot on the administration of justice in this
Republic. To that I cannot give my assent.
The requirement that previous notice of consignation be made to the creditor was practically complied
with by the deposit in court of the sum of money tendered and the filing of the complaint by the debtor
against the creditor to compel the latter to accept the payment of the sum of money thus tendered and
deposited. The notice of consignation is superflous where a complaint is filed and the sum of money
tendered for the payment of the principal of the loan and stipulated interests is deposited in court,
because to avoid litigation the creditor or any party interested in the fulfillment of the obligation may
still accept the payment of the sum of money deposited after he receives the summons. It does not
appear in the case that any party other than the creditor was interested in the fulfillment of the
obligation at the time the consignation was made.

The cross-claim of the creditor should have been dismissed. The consignation made by the debtor
should have been upheld, or if the provisions as to consignation were not adhered to or complied with,
then the creditor should be entitled at most to the sum awarded by the trial court.
EXCERPTS FROM THE MINUTES OF MARCH 27, 1952
xxx

xxx

xxx

This concerns the motions for reconsideration filed both by plaintiff and defendant in G.R. No. L-3316,
Jose Ponce de Leon vs. Santiago Syjuco, Inc.
Plaintiff predicates his motion for reconsideration on the following grounds: (1) the difference of
P192,870 between the value of the promissory notes in litigation calculated on the basis of the
Ballantyne schedule and their value on the basis of one Japanese military peso constitutes an unjust
enrichment (enriquecimiento torticero) unsupported by any true consideration, and cannot be
sanctioned by this Court; (2) the limitation on the right to pay the loans as stipulated in the promissory
notes was contrary to law and public order at the time the notes were executed; and (3) the aforesaid
difference of P192,870 constitutes defendant's winnings in gambling, and cannot be recovered.
Defendant seeks the reconsideration of the decision on the following grounds: (1) the moratorium law
has been erroneously applied in this case; (2) the decision has erroneously condoned the interest
stipulated from August 6, 1944, to May 5, 1949; and (3) the Court has erroneously absolved the
plaintiff from his obligation under the penal clause.
We will first take up the grounds of the motion for reconsideration of the plaintiff.
Claiming that the real value of the loan made by defendant to plaintiff in 1944, measured in terms of
genuine currency, is P34,130, including interests, and if plaintiff is made to pay to defendant P216,000,
with interests, in genuine currency, the difference between the actual value of the loan received by
plaintiff and the value set in the decision is P192,870, which represents the value actually transferred
from plaintiff to defendant. It is claimed that this is an unjust enrichment which cannot be sanctioned in
equity.
The fundamental doctrine of unjust enrichment is the transfer of value without just cause or
consideration. The transfer is usually made in accordance with law, but the determining factor is the
lack of cause or consideration. The elements of this doctrine are: enrichment on the part of the
defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to
prevent that one may enrich himself at the expense of another. If this situation is obtained, equity steps
in to protect the one prejudiced.
This doctrine is sound. It is based upon equity, and though not expressly recognized on our old Civil
Code, it is reflected in some of its provisions. Example: payments received though not owing, indebiti
solutio, wherein an obligation to restore the thing received arises (Art. 1895). This relation is
considered by treatisers as a kind of quasi-contract. (Castan, Derecho Civil Espaol, tomo 3, pag. 424).
But we doubt the application of this doctrine to the present case, if we view it in the light of its
fundamental purpose, which is lack of cause or consideration. Here we find that the money given to the
plaintiff in May and July, 1944, was invested by him not only to pay his pre-war obligations but also
those contracted by him during the Japanese occupation. According to his own admission, these

accounts reached a total of P105,000. The rest he used to promote his guerilla activities. He, therefore,
made use of the money in the light of his most pressing needs and made use of it for his personal
enrichment. This being so, it is fallacious now to claim that to make plaintiff return the money he made
use of to advantage in the manner he stipulated constitutes an unjust enrichment on the part of the
giver. Nor is it fair and logical to conclude, after plaintiff had made use of the money to suit his
purpose, that the transaction should be voided simply because the advantage has gone the other way.
This is a venture in which both have speculated. It may work one way of the other and as such both
must abide by it.
The claim that the speculation which limits the right to pay the loans within a certain period of time
was contrary to the law and public order at the time the notes were executed is untenable. We find
nothing in the law or in the orders issued by the military authorities in force at the time the notes in
controversy were executed that could prevent anyone from stipulating as to the time within which
certain obligation is to be paid. The military orders regarding the use and circulation of military notes
do not contain any prohibition of this nature. They merely contain an injunction that those notes should
be accepted as legal tender in making payments of all kinds, under pain of severe punishment for those
who may infringe it. The stipulation in question does run counter to this injunction for it merely limits
the time of payment of the obligation. We find nothing in this stipulation which may be said to be
contrary to the law or public order prevailing at the time.
Whether the stipulation in question involves a gambling transaction or not, and as a consequence, the
winnings resulting therefrom should be prescribed, as the law requires, is a closed matter. In Roo vs.
Gomez, May 31, 1949, 46 Off. Gaz., Supp. (Nov. 1950), 333 this Court said: "Our legislation has a
word for these contracts: aleatory. The civil code recognizes their validity (See article 1790 and
Manresa's comment thereon) on a par with insurance policies and annuities". And in Gomez vs, Tabia,
Aug. 5, 1949, 47 Off. Gaz., (Feb. 1951) 641, this Court also said: "This kind of agreement is permitted
by law. We find nothing immoral or unlawful in it. It may be viewed in the same light as insurance
contracts, or sales of grain, sugar or other commodities to be delivered at some future date, whose price
is subject to fluctuation, and may, at the time of delivery, be way above or below the sales price." It
should be stated here with a sense of finality that contracts of this nature are valid and are not contrary
to law, moral, or public order.
Let us come to the motion for reconsideration of defendant.
It is claimed that the Court has erroneously applied the moratorium law because of the pretense that the
plaintiff has failed to invoke it in his favor in the lower court, and that while it is true that plaintiff has
invoked the moratorium law he did so only in connection with his obligation to pay the interests and
damages, and not in connection with the principal.
It should be noted that one of the errors assigned by plaintiff in his brief that the lower court erred in
finding that he did not invoke the benefits of said moratorium law in his pleadings, and the defendant,
in meeting this imputation, never claimed that plaintiff did not invoke the moratorium law, but merely
limited his argument to the contention that plaintiff cannot invoke it because he failed to prove that he
is a war victim, and that said law is unconstitutional. It is only now that the defendant makes the claim
that plaintiff limited his objection to interests and damages. Surprisingly, defendants makes this claim
for the first time in its motion for reconsideration.
We are of the opinion that the defense of moratorium set up by the plaintiff in the lower court applies
both to the principal obligation as well as to the interests and damages, as it was so understood by the

defendant. And this being so, defendant is now estopped from claiming otherwise, especially if it is
considered that, to apply moratorium to interests without at the same time applying it to the principal is
incongrous. This claim, therefore, has no merit.
There is merit in the claim that the interests the plaintiff should pay on the obligation should be counted
from the date plaintiff has ceased to pay said interests, or from August 6, 1944. This should be
corrected.
We find no reason to disturb the finding of this Court in so far as the penal clause is concerned. All
things considered, this finding should be maintained.
Wherefore, the motion for reconsideration filed by the plaintiff is denied.
The motion for reconsideration filed by the defendant is also denied. However, the dispositive part of
the decision rendered in this case should be modified as follows:
In view of the foregoing, the decision appealed from should be modified in the sense of ordering the
plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two
promissory notes, with interest thereon at the rate of 6 per cent per annum from August 6, 1944, up to
May 5, 1949, and with similar interest from May 6, 1949 until said amount is paid in full. It is further
ordered that should the amount of this judgment principal and interests, be not paid within ninety
(90) days from the date this judgment becomes final, the properties mortgaged should be sold at public
auction, and the proceeds applied to the payment of this judgment in accordance with law, with costs
against the plaintiff.
However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued,
until after the moratorium orders shall have been lifted.
The Chief Justice and Justices Pablo and Padilla dissented and voted also to let the case be set for
hearing.
http://sc.judiciary.gov.ph/jurisprudence/2005/aug2005/154413.htm
SPS. ALFREDO R. EDRADA
and ROSELLA L. EDRADA,
Petitioners,
- versus -

SPS. EDUARDO RAMOS

and CARMENCITA RAMOS,
Respondents.

G.R. No. 154413

Present:
PUNO, J.,
Chairman,
AUSTRIA-MARTINEZ
,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
Promulgated:
August 31, 2005

x ---------------------------------------------------------------x
DECISION
TINGA, J.:
In this Petition[1] under Rule 45, petitioner Spouses Alfredo and Rosella Edrada (petitioners) seek the
reversal of the Former Second Division of the Court of Appeals Decision[2] and Resolution[3] in CAG.R. CV No. 66375, which affirmed the Decision of Regional Trial Court (RTC) of Antipolo City,
Branch 71,[4] in Civil Case No. 96-4057, and denied the Motion for Reconsideration[5] therein.
Respondent spouses Eduardo and Carmencita Ramos (respondents) are the owners of two (2) fishing
vessels, the Lady Lalaine and the Lady Theresa. On 1 April 1996, respondents and petitioners
executed an untitled handwritten document which lies at the center of the present controversy. Its full
text is reproduced below:
1st April 1996
This is to acknowledge that Fishing Vessels Lady Lalaine and Lady Theresa owned by Eduardo O.
Ramos are now in my possession and received in good running and serviceable order. As such, the
vessels are now my responsibility.
Documents pertaining to the sale and agreement of payments between me and the owner of the vessel
to follow. The agreed price for the vessel is Nine Hundred Thousand Only (P900,000.00).
(SGD.)
EDUARDO O. RAMOS
(Seller)

CONFORME:
(SGD.)
CARMENCITA RAMOS

(SGD.)
ALFREDO R. EDRADA
(Purchaser)

CONFORME:
(SGD.)
ROSIE ENDRADA[6]

Upon the signing of the document, petitioners delivered to respondents four (4) postdated Far East
Bank and Trust Company (FEBTC) checks payable to cash drawn by petitioner Rosella Edrada, in
various amounts totaling One Hundred Forty Thousand Pesos (P140,000.00). The first three (3) checks
were honored upon presentment to the drawee bank while the fourth check for One Hundred Thousand
Pesos (P100,000.00) was dishonored because of a stop payment order.
On 3 June 1996, respondents filed an action against petitioners for specific performance with damages

before the RTC, praying that petitioners be obliged to execute the necessary deed of sale of the two
fishing vessels and to pay the balance of the purchase price. In their Complaint,[7] respondents alleged
that petitioners contracted to buy the two fishing vessels for the agreed purchase price of Nine Hundred
Thousand Pesos (P900,000.00), as evidenced by the above-quoted document, which according to them
evinced a contract to
buy. However, despite delivery of said vessels and repeated oral demands, petitioners failed to pay the
balance, so respondents further averred.
Belying the allegations of respondents, in their Answer with Counterclaim,[8] petitioners averred that
the document sued upon merely embodies an agreement brought about by the loans they extended to
respondents. According to petitioners, respondents allowed them to manage or administer the fishing
vessels as a business on the understanding that should they find the business profitable, the vessels
would be sold to them for Nine Hundred Thousand Pesos (P900,000.00). But petitioners decided to
call it quits after spending a hefty sum for the repair and maintenance of the vessels which were
already in dilapidated condition.
After trial, the RTC rendered a Decision[9] dated 22 February 1999, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants and
the latter are ordered to pay to the former the amount of Eight Hundred Sixty Thousand Pesos
(P860,000.00) with legal interests thereon from June 30, 1996 until fully paid; the amount of
P20,000.00 as attorneys fees and the cost of suit.
The counterclaim of the defendants for moral and exemplary damages and for attorneys fees is
dismissed for lack of merit.
SO ORDERED.[10]
The RTC treated the action as one for collection of a sum of money and for damages and considered
the document as a perfected contract of sale. On 19 April 1999, petitioners filed a Motion for
Reconsideration which the RTC denied in an Order[11] dated 2 July 1999.
Both parties appealed the RTC Decision. However, finding no reversible error in the appealed
decision, the Court of Appeals, in its Decision,[12] affirmed the same and dismissed both appeals.
Only petitioners elevated the controversy to this Court.
Petitioners raised the nature of the subject document as the primary legal issue. They contend that there
was no perfected contract of sale as distinguished from a contract to sell. They likewise posed as subissues the purpose for which the checks were issued, whether replacement of the crew was an act of
ownership or administration, whether petitioners failed to protest the dilapidated condition of the
vessels, and whether the instances when the vessels went out to sea proved that the vessels were not
seaworthy.[13] It is also alleged in the petition that the true agreement as between the parties was that
of a loan.
Evidently, the petition hinges on the true nature of the document dated 1 April 1996. Normally, the

Court is bound by the factual findings of the lower courts, and accordingly, should affirm the
conclusion that the document in question was a perfected contract of sale. However, we find that both
the RTC and the Court of Appeals gravely misapprehended the nature of the said document, and a
reevaluation of the document is in order.[14] Even if such reevaluation would lead the court to examine
issues not raised by the parties, it should be remembered that the Court has authority to review matters
even if not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving
at a just decision of the case.[15]
In doing so, we acknowledge that the contending parties offer vastly differing accounts as to the true
nature of the agreement. Still, we need not look beyond the document dated 1 April 1996 and the
stipulations therein in order to ascertain what obligations, if any, have been contracted by the party.
The parol evidence rule forbids any addition to or contradiction of the terms of a written agreement by
testimony or other evidence purporting to show that different terms were agreed upon by the parties,
varying the purport of the written
contract. Whatever is not found in the writing is understood to have been waived and abandoned.[16]
We disagree with the RTC and the Court of Appeals that the document is a perfected contract of sale. A
contract of sale is defined as an agreement whereby one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price
certain in money or its equivalent.[17] It must evince the consent on the part of the seller to transfer
and deliver and on the part of the buyer to pay.[18]
An examination of the document reveals that there is no perfected contract of sale. The agreement may
confirm the receipt by respondents of the two vessels and their purchase price. However, there is no
equivocal agreement to transfer ownership of the vessel, but a mere commitment that documents
pertaining to the sale and agreement of payments[are] to follow. Evidently, the document or
documents which would formalize the transfer of ownership and contain the terms of payment of the
purchase price, or the period when such would become due and demandable, have yet to be executed.
But no such document was executed and no such terms were stipulated upon.
The fact that there is a stated total purchase price should not lead to the conclusion that a contract of
sale had been perfected. In numerous cases,[19] the most recent of which is Swedish Match, AB v.
Court of Appeals,[20] we held that before a valid and binding contract of sale can exist, the manner of
payment of the purchase price must first be established, as such stands as essential to the validity of the
sale. After all, such agreement on the terms of payment is integral to the element of a price certain, such
that a disagreement on the manner of payment is tantamount to a failure to agree on the price.
Assuming arguendo that the document evinces a perfected contract of sale, the absence of definite
terms of payment therein would preclude its enforcement by the respondents through the instant
Complaint. A requisite for the judicial enforcement of an obligation is that the same is due and
demandable. The absence of a stipulated period by which the purchase price should be paid indicates
that at the time of the filing of the complaint, the obligation to pay was not yet due and demandable.
Respondents, during trial, did claim the existence of a period. Respondent Carmencita Ramos,
during cross-examination, claimed that the supposed balance shall be paid on 30 June 1996.[21] But
how do respondents explain why the Complaint was filed on 3 June 1996? Assuming that the 30 June
1996 period was duly agreed upon by the parties, the filing of the Complaint was evidently premature,
as no cause of action had accrued yet. There could not have been any breach of obligation because on
the date the action was filed, the alleged maturity date for the payment of the balance had not yet

arrived.
In order that respondents could have a valid cause of action, it is essential that there must have been a
stipulated period within which the payment would have become due and demandable. If the parties
themselves could not come into agreement, the courts may be asked to fix the period of the obligation,
under Article 1197 of the Civil Code.[22] The respondents did not avail of such relief prior to the filing
of the instant Complaint; thus, the action should fail owing to its obvious prematurity.
Returning to the true nature of the document, we neither could conclude that a contract to sell
had been established. A contract to sell is 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.[23]
A contract is perfected when there is concurrence of the wills of the contracting parties with respect to
the object and the cause of the contract. In this case, the agreement merely acknowledges that a
purchase price had been agreed on by the parties. There was no mutual promise to buy on the part of
petitioners and to sell on the part of respondents. Again, the aforestated proviso in the agreement that
documents pertaining to the sale and agreement of payments between the parties will follow clearly
manifests lack of agreement between the parties as to the terms of the contract to sell, particularly the
object and cause of the contract.
The agreement in question does not create any obligatory force either for the transfer of title of the
vessels, or the rendition of payments as part of the purchase price. At most, this agreement bares only
their intention to enter into either a contract to sell or a contract of sale.
Consequently, the courts below erred in ordering the enforcement of a contract of sale that had yet to
come into existence. Instead, the instant Complaint should be dismissed. It prays for three reliefs
arising from the enforcement of the document: execution by the petitioners of the necessary deed of
sale over the vessels, the payment of the balance of the purchase price, and damages. The lower courts
have already ruled that damages are unavailing. Our finding that there is no perfected contract of sale
precludes the finding of any cause of action that would warrant the granting of the first two reliefs. No
cause of action arises until there is a breach or violation thereof by either party.[24] Considering that
the documents create no obligation to execute or even pursue a contract of sale, but only manifest an
intention to eventually contract one, we find no rights breached or violated that would warrant any of
the reliefs sought in the Complaint.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of
Appeals are REVERSED and SET ASIDE. The case before the Regional Trial Court is ordered
DISMISSED. No pronouncement as to costs.
SO ORDERED.