Oblicon 1

G.R. No. 175490.September 17, 2009.
*
ILEANA DR. MACALINAO, petitioner, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
Interest Rates; We need not unsettle the principle we had affirmed in a plethora of cases that stipulated
interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant.In
the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on
the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has
considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs.
Timan, 562 SCRA 146 (2008): The stipulated interest rates of 7% and 5% per month imposed on
respondents loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle
the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and
higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being
contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1,
1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders
to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of
their assets.
Same; Credit Cards; Contracts; Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon.Since the stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and equity demand. The same is
true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the Issuance
and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional
penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states: Art. 1229. The judge
shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable.
Same; Same; Same; The Court finds it equitable to reduce the interest rate pegged by the Court of Appeals
at 1.5% monthly to 1% monthly and penalty charge fixed by the Court of Appeals at 1.5 monthly to 1%
monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in
accordance with Art. 1229 of the Civil Code.In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case since what may be iniquitous and
unconscionable in one may be totally just and equitable in another. In the instant case, the records would
reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her Billing
Statements. Further, the stipulated penalty charge of 3% per month or 36% per annum, in addition to
regular interests, is indeed iniquitous and unconscionable. Thus, under the circumstances, the Court finds
it equitable to reduce the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty
charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in
line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.
Judgments; Barring a showing that the factual findings complained of are totally devoid of support in the
record or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings
must stand, for this Court is not expected or required to examine or contrast the evidence submitted by
the parties.The CA correctly used the beginning balance of PhP 94,843.70 as basis for the recomputation of the interest considering that this was the first amount which appeared on the Statement of
Account of petitioner Macalinao. There is no other amount on which the re-computation could be based, as
can be gathered from the evidence on record. Furthermore, barring a showing that the factual findings
complained of are totally devoid of support in the record or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required
to examine or contrast the evidence submitted by the parties.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Soo, Gutierrez, Leogardo & Lee for petitioner.
Cases, Corpuz & Associates Law Offices for respondent.
VELASCO, JR.,J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and
set aside the June 30, 2006 Decision of the Court of Appeals (CA) and its November 21, 2006 Resolution
denying petitioners motion for reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities
of respondent Bank of the Philippine Islands (BPI). Petitioner Macalinao made some purchases through the
use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter
dated January 5, 2004 from respondent BPI, demanding payment of the amount of one hundred forty-one
thousand five hundred eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows:
Statement Date
Previous Balance
Charges
Balance Due
Purchases (Payments)
559.72 3,061.99
Penalty Interest
10/27/2002
94,843.70
11/27/2002
98,465.41
(15,000)
12/31/2002
86,351.02
30,308.80
259.05 2,806.41
1/27/2003
119,752.28
618.23 3,891.07
124,234.58
2/27/2003
124,234.58
990.93 4,037.62
129,263.13
3/27/2003
129,263.13
4/27/2003
115,177.90
5/27/2003
119,565.44
(10,000.00)
6/29/2003
113,540.10
8,362.50 (7,000.00) 323.57 3,607.32
7/27/2003
118,833.49
608.07 3,862.09
8/27/2003
123,375.65
1,050.20
4,009.71
128,435.56
9/28/2003
128,435.56
1,435.51
4,174.16
134,045.23
141,518.34
8,491.10
4,599.34
154,608.78
(18,000.00)
98,456.41
2,885.61
298.72 3,616.05
644.26 3,743.28
Finance
86,351.02
119,752.28
115,177.90
119,565.44
402.95 3,571.71
113,540.10
118,833.49
123,375.65
10/28/2003
11/28/2003
12/28/2003
1/27/2004
Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the
charges or balance thereof remaining unpaid after the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of 3% per month and an additional penalty fee
equivalent to another 3% per month. Particularly:
8.PAYMENT OF CHARGESBCC shall furnish the Cardholder a monthly Statement of Account (SOA) and
the Cardholder agrees that all charges made through the use of the CARD shall be paid by the Cardholder
as stated in the SOA on or before the last day for payment, which is twenty (20) days from the date of the
said SOA, and such payment due date may be changed to an earlier date if the Cardholders account is
considered overdue and/or with balances in excess of the approved credit limit, or to such other date as
may be deemed proper by the CARD issuer with notice to the Cardholder on the same monthly SOA. If the
last day fall on a Saturday, Sunday or a holiday, the last day for the payment automatically becomes the
last working day prior to said payment date. However, notwithstanding the absence or lack of proof of
service of the SOA of the Cardholder, the latter shall pay any and all charges made through the use of the
CARD within thirty (30) days from date or dates thereof. Failure of the Cardholder to pay the charges made
through the CARD within the payment period as stated in the SOA or within thirty (30) days from actual
date or dates of purchase whichever occur earlier, shall render him in default without the necessity of
demand from BCC, which the Cardholder expressly waives. The charges or balance thereof remaining
unpaid after the payment due date indicated on the monthly Statement of Accounts shall bear interest at
the rate of 3% per month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee
equivalent to another 3% of the amount due for every month or a fraction of a months delay. PROVIDED
that if there occurs any change on the prevailing market rates, BCC shall have the option to adjust the rate
of interest and/or penalty fee due on the outstanding obligation with prior notice to the cardholder. The
Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest [in] the event of
changes in the prevailing market rates, and to charge additional service fees as may be deemed necessary
in order to maintain its service to the Cardholder. A CARD with outstanding balance unpaid after thirty (30)
days from original billing statement date shall automatically be suspended, and those with accounts
unpaid after ninety (90) days from said original billing/statement date shall automatically be cancel (sic),
without prejudice to BCCs right to suspend or cancel any card anytime and for whatever reason. In case of
default in his obligation as provided herein, Cardholder shall surrender his/her card to BCC and in addition
to the interest and penalty charges aforementioned, pay the following liquidated damages and/or fees (a)
a collection fee of 25% of the amount due if the account is referred to a collection agency or attorney; (b)
service fee for every dishonored check issued by the cardholder in payment of his account without
prejudice, however, to BCCs right of considering Cardholders account, and (c) a final fee equivalent to
25% of the unpaid balance, exclusive of litigation expenses and judicial cost, if the payment of the account
is enforced though court action. Venue of all civil suits to enforce this Agreement or any other suit directly
or indirectly arising from the relationship between the parties as established herein, whether arising from
crimes, negligence or breach thereof, shall be in the process of courts of the City of Makati or in other
courts at the option of BCC. (Emphasis supplied.)
For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial
Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ.
Macalinao. This was raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled
Bank of the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.
In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four
thousand six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance
charges and late payment charges equivalent to 6% of the amount due from February 29, 2004 and an
amount equivalent to 25% of the total amount due as attorneys fees, and of the cost of suit.
After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband,
they failed to file their Answer. Thus, respondent BPI moved that judgment be rendered in accordance with
Section 6 of the Rule on Summary Procedure. This was granted in an Order dated June 16, 2004.
Thereafter, respondent BPI submitted its documentary evidence.
In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner
Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2%
per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint supported by documentary evidence,
judgment is hereby rendered in favor of the plaintiff, Bank of the Philippine Islands and against defendantspouses Ileana DR Macalinao and Danilo SJ Macalinao by ordering the latter to pay the former jointly and
severally the following:
1.The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per month from January 05, 2004 until fully paid;
2.P10,000.00 as and by way of attorneys fees; and
3.Cost of suit.
SO ORDERED.
Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their
recourse docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in
toto the decision of the MeTC and held:
In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a
recomputation at the reduced rate of 2% per month. Note that the total amount sought by the plaintiffappellee was P154,608.75 exclusive of finance charge of 3.25% per month and late payment charge of 6%
per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.
Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R.
SP No. 92031. The CA affirmed with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total amount due and
interest rate. Accordingly, petitioners are jointly and severally ordered to pay respondent Bank of the
Philippine Islands the following:
1.The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and Seventy Centavos
plus interest and penalty charges of 3% per month from January 5, 2004 until fully paid;
2.P10,000.00 as and by way of attorneys fees; and
3.Cost of Suit.
SO ORDERED.
Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before
the CA since her husband already passed away on October 18, 2005.
In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied
in the demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced
interest rate as previous higher interest rates were already incorporated in the said amount. Thus, the said
amount should not be made as basis in computing the total obligation of petitioner Macalinao. Further, the
CA also emphasized that respondent BPI should not compound the interest in the instant case absent a
stipulation to that effect. The CA also held, however, that the MeTC erred in modifying the amount of
interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely availed herself of the
credit card facility offered by respondent BPI to the general public. It explained that contracts of adhesion
are not invalid per se and are not entirely prohibited.
Petitioner Macalinaos motion for reconsideration was denied by the CA in its Resolution dated November
21, 2006. Hence, petitioner Macalinao is now before this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE STIPULATED
RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO 3%,
CONTRARY TO THE TENOR OF ITS OWN DECISION.
III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED THE
CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONERS OBLIGATION,
OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT
PROOF OF THE CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per
Month or 24% Per Annum
In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25%
per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly
excessive, and was thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate
of interest and penalty charge and increased them to 3% per month or 36% per annum based on the Terms
and Conditions Governing the Issuance and Use of the BPI Credit Card, which governs the transaction
between petitioner Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month
imposed by the CA is iniquitous as the same translates to 36% per annum or thrice the legal rate of
interest.15 On the other hand, respondent BPI asserts that said interest rate and penalty charge are
reasonable as the same are based on the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card.
We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month
should be equitably reduced to 2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a
stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this
Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in
Chua vs. Timan:
The stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably
reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous,
unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the
law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling
on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular
could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which
would either enslave their borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)
Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and equity demand.
The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing
the Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an
additional penalty charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:
Art.1229.The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the
circumstances of each case since what may be iniquitous and unconscionable in one may be totally just
and equitable in another.
In the instant case, the records would reveal that petitioner Macalinao made partial payments to
respondent BPI, as indicated in her Billing Statements. Further, the stipulated penalty charge of 3% per
month or 36% per annum, in addition to regular interests, is indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at
1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total
of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art.
1229 of the Civil Code.
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for
Further Reception of Evidence
Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP
94,843.70 stated on the October 27, 2002 Statement of Account, was not the amount of the principal
obligation. Thus, this allegedly necessitates a re-examination of the evidence presented by the parties. For
this reason, petitioner Macalinao further contends that the dismissal of the case or its remand to the lower
court would be a more appropriate disposition of the case.
Such contention is untenable. Based on the records, the summons and a copy of the complaint were
served upon petitioner Macalinao and her husband on May 4, 2004. Nevertheless, they failed to file their
Answer despite such service. Thus, respondent BPI moved that judgment be rendered accordingly.
Consequently, a decision was rendered by the MeTC on the basis of the evidence submitted by respondent
BPI. This is in consonance with Sec. 6 of the Revised Rule on Summary Procedure, which states:
Sec.6.Effect of failure to answer.Should the defendant fail to answer the complaint within the period
above provided, the court, motu proprio, or on motion of the plaintiff, shall render judgment as may be
warranted by the facts alleged in the complaint and limited to what is prayed for therein: Provided,
however, that the court may in its discretion reduce the amount of damages and attorneys fees claimed
for being excessive or otherwise unconscionable. This is without prejudice to the applicability of Section
3(c), Rule 10 of the Rules of Court, if there are two or more defendants. (As amended by the 1997 Rules of
Civil Procedure; emphasis supplied.)
Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinaos
failure to file an answer and concomitantly, to allow the latter to submit additional evidence by dismissing
or remanding the case for further reception of evidence. Significantly, petitioner Macalinao herself
admitted the existence of her obligation to respondent BPI, albeit with reservation as to the principal
amount. Thus, a dismissal of the case would cause great injustice to respondent BPI. Similarly, a remand of
the case for further reception of evidence would unduly prolong the proceedings of the instant case and
render inutile the proceedings conducted before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP94,843.70 as basis for the re-computation
of the interest considering that this was the first amount which appeared on the Statement of Account of
petitioner Macalinao. There is no other amount on which the re-computation could be based, as can be
gathered from the evidence on record. Furthermore, barring a showing that the factual findings complained
of are totally devoid of support in the record or that they are so glaringly erroneous as to constitute serious
abuse of discretion, such findings must stand, for this Court is not expected or required to examine or
contrast the evidence submitted by the parties.
In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning
balance of PhP94,843.70, this Court finds the following computation more appropriate:
Statement Date
Previous Balance
Purchases (Payments)
Balance
Interest (1%) Penalty
Charge
(1%)
Total Amount Due for the Month
10/27/2002
94,843.70
11/27/2002
94,843.70
(15,000)
79,843.70
798.44 798.44 81,440.58
12/31/2002
79,843.70
30,308.80
110,152.50
1,101.53
1/27/2003
110,152.50
110,152.50
1,101.53
1,101.53
112,355.56
2/27/2003
110,152.50
110,152.50
1,101.53
1,101.53
112,355.56
3/27/2003
110,152.50
4/27/2003
92,152.50
5/27/2003
92,152.50
(10,000.00)
6/29/2003
82,152.50
8,362.50 (7,000.00) 83,515.00
7/27/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
8/27/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
9/28/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
10/28/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
11/28/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
12/28/2003
83,515.00
83,515.00
835.15 835.15 85,185.30
1/27/2004
83,515.00
83,515.00
835.15 835.15 85,185.30
14,397.26
14,397.26
TOTAL
94,843.70
(18,000.00)
92,152.50
92,152.50
83,515.00
948.44 948.44 96,740.58
1,101.53
112,355.56
921.53 921.53 93,995.56
921.53 921.53 93,995.56
82,152.50
821.53 821.53 83,795.56

835.15 835.15 85,185.30
112,309.52
WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No.
92031 is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge.
Accordingly, petitioner Macalinao is ordered to pay respondent BPI the following:
(1)The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP
112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid;
(2)PhP 10,000 as and by way of attorneys fees; and
(3)Cost of suit.
SO ORDERED.
G.R. No. 125944. June 29, 2001.*

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR,
respondent.
Actions; Appeals; In a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
only questions of law may be raised and they must be distinctly set forth; Findings of fact of the lower
courts (including the Court of Appeals) are final and conclusive and will not be reviewed on appeal;
Exceptions.It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for
review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of law may be
raised and they must be distinctly set forth. The settled rule is that findings of fact of the lower courts
(including the Court of Appeals) are final and conclusive and will not be reviewed on appeal except: (1)
when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension, of facts; (5) when the findings of facts are
conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and
such findings are contrary to the admission of both appellant and appellee; (6) when the findings of the
Court of Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions
without citation of specific evidence on which they are based.
Usury Law; Interests; While the Usury Law ceiling on interest rates was lifted by Central Bank (C.B.)
Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.The factual
circumstances of the present case require the application of a different jurisprudential instruction. While
the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular
grants lenders carte blanche authority to raise interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets. In Medel v. Court of Appeals, this Court had the
occasion to rule on this questionwhether or not the stipulated rate of interest at 5.5% per month on a
loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not
usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable
and exorbitant.
Same; Same; A stipulated interest rate of 6% per month or 72% per annum is definitely outrageous and
inordinatean interest of 12% per annum is deemed fair and reasonable.In the case at bench,
petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per
month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with
justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and
reasonable.
PETITION for review on certiorari of a decision of the Court of Appeals.
Pedro Delgado Diwa for petitioners.
Ernesto P. Fernandez for private respondent.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the
decision of the Court of Appeals in CA-G.R. CV No. 37899, affirming the decision of the Regional Trial Court,
Branch 16, Malolos, Bulacan in Civil Case No. 375-M-91, Spouses Danilo and Ursula Solangon vs. Jose
Avelino Salazar for annulment of mortgage. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as
follows:
1. Ordering the dismissal of the complaint;
2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorneys fees; and
4. To pay the costs.
SO ORDERED.
The facts as summarized by the Court of Appeals in its decision being challenged are:
On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they
mortgaged a parcel of land situated in-Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure
payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the
rate of 6% per month (Exh. B).
On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they
mortgaged the same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00,
payable within a period of one (1) year with interest thereon at the legal rate (Exh. 1).
On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they
mortgaged the same parcel of land in favor of defendant-appellee, to secure payment of a loan in the
amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate
(Exh. 2, Exh. C).
This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property.
They alleged that they obtained only one loan from the defendant-appellee, and that was for the amount
of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages. The
subsequent mortgages were merely continuations of the first one, which is null and void because it
provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will
not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a
reasonable time thereafter. They have already paid the defendant-appellee P78,000.00 and tendered
P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the
loan P230,000.00 plus interest.
On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described
mortgages were executed to secure three separate loans of P60,000.00, P136,512.00 and P230,000.00,
and that the first two loans were paid, but the last one, was not. He denied having represented that he will
not foreclose the mortgage as long as the plaintiffs-appellants pay interest.
In the petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:
1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties
instead of one (1);
2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an
interest of 72% per cent per annum or 6% per month is not unconscionable;
3. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the
mortgagee himself states in his ANSWER that the same was already paid; and
4. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.
In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as
it raises questions of facts which are not allowed in a petition for review on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of
P60,000.00 secured by the first mortgage of August 1986. According to them, they signed the third
mortgage contract in view of respondents assurance that the same will not be foreclosed. The trial court,
which is in the best position to evaluate the evidence presented before it, did not give credence to
petitioners corroborated testimony and ruled:
The testimony is improbable, The real estate mortgage was signed not only by Ursula Solangon but also
by her husband including the Promissory Note appended to it. Signing a document without knowing its
contents is contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be
given weight.
Petitioners likewise insist that, contrary to the finding of the Court of Appeals, they had paid the amount of
P136,512.00, or the second loan. In fact, such payment was confirmed by respondent Salazar in his answer
to their complaint.
It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under
Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of law may be raised and they
must be distinctly set forth. The settled rule is that findings of fact of the lower courts (including the Court
of Appeals) are final and conclusive and will not be reviewed on appeal except: (1) when the conclusion is
a finding grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are
contrary to the admission of both appellant and appellee; (6) when the findings of the Court of Appeals are
contrary to those of the trial court; and (7) when the findings of fact are conclusions without citation of
specific evidence on which they are based.
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court
of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6% per month is not
unconscionable.
The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had
been repealed by Central Bank Circular No. 905 there is no more maximum rate of interest and the rate
will just depend on the mutual agreement of the parties. Obviously, this was in consonance with our ruling
in Liam Law v. Olympic Sawmill Co.
The factual circumstances of the present case require the application of a different jurisprudential
instruction. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the
said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. In Medel v. Court of Appeals, this Court had the
occasion to rule on this questionwhether or not the stipulated rate of interest at 5.5% per month on a
loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not
usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable
and exorbitant, thus:
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate usurious
because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December
22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law
is now legally inexistent.
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB
Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters
effectivity. Indeed, we have held that a Central Bank Circular can not repeal a law. Only a law can repeal
another law. In the recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that by
virtue of CB Circular 905, the Usury Law has been rendered ineffective. Usury Law has been legally nonexistent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable, and hence, contrary to morals (contra bonos mores), if
not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable. (Emphasis supplied)
In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated
interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is
more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum
is deemed fair and reasonable.
WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED, subject to the MODIFICATION
that the interest rate of 72% per annum is ordered reduced to 12% per annum.
SO ORDERED.
G.R. No. 130886. January 29, 2004.*

COMMONWEALTH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and RIZAL COMMERCIAL
BANKING CORPORATION, respondents.
Civil Law; Obligations; Suretyship; Liability; Interest; If a surety upon demand fails to pay, he can be held
liable for interest.Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union
Guarantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc.,
and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we
have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not
because of the contract but because of the default and the necessity of judicial collection.
Same; Same; Same; Same; Same; Guidelines in Awarding Interest in the Concept of Actual and
Compensatory Damages.The appellate court is correct in imposing 12% interest. It is in accordance with
our ruling in Eastern Shipping Lines, Inc. vs. Court of Appeals, wherein we have established certain
guidelines in awarding interest in the concept of actual and compensatory damages, to wit: I. When an
obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil
Code govern in determining the measure of recoverable damages. II. With regard particularly to an award
of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e. from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. (Emphasis supplied)
Manuel I. Sabado Law Office for petitioner.
Escobido and Pulgar Law Offices for private respondent.
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals (CA),
promulgated on May 16, 1997 in CA-G.R. CV No. 44473,2 which modified the decision dated March 5, 1993
of the Regional Trial Court of Makati (Branch 64); and the Resolution3 dated September 25, 1997, denying
petitioners motion for reconsideration.
The facts of the case as summarized by the Court of Appeals are as follows:
In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines,
one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba
Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit
lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the
case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits A to L,
inclusiveJIGS; Exhibits V to BB, inclusiveELBA) and secured by surety bonds (Exhibits M to Q
inclusiveJIGS; Exhibits CC to FF, inclusiveELBA) executed by defendant-appellee Commonwealth
Insurance Company (CIC).
Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of
JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face
value of the surety bonds issued by appellee CIC was P4,464,128.00.
JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC
made a written demand (Exhibit N) on appellee CIC to pay JIGs account to the full extend (sic) of the
suretyship. A similar demand (Exhibit O) was made on December 17, 1984 for appellee CIC to pay ELBAs
account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several
payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There
having been a substantial balance unpaid, appellant RCBC made a final demand for payment (Exhibit P)
on July 7, 1988 upon appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a
Sum of Money on September 19, 1988 against appellee CIC.
The trial court rendered a decision dated March 5, 1993, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, in the light of the above facts, arguments, discussion, and more
important, the law and jurisprudence, the Court finds the defendants Commonwealth Insurance Co. and
defaulted third party defendants Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman
solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four
Hundred Sixty-Four Thousand One Hundred Twenty-Eight Pesos (P2,464,128.00), to pay the plaintiff
attorneys fees of P10,000.00 and to pay the costs of suit.
IT IS SO ORDERED.
Not satisfied with the trial courts decision, RCBC filed a motion for reconsideration praying that in addition
to the principal sum of P2,464,128.00, defendant CIC be held liable to pay intereststhereon from date of
demand at the rate of 12% per annum until the same is fully paid. However, the trial court denied the
motion.
RCBC then appealed to the Court of Appeals. On May 16, 1997, the CA rendered the herein assailed
decision, ruling thus:
...
Being solidarity bound, a suretys obligation is primary so that according to Art. 1216 of the Civil Code, he
can be sued alone for the entire obligation. However, one very important characteristic of this contract is
the fact that a suretys liability shall be limited to the amount of the bond (Sec. 176, Insurance Code). This
does not mean however that even if he defaults in the performance of his obligation, the extend (sic) of his
liability remains to be the amount of the bond. If he pays his obligation at maturity upon demand, then, he
cannot be made to pay more than the amount of the bond. But if he fails or refuses without justifiable
cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. 1169, CC), then he
must pay damages or interest in consequence thereof according to Art. 1170. Even if this interest is in
excess of the amount of the bond, the defaulting surety is liable according to settled jurisprudence.
Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand, it
incurred in delay in consequence of which it became liable to pay legal interest. The obligation to pay such
interest does not arise from the contract of suretyship but from law as a result of delay or mora. Such an
interest is not, therefore, covered by the limitation of appellees liability expressed in the contract.
Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall
in no case exceed the amount stated therein, then that stipulation controls. Therefore, it cannot be made
to assume an obligation more than what it secured to pay.
The contention of appellant RCBC is correct because it is supported by Arts. 1169 and 1170 of the Civil
Code and the case of Asia Surety & Insurance Co., Inc. and Manila Surety & Fidelity Co. supra. On the other
hand, the position of appellee CIC which upholds the appealed decision is untenable. The best way to show
the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1
million to secure a Debtors obligation of P1 million to Creditor. Debtor defaults and Creditor demands
payment from Surety. If the theory of appellee and the lower court is correct, then the Surety may just as
well not pay and use the P1 million in the meantime. It can choose to pay only after several yearsafter
all, his liability can never exceed P1 million. That would be absurd and the law could not have intended it.
and disposed of the case as follows:
WHEREFORE, the appealed Decision is MODIFIED in the manner following:
The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking
Corporation:
1. On the account of JIGS, P2,894,128.00 ONLY with 12% legal interest per annum from October 30, 1984
minus payments made by the latter to the former after that date; and on the account of ELBA,
P1,570,000.00 ONLY with 12% legal interest per annum from December 17, 1984 minus payments made
by the latter to the former after that day; respecting in both accounts the applications of payment made by
appellant RCBC on appellee CICs payments;
2. Defendant-appellee Commonwealth Insurance Company shall pay plaintiff-appellant RIZAL COMMERCIAL
BANKING CORP. and (sic) attorneys fee of P10,000.00 and cost of this suit;
3. The third-party defendants JIGS MANUFACTURING CORPORATION, ELBA INDUSTRIES and ILUMINADA N.
DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had
paid and shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations
pursuant to this decision.
SO ORDERED.
CIC filed a motion for reconsideration but the CA denied the same.
Hence, herein petition by CIC raising a single assignment of error, to wit:
Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of
the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner.
The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its
principal obligation under the surety bonds issued by it.
Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was
made on the condition that its liability shall in no case exceed the amount of the said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Guarantee Co. and
reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more recently, in
Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have sustained the
principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying,
its liability becomes more than the principal obligation. The increased liability is not because of the
contract but because of the default and the necessity of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under the law. There is no
question that as a surety, petitioner should not be made to pay more than its assumed obligation under
the surety bonds. However, it is clear from the above-cited jurisprudence that petitioners liability for the
payment of interest is not by reason of the suretyship agreement itself but because of the delay in the
payment of its obligation under the said agreement.
Petitioner admits having incurred in delay. Nonetheless, it insists that mere delay does not warrant the
payment of interest. Citing Section 244 of the Insurance Code, petitioner submits that
Commonwealth Insurance Corporation vs. Court of Appeals
under the said provision of law, interest shall accrue only when the delay or refusal to pay is unreasonable;
that the delay in the payment of its obligation is not unreasonable because such delay was brought about
by negotiations being made with RCBC for the amicable settlement of the case.
We are not convinced.
It is not disputed that out of the principal sum of P4,464,128.00 petitioner was only able to pay
P2,000,000.00. Letters demanding the payment of the respective obligations of JIGS and ELBA were
initially sent by RCBCto petitioner on October 30, 1984 and December 17, 1984. Petitioner made
payments on an installment basis spanning a period of almost three years, i.e., from February 25, 1985
until February 10, 1988. On July 7, 1988, or after a period of almost five months from its last payment,
RCBC, thru its legal counsel, sent a final letter of demand asking petitioner to pay the remaining balance of
its obligation including interest. Petitioner failed to pay. As of the date of the filing of the complaint on
September 19, 1988, petitioner was even unable to pay the remaining balance of P2,464,128.00 out of the
principal amount it owes RCBC.
Petitioners contention that what prevented it from paying its obligation to RCBC is the fact that the latter
insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not
plausible. Considering that petitioner admits its obligation to pay the principal amount, then it should have
paid the remaining balance of P2,464,128.00, notwithstanding any disagreements with RCBC regarding the
payment of interest. The fact that the negotiations for the settlement of petitioners obligation did not push
through does not excuse it from paying the principal sum due to RCBC.
The issue of petitioners payment of interest is a matter that is totally different from its obligation to pay
the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not
paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore,
unreasonable. Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest.
As to the rate of interest, we do not agree with petitioners contention that the rate should be 6% per
annum. The appellate court is correct in imposing 12% interest. It is in accordance with our ruling in
Eastern Shipping Lines, Inc. vs. Court of Appeals, wherein we have established certain guidelines in
awarding interest in the concept of actual and compensatory damages, to wit:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
Damages of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows
1.When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e. from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be reasonably established at the time
the demand is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.
In the present case, there is no dispute that petitioners obligation consists of a loan or forbearance of
money. No interest has been agreed upon in writing between petitioner and respondent. Applying the
above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at 12%
per annum to be computed from the time the extrajudicial demand was made. This is in accordance with
the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extrajudicial demand before action for performance was filed, interest on the amount due begins to run not from
the date of the filing of the complaint but from the date of such extrajudicial demand. RCBCs extrajudicial
demand for the payment of JIGS obligation was made on October 30, 1984; while the extrajudicial demand
for the payment of ELBAS obligation was made on December 17, 1984. On the other hand, the complaint
for a sum of money was filed by RCBC with the trial court only on September 19, 1988.
WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of
Appeals are AFFIRMED in toto.
SO ORDERED.
[No. L-7900. January 12, 1956]

ClRIACO TlGLAO, ET AL., plaintiffs and appellees, vs. THE MANILA RAILROAD COMPANY, defendant and
appellant.
GOVERNMENT-OWNED CORPORATIONS; WHEN PAYMENT OF SALARY DlFFERENTIALS TO EMPLOYEES
DEEMED AN OBLIGATION TO PAY WlTH A TERM LEFT TO THE WILL OF DEBTOR; COURT MAY FIX DURATION
OF TERM, NOT NECESSARILY IN A SEPARATE ACTION.Where the time to redeem defendants promise to
pay salary differentials to its employees after the exhaustion of what had already been appropriated for
that purpose, depended upon the judgment of its board of directorsit not appearing that defendant was
bankruptthe obligation to pay the salary differentials may be considered as one with a term whose
duration has been left to the will of the debtor, so that pursuant to article 1128 of the old Civil Code (Art.
1197 of the new), the duration of the term may be fixed by the courts. Although in previous cases it has
been held that the duration of the term should be fixed in a separate action for that express purpose, in
the present case, such separate action would be a mere formality and would serve no purpose other than
to delay, since the defendant does not claim that if a separate action were instituted to fix the duration of
the term of its obligation, it could present better proofs than those already adduced in the present case.
APPEAL from a judgment of the Court of First Instance of Manila. Ibaez, J.
First Assistant Corporate Counsel Simeon M. Gopengco and Arturo B. Santos for appellant.
Gregorio E. Fajardo for appellees.
REYES, A., J.:
This action was commenced in the Municipal Court of Manila, in October, 1952, by 35 retired employees of
the defendant Manila Railroad Co. to recover the sum of P7,275, the aggregate balance of salary
differentials still due them under a memorandum of agreement signed by the defendant and the unions
representing its employees and laborers. After an unfavorable judgment in that court, the def endant
appealed to the Court of First Instance of Manila, and having again lost in that court it brought the case
here on appeal, raising only questions of law.
The memorandum of agreement above mentioned, which was signed in October, 1948, and constitutes the
basis of plaintiffs claim, contains the following stipulations:
1. That the Manila Railroad Company hereby reiterates its approval of the standardized salaries provided
for by the Standardization Committee effective as of July 1, 1948, to be carried in all subsequent budgets
of the Company, payment to be made in accordance with Item 2; and immediate payment of said salaries
will commence with the available funds of P400,000, already appropriated for this purpose;
2. That we hereby further agree that upon the exhaustion of the amount of P400,000, the employees and
laborers affected by the standardized plan will receive their present salaries provided that any wage
differential from date of exhaustion will be paid when funds for the purpose are available.
It is agreed that plaintiffs, who retired with gratuity in January, 1951, were entitled to collect the salary
differentials, or increase in pay, resulting from the standardization of their salaries; that for salary
differentials corresponding to the period from July 1, 1948, to January 31, 1949, they have already received
a total of P9,906.05, but that there is still due them the total sum of P7,275, which has remained unpaid
because of the exhaustion of the P400,000 appropriated for the purpose.
In refusing to pay the balance still due the plaintiffs, defendant does not repudiate the above agreement,
but contends in substance that pursuant to its terms payment of salary differentials after the exhaustion of
the P400,000 already appropriated is subject to the condition that funds for the purpose are available
and that no such funds are available because defendant is losing in its business.
The defendant has, indeed, presented in evidence two summary statements of its accounting department,
showing that it has sustained losses in its operations during the fiscal year ending June 30, 1953, and
during the month of July next following. These statements, however, do not necessarily prove that, in a
multimillion-peso business such as that of the defendant funds for the payment of a debt of P7,275 due the
plaintiffs could not have been raised or made available because of the losses suffered in one year and one
month. The memorandum of agreement does not stipulate that the salary differentials shall be paid only
from surplus profits. In fact, the agreement provides that the standardized salarieswith the resulting
salary differentials naturallyare to be carried in all subsequent budgets of the company. And we think it
may be admitted that in a going concern the availability of funds for a particular purpose is a matter that
does not necessarily depend upon the cash position of the company but rather upon the judgment of its
board of directors in the choice of projects, measures or expenditures that should be given preference or
priority, or in the choice between alternatives. So if defendant was able to raise or appropriate funds to
meet other obligations notwithstanding the fact that it was losing, we think it could have done likewise
with respect to its debt to the plaintiffs, an obligation which is deserving of preferential attention because
it is owed to the poor.
Viewed in this light, that is, that the time to redeem defendants promise to pay salary differentials, after
the exhaustion of what had already been appropriated for that purpose, really depended upon the
judgment of its board of directorsit not appearing that defendant was bankruptthe obligation to pay
the said salary differentials may be considered as one with a term whose duration has been left to the will
of the debtor, so that pursuant to article 1128 of the old Civil Code (Art. 1197 of the new), the duration of
the term may be fixed by the courts.
There is something to defendants contention that in previous cases this Court has held that the duration
of the term should be fixed in a separate action for that express purpose. But we think the lower court has
given good reasons for not adhering to technicalities in its desire to do substantial justice. It says:
"(1) The facts in the instant case are not disputed, the parties having submitted the case for decision to be
based on an agreed stipulation of facts;
"(2) The fixing of a period for the payment of the obligation has been amply discussed by the parties in
their pleadings so that this Court may render judgment on that subject matter under the alternative prayer
of the plaintiffs for such further relief as this Honorable Court may deem just and equitable;
"(3) To dismiss the present case and require the plaintiffs to file another action for fixing the period of
defendants obligation, would entail multiplicity of suits;
"(4) In this case there are thirty-five plaintiffs who were low salaried employees of the defendant Manila
Railroad Company and the said plaintiffs have not been paid their salary differentials for the period of, from
February 1 to June 30, 1948; and
"(5) To dismiss the present case and order the plaintiffs to file another suit would open the door for dilatory
tactics leading to a protracted litigation and in effect deny the benefits of social justice.
We may add that defendant does not claim that if a separate action were instituted to fix the duration of
the term of its obligation, it could present better proofs than those already adduced in the present case.
Such separate action would, therefore, be a mere formality and would serve no purpose other than to
delay.
We, however, agree that the lower court should not have made the interest adjudged run from October 21,
1948, the day the action was commenced in the municipal court, but only from default of payment of the
principal within the period of one year fixed by the court.
Wherefore, with the only modification as to the date the adjudged interest is to commence to run, the
judgment below is affirmed, with costs against the defendant and appellant.
Pars, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, and Reyes, J.B. L., JJ., concur.
Judgment affirmed with modification.
G.R. No. 48194. March 15, 1990.*

JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, vs. COURT OF APPEALS and LEONARDO TIRO,
respondents.
Civil Procedure; Pleadings and Practice; Litigations should as much as possible be decided on their merits
and not on technicalities.The one (1) day delay in the filing of the said motion for extension can
justifiably be excused, considering that aside from the change of counsel, the last day for filing the said
motion fell on a holiday following another holiday, hence, under such circumstances, an outright dismissal
of the petition would be too harsh. Litigations should, as much as possible, be decided on their merits and
not on technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the
stringent application of technical rules in order to resolve the case on its merits. Rules of procedure are
intended to promote, not to defeat, substantial justice and, therefore, they should not be applied in a very
rigid and technical sense.
Civil Law; Contracts; It is settled that the previous and simultaneous and subsequent acts of the parties are
properly cognizable indicia of their true intention.The aforesaid contemporaneous and subsequent acts
of petitioners and private respondent reveal that the cause stated in the questioned deed of assignment is
false. It is settled that the previous and simultaneous and subsequent acts of the parties are properly
cognizable indicia of their true intention. Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such construction may be considered by
the court in construing the contract, determining its meaning and ascertaining the mutual intention of the
parties at the time for contracting. The parties practical construction of their contract has been
characterized as a clue or index to, or as evidence of, their intention or meaning and as an important,
significant, convincing, persuasive, or influential factor in determining the proper construction of the
agreement.
Same; Same; A contract with a false consideration is null and void per se.The deed of assignment of
February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one
where the parties conceal their true agreement. A contract with a false consideration is not null and void
per se . Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or
public policy binds the parties to their real agreement.
Same; Same; When a contract is subject to a suspensive condition, its birth or effectivity can take place
only if and when the event which constitutes the condition happens or is fulfilled.As to the alleged nullity
of the agreement dated February 28, 1966, we agree with petitioners that they cannot be held liable
thereon. The efficacy of said deed of assignment is subject to the condition that the application of private
respondent for an additional area for forest concession be approved by the Bureau of Forestry. Since
private respondent did not obtain that approval, said deed produces no effect. When a contract is subject
to a suspensive condition, its birth or effectivity can take place only if and when the event which
constitutes the condition happens or is fulfilled. If the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.
PETITION to review the decision of the Court of Appeals. Pascual, J.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No. 52296-R,
dated March 6, 1978, the dispositive portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby set aside and another one entered ordering the
defendants-appellees, jointly and solidarily, to pay plaintiff-appellant the sum of P79,338.15 with legal
interest thereon from the filing of the complaint, plus attorneys fees in the amount of P8,000.00. Costs
against defendants-appellees.
As found by respondent court or disclosed by the records, this case was generated by the following
antecedent facts. Private respondent is a holder of an ordinary timber license issued by the Bureau of
Forestry covering 2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966 he
executed a Deed of Assignment in favor of herein petitioners the material parts of which read as follows:
xxx
I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis Oriental, for and in
consideration of the sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00), Philippine Currency,
do by these presents, ASSIGN, TRANSFER AND CONVEY, absolutely and forever unto JOSE M. JAVIER and
ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of 2897 F.B. Harrison, Pasay City, my shares
of stocks in the TIMBERWEALTH CORPORATION in the total amount of P120,000.00, payment of which shall
be made in the following manner:
1.Twenty thousand (P20,000.00) Pesos upon signing of this contract;
2.The balance of P100,000.00 shall be paid P10,000,00 every shipment of export logs actually produced
from the forest concession of Timberwealth Corporation.
That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs. Jose M. Javier, as soon
as stock certificates are issued.
xxx
At the time the said deed of assignment was executed, private respondent had a pending application,
dated October 21, 1965, for an additional forest concession covering an area of 2,000 hectares southwest
of and adjoining the area of the concession subject of the deed of assignment. Hence, on February 28,
1966, private respondent and petitioners entered into another Agreement with the following stipulations:
xxx
1.That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and convey whatever rights
he may acquire, absolutely and forever, to TIMBERWEALTH CORPORATION, a corporation duly organized
and existing under the laws of the Philippines, over a forest concession which is now pending application
and approval as additional area to his existing licensed area under O.T. License No. 391-103166, situated
at Medina, Misamis Oriental;
2.That for and in consideration of the aforementioned transfer of rights over said additional area to
TIMBERWEALTH CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER, both directors and stockholders of
said corporation, do hereby undertake to pay LEONARDO TIRO, as soon as said additional area is approved
and transferred to TIMBERWEALTH CORPORATION the sum of THIRTY THOUSAND PESOS (P30,000.00),
which amount of money shall form part of their paid up capital stock in TIMBERWEALTH CORPORATION;
3.That this Agreement is subject to the approval of the members of the Board of Directors of the
TIMBERWEALTH CORPORATION.
xxx
On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest concession
was renewed up to May 12, 1967 under O.T.L. No. 391-51267, but since the concession consisted of only
2,535 hectares, he was therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are hereby given until May 12, 1967 to
form an organization such as a cooperative, partnership or corporation with other adjoining licensees so as
to have a total holding area of not less than 20,000 hectares of contiguous and compact territory and an
aggregate allowable annual cut of not less than 25,000 cubic meters, otherwise, your license will not be
further renewed.
Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment
executed by private respondent in their favor, entered into a Forest Consolidation Agreement on April 10,
1967 with other ordinary timber license holders in Misamis Oriental, namely, Vicente L. De Lara, Jr.,
Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement, they all agreed to
pool together and merge their respective forest concessions into a working unit, as envisioned by the
aforementioned directives. This consolidation agreement was approved by the Director of Forestry on May
10, 1967. The working unit was subsequently incorporated as the North Mindanao Timber Corporation,
with the petitioners and the other signatories of the aforesaid Forest Consolidation Agreement as
incorporators.
On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of assignment,
private respondent filed an action against petitioners, based on the said contracts, for the payment of the
amount of P83,138.15 with interest at 6% per annum from April 10, 1967 until full payment, plus
P12,000.00 for attorneys fees and costs.
On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts but
interposing the special defense of nullity thereof since private respondent failed to comply with his
contractual obligations and, further, that the conditions for the enforceability of the obligations of the
parties failed to materialize. As a counterclaim, petitioners sought the return of P55,586.00 which private
respondent had received from them pursuant to an alleged management agreement, plus attorneys fees
and costs.
On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts in this
wise:
What were actually transferred and assigned to the defendants were plaintiffs rights and interest in a
logging concession described in the deed of assignment, attached to the complaint and marked as Annex
A, and agreement Annex E; that the shares of stocks referred to in paragraph II of the complaint are
terms used therein merely to designate or identify those rights and interests in said logging concession.
The defendants actually made use of or enjoyed not the shares of stocks but the logging concession
itself; that since the proposed Timberwealth Corporation was owned solely and entirely by defendants, the
personalities of the former and the latter are one and the same. Besides, before the logging concession of
the plaintiff or the latters rights and interests therein were assigned or transferred to defendants, they
never became the property or assets of the Timberwealth Corporation which is at most only an association
of persons composed of the defendants.
and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a part of
the sum of P69,661.85 paid by the latter to the former in partial satisfaction of the latters claim.
After trial, the lower court rendered judgment dismissing private respondents complaint and ordering him
to pay petitioners the sum of P33,161.85 with legal interest at six percent per annum from the date of the
filing of the answer until complete payment.
As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which reversed
the decision of the court of a quo.
On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a motion for
reconsideration, for the reason that they needed to change counsel. Respondent court, in its resolution
dated March 31, 1978, gave petitioners fifteen (15) days from March 28, 1978 within which to file said
motion for reconsideration, provided that the subject motion for extension was filed on time. On April 11,
1978, petitioners filed their motion for reconsideration in the Court of Appeals. On April 21, 1978, private
respondent filed a consolidated opposition to said motion for reconsideration on the ground that the
decision of respondent court had become final on March 27, 1978, hence the motion for extension filed on
March 28, 1978 was filed out of time and there was no more period to extend. However, this was not acted
upon by the Court of Appeals for the reason that on April 20, 1978, prior to its receipt of said opposition, a
resolution was issued denying petitioners motion for reconsideration, thus:
The motion for reconsideration filed on April 11, 1978 by counsel for defendants-appellees is denied. They
did not file any brief in this case. As a matter of fact this case was submitted for decision without
appellees brief. In their said motion, they merely tried to refute the rationale of the Court in deciding to
reverse the appealed judgment.
Petitioners then sought relief in this Court in the present petition for review on certiorari. Private
respondent filed his comment, reiterating his stand that the decision of the Court of Appeals under review
is already final and executory.
Petitioners countered in their reply that their petition for review presents substantive and fundamental
questions of law that fully merit judicial determination, instead of being suppressed on technical and
insubstantial reasons. Moreover, the aforesaid one (1) day delay in the filing of their motion for extension
is excusable, considering that petitioners had to change their former counsel who failed to file their brief in
the appellate court, which substitution of counsel took place at a time when there were many successive
intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension can justifiably be excused, considering
that aside from the change of counsel, the last day for filing the said motion fell on a holiday following
another holiday, hence, under such circumstances, an outright dismissal of the petition would be too
harsh. Litigations should, as much as possible, be decided on their merits and not on technicalities. In a
number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the stringent application of
technical rules in order to resolve the case on its merits. Rules of procedure are intended to promote, not
to defeat, substantial justice and, therefore, they should not be applied in a very rigid and technical sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central issue of whether the deed of assignment
dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the former for total
absence of consideration and the latter for non-fulfillment of the conditions stated therein.
Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as stated in the deed itself. Since said corporation never came
into existence, no share of stocks was ever transferred to them, hence the said deed is null and void for
lack of cause or consideration.
We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed was the
transfer of the forest concession of private respondent to petitioners for P120,000.00. This finding is
supported by the following considerations, viz:
1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth
Corporation stated therein was non-existent.
2. In their subsequent agreement, private respondent conveyed to petitioners his inchoate right over a
forest concession covering an additional area for his existing forest concession, which area he had applied
for, and his application was then pending in the Bureau of Forestry for approval.
3. Petitioners, after the execution of the deed of assignment, assumed the operation of the logging
concessions of private respondent.
4. The statement of advances to respondent prepared by petitioners stated: P55,186.39 advances to L.A.
Tiro be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every after (sic)
shipment. We had only 2 shipments.
5. Petitioners entered into a Forest Consolidation Agreement with other holders of forest concessions on
the strength of the questioned deed of assignment.
The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal that the
cause stated in the questioned deed of assignment is false. It is settled that the previous and simultaneous
and subsequent acts of the parties are properly cognizable indicia of their true intention. Where the parties
to a contract have given it a practical construction by their conduct as by acts in partial performance, such
construction may be considered by the court in construing the contract, determining its meaning and
ascertaining the mutual intention of the parties at the time of contracting. The parties practical
construction of their contract has been characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant, convincing, persuasive, or influential factor in

determining the proper construction of the agreement.
The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause
or consideration, or one where the parties conceal their true agreement. A contract with a false
consideration is not null and void per se. Under Article 1346 of the Civil Code, a relatively simulated
contract, when it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real agreement.
The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in ruling
that
x x x In view of the analysis of the first and second assignment of errors, the defendants-appellees are
liable to the plaintiff-appellant for the sale and transfer in their favor of the latters forest concessions.
Under the terms of the contract, the parties agreed on a consideration of P120,000.00. P20,000.00 of
which was paid, upon the signing of the contract and the balance of P100,000.00 to be paid at the rate of
P10,000.00 for every shipment of export logs actually produced from the forest concessions of the
appellant sold to the appellees. Since plaintiff-appellants forest concessions were consolidated or merged
with those of the other timber license holders by appellees voluntary act under the Forest Consolidation
Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3), then the unpaid balance of
P49,338.15 (the amount of P70,661.85 having been received by the plaintiff-appellant from the
defendants-appellees) became due and demandable.
As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that they
cannot be held liable thereon. The efficacy of said deed of assignment is subject to the condition that the
application of private respondent for an additional area for forest concession be approved by the Bureau of
Forestry. Since private respondent did not obtain that approval, said deed produces no effect. When a
contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the
event which constitutes the condition happens or is fulfilled. If the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed.
The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the obligation
of private respondent to transfer his rights in the forest concession over the additional area and, on the
other hand, the obligation of petitioners to pay P30,000.00. The demandability of the obligation of one
party depends upon the fulfillment of the obligation of the other. In this case, the failure of private
respondent to comply with his obligation negates his right to demand performance from petitioners.
Delivery and payment in a contract of sale, are so interrelated and intertwined with each other that
without delivery of the goods there is no corresponding obligation to pay. The two complement each other.
Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere
hope or expectancy is deemed subject to the condition that the thing will come into existence. In this case,
since private respondent never acquired any right over the additional area for failure to secure the
approval of the Bureau of Forestry, the agreement executed therefor, which had for its object the transfer
of said right to petitioners, never became effective or enforceable.
WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED. The agreement of the
parties dated February 28, 1966 is declared without force and effect and the amount of P30,000.00 is
hereby ordered to be deducted from the sum awarded by respondent court to private respondent. In all
other respects, said decision of respondent court is affirmed.
SO ORDERED.
G.R. No. 180665.August 11, 2010.*

HEIRS OF PAULINO ATIENZA, namely, RUFINA L. ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA, MAURA A.
DOMINGO, AMBROCIO ATIENZA, MAXIMA ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES, REGALADO
ATIENZA and MELITA A. DELA CRUZ, petitioners, vs. DOMINGO P. ESPIDOL, respondent.
Agrarian Reform Law; Presidential Decree No. 27; Presidential Decree No. (P.D.) 27 explicitly prohibits any
form of transfer of the land granted under it except to the government or by hereditary succession to the
successors of the farmer beneficiary.In order to settle a matter that would apparently undermine a
significant policy adopted under the land reform program, the Court cannot simply shirk from the issue.
The Atienzas title shows on its face that the government granted title to them on January 9, 1990 by
virtue of Presidential Decree No. (P.D.) 27. This law explicitly prohibits any form of transfer of the land
granted under it except to the government or by hereditary succession to the successors of the farmer
beneficiary.
Same; Same; Land reform beneficiaries were allowed to transfer ownership of their lands provided that
their amortizations with the Land Bank of the Philippines (Land Bank) have been paid in full.Upon the
enactment of Executive Order 228 in 1987, however, the restriction ceased to be absolute. Land reform
beneficiaries were allowed to transfer ownership of their lands provided that their amortizations with the
Land Bank of the Philippines (Land Bank) have been paid in full. In this case, the Atienzas title
categorically states that they have fully complied with the requirements for the final grant of title under
P.D. 27. This means that they have completed payment of their amortization with Land Bank.
Consequently, they could already legally transfer their title to another.
Same; Sales; Contract of Sale Distinguished from a Contract to Sell.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 non-payment 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.
Mario R. Benitez for petitioners.
Rodolfo C. Beltran for respondent.
ABAD,J.:
This case is about the legal consequences when a buyer in a contract to sell on installment fails to make
the next payments that he promised.
The Facts and the Case
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio, Roberto Atienza, Maura A.
Domingo, Ambrocio Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales, Regalado Atienza and
Melita A. Dela Cruz (collectively, the Atienzas) own a 21,959 square meters of registered agricultural land
at Valle Cruz, Cabanatuan City. They acquired the land under an emancipation patent through the
governments land reform program.
On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into a contract called
Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad (contract to sell land with a down payment)
covering the property. They agreed on a price of P130.00 per square meter or a total of P2,854,670.00,
payable in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00 in December
2002, and the remaining P974,670.00 in June 2003. Respondent Espidol paid the Atienzas P100,000.00
upon the execution of the contract and paid P30,000.00 in commission to the brokers.
When the Atienzas demanded payment of the second installment of P1,750,000.00 in December 2002,
however, respondent Espidol could not pay it. He offered to pay the Atienzas P500.000.00 in the
meantime, which they did not accept. Claiming that Espidol breached his obligation, on February 21, 2003
the Atienzas filed a complaint for the annulment of their agreement with damages before the Regional Trial
Court (RTC) of Cabanatuan City in Civil Case 4451.
In his answer, respondent Espidol admitted that he was unable to pay the December 2002 second
installment, explaining that he lost access to the money which he shared with his wife because of an
injunction order issued by an American court in connection with a domestic violence case that she filed
against him. In his desire to abide by his obligation, however, Espidol took time to travel to the Philippines
to offer P800,000.00 to the Atienzas. Respondent Espidol also argued that, since their contract was one of
sale on installment, his failure to pay the installment due in December 2002 did not amount to a breach. It
was merely an event that justified the Atienzas not to convey the title to the property to him. The nonpayment of an installment is not a legal ground for annulling a perfected contract of sale. Their remedy
was to bring an action for specific performance. Moreover, Espidol contended that the action was
premature since the last payment was not due until June 2003.
In a decision dated January 24, 2005, the RTC ruled that, inasmuch as the non-payment of the purchase
price was not considered a breach in a contract to sell on installment but only an event that authorized the
vendor not to convey title, the proper issue was whether the Atienzas were justified in refusing to accept
respondent Espidols offer of an amount lesser than that agreed upon on the second installment.
The trial court held that, although respondents legal problems abroad cannot justify his failure to comply
with his contractual obligation to pay an installment, it could not be denied that he made an honest effort
to pay at least a portion of it. His traveling to the Philippines from America showed his willingness and
desire to make good on his obligation. His good faith negated any notion that he intended to renege on
what he owed. The Atienzas brought the case to court prematurely considering that the last installment
was not then due.
Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract would have to comply with
the provisions of Republic Act (R.A.) 6552 or the Realty Installment Buyer Protection Act (R.A. 6552),
particularly the giving of the required notice of cancellation, that they omitted in this case. The RTC thus
declared the contract between the parties valid and subsisting and ordered the parties to comply with its
terms and conditions.
On appeal, the Court of Appeals (CA) affirmed the decision of the trial court. Not satisfied, the Atienzas
moved for reconsideration. They argued that R.A. 6552 did not apply to the case because the land was
agricultural and respondent Espidol had not paid two years worth of installment that the law required for
coverage. And, in an apparent shift of theory, the Atienzas now also impugn the validity of their contract to
sell, claiming that, since the property was covered by an emancipation patent, its sale was prohibited and
void. But the CA denied the motion for reconsideration, hence, the present petition.
Questions Presented
The questions presented for resolution are:
1.Whether or not the Atienzas could validly sell to respondent Espidol the subject land which they
acquired through land reform under Presidential Decree 27(P.D. 27);
2.Whether or not the Atienzas were entitled to the cancellation of the contract to sell they entered into
with respondent Espidol on the ground of the latters failure to pay the second installment when it fell due;
and
3.Whether or not the Atienzas action for cancellation of title was premature absent the notarial notice of
cancellation required by R.A. 6552.
The Courts Rulings
One.That the Atienzas brought up the illegality of their sale of subject land only when they filed their
motion for reconsideration of the CA decision is not lost on this Court. As a rule, no question will be
entertained on appeal unless it was raised before the court below. This is but a rule of fairness.
Nonetheless, in order to settle a matter that would apparently undermine a significant policy adopted
under the land reform program, the Court cannot simply shirk from the issue. The Atienzas title shows on
its face that the government granted title to them on January 9, 1990 by virtue of P.D. 27. This law
explicitly prohibits any form of transfer of the land granted under it except to the government or by
hereditary succession to the successors of the farmer beneficiary.
Upon the enactment of Executive Order 228 in 1987, however, the restriction ceased to be absolute. Land
reform beneficiaries were allowed to transfer ownership of their lands provided that their amortizations
with the Land Bank of the Philippines (Land Bank) have been paid in full. In this case, the Atienzas title
categorically states that they have fully complied with the requirements for the final grant of title under
P.D. 27. This means that they have completed payment of their amortization with Land Bank.
Consequently, they could already legally transfer their title to another.
Two.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 non-payment 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. And this is correct so far.
Unfortunately, the RTC and the CA concluded that should Espidol eventually pay the price of the land,
though not on time, the Atienzas were bound to comply with their obligation to sell the same to him.
But this is error. In the first place, since Espidol failed to pay the installment on a day certain fixed in their
agreement, the Atienzas can afterwards validly cancel and ignore the contract to sell because their
obligation to sell under it did not arise. Since the suspensive condition did not arise, the parties stood as if
the conditional obligation had never existed.
Secondly, it was not a pure suspensive condition in the sense that the Atienzas made no undertaking while
the installments were not yet due. Mr. Justice Edgardo L. Paras gave a fitting example of suspensive
condition: Ill buy your land for P1,000.00 if you pass the last bar examinations. This he said was
suspensive for the bar examinations results will be awaited. Meantime the buyer is placed under no
immediate obligation to the person who took the examinations.
Here, however, although the Atienzas had no obligation as yet to turn over title pending the occurrence of
the suspensive condition, it was implicit that they were under immediate obligation not to sell the land to
another in the meantime. When Espidol failed to pay within the period provided in their agreement, the
Atienzas were relieved of any obligation to hold the property in reserve for him.
The ruling of the RTC and the CA that, despite the default in payment, the Atienzas remained bound to this
day to sell the property to Espidol once he is able to raise the money and pay is quite unjustified. The total
price was P2,854,670.00. The Atienzas decided to sell the land because petitioner Paulino Atienza urgently
needed money for the treatment of his daughter who was suffering from leukemia. Espidol paid a measly
P100,000.00 in down payment or about 3.5% of the total price, just about the minimum size of a brokers
commission. Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell due four months later in
December 2002. Thus, it was not such a small default as to justify the RTC and the CAs decision to
continue to tie up the Atienzas to the contract to sell upon the excuse that Espidol tried his honest best to
pay.
Although the Atienzas filed their action with the RTC on February 21, 2003, four months before the last
installment of P974,670.00 fell due in June 2003, it cannot be said that the action was premature. Given
Espidols failure to pay the second installment of P1,750,000.00 in December 2002 when it was due, the
Atienzas obligation to turn over ownership of the property to him may be regarded as no longer existing.
The Atienzas had the right to seek judicial declaration of such non-existent status of that contract to
relieve themselves of any liability should they decide to sell the property to someone else. Parenthetically,
Espidol never offered to settle the full amount of the price in June 2003, when the last installment fell due,
or during the whole time the case was pending before the RTC.
Three. Notice of cancellation by notarial act need not be given before the contract between the Atienzas
and respondent Espidol may be validly declare non-existent. R.A. 6552 which mandated the giving of such
notice does not apply to this case. The cancellation envisioned in that law pertains to extrajudicial
cancellation or one done outside of court, which is not the mode availed of here. The Atienzas came to
court to seek the declaration of its obligation under the contract to sell cancelled. Thus, the absence of
that notice does not bar the filing of their action.
Since the contract has ceased to exist, equity would, of course, demand that, in the absence of stipulation,
the amount paid by respondent Espidol be returned, the purpose for which it was given not having been
attained; and considering that the Atienzas have consistently expressed their desire to refund the
P130,000.00 that Espidol paid.
WHEREFORE, the Court GRANTS the petition and REVERSES and SETS ASIDE the August 31, 2007 decision
and November 5, 2007 resolution of the Court of Appeals in CA-G.R. CV 84953. The Court declares the
Kasunduan sa Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino Atienza and
respondent Domingo P. Espidol dated August 12, 2002 cancelled and the Heirs obligation under it nonexistent. The Court directs petitioner Heirs of Atienza to reimburse the P130,000.00 down payment to
respondent Espidol.
SO ORDERED.
G.R. No. 112127. July 17, 1995.*

CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.
Donations; Onerous Donations; Words and Phrases; An onerous donation is one executed for a valuable
consideration which is considered the equivalent of the donation itself.We find it difficult to sustain the
petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez,
Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a
burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to
erect schools, construct a childrens playground and open streets on the land was considered an onerous
donation. Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous
consideration.
Same; Same; Obligations; Conditional Obligations; When a person donates land to another on the condition
that the latter would build upon the land a school, the condition imposed is not a condition precedent or a
suspensive condition but a resolutory one.Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the land a school, the condition imposed was not
a condition precedent or a suspensive condition but a resolutory one.
Same; Same; Same; Same; If there is no fulfillment or compliance with the resolutory condition, the
donation may now be revoked and all rights which the donee may have acquired under it shall be deemed
lost and extinguished.It is not correct to say that the schoolhouse had to be constructed before the
donation became effective, that is, before the donee could become the owner of the land, otherwise, it
would be invading the property rights of the donor. The donation had to be valid before the fulfillment of
the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the
instant case, the donation may now be revoked and all rights which the donee may have acquired under it
shall be deemed lost and extinguished.
Same; Same; Same; Same; Statute of Limitations; Prescription; Where the time within which the condition
should be fulfilled depends upon the exclusive will of the donee, its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation are sufficient to prevent the statute of
limitations from barring the action for annulment of donation.The claim of petitioner that prescription
bars the instant action of private respondents is unavailing. The condition imposed by the donor, i.e., the
building of a medical school upon the land donated, depended upon the exclusive will of the donee as to
when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with
the condition thereof. Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of
its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from
barring the action of private respondents upon the original contract which was the deed of donation.
Same; Same; Same; Same; Same; Same; Actions; A cause of action arises when that which should have
been done is not done, or that which should not have been done is done, and in cases where there is no
special provision for such computation, recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been instituted.Moreover, the time from
which the cause of action accrued for the revocation of the donation and recovery of the property donated
cannot be specifically determined in the instant case. A cause of action arises when that which should
have been done is not done, or that which should not have been done is done. In cases where there is no
special provision for such computation, recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the computation of the period. In this case, the
starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what
has been charged upon it by the donor.
Same; Same; Same; Same; Same; Same; Same; When the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was intended, the courts may fix the duration
thereof.Thus, when the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which
provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot
be demanded until after the court has fixed the period for compliance therewith and such period has
arrived.
Same; Same; Same; Same; Same; Same; Same; There is no more need to fix the duration of a term of the
obligation when more than a reasonable period of fifty (50) years has already been allowed the donee to
avail of the opportunity to comply with the condition in the donation.This general rule however cannot be
applied considering the different set of circumstances existing in the instant case. More than a reasonable
period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it
failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to
an unnecessary and expensive multiplication of suits.
Same; Same; Same; Same; Same; Same; Same; Rescission; When obligor cannot comply with what is
incumbent upon him, the obligee may seek rescission, and in the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for the court to decree the rescission
claimed.Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what
is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there
is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine
the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.
Same; Same; Same; Same; Contracts; Doubts referring to incidental circumstances of a gratuitous contract
should be resolved in favor of the least transmission of rights and interests.Finally, since the questioned
deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least transmission of rights and interests.
Donations; Obligations; Conditions as used in donations and as used in the law of obligations, compared.
There is no conditional obligation to speak of in this case. It seems that the conditions imposed by the
donor and as the word is used in the law of donations is confused with conditions as used in the law of
obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the
well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the
context within which the term conditions is used in the law of donations, to wit: The word conditions in
this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation
depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee . It
is used, not in its technical or strict legal sense, but in its broadest sense.
Same; Same; Words and Phrases; Modal Donation, Explained.Clearly then, when the law and the deed
of donation speaks of conditions of a donation, what are referred to are actually the obligations, charges
or burdens imposed by the donor upon the donee and which would characterize the donation as onerous.
In the present case, the donation is, quite obviously, onerous, but it is more properly called a modal
donation. A modal donation is one in which the donor imposes a prestation upon the donee. The
establishment of the medical college as the condition of the donation in the present case is one such
prestation.
Same; Same; Statute of Limitations; Prescription; The mere fact that there is no time fixed as to when the
conditions of the donation are to be fulfilled does not ipso facto mean that the statute of limitations will not
apply anymore and the action to revoke the donation becomes imprescriptible.Although it is admitted
that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of
the donee as to when it will comply therewith, this did not arise out of a condition which the donee itself
imposed. It is believed that the donee was not meant to and does not have absolute control over the time
within which it will perform its obligations. It must still do so within a reasonable time. What that
reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact that there is
no time fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that the
statute of limitations will not apply anymore and the action to revoke the donation becomes
imprescriptible.
PETITION for review on certiorari of a decision of the Court of Appeals. The facts are stated in the opinion
of the Court.
Juanito M. Acanto for petitioner.

Santos B. Aguadera for private respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of
Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to
private respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the
Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor
of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a
portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical
college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land;
3. The said land shall be called RAMON LOPEZ CAMPUS, and the said college shall be under obligation to
erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a
fund to be known as the RAMON LOPEZ CAMPUS FUND to be used for improvements of said campus and
erection of a building thereon.
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time
the action was filed the latter had not complied with the conditions of the donation. Private respondents
also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange
the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that
it did not violate any of the conditions in the deed of donation because it never used the donated property
for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to
any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation
and declared it null and void. The court a quo further directed petitioner to execute a deed of
reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back
of petitioners certificate of title were resolutory conditions breach of which should terminate the rights of
the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner
could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed decision and remanding the case to the court of origin for the
determination of the time within which petitioner should comply with the first condition annotated in the
certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the
certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which
must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the
issue of prescription does not deserve disquisition; and, (c) in remanding the case to the trial court for
the fixing of the period within which petitioner would establish a medical college.
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation
executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous,
one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g.,
when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of
Manila requiring the latter to erect schools, construct a childrens playground and open streets on the land
was considered an onerous donation. Similarly, where Don Ramon Lopez donated the subject parcel of land
to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation
must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to another on the condition that the latter
would build upon the land a school, the condition imposed was not a condition precedent or a suspensive
condition but a resolutory one. It is not correct to say that the schoolhouse had to be constructed before
the donation became effective, that is, before the donee could become the owner of the land, otherwise, it
would be invading the property rights of the donor. The donation had to be valid before the fulfillment of
the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the
instant case, the donation may now be revoked and all rights which the donee may have acquired under it
shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The
condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended
upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted
the donation, it bound itself to comply with the condition thereof. Since the time within which the condition
should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute
acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to
prevent the statute of limitations from barring the action of private respondents upon the original contract
which was the deed of donation.
Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery
of the property donated cannot be specifically determined in the instant case. A cause of action arises
when that which should have been done is not done, or that which should not have been done is done. In
cases where there is no special provision for such computation, recourse must be had to the rule that the
period must be counted from the day on which the corresponding action could have been instituted. It is
the legal possibility of bringing the action which determines the starting point for the computation of the
period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the presence
of several factors and circumstances involved in the erection of an educational institution, such as
government laws and regulations pertaining to education, building requirements and property restrictions
which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred
that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides
that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for compliance therewith and such period has arrived.
This general rule however cannot be applied considering the different set of circumstances existing in the
instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail
of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a mere technicality and formality and would serve no
purpose than to delay or lead to an unnecessary and expensive multiplication of suits. Moreover, under
Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the
obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court to determine the period of the compliance,
there is no more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of
rights and interests. Records are clear and facts are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to the heirs of the donor, private respondents
herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision
plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality
of this judgment.
Costs against petitioner.
SO ORDERED.
[No. 24190. July 13, 1926]

GEORGE L. PARKS, plaintiff and appellant, vs. PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC,
CONCEPCION CIRER, and JAMES HILL, her husband, defendants and appellees.
1.IMMOVABLE PROPERTY; CONDITIONAL DONATION; CONDITION PRECEDENT.The characteristic of
condition precedent is that the acquisition of the right is not effected while said condition is not complied
with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of
right. Consequently, when a condition is imposed, the compliance of which cannot be effected except
when the right is deemed acquired, such condition cannot be a condition precedent.
2.ID. ; ID. ; ACTION FOR REVOCATION ; PRESCRIPTION.The action f or the revocation of a donation is not
excluded from the statute of limitations. And not only this,the law itself recognizes the prescriptibility of
the action for the revocation of a donation, providing a special period of five years for the revocation by
the subsequent birth of children (art. 646, Civil Code), and one year for the revocation by reason of
ingratitude. If no special period is provided for the prescription of the action for revocation for
noncompliance of the conditions of the donation (art. 647, Civil Code), it is because, in this respect, the
donation is considered onerous and is governed by the law 01 contracts and the general rules of
prescription. Under the laws in force (sec. 43, Code of Civ. Proc.) the period of prescription of this class of
action is ten years.
APPEAL from a judgment of the Court of First Instance of Tarlac. Lukban, J.
The facts are stated in the opinion of the court.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.
AVANCEA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred to in the
complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions
specified in the public document in which they made this donation. The donation was accepted by Mr.
Santiago de Jesus in the same document on behalf of the municipal council of Tarlac of which he was the
municipal president. The parcel thus donated was later registered in the name of the donee, the
municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this parcel to the herein
plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac transferred the parcel to the
Province of Tarlac which, by reason of this transfer, applied for and obtained the registration thereof in its
name, the corresponding certificate of title having been issued to it.
The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied with and
invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his favor, brought this
action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and prayed
that he be declared the absolute owner entitled to the possession of this parcel, that the transfer of the
same by the municipality of Tarlac to the Province of Tarlac be annulled, and the transfer certificate issued
to the Province of Tarlac cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by
Concepcion Cirer and James Hill in his favor on Jannuary 15, 1921, but that sale cannot have any effect,
This parcel having been donated by Concepcion Cirer and James Hill to the municipality of Tarlac, which
donation was accepted by the latter, the title to the property was transferred to the municipality of Tarlac.
It is true that the donation might have been revoked for the causes, if any, provided by the law, but the
fact is that it was not revoked when Concepcion Cirer and James Hill made the sale of this parcel to the
plaintiff. Even supposing that causes existed for the revocation of this donation, still, it was necessary, in
order to consider it revoked, either that the revocation had been consented to by the donee, the
municipality of Tarlac, or that it had been judicially decreed. None of these circumstances existed when
Concepcion Cirer and James Hill sold this parcel to the plaintiff. Consequently, when the sale was made
Concepcion, Cirer and James Hill were no longer the owners of this parcel and could not have sold it to the
plaintiff, nor could the latter have acquired it from them.
But the appellant contends that a condition precedent having been imposed in the donation and the same
not having been complied with, the donation never became effective. We find no merit in this contention.
The appellant refers to the condition imposed that one of the parcels donated was to be used absolutely
and exclusively for the erection of a central school and the other for a public park, the work to commence
in both cases within the period of six months from the date of the ratification by the parties of the
document evidencing the donation. It is true that this condition has not been complied with. The
allegation, however, that it is a condition precedent is erroneous. The characteristic of a condition
precedent is that the acquisition of the right is not effected while said condition is not complied with or is
not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right.
Consequently, when a condition is imposed, the compliance of which cannot be effected except when the
right is deemed acquired, such condition cannot be a condition precedent. In the present case the
condition that a public school be erected and a public park made of the donated land, work on the same to
commence within six months f rom the date of the ratification of the donation by the parties, could not be
complied with except after giving effect to the donation. The donee could not do any work on the donated
land if the donation had not really been effected, because it would be an invasion of another's title, for the
land would have continued to belong to the donor so long as the condition imposed was not complied with.
The appellant also contends that, in any event, the condition not having been complied with, even
supposing that it was not a condition precedent but subsequent, the noncompliance thereof is sufficient
cause for the revocation of the donation. This is correct. But the period for bringing an action for the
revocation of the donation has prescribed. That this action is prescriptible, there is no doubt. There is no
legal provision which excludes this class of action from the statute of limitations. And not only this,the
law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special
period of five years for the revocation by the subsequent birth of children (art. 646, Civil Code), and one
year for the revocation by reason of ingratitude. If no special period is provided for the prescription of the
action for revocation for noncompliance of the conditions of the donation (art. 647, Civil Code), it is
because in this respect the donation is considered onerous and is governed by the law of contracts and the
general rules of prescription. Under the laws in force (sec. 43, Code of Civ. Proc.), the period of prescription
of this class of action is ten years. The action for the revocation of the donation for this cause arose or April
19, 1911, that is, six months after the ratification of the instrument of donation of October 18, 1910. The
complaint in this action was presented July 5, 1924, more than ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the appellant. So
ordered.
Street, Villamor, Ostrand, Johns, Romualdez, and VillaReal, JJ., concur.
Judgment affirmed.
G.R. No. 137909. December 11, 2003.*

FIDELA DEL CASTILLO VDA. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA
GERONA-NAGUIAT, respondents.
Contracts; Sales; Rescission; In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission.The transaction between Eulalio Mistica and respondents, as evidenced by the
Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is
neither a stipulation in the deed that title to the property sold is reserved to the seller until the full
payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period. In a contract of sale, the remedy of an unpaid seller is
either specific performance or rescission. Under Article 1191 of the Civil Code, the right to rescind an
obligation is predicated on the violation of the reciprocity between parties, brought about by a breach of
faith by one of them. Rescission, however, is allowed only where the breach is substantial and fundamental
to the fulfillment of the obligation.
Same; Same; Same; The failure of the vendee to pay the balance of the purchase price within ten years
from the execution of the Deed does not amount to a substantial breach where in the contract it was
stipulated that payment could be made even after ten years provided the vendee paid 12 percent interest.
In the present case, the failure of respondents to pay the balance of the purchase price within ten years
from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated
that payment could be made even after ten years from the execution of the Contract, provided the vendee
paid 12 percent interest. The stipulations of the contract constitute the law between the parties; thus,
courts have no alternative but to enforce them as agreed upon and written.
Same; Same; Same; The Civil Code prohibits purely potestative, suspensive, conditional obligations that
depend on the whims of the debtor, because such obligations are usually not meant to be fulfilled.If
petitioner would like to impress upon this Court that the parties intended otherwise, she has to show
competent proof to support her contention. Instead, she argues that the period cannot be extended
beyond ten years, because to do so would convert the buyers obligation to a purely potestative obligation
that would annul the contract under Article 1182 of the Civil Code. This contention is likewise untenable.
The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the
debtor, because such obligations are usually not meant to be fulfilled. Indeed, to allow the fulfillment of
conditions to depend exclusively on the debtors will would be to sanction illusory obligations. The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that payment of the purchase
price is dependent upon whether respondents want to pay it or not. Second, the fact that they already
made partial payment thereof only shows that the parties intended to be bound by the Kasulatan.
Land Registration; Land Titles; It is a fundamental principle in land registration that a certificate of title
serves merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the
person whose name appears therein; While a review of the decree of registration is no longer possible after
the expiration of the one-year period from entry, an equitable remedy is still available to those wrongfully
deprived of their property.The issuance of a certificate of title in favor of respondents does not determine
whether petitioner is entitled to rescission. It is a fundamental principle in land registration that such title
serves merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the
person whose name appears therein. While a review of the decree of registration is no longer possible after
the expiration of the one-year period from entry, an equitable remedy is still available to those wrongfully
deprived of their property. A certificate of title cannot be subject to collateral attack and can only be
altered, modified or canceled in direct proceedings in accordance with law. Hence, the CA correctly held
that the propriety of the issuance of title in the name of respondents was an issue that was not
determinable in these proceedings.
Same; Same; Land erroneously included in the certificate of title of another must be reconveyed in favor of
its true and actual owner; The cancellation or removal of the extra portion is not permissible in an action
for rescission of the contract of sale because such action is tantamount to allowing a collateral attack on
the title.Petitioner argues that it would be reasonable for respondents to pay her the value of the lot,
because the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had been
included in the certificate of title issued to them, was no longer feasible. In principle, we agree with
petitioner. Registration has never been a mode of acquiring ownership over immovable property, because
it does not create or vest title, but merely confirms one already created or vested. Registration does not
give holders any better title than what they actually have. Land erroneously included in the certificate of
title of another must be reconveyed in favor of its true and actual owner. Section 48 of Presidential Decree
1529, however, provides that the certificate of title shall not be subject to collateral attack, alteration,
modification, or cancellation except in a direct proceeding. The cancellation or removal of the extra portion
from the title of respondents is not permissible in an action for rescission of the contract of sale between
them and petitioners late husband, because such action is tantamount to allowing a collateral attack on
the title.
Manuel P. Punzalan for petitioner.
Ernesto S. Salunat for private respondents.
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller
the right to rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed only
when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the October 31,
1997 Decision and the February 23, 1999 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 51067.
The assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby AFFIRMED.
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at
Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat]
sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over
a portion of the aforementioned lot containing an area of 200 square meters. This agreement was reduced
to writing in a document entitled Kasulatan sa Pagbibilihan which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng
Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga nito
gaya ng sumusunod:
xxx
xxx
xxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI
ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS
PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng sumusunod:
xxx
xxx
xxx
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG PISO
(P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay babayaran
ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay
magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran
tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng Abril,
1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed)
(signed)
BERNARDINO NAGUIAT
EULALIO MISTICA
Bumibili
Nagbibili
Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He
made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and
refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the contract
which entitles her to rescind the same; that [respondents] have been in possession of the subject portion
and they should be ordered to vacate and surrender possession of the same to [petitioner]; that the
reasonable amount of rental for the subject land is P200.00 a month; that on account of the unjustified
actuations of [respondents], [petitioner] has been constrained to litigate where she incurred expenses for
attorneys fees and litigation expenses in the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on
the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest
of 12% is to be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986,
during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to [petitioner] but the
latter refused and hence, there is no breach or violation committed by them and no damages could yet be
incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said document; that he is presently
the owner in fee simple of the subject lot having acquired the same by virtue of a Free Patent Title duly
awarded to him by the Bureau of Lands; and that his title and ownership had already become indefeasible
and incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount of P50,000.00;
exemplary damages in the amount of P30,000.00; attorneys fees in the amount of P10,000.00 and other
litigation expenses.
On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July
1992. The motion for reconsideration was likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in the
amount of P10,000.00 and costs of the suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price in the amount of
P17,000.00, with interest thereon at the rate of 12% per annum computed from April 5, 1989 until full
payment is made, subject to the application of the consigned amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square meters from the land
covered by OCT No. 4917 (M), the corresponding price therefor based on the prevailing market price
thereof.
CAs Decision
Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It explained that
the conclusion of the ten-year period was not a resolutory term, because the Contract had stipulated that
paymentwith interest of 12 percentcould still be made if respondents failed to pay within the period.
According to the appellate court, petitioner did not disprove the allegation of respondents that they had
tendered payment of the balance of the purchase price during her husbands funeral, which was well
within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the land title to
their names. The proper recourse, the CA held, was to order them to pay the balance of the purchase
price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer feasible,
because it had been included in the title issued to them. The appellate court ruled that the only remedy
available was to order them to pay petitioner the fair market value of the usurped portion.
Hence, this Petition.
Issues
In her Memorandum, petitioner raises the following issues:
1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the New Civil
Code, as it ruled that there is no breach of obligation inspite of the lapse of the stipulated period and the
failure of the private respondents to pay.
2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract is no
longer feasible considering that a certificate of title had been issued in favor of the private respondents.
3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion in
question is covered by a certificate of title in the names of private respondents reconveyance is no longer
feasible and proper.
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code, because
respondents committed a substantial breach when they did not pay the balance of the purchase price
within the ten-year period. She further avers that the proviso on the payment of interest did not extend the
period to pay. To interpret it in that way would make the obligation purely potestative and, thus, void under
Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan,
was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there is neither a
stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the
price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period.
In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Under
Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of the
reciprocity between parties, brought about by a breach of faith by one of them. Rescission, however, is
allowed only where the breach is substantial and fundamental to the fulfillment of the obligation.
In the present case, the failure of respondents to pay the balance of the purchase price within ten years
from the execution of the Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated
that payment could be made even after ten years from the execution of the Contract, provided the vendee
paid 12 percent interest. The stipulations of the contract constitute the law between the parties; thus,
courts have no alternative but to enforce them as agreed upon and written.
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband never
made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by
respondents during her husbands funeral, thus showing that she was not exactly blameless for the lapse
of the ten-year period. Had she accepted the tender, payment would have been made well within the
agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she has to show
competent proof to support her contention. Instead, she argues that the period cannot be extended
beyond ten years, because to do so would convert the buyers obligation to a purely potestative obligation
that would annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive, conditional
obligations that depend on the whims of the debtor, because such obligations are usually not meant to be
fulfilled. Indeed, to allow the fulfillment of conditions to depend exclusively on the debtors will would be to
sanction illusory obligations. The Kasulatan does not allow such thing. First, nowhere is it stated in the
Deed that payment of the purchase price is dependent upon whether respondents want to pay it or not.
Second, the fact that they already made partial payment thereof only shows that the parties intended to
be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings of fact by
the CA are generally binding upon this Court and will not be disturbed on appeal, especially when they are
the same as those of the trial court. Petitioner has not given us sufficient reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to respondents, because a certificate of
title had already been issued in their names. Petitioner nonetheless argues that the Court is still
empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine whether
petitioner is entitled to rescission. It is a fundamental principle in land registration that such title serves
merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the person
whose name appears therein.
While a review of the decree of registration is no longer possible after the expiration of the one-year period
from entry, an equitable remedy is still available to those wrongfully deprived of their property. A
certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in
direct proceedings in accordance with law. Hence, the CA correctly held that the propriety of the issuance
of title in the name of respondents was an issue that was not determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because the
CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had been included in the
certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership over
immovable property, because it does not create or vest title, but merely confirms one already created or
vested. Registration does not give holders any better title than what they actually have. Land erroneously
included in the certificate of title of another must be reconveyed in favor of its true and actual owner.
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be subject to
collateral attack, alteration, modification, or cancellation except in a direct proceeding. The cancellation or
removal of the extra portion from the title of respondents is not permissible in an action for rescission of
the contract of sale between them and petitioners late husband, because such action is tantamount to
allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was already filed
by the State in favor of petitioner and the heirs of her husband. Hence, there is no need in this case to
pass upon the right of respondents to the registration of the subject land under their names. For the same
reason, there is no necessity to order them to pay petitioner the fair market value of the extra 58-square
meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the MODIFICATION that the payment
for the extra 58-square meter lot included in respondents title is DELETED.
SO ORDERED.
[No. L-5003.June 27, 1953]

Nazario Trillana, administrator and appellee, vs. Quezon College, Inc, claimant and appellant.
Obligations and Contracts Stock Subscription; Offer and Acceptance, Facultative Condition,As the
appellant offered its stock for subscription on the term stated in a form letter, and D. C. applied for
subscription fixing her own plan of payment, the relation, in the absence of acceptance by the appellant of
the counter offer of D.C., had not ripened into an enforceable contract. There was imperative need for
express acceptance on appellant's part, because the proposal of D. C. to pay the value of the subscription
after she had harvested fish, was a condition obviously dependent upon her sole will and, therefore,
facultative in nature, rendering the obligation void under article 1115 of the old Civil Code.
APPEAL from an order of the Court of First Instance of Bulacan. Ysip, J.
The facts are gtated in the opinion of the Court.
Singson, Barnes, Yap & Blanco for appellant.
Delgado, Flores & Macapagal for appellee.
Paras,C. J.:
Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:
June 1, 1948
"The BOARD OP TRUSTEES
"Quezon College
"Manila
"Gentlemen:
"Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100
each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda) pesos as
my initial payment and the balance payable in accordance with law and the rules and regulations of the
Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further
submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College
and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa
wikang tagalog na aking nalalaman).
"Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
"Nilagdaan sa aming harapan:
"Jose Crisostomo
"Eduardo Crisostomo"
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the
subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court
of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing
the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the
administrator of the estate, and the Court of First Instance of Bulacan, after hearing, issued an order
dismissing the claim of the Quezon Col lege, Inc., on the ground that the subscription in question was
neither registered in nor authorized by the Securities and Exchange Commission. From this order the
Quezon College, Inc. has appealed.
It is not necessary for us to discuss at length appellant's various assignments of error relating to the
propriety of the ground relied upon by the trial court, since, as pointed out in the brief for the administrator
and appellee, there are other decisive considerations which, though not touched by the lower court, amply
sustained the appealed order.
It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a
general form indicating that an applicant will enclose an amount as initial payment and will pay the
balance in accordance with law and the rules or regulations of the College. On the other hand, in the letter
actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be
entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na
ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc.
accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the
same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at
variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was
absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind
the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate
the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused
fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc.
had only thus, reached the preliminary stage whereby the latter offered its stock for subscription on the
terms stated in the form letter, and Damasa applied .for subscription fixing her own plan of payment,a
relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter
offer of Damasa Crisostomo, that had not ripened into an enforceable contract.
Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more
imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she
has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature,
rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the
fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation
shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall
produce all its effects in accordance with the provisions of this code." It cannot be argued that the
condition solely is void, because it would have served to create the obligation to pay, unlike a case,
exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void
because it referred merely to the fulfillment of an already existing indebtedness.
In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition,
facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the
whole obligation void."
Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.
G.R. No. 107207. November 23, 1995.*

VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG,
respondents.
Civil Law; Sales; A perfected contract of sale may either be absolute or conditional.A perfected contract
of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject
to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party
thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition
will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed
on an obligationof a party which is not complied with, the other party may either refuse to proceed or
waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection
of the contract itself, the failure of such condition would prevent the juridical relation itself from coming
into existence.
Same; Same; In determining the real character of the contract, the title given to it by the parties is not as
much significant as its substance.In determining the real character of the contract, the title given to it by
the parties is not as much significant as its substance. For example, a deed of sale, although denominated
as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not
reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract
predicated on the fulfillment or nonfulfillment, as the case may be, of the prescribed condition.
Same; Same; The term condition in the context of a perfected contract of sale pertains in reality to the
compliance by one party of an undertaking the fulfillment of which would beckon in turn the demandability
of the reciprocal prestation of the other party.The term condition in the context of a perfected contract
of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would
beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations
referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the
case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
Same; Same; A sale is at once perfected when a person obligates himself for a price certain to deliver and
to transfer ownership of a specified thing or right to another over which the latter agrees.It would be
futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once
perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer
ownership of a specified thing or right to another (the buyer) over which the latter agrees.
Same; Same; From the moment the contract is perfected, the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences which according to their nature
may be in keeping with good faith, usage and law.From the moment the contract is perfected, the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement,
private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a
condition the operative act of which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private respondents failure to remove the
squatters from the property within the stipulated period gives petitioner the right to either refuse to
proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This
option clearly belongs to petitioner and not to private respondent.
Same; Same; Where the so-called potestative condition is imposed not on the birth of the obligation but
on its fulfillment, only the condition is avoided leaving unaffected the obligation itself.We share the
opinion of the appellate court that the undertaking required of private respondent does not constitute a
potestative condition dependent solely on his will that might, otherwise, be void in accordance with
Article 1182 of the Civil Code but a mixed condition dependent not on the will of the vendor alone but
also of third persons like the squatters and government agencies and personnel concerned. We must
hasten to add, however, that where the so-called potestative condition is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.
Same; Same; Rescission; The right of rescission of a party to an obligation under Article 1191 of the Civil
Code is predicated on a breach of faith by the other party that violates the reciprocity between them.In
any case, private respondents action for rescission is not warranted. She is not the injured party. The right
of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of
faith by the other party that violates the reciprocity between them. It is private respondent who has failed
in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to
shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements
with the sheriff to effect such execution.
Antonio C. Cabreras, Jr. & Peter M. Porras Law Offices and Yap, Apostol, Gumaru & Balgua for petitioner.
Joaquin Yuseco for private respondent.
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel
of land for a cause traceable to his own failure to have the squatters on the subject property evicted within
the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and
exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his
foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately
2,000 square meters. The project was made known to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel
of land measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the
lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong.
Petitioner visited the property and, except for the presence of squatters in the area, he found the place
suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of
P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent
would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence.
On 09 June 1988, a contract, denominated Deed of Conditional Sale, was executed between petitioner
and private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by
and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St.,
Quezon City, Metro Manila, hereinafter referred to as the VENDOR;
- and VIRGILIO R. ROMERO, married to Severina L. Lat, of legal age, Filipino, and residing at 110 San Miguel St.,
Plainview Subd., Mandaluyong, Metro Manila, hereinafter referred to as the VENDEE:
W I T N E S S E T H: That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE
HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality of
Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and
more particularly described as follows:
x x x
xxx
x x x.
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the
offer, subject to the terms and conditions hereinafter stipulated:
NOW,THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to
(sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators,
executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS
CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon
signing and execution of this instrument.
2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND
SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from
the above described property.
3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand
shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in
favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and
updated.
It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days
from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from
the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the
VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price
of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45
days from written notification to the VENDEE of the removal of the squatters from the property being
purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in
favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and
such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall
be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati, MM,
Philippines on this 9th day of June, 1988. f
(Sgd.)
(Sgd.)
VIRGILIO R. ROMERO
ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee
Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.)
(Sgd.)
Rowena C. Ongsiong
Jack M. Cruz
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for
P50,000.00 from petitioner. Pursuant to the agreement, private respondent filed a complaint for ejectment
(Civil Case No. 7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court
of Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09
August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30
March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from
petitioner since, she said, she could not get rid of the squatters on the lot. Atty. Sergio A.F. Apostol,
counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:
Our client believes that with the exercise of reasonable diligence considering the favorable decision
rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject
squatters from the premises of the subject property, for which reason, he proposes that he shall take it
upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof
shall be chargeable to the purchase price of the land.
Meanwhile, the Presidential Commission for the Urban Poor (PCUP), through its Regional Director for
Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from
21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request,
the court suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and
his clients willingness to underwrite the expenses for the execution of the judgment and ejectment of the
occupants.
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol
that the Deed of Conditional Sale had been rendered null and void by virtue of his clients failure to evict
the squatters from the premises within the agreed 60-day period. He added that private respondent had
decided to retain the property.
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very moment that there was a meeting
of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00. Moreover,
the contract had already been partially fulfilled and executed upon receipt of the downpayment of your
client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it to state that, the
provision of the Deed of Conditional Sale do not grant her the option or prerogative to rescind the contract
and to retain the property should she fail to comply with the obligation she has assumed under the
contract. In fact, a perusal of the terms and conditions of the contract clearly shows that the right to
rescind the contract and to demand the return/reimbursement of the downpayment is granted to our client
for his protection.
Instead, however, of availing himself of the power to rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters
from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989 and
June 8, 1989.
Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party.
Undoubtedly, under the circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the premises
of the subject property and her decision to retain the property was brought about by the sudden increase
in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to execute the absolute
Deed of Sale.
A few days later (or on 27 June 1989), private respondent, prompted by petitioners continued refusal to
accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch
133, Civil Case No. 89-4394 for rescission of the deed of conditional sale, plus damages, and for the
consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case
No. 7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati rendered decision
holding that private respondent had no right to rescind the contract since it was she who violated her
obligation to eject the squatters from the subject property and that petitioner, being the injured party,
was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that
the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were
to fail in her obligation to free the property from squatters within the stipulated period or (b), upon the
other hand, the sums forfeiture by the vendor if the vendee were to fail in paying the agreed purchase
price, amounted to penalty clauses. The court added:
This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely: (1)
he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p. 6,
tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not in
accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of execution
on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed the
complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she should not
have pursued the issuance of an alias writ of execution. Besides, she did not even report to the police the
alleged phone threats from the squatters. To the mind of the Court, the so-called squatter factor is simply
factuitous (sic).
The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or
cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance
upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its
decision. It opined that the contract entered into by the parties was subject to a resolutory condition, i.e.,
the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the
object of the contract; that private respondent substantially complied with her obligation to evict the
squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of the
contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case
private respondent would fail to eject the squatters within the 60day period was not a penal clause. Thus,
it concluded:
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring
the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendantappellee to accept
the return of the downpayment in the amount of P50,000.00 which was deposited in the court below. No
pronouncement as to costs.
Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that,
in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional depending on whether the agreement is
devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the
obligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If
the condition is imposed on an obligation of a party which is not complied with, the other party may either
refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is
imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical
relation itself from coming into existence.
In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance. For example, a deed of sale, although denominated as a deed of conditional
sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if
the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or nonfulfillment, as the case may be, of the prescribed condition.
The term condition in the context of a perfected contract of sale pertains, in reality, to the compliance by
one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the
reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the
case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of
certain express warranties (which, in the case at bench is the timely eviction of the squatters on the
property).
It would be futile to challenge the agreement here in question as not being a duly perfected contract. A
sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to
transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees.
The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in
San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds
for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which
P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00
payable 45 days after the removal of all squatters from the above described property.
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict the
squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into
motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the
purchase price. Private respondents failure to remove the squatters from the property within the
stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and
not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does not
constitute a potestative condition dependent solely on his will that might, otherwise, be void in
accordance with Article 1182 of the Civil Code but a mixed condition dependent not on the will of the
vendor alone but also of third persons like the squatters and government agencies and personnel
concerned. We must hasten to add, however, that where the so-called potestative condition is imposed
not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the
obligation itself.
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to
choose between proceeding with the agreement or waiving the performance of the condition. It is this
provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the
performance of the condition imposed on private respondent to free the property from squatters.
In any case, private respondents action for rescission is not warranted. She is not the injured party. The
right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach
of faith by the other party that violates the reciprocity between them. It is private respondent who has
failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact,
to shoulder the expenses of the execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such ex+ecution. In his letter of 23 June 1989, counsel for
petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale.
Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the
sake of argument that such a demand is proper under Article 1592 of the Civil Code, would likewise suffice
to defeat private respondents prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable
to petitioner or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the
matter has ceased to be an issue. Suffice it to say that petitioner having opted to proceed with the sale,
neither may petitioner demand its reimbursement from private respondent nor may private respondent
subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and
another is entered ordering petitioner to pay private respondent the balance of the purchase price and the
latter to execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
G.R. No. 120820. August 1, 2000.*

SPS. FORTUNATO SANTOS and ROSALINDA R. SANTOS, petitioners, vs. COURT OF APPEALS, SPS. MARIANO
R. CASEDA and CARMEN CASEDA, respondents.
Remedial Law; Appeals; There is a question of law in a given case when the doubt or difference arises as to
what the law is on a certain set of facts, and there is a question of fact when the doubt or difference arises
as to the truth or falsehood of the alleged facts.There is a question of law in a given case when the doubt
or difference arises as to what the law is on a certain set of facts, and there is a question of fact when the
doubt or difference arises as to the truth or falsehood of the alleged facts. But we note that the first
assignment of error submitted by respondents for consideration by the appellate court dealt with the trial
courts finding that herein petitioners got back the property in question because respondents did not have
the means to pay the installments and/or amortization of the loan. The resolution of this question involved
an evaluation of proof, and not only a consideration of the applicable statutory and case laws. Clearly, CAG.R. CV No. 30955 did not involve pure questions of law, hence the Court of Appeals had jurisdiction and
there was no violation of our Circular No. 2-90.
Civil Law; Contracts; Sale; A contract is what the law defines it to be, taking into consideration its essential
elements, and not what the contracting parties call it; The transfer of ownership in exchange for a price
paid or promised is the very essence of a contract of sale.It must be emphasized from the outset that a
contract is what the law defines it to be, taking into consideration its essential elements, and not what the
contracting parties call it. Article 1458 of the Civil Code defines a contract of sale. Note that the said article
expressly obliges the vendor to transfer ownership of the thing sold as an essential element of a contract
of sale. This is because the transfer of ownership in exchange for a price paid or promised is the very
essence of a contract of sale.
Same; Same; Same; Contract of Sale Distinguished from a Contract to Sell.As we earlier pointed out, in a
contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price
is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely
different from the situation in a contract of sale, where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully with the condition
of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it.
P.C. Jose & Associates for petitioner.
Felix D. Gragasin for private respondents.
QUISUMBING, J.:
For review on certiorari is the decision of the Court of Appeals, dated March 28, 1995, in CA-G.R. CV No.
30955, which reversed and set aside the judgment of the Regional Trial Court of Makati, Branch 133, in
Civil Case No. 89-4759. Petitioners (the Santoses) were the owners of a house and lot informally sold, with
conditions, to herein private respondents (the Casedas). In the trial court, the Casedas had complained
that the Santoses refused to deliver said house and lot despite repeated demands. The trial court
dismissed the complaint for specific performance and damages, but in the Court of Appeals, the dismissal
was reversed, as follows:
WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET ASIDE
and a new one entered:
1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from the date of the finality of judgment
within which to pay the balance of the obligation in accordance with their agreement;
2. Ordering appellees to restore possession of the subject house and lot to the appellants upon receipt of
the full amount of the balance due on the purchase price; and
3. No pronouncement as to costs.
SO ORDERED.
The undisputed facts of this case are as follows: The spouses Fortunato and Rosalinda Santos owned the
house and lot consisting of 350 square meters located at Lot 7, Block 8, Better Living Subdivision,
Paraaque, Metro Manila, as evidenced by TCT (S-11029) 28005 of the Register of Deeds of Paraaque.
The land together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of
P150,000.00 maturing on June 16, 1987.
Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City and
soon became very good friends with her. The duo even became kumadres when Carmen stood as a
wedding sponsor of Rosalindas nephew.
On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.84 in unpaid
interest and other charges. Since the Santos couple had no funds, Rosalinda offered to sell the house and
lot to Carmen. After inspecting the real property, Carmen and her husband agreed.
Sometime that month of June, Carmen and Rosalinda signed a document, which reads:
Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount of
350,000.00 (house and lot) that is own (sic) by Mrs. Rosalinda R. Santos.
(Mrs.) (Sgd.) Carmen H. Caseda
direct buyer
Mrs. Carmen Caseda
(Sgd.) Rosalinda Del R. Santos
Owner
Mrs. Rosalinda R. Santos
House and Lot
Better Living Subd. Paraaque, Metro Manila
Section V Don Bosco St.
The other terms and conditions that the parties agreed upon were for the Caseda spouses to pay: (1) the
balance of the mortgage loan with the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3)
the electric and water bills; and (4) the balance of the cash price to be paid not later than June 16, 1987,
which was the maturity date of the loan.
The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property,
which they then leased out. They also paid in installments, P81,696.84 of the mortgage loan. The Casedas,
however, failed to pay the remaining balance of the loan because they suffered bankruptcy in 1987.
Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the real estate taxes
on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to July 12, 1989.
All these payments were made in the name of Rosalinda Santos.
In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining
installments and/or amortization of the loan, repossessed the property. The Santoses then collected the
rentals from the tenants.
In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and
offered to pay the balance of the purchase price for the house and lot. The parties, however, could not
agree, and the deal could not push through because the Santoses wanted a higher price. For
understandably, the real estate boom in Metro Manila at this time, had considerably jacked up realty value.
On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of Makati, to have the
Santoses execute the final deed of conveyance over the property, or in default thereof, to reimburse the
amount of P180,000.00 paid in cash and P249,900.00 paid to the rural bank, plus interest, as well as
rentals for eight months amounting to P32,000.00, plus damages and costs of suit.
After trial on the merits, the lower court disposed of the case as follows:
WHEREFORE, judgment is hereby ordered:
(a) dismissing plaintiffs (Casedas) complaint; and
(b) declaring the agreement marked as Annex C of the complaint rescinded. Costs against plaintiffs.
SO ORDERED.
Said judgment of dismissal is mainly based on the trial courts finding that:
Admittedly, the purchase price of the house and lot was P485,385.18, i.e. P350,000.00 as cash payment
and P135.385.18, assumption of mortgage. Of it plaintiffs [Casedas] paid the following: (1) P54,100.00
down payment; and (2) P81,694.64 installment payments to the bank on the loan (Exhs. E to E-19) or a
total of P135,794.64. Thus, plaintiffs were short of the purchase price. They cannot, therefore, demand
specific performance.
The trial court further held that the Casedas were not entitled to reimbursement of payments already
made, reasoning that:
As earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of
P485,385.18. The property was in plaintiffs possession from June 1984 to January 1989 or a period of fiftyfive months. During that time, plaintiffs leased the property. Carmen said the property was rented for
P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and P4,000.00 a
month. But the evidence is not precise when the different amounts of rental took place. Be that as it may,
fairness demands that plaintiffs must pay defendants for their exercise of dominical rights over the
property by renting it to others. The amount of P2,000.00 a month would be reasonable based on the
average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply P2,000.00 by 55 months, the
plaintiffs must pay defendants P110,000.00 for the use of the property. Deducting this amount from the
P135.794.64 payment of the plaintiffs on the property, the difference is P25,794.64. Should the plaintiffs
be entitled to a reimbursement of this amount? The answer is in the negative. Because of failure of
plaintiffs to liquidated the mortgage loan on time, it had ballooned from its original figure of P135,384.18
as of June 1984 to P337,280.78 as of December 31, 1988. Defendants [Santoses] had to pay the last
amount to the bank to save the property from foreclosure. Logically, plaintiffs must share in the burden
arising from their failure to liquidate the loan per their contractual commitment. Hence, the amount of
P25,794.64 as their share in the defendants damages in the form of increased loan-amount, is
reasonable.
On appeal, the appellate court, as earlier noted, reversed the lower court. The appellate court held that
rescission was not justified under the circumstances and allowed the Caseda spouses a period of ninety
days within which to pay the balance of the agreed purchase price.
Hence, this instant petition for review on certiorari filed by the Santoses.
Petitioners now submit the following issues for our consideration:
WHETHER OR NOT THE COURT OF APPEALS HAS JURISDICTION TO DECIDE PRIVATE RESPONDENTS APPEAL
INTERPOSING PURELY QUESTIONS OF LAW.
WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL
CONTRACT TO SELL IN WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592, CIVIL CODE) IS NOT
APPLICABLE.
ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR RESCISSION IS REQUIRED, WHETHER PETITIONERS
DEMAND AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED
THE SAID REQUIREMENT.
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE INCLUDING
THE NONCOMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH
CAUSED GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO JUSTIFY
RESCISSION OF A CONTRACT TO SELL UNDER ARTICLE 11918 (CIVIL CODE).
On the first issue, petitioners argue that, since both the parties and the appellate court adopted the
findings of trial court,9 no questions of fact were raised before the Court of Appeals. According to
petitioners, CA-G.R. CV No. 30955, involved only pure questions of law. They aver that the court a quo had
no jurisdiction to hear, much less decide, CA-G.R. CV No. 30955, without running afoul of Supreme Court
Circular No. 2-90 (4) [c]. agreed upon the rescission of contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for rescission of the contract has been
made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new
term.
8 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.
There is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain set of facts, and there is a question of fact when the doubt or difference arises as to the truth or
falsehood of the alleged facts. But we note that the first assignment of error submitted by respondents for
consideration by the appellate court dealt with the trial courts finding that herein petitioners got back the
property in question because respondents did not have the means to pay the installments and/or
amortization of the loan. The resolution of this question involved an evaluation of proof, and not only a
consideration of the applicable statutory and case laws. Clearly, CA-G.R. CV No. 30955 did not involve pure
questions of law, hence the Court of Appeals had jurisdiction and there was no violation of our Circular No.
2-90.
Moreover, we find that petitioners took an active part in the proceedings before the Court of Appeals, yet
they did not raise there the issue of jurisdiction. They should have raised this issue at the earliest
opportunity before the Court of Appeals. A party taking part in the proceedings before the appellate court
and submitting his case for its decision ought not to later on attack the courts decision for want of
jurisdiction because the decision turns out to be adverse to him.
The second and third issues deal with the question: Did the Court of Appeals err in holding that a judicial
rescission of the agreement was necessary? In resolving both issues, we must first make a preliminary
determination of the nature of the contract in question: Was it a contract of sale, as insisted by
respondents or a mere contract to sell, as contended by petitioners?
Petitioners argue that the transaction between them and respondents was a mere contract to sell, and not
a contract of sale, since the sole documentary evidence (Exh. D, receipt) referring to their agreement
clearly showed that they did not transfer ownership of the property in question simultaneous with its
delivery and hence remained its owners, pending fulfillment of the other suspensive conditions, i.e., full
payment of the balance of the purchase price and the loan amortizations. Petitioners point to Manuel v.
Rodriguez, 109 Phil. 1 (1960) and Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93
(1972), where we held that Article 1592 of the Civil Code is inapplicable to a contract to sell. They charge,
the court a quo with reversible error in holding that petitioners should have judicially rescinded the
agreement with respondents when the latter failed to pay the amortizations on the bank loan.
Respondents insist that there was a perfected contract of sale, since upon their partial payment of the
purchase price, they immediately took possession of the property as vendees, and subsequently leased it,
thus exercising all the rights of ownership over the property. This showed that transfer of ownership was
simultaneous with the delivery of the realty sold, according to respondents.
It must be emphasized from the outset that a contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting parties call it. Article 1458 of the Civil
Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer
ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of
ownership in exchange for a price paid or promised is the very essence of a contract of sale.16 We have
carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions informally
agreed upon by the parties, as well as the proofs submitted to support their respective contentions. We are
far from persuaded that there was a transfer of ownership simultaneously with the delivery of the property
purportedly sold. The records clearly show that, notwithstanding the fact that the Casedas first took then
lost possession of the disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued by
the Register of Deeds of Paraaque, has remained always in the name of Rosalinda Santos. Note further
that although the parties had agreed that the Casedas would assume the mortgage, all amortization
payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos. We likewise find
that the banks cancellation and discharge of mortgage dated January 20, 1990, was made in favor of
Rosalinda Santos. The foregoing circumstances categorically and clearly show that no valid transfer of
ownership was made by the Santoses to the Casedas. Absent this essential element, their agreement
cannot be deemed a contract of sale. We agree with petitioners averment that the agreement between
Rosalinda Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved by the
vendor and is not to pass until full payment of the purchase price. This we find fully applicable and
understandable in this case, given that the property involved is a titled realty under mortgage to a bank
and would require notarial and other formalities of law before transfer thereof could be validly effected.
In view of our finding in the present case that the agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed that a judicial rescission of said agreement was
necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out,
in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase
price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely
different from the situation in a contract of sale, where non-payment of the price is a negative resolutory
condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell,
however, the vendor remains the owner for as long as the vendee has not complied fully with the condition
of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full,
they were merely enforcing the contract and not rescinding it. As petitioners correctly point out, the Court
of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to
Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a
resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the
provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable in
the present case.
As to the last issue, we need not tarry to make a determination of whether the breach of contract by
private respondents is so substantial as to defeat the purpose of the parties in entering into the agreement
and thus entitle petitioners to rescission. Having ruled that there is no rescission to speak of in this case,
the question is moot.
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals in CA-G.R.
CV No. 30955 is REVERSED and SET ASIDE. The judgment of the Regional Trial Court of Makati, Branch 133,
with respect to the DISMISSAL of the complaint in Civil Case No. 89-4759, is hereby REINSTATED. No
SO ORDERED.
G.R. No. 165272. September 13, 2007.*

SERGIO R. OSMEA III, JUAN M. FLAVIER, RODOLFO G. BIAZON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
LUIS F. SISON, AND PATRICIA C. SISON, petitioners, vs. SOCIAL SECURITY SYSTEM OF THE PHILIPPINES,
SOCIAL SECURITY COMMISSION, CORAZON S. DELA PAZ, THELMO Y. CUNANAN, PATRICIA A. STO. TOMAS, FE
TIBAYAN-PANLILEO, DONALD DEE, SERGIO R. ORTIZLUIS, JR., EFREN P. ARANZAMENDEZ, MARIANITA O.
MENDOZA, and RAMON J. JABAR, in their capacities as Members of the Social Security Commission, AND
BDO CAPITAL & INVESTMENT CORPORATION, respondents.
Corporation Law; Tender Offers; Words and Phrases; A tender offer is a publicly announced intention by a
person acting alone or in concert with other persons to acquire equity securities of a public company, i.e.,
one listed on an exchange, among othersit is also defined as an offer by the acquiring person to
stockholders of a public company for them to tender their shares therein on the terms specified in the
offer.For perspective, a tender offer is a publicly announced intention by a person acting alone or in
concert with other persons to acquire equity securities of a public company, i.e., one listed on an
exchange, among others. The term is also defined as an offer by the acquiring person to stockholders of a
public company for them to tender their shares therein on the terms specified in the offer. Tender offer is
in place to protect the interests of minority stockholders of a target company against any scheme that
dilutes the share value of their investments. It affords such minority shareholders the opportunity to
withdraw or exit from the company under reasonable terms, a chance to sell their shares at the same price
as those of the majority stockholders.
Same; Moot and Academic Issues; Courts generally decline jurisdiction over such case or dismiss it on the
ground of mootnesssave when, among others, a compelling constitutional issue raised requires the
formulation of controlling principles to guide the bench, the bar and the public, or when the case is capable
of repetition yet evading judicial review.A case or issue is considered moot and academic when it ceases
to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or
a declaration on the issue would be of no practical value or use. In such instance, there is no actual
substantial relief which a petitioner would be entitled to, and which would be negated by the dismissal of
the petition. Courts generally decline jurisdiction over such case or dismiss it on the ground of mootness
save when, among others, a compelling constitutional issue raised requires the formulation of controlling
principles to guide the bench, the bar and the public; or when the case is capable of repetition yet evading
judicial review.
Same; Obligations and Contracts; Under the law on obligations and contracts, the obligation to give a
determinate thing is extinguished if the object is lost without the fault of the debtor.Under the law on
obligations and contracts, the obligation to give a determinate thing is extinguished if the object is lost
without the fault of the debtor. And per Art. 1192 (2) of the Civil Code, a thing is considered lost when it
perishes or disappears in such a way that it cannot be recovered. In a very real sense, the interplay of the
ensuing factors: a) the BDO-EPCIB merger; and b) the cancellation of subject Shares and their replacement
by totally new common shares of BDO, has rendered the erstwhile 187.84 million EPCIB shares of SSS
unrecoverable in the contemplation of the adverted Civil Code provision.
Same; Same; Rebus Sic Stantibus; Words and Phrases; When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, total or partial release from a prestation and from the
counter-prestation is allowed; Under the theory of rebus sic stantibus, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist.
The moot-and-academic angle would still hold sway even if it were to be assumed hypothetically that the
subject Shares are still existing. This is so, for the supervening BDO-EPCIB merger has so effected changes
in the circumstances of SSS and BDO/BDO Capital as to render the fulfillment of any of the obligations that
each may have agreed to undertake under either the LetterAgreement, the SPA or the Swiss Challenge
package legally impossible. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, total or partial release from a prestation and from the counter-prestation is
allowed. Under the theory of rebus sic stantibus, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases to exist. Upon the facts
obtaining in this case, it is abundantly clear that the conditions in which SSS and BDO Capital and/or BDO
executed the Letter-Agreement upon which the pricing componentat P43.50 per shareof the Invitation
to Bid was predicated, have ceased to exist. Accordingly, the implementation of the Letter-Agreement or of
the challenged Res. Nos. 428 and 485 cannot plausibly push through, even if the central figures in this
case are so minded.
Same; Issuer Tender Offers; Issuer Tender Offer is a phrase which means a publicly announced intention by
an issuer to acquire any of its own class of equity securities or by an affiliate of such issuer to acquire such
securities.Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the issuer of what
were once the subject Shares. Consequently, should SSS opt to exit from BDO and BDO Capital, or BDO
Capital, in turn, opt to pursue SSSs shareholdings in EPCIB, as thus converted into BDO shares, the salepurchase ought to be via an Issuer Tender Offera phrase which means a publicly announced intention by
an issuer to acquire any of its own class of equity securities or by an affiliate of such issuer to acquire such
securities. In that eventuality, BDO or BDO Capital cannot possibly exercise the right to match under the
Swiss Challenge procedure, a tender offer being wholly inconsistent with public bidding. The offeror or
buyer in an issue tender offer transaction proposes to buy or acquire, at the stated price and given terms,
its own shares of stocks held by its own stockholder who in turn simply have to accept the tender to effect
the sale. No bidding is involved in the process.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition.
Bernas Law Offices for petitioners.
Martinez, Vergara, Gonzalez and Serrano for respondent Banco de Oro Capital & Investment
Corporation.
Arthur P. Autea for respondent Banco de Oro Capital & Investment Corporation.
GARCIA, J.:
Senator Sergio R. Osmea III and four (4) other members of the Philippine Senate, joined by Social Security
System (SSS) members Luis F. Sison and Patricia C. Sison, specifically seek in this original petition for
certiorari and prohibition the nullification of the following issuances of respondent Social Security
Commission (SSC):
1)RESOLUTION No. 428 dated July 14, 2004; and
2)RESOLUTION No. 485 dated August 11, 2004.
The first assailed resolution approved the proposed sale of the entire equity stake of the SSS in what was
then the Equitable PCI Bank, Inc. (EPCIB or EPCI), consisting of 187,847,891 common shares, through the
Swiss Challenge bidding procedure, and authorized SSS President Corazon S. Dela Paz (Dela Paz) to
constitute a bidding committee that would formulate the terms of reference of the Swiss Challenge bidding
mode. The second resolution approved the Timetable and Instructions to Bidders.
Petitioners also ask that a prohibitive writ issue to permanently enjoin public respondents from
implementing Res. Nos. 428 and 485 or otherwise proceeding with the sale of subject shares through the
Swiss Challenge method.
By Resolution dated October 5, 2004, the Court en banc required the parties to observe the status quo
ante the passage of the assailed resolutions. In the same resolution, the Court noted the motion of
respondent BDO Capital and Investment Corporation (BDO Capital) to admit its Opposition to the Petition.
The relevant factual antecedents:
Sometime in 2003, SSS, a government financial institution (GFI) created pursuant to Republic Act (RA) No.
1161 and placed under the direction and control of SSC, took steps to liquefy its long-term investments
and diversify them into higher-yielding and less volatile investment products. Among its assets determined
as needing to be liquefied were its shareholdings in EPCIB. The principal reason behind the intended
disposition, as explained by respondent Dela Paz during the February 4, 2004 hearing conducted by the
Senate Committee on Banks, Financial Institutions and Currencies, is that the shares in question have
substantially declined in value and the SSS could no longer afford to continue holding on to them at the
present level of EPCIBs income.
Some excerpts of what respondent Dela Paz said in that hearing:
The market value of Equitable-PCI Bank had actually hovered at P34.00 since July 2003. At some point
after the price went down to P16 or P17 after the September 11 , it went up to P42.00 but later on went
down to P34.00. xxx. We looked at the prices in about March of 2001 and noted that the trade prices then
ranged from P50 to P57.
xxx
xxx
xxx
I have to concede that [EPCIB] has started to recover, .

Perhaps the fact that there had been this improved situation in the bank that attracted Banco de Oro . x
x x. I wouldnt know whether the prices would eventually go up to 60 of (sic) 120. But on the basis of my
being the vice-chair on the bank, I believe that this is the subject of a lot of conjecture. It can also go down
. So, in the present situation where the holdings of SSS in [EPCIB] consists of about 10 percent of the
total reserve fund, we cannot afford to continue holding it at the present level of income .x x x. And
therefore, on that basis, an exposure to certain form of assets whose price can go down to 16 to 17 which
is a little over 20 percent of what we have in our books, is not a very prudent way or conservative way of
handling those funds. We need not continue experiencing opportunity losses but have an amount that will
give us a fair return to that kind of value (Words in bracket added.)
Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO) and its investment
subsidiary, respondent BDO Capital, appeared in earnest to acquire the shares in question. Following talks
between them, BDO and SSS signed, on December 30, 2003, a Letter- Agreement, for the sale and
purchase of some 187.8 million EPCIB common shares (the Shares, hereinafter), at P43.50 per share, which
represents a premium of 30% of the then market value of the EPCIB shares. At about this time, the Shares
were trading at an average of P34.50 @ share.
In the same Letter-Agreement, the parties agreed to negotiate in good faith a mutually acceptable Share
Sale and Purchase Agreement and execute the same not later than thirty (30) business days from
[December 30, 2003].
On April 19, 2004, the Commission on Audit (COA), in response to respondent Dela Pazs letter-query on
the applicability of the public bidding requirement under COA Circular No. 89-296 on the divestment by the
SSS of its entire EPICB equity holdings, stated that the circular covers all assets of government agencies
except those merchandize or inventory held for sale in the regular course of business. And while it
expressed the opinion that the sale of the subject Shares are subject to guidelines in the Circular, the
COA qualified its determination with a statement that such negotiated sale would partake of a stock
exchange transaction and, therefore, would be adhering to the general policy of public auction. Wrote the
COA:
Nevertheless, since activities in the stock exchange which offer to the general public stocks listed therein,
the proposed sale, although denominated as negotiated sale substantially complies with the general
policy of public auction as a mode of divestment. This is so for shares of stocks are actually being
auctioned to the general public every time that the stock exchanges are openly operating.
Following several drafting sessions, SSS and BDO Capital, the designated buyers of the Banco de Oro
Group, agreed on a final draft version of the Share Purchase Agreement (SPA). In it, the parties mutually
agreed to the purchase by the BDO Capital and the sale by SSS of all the latters EPCIB shares at the
closing date at the specified price of P43.50 per share or a total of P8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement, was then submitted to the Department of Justice
(DOJ) which, in an Opinion dated April 29, 2004, concurred with the COAs opinion adverted to and stated
that it did not find anything objectionable with the terms of both documents.
On July 14, 2004, SSC passed Res. No. 428 approving, as earlier stated, the sale of the EPCIB shares
through the Swiss Challenge method. A month later, the equally assailed Res. No. 485 was also passed.
On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid for the block purchase of the Shares.
The Invitation to Bid expressly provided that the result of the bidding is subject to the right of BDO Capital
to match the highest bid. October 20, 2004 was the date set for determining the winning bid.
The records do not show whether or not any interested group/s submitted bids. The bottom line, however,
is that even before the bid envelopes, if any, could be opened, the herein petitioners commenced the
instant special civil action for certiorari, setting their sights primarily on the legality of the Swiss Challenge
angle and a provision in the Instruction to Bidders under which the SSS undertakes to offer the Shares to
BDO should no bidder or prospective bidder qualifies. And as earlier mentioned, the Court, via a status quo
order, effectively suspended the proceedings on the proposed sale.
Under the Swiss Challenge format, one of the bidders is given the option or preferential right to match
the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss Challenge component is contrary to COA
Circular No. 89-296 and public policy which requires adherence to competitive public bidding in a
government-contract award to assure the best price possible for government assets. Accordingly, the
petitioners urge that the planned disposition of the Shares through a Swiss Challenge method be scrapped.
As argued, the Swiss Challenge feature tends to discourage would-bebidders from undertaking the
expense and effort of bidding if the chance of winning is diminished by the preferential right to match
clause. Pushing the point, petitioners aver that the Shares are in the nature of long-term or non-current
assets not regularly traded or held for sale in the regular course of business. As such, their disposition
must be governed by the aforementioned COA circular which, subject to several exceptions, prescribes
public auction as a primary mode of disposal of GFIs assets. And obviously finding the proposed
purchase price to be inadequate, the petitioners expressed the belief that if properly bidded out in
accordance with [the] COA Circular , the Shares could be sold at a price of at least Sixty Pesos (P60.00)
per share. Other supporting arguments for allowing certiorari are set forth in some detail in the basic
petition.
Against the petitioners stance, public respondents inter alia submit that the sale of subject Shares is
exempt from the tedious public bidding requirement of COA. Obviously stressing the practical side of the
matter, public respondents assert that if they are to hew to the bidding requirement in the disposition of
SSSs Philippine Stock Exchange (PSE)-listed stocks, it would place the System at a disadvantage vis--vis
other stock market players who certainly enjoy greater flexibility in reacting to the vagaries of the market
and could sell their holdings at a moments notice when the price is right. Public respondents hasten to
add, however, that the biddingexempt status of the Shares did not prevent the SSS from prudently
proceeding with the bidding as contemplated in the assailed resolutions as a measure to validate the
adequacy of the unit price BDO Capital offered therefor and to possibly obtain a higher price than its
definitive offer of P43.50 per share. Public respondents also advanced the legal argument, also shared by
their co-respondent BDO Capital, in its Comment, that the proposed sale is not covered by COA Circular
No. 89-296 since the Shares partake of the nature of merchandise or inventory held for sale in the regular
course of SSSs business.
Pending consideration of the petition, supervening events and corporate movements transpired that
radically altered the factual complexion of the case. Some of these undisputed events are detailed in the
petitioners separate Manifestation & Motion to Take Judicial Notice and their respective annexes. To cite
the relevant ones:
1. In January 2006, BDO made public its intent to merge with EPCIB. Under what BDO termed as Merger
of Equals, EPCIB shareholders would get 1.6 BDO shares for every EPCIB share.
2. In early January 2006, the GSIS publicly announced receiving from an undisclosed entity an offer to buy
its stake in EPCIB 12% of the banks outstanding capital stock at P92.00 per share.
3. On August 31, 2006, SM Investments Corporation, an affiliate of BDO and BDO Capital, in consortium
with Shoemart, Inc. et al., (collectively, the SM Group) commenced, through the facilities of the PSE and
pursuant to R.A. No. 8799, a mandatory tender offer (Tender Offer) covering the purchase of the entire
outstanding capital stock of EPCIB at P92.00 per share. Pursuant to the terms of the Tender Offer, which
was to start on August 31, 2006 and end on September 28, 2006 the Tender Offer Period all shares
validly tendered under it by EPCIB shareholders of record shall be deemed accepted for payment on
closing date subject to certain conditions. Among those who accepted the Tender Offer of the SM Group
was EBC Investments, Inc., a subsidiary of EPCIB.
4. A day or two later, BDO filed a Tender Offer Report with the Securities and Exchange Commission (SEC)
and the PSE.
Owing to the foregoing developments, the Court, on October 3, 2006, issued a Resolution requiring the
parties to CONFIRM news reports that price of subject shares has been agreed upon at P92; and if so, to
MANIFEST whether this case has become moot.
First to comply with the above were public respondents SSS et al., by filing their Compliance and
Manifestation, therein essentially stating that the case is now moot in view of the SM-BDO Groups Tender
Offer at P92.00 @ unit share, for the subject EPCIB common shares, inclusive of the SSS shares subject of
the petition. They also stated the observation that the petitioners Manifestation and Motion to Take Judicial
Notice, never questioned the Tender Offer, thus confirming the dispensability of a competitive public
bidding in the disposition of subject Shares.
For perspective, a tender offer is a publicly announced intention by a person acting alone or in concert
with other persons to acquire equity securities of a public company, i.e., one listed on an exchange, among
others. The term is also defined as an offer by the acquiring person to stockholders of a public company
for them to tender their shares therein on the terms specified in the offer Tender offer is in place to
protect the interests of minority stockholders of a target company against any scheme that dilutes the
share value of their investments. It affords such minority shareholders the opportunity to withdraw or exit
from the company under reasonable terms, a chance to sell their shares at the same price as those of the
majority stockholders.
Next to comply with the same Resolution of the Court was respondent BDO Capital via its Compliance,
thereunder practically reiterating public respondents position on the question of mootness and the need,
under the premises, to go into public bidding. It added the arguments that the BDO-SM Groups Tender
Offer, involving as it did a general offer to buy all EPCIB common shares at the stated price and terms,
were inconsistent with the idea of public bidding; and that the Tender Offer rules actually provide for an
opportunity for competing groups to top the Tender Offer price.
On the other hand, petitioners, in their Manifestation, concede the huge gap between the unit price stated
in the Tender Offer and the floor price of P43.50 per share stated in the Invitation to Bid. It is their posture,
however, that unless SSS withdraws the sale of the subject shares by way of the Swiss Challenge, the offer
price of P92 per share cannot render the case moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group to acquire controlling
interests over EPCIB and paved the way for a BDO-EPCIB merger. The merger was formalized by
subsequent submission of the necessary merger documents to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan of Merger approving the
merger between BDO and EPCIB, relevant portions of which are reproduced hereunder:
THIS IS TO CERTIFY that the Plan and Articles of Merger executed on December 28, 2006 by and between:
BANCO DE ORO UNIVERSAL BANK, Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation) and EQUITABLE PCI BANK, INC. (Absorbed Corporation)
approved by a majority of the Board of Directors on November 06, 2006 and by a vote of the
stockholders owning or representing at least two-thirds of the outstanding capital stock of constituent
corporations on December 27, 2006, signed by the Presidents, certified by their respective Corporate
Secretaries, whereby the entire assets of [EPCI] Inc. will be transferred to and absorbed by [BDO]
UNIVERSAL BANK now BANCO DE ORO-EPCI, INC. was approved by this Office on this date but which
approval shall be effective on May 31, 2007 pursuant to the provisions of (Word in bracket added;
emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set forth in Article 1.3 of the Plan of Merger
adverted to, among the effects of the BDO-EPCIB merger are the following:
a. BDO and EPCI shall become a single corporation, with BDO as the surviving corporation. [EPCIB] shall
cease to exist;
xxx
xxx
xxx
c. All the rights, privileges, immunities, franchises and powers of EPCI shall be deemed transferred to and
possessed by the merged Bank; and
d. All the properties of EPCI, real or personal, tangible or intangible shall be deemed transferred to the
Merged Bank without further act or deed.
Per Article 2 of the Plan of Merger on the exchange of shares mechanism, all the issued and outstanding
common stock of [EPCIB] (EPCI shares) shall be converted into fullypaid and non assessable common
stock of BDO (BDO common shares) at the ratio of 1.80 BDO Common shares for each issued [EPCIB]
share (the Exchange Ratio). And under the exchange procedure, BDO shall issue BDO Common Shares
to EPCI stockholders corresponding to each EPCI Share held by them in accordance with the aforesaid
Exchange Ratio.
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO common shares to respondent
SSS corresponding to the number of its former EPCIB shareholdings under the ratio and exchange
procedure prescribed in the Plan of Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is
now a large stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and academic, BDO Capital supplemented
its earlier Compliance and Manifestation with a formal Motion to Dismiss.
By Resolution dated July 10, 2007, the Court required petitioners and respondent SSS to comment on BDO
Capitals motion to dismiss within ten (10) days from notice.
To date, petitioners have not submitted their compliance. On the other hand, SSS, by way of comment,
reiterated its position articulated in respondents Compliance and Motion that the SM-BDO Group Tender
Offer at the price therein stated had rendered this case moot and academic. And respondent SSS
confirmed the following: a) its status as BDOEPCIB stockholder; b) the Tender Offer made by the SM Group
to EPCIB stockholders, including SSS, for their shares at P92.00 per share; and c) SSS acceptance of the
Tender Offer thus made.
A case or issue is considered moot and academic when it ceases to present a justiciable controversy by
virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of
no practical value or use. In such instance, there is no actual substantial relief which a petitioner would be
entitled to, and which would be negated by the dismissal of the petition. Courts generally decline
jurisdiction over such case or dismiss it on the ground of mootnesssave when, among others, a
compelling constitutional issue raised requires the formulation of controlling principles to guide the bench,
the bar and the public; or when the case is capable of repetition yet evading judicial review.
The case, with the view we take of it, has indeed become moot and academic for interrelated reasons.
We start off with the core subject of this case. As may be noted, the Letter-Agreement, the SPA, the SSC
resolutions assailed in this recourse, and the Invitation to Bid sent out to implement said resolutions, all
have a common subject: the Shares the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary consequence of the BDO-EPCIB merger which
saw EPCIB being absorbed by the surviving BDO, have been transferred to BDO and converted into BDO
common shares under the exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted,
the subject Shares are no longer equity security issuances of the now defunct EPCIB, but those of BDOEPCI, which, needless to stress, is a totally separate and distinct entity from what used to be EPCIB. In net
effect, therefore, the 187.84 Million EPCIB common shares are now lost or inexistent. And in this regard,
the Court takes judicial notice of the disappearance of EPCIB stocks from the local bourse listing. Instead,
BDO-EPCI Stocks are presently listed and being traded in the PSE.
Under the law on obligations and contracts, the obligation to give a determinate thing is extinguished if the
object is lost without the fault of the debtor. And per Art. 1192 (2) of the Civil Code, a thing is considered
lost when it perishes or disappears in such a way that it cannot be recovered. In a very real sense, the
interplay of the ensuing factors: a) the BDOEPCIB merger; and b) the cancellation of subject Shares and
their replacement by totally new common shares of BDO, has rendered the erstwhile 187.84 million EPCIB
shares of SSS unrecoverable in the contemplation of the adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under any circumstance, cause the
implementation of the assailed resolutions, let alone proceed with the planned disposition of the Shares,
be it via the traditional competitive bidding or the challenged public bidding with a Swiss Challenge
feature.
At any rate, the moot-and-academic angle would still hold sway even if it were to be assumed
hypothetically that the subject Shares are still existing. This is so, for the supervening BDO-EPCIB merger
has so effected changes in the circumstances of SSS and BDO/BDO Capital as to render the fulfillment of
any of the obligations that each may have agreed to undertake under either the Letter-Agreement, the SPA
or the Swiss Challenge package legally impossible. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, total or partial release from a prestation and from the
counter-prestation is allowed.
Under the theory of rebus sic stantibus, the parties stipulate in the light of certain prevailing conditions,
and once these conditions cease to exist, the contract also ceases to exist. Upon the facts obtaining in this
case, it is abundantly clear that the conditions in which SSS and BDO Capital and/or BDO executed the
Letter-Agreement upon which the pricing componentat P43.50 per shareof the Invitation to Bid was
predicated, have ceased to exist. Accordingly, the implementation of the Letter-Agreement or of the
challenged
Res. Nos. 428 and 485 cannot plausibly push through, even if the central figures in this case are so
minded.
Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the issuer of what were once the
subject Shares. Consequently, should SSS opt to exit from BDO and BDO Capital, or BDO Capital, in turn,
opt to pursue SSSs shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase ought to
be via an Issuer Tender Offera phrase which means a publicly announced intention by an issuer to
acquire any of its own class of equity securities or by an affiliate of such issuer to acquire such securities.
In that eventuality, BDO or BDO Capital cannot possibly exercise the right to match under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding. The offeror or buyer in
an issue tender offer transaction proposes to buy or acquire, at the stated price and given terms, its own
shares of stocks held by its own stockholder who in turn simply have to accept the tender to effect the
sale. No bidding is involved in the process.
While the Court ends up dismissing this petition because the facts and legal situation call for this kind of
disposition, petitioners have to be commended for their efforts in initiating this proceeding. For, in the final
analysis, it was their petition which initially blocked implementation of the assailed SSC resolutions, and, in
the process, enabled the SSS and necessarily their members to realize very much more for their
investments.
WHEREFORE, the instant petition is DISMISSED.
No costs.
SO ORDERED.
G.R. No. 188661. April 11, 2012.*

ESTELITA VILLAMAR, petitioner, vs. BALBINO MANGAOIL, respondent.
Civil Law; Sales; Article 1498 of the Civil Code provides that when the sale is made through a public
instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed, the contrary does not appear or cannot clearly be inferred.Article 1458 of the
NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to the buyer, who
shall in turn pay therefor a price certain in money or its equivalent. In addition thereto, Article 1495 of the
NCC binds the seller to warrant the thing which is the object of the sale. On the other hand, Article 1498 of
the same code provides that when the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the
contrary does not appear or cannot clearly be inferred.
Same; Same; Rescission; Ejectment; The failure of the seller to eject the squatters from the property sold
cannot be made a ground for rescission if the said ejectment was not stipulated as a condition in the
contract of sale.In the case of Power Commercial and Industrial Corporation, 274 SCRA 597 (1997), cited
by the petitioner, the Court ruled that the failure of the seller to eject the squatters from the property sold
cannot be made a ground for rescission if the said ejectment was not stipulated as a condition in the
contract of sale, and when in the negotiation stage, the buyers counsel himself undertook to eject the
illegal settlers.
Same; Same; Same; Obligations; 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.Article 1191 of the NCC is clear 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. The respondent cannot be deprived of his right to demand for
rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the agreement. This remains
true notwithstanding the absence of express stipulations in the agreement indicating the consequences of
breaches which the parties may commit. To hold otherwise would render Article 1191 of the NCC as
useless.
Same; Same; A person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument.Stated differently, as a general rule, the
execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of
sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is
created in cases where the buyer fails to take material possession of the subject of sale. A person who
does not have actual possession of the thing sold cannot transfer constructive possession by the execution
and delivery of a public instrument.
Roger S. Diza for petitioner.
Mariano Avecilla for respondent.
REYES,J.:
The Case
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Estelita Villamar
(Villamar) to assail the Decision rendered by the Court of Appeals (CA) on February 20, 2009 in CA-G.R. CV
No. 86286, the dispositive portion of which reads:
WHEREFORE, the instant appeal is DISMISSED. The assailed decision is AFFIRMED in toto.
SO ORDERED.
The resolution issued by the CA on July 8, 2009 denied the petitioners motion for reconsideration to the
foregoing.
The ruling of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela, which was affirmed by the CA in the
herein assailed decision and resolution, ordered the (1) rescission of the contract of sale of real property
entered into by Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment made
relative to the said contract.
_______________
Antecedents Facts
The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil of the complaint for
rescission of contract before the RTC:
Villamar is the registered owner of a 3.6080 hectares parcel of land [hereinafter referred as the subject
property] in San Francisco, Manuel, Isabela covered by Transfer Certificate of Title (TCT) No. T-92958-A. On
March 30, 1998, she entered into an Agreement with Mangaoil for the purchase and sale of said parcel of
land, under the following terms and conditions:
1.The price of the land is ONE HUNDRED AND EIGHTY THOUSAND (180,000.00) PESOS per hectare but
only the 3.5000 hec. shall be paid and the rest shall be given free, so that the total purchase or selling
price shall be [P]630,000.00 only;
2. ONE HUNDRED EIGHTY FIVE THOUSAND (185,000.00) PESOS of the total price was already received on
March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of the
Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela [Rural Bank of Cauayan], in order that the
certificate of title thereof be withdrawn and released from the said bank, and the rest shall be for the
payment of the mortgag[e]s in favor of Romeo Lacaden and Florante Parangan;
3.After the release of the certificate of title covering the land subject-matter of this agreement, the
necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the
transfer be immediately effected so that the latter can apply for a loan from any lending institution using
the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the
amount, be given to the PARTY OF THE FIRST PART;
4. Whatever balance left from the agreed purchase price of the land subject matter hereof after
deducting the proceed of the loan and the [P]185,000.00 already received as abovementioned, the PARTY
OF THE SECOND PART shall pay unto the PARTY OF THE FIRST PART not later than June 30, 1998 and
thereafter the parties shall be released of any obligations for and against each other; xxx
On April 1, 1998, the parties executed a Deed of Absolute Sale whereby Villamar (then Estelita Bernabe)
transferred the subject parcel of land to Mangaoil for and in consideration of [P]150,000.00.
In a letter dated September 18, 1998, Mangaoil informed Villamar that he was backing out from the sale
agreed upon giving as one of the reasons therefor:
3.That the area is not yet fully cleared by incumbrances as there are tenants who are not willing to
vacate the land without giving them back the amount that they mortgaged the land.
Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said demand in another letter
dated April 29, 1999, the same, however, was unheeded. x x x (Citations omitted)
On January 28, 2002, the respondent filed before the RTC a complaint for rescission of contract against the
petitioner. In the said complaint, the respondent sought the return of P185,000.00 which he paid to the
petitioner, payment of interests thereon to be computed from March 27, 1998 until the suits termination,
and the award of damages, costs and P20,000.00 attorneys fees. The respondents factual allegations
were as follows:
5.That as could be gleaned the Agreement (Annex A), the plaintiff [Mangaoil] handed to the
defendant [Villamar] the sum of [P]185,000.00 to be applied as follows; [P]80,000 was for the redemption
of the land which was mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela,
to enable the plaintiff to get hold of the title and register the sale x x x and [P]105,000.00 was for the
redemption of the said land from private mortgages to enable plaintiff to posses[s] and cultivate the same;
6.That although the defendant had already long redeemed the said land from the said bank and
withdrawn TCT No. T-92958-A, she has failed and refused, despite repeated demands, to hand over the
said title to the plaintiff and still refuses and fails to do so;
7.That, also, the plaintiff could not physically, actually and materially posses[s] and cultivate the said
land because the private mortgage[e]s and/or present possessors refuse to vacate the same;
xxxx
11. That on September 18, 1998, the plaintiff sent a letter to the defendant demanding a return of the
amount so advanced by him, but the latter ignored the same, x x x;
12. That, again, on April 29, 1999, the plaintiff sent to the defendant another demand letter but the
latter likewise ignored the same, x x x;
13. That, finally, the plaintiff notified the defendant by a notarial act of his desire and intention to rescind
the said contract of sale, xxx;
x x x x. (Citations omitted)
In the respondents answer to the complaint, she averred that she had complied with her obligations to the
respondent. Specifically, she claimed having caused the release of TCT No. T-92958-A by the Rural Bank of
Cauayan and its delivery to a certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that
Atty. Antonio was commissioned to facilitate the transfer of the said title in the respondents name. The
petitioner likewise insisted that it was the respondent who unceremoniously withdrew from their
agreement for reasons only the latter knew.
The Ruling of the RTC
On September 9, 2005, the RTC ordered the rescission of the agreement and the deed of absolute sale
executed between the respondent and the petitioner. The petitioner was, thus directed to return to the
respondent the sum of P185,000.00 which the latter tendered as initial payment for the purchase of the
subject property. The RTC ratiocinated that:
There is no dispute that the defendant sold the LAND to the plaintiff for [P]630,000.00 with down payment
of [P]185,000.00. There is no evidence presented if there were any other partial payments made after the
perfection of the contract of sale.
Article 1458 of the Civil Code provides:
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 therefore a price certain in money or
its equivalent.
As such, in a contract of sale, the obligation of the vendee to pay the price is correlative of the obligation
of the vendor to deliver the thing sold. It created or established at the same time, out of the same course,
and which result in mutual relations of creditor and debtor between the parties.
The claim of the plaintiff that the LAND has not been delivered to him was not refuted by the defendant.
Considering that defendant failed to deliver to him the certificate of title and of the possession over the
LAND to the plaintiff, the contract must be rescinded pursuant to Article 1191 of the Civil Code which, in
part, provides:
Art.1191.The power of rescind obligations is implied in reciprocal ones in case one of the obligors
should not comply with what is incumbent upon him.
The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed error on the part of
the RTC when the latter ruled that the agreement and deed of sale executed by and between the parties
can be rescinded as she failed to deliver to the respondent both the subject property and the certificate of
title covering the same.
The Ruling of the CA

On February 20, 2009, the CA rendered the now assailed decision dismissing the petitioners appeal based
on the following grounds:
Burden of proof is the duty of a party to prove the truth of his claim or defense, or any fact in issue
necessary to establish his claim or defense by the amount of evidence required by law. In civil cases, the
burden of proof is on the defendant if he alleges, in his answer, an affirmative defense, which is not a
denial of an essential ingredient in the plaintiffs cause of action, but is one which, if established, will be a
good defensei.e., an avoidance of the claim, which prima facie, the plaintiff already has because of the
defendants own admissions in the pleadings.
Defendant-appellant Villamars defense in this case was an affirmative defense. She did not deny plaintiffappellees allegation that she had an agreement with plaintiff-appellee for the sale of the subject parcel of
land. Neither did she deny that she was obliged under the contract to deliver the certificate of title to
plaintiff-appellee immediately after said title/property was redeemed from the bank. What she rather
claims is that she already complied with her obligation to deliver the title to plaintiff-appellee when she
delivered the same to Atty. Antonio as it was plaintiff-appellee himself who engaged the services of said
lawyer to precisely work for the immediate transfer of said title in his name. Since, however, this
affirmative defense as alleged in defendant-appellants answer was not admitted by plaintiff-appellee, it
then follows that it behooved the defendant-appellant to prove her averments by preponderance of
evidence.
Yet, a careful perusal of the record shows that the defendant-appellant failed to sufficiently prove said
affirmative defense. She failed to prove that in the first place, Atty. Antonio existed to receive the title for
and in behalf of plaintiff-appellee. Worse, the defendant-appellant failed to prove that Atty. Antonio
received said title as allegedly agreed upon.
We likewise sustain the RTCs finding that defendant-appellant V[i]llamar failed to deliver possession of the
subject property to plaintiff-appellee Mangaoil. As correctly observed by the RTC[t]he claim of the
plaintiff that the land has not been delivered to him was not refuted by the defendant. Not only that. On
cross-examination, the defendant-appellant gave Us insight on why no such delivery could be made, viz.:
x x x x
Q:So, you were not able to deliver this property to Mr. Mangaoil just after you redeem the property
because of the presence of these two (2) persons, is it not?
xxx
A:Yes, sir.
Q:Forcing you to file the case against them and which according to you, you have won, is it not?
A:Yes, sir.
Q:And now at present[,] you are in actual possession of the land?
A:Yes, sir. x x x
With the foregoing judicial admission, the RTC could not have erred in finding that defendant-[appellant]
failed to deliver the possession of the property sold, to plaintiff-appellee.
Neither can We agree with defendant-appellant in her argument that the execution of the Deed of Absolute
Sale by the parties is already equivalent to a valid and constructive delivery of the property to plaintiffappellee. Not only is it doctrinally settled that in a contract of sale, the vendor is bound to transfer the
ownership of, and to deliver the thing that is the object of the sale, the way Article 1547 of the Civil Code is
worded, viz.:
Art.1547.In a contract of sale, unless a contrary intention appears, there is:
(1)An implied warranty on the part of the seller that he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden defaults or defects, or any change or
encumbrance not declared or known to the buyer.
x x x.
shows that actual, and not mere constructive delivery is warrantied by the seller to the buyer. (P)eaceful
possession of the thing sold can hardly be enjoyed in a mere constructive delivery.
The obligation of defendant-appellant Villamar to transfer ownership and deliver possession of the subject
parcel of land was her correlative obligation to plaintiff-appellee in exchange for the latters purchase price
thereof. Thus, if she fails to comply with what is incumbent upon her, a correlative right to rescind such
contract from plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code. x x x (Citations omitted)
The Issues
Aggrieved, the petitioner filed before us the instant petition and submits the following issues for resolution:
I.
WHETHER THE FAILURE OF PETITIONER-SELLER TO DELIVER THE CERTIFICATE OF TITLE OVER THE
PROPERTY TO RESPONDENT-BUYER IS A BREACH OF OBLIGATION IN A CONTRACT OF SALE OF REAL
PROPERTY THAT WOULD WARRANT RESCISSION OF THE CONTRACT;
II.
WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A CONTRACT OF SALE FOR FAILURE OF
RESPONDENT[-]BUYER TO IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY NOTWITHSTANDING
THE ABSENCE OF ANY STIPULATION IN THE CONTRACT PROVIDING FOR THE SAME;
III.
WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY IN THE PRESENT CASE IS ALREADY
EQUIVALENT TO A VALID AND CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER;
IV.
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF THIS CASE SHOULD BE RESCINDED ON
SLIGHT OR CASUAL BREACH;
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE RTC ORDERING
THE RESCISSION OF THE CONTRACT OF SALE[.]
The Petitioners Arguments
The petitioner avers that the CA, in ordering the rescission of the agreement and deed of sale, which she
entered into with the respondent, on the basis of her alleged failure to deliver the certificate of title,
effectively imposed upon her an extra duty which was neither stipulated in the contract nor required by
law. She argues that under Articles 1495 and 1496 of the New Civil Code (NCC), the obligation to deliver
the thing sold is complied with by a seller who executes in favor of a buyer an instrument of sale in a
public document. Citing Chua v. Court of Appeals, she claims that there is a distinction between
transferring a certificate of title in the buyers name, on one hand, and transferring ownership over the
property sold, on the other. The latter can be accomplished by the sellers execution of an instrument of
sale in a public document. The recording of the sale with the Registry of Deeds and the transfer of the
certificate of title in the buyers name are necessary only to bind third parties to the transfer of ownership.
The petitioner contends that in her case, she had already complied with her obligations under the
agreement and the law when she had caused the release of TCT No. T-92958-A from the Rural Bank of
Cauayan, paid individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and
executed an absolute deed of sale in the respondents favor. She adds that before T-92958-A can be
cancelled and a new one be issued in the respondents favor, the latter decided to withdraw from their
agreement. She also points out that in the letters seeking for an outright rescission of their agreement sent
to her by the respondent, not once did he demand for the delivery of TCT.
The petitioner insists that the respondents change of heart was due to (1) the latters realization of the
difficulty in determining the subject propertys perimeter boundary; (2) his doubt that the property he
purchased would yield harvests in the amount he expected; and (3) the presence of mortgagees who were
not willing to give up possession without first being paid the amounts due to them. The petitioner contends
that the actual reasons for the respondents intent to rescind their agreement did not at all constitute a
substantial breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC, when a sale is made through a public
instrument, its execution is equivalent to the delivery of the thing which is the contracts object, unless in
the deed, the contrary appears or can be inferred. Further, in Power Commercial and Industrial Corporation
v. CA, it was ruled that the failure of a seller to eject lessees from the property he sold and to deliver actual
and physical possession, cannot be considered a substantial breach, when such failure was not stipulated
as a resolutory or suspensive condition in the contract and when the effects and consequences of the said
failure were not specified as well. The execution of a deed of sale operates as a formal or symbolic delivery
of the property sold and it already authorizes the buyer to use the instrument as proof of ownership.
The petitioner argues that in the case at bar, the agreement and the absolute deed of sale contains no
stipulation that she was obliged to actually and physically deliver the subject property to the respondent.
The respondent fully knew Lacadens and Parangans possession of the subject property. When they
agreed on the sale of the property, the respondent consciously assumed the risk of not being able to take
immediate physical possession on account of Lacadens and Parangans presence therein.
The petitioner likewise laments that the CA allegedly misappreciated the evidence offered before it when
it declared that she failed to prove the existence of Atty. Antonio. For the record, she emphasizes that the
said lawyer prepared and notarized the agreement and deed of absolute sale which were executed
between the parties. He was also the petitioners counsel in the proceedings before the RTC. Atty. Antonio
was also the one asked by the respondent to cease the transfer of the title over the subject property in the
latters name and to return the money he paid in advance.
The Respondents Contentions
In the respondents comment, he seeks the dismissal of the instant petition. He invokes Articles 1191 and
1458 to argue that when a seller fails to transfer the ownership and possession of a property sold, the
buyer is entitled to rescind the contract of sale. Further, he contends that the execution of a deed of
absolute sale does not necessarily amount to a valid and constructive delivery. In Masallo v. Cesar, it was
ruled that a person who does not have actual possession of real property cannot transfer constructive
possession by the execution and delivery of a public document by which the title to the land is transferred.
In Addison v. Felix and Tioco, the Court was emphatic that symbolic delivery by the execution of a public
instrument is equivalent to actual delivery only when the thing sold is subject to the control of the vendor.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition, to wit, whether or not the failure of the
petitioner to deliver to the respondent both the physical possession of the subject property and the
certificate of title covering the same amount to a substantial breach of the formers obligations to the
latter constituting a valid cause to rescind the agreement and deed of sale entered into by the parties.
We rule in the affirmative.
The RTC and the CA both found that the petitioner failed to comply with her obligations to deliver to the
respondent both the possession of the subject property and the certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally require the seller to
deliver to the buyer the physical possession of the property subject of a contract of sale and the certificate
of title covering the same, the agreement entered into by the petitioner and the respondent provides
otherwise. However, the terms of the agreement cannot be considered as violative of law, morals, good
customs, public order, or public policy, hence, valid.
Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a determinate thing to
the buyer, who shall in turn pay therefor a price certain in money or its equivalent. In addition thereto,
Article 1495 of the NCC binds the seller to warrant the thing which is the object of the sale. On the other
hand, Article 1498 of the same code provides that when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from
the deed, the contrary does not appear or cannot clearly be inferred.
In the case of Chua v. Court of Appeals, which was cited by the petitioner, it was ruled that when the deed
of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made
by the seller to the buyer. The transfer of the certificate of title in the name of the buyer is not necessary
to confer ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by the petitioner
and the respondent explicitly provide:
2.ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS of the total price was already received
on March 27, 1998 for payment of the loan secured by the certificate of title covering the land in favor of
the Rural Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of title
thereof be withdrawn and released from the said bank, and the rest shall be for the payment of the
mortgages in favor of Romeo Lacaden and Florante Parangan;
3.After the release of the certificate of title covering the land subject-matter of this agreement, the
necessary deed of absolute sale in favor of the PARTY OF THE SECOND PART shall be executed and the
transfer be immediately effected so that the latter can apply for a loan from any lending institution using
the corresponding certificate of title as collateral therefor, and the proceeds of the loan, whatever be the
amount, be given to the PARTY OF THE FIRST PART; (underlining supplied)
As can be gleaned from the agreement of the contending parties, the respondent initially paid the
petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan and to cause
the release from the said bank of the certificate of title covering the subject property. The rest of the
amount shall be used to pay the mortgages over the subject property which was executed in favor of
Lacaden and Parangan. After the release of the TCT, a deed of sale shall be executed and transfer shall be
immediately effected so that the title covering the subject property can be used as a collateral for a loan
the respondent will apply for, the proceeds of which shall be given to the petitioner.
Under Article 1306 of the NCC, the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do not impose
upon the petitioner the obligation to physically deliver to the respondent the certificate of title covering
the subject property or cause the transfer in the latters name of the said title, a stipulation requiring
otherwise is not prohibited by law and cannot be regarded as violative of morals, good customs, public
order or public policy. Item no. 3 of the agreement executed by the parties expressly states that transfer
[shall] be immediately effected so that the latter can apply for a loan from any lending institution using the
corresponding certificate of title as collateral therefore. Item no. 3 is literal enough to mean that there
should be physical delivery of the TCT for how else can the respondent use it as a collateral to obtain a
loan if the title remains in the petitioners possession. We agree with the RTC and the CA that the petitioner
failed to prove that she delivered the TCT covering the subject property to the respondent. What the
petitioner attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was
commissioned to effect the transfer of the title in the respondents name. Although Atty. Antonios
existence is certain as he was the petitioners counsel in the proceedings before the RTC, there was no
proof that the former indeed received the TCT or that he was commissioned to process the transfer of the
title in the respondents name.
It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she had already complied
with her obligation to deliver the subject property upon her execution of an absolute deed of sale in the
respondents favor. The petitioner avers that she did not undertake to eject the mortgagors Parangan and
Lacaden, whose presence in the premises of the subject property was known to the respondent.
We are not persuaded.
In the case of Power Commercial and Industrial Corporation cited by the petitioner, the Court ruled that the
failure of the seller to eject the squatters from the property sold cannot be made a ground for rescission if
the said ejectment was not stipulated as a condition in the contract of sale, and when in the negotiation
stage, the buyers counsel himself undertook to eject the illegal settlers.
The circumstances surrounding the case now under our consideration are different. In item no. 2 of the
agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall be used to pay the
mortgagors, Parangan and Lacaden. While the provision does not expressly impose upon the petitioner the
obligation to eject the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy of
the subject property is logically expected from the mortgagors upon payment by the petitioner of the
amounts due to them.
We note that in the demand letter dated September 18, 1998, which was sent by the respondent to the
petitioner, the former lamented that the area is not yet fully cleared of incumbrances as there are tenants
who are not willing to vacate the land without giving them back the amount that they mortgaged the
land. Further, in the proceedings before the RTC conducted after the complaint for rescission was filed, the
petitioner herself testified that she won the ejectment suit against the mortgagors only last year. The
complaint was filed on September 8, 2002 or more than four years from the execution of the parties
agreement. This means that after the lapse of a considerable period of time from the agreements
execution, the mortgagors remained in possession of the subject property.
Notwithstanding the absence of stipulations in the agreement and absolute deed of sale entered into by
Villamar and Mangaoil expressly indicating the consequences of the formers failure to deliver the physical
possession of the subject property and the certificate of title covering the same, the latter is entitled to
demand for the rescission of their contract pursuant to Article 1191 of the NCC.
We note that the agreement entered into by the petitioner and the respondent only contains three items
specifying the parties undertakings. In item no. 5, the parties consented to abide with all the terms and
conditions set forth in this agreement and never violate the same.
Article 1191 of the NCC is clear 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. The respondent cannot be
deprived of his right to demand for rescission in view of the petitioners failure to abide with item nos. 2
and 3 of the agreement. This remains true notwithstanding the absence of express stipulations in the
agreement indicating the consequences of breaches which the parties may commit. To hold otherwise
would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery
by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls
among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is
created as the respondent failed to take material possession of the subject property.
Further, even if we were to assume for arguments sake that the agreement entered into by the
contending parties does not require the delivery of the physical possession of the subject property from
the mortgagors to the respondent, still, the petitioners claim that her execution of an absolute deed of
sale was already sufficient as it already amounted to a constructive delivery of the thing sold which Article
1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor General, we held:
When the sale of real property is made in a public instrument, the execution thereof is equivalent to the
delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly
be inferred.
In other words, there is symbolic delivery of the property subject of the sale by the execution of the public
instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not
the intention of the parties. Such would be the case, for instance, x x x where the vendor has no control
over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been
made.(Underlining supplied and citations omitted)
Stated differently, as a general rule, the execution of a public instrument amounts to a constructive
delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere
presumptive and not conclusive delivery is created in cases where the buyer fails to take material
possession of the subject of sale. A person who does not have actual possession of the thing sold cannot
transfer constructive possession by the execution and delivery of a public instrument.
In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the respondent the
possession of the subject property due to the continued presence and occupation of Parangan and
Lacaden. We find no ample reason to reverse the said findings. Considered in the light of either the
agreement entered into by the parties or the pertinent provisions of law, the petitioner failed in her
undertaking to deliver the subject property to the respondent.
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20, 2009 Decision and July 8,
2009 Resolution of the Court of Appeals, directing the rescission of the agreement and absolute deed of
sale entered into by Estelita Villamar and Balbino Mangaoil and the return of the down payment made for
the purchase of the subject property, are AFFIRMED. However, pursuant to our ruling in Eastern Shipping
Lines, Inc. v. CA, an interest of 12% per annum is imposed on the sum of P185,000.00 to be returned to
Mangaoil to be computed from the date of finality of this Decision until full satisfaction thereof.
SO ORDERED.
No. L-39378. August 28, 1984.*

GENEROSA AYSON-SIMON, plaintiff-appellee, vs. NICOLAS ADAMOS and VICENTA FERIA, defendantsappellants.
Actions; Obligations; Prescription; Contracts; Action for rescission may still be filed after action for specific
performance though successfully granted has become impossible of realization.Article 1191 of the Civil
Code provides that the injured party may also seek rescission, if the fulfillment should become impossible.
The cause of action to claim rescission arises when the fulfillment of the obligation became impossible
when the Court of First Instance of Quezon City in Civil Case No. 174 declared the sale of the land to
defendants by Juan Porciuncula a complete nullity and ordered the cancellation of Transfer Certificate of
Title No. 69475 issued on them. Since the two lots sold to plaintiff by defendants form part of the land
involved in Civil Case No. 174, it became impossible for defendants to secure and deliver the titles to and
the possession of the lots to plaintiff. But plaintiff had to wait for the finality of the decision in Civil Case
No. 174.
Same; Same; Same; The prescriptive period for filing action for rescission of contract is 4 years counted
from the time judgment on prior action for specific performance, which has become impossible to execute,
becomes final.According to the certification of the clerk of the Court of First Instance of Quezon City
(Exhibit E-2), the decision in Civil Case No. 174 became final and executory as per entry of Judgment
dated May 3, 1967 of the Court of Appeals. The action for rescission must be commenced within four
years from that date, May 3, 1967. Since the complaint for rescission was filed on August 16, 1968, the
four year period within which the action must be commenced had not expired.
APPEAL from the decision of the Court of First Instance of Manila, Br. XX.
Wenceslao V. Jarin for plaintiff-appellee.
Arnovit, Lacre & Adamos for defendants-appellants.
MELENCIO-HERRERA, J.:
Originally, this was an appeal by defendants from the Decision of the then Court of First Instance of Manila,
Branch XX, in Civil Case No. 73942, to the Court of Appeals (now Intermediate Appellate Court), which
Tribunal, certified the case to us because the issue is a pure question of law.
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-appellants herein, purchased two
lots forming part of the Piedad Estate in Quezon City, with an area of approximately 56,395 square meters,
from Juan Porciuncula. Sometime thereafter, the successors-in-interest of the latter filed Civil Case No. 174
in the then Court of First Instance of Quezon City for annulment of the sale and the cancellation of Transfer
Certificate of Title No. 69475, which had been issued to defendants-appellants by virtue of the disputed
sale. On December 18, 1963, the Court rendered a Decision annulling the sale, cancelling TCT 69475, and
authorizing the issuance of a new title in favor of Porciunculas successors-in-interest. The said judgment
was affirmed by the Appellate Court and had attained finality.
In the meantime, on May 29, 1946, during the pendency of the above-mentioned case, defendantsappellants sold to GENEROSA Ayson Simon, plaintiff-appellee herein, the two lots in question for P3,800.00
each, plus an additional P800.00 paid subsequently for the purpose of facilitating the issuance of new titles
in GENEROSAs name. Due to the failure of defendants-appellants to comply with their commitment to
have the subdivision plan of the lots approved and to deliver the titles and possession to GENEROSA, the
latter filed suit for specific performance before the Court of First Instance of Quezon City on September 4,
1963 (Civil Case No. Q-7275). On January 20, 1964, said Court ordered:
WHEREFORE, the plaintiff is declared entitled to a summary judgment and the defendants are hereby
ordered to have the subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block No. 3, relocated and
resurveyed and the subdivision plan approved and, if not possible for one reason or another, and in case of
the absence or loss of said subdivision, to cause and effect the subdivision of the said lots and deliver the
titles and possession thereof to the plaintiff. As to the claim and counterclaim for damages, let the hearing
thereon be defer-red until further move by the parties.
However, since execution of the foregoing Order was rendered impossible because of the judgment in Civil
Case No. 174, which earlier declared the sale of the lots in question by Juan Porciuncula to defendantsappellants to be null and void, GENEROSA filed, on August 16, 1968, another suit in the Court of First
Instance of Manila (Civil Case No. 73942) for rescission of the sale with damages. On June 7, 1969, the
Court rendered judgment, the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against defendants, ordering the latter
jointly and severally, to pay the former the sum of P7,600.00, the total amount received by them from her
as purchase price of the two lots, with legal rate of interest from May 29, 1946 until fully paid; another sum
of P800.00, with legal rate of interest from August 1, 1966 until fully paid; the sum of P1,000 for attorneys
fees; and the costs of this suit.
Hence, the appeal before the Appellate Court on the ground that GENEROSAs action had prescribed,
considering that she had only four years from May 29, 1946, the date of sale, within which to rescind said
transaction, and that her complaint for specific performance may be deemed as a waiver of her right to
rescission since the fulfillment and rescission of an obligation are alternative and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge, later Court of Appeals Associate Justice
Luis B. Reyes, correctly resolved the issues, reiterated in the assignments of error on appeal, as follows:
Defendants contend (1) that the fulfillment and the rescission of the obligation in reciprocal ones are
alternative remedies, and plaintiff having chosen fulfillment in Civil Case No. Q-7525, she cannot now seek
rescission; and (2) that even if plaintiff could seek rescission the action to rescind the obligation has
prescribed.
The first contention is without merit. The rule that the injured party can only choose between fulfillment
and rescission of the obligation, and cannot have both, applies when the obligation is possible of
fulfillment. If as in this case, the fulfillment has become impossible, Article 1191 allows the injured party to
seek rescission even after he has chosen fulfillment.
True it is that in Civil Case No. 7275 the Court already rendered a Decision in favor of plaintiff, but since
defendants cannot fulfill their obligation to deliver the titles to and possession of the lots to plaintiff, the
portion of the decision requiring them to fulfill their obligations is without force and effect. Only that
portion relative to the payment of damages remains in the dispositive part of the decision, since in either
case (fulfillment or rescission) defendants may be required to pay damages.
The next question to determine is whether the action to rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the injured party may also seek rescission, if the fulfillment
should become impossible. The cause of action to claim rescission arises when the fulfillment of the
obligation became impossible when the Court of First Instance of Quezon City in Civil Case No. 174
declared the sale of the land to defendants by Juan Porciuncula a complete nullity and ordered the
cancellation of Transfer Certificate of Title No. 69475 issued to them. Since the two lots sold to plaintiff by
defendants form part of the land involved in Civil Case No. 174, it became impossible for defendants to
secure and deliver the titles to and the possession of the lots to plaintiff. But plaintiff had to wait for the
finality of the decision in Civil Case No. 174. According to the certification of the clerk of the Court of First
Instance of Quezon City (Exhibit E-2), the decision in Civil Case No. 174 became final and executory as
per entry of Judgment dated May 3, 1967 of the Court of Appeals. The action for rescission must be
commenced within four years from that date, May 3, 1967. Since the complaint for rescission was filed on
August 16, 1968, the four year period within which the action must be commenced had not expired.
Defendants have the obligation to return to plaintiff the amount of P7,600.00 representing the purchase
price of the two lots, and the amount of P800.00 which they received from plaintiff to expedite the
issuance of titles but which they could not secure by reason of the decision in Civil Case No. 174.
Defendant has to pay interest at the legal rate on the amount of P7,600.00 from May 29, 1946, when they
received the amount upon the execution of the deeds of sale, and legal interest on the P800.00 from
August 1, 1966, when they received the same from plaintiff.
WHEREFORE, the appealed judgment of the former Court of First Instance of Manila, Branch XX, in Civil
Case No. 73942, dated June 7, 1969, is hereby affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
Teehankee, Actg. C.J., Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
Judgment affirmed.
Notes.Inasmuch as the obligations arising from the contract of purchase and sale, Exhibit A, which was
entered into by the plaintiff-appellee and the defendant-appellant are reciprocal, and the former had failed
to comply with that which was incumbent upon him, the latter has the implied right to resolve them, and
he may choose between exacting from the vendor the fulfillment of the obligation or its resolution with
indemnity for damages and payment of interest in either case. (Hodges vs. Granada, 59 Phil. 429.)
The mere failure to fulfill the contract did not operate as a rescission thereof. It was necessary that the
plaintiff take some affirmative action indicating his intention to rescind it. (Guevarra vs. Pascual, 12 Phil.
311.)
A contract, such as a contract of lease with an option to purchase, could not and cannot be resolved by
one party without a judicial decree to afford the other party an opportunity to be heard.
In order to resolve or cancel a contract or a reciprocal obligation by means of or for such breaches, a
judicial action must be brought to secure the resolution of the contract. (Republic vs. Hospital San Juan de
Dios, 84 SCRA 820.)
o0o
G.R. No. 188986.March 20, 2013.*
GALILEO A. MAGLASANG, doing business under the name GL Enterprises, petitioner, vs. NORTHWESTERN
UNIVERSITY, INC., respondent.
Civil Law; Obligations; Reciprocal Obligations; Rescission; The power to rescind the obligations of the
injured party is implied in reciprocal obligations.The power to rescind the obligations of the injured party
is implied in reciprocal obligations, such as in this case. On this score, the CA correctly applied Article
1191, which provides thus: The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him. The injured party may choose between
the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. The two
contracts require no less than substantial breach before they can be rescinded. Since the contracts do not
provide for a definition of substantial breach that would terminate the rights and obligations of the parties,
we apply the definition found in our jurisprudence.
Same; Damages; Attorneys Fees; An award of attorneys fees is proper if one was forced to litigate and
incur expenses to protect ones rights and interest by reason of an unjustified act or omission on the part
of the party from whom the award is sought.With respect to attorneys fees, Article 2208 of the Civil
Code allows the grant thereof when the court deems it just and equitable that attorneys fees should be
recovered. An award of attorneys fees is proper if one was forced to litigate and incur expenses to protect
ones rights and interest by reason of an unjustified act or omission on the part of the party from whom the
award is sought.
Jose Allan N. Maglasang for petitioner.
Tan, Acut, Lopez & Pizon for respondent.
SERENO,C.J.:
Before this Court is a Rule 45 Petition, seeking a review of the 27 July 2009 Court of Appeals (CA) Decision
in CA-G.R. CV No. 88989, which modified the Regional Trial Court (RTC) Decision of 8 January 2007 in Civil
Case No. Q-04-53660. The CA held that petitioner substantially breached its contracts with respondent for
the installation of an integrated bridge system (IBS).
The antecedent facts are as follows:
On 10 June 2004, respondent Northwestern University (Northwestern), an educational institution offering
maritime-related courses, engaged the services of a Quezon City-based firm, petitioner GL Enterprises, to
install a new IBS in Laoag City. The installation of an IBS, used as the students training laboratory, was
required by the Commission on Higher Education (CHED) before a school could offer maritime
transportation programs.
Since its IBS was already obsolete, respondent required petitioner to supply and install specific
components in order to form the most modern IBS that would be acceptable to CHED and would be
compliant with the standards of the International Maritime Organization (IMO). For this purpose, the parties
executed two contracts.
The first contract partly reads:
That in consideration of the payment herein mentioned to be made by the First Party (defendant), the
Second Party agrees to furnish, supply, install and integrate the most modern INTEGRATED BRIDGE
SYSTEM located at Northwestern University MOCK BOAT in accordance with the general conditions, plans
and specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
INTEGRATED BRIDGE SYSTEM
A.2-RADAR SYSTEM
B.OVERHEAD CONSOLE MONITORING SYSTEM
C.ENGINE TELEGRAPH SYSTEM
D.ENGINE CONTROL SYSTEM
E.WEATHER CONTROL SYSTEM
F.ECDIS SYSTEM
G.STEERING WHEEL SYSTEM
H.BRIDGE CONSOLE
TOTAL COST:
PhP 3,800,000.00
LESS: OLD MARITIME

EQUIPMENT TRADE-IN VALUE
DISCOUNT
1,000,000.00
100,000.00
PROJECT COST (MATERIALS

& INSTALLATION)
PhP 2,700,000.00
(Emphasis in the original)

The second contract essentially contains the same terms and conditions as follows:
That in consideration of the payment herein mentioned to be made by the First Party (defendant), the
Second Party agrees to furnish, supply, install & integrate the most modern INTEGRATED BRIDGE SYSTEM
located at Northwestern University MOCK BOAT in accordance with the general conditions, plans and
specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
1.ARPA RADAR SIMULATION ROOM
xxxx
2.GMDSS SIMULATION ROOM
xxxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions: (1) the IBS and its components must be compliant
with the IMO and CHED standard and with manuals for simulators/major equipment; (2) the contracts may
be terminated if one party commits a substantial breach of its undertaking; and (3) any dispute under the
agreement shall first be settled mutually between the parties, and if settlement is not obtained, resort
shall be sought in the courts of law.
Subsequently, Northwestern paid P1 million as down payment to GL Enterprises. The former then assumed
possession of Northwesterns old IBS as trade-in payment for its service. Thus, the balance of the contract
price remained at P1.97 million.
Two months after the execution of the contracts, GL Enterprises technicians delivered various materials to
the project site. However, when they started installing the components, respondent halted the operations.
GL Enterprises then asked for an explanation.
Northwestern justified the work stoppage upon its finding that the delivered equipment were substandard.
It explained further that GL Enterprises violated the terms and conditions of the contracts, since the
delivered components (1) were old; (2) did not have instruction manuals and warranty certificates; (3)
contained indications of being reconditioned machines; and (4) did not meet the IMO and CHED standards.
Thus, Northwestern demanded compliance with the agreement and suggested that GL Enterprises meet
with the formers representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a Complaint for breach of
contract and prayed for the following sums: P1.97 million, representing the amount that it would have
earned, had Northwestern not stopped it from performing its tasks under the two contracts; at least
P100,000 as moral damages; at least P100,000 by way of exemplary damages; at least P100,000 as
attorneys fees and litigation expenses; and cost of suit. Petitioner alleged that Northwestern breached the
contracts by ordering the work stoppage and thus preventing the installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that since the equipment delivered were not
in accordance with the specifications provided by the contracts, all succeeding works would be futile and
would entail unnecessary expenses. Hence, it prayed for the rescission of the contracts and made a
compulsory counterclaim for actual, moral, and exemplary damages, and attorneys fees.
The RTC held both parties at fault. It found that Northwestern unduly halted the operations, even if the
contracts called for a completed project to be evaluated by the CHED. In turn, the breach committed by GL
Enterprises consisted of the delivery of substandard equipment that were not compliant with IMO and
CHED standards as required by the agreement.
Invoking the equitable principle that each party must bear its own loss, the trial court treated the
contracts as impossible of performance without the fault of either party or as having been dissolved by
mutual consent. Consequently, it ordered mutual restitution, which would thereby restore the parties to
their original positions as follows:
Accordingly, plaintiff is hereby ordered to restore to the defendant all the equipment obtained by reason of
the First Contract and refund the downpayment of P1,000,000.00 to the defendant; and for the defendant
to return to the plaintiff the equipment and materials it withheld by reason of the non-continuance of the
installation and integration project. In the event that restoration of the old equipment taken from
defendants premises is no longer possible, plaintiff is hereby ordered to pay the appraised value of
defendants old equipment at P1,000,000.00. Likewise, in the event that restoration of the equipment and
materials delivered by the plaintiff to the defendant is no longer possible, defendant is hereby ordered to
pay its appraised value at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all the equipment obtained by reason of the
Second Contract, or if restoration or return is not possible, plaintiff is ordered to pay the value thereof to
the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them pointing a finger at the other party as the
violator of the contracts, the appellate court ultimately determined that GL Enterprises was the one guilty
of substantial breach and liable for attorneys fees.
The CA appreciated that since the parties essentially sought to have an IBS compliant with the CHED and
IMO standards, it was GL Enterprises delivery of defective equipment that materially and substantially
breached the contracts. Although the contracts contemplated a completed project to be evaluated by
CHED, Northwestern could not just sit idly by when it was apparent that the components delivered were
substandard.
The CA held that Northwestern only exercised ordinary prudence to prevent the inevitable rejection of the
IBS delivered by GL Enterprises. Likewise, the appellate court disregarded petitioners excuse that the
equipment delivered might not have been the components intended to be installed, for it would be
contrary to human experience to deliver equipment from Quezon City to Laoag City with no intention to
use it.
This time, applying Article 1191 of the Civil Code, the CA declared the rescission of the contracts. It then
proceeded to affirm the RTCs order of mutual restitution. Additionally, the appellate court granted P50,000
to Northwestern by way of attorneys fees.
Before this Court, petitioner rehashes all the arguments he had raised in the courts a quo. He maintains his
prayer for actual damages equivalent to the amount that he would have earned, had respondent not
stopped him from performing his tasks under the two contracts; moral and exemplary damages; attorneys
fees; litigation expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is whether the CA gravely erred in (1)
finding substantial breach on the part of GL Enterprises; (2) refusing petitioners claims for damages, and
(3) awarding attorneys fees to Northwestern.
Ruling of the Court
Substantial Breaches of the
Contracts
Although the RTC and the CA concurred in ordering restitution, the courts a quo, however, differed on the
basis thereof. The RTC applied the equitable principle of mutual fault, while the CA applied Article 1191 on
rescission.
The power to rescind the obligations of the injured party is implied in reciprocal obligations, such as in this
case. On this score, the CA correctly applied Article 1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
The two contracts require no less than substantial breach before they can be rescinded. Since the
contracts do not provide for a definition of substantial breach that would terminate the rights and
obligations of the parties, we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang that substantial, unlike slight or casual breaches of contract, are
fundamental breaches that defeat the object of the parties in entering into an agreement, since the law is
not concerned with trifles.
The question of whether a breach of contract is substantial depends upon the attending circumstances.
In the case at bar, the parties explicitly agreed that the materials to be delivered must be compliant with
the CHED and IMO standards and must be complete with manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the intent of the parties was to replace the old IBS in order
to obtain CHED accreditation for Northwesterns maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as amended by CMO No. 13, Series
of 2005, any simulator used for simulator-based training shall be capable of simulating the operating
capabilities of the shipboard equipment concerned. The simulation must be achieved at a level of physical
realism appropriate for training objectives; include the capabilities, limitations and possible errors of such
equipment; and provide an interface through which a trainee can interact with the equipment, and the
simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the components that would
create an IBS that would effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility. As contained in the findings of the
CA and the RTC, petitioner supplied substandard equipment when it delivered components that (1) were
old; (2) did not have instruction manuals and warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not have met the IMO and CHED standards. Highlighting
the defects of the delivered materials, the CA quoted respondents testimonial evidence as follows:
Q:In particular which of these equipment of CHED requirements were not complied with?
A:The Radar Maam, because they delivered only 10-inch PPI, that is the monitor of the Radar. That is 16inch and the gyrocompass with two (2) repeaters and the history card. The gyrocompassthere is no
marker, there is no model, there is no serial number, no gimbal, no gyroscope and a bulb to work it
properly to point the true North because it is very important to the Cadets to learn where is the true North
being indicated by the Master Gyrocompass.
x x x x
Q:Mr. Witness, one of the defects you noted down in this history card is that the master gyrocompass
had no gimbals, gyroscope and balls and was replaced with an ordinary electric motor. So what is the
Implication of this?
A:Because those gimbals, balls and the gyroscope it let the gyrocompass to work so it will point the true
North but they being replaced with the ordinary motor used for toys so it will not indicate the true North.
Q:So what happens if it will not indicate the true North?
A:It is very big problem for my cadets because they must[,] to learn into school where is the true North
and what is that equipment to be used on board.
Q:One of the defects is that the steering wheel was that of an ordinary automobile. And what is the
implication of this?
A:Because on board Maam, we are using the real steering wheel and the cadets will be implicated if they
will notice that the ship have the same steering wheel as the car so it is not advisable for them.
Q:And another one is that the gyrocompass repeater was only refurbished and it has no serial number.
What is wrong with that?
A:It should be original Maam because this gyro repeater, it must to repeat also the true [N]orth being
indicated by the Master Gyro Compass so it will not work properly, I dont know it will work properly.
(Underscoring supplied)
Evidently, the materials delivered were less likely to pass the CHED standards, because the navigation
system to be installed might not accurately point to the true north; and the steering wheel delivered was
one that came from an automobile, instead of one used in ships. Logically, by no stretch of the imagination
could these form part of the most modern IBS compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the equipment it delivered was
substandard. However, it reiterates its rejected excuse that Northwestern should have made an
assessment only after the completion of the IBS. Thus, petitioner stresses that it was Northwestern that
breached the agreement when the latter halted the installation of the materials for the IBS, even if the
parties had contemplated a completed project to be evaluated by CHED. However, as aptly considered by
the CA, respondent could not just sit still and wait for such day that its accreditation may not be granted
by CHED due to the apparent substandard equipment installed in the bridge system. The appellate court
correctly emphasized that, by that time, both parties would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts, the materials that were hauled all the
way from Quezon City to Laoag City under the custody of the four designated installers might not have
been the components to be used. Without belaboring the point, we affirm the conclusion of the CA and the
RTC that the excuse is untenable for being contrary to human experience.
Given that petitioner, without justification, supplied substandard components for the new IBS, it is thus
clear that its violation was not merely incidental, but directly related to the essence of the agreement
pertaining to the installation of an IBS compliant with the CHED and IMO standards. Consequently, the CA
correctly found substantial breach on the part of petitioner.
In contrast, Northwesterns breach, if any, was characterized by the appellate court as slight or casual. By
way of negative definition, a breach is considered casual if it does not fundamentally defeat the object of
the parties in entering into an agreement. Furthermore, for there to be a breach to begin with, there must
be a failure, without legal excuse, to perform any promise which forms the whole or part of the contract.
Here, as discussed, the stoppage of the installation was justified. The action of Northwestern constituted a
legal excuse to prevent the highly possible rejection of the IBS. Hence, just as the CA concluded, we find
that Northwestern exercised ordinary prudence to avert a possible wastage of time, effort, resources and
also of the P2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorneys Fees
As between the parties, substantial breach can clearly be attributed to GL Enterprises. Consequently, it is
not the injured party who can claim damages under Article 1170 of the Civil Code. For this reason, we
concur in the result of the CAs Decision denying petitioner actual damages in the form of lost earnings, as
well as moral and exemplary damages.
With respect to attorneys fees, Article 2208 of the Civil Code allows the grant thereof when the court
deems it just and equitable that attorneys fees should be recovered. An award of attorneys fees is proper
if one was forced to litigate and incur expenses to protect ones rights and interest by reason of an
unjustified act or omission on the part of the party from whom the award is sought.
Since we affirm the CAs finding that it was not Northwestern but GL Enterprises that breached the
contracts without justification, it follows that the appellate court correctly awarded attorneys fees to
respondent. Notably, this litigation could have altogether been avoided if petitioner heeded respondents
suggestion to amicably settle; or, better yet, if in the first place petitioner delivered the right materials as
required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in CA-G.R. CV No. 88989 is
hereby AFFIRMED.
SO ORDERED.
G.R. No. 188064.June 1, 2011.*

MILA A. REYES, petitioner, vs. VICTORIA T. TUPARAN, respondent.
Civil Law; Sales; Contract to Sell; 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 event that prevents the
petitioner from being bound to convey title to the respondent.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 event that prevents the petitioner from being bound
to convey title to the respondent.
Same; Contracts; Rescission; Rescission is allowed only when the breach of the contract is substantial and
fundamental to 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 fulfillment of the obligation.
Whether the breach is slight or substantial is largely determined by the attendant circumstances.
Venustiano S. Roxas & Associates Law Office for petitioner.
Alentajan Law Office for respondent.
Aireen D. Sison co-counsel for respondent.
MENDOZA,J.:
Subject of this petition for review is the February 13, 2009 Decision of the Court of Appeals (CA) which
affirmed with modification the 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, Valenzuela City, 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 P4,000.00. 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 P2,000,000.00 payable in installments. On November 15, 1990,
petitioners outstanding account on the mortgage reached P2,278,078.13. Petitioner then decided to sell
her real properties for at least P6,500,000.00 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 P4,200,000.00 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 P6,500,000.00 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 P8,000.00 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 paid of the total purchase price of P4,200,000.00.
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 P1.2 million pesos without interest as part of the purchase price in
three (3) fixed installments as follows:
a)P200,000.00 due January 31, 1991
b)P200,000.00 due June 30, 1991
c)P800,000.00 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 of August 31, 1992, respondent had only paid P395,000.00, leaving a
balance of P805,000.00 as principal on the unpaid installments and P466,893.25 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 P8,000.00 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 P751,000.00 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 P2,278,078.13 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 P4,200,000.00, the agreed purchase price of the subject real properties, and she had even introduced
improvements thereon worth more than P4,800,000.00. 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 P400,000.00 with interest and took several pieces of jewelry worth P120,000.00.
Petitioner also failed and refused to pay the monthly rental of P20,000.00 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 P470,000.00 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
P4.2 million total purchase price of the subject real properties leaving a balance of P805,000.00. 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 P1,200,000.00. 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 non-payment 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 parties in entering into the contract.4 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 P751,000.00 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
P805,000.00, 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 P8,000.00; 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.
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 P805,000.00 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 P4,200,000.00, respondents
remaining unpaid balance was only P805,000.00. 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 plaintiffappellee/appellant Mila A. Reyes, within 30 days from finality of this Decision, the amount of P805,000.00
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.
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 P805,000.00 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
P805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF P4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF P1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT
OF APPEALS AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NONPAYMENT OF THE P805,000.00 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 P805,000.00 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 P805,000.00 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 P805,000.00 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 P805,000.00 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 P29,609.00 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 rescindingnot enforcingthe subject Deed of Conditional Sale pursuant to Article
1191 of the Civil Code because of the respondents failure/refusal to pay the P805,000.00 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 P1,200,000.00 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 P805,000.00 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 P29,609.00 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 P2,000,000.00. 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 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
event that prevents the petitioner from being bound to 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.
x x xx x xx x x
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 non-existent,
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, 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 non-payment 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 P4,200,000.00, the remaining unpaid balance of Tuparan
(respondent) is only P805,000.00, a substantial amount of the purchase price has already been paid. It is
only right and just to 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 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 P4,200,000.00 shall be paid as follows:
a)P278,078.13 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 P2,000,000.00 only as of
November 15, 1990;
b)P721,921.87 received in cash by the First Party as additional payment of the Second Party;
c)P1,200,000.00 to be paid in installments as follows:
1.P200,000.00 payable on or before January 31,
1991;
2.P200,000.00 payable on or before June 30, 1991;
3.P800,000.00 payable on or before December 31,
1991;
Note: All the installments shall not bear any
interest.
d) P2,000,000.00 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 P2,000,000.00 as of
November 15, 1990 to be assumed by 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 P2,278,078.13, 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 P721,921.87 representing the
additional payment for the purchase of the subject property. Clearly, out of the total price of
P4,200,000.00, respondent was able to pay the total amount of P3,000,000.00, leaving a balance of
P1,200,000.00 payable in three (3) installments.
Out of the P1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of P200,000.00 each. She, however, failed to pay the third and last installment of P800,000.00
due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel, offered to
pay the amount of P751,000.00, which was rejected by petitioner for the reason that the actual balance
was P805,000.00 excluding the interest charges.
Considering that out of the total purchase price of P4,200,000.00, respondent has already paid the
substantial amount of P3,400,000.00, more or less, leaving an unpaid balance of only P805,000.00, 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 P751,000.00.
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 P805,000.00 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 the petitioner. In the case of Heirs of Atienza v.
Espidol,13 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.
G.R. No. 147695. September 13, 2007.*

MANUEL C. PAGTALUNAN, petitioner, vs. RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
Sales; Realty Installment Buyer Protection Act (Maceda Law); Rescission; R.A. No. 6552, otherwise known
as the Realty Installment Buyer Protection Act, recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which cancellation may be done outside the court particularly when the buyer
agrees to such cancellation provided that such cancellation by the seller must be in accordance with Sec.
3(b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full
payment of the cash surrender value of the payments on the property.R.A. No. 6552, otherwise known as
the Realty Installment Buyer Protection Act, recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon nonpayment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force. The Court agrees with petitioner that the cancellation of the Contract to
Sell may be done outside the court particularly when the buyer agrees to such cancellation. However, the
cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No. 6552, which
requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender
value of the payments on the property. Actual cancellation of the contract takes place after 30 days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.
Same; Same; Same; Actions; Annulment of Contract; A demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial act required by R.A. No. 6552; An action for annulment
of contract is a kindred concept of rescission by notarial act while a case for unlawful detainer is not.The
Court, however, finds that the letter dated February 24, 1997, which was written by petitioners counsel,
merely made formal demand upon respondent to vacate the premises in question within five days from
receipt thereof since she had long ceased to have any right to possess the premises x x x due to [her]
failure to pay without justifiable cause the installment payments x x x. Clearly, the demand letter is not
the same as the notice of cancellation or demand for rescission by a notarial act required by R.A No. 6552.
Petitioner cannot rely on Layug v. Intermediate Appellate Court, 167 SCRA 627 (1988), to support his
contention that the demand letter was sufficient compliance. Layug held that the additional formality of a
demand on [the sellers] part for rescission by notarial act would appear, in the premises, to be merely
circuitous and consequently superfluous since the seller therein filed an action for annulment of contract,
which is a kindred concept of rescission by notarial act. Evidently, the case of unlawful detainer filed by
petitioner does not exempt him from complying with the said requirement.
Same; Same; Same; Equity; The Court notes that this case has been pending for more than ten years, and
since both parties prayed for other reliefs that are just and equitable under the premises, hence, the rights
of the parties over the subject property shall be resolved to finally dispose of that issue in this case.The
Court notes that this case has been pending for more than ten years. Both parties prayed for other reliefs
that are just and equitable under the premises. Hence, the rights of the parties over the subject property
shall be resolved to finally dispose of that issue in this case. Considering that the Contract to Sell was not
cancelled by the vendor, Patricio, during his lifetime or by petitioner in accordance with R.A. No. 6552
when petitioner filed this case of unlawful detainer after 22 years of continuous possession of the property
by respondent who has paid the substantial amount of P12,300 out of the purchase price of P17,800, the
Court agrees with the CA that it is only right and just to allow respondent to pay her arrears and settle the
balance of the purchase price. For respondents delay in the payment of the installments, the Court, in its
discretion, and applying Article 2209 of the Civil Code, may award interest at the rate of 6% per annum on
the unpaid balance considering that there is no stipulation in the Contract to Sell for such interest. For
purposes of computing the legal interest, the reckoning period should be the filing of the complaint for
unlawful detainer on April 8, 1997.
Roderick P. Vera for petitioner.
Rodolfo G. Tablante for respondent.
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the Court of Appeals (CA)
Decision promulgated on October 30, 2000 and its Resolution dated March 23, 2001 denying petitioners
motion for reconsideration. The Decision of the CA affirmed the Decision of the Regional Trial Court (RTC) of
Malolos, Bulacan, dated June 25, 1999 dismissing the case of unlawful detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioners stepfather and predecessor-in-interest, entered
into a Contract to Sell with respondent, wife of Patricios former mechanic, Teodoro Manzano, whereby the
former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land, covered
by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929 [T-254773]), with an area of 236
square meters. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as
downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly
installments of P150 on or before the last day of each month until fully paid.
It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in
case of default in the payment of any of the installments for 90 days after its due date, the contract would
be automatically rescinded without need of judicial declaration, and that all payments made and all
improvements done on the premises by respondent would be considered as rentals for the use and
occupation of the property or payment for damages suffered, and respondent was obliged to peacefully
vacate the premises and deliver the possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979
without any justification or explanation. Moreover, in a Kasunduan dated November 18, 1979,
respondent borrowed P3,000 from Patricio payable in one year either in one lump sum payment or by
installments, failing which the balance of the loan would be added to the principal subject of the monthly
amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying her installments, her status of buyer was
automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere
tolerance of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly installments religiously, until sometime
in 1980 when Patricio changed his mind and offered to refund all her payments provided she would
surrender the house. She refused. Patricio then started harassing her and began demolishing the house
portion by portion. Respondent admitted that she failed to pay some installments after December 1979,
but that she resumed paying in 1980 until her balance dwindled to P5,650. She claimed that despite
several months of delay in payment, Patricio never sued for ejectment and even accepted her late
payments.
Respondent also averred that on September 14, 1981, she and Patricio signed an agreement (Exh. 2)
whereby he consented to the suspension of respondents monthly payments until December 1981.
However, even before the lapse of said period, Patricio resumed demolishing respondents house,
prompting her to lodge a complaint with the Barangay Captain who advised her that she could continue
suspending payment even beyond December 31, 1981 until Patricio returned all the materials he took from
her house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio P5,650, but claimed that she did not resume paying
her monthly installment because of the unlawful acts committed by Patricio, as well as the filing of the
ejectment case against her. She denied having any knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October 17, 1994, respectively. Petitioner became
their sole successor-in-interest pursuant to a waiver by the other heirs. On March 5, 1997, respondent
received a letter from petitioners counsel dated February 24, 1997 demanding that she vacate the
premises within five days on the ground that her possession had become unlawful. Respondent ignored the
demand. The Punong Barangay failed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer against respondent with the Municipal
Trial Court (MTC) of Guiguinto, Bulacan praying that, after hearing, judgment be rendered ordering
respondent to immediately vacate the subject property and surrender it to petitioner; forfeiting the amount
of P12,950 in favor of petitioner as rentals; ordering respondent to pay petitioner the amount of P3,000
under the Kasunduan and the amount of P500 per month from January 1980 until she vacates the
property, and to pay petitioner attorneys fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of petitioner. It stated that although the
Contract to Sell provides for a rescission of the agreement upon failure of the vendee to pay any
installment, what the contract actually allows is properly termed a resolution under Art. 1191 of the Civil
Code.
The MTC held that respondents failure to pay not a few installments caused the resolution or termination
of the Contract to Sell. The last payment made by respondent was on January 9, 1980 (Exh. 71).
Thereafter, respondents right of possession ipso facto ceased to be a legal right, and became possession
by mere tolerance of Patricio and his successors-ininterest. Said tolerance ceased upon demand on
respondent to vacate the property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is hereby rendered, ordering the defendant:
a. to vacate the property covered by Transfer Certificate of Title No. T-10029 of the Register of Deeds of
Bulacan (now TCT No. RT-59929 of the Register of Deeds of Bulacan), and to surrender possession thereof
to the plaintiff;
b. to pay the plaintiff the amount of P113,500 representing rentals from January 1980 to the present;
c. to pay the plaintiff such amount of rentals, at P500/month, that may become due after the date of
judgment, until she finally vacates the subject property;
d. to pay to the plaintiff the amount of P25,000 as attorneys fees.
SO ORDERED.
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999, reversed the decision of the
MTC and dismissed the case for lack of merit. According to the RTC, the agreement could not be
automatically rescinded since there was delivery to the buyer. A judicial determination of rescission must
be secured by petitioner as a condition precedent to convert the possession de facto of respondent from
lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the decision of the Municipal Trial Court of
Guiguinto, Bulacan and the ejectment case instead be dismissed for lack of merit.
The motion for reconsideration and motion for execution filed by petitioner were denied by the RTC for lack
of merit in an Order dated August 10, 1999.
Thereafter, petitioner filed a petition for review with the CA.
In a Decision promulgated on October 30, 2000, the CA denied the petition and affirmed the Decision of
the RTC. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review on certiorari is Denied. The assailed Decision of the Regional Trial
Court of Malolos, Bulacan dated 25 June 1999 and its Order dated 10 August 1999 are hereby AFFIRMED.
SO ORDERED.
The CA found that the parties, as well as the MTC and RTC failed to advert to and to apply Republic Act
(R.A.) No. 6552, more commonly referred to as the Maceda Law, which is a special law enacted in 1972 to
protect buyers of real estate on installment payments against onerous and oppressive conditions.
The CA held that the Contract to Sell was not validly cancelled or rescinded under Sec. 3 (b) of R.A. No.
6552, and recognized respondents right to continue occupying unmolested the property subject of the
contract to sell.
The CA denied petitioners motion for reconsideration in a Resolution dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:
A. Respondent Dela Cruz must bear the consequences of her deliberate withholding of, and refusal to pay,
the monthly payment. The Court of Appeals erred in allowing Dela Cruz who acted in bad faith from
benefiting under the Maceda Law.
B. The Court of Appeals erred in resolving the issue on the applicability of the Maceda Law, which issue
was not raised in the proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling that the MTC has no jurisdiction over a rescission
case, the Court of Appeals erred in not remanding the case to the RTC for trial.
Petitioner submits that the Maceda Law supports and recognizes the right of vendors of real estate to
cancel the sale outside of court, without need for a judicial declaration of rescission, citing Luzon Brokerage
Co., Inc. v. Maritime Building Co., Inc.
Petitioner contends that respondent also had more than the grace periods provided under the Maceda Law
within which to pay. Under Sec. 3 of the said law, a buyer who has paid at least two years of installments
has a grace period of one month for every year of installment paid. Based on the amount of P12,950 which
respondent had already paid, she is entitled to a grace period of six months within which to pay her unpaid
installments after December, 1979. Respondent was given more than six months from January 1980 within
which to settle her unpaid installments, but she failed to do so. Petitioners demand to vacate was sent to
respondent in February 1997.
There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right to pay arrearages
after the grace periods have lapsed, in the event of an invalid demand for rescission. The Maceda Law only
provides that actual cancellation shall take place after 30 days from receipt of the notice of cancellation or
demand for rescission and upon full payment of the cash surrender value to the buyer.
Petitioner contends that his demand letter dated February 24, 1997 should be considered the notice of
cancellation since the demand letter informed respondent that she had long ceased to have any right to
possess the premises in question due to [her] failure to pay without justifiable cause. In support of his
contention, he cited Layug v. Intermediate Appellate Court which held that the additional formality of a
demand on [the sellers] part for rescission by notarial act would appear, in the premises, to be merely
circuitous and consequently superfluous. He stated that in Layug, the seller already made a written
demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value respondent is entitled to have been
applied and must be applied to rentals for her use of the house and lot after December, 1979 or after she
stopped payment of her installments.
Petitioner argues that assuming Patricio accepted respondents delayed installments in 1981, such act
cannot prevent the cancellation of the Contract to Sell. Installments after 1981 were still unpaid and the
applicable grace periods under the Maceda Law on the unpaid installments have long lapsed. Respondent
cannot be allowed to hide behind the Maceda Law. She acted with bad faith and must bear the
consequences of her deliberate withholding of and refusal to make the monthly payments.
Petitioner also contends that the applicability of the Maceda Law was never raised in the proceedings
below; hence, it should not have been applied by the CA in resolving the case.
The Court is not persuaded.
The CA correctly ruled that R.A No. 6552, which governs sales of real estate on installment, is applicable in
the resolution of this case.
This case originated as an action for unlawful detainer. Respondent is alleged to be illegally withholding
possession of the subject property after the termination of the Contract to Sell between Patricio and
respondent. It is, therefore, incumbent upon petitioner to prove that the Contract to Sell had been
cancelled in accordance with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended
by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.
(b)If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made and, after five years of
installments, an additional five percent every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.
R.A. No. 6552, otherwise known as the Realty Installment Buyer Protection Act, recognizes in conditional
sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. The Court agrees with petitioner that
the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees
to such cancellation.
However, the cancellation of the contract by the seller must be in accordance with Sec. 3 (b) of R.A. No.
6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash
surrender value of the payments on the property. Actual cancellation of the contract takes place after 30
days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by
a notarial act and upon full payment of the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was not validly cancelled or rescinded under Sec. 3
(b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 without canceling the
Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in accordance with law.
Petitioner contends that he has complied with the requirements of cancellation under Sec. 3 (b) of R.A. No.
6552. He asserts that his demand letter dated February 24, 1997 should be considered as the notice of
cancellation or demand for rescission by notarial act and that the cash surrender value of the payments on
the property has been applied to rentals for the use of the house and lot after respondent stopped
payment after January 1980.
The Court, however, finds that the letter dated February 24, 1997, which was written by petitioners
counsel, merely made formal demand upon respondent to vacate the premises in question within five days
from receipt thereof since she had long ceased to have any right to possess the premises x x x due to
[her] failure to pay without justifiable cause the installment payments x x x.
Clearly, the demand letter is not the same as the notice of cancellation or demand for rescission by a
notarial act required by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate Court to
support his contention that the demand letter was sufficient compliance. Layug held that the additional
formality of a demand on [the sellers] part for rescission by notarial act would appear, in the premises, to
be merely circuitous and consequently superfluous since the seller therein filed an action for annulment
of contract, which is a kindred concept of rescission by notarial act. Evidently, the case of unlawful
detainer filed by petitioner does not exempt him from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value of the payments on the
property to the buyer before cancellation of the contract. The provision does not provide a different
requirement for contracts to sell which allow possession of the property by the buyer upon execution of the
contract like the instant case. Hence, petitioner cannot insist on compliance with the requirement by
assuming that the cash surrender value payable to the buyer had been applied to rentals of the property
after respondent failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the CA correctly recognized respondents right to
continue occupying the property subject of the Contract to Sell and affirmed the dismissal of the unlawful
detainer case by the RTC.
The Court notes that this case has been pending for more than ten years. Both parties prayed for other
reliefs that are just and equitable under the premises. Hence, the rights of the parties over the subject
property shall be resolved to finally dispose of that issue in this case.
Considering that the Contract to Sell was not cancelled by the vendor, Patricio, during his lifetime or by
petitioner in accordance with R.A. No. 6552 when petitioner filed this case of unlawful detainer after 22
years of continuous possession of the property by respondent who has paid the substantial amount of
P12,300 out of the purchase price of P17,800, the Court agrees with the CA that it is only right and just to
allow respondent to pay her arrears and settle the balance of the purchase price.
For respondents delay in the payment of the installments, the Court, in its discretion, and applying Article
2209 of the Civil Code, may award interest at the rate of 6% per annum on the unpaid balance considering
that there is no stipulation in the Contract to Sell for such interest. For purposes of computing the legal
interest, the reckoning period should be the filing of the complaint for unlawful detainer on April 8, 1997.
Based on respondents evidence of payments made, the MTC found that respondent paid a total of P12,300
out of the purchase price of P17,800. Hence, respondent still has a balance of P5,500, plus legal interest at
the rate of 6% per annum on the unpaid balance starting April 8, 1997.
The third issue is disregarded since petitioner assails an inexistent ruling of the RTC on the lack of
jurisdiction of the MTC over a rescission case when the instant case he filed is for unlawful detainer.
WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000 sustaining the dismissal of the
unlawful detainer case by the RTC is AFFIRMED with the following MODIFICATIONS:
1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner Manuel C. Pagtalunan the balance of
the purchase price in the amount of Five Thousand Five Hundred Pesos (P5,500) plus interest at 6% per
annum from April 8, 1997 up to the finality of this judgment, and thereafter, at the rate of 12% per annum;
2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of Absolute Sale of the subject
property and deliver the certificate of title in favor of respondent Rufina Dela Cruz Vda. de Manzano; and
3. In case of failure to pay within 60 days from finality of this Decision, respondent Rufina Dela Cruz Vda.
de Manzano shall immediately vacate the premises without need of further demand, and the
downpayment and installment payments of P12,300 paid by her shall constitute rental for the subject
property.
No costs.
SO ORDERED.
G.R. No. 152346. November 25, 2005.*

ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS, petitioners, vs. SAN FRANCISCO DEL MONTE, INC.,
respondent.
Sales; Maceda Law (R.A. No. 6552); Installment Sales; The cancellation of the contract under Section 4 of
R.A. 6552 is a two-step processfirst the seller should extend the buyer a grace period of at least 60 days
from the due date of the installment, and, second, at the end of the grace period, the seller shall furnish
the buyer with a notice of cancellation or demand for rescission through a notarial act, effective 30 days
from the buyers receipt thereof.Petitioners defaulted in all monthly installments. They may be credited
only with the amount of P30,000.00 paid upon the execution of Contract to Sell No. 2482-V, which should
be deemed equivalent to less than two (2) years installments. Given the nature of the contract between
petitioners and Del Monte, the applicable legal provision on the mode of cancellation of Contract to Sell No.
2482-V is Section 4 and not Section 3 of R.A. 6552. Section 4 is applicable to instances where less than two
years installments were paid. It reads: SECTION 4. In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller
may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. Thus, the cancellation of the contract under Section
4 is a two-step process. First, the seller should extend the buyer a grace period of at least sixty (60) days
from the due date of the installment. Second, at the end of the grace period, the seller shall furnish the
buyer with a notice of cancellation or demand for rescission through a notarial act, effective thirty (30)
days from the buyers receipt thereof. It is worth mentioning, of course, that a mere notice or letter, short
of a notarial act, would not suffice.
Same; Same; Same; An automatic cancellation clause contrary to R.A. No. 6552 is void.While the Court
concedes that Del Monte had allowed petitioners a grace period longer than the minimum sixty (60)-day
requirement under Section 4, it did not comply, however, with the requirement of notice of cancellation or
a demand for rescission. Instead, Del Monte applied the automatic rescission clause of the contract.
Contrary, however, to Del Montes position which the appellate court sustained, the automatic cancellation
clause is void under Section 7 in relation to Section 4 of R.A. 6552.
Same; Same; Same; Novation; Novation is extinctive when an old obligation is terminated by the creation
of a new obligation that takes the place of the former, and it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement.Novation, in its broad
concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by
the creation of a new obligation that takes the place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions (objective or real), or by substituting
the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal).
Under this mode, novation would have dual functionsone to extinguish an existing obligation, the other
to substitute a new one in its placerequiring a conflux of four essential requisites: (1) a previous valid
obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.
Same; Same; Same; Same; In order that an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.In order that an obligation may be
extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible with each other. The test of
incompatibility is whether or not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first. The execution of
Contract to Sell No. 2491-V created new obligations in lieu of those under Contract to Sell No. 2482-V,
which are already considered extinguished upon the execution of the second contract. The two contracts
do not have independent existence for to hold otherwise would present an absurd situation where the
parties would be liable under each contract having only one subject matter.
Sales; Contracts; Unenforceable Contracts; Husband and Wife; Conjugal Properties; Any transaction
entered by the wife without the court or the husbands authority is unenforceable.While the husband is
the recognized administrator of the conjugal property under the Civil Code, there are instances when the
wife may assume administrative powers or ask for the separation of property. In the above-mentioned
instances, the wife must be authorized either by the court or by the husband. Where the husband is absent
and incapable of administering the conjugal property, the wife must be expressly authorized by the
husband or seek judicial authority to assume powers of administration. Thus, any transaction entered by
the wife without the court or the husbands authority is unenforceable in accordance with Article 1317 of
the Civil Code. That is the status to be accorded Contract to Sell No. 2491-V, it having been executed by
petitioner Marcelina without her husbands conformity.
Same; Same; Same; Unenforceable contracts are susceptible to ratification.Being an unenforceable
contract, Contract to Sell No. 2491-V is susceptible to ratification. As found by the courts below, after being
informed of the execution of the contract, the husband, petitioner Isaias Fabrigas, continued remitting
payments for the satisfaction of the obligation under Contract to Sell No. 2491-V. These acts constitute
ratification of the contract. Such ratification cleanses the contract from all its defects from the moment it
was constituted. The factual findings of the courts below are beyond review at this stage.
Same; Same; Contracts of Adhesion; Words and Phrases; A contract of adhesion is so-called because its
terms are prepared by only one party while the other party merely affixes his signature signifying his
adhesion thereto; The characterization of a contract as a contract of adhesion does not automatically
render it void.Anent Del Montes claim that Contract to Sell No. 2491-V is a contract of adhesion, suffice
it to say that assuming for the nonce that the contract is such the characterization does not automatically
render it void. A contract of adhesion is so-called because its terms are prepared by only one party while
the other party merely affixes his signature signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who enter into such contracts are free to
reject the stipulations entirely.
Belo, Gozon, Parel, Asuncion & Lucila for petitioners.
Feria, Feria, LaO, Tantoco for respondent.
TINGA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
which assails the Decision of the Court of Appeals in CA-G.R. CV No. 45203 and its Resolution therein
denying petitioners motion for reconsideration. Said Decision affirmed the Decision dated January 3, 1994
of the Regional Trial Court (RTC), Branch 63, Makati City in Civil Case No. 90-2711 entitled San Francisco
Del Monte, Inc. v. Isaias F. Fabrigas and Marcelina R. Fabrigas.
The dispositive portion of the trial courts Decision reads:
In the light of the foregoing, the Court is convinced that plaintiff has proven by preponderance of
evidence, the allegation appearing in its complaint and is therefore, entitled to the reliefs prayed for.
Considering, however, that defendants had already paid P78,152.00, the Court exercising its discretion,
hereby renders judgment as follows:
1. Ordering defendant to make complete payment under the conditions of Contract to Sell No. 2491-V
dated January 21, 1985, within twenty days from receipt of this Decision, and in the event that defendant
fail or refuse to observe the latter, defendants and all persons claiming right of possession or occupation
from defendants are ordered to vacate and leave the premises, described as Lot No. 9 Block No. 3 of
Subdivision Plan (LRC) Psd-50064 covered by Transfer Certificate of Title No. 4980 (161653) T-1083 of the
Registry of Deeds of Rizal, and to surrender possession thereof to plaintiff or any of its authorized
representatives;
2. That in the event that defendants chose to surrender possession of the property, they are further
ordered to pay plaintiff P206,223.80 as unpaid installments on the land inclusive of interests;
3. Ordering defendants to jointly and severally pay plaintiff the amount of P10,000.00 as and for attorneys
fees; and
4. Ordering defendants to pay the costs of suit.

SO ORDERED.
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas (Spouses Fabrigas or
petitioners) and respondent San Francisco Del Monte, Inc. (Del Monte) entered into an agreement,
denominated as Contract to Sell No. 2482-V, whereby the latter agreed to sell to Spouses Fabrigas a parcel
of residential land situated in Barrio Almanza, Las Pias, Manila for and in consideration of the amount of
P109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC) Psd-50064,
is covered by Transfer Certificate of Title No. 4980 (161653) T-1083 registered in the name of respondent
Del Monte. The agreement stipulated that Spouses Fabrigas shall pay P30,000.00 as downpayment and the
balance within ten (10) years in monthly successive installments of P1,285.69. Among the clauses in the
contract is an automatic cancellation clause in case of default, which states as follows:
7. Should the PURCHASER fail to make any of the payments including interest as herein provided, within 30
days after the due date, this contract will be deemed and considered as forfeited and annulled without
necessity of notice to the PURCHASER, and said SELLER shall be at liberty to dispose of the said parcel of
land to any other person in the same manner as if this contract had never been executed. In the event of
such forfeiture, all sums of money paid under this contract will be considered and treated as rentals for the
use of said parcel of land, and the PURCHASER hereby waives all right to ask or demand the return thereof
and agrees to peaceably vacate the said premises.
After paying P30,000.00, Spouses Fabrigas took possession of the property but failed to make any
installment payments on the balance of the purchase price. Del Monte sent demand letters on four
occasions to remind Spouses Fabrigas to satisfy their contractual obligation. In particular, Del Montes third
letter dated November 9, 1983 demanded the payment of arrears in the amount of P8,999.00. Said notice
granted Spouses Fabrigas a fifteen-day grace period within which to settle their accounts. Petitioners
failure to heed Del Montes demands prompted the latter to send a final demand letter dated December 7,
1983, granting Spouses Fabrigas another grace period of fifteen days within which to pay the overdue
amount and warned them that their failure to satisfy their obligation would cause the rescission of the
contract and the forfeiture of the sums of money already paid. Petitioners received Del Montes final
demand letter on December 23, 1983. Del Monte considered Contract to Sell No. 2482-V cancelled fifteen
days thereafter, but did not furnish petitioners any notice regarding its cancellation.
On November 6, 1984, petitioner Marcelina Fabrigas (petitioner Marcelina) remitted the amount of
P13,000.00 to Del Monte. On January 12, 1985, petitioner Marcelina again remitted the amount of
P12,000.00. A few days thereafter, oron January 21, 1985, petitioner Marcelina and Del Monte entered into
another agreement denominated as Contract to Sell No. 2491-V, covering the same property but under
restructured terms of payment. Under the second contract, the parties agreed on a new purchase price of
P131,642.58, the amount of P26,328.52 as downpayment and the balance to be paid in monthly
installments of P2,984.60 each.
Between March 1985 and January 1986, Spouses Fabrigas made irregular payments under Contract to Sell
No. 2491-V, to wit:
March 19, 1985
P1,328.52
July 2, 1985
P2,600.00
September 30, 1985
P2,600.00
November 27, 1985
P2,600.00
January 20, 1986
P2,000.00
Del Monte sent a demand letter dated February 3, 1986, informing petitioners of their overdue account
equivalent to nine (9) installments or a total amount of P26,861.40. Del Monte required petitioners to
satisfy said amount immediately in two subsequent letters dated March 5 and April 2, 1986. This prompted
petitioners to pay the following amounts:
February 3, 1986
P2,000.00
March 10, 1986
P2,000.00
April 9, 1986
P2,000.00
May 13, 1986
P2,000.00
June 6, 1986
P2,000.00
July 14, 1986
P2,000.00
No other payments were made by petitioners except the amount of P10,000.00 which petitioners tendered
sometime in October 1987 but which Del Monte refused to accept, the latter claiming that the payment
was intended for the satisfaction of Contract to Sell No. 2482-V which had already been previously
cancelled. On March 24, 1988, Del Monte sent a letter demanding the payment of accrued installments
under Contract to Sell No. 2491-V in the amount of P165,759.60 less P48,128.52, representing the
payments made under the restructured contract, or the net amount of P117,631.08. Del Monte allowed
petitioners a grace period of thirty (30) days within which to pay the amount asked to avoid rescission of
the contract. For failure to pay, Del Monte notified petitioners on March 30, 1989 that Contract to Sell No.
2482-V had been cancelled and demanded that petitioners vacate the property.
On September 28, 1990, Del Monte instituted an action for Recovery of Possession with Damages against
Spouses Fabrigas before the RTC, Branch 63 of Makati City. The complaint alleged that Spouses Fabrigas
owed Del Monte the principal amount of P206,223.80 plus interest of 24% per annum. In their answer,
Spouses Fabrigas claimed, among others, that Del Monte unilaterally cancelled the first contract and
forced petitioner Marcelina to execute the second contract, which materially and unjustly altered the terms
and conditions of the original contract.
After trial on the merits, the trial court rendered a Decision on January 3, 1994, upholding the validity of
Contract to Sell No. 2491-V and ordering Spouses Fabrigas either to complete payments thereunder or to
vacate the property.
Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals, arguing that the trial court
should have upheld the validity and existence of Contract to Sell No. 2482-V instead and nullified Contract
to Sell No. 2491-V. The Court of Appeals rejected this argument on the ground that Contract to Sell No.
2482-V had been rescinded pursuant to the automatic rescission clause therein. While the Court of Appeals
declared Contract to Sell No. 2491-V as merely unenforceable for having been executed without petitioner
Marcelinas signature, it upheld its validity upon finding that the contract was subsequently ratified.
Hence, the instant petition attributing the following errors to the Court of Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THE PROVISIONS OF R.A. NO. 6552 (THE
MACEDA LAW) AND RULED THAT CONTRACT TO SELL NO. 2482-V WAS VALIDLY CANCELLED BY SENDING A
MERE NOTICE TO THE PETITIONERS.
B. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE WAS AN IMPLIED RATIFICATION OF
CONTRACT TO SELL NO. 2491-V.
C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THE RULES OF NOVATION TO THE INSTANT CASE.
As reframed for better understanding, the questions are the following: Was Contract to Sell No. 2482-V
extinguished through rescission or was it novated by the subsequent Contract to Sell No. 2491-V? If
Contract to Sell No. 2482-V was rescinded, should the manner of rescission comply with the requirements
of Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-V was subsequently novated by Contract to
Sell No. 2491-V, are petitioners liable for breach under the subsequent agreement?
Petitioners theorize that Contract to Sell No. 2482-V should remain valid and subsisting because the notice
of cancellation sent by Del Monte did not observe the requisites under Section 3 of R.A. 6552. According to
petitioners, since respondent did not send a notarial notice informing them of the cancellation or rescission
of Contract to Sell No. 2482-V and also did not pay them the cash surrender value of the payments on the
property, the Court of Appeals erred in concluding that respondent correctly applied the automatic
rescission clause of Contract to Sell No. 2482-V. Petitioners also cite Section 7 of said law to bolster their
theory that the automatic rescission clause in Contract to Sell No. 2482-V is invalid for being contrary to
law and public policy.
The Court of Appeals erred in ruling that Del Monte was well within its right to cancel the contract by
express grant of paragraph 7 without the need of notifying [petitioners],17 instead of applying the
pertinent provisions of R.A. 6552. Petitioners contention that none of Del Montes demand letters
constituted a valid rescission of Contract to Sell No. 2482-V is correct.
Petitioners defaulted in all monthly installments. They may be credited only with the amount of P30,000.00
paid upon the execution of Contract to Sell No. 2482-V, which should be deemed equivalent to less than
two (2) years installments. Given the nature of the contract between petitioners and Del Monte, the
applicable legal provision on the mode of cancellation of Contract to Sell No. 2482-V is Section 4 and not
Section 3 of R.A. 6552. Section 4 is applicable to instances where less than two years installments were
paid. It reads:
SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Thus, the cancellation of the contract under Section 4 is a two-step process. First, the seller should extend
the buyer a grace period of at least sixty (60) days from the due date of the installment. Second, at the
end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for
rescission through a notarial act, effective thirty (30) days from the buyers receipt thereof. It is worth
mentioning, of course, that a mere notice or letter, short of a notarial act, would not suffice. While the
Court concedes that Del Monte had allowed petitioners a grace period longer than the minimum sixty (60)day requirement under Section 4, it did not comply, however, with the requirement of notice of
cancellation or a demand for rescission. Instead, Del Monte applied the automatic rescission clause of the
contract. Contrary, however, to Del Montes position which the appellate court sustained, the automatic
cancellation clause is void under Section 7 in relation to Section 4 of R.A. 6552.
Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily, obligations are also
extinguished by payment or performance, by the loss of the thing due, by the condonation or remission of
the debt, by the confusion or merger of the rights of the creditor and debtor, by compensation, or by
novation.
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or principal conditions (objective
or real), or by substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have dual functionsone to extinguish
an existing obligation, the other to substitute a new one in its placerequiring a conflux of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3)
the extinguishment of the old obligation; and (4) the birth of a valid new obligation.
Notwithstanding the improper rescission, the facts of the case show that Contract to Sell No. 2482-V was
subsequently novated by Contract to Sell No. 2491-V. The execution of Contract to Sell No. 2491-V
accompanied an upward change in the contract price, which constitutes a change in the object or principal
conditions of the contract. In entering into Contract to Sell No. 2491-V, the parties were impelled by causes
different from those obtaining under Contract to Sell No. 2482-V. On the part of petitioners, they agreed to
the terms and conditions of Contract to Sell No. 2491-V not only to acquire ownership over the subject
property but also to avoid the consequences of their default under Contract No. 2482-V. On Del Montes
end, the upward change in price was the consideration for entering into Contract to Sell No. 2491-V.
In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot, they are incompatible and the latter
obligation novates the first. The execution of Contract to Sell No. 2491-V created new obligations in lieu of
those under Contract to Sell No. 2482-V, which are already considered extinguished upon the execution of
the second contract. The two contracts do not have independent existence for to hold otherwise would
present an absurd situation where the parties would be liable under each contract having only one subject
matter.
To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell No. 2491-V, petitioners contend
that the subsequent contract is void for two reasons: first, petitioner Isaias Fabrigas did not give his
consent thereto, and second, the subsequent contract is a contract of adhesion.
Petitioner rely on Article 172 of the Civil Code governing their property relations as spouses. Said article
states that the wife cannot bind the conjugal partnership without the husbands consent except in cases
provided by law. Since only petitioner Marcelina executed Contract to Sell No. 2491-V, the same is
allegedly void, petitioners conclude.
Under the Civil Code, the husband is the administrator of the conjugal partnership. Unless the wife has
been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership
without the wifes consent. Conversely, the wife cannot bind the conjugal partnership without the
husbands consent except in cases provided by law.
Thus, if a contract entered into by one spouse involving a conjugal property lacks the consent of the other
spouse, as in the case at bar, is it automatically void for that reason alone?
Article 173 of the Civil Code expressly classifies a contract executed by the husband without the consent of
the wife as merely annullable at the instance of the wife. However, there is no comparable provision
covering an instance where the wife alone has consented to a contract involving conjugal property. Article
172 of the Civil Code, though, does not expressly declare as void a contract entered by the wife without
the husbands consent. It is also not one of the contracts considered as void under Article 140928 of the
Civil Code.
In Felipe v. Heirs of Maximo Aldon, the Court had the occasion to rule on the validity of a sale of lands
belonging to the conjugal partnership made by the wife without the consent of the husband. Speaking
through Mr. Justice Abad Santos, the Court declared such a contract as voidable because one of the parties
is incapable of giving consent to the contract. The capacity to give consent belonged not even to the
husband alone but to both spouses. In that case, the Court anchored its ruling on Article 173 of the Civil
Code which states that contracts entered by the husband without the consent of the wife when such
consent is required, are annullable at her instance during the marriage and within ten years from the
transaction mentioned.
The factual milieu of the instant case, however, differs from that in Felipe. The defect which Contract to
Sell No. 2491-V suffers from is lack of consent of the husband, who was out of the country at the time of
the execution of the contract. There is no express provision in the Civil Code governing a situation where
the husband is absent and his absence incapacitates him from administering the conjugal partnership
property. The following Civil Code provisions, however, are illuminating:
ARTICLE 167. In case of abuse of powers of administration of the conjugal partnership property by the
husband, the courts, on petition of the wife, may provide for receivership, or administration by the wife, or
separation of property.
ARTICLE 168. The wife may, by express authority of the husband embodied in a public instrument,
administer the conjugal partnership property.
ARTICLE 169. The wife may also, by express authority of the husband appearing in a public instrument,
administer the latters estate.
While the husband is the recognized administrator of the conjugal property under the Civil Code, there are
instances when the wife may assume administrative powers or ask for the separation of property. In the
abovementioned instances, the wife must be authorized either by the court or by the husband. Where the
husband is absent and incapable of administering the conjugal property, the wife must be expressly
authorized by the husband or seek judicial authority to assume powers of administration. Thus, any
transaction entered by the wife without the court or the husbands authority is unenforceable in
accordance with Article 1317 of the Civil Code. That is the status to be accorded Contract to Sell No. 2491V, it having been executed by petitioner Marcelina without her husbands conformity.
Being an unenforceable contract, Contract to Sell No. 2491-V is susceptible to ratification. As found by the
courts below, after being informed of the execution of the contract, the husband, petitioner Isaias Fabrigas,
continued remitting payments for the satisfaction of the obligation under Contract to Sell No. 2491-V.
These acts constitute ratification of the contract. Such ratification cleanses the contract from all its defects
from the moment it was constituted. The factual findings of the courts below are beyond review at this
stage.
Anent Del Montes claim that Contract to Sell No. 2491-V is a contract of adhesion, suffice it to say that
assuming for the nonce that the contract is such the characterization does not automatically render it void.
A contract of adhesion is so-called because its terms are prepared by only one party while the other party
merely affixes his signature signifying his adhesion thereto. Such contracts are not void in themselves.
They are as binding as ordinary contracts. Parties who enter into such contracts are free to reject the
stipulations entirely.
The Court quotes with approval the following factual observations of the trial court, which cannot be
disturbed in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas, although she had to sign contract No. 2491-V, to avoid
forfeiture of her downpayment, and her other monthly amortizations, was entirely free to refuse to accept
the new contract. There was no clear case of intimidation or threat on the part of plaintiff in offering the
new contract to her. At most, since she was of sufficient intelligence to discern the agreement she is
entering into, her signing of Contract No. 2491-V is taken to be valid and binding. The fact that she has
paid monthly amortizations subsequent to the execution of Contract to Sell No. 2491-V, is an indication
that she had recognized the validity of such contract. . . .
In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing to prevent respondent Del Monte
from enforcing its contractual stipulations and pursuing the proper court action to hold petitioners liable for
their breach thereof.
WHEREFORE, the instant Petition for Review is DENIED and the September 28, 2001 Decision of the Court
of Appeals in CA-G.R. CV No. 45203 is AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 176791.November 14, 2012.*

COMMUNITIES CAGAYAN, INC., petitioner, vs. SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND
ANYBODY CLAIMING RIGHTS UNDER THEM, respondents.
Civil Law; Maceda Law; Contracts to Sell; The Maceda Law governs sales of real estate on installments.
Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondentspouses, we agree with petitioner that the Maceda Law, which governs sales of real estate on installment,
should be applied. Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to
wit: Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended
installments: (a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for every one year of
installment payments made: Provided, That this right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions, if any. (b) If the contract is canceled, the seller shall
refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of
the total payments made, and, after five years of installments, an additional five percent every year but
not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value
to the buyer. Down payments, deposits or options on the contract shall be included in the computation of
the total number of installment payments made. (Emphasis supplied.) Section 4. In case where less than
two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty
days from the date the installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Section 5.
Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to another
person or to reinstate the contract by updating the account during the grace period and before actual
cancellation of the contract. The deed of sale or assignment shall be done by notarial act.
Same; Same; Same; Before a contract to sell can be validly and effectively cancelled, the seller has (1) to
send a notarized notice of cancellation to the buyer and (2) to refund the cash surrender value. Until and
unless the seller complies with these twin mandatory requirements, the contract to sell between the
parties remains valid and subsisting.We deem it necessary to point out that, under the Maceda Law, the
actual cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the notarized
notice of cancellation, and upon full payment of the cash surrender value to the buyer. In other words,
before a contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized
notice of cancellation to the buyer and (2) to refund the cash surrender value. Until and unless the seller
complies with these twin mandatory requirements, the contract to sell between the parties remains valid
and subsisting. Thus, the buyer has the right to continue occupying the property subject of the contract to
sell, and may still reinstate the contract by updating the account during the grace period and before the
actual cancellation of the contract.
Same; Builders in Good Faith; Petition for Review on Certiorari; The issue of whether respondent-spouses
are builders in good faith or bad faith is a factual question, which is beyond the scope of a petition filed
under Rule 45 of the Rules of Court.At the outset, we emphasize that the issue of whether respondentspouses are builders in good faith or bad faith is a factual question, which is beyond the scope of a petition
filed under Rule 45 of the Rules of Court. In fact, petitioner is deemed to have waived all factual issues
since it appealed the case directly to this Court, instead of elevating the matter to the CA. It has likewise
not escaped our attention that after their failed preliminary conference, the parties agreed to submit the
case for resolution based on the pleadings and exhibits presented. No trial was conducted. Thus, it is too
late for petitioner to raise at this stage of the proceedings the factual issue of whether respondent-spouses
are builders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are
constrained to rely on the presumption of good faith on the part of the respondent-spouses which the
petitioner failed to rebut.
Same; Same; Article 448 of the Civil Code applies when the builder believes that he is the owner of the
land or that by some title he has the right to build thereon, or that, at least, he has a claim of title thereto.
Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by
some title he has the right to build thereon, or that, at least, he has a claim of title thereto. Concededly,
this is not present in the instant case. The subject property is covered by a Contract to Sell hence
ownership still remains with petitioner being the seller. Nevertheless, there were already instances where
this Court applied Article 448 even if the builders do not have a claim of title over the property.
Same; Same; The Court applied Article 448 in Spouses Macasaet v. Spouses Macasaet, 439 SCRA 625
(2004), notwithstanding the fact that the builders therein knew they were not the owners of the land.The
Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet, 439 SCRA 625 (2004),
notwithstanding the fact that the builders therein knew they were not the owners of the land. In said case,
the parents who owned the land allowed their son and his wife to build their residence and business
thereon. As found by this Court, their occupation was not by mere tolerance but upon the invitation of and
with the complete approval of (their parents), who desired that their children would occupy the premises. It
arose from familial love and a desire for family solidarity x x x. Soon after, conflict between the parties
arose. The parents demanded their son and his wife to vacate the premises. The Court thus ruled that as
owners of the property, the parents have the right to possession over it. However, they must reimburse
their son and his wife for the improvements they had introduced on the property because they were
considered builders in good faith even if they knew for a fact that they did not own the property.
Same; Same; The seller (the owner of the land) has two options under Article 448: (1) he may appropriate
the improvements for himself after reimbursing the buyer (the builder in good faith) the necessary and
useful expenses under Articles 546 and 548 of the Civil Code; or (2) he may sell the land to the buyer,
unless its value is considerably more than that of the improvements, in which case, the buyer shall pay
reasonable rent.In Tuatis, we ruled that the seller (the owner of the land) has two options under Article
448: (1) he may appropriate the improvements for himself after reimbursing the buyer (the builder in good
faith) the necessary and useful expenses under Articles 546 and 548 of the Civil Code; or (2) he may sell
the land to the buyer, unless its value is considerably more than that of the improvements, in which case,
the buyer shall pay reasonable rent.
PETITION for review on certiorari of the decision and order of the Regional Trial Court of Cagayan de Oro
City, Br. 18.
Salcedo-Babarin and Babarin Law Office for petitioner.
Rexy Pador for respondents.
DEL CASTILLO,J.:
Laws fill the gap in a contract.
This Petition for Certiorari under Rule 45 of the Rules of Court assails the December 29, 2006 Decision and
the February 12, 2007 Order of the Regional Trial Court (RTC), Cagayan de Oro City, Branch 18, in Civil
Case No. 2005-158.
Factual Antecedents
Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell with
petitioner Communities Cagayan, Inc., whereby the latter agreed to sell to respondent-spouses a house
and Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, for the price of
P368,000.00. Respondent-spouses, however, did not avail of petitioners in-house financing due to its high
interest rates. Instead, they obtained a loan from Capitol Development Bank, a sister company of
petitioner, using the property as collateral. To facilitate the loan, a simulated sale over the property was
executed by petitioner in favor of respondent-spouses. Accordingly, titles were transferred in the names of
respondent-spouses under Transfer Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to
Capitol Development Bank for loan processing. Unfortunately, the bank collapsed and closed before it
could release the loan.
Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell with petitioner
over the same property for the same price of P368,000.00. This time, respondent-spouses availed of
petitioners in-house financing thus, undertaking to pay the loan over four years, from 1997 to 2001.
Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story house
allegedly valued at P3.5 million, more or less.
In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly
amortizations. On September 10, 2003, petitioner sent respondent-spouses a notarized Notice of
Delinquency and Cancellation of Contract to Sell due to the latters failure to pay the monthly
amortizations.
In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de Oro
City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses. When the
case was referred for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but
petitioner refused to accept the payment. The case was later withdrawn and consequently dismissed
because the judge found out that the titles were already registered under the names of respondentspouses.
Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC,
Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and
Damages, docketed as Civil Case No. 2005-158, against respondent-spouses and all persons claiming
rights under them. Petitioner alleged that the transfer of the titles in the names of respondent-spouses was
made only in compliance with the requirements of Capitol Development Bank and that respondent-spouses
failed to pay their monthly amortizations beginning January 2000. Thus, petitioner prayed that TCT Nos. T105202 and T-105203 be cancelled, and that respondent Angeles be ordered to vacate the subject
property and to pay petitioner reasonable monthly rentals from January 2000 plus damages.
In her Answer, respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is
not the proper party to file the complaint because petitioner is different from Masterplan Properties, Inc.
She also prayed for damages by way of compulsory counterclaim.
In its Reply, petitioner attached a copy of its Certificate of Filing of Amended Articles of Incorporation
showing that Masterplan Properties, Inc. and petitioner are one and the same. As to the compulsory
counterclaim for damages, petitioner denied the same on the ground of lack of knowledge sufficient to
form a belief as to the truth or falsity of such allegation.
Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return
the owners duplicate copies of the TCTs.
Pursuant to Administrative Order No. 59-2005, the case was referred for mediation. But since the parties
failed to arrive at an amicable settlement, the case was set for preliminary conference on February 23,
2006.
On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits
presented during the preliminary conference.
Ruling of the Regional Trial Court
On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack of
consideration. Thus, it disposed of the case in this wise:
WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer
Certificate[s] of Title Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and
Angeles Nanol, are ordered CANCELLED. The [respondents] and any person claiming rights under them are
directed to turn-over the possession of the house and lot to [petitioner], Communities Cagayan, Inc.,
subject to the latters payment of their total monthly installments and the value of the new house minus
the cost of the original house.
SO ORDERED.
Not satisfied, petitioner moved for reconsideration of the Decision but the Motion was denied in an Order
dated February 12, 2007.
Issue
Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition
directly with this Court on a pure question of law, to wit:
WHETHER X X X THE ACTION [OF] THE [RTC] BRANCH 18 X X X IN ORDERING THE RECOVERY OF
POSSESSION BY PETITIONER subject to the latters payment of their total monthly installments and the
value of the new house minus the cost of the original house IS CONTRARY TO LAW AND JURISPRUDENCE
X X X.
Petitioners Arguments
Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse
respondent-spouses the total monthly installments they had paid and the value of the new house minus
the cost of the original house. Petitioner claims that there is no legal basis for the RTC to require petitioner
to reimburse the cost of the new house because respondent-spouses were in bad faith when they
renovated and improved the house, which was not yet their own. Petitioner further contends that instead
of ordering mutual restitution by the parties, the RTC should have applied Republic Act No. 6552, otherwise
known as the Maceda Law, and that instead of awarding respondent-spouses a refund of all their monthly
amortization payments, the RTC should have ordered them to pay petitioner monthly rentals.
Respondent Angeles Arguments
Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the
Decision of the RTC by interposing additional issues. She maintains that the Deed of Absolute Sale is valid.
Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203.
Our Ruling
The petition is partly meritorious.
At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained.
For failing to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that a
party who does not appeal from a judgment can no longer seek modification or reversal of the same. He
may oppose the appeal of the other party only on grounds consistent with the judgment. For this reason,
respondent Angeles may no longer question the propriety and correctness of the annulment of the Deed of
Absolute Sale, the cancellation of TCT Nos. 105202 and 105203, and the order to vacate the property.
Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to
reimburse respondent-spouses the total monthly installments and the value of the new house minus the
cost of the original house. Otherwise stated, the issues for our resolution are:
1)Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and
2)Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the
cost of the original house.
Respondent-spouses are entitled to
the cash surrender value of the payments on the property equivalent to
50% of the total payments made.
Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondentspouses, we agree with petitioner that the Maceda Law, which governs sales of real estate on installment,
should be applied.
Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit:
Section3.In all transactions or contracts involving the sale or financing of real estate on installment
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended
installments:
(a)To pay, without additional interest, the unpaid installments due within the total grace period earned
by him which is hereby fixed at the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the buyer only once in every five years of
the life of the contract and its extensions, if any.
(b)If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made, and, after five years of
installments, an additional five percent every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made. (Emphasis supplied.)
Section4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Section5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.
In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation
of a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of
cancellation, and upon full payment of the cash surrender value to the buyer. In other words, before a
contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of
cancellation to the buyer and (2) to refund the cash surrender value. Until and unless the seller complies
with these twin mandatory requirements, the contract to sell between the parties remains valid and
subsisting. Thus, the buyer has the right to continue occupying the property subject of the contract to sell,
and may still reinstate the contract by updating the account during the grace period and before the actual
cancellation of the contract.
In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation
to the respondent-spouses. It failed, however, to refund the cash surrender value to the respondentspouses. Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have
the right to continue occupying the subject property. Unfortunately, we cannot reverse the Decision of the
RTC directing respondent-spouses to vacate and turn-over possession of the subject property to petitioner
because respondent-spouses never appealed the order. The RTC Decision as to respondent-spouses is
therefore considered final.
In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by
updating the account. Allowing them to do so would be unfair to the other party and is offensive to the
rules of fair play, justice, and due process. Thus, based on the factual milieu of the instant case, the most
that we can do is to order the return of the cash surrender value. Since respondent-spouses paid at least
two years of installment, they are entitled to receive the cash surrender value of the payments they had
made which, under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments made.
Respondent-spouses are entitled to reimbursement of the improvements made on the property.
Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not
entitled to reimbursement of the value of the improvements made on the property because they were
builders in bad faith. At the outset, we emphasize that the issue of whether respondent-spouses are
builders in good faith or bad faith is a factual question, which is beyond the scope of a petition filed under
Rule 45 of the Rules of Court. In fact, petitioner is deemed to have waived all factual issues since it
appealed the case directly to this Court, instead of elevating the matter to the CA. It has likewise not
escaped our attention that after their failed preliminary conference, the parties agreed to submit the case
for resolution based on the pleadings and exhibits presented. No trial was conducted. Thus, it is too late for
petitioner to raise at this stage of the proceedings the factual issue of whether respondent-spouses are
builders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are constrained
to rely on the presumption of good faith on the part of the respondent-spouses which the petitioner failed
to rebut. Thus, respondent-spouses being presumed builders in good faith, we now rule on the applicability
of Article 448 of the Civil Code.
As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation
between the parties, such as in the instant case. We went over the records of this case and we note that
the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448
of the Civil Code, which provides viz.:
ART.448.The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land
if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.
Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by
some title he has the right to build thereon, or that, at least, he has a claim of title thereto. Concededly,
this is not present in the instant case. The subject property is covered by a Contract to Sell hence
ownership still remains with petitioner being the seller. Nevertheless, there were already instances where
this Court applied Article 448 even if the builders do not have a claim of title over the property. Thus:
This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, to have a claim of title thereto. It does not apply when the
interest is merely that of a holder, such as a mere tenant, agent or usufructuary. From these
pronouncements, good faith is identified by the belief that the land is owned; or thatby some titleone
has the right to build, plant, or sow thereon.
However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this
limited definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose housedespite
having been built at the time he was still co-owneroverlapped with the land of another. This article was
also applied to cases wherein a builder had constructed improvements with the consent of the owner. The
Court ruled that the law deemed the builder to be in good faith. In Sarmiento v. Agana, the builders were
found to be in good faith despite their reliance on the consent of another, whom they had mistakenly
believed to be the owner of the land.
The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet notwithstanding the fact
that the builders therein knew they were not the owners of the land. In said case, the parents who owned
the land allowed their son and his wife to build their residence and business thereon. As found by this
Court, their occupation was not by mere tolerance but upon the invitation of and with the complete
approval of (their parents), who desired that their children would occupy the premises. It arose from
familial love and a desire for family solidarity x x x. Soon after, conflict between the parties arose. The
parents demanded their son and his wife to vacate the premises. The Court thus ruled that as owners of
the property, the parents have the right to possession over it. However, they must reimburse their son and
his wife for the improvements they had introduced on the property because they were considered builders
in good faith even if they knew for a fact that they did not own the property, thus:
Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established
facts of this case show that respondents fully consented to the improvements introduced by petitioners. In
fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved
of the construction of the improvements introduced thereon. Thus, petitioners may be deemed to have
been in good faith when they built the structures on those lots.
The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good
faith for building the improvement (the house) with the knowledge and consent of his father, to whom
belonged the land upon which it was built. Thus, Article 448 was applied.
In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no
reason not to apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold
that Article 448 is also applicable to the instant case. First, good faith is presumed on the part of the
respondent-spouses. Second, petitioner failed to rebut this presumption. Third, no evidence was presented
to show that petitioner opposed or objected to the improvements introduced by the respondent-spouses.
Consequently, we can validly presume that petitioner consented to the improvements being constructed.
This presumption is bolstered by the fact that as the subdivision developer, petitioner must have given the
respondent-spouses permits to commence and undertake the construction. Under Article 453 of the Civil
Code, [i]t is understood that there is bad faith on the part of the landowner whenever the act was done
with his knowledge and without opposition on his part.
In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondentspouses the value of the new house minus the cost of the old house based on Article 448 of the Civil Code,
subject to succeeding discussions.
Petitioner has two options under Article 448 and pursuant to the ruling in Tuatis v. Escol
In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may
appropriate the improvements for himself after reimbursing the buyer (the builder in good faith) the
necessary and useful expenses under Articles 546 and 548 of the Civil Code; or (2) he may sell the land to
the buyer, unless its value is considerably more than that of the improvements, in which case, the buyer
shall pay reasonable rent. Quoted below are the pertinent portions of our ruling in that case:
Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil
Code, Visminda has the following options:
Under the first option, Visminda may appropriate for herself the building on the subject property after
indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided
in Article 546 of the Civil Code.
It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be
refunded to the builder under Article 546 of the Civil Code should be the current market value of the
improvement, thus:
xxxx
Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain
possession of the building and the subject property.
Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis
to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated
in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will
be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights under Article 448 of
the Civil Code, and not under the said Deed. Tuatis obligation will then be statutory, and not contractual,
arising only when Visminda has chosen her option under Article 448 of the Civil Code.
Still under the second option, if the present or current value of the land, the subject property herein, turns
out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the
subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must
agree on the terms of the lease; otherwise, the court will fix the terms.
Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment
in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda
will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of
indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property
vis--vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject
property, which Tuatis must pay Visminda.
The Court highlights that the options under Article 448 are available to Visminda, as the owner of the
subject property. There is no basis for Tuatis demand that, since the value of the building she constructed
is considerably higher than the subject property, she may choose between buying the subject property
from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for
Visminda, not Tuatis, to make. And, depending on Vismindas choice, Tuatis rights as a builder under
Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject
property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged
to pay for the price of the subject property, if it is considerably higher than the value of the building, in
which case, she can only be obliged to pay reasonable rent for the same.
The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord
with the principle of accession, i.e., that the accessory follows the principal and not the other way around.
Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner
cannot refuse to exercise either option and compel instead the owner of the building to remove it from the
land.
The raison detre for this provision has been enunciated thus: Where the builder, planter or sower has
acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving
the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to
oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise
either option. It is the owner of the land who is authorized to exercise the option, because his right is older,
and because, by the principle of accession, he is entitled to the ownership of the accessory thing.
Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to
recover possession of the subject property under the first option, since the options under Article 448 of the
Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999
Decision of the RTC. She must then be given the opportunity to make a choice between the options
available to her after being duly informed herein of her rights and obligations under both. (Emphasis
supplied.)
In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It
may appropriate the new house by reimbursing respondent Angeles the current market value thereof
minus the cost of the old house. Under this option, respondent Angeles would have a right of retention
which negates the obligation to pay rent. In the alternative, petitioner may sell the lots to respondent
Angeles at a price equivalent to the current fair value thereof. However, if the value of the lots is
considerably more than the value of the improvement, respondent Angeles cannot be compelled to
purchase the lots. She can only be obliged to pay petitioner reasonable rent.
In view of the foregoing disquisition and in accordance with Depra v. Dumlao and Technogas Philippines
Manufacturing Corporation v. Court of Appeals, we find it necessary to remand this case to the court of
origin for the purpose of determining matters necessary for the proper application of Article 448, in relation
to Articles 546 and 548 of the Civil Code.
WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29, 2006
and the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18, in Civil
Case No. 2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities Cagayan, Inc. is
hereby ordered to RETURN the cash surrender value of the payments made by respondent-spouses on the
properties, which is equivalent to 50% of the total payments made, in accordance with Section 3(b) of
Republic Act No. 6552, otherwise known as the Maceda Law.
The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further
proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as
follows:
1.The trial court shall determine:

a)the present or current fair value of the lots;
b)the current market value of the new house;
c)the cost of the old house; and
d)whether the value of the lots is considerably more than the current market value of the new house
minus the cost of the old house.
2.After said amounts shall have been determined by competent evidence, the trial court shall render
judgment as follows:
a)Petitioner shall be granted a period of 15 days within which to exercise its option under the law (Article
448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the current
market value of the new house minus the cost of the old house, or to oblige respondent Angeles to pay the
price of the lots. The amounts to be respectively paid by the parties, in accordance with the option thus
exercised by written notice to the other party and to the court, shall be paid by the obligor within 15 days
from such notice of the option by tendering the amount to the trial court in favor of the party entitled to
receive it.
b)If petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the latter
rejects such purchase because, as found by the trial court, the value of the lots is considerably more than
the value of the new house minus the cost of the old house, respondent Angeles shall give written notice
of such rejection to petitioner and to the trial court within 15 days from notice of petitioners option to sell
the land. In that event, the parties shall be given a period of 15 days from such notice of rejection within
which to agree upon the terms of the lease, and give the trial court formal written notice of the agreement
and its provisos. If no agreement is reached by the parties, the trial court, within 15 days from and after
the termination of the said period fixed for negotiation, shall then fix the period and terms of the lease,
including the monthly rental, which shall be payable within the first five days of each calendar month.
Respondent Angeles shall not make any further constructions or improvements on the building. Upon
expiration of the period, or upon default by respondent Angeles in the payment of rentals for two
consecutive months, petitioner shall be entitled to terminate the forced lease, to recover its land, and to
have the new house removed by respondent Angeles or at the latters expense.
c)In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy of
the property for the period counted from the time the Decision dated December 29, 2006 became final as
to respondent Angeles or 15 days after she received a copy of the said Decision up to the date petitioner
serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer of
ownership to respondent Angeles or, in case a forced lease has to be imposed, up to the commencement
date of the forced lease referred to in the preceding paragraph.
d)The periods to be fixed by the trial court in its decision shall be non-extendible, and upon failure of the
party obliged to tender to the trial court the amount due to the obligee, the party entitled to such payment
shall be entitled to an order of execution for the enforcement of payment of the amount due and for
compliance with such other acts as may be required by the prestation due the obligee.
SO ORDERED.
No. L-45710. October 3, 1985.*

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT
OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank,
petitioners, vs. THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
Banks; Obligations; Loans; Where a bank approved a loan for P80,000.00 but was able to deliver only P1
7,000.00, it is in default for P63,000.00 to the borrower.When Island Savings Bank and Sulpicio M.
Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of
the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and
when one party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code).
The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank
to furnish the ?80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28,
1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central
Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00
balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
Same; Same; Same; The fact that the creditor is insolvent or was stopped by the Central Bank from
granting further loans is no defense to its fulfillment to extend the loan applied for and approved by it to
the full amount.The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the
default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance
because said resolution merely prohibited the Bank from making new loans and investments, and nowhere
did it prohibit Island Savings Bank from releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the
contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse
for the non-fulfillment of an obligation but instead it is taken as a breach of the contract by him (Vol. 17A,
1974 ed., CJS p. 650).
Same; Same; Same; Acceptance of refund of excess pre-deducted interest for a supposed loan of
P80,000.00 does not constitute a waiver of right to collect the P63,000.00 unreleased balance of the
P80,000.00 loans.The fact that Sulpicio M. Tolentino demanded and accepted the refund of the prededucted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank,
in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering
that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest
for a non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an
exercise of his right to it, which right exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other.
Same; Same; Same; The bank must not rely on representations by its borrowers of the value of their
collaterals. The bank shall bear the risk in case of over-valuation.The mere reliance by bank officials and
employees on their customer's representation regarding the loan collateral being offered as loan security is
a patent non-performance of this responsibility. If ever, bank officials and employees totally rely on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in
case the collateral turn out to be over-valued. The representation made by the customer is immaterial to
the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of
Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because
of their failure to raise the same in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's
action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections
not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot
raise the same issue before the Supreme Court.
Same; Same; Same; Due to CB prohibition, release of the entire loan cannot be granted; only rescission of
the loan agreement to the extent of the unreleased loan balance can be granted by the courts.Rescission
is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is
no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan.
Same; Same; Same; A bank borrower who did not pay the partial loan release as per the terms of the
promissory note signed by him is in default to that extent even if the entire loan cannot be released
anymore.The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a
right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he
would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there
was no date for him to perform his reciprocal obligation to pay.
Same; Same; Same; Damages; Where the bank failed to release the entire approved loan, but the borrower
also failed to pay the partial loan release he got after it fell due, both are in default and their respective
liability for damages shall be offset equitably, exclusive of the interest due on the overdue loan portion.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts, WE rule
that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not
be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for
his use of the P17,000.00, it is just that he should account for the interest thereon.
Same; Same; Same; Mortgages; Where only P 17,000.00 of the approved P80,000.00 loan was released,
the real estate mortgage thereon can be foreclosed only to the extent of 21.25%.Since Island Savings
Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio
M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real
estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares, The mortgage
covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt 21.25 hectares is
more than sufficient to secure a P17,000.00 debt.
Same; Same; Same; Same; Rule of indivisibility of a mortgage under Art. 2089, NCC does not apply where
bank released only part of the approved mortgage loan.The rule of indivisibility, of a real estate
mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. x x x The
rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of
the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage
cannot apply.
PETITION for certiorari to review the decision of the Court of Appeals.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent,
MAKASIAR, C.J.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals,
in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the
Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for
injunction, specific performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved
the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan. executed on
the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and
covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved
loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period
of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds
solely as an additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and
Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract at semi-annual installments of
P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting
to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was
refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund
yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vicepresident and
treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was
suffering liquidity problems, issued Resolution No. 1049, which provides:
"In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
"1) To prohibit the bank from making new loans and investments [except investments in government
securities] excluding extensions or renewals of already approved loans, provided that such extensions or
renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as
may be necessary to insure correction of the bank's deficiency as soon as possible;
xx
x x" (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to put up the required
capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets
of Island Savings Bank (pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of nonpayment of the P 17,000.00 covered by the
promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering
the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan. he is entitled to
specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per
annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage
(pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary
restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage
(pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the
petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and
by the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits, rendered its decision, finding unmeritorious
the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of P17,000.00
plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may
proceed with the foreclosure (pp. 135-136, rec.).
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First
Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but
it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P1 7,000.00
loan (pp. 30-31, rec.).
Hence, this instant petition by the Central Bank.

The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P1 7,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P1 7,000.00 subsists, can his real estate mortgage be
foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April
28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs.
Pelarca, 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not ready and willing to perform incurs in
delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for
the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a
real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such
date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay
in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the
Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island
Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings
Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take
over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took
effect on June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on August 13, 1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution
merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit Island
Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it
constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]), And, the mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of
an obligation but instead it is taken as a breach of the contract by him (Vol. 17A, 1974 ed., CJS p. 650).
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest
amounting to P4,800.00 for the supposed P80,000.00 loan .covering a 6-month period cannot be taken as
a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the
advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P1
7,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a nonexisting debt. Thus, the receipt by Sulpicio M. Tolentino of the pre-deducted interest was an exercise of his
right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan.
The exercise of one right does not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the overvaluation of the loan collateral cannot exempt it
from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. This Court previously
ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of
their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the
bank's officials and employees that before they approve the loan application of their customers, they must
investigate the existence and valuation of the properties being offered as a loan security. The recent rush
of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore
the importance of this responsibility. The mere reliance by bank officials and employees on their
customer's representation regarding the loan collateral being offered as loan security is a patent nonperformance of this responsibility. If ever, bank officials and employees totally rely on the representation of
their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral
turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on objections of Sulpicio M.
Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n., Sept. 15, 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the
same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement,
Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further
business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio
M. Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00
balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00,
which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to
have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to
Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay
the overdue amortizations under the promissory note made him a party in default, hence not entitled to
rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong
to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting
the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire
loan because he cannot possibly be in default as there was no date for him to perform his reciprocal
obligation to pay.
Since both parties were in def ault in the perf ormance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino
failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule
that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his P17,000.00 debt shall not
be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for
his use of the P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his
obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the
consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code).
The fact that when Sulpicio M. Tolentino executed his real estate mortgage, no consideration was then in
existence, as there was no debt yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It is not necessary that any
consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A.,
125 SCRA 122 [1983]). It may either be a prior or subsequent matter. But when the consideration is
subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as
a binding contract to pay (Parks vs. Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage,
Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to
the extent of such failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138).
Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co.
vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, p. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P1
7,000.00 debt. 21.25 hectares is more than sufficient to secure a P1 7,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
'Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several
heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a
mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED,
AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17,000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM
MAY 22, 1965 TO AUGUST 22. 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST
22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNENFORCEABLE AND
IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.
G.R. No. 101723. May 11, 2000.*

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO), petitioner, vs. NATIONAL
LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT, SOCORRO MAHINAY,
ESMERALDO PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO,
and ROBERTO ALEGARBES, respondents.
Civil Law; Obligations; Distinction between a solidary or joint and several obligation and joint obligation.A
solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation. In a joint obligation each obligor answers only for
a part of the whole liability and to each obligee belongs only a part of the correlative rights.
Same; Same; Same; There is a solidary liability only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires.Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.
Same; Same; Same; When it is not provided in a judgment that the defendants are liable to pay jointly and
severally a certain sum of money, none of them may be compelled to satisfy in full said judgment.It is
already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the
defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled
to satisfy in full said judgment.
Remedial Law; Judgment; Execution; The resolution of the court in a given issue as embodied in the
dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties; An
order of execution which varies the tenor of the judgment or exceeds the terms thereof is a nullity.It is an
elementary principle of procedure that the resolution of the court in a given issue as embodied in the
dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties. Once
a decision or order becomes final and executory, it is removed from the power or jurisdiction of the court
which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and any
amendment or alteration which substantially affects a final and executory judgment is null and void for
lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which
varies the tenor of the judgment or exceeds the terms thereof is a nullity.
Same; Same; Same; Proceedings held for the purpose of amending or altering the dispositive portion of the
decision are null and void for lack of jurisdiction.None of the parties in the case before the Labor Arbiter
appealed the Decision dated March 10, 1987, hence the same became final and executory. It was,
therefore, removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus,
the proceedings held for the purpose of amending or altering the dispositive portion of the said decision
are null and void for lack of jurisdiction. Also, the Alias Writ of Execution is null and void because it varied
the tenor of the judgment in that, it sought to enforce the final judgment against Antonio
Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas Carbon and Mining Corp.
and Gerardo Sicat, which makes the liability solidary.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.
Roberto R. Palmares for petitioner.
Virgilio U. Lapinid for private respondents.
BUENA, J.:
This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the National
Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed a grave abuse of
discretion amounting to lack of jurisdiction in upholding the Alias Writ of Execution issued by the Labor
Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987, thereby holding
that the liability of the six respondents in the case below is solidary despite the absence of the word
solidary in the dispositive portion of the Decision, when their liability should merely be joint.
The factual antecedents are undisputed:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo,
Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the
Department of Labor and Employment, Regional Arbitration Branch No. VII in Cebu City against Filipinas
Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner
Industrial Management Development Corporation (INIMACO), for payment of separation pay and unpaid
wages.
In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:
RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas Carbon and
Mining Corp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp. (INIMACO), Chiu
Chin Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of P82,800.00; ESMERALDO
PEGARIDO the full award of P19,565.00; Roberto Nemenzo the total sum of P29,623.60 and DARIO GO the
total award of P6,599.71, or the total aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE
HUNDRED EIGHTY-EIGHT PESOS AND 31/100 (P138,588.31) to be deposited with this Commission within
ten (10) days from receipt of this Decision for appropriate disposition. All other claims are hereby Dismiss
(sic) for lack of merit.
SO ORDERED.
Cebu City, Philippines.
10 March 1987.
No appeal was filed within the reglementary period thus, the above Decision became final and executory.
On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned unsatisfied. On August
26, 1987, the Labor Arbiter issued an Alias Writ of Execution which ordered thus:
NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to proceed to
the premises of respondents Antonio Gonzales/Industrial Management Development Corporation
(INIMACO) situated at Barangay Lahug, Cebu City, in front of La Curacha Restaurant, and/or to Filipinas
Carbon and Mining Corporation and Gerardo Sicat at 4th Floor Universal REBldg. 106 Paseo de Roxas,
Legaspi Village, Makati Metro Manila and at Philippine National Bank, Escolta, Manila respectively, and
collect the aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT
PESOS AND THIRTY ONE CENTAVOS (P138,588.31) and thereafter turn over said amount to complainants
ENRIQUE SULIT, ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office for
appropriate disposition. Should you fail to collect the said sum in cash, you are hereby authorized to cause
the satisfaction of the same on the movable or immovable property(s) of respondents not exempt from
execution. You are to return this writ sixty (6) (sic) days from your receipt hereof, together with your
corresponding report.
You may collect your legal expenses from the respondents as provided for by law.
SO ORDERED.
On September 3, 1987, petitioner filed a Motion to Quash Alias Writ of Execution and Set Aside Decision,
alleging among others that the alias writ of execution altered and changed the tenor of the decision by
changing the liability of therein respondents from joint to solidary, by the insertion of the words AND/OR
between Antonio Gonzales/Industrial Management Development Corporation and Filipinas Carbon and
Mining Corporation, et al. However, in an order dated September 14, 1987, the Labor Arbiter denied the
motion.
On October 2, 1987, petitioner appealed the Labor Arbiters Order dated September 14, 1987 to the
respondent NLRC.
The respondent NLRC dismissed the appeal in a Decision dated August 31, 1988, the pertinent portions of
which read:
In matters affecting labor rights and labor justice, we have always adopted the liberal approach which
favors the exercise of labor rights and which is beneficial to labor as a means to give full meaning and
import to the constitutional mandate to afford protection to labor. Considering the factual circumstances in
this case, there is no doubt in our mind that the respondents herein are called upon to pay, jointly and
severally, the claims of the complainants as was the latters prayers. Inasmuch as respondents herein
never controverted the claims of the complainants below, there is no reason why complainants prayer
should not be granted. Further, in line with the powers granted to the Commission under Article 218 (c) of
the Labor Code, to waive any error, defect or irregularity whether in substance or in form in a proceeding
before Us, We hold that the Writ of Execution be given due course in all respects.
On July 31, 1989, petitioner filed a Motion To Compel Sheriff To Accept Payment Of P23,198.05
Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and Final Satisfaction of Judgment
As to Said Respondent. The private respondents opposed the motion. In an Order dated August 15, 1989,
the Labor Arbiter denied the motion ruling thus:
WHEREFORE, responsive to the foregoing respondent
of this Office is order (sic) to accept INIMACOs tender
satisfaction of the judgment and to proceed with the
levied properties, now issued by this Office, for the
granted in the instant case.
INIMACOs Motions are hereby DENIED. The Sheriff

payment (sic) of the sum of P23,198.05, as partial
enforcement of the Alias Writ of Execution of the
full and final satisfaction of the monetary award
SO ORDERED.
Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent
NLRC in its Resolution dated September 4, 1991 which held that:
The arguments of respondent on the finality of the dispositive portion of the decision in this case is beside
the point. What is important is that the Commission has ruled that the Writ of Execution issued by the
Labor Arbiter in this case is proper. It is not really correct to say that said Writ of Execution varied the
terms of the judgment. At most, considering the nature of labor proceedings there was, an ambiguity in
said dispositive portion which was subsequently clarified by the Labor Arbiter and the Commission in the
incidents which were initiated by INIMACO itself. By sheer technicality and unfounded assertions, INIMACO
would now reopen the issue which was already resolved against it. It is not in keeping with the established
rules of practice and procedure to allow this attempt of INIMACO to delay the final disposition of this case.
WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Order appealed from is hereby
AFFIRMED.
With double costs against appellant.
Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC
committed grave abuse of discretion in affirming the Order of the Labor Arbiter dated August 15, 1989,
which declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioners liability pursuant to the Decision of the Labor Arbiter
dated March 10, 1987, is solidary or not.
Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACOs
liability is not solidary but merely joint and that the respondent NLRC acted with grave abuse of discretion
in upholding the Labor Arbiters Alias Writ of Execution and subsequent Orders to the effect that
petitioners liability is solidary.
A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation. In a joint obligation each obligor answers only for
a part of the whole liability and to each obligee belongs only a part of the correlative rights.
Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability
only when the obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.
In the dispositive portion of the Labor Arbiter, the word solidary does not appear. The said fallo expressly
states the following respondents therein as liable, namely: Filipinas Carbon and Mining Corporation,
Gerardo Sicat, Antonio Gonzales, Industrial Management Development Corporation (petitioner INIMACO),
Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom that the liability of the six (6)
respondents in the case below is solidary, thus their liability should merely be joint.
Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment
that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be
compelled to satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto and Mabanag this Court
held:
It is of no consequence that, under the contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which superseded the
action for the enforcement of said contract, declared the obligation to be merely joint, and the same
cannot be executed otherwise.
Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that
the liability of respondents therein is solidary, the correctionwhich is substantialcan no longer be
allowed in this case because the judgment has already become final and executory.
It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in
the dispositive part of a decision or order is the controlling factor as to settlement of rights of the parties.
Once a decision or order becomes final and executory, it is removed from the power or jurisdiction of the
court which rendered it to further alter or amend it. It thereby becomes immutable and unalterable and
any amendment or alteration which substantially affects a final and executory judgment is null and void for
lack of jurisdiction, including the entire proceedings held for that purpose. An order of execution which
varies the tenor of the judgment or exceeds the terms thereof is a nullity.
None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10, 1987,
hence the same became final and executory. It was, therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus, the proceedings held for the purpose of amending or
altering the dispositive portion of the said decision are null and void for lack of jurisdiction. Also, the Alias
Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to enforce
the final judgment against Antonio Gonzales/Industrial Management Development Corp. (INIMACO) and/or
Filipinas Carbon and Mining Corp. and Gerardo Sicat, which makes the liability solidary.
WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent
National Labor Relations is hereby declared NULL and VOID. The liability of the respondents in RAB-VTI0711-84 pursuant to the Decision of the Labor Arbiter dated March 10, 1987 should be, as it is hereby,
considered joint and petitioners payment which has been accepted considered as full satisfaction of its
liability, without prejudice to the enforcement of the award, against the other five (5) respondents in the
said case.
SO ORDERED.
No. L-55138. September 28, 1984.*

ERNESTO V. RONQUILLO, petitioner, vs. HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.
Certiorari; Motions; Exceptions to the rule that certiorari is premature where motion for reconsideration still
pending.Anent the first issue raised, suffice it to state that while as a general rule, a motion for
reconsideration should precede recourse to certiorari in order to give the trial court an opportunity to
correct the error that it may have committed, the said rule is not absolute and may be dispensed with in
instances where the filing of a motion for reconsideration would serve no useful purpose, such as when the
motion for reconsideration would raise the same point stated in the motion or where the error is patent for
the order is void or where the relief is extremely urgent, as in cases where execution had already been
ordered where the issue raised is one purely of law.
Same; Same; Urgency of certiorari even if motion for reconsideration pending is justified by fact that sale
of petitioners property on execution was already about to proceed.In the case at bar, the records show
that not only was a writ of execution issued but petitioners properties were already scheduled to be sold
at public auction on April 2, 1980 at 10:00 a.m. The records likewise show that petitioners motion for
reconsideration of the questioned Order of Execution was filed on March 17, 1980 and was set for hearing
on March 25, 1980 at 8:30 a.m., but upon motion of private respondent, the hearing was reset to April 2,
1980 at 8:30 a.m., the very same day when petitioners properties were to be sold at public auction.
Needless to state that under the circumstances, petitioner was faced with imminent danger of his
properties being immediately sold the moment his motion for reconsideration is denied. Plainly, urgency
prompted recourse to the Court of Appeals and the adequate and speedy remedy for petitioner under the
situation was to file a petition for certiorari with prayer for restraining order to stop the sale. For him to
wait until after the hearing of the motion for reconsideration on April 2, 1980 before taking recourse to the
appellate court may already be too late since without a restraining order, the public sale can proceed at
10:00 that morning. In fact, the said motion was already denied by the lower court in its order dated April
2, 1980 and were it not for the pendency of the petition with the Court of Appeals and the restraining order
issued thereafter, the public sale scheduled that very same morning could have proceeded.
Contracts; Obligations; An agreement to be individually liable or individually and jointly liable denotes
a solidary obligation, not a joint liability.Clearly then, by the express term of the compromise agreement
and the decision based upon it, the defendants obligated themselves to pay their obligation individually
and jointly. The term individually has the same meaning as collectively, separately, distinctively,
respectively or severally. An agreement to be individually liable undoubtedly creates a several
obligation, and a several obligation is one by which one individual binds himself to perform the whole
obligation.
Same; Same; Same.In the case of Parot vs. Gemora We therein ruled that the phrase juntos or
separadamente used in the promissory note is an express statement making each of the persons who
signed it individually liable for the payment of the full amount of the obligation contained therein.
Likewise in Un Pak Leung vs. Negorra We held that in the absence of a finding of facts that the defendants
made themselves individually liable for the debt incurred they are each liable only for one-half of said
amount. The obligation in the case at bar being described as individually and jointly, the same is
therefore enforceable against one of the numerous obligors.
PETITION to review the resolution of the Court of Appeals.
Gloria A. Fortun for petitioner.
Roselino Reyes Isler for respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980 of the then Court of Appeals (now the
Intermediate Appellate Court) in CA-G.R. No. SP-10573, entitled Ernesto V. Ronquillo versus the Hon.
Florellana Castro-Bartolome, etc. and the Order of said court dated August 20, 1980, denying petitioners
motion for reconsideration of the above resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958 of the then Court of
First Instance of Rizal (now the Regional Trial Court), Branch XV filed by private respondent Antonio P. So,
on July 23, 1979, for the collection of the sum of P117,498.98 plus attorneys fees and costs. The other
defendants were Offshore Catertrade, Inc., Johnny Tan and Pilar Tan. The amount of P117,498.98 sought to
be collected represents the value of the checks issued by said defendants in payment for foodstuffs
delivered to and received by them. The said checks were dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its Decision based on the compromise agreement
submitted by the parties, the pertinent portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to
acknowledge the validity of such claim and further bind themselves to initially pay out of the total
indebtedness of P110,000.00 the amount of P55,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay within a period of six months from January
1980, or before June 30, 1980; (Italics supplied)
xxx
xxx
xxx
4. That both parties agree that failure on the part of either party to comply with the foregoing terms and
conditions, the innocent party will be entitled to an execution of the decision based on this compromise
agreement and the defaulting party agrees and hold themselves to reimburse the innocent party for
attorneys fees, execution fees and other fees related with the execution.
xxx
xxx
x x x.
On December 26, 1979, herein private respondent (then plaintiff) filed a Motion for Execution on the
ground that defendants failed to make the initial payment of P55,000.00 on or before December 24, 1979
as provided in the Decision. Said motion for execution was opposed by herein petitioner (as one of the
defendants) contending that his inability to make the payment was due to private respondents own act of
making himself scarce and inaccessible on December 24, 1979. Petitioner then prayed that private
respondent be ordered to accept his payment in the amount of P13,750.00.
During the hearing of the Motion for Execution and the Opposition thereto on January 16, 1980, petitioner,
as one of the four defendants, tendered the amount of P13,750.00, as his prorata share in the P55,000.00
initial payment. Another defendant, Pilar P. Tan, offered to pay the same amount. Because private
respondent refused to accept their payments, demanding from them the full initial installment of
P55,000.00, petitioner and Pilar Tan instead deposited the said amount with the Clerk of Court. The amount
deposited was subsequently withdrawn by private respondent.
On the same day, January 16, 1980, the lower court ordered the issuance of a writ of execution for the
balance of the initial amount payable, against the other two defendants, Offshore Catertrade, Inc. and
Johnny Tan, who did not pay their shares.
On January 22, 1980, private respondent moved for the reconsideration and/or modification of the
aforesaid Order of execution and prayed instead for the execution of the decision in its entirety against all
defendants, jointly and severally. Petitioner opposed the said motion arguing that under the decision of
the lower court being executed which has already become final, the liability of the four (4) defendants was
not expressly declared to be solidary, consequently each defendant is obliged to pay only his own pro-rata
or 1/4 of the amount due and payable.
On March 17, 1980, the lower court issued an Order reading as follows:
ORDER
Regardless of whatever the compromise agreement has intended the payment whether jointly or
individually, or jointly and severally, the fact is that only P27,500.00 has been paid. There appears to be a
non-payment in accordance with the compromise agreement of the amount of P27,500.00 on or before
December 24, 1979. The parties are reminded that the payment is condition sine qua non to the lifting of
the preliminary attachment and the execution of an affidavit of desistance.
WHEREFORE, let writ of execution issue as prayed for.
On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same was set for
hearing on March 25, 1980.
Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the satisfaction of
the sum of P82,500.00 as against the properties of the defendants (including petitioner), singly or jointly
liable.
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of sheriffs sale, for the sale
of certain furnitures and appliances found in petitioners residence to satisfy the sum of P82,500.00. The
public sale was scheduled for April 2, 1980 at 10:00 a.m.
Petitioners motion for reconsideration of the Order of Execution dated March 17, 1980 which was set for
hearing on March 25, 1980, was upon motion of private respondent reset to April 2, 1980 at 8:30 a.m..
Realizing the actual threat to his property rights poised by the re-setting of the hearing of his motion for
reconsideration for April 2, 1980 at 8:30 a.m. such that if his motion for reconsideration would be denied
he would have no more time to obtain a writ from the appellate court to stop the scheduled public sale of
his personal properties at 10:00 a.m. of the same day, April 2, 1980, petitioner filed on March 26, 1980 a
petition for certiorari and prohibition with the then Court of Appeals (CA-G.R. No. SP-10573), praying at the
same time for the issuance of a restraining order to stop the public sale. He raised the question of the
validity of the order of execution, the writ of execution and the notice of public sale of his properties to
satisfy fully the entire unpaid obligation payable by all of the four (4) defendants, when the lower courts
decision based on the compromise agreement did not specifically state the liability of the four (4)
defendants to be solidary.
On April 2, 1980, the lower court denied petitioners motion for reconsideration but the scheduled public
sale in that same day did not proceed in view of the pendency of a certiorari proceeding before the then
Court of Appeals.
On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as follows:
This Court, however, finds the present petition to have been filed prematurely. The rule is that before a
petition for certiorari can be brought against an order of a lower court, all remedies available in that court
must first be exhausted. In the case at bar, herein petitioner filed a petition without waiting for a resolution
of the Court on the motion for reconsideration, which could have been favorable to the petitioner. The fact
that the hearing of the motion for reconsideration had been reset on the same day the public sale was to
take place is of no moment since the motion for reconsideration of the Order of March 17, 1980 having
been seasonably filed, the scheduled public sale should be suspended. Moreover, when the defendants,
including herein petitioner, defaulted in their obligation based on the compromise agreement, private
respondent had become entitled to move for an execution of the decision based on the said agreement.
WHEREFORE, the instant petition for certiorari and prohibition with preliminary injunction is hereby denied
due course. The restraining order issued in our resolution dated April 9, 1980 is hereby lifted without
SO ORDERED.
Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower court had
already denied the motion referred to and consequently, the legal issues being raised in the petition were
already ripe for determination. The said motion was however denied by the Court of Appeals in its
Resolution dated August 20, 1980.
Hence, this petition for review, petitioner contending that the Court of Appeals erred in
(a) declaring as premature, and in denying due course to the petition to restrain implementation of a writ
of execution issued at variance with the final decision of the lower court filed barely four (4) days before
the scheduled public sale of the attached movable properties;
(b) denying reconsideration of the Resolution of June 30, 1980, which declared as premature the filing of
the petition, although there is proof on record that as of April 2, 1980, the motion referred to was already
denied by the lower court and there was no more motion pending therein;
(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the
defendants, under the final decision of the lower court, to be only joint;
(d) not holding the lower courts order of execution dated March 17, 1980, the writ of execution and the
notice of sheriffs sale, executing the lower courts decision against all defendants, singly and jointly, to
be at variance with the lower courts final decision which did not provide for solidary obligation; and
(e) not declaring as invalid and unlawful the threatened execution, as against the properties of petitioner
who had paid his pro-rata share of the adjudged obligation, of the total unpaid amount payable by his joint
co-defendants.
The foregoing assigned errors maybe synthesized into the more important issues of
1. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of Execution
issued by the lower court, dated March 17, 1980, proper, despite the pendency of a motion for
reconsideration of the same questioned Order?
2. What is the nature of the liability of the defendants (including petitioner), was it merely joint, or was it
several or solidary?
Anent the first issue raised, suffice it to state that while as a general rule, a motion for reconsideration
should precede recourse to certiorari in order to give the trial court an opportunity to correct the error that
it may have committed, the said rule is not absolute and may be dispensed with in instances where the
filing of a motion for reconsideration would serve no useful purpose, such as when the motion for
reconsideration would raise the same point stated in the motion or where the error is patent for the order
is void or where the relief is extremely urgent, as in cases where execution had already been ordered
where the issue raised is one purely of law.
In the case at bar, the records show that not only was a writ of execution issued but petitioners properties
were already scheduled to be sold at public auction on April 2, 1980 at 10:00 a.m. The records likewise
show that petitioners motion for reconsideration of the questioned Order of Execution was filed on March
17, 1980 and was set for hearing on March 25, 1980 at 8:30 a.m., but upon motion of private respondent,
the hearing was reset to April 2, 1980 at 8:30 a.m., the very same day when petitioners properties were to
be sold at public auction. Needless to state that under the circumstances, petitioner was faced with
imminent danger of his properties being immediately sold the moment his motion for reconsideration is
denied. Plainly, urgency prompted recourse to the Court of Appeals and the adequate and speedy remedy
for petitioner under the situation was to file a petition for certiorari with prayer for restraining order to stop
the sale. For him to wait until after the hearing of the motion for reconsideration on April 2, 1980 before
taking recourse to the appellate court may already be too late since without a restraining order, the public
sale can proceed at 10:00 that morning. In fact, the said motion was already denied by the lower court in
its order dated April 2, 1980 and were it not for the pendency of the petition with the Court of Appeals and
the restraining order issued thereafter, the public sale scheduled that very same morning could have
proceeded.
The other issue raised refers to the nature of the liability of petitioner, as one of the defendants in Civil
Case No. 33958, that is whether or not he is liable jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligation to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal
shares as there are creditors and debtors, the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits.
The decision of the lower court based on the parties compromise agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to
acknowledge the validity of such claim and further bind themselves to initially pay out of the total
indebtedness of P110,000.00, the amount of P55,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay within a period of six months from January
1980 or before June 30, 1980. (Italics supplied)
Clearly then, by the express term of the compromise agreement and the decision based upon it, the
defendants obligated themselves to pay their obligation individually and jointly.
The term individually has the same meaning as collectively, separately, distinctively, respectively
or severally. An agreement to be individually liable undoubtedly creates a several obligation, and a
several obligation is one by which one individual binds himself to perform the whole obligation.
In the case of Parot vs. Gemora We therein ruled that the phrase juntos or separadamente used in the
promissory note is an express statement making each of the persons who signed it individually liable for
the payment of the full amount of the obligation contained therein. Likewise in Un Pak Leung vs. Negorra
We held that in the absence of a finding of facts that the defendants made themselves individually liable
for the debt incurred they are each liable only for one-half of said amount.
The obligation in the case at bar being described as individually and jointly, the same is therefore
enforceable against one of the numerous obligors.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby DISMISSED. Cost against
petitioner.
SO ORDERED.
G.R. No. 144413. July 30, 2004.*

REPUBLIC GLASS CORPORATION and GERVEL, INC., petitioners, vs. LAWRENCE C. QUA, respondent.
Actions; Estoppel in Pais; Elements.The essential elements of estoppel in pais are considered in relation
to the party to be estopped, and to the party invoking the estoppel in his favor. On the party to be
estopped, such party (1) commits conduct amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the facts are inconsistent with those which the
party subsequently attempts to assert; (2) has the intent, or at least expectation that his conduct shall at
least influence the other party; and (3) has knowledge, actual or constructive, of the real facts. On the
party claiming the estoppel, such party (1) has lack of knowledge and of the means of knowledge of the
truth on the facts in question; (2) has relied, in good faith, on the conduct or statements of the party to be
estopped; (3) has acted or refrained from acting based on such conduct or statements as to change the
position or status of the party claiming the estoppel, to his injury, detriment or prejudice.
Same; Admissions; Judicial Admissions; Elements; To constitute judicial admission, the admission must be
made in the same case in which it is offered.RGC and Gervel further invoke Section 4 of Rule 129 of the
Rules of Court to support their stance: Sec. 4. Judicial admissions.An admission, verbal or written, made
by a party in the course of the proceedings in the same case, does not require proof. The admission may
be contradicted only by showing that it was made through palpable mistake or that no such admission was
made. A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial
either by verbal or written manifestations or stipulations, or (c) in other stages of the judicial proceeding.
The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection
Case No. 8364 and in Foreclosure Case No. 88-2643, and not in the same case as required in Section 4 of
Rule 129. To constitute judicial admission, the admission must be made in the same case in which it is
offered. If made in another case or in another court, the fact of such admission must be proved as in the
case of any other fact, although if made in a judicial proceeding it is entitled to greater weight.
Obligations and Contracts; Payment of the entire obligation by one or some of the solidary debtors results
in a corresponding obligation of the other debtors to reimburse the paying debtor.Payment of the entire
obligation by one or some of the solidary debtors results in a corresponding obligation of the other debtors
to reimburse the paying debtor. However, we agree with RGC and Gervels contention that in this case
payment of the entire obligation is not an essential condition before they can seek reimbursement from
Qua. The words of the Agreements are clear.
Same; Words and Phrases; Contract of Indemnity Against Loss and Contract of Indemnity Against
Liability, Distinguished.The Agreements are contracts of indemnity not only against actual loss but
against liability as well. In Associated Insurance & Surety Co., Inc. v. Chua, we distinguished between a
contract of indemnity against loss and a contract of indemnity against liability, thus: The agreement here
sued upon is not only one of indemnity against loss but of indemnity against liability. While the first does
not render the indemnitor liable until the person to be indemnified makes payment or sustains loss, the
second becomes operative as soon as the liability of the person indemnified arises irrespective of whether
or not he has suffered actual loss. (Emphasis supplied)
Same; If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors
only in so far as his payment exceeded his share in the obligation.Contrary to RGC and Gervels claim,
payment of any amount will not automatically result in reimbursement. If a solidary debtor pays the
obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment
exceeded his share in the obligation. This is precisely because if a solidary debtor pays an amount equal to
his proportionate share in the obligation, then he in effect pays only what is due from him. If the debtor
pays less than his share in the obligation, he cannot demand reimbursement because his payment is less
than his actual debt.
Same; Novation; Novation is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.Novation extinguishes an obligation by (1) changing its
object or principal conditions; (2) substituting the person of the debtor; and (3) subrogating a third person
in the rights of the creditor. Article 1292 of the Civil Code clearly provides that in order that an obligation
may be extinguished by another which substitutes the same, it should be declared in unequivocal terms,
or that the old and new obligations be on every point incompatible with each other. Novation may either
be extinctive or modificatory. Novation is extinctive when an old obligation is terminated by the creation of
a new obligation that takes the place of the former. Novation is merely modificatory when the old
obligation subsists to the extent it remains compatible with the amendatory agreement.
Same; A creditor may choose to proceed only against some and not all of the solidary debtors.We find
that there was no novation of the Agreements. The parties did not constitute a new obligation to substitute
the Agreements. The terms and conditions of the Agreements remain the same. There was also no showing
of complete incompatibility in the manner of payment of the parties obligations. Contrary to the Court of
Appeals ruling, the mode or manner of payment by the parties did not change from one for the entire
obligation to one merely of proportionate share. The creditors, namely Metrobank and PDCP, merely
proceeded against RGC and Gervel for their proportionate shares only. This preference is within the
creditors discretion which did not necessarily affect the nature of the obligations as well as the terms and
conditions of the Agreements. A creditor may choose to proceed only against some and not all of the
solidary debtors. The creditor may also choose to collect part of the debt from some of the solidary
debtors, and the remaining debt from the other solidary debtors.
Pastelero Law Office for petitioner.
Singson, Valdez & Associates for respondents.
CARPIO, J.:
The Case
Before the Court is a petition for review assailing the 6 March 2000 Decision and the 26 July 2000
Resolution of the Court of Appeals in CA-G.R. CV No. 54737. The Court of Appeals set aside the Order of 3
May 1996 of the Regional Trial Court of Makati, Branch 63 (RTC-Branch 63), in Civil Case No. 88-264 and
reinstated the Decision of 12 January 1996 in respondents favor.
The Facts
Petitioners Republic Glass Corporation (RGC) and Gervel, Inc. (Gervel) together with respondent
Lawrence C. Qua (Qua) were stockholders of Ladtek, Inc. (Ladtek). Ladtek obtained loans from
Metropolitan Bank and Trust Company (Metrobank) and Private Development Corporation of the
Philippines (PDCP) with RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua
executed Agreements for Contribution, Indemnity and Pledge of Shares of Stocks (Agreements).
The Agreements all state that in case of default in the payment of Ladteks loans, the parties would
reimburse each other the proportionate share of any sum that any might pay to the creditors. Thus, a
common provision appears in the Agreements:
RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the
Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party
made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will
make such payments within five (5) days from the date that the party made to pay the Lenders gives
written notice to the parties hereto that it shall have become liable therefor and has advised the Lenders
of its willingness to pay whether or not it shall have already paid out such sum or any part thereof to the
Lenders or to the persons entitled thereto. (Emphasis supplied)
Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling
Corporation (GMC) in favor of RGC and Gervel. The pledged shares of stock served as security for the
payment of any sum which RGC and Gervel may be held liable under the Agreements.
Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed a collection case
against Ladtek, RGC, Gervel and Qua docketed as Civil Case No. 8364 (Collection Case No. 8364) which
was raffled to the Regional Trial Court of Makati, Branch 149 (RTC-Branch 149). During the pendency of
Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. Later, Metrobank executed a waiver
and quitclaim dated 7 September 1988 in favor of RGC and Gervel. Based on this waiver and quitclaim,
Metrobank, RGC and Gervel filed on 16 September 1988 a joint motion to dismiss Collection Case No. 8364
against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the case against RGC and Gervel, leaving
Ladtek and Qua as defendants.
In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that
Qua pay P3,860,646, or 42.22% of P8,730,543.55, as reimbursement of the total amount RGC and Gervel
paid to Metrobank and PDCP. Qua refused to reimburse the amount to RGC and Gervel. Subsequently, RGC
and Gervel furnished Qua with notices of foreclosure of Quas pledged shares.
Qua filed a complaint for injunction and damages with application for a temporary restraining order,
docketed as Civil Case No. 88-2643 (Foreclosure Case No. 88-2643), with RTC-Branch 63 to prevent RGC
and Gervel from foreclosing the pledged shares. Although it issued a temporary restraining order on 9
December 1988, RTC-Branch 63 denied on 2 January 1989 Quas Urgent Petition to Suspend Foreclosure
Sale. RGC and Gervel eventually foreclosed all the pledged shares of stock at public auction. Thus, Quas
application for the issuance of a preliminary injunction became moot.
Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss in Collection
Case No. 8364 as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states:
8.The foregoing facts show that the payment of defendants Republic Glass Corporation and Gervel, Inc.
was for the entire obligation covered by the Continuing Surety Agreements which were Annexes B and
C of the Complaint, and that the same naturally redound[ed] to the benefit of defendant Qua herein, as
provided for by law, specifically Article 1217 of the Civil Code, which states that:
xxx
10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much
more than the amount stipulated in the Continuing Surety Agreement which is the basis for the action
against them and defendant Qua, which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS
(P6,200,000.00), hence, logically the said alleged obligation must now be considered as fully paid and
extinguished.
RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing
Collection Case No. 8364, which RTC-Branch 149 subsequently reversed on Metrobanks motion for
reconsideration. Thus, RTC-Branch 149 reinstated Collection Case No. 8364 against Qua.
On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643 (12 January
1996 Decision) ordering RGC and Gervel to return the foreclosed shares of stock to Qua. The dispositive
portion of the 12 January 1996 Decision reads:
WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants jointly and
severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling Corporation
which they foreclosed on December 9, 1988, or should the return of these shares be no longer possible
then to pay to plaintiff the amount of P3,860,646.00 with interest at 6% per annum from December 9,
1988 until fully paid and to pay plaintiff P100,000.00 as and for attorneys fees. The costs will be for
defendants account.
SO ORDERED.
However, on RGC and Gervels Motion for Reconsideration, RTC-Branch 63 issued its Order of 3 May 1996
(3 May 1996 Order) reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order
states:
After a thorough review of the records of the case, and an evaluation of the evidence adduced by the
parties as well as their contentions, the issues to be resolved boil down to the following:
1. Whether or not the parties obligation to reimburse, under the Indemnity Agreements was premised on
the payment by any of them of the entire obligation;
2. Whether or not there is basis to plaintiffs apprehension that he would be made to pay twice for the
single obligation; and
3. Whether or not plaintiff was benefited by the payments made by defendants.

Regarding the first issue, a closer scrutiny of the pertinent provisions of the Indemnity Agreements
executed by the parties would not reveal any significant indication that the parties liabilities are indeed
premised on the payment by any of them of the entire obligation. These agreements clearly provide that
the parties obligation to reimburse accrues upon mere advice that one of them has paid or will so pay the
obligation. It is not specified whether the payment is for the entire obligation or not.
Accordingly, the Court stands corrected in this regard. The obvious conclusion that can be seen now is that
payment of the entire obligation is not a condition sine qua non for the paying party to demand
reimbursement. The parties have expressly contracted that each will reimburse whoever is made to pay
the obligation whether entirely or just a portion thereof.
On the second issue, plaintiffs apprehension that he would be made to pay twice for the single obligation
is unfounded. Under the abovementioned Indemnity Agreements, in the event that the creditors are able
to collect from him, he has the right to ask defendants to pay their proportionate share, in the same way
defendants had collected from the plaintiff, by foreclosing his pledged shares of stock, his proportionate
share, after they had made payments. From all indications, the provisions of the Indemnity Agreements
have remained binding between the parties.
On the third issue, there is merit to defendants assertion that plaintiff has benefited from the payments
made by defendants. As alleged by defendants, and this has not been denied by plaintiff, in Civil Case No.
8364 filed before Branch 149 of this Court, where the creditors were enforcing the parties liabilities as
sureties, plaintiff succeeded in having the case dismissed by arguing that defendants payments [were] for
the entire obligation, hence, the obligation should be considered fully paid and extinguished. With the
dismissal of the case, the indications are that the creditors are no longer running after plaintiff to enforce
his liabilities as surety of Ladtek.
Whether or not the surety agreements signed by the parties and the creditors were novated is not material
in this controversy. The fact is that there was payment of the obligation. Hence, the Indemnity Agreements
govern.
In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the former.
Having failed to do so, upon demand, defendants were justified in foreclosing the pledged shares of stocks.
xxx
WHEREFORE, premises considered, the decision dated January 12, 1996 is reconsidered and set aside. The
above-entitled complaint against defendants is DISMISSED.
Likewise, defendants counterclaim is also dismissed.
SO ORDERED. (Emphasis supplied)
Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied.
Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a
Manifestation with the Court of Appeals attaching the Decision of 21 November 1996 rendered in
Collection Case No. 8364. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek, Inc. and
Lawrence C. Qua:
1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October 31, 1987 plus the
stipulated interest of 30.73% per annum and penalty charges of 12% per annum from November 1, 1987
until the whole amount is fully paid, less P7,000,000.00 paid by defendants Republic Glass Corporation and
Gervel, Inc., but the liability of defendant Lawrence C. Qua should be limited only to P5,000,000.00 and
P1,200,000.00, the amount stated in the Continuing Suretyship dated June 15, 1983, Exh. D and
Continuing Suretyship dated December 14, 1981, Exh. D-1, respectively, plus the stipulated interest and
expenses incurred by the plaintiff.
2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%) percent of the total amount
due as and by way of attorneys fees;
3. To pay the cost of suit.
The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against the plaintiff are hereby
dismissed.
Likewise, the cross-claims of the defendants are dismissed.
SO ORDERED. (Emphasis supplied)
On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3 May 1996
Order of RTC-Branch 63 and reinstating the 12 January 1996 Decision ordering RGC and Gervel to return
the foreclosed shares of stock to Qua.
Hence, this petition.
The Ruling of the Court of Appeals
In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellate court
quoted the RTC-Branch 63s 12 January 1996 Decision:
The liability of each party under the indemnity agreements therefore is premised on the payment by any of
them of the entire obligation. Without such payment, there would be no corresponding share to reimburse.
Payment of the entire obligation naturally redounds to the benefit of the other solidary debtors who must
then reimburse the paying co-debtors to the extent of his corresponding share.
In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish
the entire obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and so
they ceased to be solidarily liable with plaintiff for the balance of the debt (Exhs. D, E, and I). Plaintiff
thus became solely liable for the unpaid portion of the debt even as he is being held liable for
reimbursement on the said portion.
What happened therefore, was that Metrobank and PDCP in effect enforced the Suretyship Agreements
jointly as against plaintiff and defendants. Consequently, the solidary obligation under the Suretyship
Agreements was novated by the substantial modification of its principal conditions. x x x The resulting
change was from one with three solidary debtors to one in which Lawrence Qua became the sole solidary
co-debtor of Ladtek.
Defendants cannot simply pay off a portion of the debt and then absolve themselves from any further
liability when the obligation has not been totally extinguished.
xxx
In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was
totally unjustified and without basis because the obligation secured by the underlying pledge had been
extinguished by novation. x x x
The Court of Appeals further held that there was an implied novation or substantial incompatibility in the
suretys mode or manner of payment from one for the entire obligation to one merely of proportionate
share. The appellate court ruled that RGC and Gervels payment to the creditors only amounted to their
proportionate shares of the obligation, considering the following evidence:
The letter of the Republic to the appellant, Exhibit G, dated June 25, 1987, which mentioned the letter
from PDCP confirming its willingness to release the joint and solidary obligation of the Republic and Gervel
subject to some terms and conditions, one of which is the appellants acceptable repayment plan of his
pro-rata share; and the letter of PDCP to the Republic, Exhibit H, mentioning full payment of the pro
rata share of the Republic and Gervel, and the need of the appellant to submit an acceptable repayment
plan covering his pro-rata share, the release from solidary liability by PDCP, Exhibit J, mentioning full
payment by the Republic and Gervel of their pro rata share in the loan, as solidary obligors, subject
however to the terms and conditions of the hold out agreement; and the non-payment in full of the loan,
subject of the May 10, 1984 Promissory Note, except the 7 million payment by both Republic and Gervel,
as mentioned in the Decision (Case No. 8364, Metrobank vs. Ladtek, et al.). Precisely, Ladtek and the
appellant, in said Decision were directed to pay Metrobank the balance of P9,560,798, supposedly due and
unpaid.
Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and
Gervel cannot demand reimbursement. The Court of Appeals also held that Qua even became solely
answerable for the unpaid balance of the obligations by virtue of the quitclaims executed by Metrobank
and PDCP in favor of RGC and Gervel. RGC and Gervel ceased to be solidarily liable for Ladteks loan
obligations.
The Issues
RGC and Gervel raise the following issues for resolution:
I.
II.
III.
WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIAL STATEMENTS THAT RGC
AND GERVEL PAID THE ENTIRE OBLIGATION.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NON FOR RGC AND
GERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY AGREEMENTS
EXECUTED BY THEM AFTER RGC AND GERVEL PAID METROBANK UNDER THE SURETY
AGREEMENT.
ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED BY
THE PARTIES AND THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS CASE.
The Courts Ruling

We deny the petition.
Whether Qua was in estoppel
RGC and Gervel contend that Qua is in estoppel for making conflicting statements in two different and
separate cases. Qua cannot now claim that the payment made to Metrobank was not for the entire
obligation because of his Motion to Dismiss Collection Case No. 8364 where he stated that RGC and
Gervels payment was for the entire obligation.
The essential elements of estoppel in pais are considered in relation to the party to be estopped, and to
the party invoking the estoppel in his favor. On the party to be estopped, such party (1) commits conduct
amounting to false representation or concealment of material facts or at least calculated to convey the
impression that the facts are inconsistent with those which the party subsequently attempts to assert; (2)
has the intent, or at least expectation that his conduct shall at least influence the other party; and (3) has
knowledge, actual or constructive, of the real facts. On the party claiming the estoppel, such party (1) has
lack of knowledge and of the means of knowledge of the truth on the facts in question; (2) has relied, in
good faith, on the conduct or statements of the party to be estopped; (3) has acted or refrained from
acting based on such conduct or statements as to change the position or status of the party claiming the
estoppel, to his injury, detriment or prejudice.
In this case, the essential elements of estoppel are inexistent.
While Quas statements in Collection Case No. 8364 conflict with his statements in Foreclosure Case No.
88-2643, RGC and Gervel miserably failed to show that Qua, in making those statements, intended to
falsely represent or conceal the material facts. Both parties undeniably know the real facts.
Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364
such that they changed their position or status, to their injury, detriment or prejudice. RGC and Gervel
repeatedly point out that it was the presiding judge in Collection Case No. 8364 who relied on Quas
statements in Collection Case No. 8364. RGC and Gervel claim that Qua deliberately led the Presiding
Judge to believe that their payment to Metrobank was for the entire obligation. As a result, the presiding
judge ordered the dismissal of Collection Case No. 8364 against Qua.
RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support their stance:
Sec. 4. Judicial admissions.An admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by showing
that it was made through palpable mistake or that no such admission was made.
A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by
verbal or written manifestations or stipulations, or (c) in other stages of the judicial proceeding.
The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection
Case No. 8364 and in Foreclosure Case No. 88-2643, and not in the same case as required in Section 4 of
Rule 129. To constitute judicial admission, the admission must be made in the same case in which it is
offered. If made in another case or in another court, the fact of such admission must be proved as in the
case of any other fact, although if made in a judicial proceeding it is entitled to greater weight.
RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing Collection Case No. 8364 to
prove Quas claim that the payment was for the entire obligation. Qua does not deny making such
statement but explained that he honestly believed and pleaded in the lower court and in CA-G.R. CV No.
58550 that the entire debt was fully extinguished when the petitioners paid P7 million to Metrobank.
We find Quas explanation substantiated by the evidence on record. As stated in the Agreements, Ladteks
original loan from Metrobank was only P6.2 million. Therefore, Qua reasonably believed that RGC and
Gervels P7 million payment to Metrobank pertained to the entire obligation. However, subsequent facts
indisputably show that RGC and Gervels payment was not for the entire obligation. RTC-Branch 149
reinstated Collection Case No. 8364 against Qua and ruled in Metrobanks favor, ordering Qua to pay P6.2
million.
Whether payment of the entire obligation is an essential condition for reimbursement
RGC and Gervel assail the Court of Appeals ruling that the parties liabilities under the Agreements
depend on the full payment of the obligation. RGC and Gervel insist that it is not an essential condition
that the entire obligation must first be paid before they can seek reimbursement from Qua. RGC and
Gervel contend that Qua should pay 42.22% of any amount which they paid or would pay Metrobank and
PDCP.
RGC and Gervels contention is partly meritorious.
Payment of the entire obligation by one or some of the solidary debtors results in a corresponding
obligation of the other debtors to reimburse the paying debtor. However, we agree with RGC and Gervels
contention that in this case payment of the entire obligation is not an essential condition before they can
seek reimbursement from Qua. The words of the Agreements are clear.
RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the
Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party
made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will
make such payments within five (5) days from the date that the party made to pay the Lenders gives
written notice to the parties hereto that it shall have become liable therefor and has advised the Lenders
of its willingness to pay whether or not it shall have already paid out such sum or any part thereof to the
Lenders or to the persons entitled thereto. (Emphasis supplied)
The Agreements are contracts of indemnity not only against actual loss but against liability as well. In
Associated Insurance & Surety Co., Inc. v. Chua, we distinguished between a contract of indemnity against
loss and a contract of indemnity against liability, thus:
The agreement here sued upon is not only one of indemnity against loss but of indemnity against liability.
While the first does not render the indemnitor liable until the person to be indemnified makes payment or
sustains loss, the second becomes operative as soon as the liability of the person indemnified arises
irrespective of whether or not he has suffered actual loss. (Emphasis supplied)
Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify
the former once his liability becomes absolute. However, in this case, the liability of RGC, Gervel and Qua
became absolute simultaneously when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and
Qua all became directly liable at the same time to Metrobank and PDCP. Thus, RGC and Gervel cannot
automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP.
If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more
than his stipulated liability under the Agreements. In addition to the P3,860,646 claimed by RGC and
Gervel, Qua would have to pay his liability of P6.2 million to Metrobank and more than P1 million to PDCP.
Since Qua would surely exceed his proportionate share, he would then recover from RGC and Gervel the
excess payment. This situation is absurd and circuitous.
Contrary to RGC and Gervels claim, payment of any amount will not automatically result in
reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from the codebtors only in so far as his payment exceeded his share in the obligation. This is precisely because if a
solidary debtor pays an amount equal to his proportionate share in the obligation, then he in effect pays
only what is due from him. If the debtor pays less than his share in the obligation, he cannot demand
reimbursement because his payment is less than his actual debt.
To determine whether RGC and Gervel have a right to reimbursement, it is indispensable to ascertain the
total obligation of the parties. At this point, it becomes necessary to consider the decision in Collection
Case No. 8364 on the parties obligation to Metrobank. To repeat, Metrobank filed Collection Case No. 8364
against Ladtek, RGC, Gervel and Qua to collect Ladteks unpaid loan.
RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. 8364
because Qua did not offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 subject
of this petition. RTC-Branch 62 rendered the decision in Collection Case No. 8364 on 21 November 1996
while Qua filed his Notice of Appeal of the 3 May 1996 Order on 19 June 1996. Qua could not have possibly
offered in evidence the decision in Collection Case No. 8364 because RTC-Branch 62 rendered the decision
only after Qua elevated the present case to the Court of Appeals. Hence, Qua submitted the decision in
Collection Case No. 8364 during the pendency of the appeal of Foreclosure Case No. 88-2643 in the Court
of Appeals.
As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October
1987. During the pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million.
Because of the payment, Metrobank executed a quitclaim in favor of RGC and Gervel. By virtue of
Metrobanks quitclaim, RTC-Branch 62 dismissed Collection Case No. 8364 against RGC and Gervel, leaving
Ladtek and Qua as defendants. Considering that RGC and Gervel paid only P7 million out of the total
obligation of P14,200,854.37, which payment was less than RGC and Gervels combined shares in the
obligation, it was clearly partial payment. Moreover, if it were full payment, then the obligation would have
been extinguished. Metrobank would have also released Qua from his obligation.
RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that
PDCP executed in RGC and Gervels favor which stated that their payment of P1,730,543.55 served as full
payment of their corresponding proportionate share in Ladteks foreign currency loan. Moreover, PDCP
filed a collection case against Qua alone, docketed as Civil Case No. 2259, in the Regional Trial Court of
Makati, Branch 150.
Since they only made partial payments, RGC and Gervel should clearly and convincingly show that their
payments to Metrobank and PDCP exceeded their proportionate shares in the obligations before they can
seek reimbursement from Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed
that their payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot validly
seek reimbursement from Qua.
Whether there was novation of the Agreements
RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further contend
that any novation of the Agreements is immaterial to this case. RGC and Gervel disagreed with the Court
of Appeals on the effect of the implied novation which supposedly transpired in this case. The Court of
Appeals found that there was an implied novation or substantial incompatibility in the mode or manner of
payment by the surety from the entire obligation, to one merely of proportionate share. RGC and Gervel
claim that if it is true that an implied novation occurred, then the effect would be to release respondent
(Qua) as the entire obligation is considered extinguished by operation of law. Thus, Qua should now
reimburse RGC and Gervel his proportionate share under the surety agreements.
Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the
person of the debtor; and (3) subrogating a third person in the rights of the creditor. Article 1292 of the
Civil Code clearly provides that in order that an obligation may be extinguished by another which
substitutes the same, it should be declared in unequivocal terms, or that the old and new obligations be on
every point incompatible with each other. Novation may either be extinctive or modificatory. Novation is
extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of
the former. Novation is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.
We find that there was no novation of the Agreements. The parties did not constitute a new obligation to
substitute the Agreements. The terms and conditions of the Agreements remain the same. There was also
no showing of complete incompatibility in the manner of payment of the parties obligations. Contrary to
the Court of Appeals ruling, the mode or manner of payment by the parties did not change from one for
the entire obligation to one merely of proportionate share. The creditors, namely Metrobank and PDCP,
merely proceeded against RGC and Gervel for their proportionate shares only. This preference is within the
creditors discretion which did not necessarily affect the nature of the obligations as well as the terms and
conditions of the Agreements. A creditor may choose to proceed only against some and not all of the
solidary debtors. The creditor may also choose to collect part of the debt from some of the solidary
debtors, and the remaining debt from the other solidary debtors.
In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and
Gervel cannot validly foreclose the pledge of Quas GMC shares of stock which secured his obligation to
reimburse. Therefore, the foreclosure of the pledged shares of stock has no leg to stand on.
WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court of Appeals in CA-G.R.
CV No. 54737 is AFFIRMED. Costs against petitioners.
SO ORDERED.

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G.R. No. 175490.September 17, 2009.

8,362.50 (7,000.00) 323.57 3,607.32

Interest (1%) Penalty

Total Amount Due for the Month

798.44 798.44 81,440.58

8,362.50 (7,000.00) 83,515.00

835.15 835.15 85,185.30

835.15 835.15 85,185.30

835.15 835.15 85,185.30

835.15 835.15 85,185.30

835.15 835.15 85,185.30

835.15 835.15 85,185.30

835.15 835.15 85,185.30

948.44 948.44 96,740.58

921.53 921.53 93,995.56

921.53 921.53 93,995.56

821.53 821.53 83,795.56

G.R. No. 125944. June 29, 2001.*

G.R. No. 130886. January 29, 2004.*

[No. L-7900. January 12, 1956]

G.R. No. 48194. March 15, 1990.*

intention or meaning and as an important, significant, convincing, persuasive, or influential factor in

G.R. No. 180665.August 11, 2010.*

G.R. No. 112127. July 17, 1995.*

Juanito M. Acanto for petitioner.

[No. 24190. July 13, 1926]

G.R. No. 137909. December 11, 2003.*

[No. L-5003.June 27, 1953]

G.R. No. 107207. November 23, 1995.*

G.R. No. 120820. August 1, 2000.*

G.R. No. 165272. September 13, 2007.*

I have to concede that [EPCIB] has started to recover, .

G.R. No. 188661. April 11, 2012.*

The Ruling of the CA

No. L-39378. August 28, 1984.*

LESS: OLD MARITIME

PROJECT COST (MATERIALS

(Emphasis in the original)

G.R. No. 188064.June 1, 2011.*

G.R. No. 147695. September 13, 2007.*

G.R. No. 152346. November 25, 2005.*

4. Ordering defendants to pay the costs of suit.

G.R. No. 176791.November 14, 2012.*

1.The trial court shall determine:

No. L-45710. October 3, 1985.*

x x" (p. 46, rec.).

Hence, this instant petition by the Central Bank.

G.R. No. 101723. May 11, 2000.*

The factual antecedents are undisputed:

INIMACOs Motions are hereby DENIED. The Sheriff

No. L-55138. September 28, 1984.*

G.R. No. 144413. July 30, 2004.*

3. Whether or not plaintiff was benefited by the payments made by defendants.

The Courts Ruling

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