THIRD DIVISION

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN

BUILDERS,
Petitioners,

G.R. No. 177685

Present:
CARPIO MORALES, J.,
Chairperson,
*
NACHURA,
BRION,
VILLARAMA, JR., and
SERENO, JJ.

- versus -

THE PLAZA, INC. and FGU INSURANCE CORPORATION,

Respondents.

Promulgated:
January 26, 2011

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DECISION
VILLARAMA, JR., J.:

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to reverse and set aside the
[1]

Decision dated June 27, 2006 and Resolution

modification the Decision

[3]

[2]

dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with

dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and

40755.

The facts are as follows:

On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its President, Jose C. Reyes, entered
[4]

into a contract with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati,
Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure Rhogens compliance with its obligation under the contract, Gaite and FGU
Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza
paid P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building.

In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati, ordered
Gaite to cease and desist from continuing with the construction of the building for violation of Sections 301 and 302 of the National Building
Code (P.D. 1096) and its implementing rules and regulations.

[5]

The letter was referred to The Plazas Project Manager, Architect Roberto L. Tayzon.

On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for
non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit.

[6]

Memorandum Report of Building Inspector Victor Gregory enumerated the following violations of Rhogen in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September 10, 1980.

The

5) Mr. Ramon Gaite *is+ questioning the authority of the Building Officials Inspector.
6) Construction plans use[d] on the job site is not in accordance to the approved plan.

[7]

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his evaluation of Progress Billing #1
submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished works fall short of Rhogens claimed percentage of
accomplishment and Rhogen was entitled to only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he recommended that
said amount payable to Rhogen be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized
withdrawal of materials from jobsite and stoppage of work by the Municipal Engineers Office of Makati.

[8]

On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/observations on the stoppage order
issued. On the permit for temporary structure, Gaite said the plans were being readied for submission to the Engineering Department of
the Municipality of Makati and the application was being resent to Reyes for his appropriate action. As to the notice for concrete pouring, Gaite
said that their construction set-up provides for a Project Manager to whom the Pouring Request is first submitted and whose job is to clear to
whoever parties are involved (this could still be worked out with the Building Inspector). Regarding the safety devices for workers, Gaite averred
that he had given strict rules on this but in the course of construction some workers have personal preferences. On the refusal of the secretary and
construction foreman to receive the stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of
the National Building Code. Likewise, questioning the authority of the Building Inspector is not a violation of the Code although Gaite denied he
ever did so. Lastly, on the construction plans used in the jobsite not being in accordance with the approved plan, Gaite said he had sent Engr.
Cristino V. Laurel on October 3, 1980 to Reyes office and make a copy of the only approved plan which was in the care of Reyes, but the latter did
not give it to Engr. Laurel. Gaite thus thought that Reyes would handle the matter by himself.

[9]

On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project Manager cooperate to
resolve the issue he had raised to address the problem.

[10]

This was followed by another letter dated November 18, 1980 in which Gaite expressed

his sentiments on their aborted project and reiterated that they can still resolve the matter with cooperation from the side of The Plaza.

[11]

In his

reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation, especially after The Plaza
already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipal
authorities stopped the construction for several violations. Reyes made it clear they have no obligation to help Rhogen get out of the situation
arising from non-performance of its own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.

[12]

Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags of cement in the jobsite, in the
course of which Gaite was charged with estafa for ordering the removal of said items. Gaite complained that Reyes continued to be uncooperative
in refusing to meet with him to resolve the delay. Gaite further answered the estafa charge by saying that he only acted to protect the interest of
the owner (prevent spoilage/hardening of cement) and that Reyes did not reply to his request for exchange.

[13]

On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the Contractors Right to Stop Work or
Terminate Contracts as provided for in the General Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in
solving the problem concerning the revocation of the building permits, which he described as a minor problem. Additionally, Gaite demanded
the payment of P63,058.50 from The Plaza representing the work that has already been completed by Rhogen.

[14]

On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for failure to comply with
the terms of the contract and to deliver the finished structure on the stipulated date. Reyes argued that the down payment made by The Plaza was
more than enough to cover Rhogens expenses.

[15]

In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens undertaking to complete the construction within 180 calendar
days from July 16, 1980 or up toJanuary 12, 1981, and to pay the agreed payment of liquidated damages for every month of delay, chargeable
against the performance bond posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions granting the owner the right to
terminate the contract if the contractor fails to execute the work properly and to make good such deficiencies and deducting the cost from the
payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the structure utilizing the services of a
competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the Contract. After proper evaluation of the
works completed by Rhogen, The Plaza shall then resume the construction and charge Rhogen for all the costs and expenses incurred in excess of
the contract price. In the meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen to determine
whether these are done in accordance with the approved plans, Reyes demanded from Gaite the reimbursement of the balance of their initial
payment of P1,155,000.00 from the value of the works correctly completed by Rhogen, or if none, to reimburse the entire down payment plus
expenses of removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.

[16]

The Plaza sent copy of said

letter to FGU but the latter replied that it has no liability under the circumstances and hence it could not act favorably on its claim against the
bond.

[17]

On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the work it had completed because
the evaluation of the extent, condition, and cost of work done revealed that in addition to the violations committed during the construction of the
building, the structure was not in accordance with plans approved by the government and accepted by Ayala. Hence, The Plaza demanded the
reimbursement of the down payment, the cost of uprooting or removal of the defective structures, the value of owner-furnished materials, and
payment of liquidated damages.

[18]

On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of money and damages against Gaite and FGU in the
Court of First Instance (CFI) of Rizal.

[19]

The Plaza later amended its complaint to include Cynthia G. Gaite and Rhogen.

[20]

The Plaza likewise

filed Civil Case No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the
project development contract executed prior to the General Construction Contract subject of Civil Case No. 40755, which was allegedly in violation
of the provisions of R.A. No. 545 (Architectural Law of the Philippines).

[21]

After the reorganization of the Judiciary in 1983, the cases were

transferred to the RTC of Makati and eventually consolidated.

On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against Rhogen, the Gaites and FGU,
and the cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that the Project Manager was justified in recommending that The
Plaza withhold payment on the progress billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay only P32,684.16 and
not P260,649.91. The other valid grounds for the withholding of payment were the pending estafa case against Gaite, non-compliance by Rhogen
with Construction Memorandum No. 18 and the non-lifting of the stoppage order.

[22]

Regarding the non-lifting of the stoppage order, which the trial court said was based on simple infractions, the same was held to be solely
attributable to Rhogens willful inaction. Instead of readily rectifying the violations, Rhogen continued with the construction works thereby causing
more damage. The trial court pointed out that Rhogen is not only expected to be aware of standard requirements and pertinent regulations on

construction work, but also expressly bound itself under the General Construction Contract to comply with all the laws, city and municipal
ordinances and all government regulations. Having failed to complete the project within the stipulated period and comply with its obligations,
Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code.

[23]

The dispositive portion of the trial courts decision reads:

WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are jointly and
severally ordered to pay plaintiff:
1.

the amount of P525,422.73 as actual damages representing owner-furnished materials with legal interest from
the time of filing of the complaint until full payment;

2.

the amount of P14,504.66 as actual damages representing expenses for uprooting with interest from the time of
filing the complaint until full payment;

3.

the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest from the
time of filing the complaint until full payment;

4.

the amount of P150,000.00 for moral damages;

5.

the amount of P100,000.00 for exemplary damages;

6.

the amount of P500,000.00 as liquidated damages;

7.

the amount of P100,000.00 as reasonable attorneys fees; and,

8.

the cost of suit.

Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the amount
of P1,155,000.00 with legal interest from the time of filing the complaint until full payment. In the event [that] FGU pays the
said amount, third-party defendants are jointly and severally ordered to pay the same amount to FGU plus P50,000.00 as
reasonable attorneys fees, the latter having been forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.
SO ORDERED.

[24]

Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.

[25]

In view of the death of Ramon C. Gaite on April 21, 1999,

the CA issued a Resolution dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite,
Genevieve G. Gaite and Roman Juan G. Gaite.

[26]

In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors, to wit:
I.

THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN
BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;

II.

THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN MUNICIPAL
GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGENS WILLFUL INACTION;

III.

THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH
MADE IT IMPOSSIBLE FOR DEFENDANTAPPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT;

IV.

THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED
DAMAGES AND ATTORNEYS FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND

V.

THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN
[27]
FAVOR OF DEFENDANTS-APPELLANTS.

For its part, FGU interposed the following assignment of errors:

I.

THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON
TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.

II.

THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE FOR THE
STOPPAGE OF THE CONSTRUCTION.

III.

THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY THE AMOUNT OF
P525,422.73 FOR THE OWNER FURNISHED MATERIALS.

IV.

THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE
THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE PERFORMED.

V.

THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE DOWN
PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.

VI.
VII.

GAITE VALIDLY

THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE.

THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.

VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.
IX.

THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES TO PLAINTIFF-APPELLEE.

X.

THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE CORPORATION LIABLE TO
[28]
PLAINTIFF-APPELLEE.

On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City, Branch 63 in Civil
Case Nos. 40755 and 1328 is AFFIRMED with themodification that: (a) the award for actual damages representing the ownerfurnished materials and the expenses for uprooting are deleted, and in lieu thereof, the amount of P300,000.00 as temperate
damages is awarded; and (b) the awards for moral, exemplary, liquidated and attorneys fees are likewise deleted.
SO ORDERED.

[29]

According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen has already failed
to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the progress billing as a result of Rhogens inability to
perform its obligations under the contract. Further, the stoppage and revocation orders were issued on account of Rhogens own violations
involving the construction as found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its
contractual obligations. The CA stressed that Rhogen obliged itself to comply with all the laws, city and municipal ordinances and all government
regulations insofar as they are binding upon or affect the parties *to the contract+ , the work or those engaged thereon.

[30]

As such, it was

responsible for the lifting of the stoppage and revocation orders. As to Rhogens act of challenging the validity of the stoppage and revocation
orders, the CA held that it cannot be done in the present case because under Section 307 of the National Building Code, appeal to the Secretary of
the Department of Public Works and Highways (DPWH) whose decision is subject to review by the Office of the President -- is available as remedy
for Rhogen.

[31]

However, the CA modified the award of damages holding that the claim for actual damages of P525,422.73 representing the damaged
owner-furnished materials was not supported by any evidence. Instead, the CA granted temperate damages in the amount of P300,000.00. As to
moral damages, no specific finding for the factual basis of said award was made by the trial court, and hence it should be deleted. Likewise,
liquidated damages is not proper considering that this is not a case of delay but non-completion of the project. The Plaza similarly failed to
establish that Rhogen and Gaite acted with malice or bad faith; consequently, the award of exemplary damages must be deleted. Finally, there
being no bad faith on the part of the defendants, the award of attorneys fees cannot be sustained.

[32]

The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20, 2007 for lack of merit. Hence, this
appeal.

Before us, petitioners submit the following issues:

I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to
lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no factual or legal basis to terminate the General
Construction Contract.
II.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to
lack of or excess of jurisdiction, when, as a consequence of its finding that Petitioners did not have valid grounds to terminate
the Construction Contract, it directed Petitioners to return the downpayment paid by The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to
lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate damages to The Plaza.
IV.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to
[33]
lack of or excess of jurisdiction, when it failed to award damages in favor of Petitioners.

Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds for Rhogen to terminate the contract
pursuant to Article 1191 of theCivil Code and Article 123 of the General Conditions of the Construction Contract. Petitioners claim that Rhogen
sent Progress Billing No. 1 dated September 10, 1980 and demanded payment from The Plaza in the net amount of P473,554.06 for the work it had
accomplished from July 28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said amount. According to petitioners, Article 123
of the General Conditions of the Construction Contract gives The Plaza seven days from notice within which to pay the Progress Billing; otherwise,
Rhogen may terminate the contract. Petitioners also invoke Article 1191 of the Civil Code, which states that 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.

We deny the petition.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191

[34]

of the Civil Code, which

provides for the remedy of rescission or more properly resolution, a principal action based on breach of faith by the other party who violates the

reciprocity between them. The breach contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the power
to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to
perform his obligation.

[35]

The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latters obligation to pay the
contract price or progress billing is conditioned on the formers performance of its undertaking to complete the works within the stipulated period
and in accordance with approved plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished materials
and paid the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to
Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped
by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and other
regulations of the municipal authorities.

Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the new contractor (ACK Construction,
Inc.) took over the project, the local government of Makati allowed the construction of the building using the old building permit; moreover, the
basement depth of only two meters was retained, with no further excavation made. They cite the testimony of the late Ramon Gaite before the
trial court that at the time, he had incurred the ire of then Mayor of Makati because his (Gaite) brother was the Mayors political opponent; hence,
they sought to file whatever charge they could against him in order to call the attention of his brother. This political harassment defense was
raised by petitioners in their Amended Answer. Gaites testimony was intended to explain the circumstances leading to his decision to terminate
the construction contract and not to question the revocation of the building permit. As the available remedy was already foreclosed, it was thus
error for the CA to suggest that Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities to the
DPWH and then to the OP.

[36]

Article 123 of the Articles of General Conditions states the grounds for the termination of the work or contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE
CONTRACT
If work should be stopped under order of any court, or other public authority, for period of three (3) months through no
act or fault of Contractor or of anyone employed by him, or if Owners Representative should fail to issue any certificate
of payment within seven (7) days after its maturity and presentation of any sum certified by Owners Representative or
awarded arbitrator, then contractor, may, stop work or terminate Contract, recover from Owner payment for work
[37]
executed, loss sustained upon any plant or materials, reasonable profit, damages. (Emphasis supplied.)

Petitioners may not justify Rhogens termination of the contract upon grounds of non-payment of progress billing and uncooperative
attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having
breached the contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen
was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogens first progress billing, on account
of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and
revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its contractual undertaking, thus:
In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR binds itself to
observe all pertinent and applicable laws, rules and regulations promulgated by duly constituted authorities and to be
[38]
personally, fully and solely liable for any and all violations of the same. (Emphasis supplied.)

Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim of abuse by a local official and this
was the primary reason for the problems besetting the project. On the contrary, the site appraisal inspection conducted on February 12 and 13,
1981 in the presence of representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the
violations committed by Rhogen which resulted in the issuance of the stoppage order, Rhogen built the structure not in accordance with
government approved plans and/or without securing the approval of the Municipal Engineer before making the changes thereon.

[39]

Such non-observance of laws and regulations of the local authorities affecting the construction project constitutes a substantial violation
of the Construction Contract which entitles The Plaza to terminate the same, without obligation to make further payment to Rhogen until the work
is finished or subject to refund of payment exceeding the expenses of completing the works. This is evident from a reading of Article 122 which
states:
122. OWNERS RIGHT TO TERMINATE CONTRACT
A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his creditors, or if
receiver should be appointed on account of his insolvency, or if he should persistently or repeatedly refuse or
should fail, except in cases for which extension of time is provided, to supply enough properly skilled workmen or
proper materials, or if he should fail to make prompt payment to Sub-Contractors or for materials of labor,
or persistently disregard laws, ordinances, or instructions of Owners Representative or otherwise be guilty of
substantial violation of any provision of [the] Contract, then Owner, upon certification by Owners
Representative that sufficient cause exists to justify such action, may, without prejudice to any right or remedy,
after giving Contractor seven days written notice, terminate contract with Contractor, take possession of
premises, materials, tools, appliances, thereon, finish work by whatever method he may deem expedient. In
such cases, Contractor shall not be entitled to receive any further payment until work is finished.
B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for additional
managerial and administrative services, such excess, paid to Contractor. Refund the difference to Owner if such
[40]
expense shall exceed unpaid balance.
(Emphasis supplied.)

Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious breach of its contract with The
Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for damages for having breached their contract with respondent
The Plaza. Article 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay and
those who in any manner contravene the tenor thereof are liable for damages.

Petitioners assail the order for the return of down payment, asserting that the principle of quantum meruit demands that Rhogen as
contractor be paid for the work already accomplished.

We disagree.

Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite
the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be
made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to
permit unjust enrichment at the expense of the contractor.

[41]

Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months from the start of
construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager, was able to complete a
meager percentage much lower than that claimed by it under the first progress billing between July and September 1980. Moreover, after it

relinquished the project in January 1981, the site inspection appraisal jointly conducted by the Project Manager, Building Inspector Engr.
Gregory and representatives from FGU and Rhogen, Rhogen was found to have executed the works not in accordance with the approved plans or
failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.

In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be entitled to receive further payment
until the work is finished. As the works completed by Rhogen were not in accordance with approved plans, it should have been executed at its
cost had it not relinquished the project in January 1981. The CA thus did not err in sustaining the trial courts order for the return of the down
payment given by The Plaza to Rhogen.

As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate damages, which are more than nominal
but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot,
from the nature of the case, be proved with certainty. The rationale behind temperate damages is precisely that from the nature of the case,
definite proof of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate
moderate damages, rather than let the complainant suffer without redress from the defendants wrongful act.

[42]

Petitioners contention that

such award is improper because The Plaza could have presented receipts to support the claim for actual damages, must fail considering that
Rhogen never denied the delivery of the owner-furnished materials which were under its custody at the jobsite during the work stoppage and
before it terminated the contract. Since Rhogen failed to account either for those items which it had caused to be withdrawn from the premises,
or those considered damaged or lost due spoilage, or disappeared for whatever reason there was no way of determining the exact quantity and
cost of those materials. Hence, The Plaza was correctly allowed to recover temperate damages.

Upon the foregoing, we find petitioners claim for actual, moral and exemplary damages and attorneys fees lacking in legal basis and
undeserving of further discussion.

WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April 20, 2007 of the Court of Appeals
in CA-G.R. CV No. 58790 are AFFIRMED.

With costs against petitioners.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

SECOND DIVISION

MILA A. REYES ,

G.R. No. 188064

Petitioner,
Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

Promulgated:
June 1, 2011

VICTORIA T. TUPARAN,
Respondent.

X -----------------------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:

[1]

Subject of this petition for review is the February 13, 2009 Decision of the Court of Appeals (CA) which affirmed with modification the
[2]
February 22, 2006 Decision of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of
Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against Victoria T.
Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square
meter residential and commercial lot located in Karuhatan, ValenzuelaCity, and covered by TCT No. V-4130; that on that property, she put up a
three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore
and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the
sidewalks were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a
monthly rental of 4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in
petitioners financing/lending business from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure
a loan of 2,000,000.00 payable in installments. On November 15, 1990, petitioners outstanding account on the mortgage reached 2,278,078.13.
Petitioner then decided to sell her real properties for at least 6,500,000.00 so she could liquidate her bank loan and finance her businesses. As a
gesture of friendship, respondent verbally offered to conditionally buy petitioners real properties for 4,200,000.00 payable on installment basis
without interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered the following
conditions/concessions:

1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said properties for the
amount of 6,500,000.00 within the next three (3) months provided all amounts received by the plaintiff from the defendant
(respondent) including payments actually made by defendant to Farmers Savings and Loan Bank would be refunded to the
defendant with additional interest of six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics store without any
rentals for the duration of the installment payments;

3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for drugstore and cosmetics
store at a monthly rental of only 8,000.00 after full payment of the stipulated installment payments are made by the
defendant;
4. That the defendant will undertake the renewal and payment of the fire insurance policies on the two (2) subject
buildings following the expiration of the then existing fire insurance policy of the plaintiff up to the time that plaintiff is fully
[3]
paid of the total purchase price of 4,200,000.00.
After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks approval for
respondent to assume her (petitioners) outstanding bank account. The assumption would be part of respondents purchase price for petitioners
mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgage
obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other
terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditional
Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent.
Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump
sum of 1.2 million pesos without interest as part of the purchase price in three (3) fixed installments as follows:
a) 200,000.00 due January 31, 1991
b) 200,000.00 due June 30, 1991
c) 800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on
their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments,
respondent agreed to pay petitioner an interest of 6% a month. As ofAugust 31, 1992, respondent had only paid 395,000.00, leaving a balance of
805,000.00 as principal on the unpaid installments and 466,893.25 as unpaid accumulated interest.
Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month
period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Instead, respondent became
interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex. Nonetheless,
she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as
shown by the fact that since December 1990, she (respondent) had not collected any rentals from the petitioner for the space occupied by her
drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose rental income in the amount of
8,000.00 a month since April 1992. Respondent neglected to renew the fire insurance policy on the subject buildings.
Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving
monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of 751,000.00 only payable on September 7, 1992, as full payment of the
purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale.
Respondents Answer
Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional
Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered
a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and
uncertain event. Moreover, the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were
supposed to be paid by petitioner but she failed to do so.
Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage in
the amount of 2,278,078.13 plus interest and other finance charges. Because of her payment, she was able to obtain a deed of cancellation of
mortgage and secure a release of mortgage on the subject real properties including petitioners ancestral residential property in Sta. Maria,
Bulacan.
Petitioners claim for the balance of the purchase price of the subject real properties was baseless and unwarranted because the full
amount of the purchase price had already been paid, as she did pay more than 4,200,000.00, the agreed purchase price of the subject real
properties, and she had even introduced improvements thereon worth more than 4,800,000.00. As the parties could no longer be restored to
their original positions, rescission could not be resorted to.

Respondent added that as a result of their business relationship, petitioner was able to obtain from her a loan in the amount of
400,000.00 with interest and took several pieces of jewelry worth 120,000.00. Petitioner also failed and refused to pay the monthly rental of
20,000.00 since November 16, 1990 up to the present for the use and occupancy of the ground floor of the building on the subject real property,
thus, accumulating arrearages in the amount of 470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in full the 4.2 million total purchase price of
the subject real properties leaving a balance of 805,000.00. It stated that the checks and receipts presented by respondent refer to her payments
of the mortgage obligation with FSL Bank and not the payment of the balance of 1,200,000.00. The RTC also considered the Deed of Conditional
Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract of
sale. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her nonpayment in full of the purchase price may not be considered as substantial and fundamental breach of the contract as to defeat the object of the
[4]
parties in entering into the contract. The RTC believed that the respondents offer stated in her counsels letter dated September 2, 1992 to
settle what she thought was her unpaid balance of 751,000.00 showed her sincerity and willingness to settle her obligation. Hence, it would be
more equitable to give respondent a chance to pay the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys fees because there was no proof that either
party acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the amount
of 805,000.00, representing the unpaid purchase price of the subject property, with interest thereon at 2% a month
from January 1, 1992 until fully paid. Failure of the defendant to pay said amount within the said period shall cause the
automatic rescission of the contract (Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff
and the defendant shall be restored to their former positions relative to the subject property with each returning to the other
whatever benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the space occupied by her for drugstore and
cosmetic store without any rental pending payment of the aforesaid balance of the purchase price.
3. Ordering the defendant, upon her full payment of the purchase price together with interest, to execute a contract
of lease for fifteen (15) years in favor of the plaintiff over the space for the drugstore and cosmetic store at a fixed monthly
rental of 8,000.00; and

4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price together with interest, to
execute the necessary deed of sale, as well as to pay the Capital Gains Tax, documentary stamps and other miscellaneous
expenses necessary for securing the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990, all
necessary to transfer ownership of the subject property to the defendant.
No pronouncement as to damages, attorneys fees and costs.
SO ORDERED.

[5]

Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with modification the RTC Decision. The CA agreed with the RTC that the
contract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondents failure to
pay the petitioner the balance of the purchase price in the total amount of 805,000.00 was not a breach of contract, but merely an event that
prevented the seller (petitioner) from conveying title to the purchaser (respondent). It reasoned that out of the total purchase price of the subject
property in the amount of 4,200,000.00, respondents remaining unpaid balance was only 805,000.00. Since respondent had already paid a
substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. Thus,
the decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22 December 2006 of
the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that
defendant-appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days
from finality of this Decision, the amount of 805,000.00 representing the unpaid balance of the purchase price of the subject
property, plus interest thereon at the rate of 6% per annum from 11 September 1992 up to finality of this Decision and,

thereafter, at the rate of 12% per annum until full payment. The ruling of the trial court on the automatic rescission of the Deed
of Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive portion of the
trial courts decision is AFFIRMED in all other respects.
SO ORDERED.

[6]

After the denial of petitioners motion for reconsideration and respondents motion for partial reconsideration, petitioner filed the
subject petition for review praying for the reversal and setting aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS

A.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISALLOWING THE OUTRIGHT
RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE
GROUND THAT RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE PURCHASE PRICE OF
805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND
TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE
PRICE OF 805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF 4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF 1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF APPEALS
AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF THE 805,000.00 IS
ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.

B.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISREGARDING AS GROUND FOR
THE RESCISSION OF THE SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE
RESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF
THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE 805,000.00 PLUS INTEREST
THEREON.

C.
EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION OF THE SUBJECT
CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON
THE 805,000.00 TO ONLY 6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11,
1992 DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT
RESPONDENT WILL PAY INTEREST ON THE 805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY
ON DECEMBER 31, 1991.

D.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION AND/OR
MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES
WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH
RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF
805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS
CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.

E.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR THE 29,609.00 BACK RENTALS THAT WERE
COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.

F.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS
EARLIER URGENT MOTION FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION DATED JULY 7,
2008 AND THE SUPPLEMENT THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS THREE (3) SEPARATE
MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL
INCOME DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING THE RESPONDENT TO
UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS URGENT
MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF
TAXES ON THE SUBJECT REAL PROPERTIES DATED JANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO
IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA CITY.

G.
THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS
CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that there was no legal basis for the
rescission of the Deed of Conditional Sale with Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the rescission of the subject Deed of Conditional Sale of Real Properties with
Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is reciprocity arising
from identity of cause by virtue of which one obligation is correlative of the other.
2. The petitioner was rescinding not enforcing the subject Deed of Conditional Sale pursuant to Article 1191 of the
Civil Code because of the respondents failure/refusal to pay the 805,000.00 balance of the total purchase price of the
petitioners properties within the stipulated period ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to
comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the 1,200,000.00
balance and unjustly enriched herself at the expense of the petitioner by collecting all rental payments for her personal benefit
and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of
805,000.00 from the date of the delinquency, December 31, 1991, because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost income as well as for the back rentals in the amount of 29,609.00 has
been fully substantiated and, therefore, should have been granted by the CA. Her claim for moral and exemplary damages and attorneys fees has
been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage entered into between the parties is a
contract to sell and not a contract of sale because the title of the subject properties still remains with the petitioner as she failed to pay the
installment payments in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full balance on the purchase price may not be considered as a substantial
and fundamental breach of the subject contract and it would be more equitable if she would be allowed to pay the balance including interest
within a certain period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a certain amount which was,
however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale explicitly provides that the installment payments shall not bear any
interest. Moreover, petitioner failed to prove that she was entitled to back rentals.
The Courts Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into
by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was
correctly classified as a contract to sell based on the following pertinent stipulations:
8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of
the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of 2,000,000.00. Pending
payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second
Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the
written consent of the First and Third Party.
9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage
obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party
[7]
shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.
Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully
pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of
cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive
suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of
contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the
breach of contract contemplated under Article 1191 of the New Civil Code but rather just an eventthat prevents the petitioner from being bound to
[8]
convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson is enlightening:
The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell, not a
contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
xxx
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a
contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential
element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract
to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase
price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained
by the prospective seller without further remedies by the prospective buyer.
xxx

xxx

xxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the
prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving
the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale
is completely abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if
there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and a contract to sell:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing
sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses

ownership over the property and cannot recover it until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective.
It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into
by the parties. In this case, the contract entitled Deed of Conditional Sale is actually a contract to sell. The contract
stipulated that as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer
documents shall be executed by the vendor to the vendee for the portion sold. Where the vendor promises to execute a deed
of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell. The
aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a
contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive
condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of
contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Thus,
for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which
enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an obligation that is still nonexistent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in
Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation. [Emphases and underscoring supplied]

Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. Espidol,

[9]

where it was written:

Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if
what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the
buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by
the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers nonpayment of the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the price is a positive
suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the
ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains
in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract.
Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title
of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that
the parties understood this to be the case.
Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That
payment, said both the RTC and the CA, was a positive suspensive condition failure of which was not regarded a breach in the
sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition
had not taken place. x x x. [Emphases and underscoring supplied]
Thus, the Court fully agrees with the CA when it resolved: Considering, however, that the Deed of Conditional Sale was not cancelled by
Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of 4,200,000.00, the remaining unpaid
balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to
[10]
allow Tuparan to pay the said unpaid balance of the purchase price to Reyes.
Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the
circumstances, there was only a slight or casual breach in the fulfillment of the obligation.
Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the
[11]
fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances. In the case at
bench, the subject contract stipulated the following important provisions:

2. That the purchase price of 4,200,000.00 shall be paid as follows:

a) 278,078.13 received in cash by the First Party but directly paid to the Third Party as partial payment of the
mortgage obligation of the First Party in order to reduce the amount to 2,000,000.00 only as of November 15, 1990;
b) 721,921.87 received in cash by the First Party as additional payment of the Second Party;
c)

1,200,000.00 to be paid in installments as follows:

1.
2.
3.

200,000.00 payable on or before January 31, 1991;

200,000.00 payable on or before June 30, 1991;
800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

d)
2,000,000.00 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby
assumed by the Second Party.
xxx
3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as partial payment of the
loan obligation of First Party in order to reduce the account to only 2,000,000.00 as of November 15, 1990 to be assumed by
[12]
the Second Party effective November 15, 1990.
From the records, it cannot be denied that respondent paid to FSL Bank petitioners mortgage obligation in the amount of 2,278,078.13,
which formed part of the purchase price of the subject property. Likewise, it is not disputed that respondent paid directly to petitioner the amount
of 721,921.87 representing the additional payment for the purchase of the subject property. Clearly, out of the total price of 4,200,000.00,
respondent was able to pay the total amount of 3,000,000.00, leaving a balance of 1,200,000.00 payable in three (3) installments.
Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first and second installments of 200,000.00 each.
She, however, failed to pay the third and last installment of 800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992,
respondent, through counsel, offered to pay the amount of 751,000.00, which was rejected by petitioner for the reason that the actual balance
was 805,000.00 excluding the interest charges.
Considering that out of the total purchase price of 4,200,000.00, respondent has already paid the substantial amount of 3,400,000.00,
more or less, leaving an unpaid balance of only 805,000.00, it is right and just to allow her to settle, within a reasonable period of time, the
balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply
with her obligation when she offered to pay the petitioner the amount of 751,000.00.
On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly
interest on the 805,000.00 from the date of delinquency, December 31, 1991. As can be gleaned from the contract, there was a stipulation stating
that: All the installments shall not bear interest. The CA was, however, correct in imposing interest at the rate of 6% per annum starting from the
filing of the complaint on September 11, 1992.

Finally, the Court upholds the ruling of the courts below regarding the non-imposition of damages and attorneys fees. Aside from
petitioners self-serving statements, there is not enough evidence on record to prove that respondent acted fraudulently and maliciously against
[13]
the petitioner. In the case of Heirs of Atienza v. Espidol, it was stated:
Respondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil
Code, which enumerates the cases when moral damages may be recovered. Article 2220 of the Civil Code allows the recovery
of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. However, this case involves a
contract to sell, wherein full payment of the purchase price 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. Since there is no
breach of contract in this case, respondents are not entitled to moral damages.

In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages cannot be granted for
they are allowed only in addition to any of the four kinds of damages mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185798

January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure assailing the Decision1 of the Court of
Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-Estate Network, Inc. is its
authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter
condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTYFOUR THOUSAND ONLY (P5,174,000.00). On 29 August 1997, respondents executed and signed a Reservation Application Agreement wherein
they deposited P200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment of P1,552,200.00 and had been paying
the P63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization. Claiming to have paid a
total of P2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded a full refund of their payment with interest.
When their demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages before the Housing and Land
Use Regulatory Board (HLURB). Respondents prayed for reimbursement/refund of P2,198,949.96 representing the total amortization payments,
P200,000.00 as and by way of moral damages, attorneys fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their Answer within the reglementary period
despite service of summons.2
Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in construction to the 1997 Asian
financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle respondents to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to jointly and severally pay
respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100 (P2,198,949.96) with
interest thereon at twelve percent (12%) per annum to be computed from the time of the complainants demand for refund on October 08,
1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable to this Office fifteen (15) days upon receipt of this decision, for
violation of Section 20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners failure to develop the condominium project as a substantial breach of their obligation which entitles
respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic hardship is not an excuse for
contractual and legal delay.
Petitioners appealed the Arbiters Decision through a petition for review pursuant to Rule XII of the 1996 Rules of Procedure of HLURB. On 17
February 2005, the Board of Commissioners of the HLURB denied4 the petition and affirmed the Arbiters Decision. The HLURB reiterated that
the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will exempt petitioners from the performance
of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter, petitioners filed a Notice of Appeal with the Office
of the President. On 18 April 2007, petitioners appeal was dismissed6 by the Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing the same arguments they raised
before the HLURB and the Office of the President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE HOUSING AND LAND USE REGULATORY
BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF P2,198,949.96 WITH 12% INTEREST
FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERSAPPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS
TO PAY RESPONDENTS-APPELLEES THE SUM OF P100,000.00 AS MORAL DAMAGES AND P50,000.00 AS ATTORNEYS FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING AND LAND USE REGULATORY BOARD
ORDERING PETITIONERS-APPELLANTS TO PAY P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO
SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court echoed the HLURB Arbiters ruling
that "a buyer for a condominium/subdivision unit/lot unit which has not been developed in accordance with the approved
condominium/subdivision plan within the time limit for complying with said developmental requirement may opt for reimbursement under
Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court supported the HLURB Arbiters conclusion,
which was affirmed by the HLURB Board of Commission and the Office of the President, that petitioners failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund of the total amount paid, including interest. The appellate court pointed
out that petitioners failed to prove that the Asian financial crisis constitutes a fortuitous event which could excuse them from the performance
of their contractual and statutory obligations. The appellate court also affirmed the award of moral damages in light of petitioners unjustified
refusal to satisfy respondents claim and the legality of the administrative fine, as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED
RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES, THE HONORABLE COURT OF APPEALS
ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT
INCLUDING THE PAYMENT OF P100,000.00 AS MORAL DAMAGES, P50,000.00 AS ATTORNEYS FEES AND P10,000.00 AS ADMINISTRATIVE FINE IN
THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of misrepresentation
amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was a mere delay in the completion of the
project and that they only resorted to "suspension and reformatting as a testament to their commitment to their buyers." Petitioners attribute
the delay to the 1997 Asian financial crisis that befell the real estate industry. Invoking Article 1174 of the New Civil Code, petitioners maintain
that they cannot be held liable for a fortuitous event.

Petitioners contest the payment of a huge amount of interest on account of suspension of development on a project. They liken their situation
to a bank which this Court, in Overseas Bank v. Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because they never intended to cause delay, and again blamed
the Asian economic crisis as the direct, proximate and only cause of their failure to complete the project. Petitioners submit that moral damages
should not be awarded unless so stipulated except under the instances enumerated in Article 2208 of the New Civil Code. Lastly, petitioners
refuse to pay the administrative fine because the delay in the project was caused not by their own deceptive intent to defraud their buyers, but
due to unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a fortuitous event which would justify delay
by petitioners in the performance of their contractual obligation; 2) assuming that petitioners are liable, whether or not 12% interest was
correctly imposed on the judgment award, and 3) whether the award of moral damages, attorneys fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent that first, the Asian
financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual obligation; second, as a result of the
breach committed by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of amortizations paid
including interest and damages; and third, petitioners are likewise obligated to pay attorneys fees and the administrative fine.
This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office of the President and the Court of
Appeals.
Indeed, the non-performance of petitioners obligation entitles respondents to rescission under Article 1191 of the New Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1wphi1 No installment payment made by a buyer in a subdivision or condominium project for the lot
or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid
including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for the payments they
had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses Go13 promulgated on 17 August
2007, where the Court stated that the Asian financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as the instant
case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a different condominium property. The company likewise reneged on
its obligation to respondents therein by failing to develop the condominium project despite substantial payment of the contract price. Fil-Estate
advanced the same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of the construction project. First
off, the Court classified the issue as a question of fact which may not be raised in a petition for review considering that there was no variance in
the factual findings of the HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine Commercial International Bank14 and Mondragon Leisure and Resorts Corporation v.
Court of Appeals15 holding that the 1997 Asian financial crisis did not constitute a valid justification to renege on obligations. The Court
expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements and business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an
instance of caso fortuito.16
The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in this case. The principle of
stare decisis, which means adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal interest computed from the date of
demand. The Court also awarded attorneys fees. We follow that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery Frames,17 embodying the
amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
We likewise affirm the award of attorneys fees because respondents were forced to litigate for 14 years and incur expenses to protect their
rights and interest by reason of the unjustified act on the part of petitioners.18 The imposition of P10,000.00 administrative fine is correct
pursuant to Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten thousand pesos for violations of the
provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority and enforceable through writs of
execution in accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract cases, the defendant must
have acted in bad faith, must be found guilty of gross negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their contract, when they failed to address
respondents grievances and when they adamantly refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is
SIX PERCENT (6%) on the amount due computed from the time of respondents' demand for refund on 8 October 1998.
SO ORDERED.

Lalicon v National Housing Authority (Obligations and Contracts)

Lalicon v National Housing Authority
GR No. 185440
July 13, 2011
RESCISSION & PRESCRIPTION
FACTS:
(1) On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon
City lot in favor of the spouses Isidro and Flaviana Alfaro (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 NHA's 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
The mortgage and the restriction on sale were annotated on the Alfaros' title on April 14, 1981.
(2) 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.
(3) After full payment of the loan or on March 21, 1991 the NHA released the mortgage.
(4) Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. (5) On December
14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
(6) Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees.
RTC: 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. 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).
CA: 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.
ISSUE: Whether or not the subsequent sales constituted breach in the obligation and may give rise to rescission
--------------------------------------------------------------------------------------------------------------APPLICABLE LAW/S:
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. (1124)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
--------------------------------------------------------------------------------------------------------------HELD: (1) Lalicons' request for exemption from the five-year restriction was not granted. Resale without NHA's consent
is a substantial breach.
The five-year 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 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.
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 NHA's 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 NHA's
consent is a substantial breach. The essence of the government's socialized housing program is to preserve the
beneficiary's ownerships for a reasonable length of time, here at least within five years from the time he acquired it free
from any encumbrance.
(2) Action has not prescribed.
NHA sought annulment of the Alfaros' sale to Victor because they violated the five-year 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 NHA's 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.
(3) Lalicons and Chua were not buyers in good faith.
Since the five-year prohibition against alienation without the NHA's written consent was annotated on the property's
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.
(4) Lastly, since mutual restitution is required in cases involving rescission under Article 1191, 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.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS

ANGELES
35 SCRA 102
FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted exclusive
authority to cut, collect and remove timber from the Land Grant for a period starting from the date of agreement to
December 31, 1965, extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands, ALUMCO
still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an
instrument entitled Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president
of UP, which stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance
outstanding after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that
Creditor shall have the right to consider the Logging Agreement rescinded, without the necessity of any judicial
suit
ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP informed
ALUMCO that it had, as of that date, considered rescinded and of no further legal effect the logging agreement, and
that UP had already taken steps to have another concessionaire take over the logging operation. ALUMCO filed a
petition to enjoin UP from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal.
ISSUE:
Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect?
RULING:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right
and the power to consider the Logging Agreement of December 2, 1960 as rescinded without the necessity of any
judicial suit. As to such special stipulation and in connection with Article 1191 of the Civil Code, the Supreme Court,
stated in Froilan vs. Pan Oriental Shipping Co:
There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract.

Angeles vs. Calasanz

Lot buyer (P) vs. Seller (D)
GR L-42283

[T]

Summary: A buyer of a property paid monthly installments for nine years, but was five months late on the installment payment due. The seller
rescinded the contract and applied the installments made as rentals.
Rule of Law: The act of a party in treating a contract as canceled or resolved on account of infractions by the other is always provisional, being ever
subject to scrutiny and review by the proper court.
Facts: Ursula and Tomas Calasanz (D) sold a piece of land to Buenaventura Angeles (P) and Teofila Juani covered by a contract to sell.
Angeles (P) paid a downpayment upon the execution of the contract and started paying the balance in monthly installments. Angeles (P) paid
monthly installments for nine years with only a few remaining installments left to pay. Although Calasanz (D) accepted late payments before,
Angeles (P) was now five months late.
Calasanz (D) demanded payment of past due accounts, but did not receive any. Eventually, Calansanz (D) canceled the said contract because
Angeles (P) failed to pay the subsequent payments. Angeles (P) asked for reconsideration, but was denied.
Angeles (P) filed a case to compel the Calasanz (D) to execute in their favor the final deed of sale alleging that they have already fully paid the total
price of the property. Calasanz (D) alleged in their answer that Angeles (P) violated the contract to sell when they failed to pay a monthly
installment.
A provision in the contract to sell gave Calasanz (D) the right to cancel the contract and consider the amounts paid as rent for the property.
However, the lower court ruled that the contract was not validly canceled and ordered Calasanz (D) to execute a final Deed of Sale in favor of
Angeles (P)
Issues: Was the contract to sell validly canceled?
Ruling: No. The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself
provides was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained (paraphrased) that:
Of course, the act of a party in treating a contract as canceled or resolved on account of infractions by the other must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free
to bring the matter to court. Then, should the court 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 indemnity awarded to the party prejudiced.
In short, the party who deems the contract violated many consider it resolved or rescinded without previous court action, but it proceeds at its
own risk. For it is only the final judgment of the court that will conclusively and finally settle whether the action taken was or was not correct in
law.
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corporation vs. Court
of Appeals (33 SCRA 1) the Court stated that:
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) The
question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus vs. Alikpala, GR L-23707 & L-23720,
January 17, 1968)
The breach of the contract alleged by Calasanz (D) is so slight considering that Angeles (P) had already paid monthly installments for almost nine
years. In only a short time, the entire obligation would have been paid. To sanction the rescission made by Calasanz (D) will work injustice to
Angeles (P) and unjustly enrich Calasanz (D).
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the Calasanz (P) in cancelling the contract.

Tan vs. CA
GR 108555, 20 December 1994
First Division, Kapunan (J)
Facts: Ramon Tan, a businessman from Puerto Princesa, secured a Cashiers Check from Philippine
Commercial Industrial Bank (PCIBank) to P30,000 payable to his order to avoid carrying cash while enroute
to Manila. He deposited the check in his account in Rizal Commercial Banking Corporation (RCBC) in its
Binondo Branch. RCBC sent the check for clearing to the Central Bank which was returned for having been
missent or misrouted. RCBC debited Tans account without informing him. Relying on common
knowledge that a cashiers check was as good as cash, and a month after depositing the check, he issued two
personal checks in the name of Go Lak and MS Development Trading Corporation. Both checks bounced due
to insufficiency of funds. Tan filed a suit for damages against RCBC.
Issue: Whether a cashiers check is as good as cash, so as to have funded the two checks subsequently
drawn.
Held: An ordinary check is not a mere undertaking to pay an amount of money. There is an element of
certainty or assurance that it will be paid upon presentation; that is why it is perceived as a convenient
substitute for currency in commercial and financial transactions. Herein, what is involved is more than an
ordinary check, but a cashiers check. A cashiers check is a primary obligation of the issuing bank and
accepted in advance by its mere issuance. By its very nature, a cashiers check is a banks order to pay what is
drawn upon itself, committing in effect its total resources, integrity and honor beyond the check. Herein,
PCIB by issuing the check created an unconditional credit in favor any collecting bank. Reliance on the
laymans perception that a cashiers check is as good as cash is not entirely misplaced, as it is rooted in
practice, tradition and principle.
[56]

CORDERO et al. vs F.S. MANAGEMENT & DEVELOPMENT CORPORATION Case Digest

DARREL CORDERO, et al. v. F.S. MANAGEMENT & DEVELOPMENT CORPORATION
506 SCRA 451 (2006), THIRD DIVISION, (Carpio Morales, J.)

Non-fulfillment of a suspensive condition in a contract of sale renders the latter ineffective and without force and effect.

FACTS: Belen Cordero, in her own behalf and as attorney-in-fact of her co-petitioners, entered into a contract to sell with respondent F.S.
Management and Development Corporation (FSMDC) over five (5) parcels of land located in Batangas. Pursuant to the terms and conditions of the
contract, FSMDC paid earnest money. No further payments were made thereafter. Cordero sent FSMDC a demand letter, revoking the contract to
sell and treating the payments already made as payment for damages suffered. FSMDC likewise demanded the payment for actual damages
suffered due to loss of income.

Cordero thereafter filed before the Regional Trial Court of Paraaque a complaint for rescission of contract with damages alleging FSMDC failed to
comply with its obligations under the contract to sell; and that consequently entitled to rescind the contract to sell as well as demand the payment
of damages. FSMDC, on the other hand, alleged that Cordero has no cause of action considering that they were the first to violate the contract to
sell. It was Cordero who prevented FSMDC from complying with its obligation to pay in full by refusing to execute the final contract of sale unless
additional payment of legal interest is made. Moreover, Corderos refusal to execute the final contract of sale was due to the willingness of another
buyer to pay a higher price.

The RTC issued its decision, finding in favor of Cordero et al. and ordered FSMDC to pay damages and attorneys fees. The Court of Appeals
affirmed the decision of the lower court and denied their motion for reconsideration.

ISSUE: Whether or not contract to sell may be subject to rescission under Article 1191 of the Civil Code

HELD: Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full
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.

Since the obligation of Cordero et al. did not arise because of the failure of FSMDC to fully pay the purchase price, Article 1191 of the Civil Code
would have no application.

The non-fulfillment by the FSMDC of his obligation to pay, which is a suspensive condition to the obligation of the Cordero et al. to sell and deliver
the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had
never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of
an obligation that is still non-existing, the suspensive condition not having happened.