88

Civil Code; Book IV; Title I, Obligations, Chapter 2.Nature and effects.

Obligation to give (see 1246; 1163; 1166 1164. Generic thing- 1246)
Obligation to do; not to do (see 1244)

1163
standard- diligence of a good father of a family
• Canlas v Court of Appeals, G.R. No. 112160, February 28, 2000
• Bishop of Jaro v De la Pena; G.R. No. L-6913, November 21, 1913
• Obejera v Iga Sy; C.A. No. 34, April 29, 1946
• Africa v Caltex; G.R. No. L-12986, March 31, 1966

also distinguish from extraordinary diligence

• Philippine Airlines v Court of Appeals; G.R. No. 92501 March 6, 1992
• Sulpicio Lines v Court of Appeals; G.R. No. 113578 July 14, 1995
(see also 1173; 1244; 1246; 1349; 1733)
(incidental/accessory) duties of debtor to deliver a determinate thing

1164
What are fruits? (see 442; examples)
When is it time to deliver (tradition)?
Kinds of Delivery. Actual and constructive delivery.
Distinguish personal and real rights (in personam & in rem).
• Cruzado v Bustos & Escaler; G.R. No. L-10244, February 29, 1916

1165
Remedies of a creditor (obligations to give). Specific performance (see also 1170; 2215
[4]; gen rule [1174]); substituted performance.
• Jimmy Co v Court of Appeals; G.R. No. 124922 June 22, 1998
• Yu Tek v Gonzales; G.R. No. L-9935, February 1, 1915

1166
Definition of accessories; accessions (see 440)

1167; 1168
Remedies of creditor (obligations to do; not to do). Undoing of poor work.
• Chavez v Gonzales; L-27454. April 30, 1970

Other remedies. Rescission. 1191, 1192

1169
kinds of mora: a) solvendi; b) accipiendi (see 1268); c) compensatio morae
requisites for delay.
need for demand. When not necessary.
Effects of delay.
• Cetus Dev’t Inc. v CA; G.R. No. 77648, August 7, 1989
• Aerospace Chemical Industries, Inc., v CA; G.R. No. 108129, September 23,
1999

1
 • Santos Ventura Hocorma Foundation, Inc. v. Santos; G.R. No. 153004,
November 5, 2004
• Vazquez v Ayala Corp., G.R. No. 149734, November 19, 2004
• De la Cruz v Legaspi & Samperoy; G.R. No. L-8024, November 29, 1955
• Manuel v CA; G.R. No. 95469 July 25, 1991 (mora accipiendi)
• Central Bank v CA; G.R. No. L-45710; October 3, 1985 (compensatio morae)

1170
Modes of Breach. Definitions. Fraud (dolo incidente ;distinguish from dolo causante in
1338; 1390), negligence (culpa contractual; distinguish from culpa aquiliana in 2176 and
culpa criminal), delay (mora; see 1169), contravene tenor
Damages (2197).

Breach of obligations
Distinction between substantial breach and casual/slight breach.
• Barredo v Leano; G.R. No. 156627, June 4, 2004
• Velarde v CA; G.R. No. 108346, July 11, 2001
• Angeles v Calasanz; G.R. No. L-42283, March 18, 1985
• Delta Motor Corp. v Genuino; G.R. No. L-55665, February 8, 1989
• Vermen Realty v CA; G.R. No. 101762, July 6, 1993

Fraud (see 1171 non-waiver)

• Woodhouse v Halili; G.R. No. L-4811, July 31, 1953
• Geraldez v CA & Kenstar; G.R. No. 108253, February 23, 1994
• Yutivo Sons v CTA; G.R. No. L-13203, January 28, 1961

Neglience (see 1172, 1173, 2201). Distinguish dolo from culpa.

• Gutierrez v Gutierrez; 56 Phil 706
• Vasquez v de Borja; G.R. No. L-48930, February 23, 1944
(standard of care)
• De Guia v Manila Electric; G.R. No. L-14335, January 28, 1920
• U.S. v Barias; G.R. No. L-7567, November 12, 1912
• Sarmiento v Cabrido; G.R. No. 141258, April 9, 2003
• Crisostomo v CA; 409 SCRA 528 (2003)

Contravention of tenor.
• Chavez v Gonzales; 32 SCRA 547 (1970)
• Telefast v Castro; G.R. No. 73867 February 29, 1988
• Arrieta v NARIC; G.R. No. L-15645, January 31, 1964
• Magat v Medialdea; G.R. No. L-37120 April 20, 1983

1174
Fortuitous event (concept- acts of god; acts of man. Effects of concurrent fault.
Extinguishment of liability- 1174, 1165, 552, 1942, 1979, 2001, 2147)
• Tanguilig v Court of Appeals; G.R. No. 117190 January 2, 1997
• Juan Nakpil & Sons v CA; G.R. No. L-47851 October 3, 1986
• Republic v Luzon Stevedoring; G.R. No. L-21749, September 29, 1967

2
 • Dioquino v Laureano; G.R. No. L-25906, May 28, 1970
• Austria v CA; G.R. No. L-29640 June 10, 1971
• Nat’l Power Corp v CA; G.R. No. L-47379 May 16, 1988
• Yobido v CA; G.R. No. 113003, October 17, 1997
• Bacolod Murcia v CA & Gatuslao; G.R. Nos. 81100-01 February 7, 1990
• Philcomsat v Globe Telecom; G.R. No. 147324, May 25, 2004

1175
(usurious transactions; 1413; 1961; PD 858; PD 1685; CB Circ. 416; Monetary Board
Circ 905)
• Eastern Shipping v CA; G.R. No. 97412 July 12, 1994
• Crismina Garments v CA; G.R. No. 128721 March 9, 1999
• Keng Hua Prods v CA; G.R. No. 116863 February 12, 1998
• Security Bank v RTC Manila; G.R. No. 113926 October 23, 1996
• Almeda v CA; G.R. No. 113412 April 17, 1996
• Angel Jose Warehousing v Chelda Ent.; G.R. No. L-25704; April 24, 1968
• First Metro Investment v Este del Sol; G.R. No. 141811 November 15,
2001

1176
Presumptions in payment of interest and installments
• Hill v Veloso; 31 Phil 160
• Magdalena Estates v Rodriguez; L-18411, Dec 17, 1966 (18 SCRA 967)
• Manila Trading & Supply v Medina; L-16477 May 31, 1961

1177
Subsidiary remedies of creditor. Accion subrogatoria distinguish from accion pauliana
1381(3). Other specific remedies 1652; 1729; 1608; 1895.
• Khe Hong Cheng v CA; G.R. No. 144169 March 28, 2001
• Siguan v Lim; G.R. No. 134685 November 19, 1999

1178 Transmissibility of rights (see also 1311)

• Estate of Hernandez v Luzon Surety; L-8437, Nov 28, 1956
###

(to be continued)

Obligations & Contracts

Different Kinds of Obligations (Arts. 1179 to 1230, NCC)

1. Pure & conditional

Condition. Concept. Condition v. period/term

• Gaite v Fonacier 2 SCRA 830

• Gonzales v Heirs of Thomas 314 SCRA 585

3
Kinds of Conditions

As to effect on obligation

Suspensive (condition precedent)

-retroactive effect when condition is fulfilled
• Coronel v CA & Alcaraz G.R. No. 103577 Oct. 7, 1996
-rights of creditor and debtor before fulfillment of condition

Resolutory
• Parks v Province of Tarlac 49 Phil 142
• Central Phil Univ. v CA 246 SCRA 511
• Quijada v CA G.R. No. 126444 Dec. 4, 1998
As to cause or origin
-Potestative
• Lim v CA G.R. No. 87047 Oct. 31, 1990
-Casual
• Naga Telephone v CA G.R. No. 107112 Feb. 24, 1994.
-Mixed
• Osmena v Rama 14 Phil 99
• Hermosa v Longora 93 Phil 971
• Taylor v Uy Tieng Piao 43 Phil 873
• Smith Bell v Sotelo Matti 44 Phil 875
• Rustan Pulp v IAC 214 SCRA 665
• Romero v CA G.R. No. 107207 Nov. 23, 1995

As to Possibility
-possible
-impossible
• Roman Catholic v CA 198 SCRA 300
As to mode
-positive
-negative
Rules in case of loss, deterioration or improvement pending the happening of the
condition
• Heirs of Moreno v Mactan G.R. No. 156273 Oct. 15, 2003

Effect of prevention of the fulfillment of the condition by the obligor

Jose Herrera v Leviste G.R. No. 55744 Feb. 28, 1985

2. Reciprocal obligations. Concept.

-alternative remedies of injured party in case of breach
action for fulfillment. When fulfillment no longer possible.
action for rescission

3. Obligation with a period (1193 et seq.)

-kinds of period/term
as to:

4
effect- suspensive; resolutory
expression- express; implied
definiteness- definite; indefinite
source- voluntary; legal; judicial

Effect of payment in advance.

Benefit of period. For whose benefit. Effect. Presumption. When debtor loses right to
make use of period.

When court may fix period.

• Ponce de Leon v Syjuco 90 Phil 311
• Buce v CA 332 SCRA 151
• Araneta v Phil Sugar Estate 20 SCRA 330
• Central Phil. University v CA 246 SCRA 511

4. Alternative obligations. Facultative obligation. (1199; 1200 et seq)

5. Joint & solidary obligations. (1207; 1208) Joint indivisible obligations. (1209; 1210)
• Ynchausti v Yulo 34 Phil 978
• Lafarge Cement v Continental Cement G.R. No. 155173 Nov. 23, 2004
• Jaucian v Querol 38 Phil 718
• Quiombing v CA 189 SCRA 325
• Inciong v CA 257 SCRA 578
• Alipio v CA 341 SCRA 441

6. Divisible & indivisible obligations. (1225). Effects.

7. Obligations with a penal clause. (1226 et seq)

-as to effect; source; purpose
• Makati Dev’t Corp. v Empire Ins. Co. 20 SCRA 557
• Tan v CA 367 SCRA 571
• Country Bankers v CA; G.R. No. 85161, Sept. 9, 1991. 201 SCRA.
###
OBLIGATIONS & CONTRACTS

Chapter 4 Extinguishment of Obligations

I. Modes of Extinguishment (Art. 1231)

A. Payment or Performance
B. Loss or Impossibility
C. Condonation or Remission
D. Confusion or Merger
E. Compensation
F. Novation
G. Other Causes

II. Payment or Performance

5
 A. Concept-Art. 1232
B. Requisites
1. Who can pay
a. in general
b. third person who is an interested party
i. meaning of "interested party
ii. effects-Art. 1302 [3]
c. third person who is not an interested party but with consent of debtor
i. effects - Art. 1236 par. 2, 1237, 1236 par. 1
d. third person who is not an interested party and without knowledge or
against the will of the debtor
i. effects - Art. 1236 par. 2, 1237, 1236 par. 1
e. third person who does not intend to be reimbursed -Art. 1238
f. in obligation to give - Art. 1239, 1427
i. effect of incapacity
g. in case of active solidarity - Art. 1214

2. To whom payment may be made

a. in general - Art. 1240
b. incapacitated person - Art. 1241 par. 1
i. requisites
c. third person-Art. 1241 par. 2
i. requisites
ii. when proof of benefit not required - Art. 1241 par. 3
d. in case of active solidarity
3. What is to be paid ("Identity")
a. in general
b. in obligations to:
i. give a specific thing - Art 1244
ii. give a generic thing - Art. 1246
iii. pay monthly - Art. 1249, 1250, R.R. 529, R.A. 4100
Cases:
Arrieta vs. NARIC, (GR No. L-15645, Jan 31, 1964)
Kalalo vs. Luz, 34 SCRA 377 (1970)
St. Paul Fire and Marine Insurance vs. Macondray, 70 SCRA 122
(1976)
Papa vs. A.V. Valencia, et al., 284 SCRA 643 (1998)
PAL vs. CA, 181 SCRA 557 (1990)
c. payment of interest-Art. 1956
4. How is payment to be made ("Integrity")
a. in general-Art. 1233.
General Rule: Partial payment is not allowed - Art. 1248
Exceptions: - Art. 1248
b. substantial performance in good faith -Art. 1234
c. estoppel - Art. 1235
d. presumptions in payment of interests and installments-Art 1176

5. When payment is to be made

a. in general - Art. 1169
b. see Chapter 2: Delay
6. Where payment is to be made - Art. 1251 par. 1

6
 a. if no place is expressly designated - Art. 1251 par. 2 to par. 4
7. Expenses of making payment - Art. 1247

C. Application of Payments
1. Concept-Art 1252
Cases:
Reparations Commission vs. Universal Deep Sea Fishing, 83 SCRA 764
(1978)
Paculdo vs. Regalado, 345 SCRA 134 (2000)

2. Requisites
3. Rules in application of payments - Art. 1252, 1253
a. if rules inapplicable and application cannot be inferred - Art. 1254
i. meaning of "most onerous to debtor

D. Payment by Cession
1. Concept-Art. 1255
2. Requisites
3. Effects

E. Dation in Payment
1. Concept-Art. 1245
a. distinguished from Payment by Cession
Case:
DBF vs. CA, G.R. No. 118342, January 5, 1998.
2. Requisites
3. Effects
Case: Filinvest Credit /Corporation vs. Philippine Acetylene, G.R. L-50449,
January 30, 1982

F. Tender of Payment and Consignation

1. Tender of Payment
a. Concept
b. Requisites
2. Consignation
a. Concept
i. purpose
b. Requisites
i. when tender and refusal not required - Art. 1256 par. 2
ii. two notice requirement - Art. 1257 par. 1, 1258 par. 2 effects of
noncompliance
c. Effects-Art. 1260 par. 1
d. Withdrawal by debtor before acceptance by creditor or approval by court;
effects - Art. 1260 par. 2
e. Withdrawal by debtor after proper consignation - Art. 1261
i. with creditor's approval; effects
ii. without creditor's approval; effects
f. Expenses of consignation - Art. 1259
Cases:
De Guzman vs. CA, 137 SCRA 730 (1985)
TLG International Continental Enterprising, Inc. vs.Flores,17SCRA437(1972)

7
 McLaughtia vs. CA, 144 SCRA 693 (1986)
Soco vs. Militante, 123 SCRA 160 (1983)
Sotto vs. Mijares, 28 SCRA 17 (1969)
Meat Packing Corp. vs. Sandiganbayan, G.R. NO. 103068, June 22, 2001
Pabugais vs. Sahijwani, G.R. No. 156846, February 23, 2004

III. Loss or Impossibility

A. Loss of Thing Due
1. Concept-Art. 1189 [2]
2. Kinds
a. As to extent
i. Total
ii. Partial
3. Requisites-Art. 1262
4. Presumption-Art. 1265, 1165
a. when not applicable
5. Effects
a. in obligation to give a specific thing - Art. 1262, 1268
b. in obligation to give a generic ting - Art. 1263
c. in case of partial loss - Art. 1264
d. action against third persons - Art. 1269

B. Impossibility of Performance
1. Concept-Art. 1266, 1267
2. Kinds
a. As to extent
i. Total
ii. Partial
b. As to source
i. legal
ii. physical
3. Requisites-Art. 1266
4. Effects
a. in obligations fo do -Art. 1266, 1267, 1262 par. 2 (by analogy)
i.”impossibility" distinguished from difficulty”
cases:
Occena vs. CA, 73 SCRA 637 (1976)
Naga Telephone Co. vs. CA, 230 SCRA 351 (1994)
PNCC vs. CA, G.R. No. 116896, May 5, 1997
b. in case of partial impossibility - Art. 1264

IV. Condonation or Remission

A. concept
B. Kinds
1. As to extent
a. Total
b. Partial
2. As to form -Art. 1270 par. 1
a. Express
b. Implied
C. Requisites

8
 a. when formalities required - Art. 1270 par. 2
case:
Yam vs. CA, G.R. No. 194726, Feb. 11.1999
D. Presumptions -Art. 1271, 1272, 1274
E. Effects
1. in general
2. in case of joint or solidary obligations
F. Governing Rules-Art. 1270
G. Renunciation of Principal or Accessory Obligation
1. effects-Art. 1273
2. rationale
V. Confusion or Merger of Rights
A. Concept

B. Requisites
C. Effects
1. in general-Art. 1275
2. in case of joint (Art. 1277) or solidary obligations
D. Confusion in Principal or Accessory Obligation - Art. 1276
VI. Compensation
A. Concept-Art. 1278
1. Distinguished from Confusion
B. Kinds
1. As to extent
a. Total
b. Partial
2. As to origin
a. Legal
b. Conventional
c. Judicial-Art. 1283
d. Facultative
C. Legal Compensation
1. Requisites-Art. 1279, 1280
a. "due" distinguished from "demandable"
Cases:
Gan Tion vs. CA, 28 SCRA 235 (1969)
Silahis Marketing Corp. vs. IAC, G.R. No. 74027, December 7, 1989
BPE vs. Reyes, 255 SCRA 571 (1996)
PNB vs. Sapphire Shipping, 259 SCRA 174 (1996)
BPI vs. CA, G.R. No. 116792, March 29, 1996
Mirasol vs. CA, G.R. No. 128448, February 1,2001
2. Effects-Art. 1290, 1289
D. When Compensation is Not Allowed - Art. 1287, 1288
E. compensation of Debts Payable in Different Places - Art. 1286
F. Effect of Nullity of Debts to be compensated - Art. 1284
G. Effects of Assignment of Credit
1. with consent of debtor - Art. 1285 par. 1
2. with knowledge but without consent of debtor - Art. 1285 par.2
3. without knowledge of debtor - Art. 1285 par. 3
a. rationale
VII. Novation

9
A. Concept-Art. 1291
B. Kinds
1. As to form
a. Express
b. Implied
2. As to origin
a. Conventional
b. Legal
3. As to object
a. Objective or Real
b. Subjective or Personal
C. Requisites-Art. 1292
Cases:
Millar vs. CA, 38 SCRA 642 (1971)
Dormitorio vs. Fernandez, 72 SCRA 388 (1976)
Magdalena Estate vs. Rodriguez, 18 SCRA 967 (1966)
Reyes vs. Secretary of Justice, 264 SCRA 35 (1996)
Couchingyan vs. RB Surety and Insurance, G.R. No. L-47369, June 30, 1987
Broadway Centrum Condominium Corp. vs. Tropical Hut, G.R. No. 79642,
July 5, 1993)
California Bus Line vs. State Investment, G.R. No.147950, Dec.11,2003
D. Effects
1. in general-Art. 1296
2. when accessory obligation may subsist - Art. 1296
E. Effect of the Status of the Original or New Obligation
1. nullity or voidability of original obligation - Art. 1298
2. nullity or voidability of new obligation - Art. 1297
3. suspensive or resolutory condition of original obligation
- Art. 1299
F. Objective Novation

1. meaning of "principal conditions"

G. Subjective Novation
1. By change of debtor
a. Expromision
i. requisites-Art. 1293
ii. effects - Art. 1295
Cases:
Garcia vs. Llamas, 417 SCRA 292 (2003)
Quinto vs. People, G.R. No. 126715, April 14,
1999.
2. By change of creditor: Subrogation of a third person in the rights of the
creditor - Art. 1300
a. Conventional subrogation
i. requisites-Art 1301
ii. distinguished from Assignment of Credit
iii. effects-Art 1303, 1304
Case:
Licaros vs. Gatmaitan, G.R. No. 142838, August 9, 2001
b. Legal subrogation
i. requisites

10
 ii. when presumed - Art. 1302
iii. effects-Art. 1303, 1304
Case:
Astro Electronics Corp. vs. Philippine Export and Foreign Loan
Guarantee Corporation, G.R. No. 136729, September 23, 2003.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO.,
INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and
FERNANDO TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims
involved aggregate more than P200,000.00.

11
Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or
in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted

and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact
to enter into a contract with any individual or juridical person for the exploration and
development of the mining claims aforementioned on a royalty basis of not less than
P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn
executed a general assignment (Record on Appeal, pp. 17-19) conveying the
development and exploitation of said mining claims into the Larap Iron Mines, a single
proprietorship owned solely by and belonging to him, on the same royalty basis provided
for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of
the mining claims in question, opening and paving roads within and outside their
boundaries, making other improvements and installing facilities therein for use in the
development of the mines, and in time extracted therefrom what he claim and estimated
to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted
by him to Gaite to exploit and develop the mining claims in question, and Gaite assented
thereto subject to certain conditions. As a result, a document entitled "Revocation of
Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit
"A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus
10% of the royalties that Fonacier would receive from the mining claims, all his rights
and interests on all the roads, improvements, and facilities in or outside said claims, the
right to use the business name "Larap Iron Mines" and its goodwill, and all the records
and documents relative to the mines. In the same document, Gaite transferred to
Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that
the former had already extracted from the mineral claims, in consideration of the sum of
P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid

from and out of the first letter of credit covering the first shipment of iron ores and
of the first amount derived from the local sale of iron ore made by the Larap
Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute
in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite
a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the
Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas,
Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite
testified, however, that when this bond was presented to him by Fonacier together with
the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954,
he refused to sign said Exhibit "A" unless another bond under written by a bonding
company was put up by defendants to secure the payment of the P65,000.00 balance of
their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond,
also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first
bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety,
but it provided that the liability of the surety company would attach only when there had
been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not

12
less then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the
"Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts
thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the
two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit
"A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and
explore the mining claims in question, together with the improvements therein and the
use of the name "Larap Iron Mines" and its good will, in consideration of certain
royalties. Fonacier likewise transferred, in the same document, the complete title to the
approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap &
Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far
Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of
iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the
P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his
sureties payment of said amount, on the theory that they had lost right to make use of
the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to
"C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the
latter filed the present complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore,
consequential damages, and attorney's fees.

All the defendants except Francisco Dante set up the uniform defense that the obligation
sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be
payable out of the first letter of credit covering the first shipment of iron ore and/or the
first amount derived from the local sale of the iron ore by the Larap Mines & Smelting
Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had
been made, hence the condition had not yet been fulfilled; and that consequently, the
obligation was not yet due and demandable. Defendant Fonacier also contended that
only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was
actually delivered, and counterclaimed for more than P200,000.00 damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two
issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00
become due and demandable when the defendants failed to renew the surety bond
underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which
expired on December 8, 1955; and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant
Fonacier were actually in existence in the mining claims when these parties executed
the "Revocation of Power of Attorney and Contract", Exhibit "A."

13
On the first question, the lower court held that the obligation of the defendants to pay
plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore
was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by
defendants, such sale to be effected within one year or before December 8, 1955; that
the giving of security was a condition precedent to Gait's giving of credit to defendants;
and that as the latter failed to put up a good and sufficient security in lieu of the Far
Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation
became due and demandable under Article 1198 of the New Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have
approximately 24,000 tons of iron ore at the mining claims in question at the time of the
execution of the contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to

pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December
9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to
this Court.

During the pendency of this appeal, several incidental motions were presented for
resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and
George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss
the appeal as having become academic and a motion for new trial and/or to take judicial
notice of certain documents, filed by appellee Gaite. The motion for contempt is
unmeritorious because the main allegation therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly
is "property in litigation", has not been substantiated; and even if true, does not make
these appellants guilty of contempt, because what is under litigation in this appeal is
appellee Gaite's right to the payment of the balance of the price of the ore, and not the
iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary
to resolve these motions in view of the results that we have reached in this case, which
we shall hereafter discuss.

The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay
appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one
with a period or term and not one with a suspensive condition, and that the term expired
on December 8, 1955; and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the
stockpiles of iron ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit
"A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F.

Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less,
above-referred to together with all his rights and interests to operate the mine in
consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00)
which the latter binds to pay as follows:

14
 a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this
agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid

from and out of the first letter of credit covering the first shipment of iron ore
made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or
successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of
the iron ore is not a condition precedent (or suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period or term. What characterizes a conditional
obligation is the fact that its efficacy or obligatory force (as distinguished from its
demandability) is subordinated to the happening of a future and uncertain event; so that
if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. That the parties to the contract Exhibit "A" did
not intend any such state of things to prevail is supported by several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay:
"The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first
letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty
that the payment will have to be made sooner or later; what is undetermined is merely
the exact date at which it will be made. By the very terms of the contract, therefore, the
existence of the obligation to pay is recognized; only its maturity or demandability is
deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of
the parties assume a correlative obligation (the seller to deliver and transfer ownership
of the thing sold and the buyer to pay the price),but each party anticipates performance
by the other from the very start. While in a sale the obligation of one party can be
lawfully subordinated to an uncertain event, so that the other understands that he
assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes
or expectations, emptio spei), it is not in the usual course of business to do so; hence,
the contingent character of the obligation must clearly appear. Nothing is found in the
record to evidence that Gaite desired or assumed to run the risk of losing his right over
the ore without getting paid for it, or that Fonacier understood that Gaite assumed any
such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety company;
and the fact that appellants did put up such bonds indicates that they admitted the
definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment
of the ore as a condition precedent, would be tantamount to leaving the payment at the
discretion of the debtor, for the sale or shipment could not be made unless the
appellants took steps to sell the ore. Appellants would thus be able to postpone payment
indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A"
needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties
indented a suspensive condition or a suspensive period (dies ad quem) for the payment

15
of the P65,000.00, the rules of interpretation would incline the scales in favor of "the
greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the
Philippines, Article 1378, paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is
deemed to be actually existing, with only its maturity (due date) postponed or deferred,
that if such obligation were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale
on credit, and not an aleatory contract where the transferor, Gaite, would assume the
risk of not being paid at all; and that the previous sale or shipment of the ore was not a
suspensive condition for the payment of the balance of the agreed price, but was
intended merely to fix the future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his
sureties, still have the right to insist that Gaite should wait for the sale or shipment of the
ore before receiving payment; or, in other words, whether or not they are entitled to take
full advantage of the period granted them for making the payment.

We agree with the court below that the appellant have forfeited the right court below that
the appellants have forfeited the right to compel Gaite to wait for the sale of the ore
before receiving payment of the balance of P65,000.00, because of their failure to renew
the bond of the Far Eastern Surety Company or else replace it with an equivalent
guarantee. The expiration of the bonding company's undertaking on December 8, 1955
substantially reduced the security of the vendor's rights as creditor for the unpaid
P65,000.00, a security that Gaite considered essential and upon which he had insisted
when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case
squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he
has promised.

(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration
plainly impaired the securities given to the creditor (appellee Gaite), unless immediately
renewed or replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety

company's bond with full knowledge that on its face it would automatically expire within
16
one year was a waiver of its renewal after the expiration date. No such waiver could
have been intended, for Gaite stood to lose and had nothing to gain barely; and if there
was any, it could be rationally explained only if the appellants had agreed to sell the ore
and pay Gaite before the surety company's bond expired on December 8, 1955. But in
the latter case the defendants-appellants' obligation to pay became absolute after one
year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in
demanding payment and instituting this action one year from and after the contract
(Exhibit "A") was executed, either because the appellant debtors had impaired the
securities originally given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one year, and the balance
of P65,000.00 became due and payable thereafter.

Coming now to the second issue in this appeal, which is whether there were really
24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier,
and whether, if there had been a short-delivery as claimed by appellants, they are
entitled to the payment of damages, we must, at the outset, stress two things: first, that
this is a case of a sale of a specific mass of fungible goods for a single price or a lump
sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit
"A," being a mere estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had actually measured of
weighed the mass, so that they both tried to arrive at the total quantity by making an
estimate of the volume thereof in cubic meters and then multiplying it by the estimated
weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no
provision was made in their contract for the measuring or weighing of the ore sold in
order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by
the parties based upon any such measurement.(see Art. 1480, second par., New Civil
Code). The subject matter of the sale is, therefore, a determinate object, the mass, and
not the actual number of units or tons contained therein, so that all that was required of
the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass,
notwithstanding that the quantity delivered is less than the amount estimated by them
(Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872,
applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite
did not deliver to appellants all the ore found in the stockpiles in the mining claims in
questions; Gaite had, therefore, complied with his promise to deliver, and appellants in
turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a
definite mass, but approximately 24,000 tons of ore, so that any substantial difference in
this quantity delivered would entitle the buyers to recover damages for the short-delivery,
was there really a short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed
the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate
their respective claims only upon an estimated number of cubic meters of ore multiplied
by the average tonnage factor per cubic meter.

17
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the
stockpiles of ore that he sold to Fonacier, while appellants contend that by actual
measurement, their witness Cirpriano Manlañgit found the total volume of ore in the
stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic
meter, the parties are again in disagreement, with appellants claiming the correct
tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the
correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the
tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the
Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to
the States and a mining engineering graduate of the Universities of Nevada and
California, with almost 22 years of experience in the Bureau of Mines. This witness
placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as
minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the
average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1")
by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining
claims involved at the request of appellant Krakower, precisely to make an official
estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles
made by appellant's witness Cipriano Manlañgit is correct, if we multiply it by the
average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which
is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that
actual weighing of each unit of the mass was practically impossible, so that a reasonable
percentage of error should be allowed anyone making an estimate of the exact quantity
in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly
stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging &
Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the
payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the
mining claims in question, as charged by appellants, since Gaite's estimate appears to
be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the
same, with costs against appellants.

THIRD DIVISION

[G.R. No. 131784. September 16, 1999]

FELIX L. GONZALES, petitioner, vs. THE HEIRS OF THOMAS and PAULA CRUZ,
herein represented by ELENA C. TALENS, respondents.

18
 DECISION
PANGANIBAN, J.:

If a stipulation in a contract admits of several meanings, it shall be understood as

bearing that import most adequate to render it effectual. An obligation cannot be
enforced unless the plaintiff has fulfilled the condition upon which it is premised. Hence,
an obligation to purchase cannot be implemented unless and until the sellers have
shown their title to the specific portion of the property being sold.

The Case

Before us is a Petition for Review on Certiorari assailing the August 13, 1997
Decision[1] of the Court of Appeals[2] in CA-GR CV No. 303754, which disposed as
follows:

“WHEREFORE, the decision of the trial court dated November 16, 1990 is hereby
REVERSED. The appellee FELIX GONZALES is hereby ordered to surrender
possession of the property covered by the Contract of Lease/Purchase to the appellants,
Heirs of Thomas and Paula Cruz, and to pay to the appellants the following amounts:

1. P15,000.00 per annum as rentals counted from December 1, 1984 until the
appellants shall have recovered possession of the property subject of the
Contract of Lease/Purchase;
2. P15,000.00 as attorney’s fees; and
3. Costs of suit.”[3]
On the other hand, the trial court[4] Decision,[5] which was reversed by the CA, ruled
as follows:

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

(1) Ordering the dismissal of the case;

(2) Sentencing the plaintiffs, jointly and severally, the sum of P20,000.00 as
moral damages and the other sum of P10,000.00 as and for attorney’s fees;
and
(3) To pay the costs.”[6]

The Facts

We hereby reproduce, unedited, the Court of Appeals’ summary of the facts of this
case as follows:

19
“On December 1, 1983, Paula Año Cruz together with the plaintiffs heirs of Thomas and
Paula Cruz, namely Ricardo A. Cruz, Carmelita M. Cruz, Salome A. Cruz, Irenea C.
Victoria, Leticia C. Salvador and Elena C. Talens, entered into a Contract of
Lease/Purchase with the defendant, Felix L. Gonzales, the sole proprietor and manager
of Felgon Farms, of a half-portion of a ‘parcel of land containing an area of 12 hectares,
more or less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town,
Province of Rizal’ and covered by Transfer Certificate of Title No. 12111 (Exhibit A, p.
157, Records). The contract of Lease/Purchase contains the following provisions:

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

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

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

xxx xxx xxx

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

xxx xxx x x x’

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

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

“A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales
informing him of the lessors’ decision to rescind the Contract of Lease/Purchase due to a
breach thereof committed by the defendant (Exhibit C; p. 162, Records). The letter also

20
served as a demand on the defendant to vacate the premises within 10 days from
receipt of said letter (Ibid.).

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

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

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

“The property subject of the Contract of Lease/Purchase is currently the subject of an

Extra-Judicial Partition (Exhibits G and G-1; pp. 168-169, Records). Title to the property
remains in the name of the plaintiffs’ predecessors-in-interest, Bernardina Calixto and
Severo Cruz (Exhibit B; p. 160, Records).

“Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a
complaint for recovery of possession of the property - subject of the contract with
damages, both moral and compensatory and attorney’s fees and litigation expenses (p.
3, Records).

“Alleging breach of paragraph nine of the Contract of Lease/Purchase, and payment of

only P50,000.00 of the P500,000.00 agreed down payment on the purchase price of
P1,000,000.00, the defendant Gonzales filed his answer on November 23, 1987 praying
for a dismissal of the complaint filed against him and an award of moral, exemplary and
actual damages, as well as litigation expenses (pp. 19-22, Records).

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

“The parties limited the issues to be resolved to:

(1) Whether or not paragraph 9 of the contract is a condition precedent before

the defendant is to pay the down payment;
(2) Whether or not plaintiffs can rescind the Contract of Lease/Purchase; and
(3) Whether or not plaintiffs can terminate the Contract of Lease. (p. 4,
Decision; p. 262, Records)

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

21
‘Paragraph 9 of the contract clearly indicates that the lessors-plaintiffs shall obtain a
Transfer Certificate of Title in the name of the lessee within 4 years before a new
contract is to be entered into under the same terms and conditions as the original
Contract of Lease/Purchase. Thus, before a deed of Sale can be entered into between
the plaintiffs and the defendant, the plaintiffs have to obtain the Transfer Certificate of
Title in favor of the defendant. Article 1181 of the New Civil Code states that: ‘In
conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes
the condition.’ When the obligation assumed by a party to a contract is expressly
subjected to a condition, the obligation cannot be enforced against him unless the
condition is complied with (Wise & Co. vs. Kelly, 37 Phil. 695; PNB vs. Philippine Trust
Co., 68 Phil. 48).

‘The failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in
the contract, does not entitle them to rescind the contract[.] Article 1191 of the New Civil
Code states that: ‘The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him. The injured
party may choose between the fulfillment of the obligation, with the payment of damages
in either case. He may seek rescission, even after he has chosen fulfillment, if the latter
should become impossible x x x.’ The power to rescind is given to the injured
party. Where the plaintiff is the party who did not perform, he is not entitled to insist
upon the performance of the contract by the defendant or recover damages by reason of
his own breach (Mateos vs. Lopez, 6 Phil. 206; Borque vs. Yu Chipco, 14 Phil. 95). An
action for specific performance of a contract is an equitable proceeding, and he who
seeks to enforce it must himself be fair and reasonable, and do equity (Seva vs. Berwin,
48 Phil. 581). In this case, plaintiffs failed to comply with the conditions precedent after
2-1/2 years from the execution of the contract so as to entitle them to rescind the
contract. Although the contract stated that the same be done within 4 years from
execution, still, the defendant has to be assured that the land subject of the case will be
transferred in his name without any encumbrances, as the Extra-Judicial Partition dated
July 17, 1989 was being processed, and continues to be in process to this date. The
failure to secure the Transfer Certificate of Title in favor of the defendant entitles not the
plaintiffs but, rather, the defendant to either rescind or to ask for specific performances.

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

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

‘Article 1682 of the New Civil Code states that:

The lease of a piece of rural land, when its duration has not been fixed, is understood to
have been made for all the time necessary for the gathering of the fruits which the whole
estate leased may yield in one year, or which it may yield once, although two or more
years may have to elapse for the purpose.

22
‘The plaintiffs filed the complaint on October 12, 1987 after making an extra-judicial
demand on July 2, 1986. The contract was entered into on December 1, 1983. The
demand was thus made more than a year and a half from the expiry date of the original
lease considering that there was no payment made for the second year of the lease. If
one has to consider the fact that the defendant was given the option to purchase the
property after two years, then, the lease would presumably run for at least two years. If
that is so, then, the demand was made seven months after the expiration of the two-year
lease. Still, this demand by the plaintiffs will come under the implied new lease of
Articles 1682 and 1670 so that the plaintiffs are not entitled to terminate the Contract of
Lease.

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

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

THE TRIAL COURT GRAVELY ERRED IN HOLDING THAT PLAINTIFFS-

APPELLANTS COULD NOT VALIDLY RESCIND AND TERMINATE THE
LEASE/PURCHASE CONTRACT (EXHIBIT ‘A’) AND THEREAFTER TO TAKE
POSSESSION OF THE LAND IN QUESTION AND EJECT THEREFROM
DEFENDANTS-APPELLEES.

II

THE TRIAL COURT EQUALLY ERRED IN NOT GRANTING THE RELIEFS PLEADED
AND PRAYED FOR BY PLAINTIFFS-APPELLANTS IN THEIR COMPLAINT. (p.
42, Rollo)

“The case was submitted for decision without the appellee’s brief as per the Court’s
resolution dated July 8, 1992 (p. 71, Rollo).”

Ruling of the Court of Appeals

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

“The trial court, in its decision interpreted the ninth provision of the Contract of
Lease/Purchase to mean that before the appellee exercises his option to purchase the

23
property by paying the 50% plus interest on the P1,000,000.00 purchase price, the
appellants must first transfer the title to the property in the appellee’s name. The Court
finds this interpretation of the provision strained if not altogether absurd. The transfer of
title to the property in the appellee’s name cannot be interpreted as a condition
precedent to the payment of the agreed purchase price because such interpretation not
only runs counter [to] the explicit provisions of the contract but also is contrary to the
normal course of things anent the sale of real properties. The terms of the contract [are]
explicit and require no interpretation. Upon the expiration of the lease, the lessee shall
purchase the property. Besides, the normal course of things anent the sale of real
properties dictates that there must first be payment of the agreed purchase
price before transfer of title to the vendee’s name can be made.

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

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

Attributing reversible errors to the appellate court, petitioner elevated the case to
this Court.[7]

The Issues

In his Memorandum,[8] petitioner submits the “following main issues”:

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

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

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

“1. Is there a conflict between the statement in paragraph 1 of the Lease/Purchase

Contract and that [in] paragraph No. 9 thereof?

24
“2. Is paragraph 9 of the Lease/Purchase Contract a condition precedent before
petitioner could exercise his option to buy the property?

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

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

The Court’s Ruling

The Petition is meritorious.

Main Issue: Interpretation of Paragraph Nine

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

“9. The LESSORS hereby commit themselves and shall undertake to obtain a separate
and distinct T.C.T. over the lease portion to the LESSEE within a reasonable period of
time which shall not in any case exceed four (4) years, after which a new C

25
ontract shall be executed by the herein parties which shall be the same in all respects
with this Contract of Lease/Purchase insofar as the terms and conditions are
concerned.”

Alleging that petitioner has not purchased the property after the lapse of one year,
respondents seek to rescind the Contract and to recover the property. Petitioner, on the
other hand, argues that he could not be compelled to purchase the property, because
respondents have not complied with paragraph nine, which obligates them to obtain a
separate and distinct title in their names. He contends that paragraph nine was a
condition precedent to the purchase of the property.
To be sure, this paragraph – and the entire agreement, for that matter -- is not a
model of how a contract should be worded. It is an invitation to a litigation, as in fact the
parties had to go all to way up to this Court to plead for a resolution of their conflict which
is rooted in their failure to express themselves clearly. Small wonder, even the two
lower courts gave contradictory understanding of this provision, thereby necessitating
the intervention of the highest court of the land.
Both the trial court and the Court of Appeals (CA) interpreted this provision to mean
that the respondents had obliged themselves to obtain a TCT in the name of petitioner-
lessee. The trial court held that this obligation was a condition precedent to petitioner’s
purchase of the property. Since respondents had not performed their obligation, they
could not compel petitioner to buy the parcel of land. The CA took the opposite view,
holding that the property should be purchased first before respondents may be obliged
to obtain a TCT in the name of petitioner-lessee-buyer.
As earlier noted, petitioner disagrees with the interpretation of the two courts and
maintains that respondents were obligated to procure a TCT in their names before he
could be obliged to purchase the property in question.
Basic is the rule in the interpretation of contracts that if some stipulation therein
should admit of several meanings, it shall be understood as bearing that import most
adequate to render it effectual.[9]Considering the antecedents of the ownership of the
disputed lot, it appears that petitioner’s interpretation renders clause nine most effectual.
The record shows that at the time the contract was executed, the land in question
was still registered in the name of Bernardina Calixto and Severo Cruz, respondents’
predecessors-in-interest. There is no showing whether respondents were the only heirs
of Severo Cruz or whether the other half of the land in the name of Bernardina Calixto
was adjudicated to them by any means. In fact, they admit that extrajudicial proceedings
were still ongoing. Hence, when the Contract of Lease/Purchase was executed, there
was no assurance that the respondents were indeed the owners of the specific portion of
the lot that petitioner wanted to buy, and if so, in what concept and to what extent.
Thus, the clear intent of the ninth paragraph was for respondents to obtain a
separate and distinct TCT in their names. This was necessary to enable them to show
their ownership of the stipulated portion of the land and their concomitant right to
dispose of it. Absent any title in their names, they could not have sold the disputed
parcel of land.
It is a well-settled principle in law that no one can give what one does not have
-- nemo dat quod non habet. Accordingly, one can sell only what one owns or is

26
authorized to sell, and the buyer can acquire no more than what the seller can transfer
legally.[10]
Because the property remained registered in the names of their predecessors-in-
interest, private respondents could validly sell only their undivided interest in the estate
of Severo Cruz, the extent of which was however not shown in the records. There being
no partition of the estate thus far, there was no guarantee as to how much and which
portion would be adjudicated to respondents.
In a contract of sale, the title to the property passes to the vendee upon the delivery
of the thing sold.[11] In this case, the respondent could not deliver ownership or title to
a specific portion of the yet undivided property. True, they could have intended to sell
their hereditary interest, but in the context of the Contract of Lease/Purchase, the parties
under paragraph nine wanted the specific portion of the land to be segregated, identified
and specifically titled. Hence, by the said Contract, the respondents as sellers were
given a maximum of four years within which to acquire a separate TCT in their names,
preparatory to the execution of the deed of sale and the payment of the agreed price in
the manner described in paragraph nine.
This interpretation is bolstered by the P50,000 petitioner advanced to respondents
in order to help them expedite the transfer of the TCT to their names. Ineluctably, the
intention of the parties was to have the title transferred first to respondents’ names as a
condition for the completion of the purchase.
In holding that clause nine was not a condition precedent to the purchase of the
property, the CA relied on a literal interpretation to the effect that the TCT should be
obtained in the name of the petitioner-vendee. It reasoned that the title could be
transferred to the name of the buyer only after the completion of the purchase. Thus,
petitioner should first purchase the property before respondents could be obliged to
transfer the TCT to his name.
We disagree. The literal interpretation not only ignores the factual backdrop of the
case; it also utilizes a faulty parsing of paragraph nine, which should purportedly read as
follows: “The lessors x x x shall undertake to obtain a separate and distinct TCT xxx to
the LESSEE within a reasonable period of time which shall not in any case exceed four
(4) years x x x.” Read in its entirety, however, paragraph nine does not say that the TCT
should be obtained in the name of the lessee. In fact, paragraph nine requires
respondents to obtain a “TCT over the herein leased portion to the LESSEE,” thereby
showing that the crucial phrase “to the LESSEE” adverts to “the leased portion” and not
to the name which should appear in the new TCT.
Furthermore, the CA interpretation ignores the other part of paragraph nine, stating
that after a separate TCT had been obtained, “a new contract shall be executed by the
herein parties which shall be the same in all respects with this Contract of
Lease/Purchase insofar as the terms and conditions are concerned.”
If, as the CA held, petitioner should purchase the property first before the title can
be transferred to his name, why should there be a waiting period of four years before the
parties can execute the new contract evidencing the sale? Why should the petitioner still
be required to pay rentals after it purchases and pays for the property? The Contract
could not have envisioned this absurd scenario.
Clearly, the appellate court’s literal interpretation of the first portion of paragraph
nine renders the latter portion thereof ineffectual. In other words, that portion can only

27
mean that the respondents should first obtain a TCT in their names, after which
petitioner is given time to purchase and pay for the property.
Respondents insist that “the obligation of petitioner to buy the disputed land
immediately after the termination of the one year lease period is explicit.” [12] However, it
is more reasonable to state that the first paragraph was effectively modified by the
ninth. To repeat, petitioner can be compelled to perform his obligation under the first
paragraph, only after respondents have complied with the ninth. Unless and until
respondents have done so, the first paragraph cannot be enforced against petitioner.
In sum, we hold that the ninth provision was intended to ensure that respondents
would have a valid title over the specific portion they were selling to petitioner. Only
after the title is assured may the obligation to buy the land and to pay the sums stated in
the Contract be enforced within the period stipulated. Verily, the petitioner’s obligation to
purchase has not yet ripened and cannot be enforced until and unless respondents can
prove their title to the property subject of the Contract.

Secondary Issues

Ninth Clause Was a Condition Precedent

Because the ninth clause required respondents to obtain a separate and distinct
TCT in their names and not in the name of petitioner, it logically follows that such
undertaking was a condition precedent to the latter’s obligation to purchase and pay for
the land. Put differently, petitioner’s obligation to purchase the land is a conditional one
and is governed by Article 1181 of the Civil Code.[13]
Condition has been defined as “every future and uncertain event upon which an
obligation or provision is made to depend. It is a future and uncertain event upon which
the acquisition or resolution of rights is made to depend by those who execute the
juridical act.”[14] Without it, the sale of the property under the Contract cannot be
perfected, and petitioner cannot be obliged to purchase the property. “When the consent
of a party to a contract is given subject to the fulfillment of a suspensive condition, the
contract is not perfected unless that condition is first complied with.”[15]
The Court has held that “[w]hen the obligation assumed by a party to a contract is
expressly subjected to a condition, the obligation cannot be enforced against him unless
the condition is complied with.”[16] Furthermore, “[t]he obligatory force of a conditional
obligation is subordinated to the happening of a future and uncertain event, so that if that
event does not take place, the parties would stand as if the conditional obligation had
never existed.”[17]
In this case, the obligation of the petitioner to buy the land cannot be enforced
unless respondents comply with the suspensive condition that they acquire first a
separate and distinct TCT in their names. The suspensive condition not having been
fulfilled, then the obligation of the petitioner to purchase the land has not arisen.

Respondents Cannot Rescind the Contract

28
 In the same vein, respondents cannot rescind the contract, because they have not
caused the transfer of the TCT to their names, which is a condition precedent to
petitioner’s obligation. This Court has held that “there can be no rescission (or more
properly, resolution) of an obligation as yet non-existent, because the suspensive
condition has not happened.”[18]
Since the reversal of the CA Decision is inevitable, the trial court’s judgment should
be reinstated. However, we find no sufficient factual or legal justifications for the award
of moral damages and attorney’s fees.
WHEREFORE, the petition is GRANTED and the appealed Decision
is REVERSED and SET ASIDE. The Decision of the trial court is REINSTATED, but the
award of moral damages and attorney’s fees is DELETED for lack of basis. No costs.
SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
Vitug, J., no part; did not participate in deliberations (in PHILJA on official business).

THIRD DIVISION

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL,

ANNABELLE C. GONZALES (for herself and on behalf of Floraida C.
Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A.
ALMONTE, and CATALINA BALAIS MABANAG,petitioners, vs. THE COURT
OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA
ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

DECISION
MELO, J.:

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

On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter

referred to as Coronels) executed a document entitled “Receipt of Down Payment” (Exh.
“A”) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

29
 P1,240,000.00 - Total amount

50,000.00 - Down payment

------------------------------------------

P1,190,000.00 - Balance

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

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

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

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

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

2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the whole
balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz

(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of
Fifty Thousand (P50,000.00) Pesos (Exh. “B”, Exh. “2”).

On February 6, 1985, the property originally registered in the name of the Coronel’s
father was transferred in their names under TCT No. 327043 (Exh. “D”; Exh “4”)

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

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

30
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the back of
TCT No. 327403 (Exh. “E”; Exh. “5”).

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

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

On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. “H”; Exh. “8”).

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits “A” through “J”, inclusive of their
corresponding submarkings. Adopting these same exhibits as their own, then
defendants (now petitioners) accordingly offered and marked them as Exhibits “1”
through “10”, likewise inclusive of their corresponding submarkings. Upon motion of the
parties, the trial court gave them thirty (30) days within which to simultaneously submit
their respective memoranda, and an additional 15 days within which to submit their
corresponding comment or reply thereto, after which, the case would be deemed
submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering

defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of
land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No.
331582) of the Registry of Deeds for Quezon City, together with all the improvements
existing thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price
amounting toP1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other persons
claiming under them are hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs’ claim for damages and attorney’s fees, as well
as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

31
Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

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

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

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989
rendered in the instant case, resolution of which now pertains to the undersigned
Presiding Judge, after a meticulous examination of the documentary evidence presented
by the parties, she is convinced that the Decision of March 1, 1989 is supported by
evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the “Motion for Reconsideration and/or to Annul

Decision and Render Anew Decision by the Incumbent Presiding Judge” dated March
20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

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

32
 Hence, the instant petition which was filed on March 5, 1992. The last pleading,
private respondents’ Reply Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of
respondent court in the affirmance of the trial court’s decision, we definitely find the
instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other
issues in the case at bar is the precise determination of the legal significance of the
document entitled “Receipt of Down Payment” which was offered in evidence by both
parties. There is no dispute as to the fact that the said document embodied the binding
contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio
P. Coronel on the other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as
follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the “Receipt of Down Payment”
embodied a perfected contract of sale, which perforce, they seek to enforce by means of
an action for specific performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain suspensive conditions,
and because of the absence of Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties’ contention is brought about by the
way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to adjudge
what the real intent of the parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:

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

Sale, by its very nature, is a consensual contract because it is perfected by mere

consent. The essential elements of a contract of sale are the following:

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

exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a

Contract of Sale because the first essential element is lacking. In a contract to sell, the
33
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. In Roque vs.
Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

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

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

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

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

A contract to sell may thus be defined as a bilateral contract whereby the

prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is,
full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is conditioned upon
the happening of a contingent event which may or may not occur. If the suspensive
condition is not fulfilled, the perfection of the contract of sale is completely abated
(cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the property subject of
the sale to the buyer, ownership thereto automatically transfers to the buyer by operation
of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full
payment of the purchase price, ownership will not automatically transfer to the buyer
although the property may have been previously delivered to him. The prospective

34
seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of
sale specially in cases where the subject property is sold by the owner not to the party
the seller contracted with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person buying such property
despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer after registration because there
is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for
damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the seller’s title
thereto. In fact, if there had been previous delivery of the subject property, the seller’s
ownership or title to the property is automatically transferred to the buyer such that, the
seller will no longer have any title to transfer to any third person. Applying Article 1544
of the Civil Code, such second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller’s title, or at least was charged with
the obligation to discover such defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer’s title. In case a title is issued to the second buyer,
the first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering
the real nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be
given their natural and ordinary meaning unless a technical meaning was intended (Tan
vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the
said “Receipt of Down Payment” that they --

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

without any reservation of title until full payment of the entire purchase price, the natural
and ordinary idea conveyed is that they sold their property.
When the “Receipt of Down payment” is considered in its entirety, it becomes more
manifest that there was a clear intent on the part of petitioners to transfer title to the
buyer, but since the transfer certificate of title was still in the name of petitioner’s father,
they could not fully effect such transfer although the buyer was then willing and able to
immediately pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the
issuance of a new certificate of title in their names from that of their father, after which,
they promised to present said title, now in their names, to the latter and to execute the
deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.

35
 The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of
land. Furthermore, the circumstance which prevented the parties from entering into an
absolute contract of sale pertained to the sellers themselves (the certificate of title was
not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at that time, there
would have been no reason why an absolute contract of sale could not have been
executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely
promise to sell the property to private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell the subject property, they
undertook to have the certificate of title change to their names and immediately
thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after
compliance by the buyer with certain terms and conditions, promised to sell the property
to the latter. What may be perceived from the respective undertakings of the parties to
the contract is that petitioners had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer ownership of the subject house and lot to
the buyer if the documents were then in order. It just so happened, however, that the
transfer certificate of title was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear their names. That is why
they undertook to cause the issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then will the obligation of the buyer
to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered
into so as to protect the seller against a buyer who intends to buy the property in
installment by withholding ownership over the property until the buyer effects full
payment therefor, in the contract entered into in the case at bar, the sellers were the
ones who were unable to enter into a contract of absolute sale by reason of the fact that
the certificate of title to the property was still in the name of their father. It was the
sellers in this case who, as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that
when the said “Receipt of Down Payment” was prepared and signed by petitioners
Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer of the certificate of title
from the name of petitioners’ father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled on
February 6, 1985 (Exh. “D”; Exh. “4”). Thus, on said date, the conditional contract of
sale between petitioners and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the delivery of the property by
means of the execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the “Receipt of
Down Payment.”

36
 Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to
the case at bench. Thus,

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.

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

Art. 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the happening of
the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate
of title in petitioner’s names was fulfilled on February 6, 1985, the respective obligations
of the parties under the contract of sale became mutually demandable, that is,
petitioners, as sellers, were obliged to present the transfer certificate of title already in
their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith
pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition,
petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves “to effect the transfer in
our names from our deceased father Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the downpayment above-
stated". The sale was still subject to this suspensive
condition. (Emphasis supplied.)

(Rollo, p. 16)

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

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

(Ibid.)

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

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

Besides, it should be stressed and emphasized that what is more controlling than
these mere hypothetical arguments is the fact that the condition herein referred to

37
was actually and indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. “D”; Exh. “4”).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as “Receipt of Down Payment” (Exh. “A”; Exh. “1”), the parties
entered into a contract of sale subject to the suspensive condition that the sellers shall
effect the issuance of new certificate title from that of their father’s name to their names
and that, on February 6, 1985, this condition was fulfilled (Exh. “D”; Exh. “4”).
We, therefore, hold that, in accordance with Article 1187 which pertinently provides -

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

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

the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985
because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:

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

Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation
of law. Thus, at the point their father drew his last breath, petitioners stepped into his
shoes insofar as the subject property is concerned, such that any rights or obligations
pertaining thereto became binding and enforceable upon them. It is expressly provided
that rights to the succession are transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners’ claim that succession may not be declared unless
the creditors have been paid is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the decedent’s name to their names on
February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to now take
a posture contrary to that which they took when they entered into the agreement with
private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

38
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.

Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected contract of sale
between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when
she rendered impossible the consummation thereof by going to the United States of
America, without leaving her address, telephone number, and Special Power of Attorney
(Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended
Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were
correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of
sale in the instant case. We note that these supposed grounds for petitioner’s
rescission, are mere allegations found only in their responsive pleadings, which by
express provision of the rules, are deemed controverted even if no reply is filed by the
plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of
any supporting evidence to substantiate petitioners’ allegations. We have stressed time
and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng
Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation
is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers’ act of unilaterally and
extrajudicially rescinding the contract of sale, there being no express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA,
158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P.
Alcaraz because although the evidence on record shows that the sale was in the name
of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also in
her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with
her own personal Check (Exh. “B”; Exh. “2”) for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion’s
authority to represent Ramona P. Alcaraz when they accepted her personal
check. Neither did they raise any objection as regards payment being effected by a third
person. Accordingly, as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as
her obligation to pay the full purchase price is concerned. Petitioners who are precluded
from setting up the defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually presented the new
transfer certificate of title in their names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their agreement. Ramona’s
corresponding obligation to pay the balance of the purchase price in the amount
of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she
cannot be deemed to have been in default.

39
 Article 1169 of the Civil Code defines when a party in a contract involving reciprocal
obligations may be considered in default, to wit:

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

xxx

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

There is thus neither factual nor legal basis to rescind the contract of sale between
petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will
apply, to wit:

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

Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.

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

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985
as proof of the second contract of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new certificate of title in the name of
Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall
apply.
The above-cited provision on double sale presumes title or ownership to pass to the
buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale
ahead of the first buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession of the property
ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a
distinguished member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyer’s
rights except when the second buyer first registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second

40
buyer of the first sale defeats his rights even if he is first to register, since knowledge
taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129
SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed of
sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was annotated
on the title of the subject property only on February 22, 1985, whereas, the second sale
between petitioners Coronels and petitioner Mabanag was supposedly perfected prior
thereto or on February 18, 1985. The idea conveyed is that at the time petitioner
Mabanag, the second buyer, bought the property under a clean title, she was unaware of
any adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not
the second buyer in good faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any defect in the title of the
property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have
in good faith, registered the sale entered into on February 18, 1985 because as early as
February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate
of title in the names of petitioners, whereas petitioner Mabanag registered the said sale
sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew
that the same property had already been previously sold to private respondents, or, at
least, she was charged with knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the defect in petitioners’ title to
the property at the time of the registration of the property.
This Court had occasions to rule that:

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

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

41
 WHEREFORE, premises considered, the instant petition is hereby DISMISSED and
the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-24190 July 13, 1926

GEORGE L. PARKS, plaintiff-appellant,

vs.
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and
JAMES HILL, her husband,defendants-appellees.

Jos. N. Wolfson for appellant.

Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.

AVANCEÑA, C. J.:

On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No.
2 referred to in the complaint, donated it perpetually to the municipality of Tarlac,
Province of Tarlac, under certain conditions specified in the public document in which
they made this donation. The donation was accepted by Mr. Santiago de Jesus in the
same document on behalf of the municipal council of Tarlac of which he was the
municipal president. The parcel thus donated was later registered in the name of the
donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James
Hill sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923, the
municipality of Tarlac transferred the parcel to the Province of Tarlac which, by reason of
this transfer, applied for and obtained the registration thereof in its name, the
corresponding certificate of title having been issued to it.

The plaintiff, George L. Parks, alleging that the conditions of the donation had not been
complied with and invoking the sale of this parcel of land made by Concepcion Cirer and
James Hill in his favor, brought this action against the Province of Tarlac, the
municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be declared
the absolute owner entitled to the possession of this parcel, that the transfer of the same
by the municipality of Tarlac to the Province of Tarlac be annulled, and the transfer
certificate issued to the Province of Tarlac cancelled.

The lower court dismissed the complaint.

The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this
parcel made by Concepcion Cirer and James Hill in his favor on January 15, 1921, but
that sale cannot have any effect. This parcel having been donated by Concepcion Cirer
42
and James Hill to the municipality of Tarlac, which donation was accepted by the latter,
the title to the property was transferred to the municipality of Tarlac. It is true that the
donation might have been revoked for the causes, if any, provided by the law, but the
fact is that it was not revoked when Concepcion Cirer and James Hill made the sale of
this parcel to the plaintiff. Even supposing that causes existed for the revocation of this
donation, still, it was necessary, in order to consider it revoked, either that the revocation
had been consented to by the donee, the municipality of Tarlac, or that it had been
judicially decreed. None of these circumstances existed when Concepcion Cirer and
James Hill sold this parcel to the plaintiff. Consequently, when the sale was made
Concepcion Cirer and James Hill were no longer the owners of this parcel and could not
have sold it to the plaintiff, nor could the latter have acquired it from them.

But the appellant contends that a condition precedent having been imposed in the
donation and the same not having been complied with, the donation never became
effective. We find no merit in this contention. The appellant refers to the condition
imposed that one of the parcels donated was to be used absolutely and exclusively for
the erection of a central school and the other for a public park, the work to commence in
both cases within the period of six months from the date of the ratification by the partes
of the document evidencing the donation. It is true that this condition has not been
complied with. The allegation, however, that it is a condition precedent is erroneous. The
characteristic of a condition precedent is that the acquisition of the right is not effected
while said condition is not complied with or is not deemed complied with. Meanwhile
nothing is acquired and there is only an expectancy of right. Consequently, when a
condition is imposed, the compliance of which cannot be effected except when the right
is deemed acquired, such condition cannot be a condition precedent. In the present case
the condition that a public school be erected and a public park made of the donated
land, work on the same to commence within six months from the date of the ratification
of the donation by the parties, could not be complied with except after giving effect to the
donation. The donee could not do any work on the donated land if the donation had not
really been effected, because it would be an invasion of another's title, for the land would
have continued to belong to the donor so long as the condition imposed was not
complied with.

The appellant also contends that, in any event, the condition not having been complied
with, even supposing that it was not a condition precedent but subsequent, the non-
compliance thereof is sufficient cause for the revocation of the donation. This is correct.
But the period for bringing an action for the revocation of the donation has prescribed.
That this action is prescriptible, there is no doubt. There is no legal provision which
excludes this class of action from the statute of limitations. And not only this, — the law
itself recognizes the prescriptibility of the action for the revocation of a donation,
providing a special period of five years for the revocation by the subsequent birth of
children (art. 646, Civil Code), and one year for the revocation by reason of ingratitude. If
no special period is provided for the prescription of the action for revocation for
noncompliance of the conditions of the donation (art. 647, Civil Code), it is because in
this respect the donation is considered onerous and is governed by the law of contracts
and the general rules of prescription. Under the law in force (sec. 43, Code of Civ. Proc.)
the period of prescription of this class of action is ten years. The action for the revocation
of the donation for this cause arose on April 19, 1911, that is six months after the
ratification of the instrument of donation of October 18, 1910. The complaint in this
action was presented July 5, 1924, more than ten years after this cause accrued.

43
By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against
the appellant. So ordered.

Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,

vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P.
VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the
decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo
City directing petitioner to reconvey to private respondents the property donated to it by
their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the
Board of Trustees of the Central Philippine College (now Central Philippine University
[CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as
Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for
which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee
CPU with the following annotations copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as part of
the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor
in any way encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said
college shall be under obligation to erect a cornerstone bearing that
name. Any net income from the land or any of its parks shall be put in a
fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used
for improvements of said campus and erection of a building thereon. 1

44
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed
an action for annulment of donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter had not complied with the
conditions of the donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the donated property
with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had
prescribed; that it did not violate any of the conditions in the deed of donation because it
never used the donated property for any other purpose than that for which it was
intended; and, that it did not sell, transfer or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of
the donation and declared it null and void. The court a quo further directed petitioner to
execute a deed of the reconveyance of the property in favor of the heirs of the donor,
namely, private respondents herein.

Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the
annotations at the back of petitioner's certificate of title were resolutory conditions breach
of which should terminate the rights of the donee thus making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize
the donated property for the establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence, until a period was fixed for the
fulfillment of the condition, petitioner could not be considered as having failed to comply
with its part of the bargain. Thus, the appellate court rendered its decision reversing the
appealed decision and remanding the case to the court of origin for the determination of
the time within which petitioner should comply with the first condition annotated in the
certificate of title.

Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted
annotations in the certificate of title of petitioner are onerous obligations and resolutory
conditions of the donation which must be fulfilled non-compliance of which would render
the donation revocable; (b) in holding that the issue of prescription does not deserve
"disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period
within which petitioner would establish a medical college. 2

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the
deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to
conclude that his donation was onerous, one executed for a valuable consideration
which is considered the equivalent of the donation itself, e.g., when a donation imposes
a burden equivalent to the value of the donation. A gift of land to the City of Manila
requiring the latter to erect schools, construct a children's playground and open streets
on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez
donated the subject parcel of land to petitioner but imposed an obligation upon the latter
to establish a medical college thereon, the donation must be for an onerous
consideration.

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend upon the

45
happening of the event which constitutes the condition. Thus, when a person donates
land to another on the condition that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a suspensive condition but a
resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed
before the donation became effective, that is, before the donee could become the owner
of the land, otherwise, it would be invading the property rights of the donor. The donation
had to be valid before the fulfillment of the condition. 5 If there was no fulfillment or
compliance with the condition, such as what obtains in the instant case, the donation
may now be revoked and all rights which the donee may have acquired under it shall be
deemed lost and extinguished.

The claim of petitioner that prescription bars the instant action of private respondents is
unavailing.

The condition imposed by the donor, i.e., the building of a medical school upon
the land donated, depended upon the exclusive will of the donee as to when this
condition shall be fulfilled. When petitioner accepted the donation, it bound itself
to comply with the condition thereof. Since the time within which the condition
should be fulfilled depended upon the exclusive will of the petitioner, it has been
held that its absolute acceptance and the acknowledgment of its obligation
provided in the deed of donation were sufficient to prevent the statute of
limitations from barring the action of private respondents upon the original
contract which was the deed of donation. 6

Moreover, the time from which the cause of action accrued for the revocation of the
donation and recovery of the property donated cannot be specifically determined in the
instant case. A cause of action arises when that which should have been done is not
done, or that which should not have been done is done. 7 In cases where there is no
special provision for such computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which determines the starting
point for the computation of the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has been
charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary
buildings and improvements on the property cannot be quantified in a specific number of
years because of the presence of several factors and circumstances involved in the
erection of an educational institution, such as government laws and regulations
pertaining to education, building requirements and property restrictions which are
beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it
can be inferred that a period was intended, the general rule provided in Art. 1197 of the
Civil Code applies, which provides that the courts may fix the duration thereof because
the fulfillment of the obligation itself cannot be demanded until after the court has fixed
the period for compliance therewith and such period has arrived. 8

This general rule however cannot be applied considering the different set of
circumstances existing in the instant case. More than a reasonable period of fifty (50)

46
years has already been allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its favor forever valid. But,
unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term
of the obligation when such procedure would be a mere technicality and formality and
would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for the court to determine the period
of the compliance, there is no more obstacle for the court to decree the rescission
claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one,
doubts referring to incidental circumstances of a gratuitous contract should be resolved
in favor of the least transmission of rights and interests.10 Records are clear and facts
are undisputed that since the execution of the deed of donation up to the time of filing of
the instant action, petitioner has failed to comply with its obligation as donee. Petitioner
has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes,
revoked so that petitioner as donee should now return the donated property to the heirs
of the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991
is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June
1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by
Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this
judgment.

Costs against petitioner.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

Separate Opinions

DAVIDE, JR., J., dissenting:

47
I agree with the view in the majority opinion that the donation in question is onerous
considering the conditions imposed by the donor on the donee which created reciprocal
obligations upon both parties. Beyond that, I beg to disagree.

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

We find it difficult to sustain the petition. A clear perusal of the conditions

set forth in the deed of donation executed by Don Ramon Lopez, Sr., give
us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent
to the value of the donation . . . . (emphasis supplied)

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

Finally, since the questioned deed of donation herein is basically a

gratuitous one, doubts referring to incidental circumstances of
a gratuitous contract should be resolved in favor of the least transmission
of rights and interest . . . (emphasis supplied)

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

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

The word "conditions" in this article does not refer to uncertain events on
which the birth or extinguishment of a juridical relation depends, but is
used in the vulgar sense of obligations or charges imposed by the donor
on the donee. It is used, not in its technical or strict legal sense, but in its
broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a
donation, what are referred to are actually the obligations, charges or burdens imposed
by the donor upon the donee and which would characterize the donation as onerous. In
the present case, the donation is, quite obviously, onerous, but it is more properly called
a "modal donation." A modal donation is one in which the donor imposes a prestation
upon the donee. The establishment of the medical college as the condition of the
donation in the present case is one such prestation.

The conditions imposed by the donor Don Ramon Lopez determines neither the
existence nor the extinguishment of the obligations of the donor and the donee with
respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the
donee are the very obligations of the donation — to build the medical college and use
the property for the purposes specified in the deed of donation. It is very clear that those

48
obligations are unconditional, the fulfillment, performance, existence or extinguishment
of which is not dependent on any future or uncertain event or past and unknown event,
as the Civil Code would define a conditional obligation. 2

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority
opinion is erroneous in so far as the latter stated that the condition in Parks is a
resolutory one and applied this to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say, whether explicitly or impliedly,
that the donation in that case, which also has a condition imposed to build a school and
a public park upon the property donated, is a resolutory condition. 4 It is incorrect to say
that the "conditions" of the donation there or in the present case are resolutory
conditions because, applying Article 1181 of the Civil Code, that would mean that upon
fulfillment of the conditions, the rights already acquired will be extinguished. Obviously,
that could not have been the intention of the parties.

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

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

It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim that prescription
has already barred the present action. I disagree once more with the ruling of the
majority that the action of the petitioners is not barred by the statute of limitations. There
is misplaced reliance again on a previous decision of this Court in Osmeña vs.
Rama. 6 That case does not speak of a deed of donation as erroneously quoted and
cited by the majority opinion. It speaks of a contract for a sum of money where the
debtor herself imposed a condition which will determine when she will fulfill her
obligation to pay the creditor, thus, making the fulfillment of her obligation dependent
upon her will. What we have here, however, is not a contract for a sum of money but a
donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply
therewith, this did not arise out of a condition which the donee itself imposed. It is
believed that the donee was not meant to and does not have absolute control over the

49
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 factomean that the statute of limitations will not apply
anymore and the action to revoke the donation becomes imprescriptible.

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

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

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

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

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

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

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

50
Padilla, J., dissents

Separate Opinions

DAVIDE, JR., J., dissenting:

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

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

We find it difficult to sustain the petition. A clear perusal of the conditions

set forth in the deed of donation executed by Don Ramon Lopez, Sr., give
us no alternative but to conclude that his donation was onerous, one
executed for a valuable consideration which is considered the equivalent
of the donation itself, e.g., when a donation imposes a burden equivalent
to the value of the donation . . . . (emphasis supplied)

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

Finally, since the questioned deed of donation herein is basically a

gratuitous one, doubts referring to incidental circumstances of
a gratuitous contract should be resolved in favor of the least transmission
of rights and interest . . . (emphasis supplied)

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

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

The word "conditions" in this article does not refer to uncertain events on
which the birth or extinguishment of a juridical relation depends, but is
used in the vulgar sense of obligations or charges imposed by the donor
on the donee. It is used, not in its technical or strict legal sense, but in its
broadest sense. 1 (emphasis supplied)

Clearly then, when the law and the deed of donation speaks of "conditions" of a
donation, what are referred to are actually the obligations, charges or burdens imposed
by the donor upon the donee and which would characterize the donation as onerous. In
the present case, the donation is, quite obviously, onerous, but it is more properly called
a "modal donation." A modal donation is one in which the donor imposes a prestation
51
upon the donee. The establishment of the medical college as the condition of the
donation in the present case is one such prestation.

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

Reliance on the case of Parks vs. Province of Tarlac 3 as cited on page 5 of the majority
opinion is erroneous in so far as the latter stated that the condition in Parks is a
resolutory one and applied this to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say, whether explicitly or impliedly,
that the donation in that case, which also has a condition imposed to build a school and
a public park upon the property donated, is a resolutory condition. 4 It is incorrect to say
that the "conditions" of the donation there or in the present case are resolutory
conditions because, applying Article 1181 of the Civil Code, that would mean that upon
fulfillment of the conditions, the rights already acquired will be extinguished. Obviously,
that could not have been the intention of the parties.

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

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

It is also important to fix the duration or period for the performance of the
conditions/obligations in the donation in resolving the petitioner's claim that prescription
has already barred the present action. I disagree once more with the ruling of the
majority that the action of the petitioners is not barred by the statute of limitations. There
is misplaced reliance again on a previous decision of this Court in Osmeña vs.
Rama. 6 That case does not speak of a deed of donation as erroneously quoted and
cited by the majority opinion. It speaks of a contract for a sum of money where the

52
debtor herself imposed a condition which will determine when she will fulfill her
obligation to pay the creditor, thus, making the fulfillment of her obligation dependent
upon her will. What we have here, however, is not a contract for a sum of money but a
donation where the donee has not imposed any conditions on the fulfillment of its
obligations. Although it is admitted that the fulfillment of the conditions/obligations of the
present donation may be dependent on the will of the donee as to when it will comply
therewith, this did not arise out of a condition which the donee itself imposed. It is
believed that the donee was not meant to and does not have absolute control over the
time within which it will perform its obligations. It must still do so within a reasonable
time. What that reasonable time is, under the circumstances, for the courts to determine.
Thus, the mere fact that there is no time fixed as to when the conditions of the donation
are to be fulfilled does not ipso factomean that the statute of limitations will not apply
anymore and the action to revoke the donation becomes imprescriptible.

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

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

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

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

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

The law applied in both cases is Article 1144(1). It refers to the prescription of an action
upon a written contract, which is what the deed of an onerous donation is. The
prescriptive period is ten years from the time the cause of action accrues, and that is,

53
from the expiration of the time within which the donee must comply with the
conditions/obligations of the donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed upon them by Article 1197.

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

Padilla, J., dissents

SECOND DIVISION

[G.R. No. 126444. December 4, 1998]

ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO

QUIJADA, ELIUTERIA QUIJADA, EULALIO QUIJADA, and WARLITO
QUIJADA, petitioners, vs. COURT OF APPEALS, REGALADO MONDEJAR,
RODULFO GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO
GOLORAN, CELSO ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO,
and NESTOR MAGUINSAY, respondents.

DECISION
MARTINEZ, J.:

Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private
respondents for quieting of title, recovery of possession and ownership of parcels of land
with claim for attorney's fees and damages. The suit was premised on the following
facts found by the Court of Appeals, which is materially the same as that found by the
trial court:

"Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de
Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the
latter the two-hectare parcel of land subject of the case, situated in the barrio of San
Agustin, Talacogon, Agusan del Sur. On April 5, 1956, Trinidad Quijada together with
her sisters Leonila Corvera Vda. de Sequeña and Paz Corvera Cabiltes and brother
Epapiadito Corvera executed a conditional deed of donation (Exh. C) of the two-hectare
parcel of land subject of the case in favor of the Municipality of Talacogon, the condition
being that the parcel of land shall be used solely and exclusively as part of the campus
of the proposed provincial high school in Talacogon. Apparently, Trinidad remained in
possession of the parcel of land despite the donation. On July 29, 1962, Trinidad sold
one (1) hectare of the subject parcel of land to defendant-appellant Regalado Mondejar
(Exh. 1). Subsequently, Trinidad verbally sold the remaining one (1) hectare to
defendant-appellant (respondent) Regalado Mondejar without the benefit of a written
deed of sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad,
who at that time was already dead, filed a complaint for forcible entry (Exh. E) against
defendant-appellant (respondent) Regalado Mondejar, which complaint was, however,

54
dismissed for failure to prosecute (Exh. F). In 1987, the proposed provincial high school
having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon
enacted a resolution reverting the two (2) hectares of land donated back to the donors
(Exh. D). In the meantime, defendant-appellant (respondent) Regalado Mondejar sold
portions of the land to defendants-appellants (respondents) Fernando Bautista (Exh. 5),
Rodolfo Goloran (Exh. 6), Efren Guden (Exh. 7) and Ernesto Goloran (Exh. 8).

"On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendants-
appellants (respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that
their deceased mother never sold, conveyed, transferred or disposed of the property in
question to any person or entity much less to Regalado Mondejar save the donation
made to the Municipality of Talacogon in 1956; that at the time of the alleged sale to
Regalado Mondejar by Trinidad Quijada, the land still belongs to the Municipality of
Talacogon, hence, the supposed sale is null and void.

"Defendants-appellants (respondents), on the other hand, in their answer claimed that

the land in dispute was sold to Regalado Mondejar, the one (1) hectare on July 29,
1962, and the remaining one (1) hectare on installment basis until fully paid. As
affirmative and/or special defense, defendants-appellants (respondents) alleged that
plaintiffs' action is barred by laches or has prescribed.

"The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly

because 'Trinidad Quijada had no legal title or right to sell the land to defendant
Mondejar in 1962, 1966, 1967 and 1968, the same not being hers to dispose of because
ownership belongs to the Municipality of Talacogon' (Decision, p. 4; Rollo, p. 39) and,
secondly, that the deed of sale executed by Trinidad Quijada in favor of Mondejar did not
carry with it the conformity and acquiescence of her children, more so that she was
already 63 years old at the time, and a widow (Decision, p. 6; Rollo, p. 41)."[1]

The dispositive portion of the trial court's decision reads:

"WHEREFORE, viewed from the above perceptions, the scale of justice having tilted
in favor of the plaintiffs, judgment is, as it is hereby rendered:

1) ordering the Defendants to return and vacate the two (2) hectares of land to
Plaintiffs as described in Tax Declaration No. 1209 in the name of Trinidad
Quijada;
2) ordering any person acting in Defendants' behalf to vacate and restore
the peaceful possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the late Trinidad
Quijada in favor of Defendant Regalado Mondejar as well as the Deeds of
Sale/Relinquishments executed by Mondejar in favor of the other
Defendants;
4) ordering Defendants to remove their improvements constructed on the
questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally, the amount
of P10,000.00 representing attorney's fees;

55
 6) ordering Defendants to pays the amount of P8,000.00 as expenses of
litigation; and
7) ordering Defendants to pay the sum of P30,000.00 representing moral
damages.

SO ORDERED."[2]

On appeal, the Court of Appeals reversed and set aside the judgment a quo[3] ruling
that the sale made by Trinidad Quijada to respondent Mondejar was valid as the4 former
retained an inchoate interest on the lots by virtue of the automatic reversion clause in the
deed of donation.[4] Thereafter, petitioners filed a motion for reconsideration. When the
CA denied their motion,[5] petitioners instituted a petition for review to this Court arguing
principally that the sale of the subject property made by Trinidad Quijada to respondent
Mondejar is void, considering that at that time, ownership was already transferred to the
Municipality of Talacogon. On the contrary, private respondents contend that the sale
was valid, that they are buyers in good faith, and that petitioners' case is barred by
laches.[6]
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and
sisters[7] was subject to the condition that the donated property shall be "used solely and
exclusively as a part of the campus of the proposed Provincial High School in
Talacogon."[8] The donation further provides that should "the proposed Provincial High
School be discontinued or if the same shall be opened but for some reason or another,
the same may in the future be closed" the donated property shall automatically revert to
the donor.[9] Such condition, not being contrary to law, morals, good customs, public
order or public policy was validly imposed in the donation.[10]
When the Municipality's acceptance of the donation was made known to the donor,
the former became the new owner of the donated property -- donation being a mode of
acquiring and transmitting ownership [11] - notwithstanding the condition imposed by the
donee. The donation is perfected once the acceptance by the donee is made known to
the donor.[12] Accordingly, ownership is immediately transferred to the latter and that
ownership will only revert to the donor if the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has been
ruled that 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.[13] Thus, at the time of the sales made in 1962
towards 1968, the alleged seller (Trinidad) could not have sold the lots since she had
earlier transferred ownership thereof by virtue of the deed of donation. So long as the
resolutory condition subsists and is capable of fulfillment, the donation remains effective
and the donee continues to be the owner subject only to the rights of the donor or his
successors-in-interest under the deed of donation. Since no period was imposed by the
donor on when must the donee comply with the condition, the latter remains the owner
so long as he has tried to comply with the condition within a reasonable period. Such
period, however, became irrelevant herein when the donee-Municipality manifested
through a resolution that it cannot comply with the condition of building a school and the
same was made known to the donor. Only then - when the non-fulfillment of the
resolutory condition was brought to the donor's knowledge - that ownership of the

56
donated property reverted to the donor as provided in the automatic reversion clause of
the deed of donation.
The donor may have an inchoate interest in the donated property during the time
that ownership of the land has not reverted to her. Such inchoate interest may be the
subject of contracts including a contract of sale. In this case, however, what the donor
sold was the land itself which she no longer owns. It would have been different if the
donor-seller sold her interests over the property under the deed of donation which is
subject to the possibility of reversion of ownership arising from the non-fulfillment of the
resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes
failure or neglect for an unreasonable and unexplained length of time, to do that which,
by exercising due diligence, could or should have been done earlier;[14] "it is negligence
or omission to assert a right within a reasonable time, thus, giving rise to a presumption
that the party entitled to assert it either has abandoned or declined to assert it."[15] Its
essential elements of:
a) Conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation complained of;
b) Delay in asserting complainant's right after he had knowledge of the
defendant's conduct and after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is accorded to the
complainant."[16]
are absent in this case. Petitioners' cause of action to quiet title commenced only when
the property reverted to the donor and/or his successors-in-interest in 1987. Certainly,
when the suit was initiated the following year, it cannot be said that petitioners had slept
on their rights for a long time. The 1960's sales made by Trinidad Quijada cannot be the
reckoning point as to when petitioners' cause of action arose. They had no interest over
the property at that time except under the deed of donation to which private respondents
were not privy. Moreover, petitioners had previously filed an ejectment suit against
private respondents only that it did not prosper on a technicality.
Be that at it may, there is one thing which militates against the claim of
petitioners. Sale, being a consensual contract, is perfected by mere consent, which is
manifested the moment there is a meeting of the minds [17] as to the offer and acceptance
thereof on three (3) elements: subject matter, price and terms of payment of the price.
[18]
ownership by the seller on the thing sold at the time of the perfection of the contract of
sale is not an element for its perfection. What the law requires is that the seller has the
right to transfer ownership at the time the thing sold is delivered. [19] Perfection per
se does not transfer ownership which occurs upon the actual or constructive delivery of
the thing sold.[20] A perfected contract of sale cannot be challenged on the ground of non-
ownership on the part of the seller at the time of its perfection; hence, the sale is still
valid.
The consummation, however, of the perfected contract is another matter. It occurs
upon the constructive or actual delivery of the subject matter to the buyer when the seller
or her successors-in-interest subsequently acquires ownership thereof. Such
circumstance happened in this case when petitioners -- who are Trinidad Quijada's heirs
57
and successors-in-interest -- became the owners of the subject property upon the
reversion of the ownership of the land to them. Consequently, ownership is transferred
to respondent Mondejar ands those who claim their right from him. Article 1434 of the
New Civil Code supports the ruling that the seller's "title passes by operation of law to
the buyer."[21] This rule applies not only when the subject matter of the contract of sale is
goods,[22] but also to other kinds of property, including real property.[23]
There is also no merit in petitioners' contention that since the lots were owned by
the municipality at the time of the sale, they were outside the commerce of men under
Article 1409 (4) of the NCC; [24]thus, the contract involving the same is inexistent and void
from the beginning. However, nowhere in Article 1409 (4) is it provided that the
properties of a municipality, whether it be those for public use or its patrimonial
property[25] are outside the commerce of men. Besides, the lots in this case were
conditionally owned by the municipality. To rule that the donated properties are outside
the commerce of men would render nugatory the unchallenged reasonableness and
justness of the condition which the donor has the right to impose as owner
thereof. Moreover, the objects referred to as outsides the commerce of man are those
which cannot be appropriated, such as the open seas and the heavenly bodies.
With respect to the trial court’s award of attorney’s fees, litigation expenses and
moral damages, there is neither factual nor legal basis thereof. Attorney’s fees and
expenses of litigation cannot, following the general rule in Article 2208 of the New Civil
Code, be recovered in this case, there being no stipulation to that effect and the case
does not fall under any of the exceptions. [26] It cannot be said that private respondents
had compelled petitioners to litigate with third persons. Neither can it be ruled that the
former acted in “gross and evident bad faith” in refusing to satisfy the latter’s claims
considering that private respondents were under an honest belief that they have a legal
right over the property by virtue of the deed of sale. Moral damages cannot likewise be
justified as none of the circumstances enumerated under Articles 2219 [27] and 2220[28] of
the New Civil Code concur in this case.
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.

Melo (Acting Chairman), Puno, and Mendoza, JJ., concur.

58
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 85733 February 23, 1990

Sps. ENRIQUE and CONSUELO LIM, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, Sps. TERESITA and OSCAR
GUEVARRA, Sps. MARCOS and ANITA ORLINO, Sps. ROMULO and CONSUELO
ORLINO and Sps. FELIX and DOLORES ORLINO, respondents.

Salonga, Andres, Hernandez & Allado for petitioners.

Ocampo, Dizon & Domingo for private respondent Pacific Banking Corporation.

CRUZ, J.:

The subject of this controversy is a parcel of land consisting of 1,101 square meters and
located in Diliman, Quezon City. It was originally owned by Felix, Manuel and Maria
Concepcion Orlino, who mortgaged it to the Progressive Commercial Bank as security
for a P100,000.00 loan on July 1, 1965. The loan not having been paid, the mortgage
was foreclosed and the bank acquired the property as the highest bidder at the auction
sale on March 28, 1969. The mortgagee thereafter transferred all its assets, including
the said land, to the Pacific Banking Corporation (PBC).

On May 22, 1975, the Orlinos, and their respective spouses (hereinafter referred to as
the private respondents), who had remained in possession of the land, made a written
offer to PBC to repurchase the property. In response, the bank, through its Assistant
Vice-President, sent the following letter dated November 9, 1977, to the private
respondents' counsel:

59
 This will confirm our agreement concerning the repurchase by your
clients, Mr. and Mrs. Oscar C. Guevarra of that certain property situated
at 26 Jose Abad Santos, Heroes Hills, Quezon City with an area of 1,1 01
square meters, more or less, under the following terms and conditions:

a) The cash consideration shall be P160,000.00 payable in

full upon signing of the Deed of Absolute Sale;

b) The additional consideration shall consist of your client's

conveyance to us of their share of 2,901.15 square meters
on the property situated at Camarin, Caloocan City.

We understand that your clients will be applying for a loan with a bank. In
this connection, we are enclosing a xerox copy of the Transfer Certificate
of Title No. 218661 Quezon City, Tax Declaration No. 3092 and Official
Receipt No. E-404723 covering payment of real estate taxes for 1977.
Kindly request your clients to expedite the loan so that we can
consummate the transaction as soon as possible.

Please request your clients to sign their conformity below and return the
duplicate thereof for our files. 1

Oscar C. Guevarra, one of the private respondents, indicated the required conformity.

One year later, on November 2, 1978, PBC advised the private respondents that if the
transaction was not finalized within 30 days, it would consider the offer of other
buyers. 2 The record does not show any further development until June 8, 1979, when
the private respondents requested PBC to allow them to secure a certified true copy of
its Torrens certificate over the land for purposes of its survey and partition among them
preparatory to the actual transfer of title to them. 3 PBC granted the request subject to
the condition that title would remain with it until the execution of the necessary deed of
conveyance. 4

On April 8, 1980, or two years later, PBC reminded the private respondents of its letter of
November 2, 1978, but again no action was taken to deliver to it the stipulated
consideration for the sale. Finally, on May 14, 1980, PBC executed a deed of sale over
the land in favor of the herein petitioners, the spouses Enrique and Consuelo Lim, for the
sum of P300,000.00. 5

On September 30, 1980, the private respondents filed a complaint in the Regional Trial
Court of Quezon City against the petitioners and PBC for the annulment of the deed of
sale on the ground that the subject land had been earlier sold to them. In its judgment for
the plaintiffs, the court held that both PBC and the spouses Lim had acted in bad faith
when they concluded the sale knowing that "there was a cloud in the status of the
property in question." 6 The decision was affirmed in toto by the respondent court, 7 and
the petitioners are now before us, urging reversal.

The petitioners claim they are purchasers in good faith, having relied on the assurances
of PBC as verified from the records in the Registry of Deeds of Quezon City that the land
belonged to PBC and was unencumbered. They therefore should have preferential right

60
to the disputed land, which they had registered in their name under TCT No. 268623.
For their part, the private respondents insist that as they had a valid and binding earlier
deed of sale in their favor, the land could no longer be sold by PBC to the petitioners,
who were aware of their prior right.

In support of their position that it was not incumbent upon them to go beyond the land
records to check the real status of the land, the petitioners cite Seño v.
Mangubat 8 where the Court said:

In order that a purchaser of land with a Torrens title may be considered

as a purchaser in good faith, it is enough that he examines the latest
certificate of title which in this case is that issued in the name of the
immediate transferor. The purchaser is not bound by the original
certificate of title but only by the certificate of title of the person from
whom he has purchased the property.

xxx xxx xxx

Thus, where innocent third persons relying on the correctness of the

certificate of title issued, acquire rights over the property, the court cannot
disregard such rights and order the total cancellation of the certificate for
that would impair public confidence in the certificate of title; otherwise
everyone dealing with property registered under the torrens system would
have to inquire in every instance as to whether the title had been regularly
or irregularly issued by the court. Indeed, this is contrary to the evident
purpose of the law. Every person dealing with registered land may safely
rely on the correctness of the certificate of title issued therefore and the
law will in no way oblige him to go behind the certificate to determine the
condition of the property. Stated differently, an innocent purchaser for
value relying on a torrens title issued is protected.

And even assuming that there was an earlier valid sale of the property to the private
respondents, the petitioners add, they would still prevail under Article 1544 of the Civil
Code, providing as follows:

If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the

person acquiring it who in good faith first recorded it in the Registry of
Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.

The private respondents, however, deny that the petitioners had acted in good faith,
pointing to the evidence that Consuelo Lim had, before the execution of the disputed

61
deed of sale, visited the property and been informed of their existing adverse claim
thereto. 9 Besides, the said deed contained the following stipulation:

That the VENDEE is aware of the fact that the aforementioned property is
presently occupied by the former owners and that clearing of the property
of its occupants shall be for the exclusive responsibility and account of
the vendee.

And, indeed, the Court also said in Seno that:

The well-known rule in this jurisdiction is that a person dealing with a

registered land has a right to rely upon the face of the Torrens Certificate
of Title and to dispense with the need of inquiring further,except when the
party concerned has actual knowledge of facts and circumstances that
would impel a reasonably cautious man to make such inquiry. (Emphasis
supplied.)

As the Court sees it, the real issue is not whether the petitioner acted in good faith but
whether there was in fact a prior sale of the same property to the private respondents.
Only if it is established that there was indeed a double sale of the property will it be
necessary to ascertain if Article 1544 is applicable.

Stated differently, the question is: Was the transaction between private respondents and
PBC, as embodied in the letter of November 9, 1977, a contract to sell or a contract of
sale?

It is not enough to say that the contract of sale being consensual, it became effective
between the bank and the private respondents as of November 9, 1977. There is no
question about that; but such agreement is like putting the cart before the horse.
Precisely, our purpose is to ascertain to what particular undertakings the parties have
given their mutual consent so we can determine the nature of their agreement.

According to Sing Yee v. Santos: 10

... A distinction must be made between a contract of sale in which title

passes to the buyer upon delivery of the thing sold and a contract to sell
(or of exclusive right and privilege to purchase as in this case) where by
agreement the ownership is reserved in the seller and is not to pass until
the full payment of the purchase price is made. In the first case, non-
payment of the price is a negative resolutory condition; in the second
case, full payment is a positive suspensive condition. Being contraries,
their effect in law cannot be Identical. In the first case, the vendor has lost
and cannot recover the ownership of the land sold until and unless the
contract of sale is itself resolved and set aside. In the second case,
however, the title remains in the vendor if the vendee does not comply
with the condition precedent of making payment at the time specified in
the contract.

62
Applying these distinctions, the Court finds that the agreement between PBC and the
private respondents was only a contract to sell, not a contact of sale. And the reasons
are obvious.

There was no immediate transfer of title to the private respondents as would have
happened if there had been a sale at the outset. The supposed sale was never
registered and TCT No. 218661 in favor of PBC was not replaced with another certificate
of title in favor of the private respondents. In their letter to PBC on June 8, 1979, they
acknowledged that title to the property would remain with the bank until their transaction
shall have been finalized. In response, PBC reiterated the same condition. No less
important, the consideration agreed upon by the parties was never paid by the private
respondents, to convert the agreement into a contract of sale. In fact, PBC reminded
them twice — on November 2, 1978, and on April 8, 1980 — to comply with their
obligations. They did not. Their default was not, as the respondent court described it, "a
slight delay" but lasted for all of three years and in fact continued up to the rendition of
the decision in the trial court. As payment of the consideration was a positive suspensive
condition, title to the subject property never passed to the private respondents. Hence,
the property was legally unencumbered and still belonged to PBC on May 14, 1980,
when it was sold by the bank to the petitioners.

It is true that the contract to sell imposes reciprocal obligations and so cannot be
terminated unilaterally by either party. Judicial rescission is required under Article 1191
of the Civil Code. However, this rule is not absolute. We have held that in proper cases,
a party may take it upon itself to consider the contract rescinded and act accordingly
albeit subject to judicial confirmation, which may or may not be given. It is true that the
rescinding party takes a risk that its action may not be approved by the court. But as we
said in University of the Philippines v. De los Angeles: 11

Of course, it must be understood that the act of a party in treating a

contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until final judgment of rescission is rendered when the law itself

63
 requires that he should exercise due diligence to minimize its own
damages.

In the case at bar, the private respondents obligated themselves to deliver to the bank
the sum of P160,000.00 and their share of 2,901.15 square meters on a property
situated in Caloocan City. In the letter of PBC dated November 9, 1977, they were
requested to "expedite the loan (they were negotiating for this purpose) so we can
consummate the transaction as soon as possible". That was in 1977. In 1978, they were
reminded of their obligation and asked to comply within thirty days. They did not. On
April 8, 1980, they were reminded of that letter of November 2, 1978, and again asked to
comply; but again they did not. Surely, the bank could not be required to wait for them
forever, especially so since they remained in possession of the property and there is no
record that they were paying rentals. Under the circumstances, PBC had the right to
consider the contract to sell between them terminated for non-payment of the stipulated
consideration. We hereby confirm that rescission.

Having arrived at these conclusions, the Court no longer finds it necessary to determine
if the petitioners acted in bad faith when they purchased the subject property. The
private respondents lost all legal interest in the land when their contract to sell was
rescinded by PBC for their non-compliance with its provisions. As that contract was rito
longer effective when the land was sold by PBC to the petitioners, the private
respondents had no legal standing to assail that subsequent transaction. The deed of
sale between PBC and the petitioners must therefore be sustained.

WHEREFORE, the petition is GRANTED and the challenged decision of the Court of
Appeals is REVERSED. TCT No. 268623 in favor of the petitioners is recognized as
valid and the complaint for the annulment of the deed of sale dated May 14, 1980, is
hereby dismissed. Costs against the private respondents.

SO ORDERED.

Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 107112 February 24, 1994

64
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE,
INC. (CASURECO II),respondents.

Ernesto P. Pangalangan for petitioners.

Luis General, Jr. for private respondent.

NOCON, J.:

The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a
person by his contract charges himself with an obligation possible to be performed, he
must perform it, unless its performance is rendered impossible by the act of God, by the
law, or by the other party, it being the rule that in case the party desires to be excused
from performance in the event of contingencies arising thereto, it is his duty to provide
the basis therefor in his contract.

With the enactment of the New Civil Code, a new provision was included therein,
namely, Article 1267 which provides:

When the service has become so difficult as to be manifestly beyond the

contemplation of the parties, the obligor may also be released therefrom,
in whole or in part.

In the report of the Code Commission, the rationale behind this innovation was
explained, thus:

The general rule is that impossibility of performance releases the obligor.

However, it is submitted that when the service has become so difficult as
to be manifestly beyond the contemplation of the parties, the court should
be authorized to release the obligor in whole or in part. The intention of
the parties should govern and if it appears that the service turns out to be
so difficult as to have been beyond their contemplation, it would be doing
violence to that intention to hold their contemplation, it would be doing
violence to that intention to hold the obligor still responsible. 2

In other words, fair and square consideration underscores the legal precept therein.

Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of
Appeals of Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case
before us. Stated differently, the former insists that the complaint should have been
dismissed for failure to state a cause of action.

The antecedent facts, as narrated by respondent Court of Appeals are, as follows:

65
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local
as well as long distance telephone service in Naga City while private respondent
Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation
established for the purpose of operating an electric power service in the same city.

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by
petitioners in the operation of its telephone service the electric light posts of private
respondent in Naga City. In consideration therefor, petitioners agreed to install, free of
charge, ten (10) telephone connections for the use by private respondent in the following
places:

(a) 3 units — The Main Office of (private respondent);

(b) 2 Units — The Warehouse of (private respondent);

(c) 1 Unit — The Sub-Station of (private respondent) at Concepcion

Pequeña;

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

(e) 1 Unit — The Residence of (private respondent's) Acting General

Manager; &

(f) 2 Units — To be determined by the General Manager. 3

Said contract also provided:

(a) That the term or period of this contract shall be as long as the party of
the first part has need for the electric light posts of the party of the second
part it being understood that this contract shall terminate when for any
reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes
necessary to remove the electric lightpost; (sic) 4

It was prepared by or with the assistance of the other petitioner, Atty. Luciano M.
Maggay, then a member of the Board of Directors of private respondent and at the same
time the legal counsel of petitioner.

After the contract had been enforced for over ten (10) years, private respondent filed on
January 2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642
against petitioners for reformation of the contract with damages, on the ground that it is
too one-sided in favor of petitioners; that it is not in conformity with the guidelines of the
National Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that after eleven
(11) years of petitioners' use of the posts, the telephone cables strung by them thereon
have become much heavier with the increase in the volume of their subscribers,
worsened by the fact that their linemen bore holes through the posts at which points
those posts were broken during typhoons; that a post now costs as much as P2,630.00;
so that justice and equity demand that the contract be reformed to abolish the inequities
thereon.
66
As second cause of action, private respondent alleged that starting with the year 1981,
petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor,
Camarines Sur, all outside Naga City, without any contract with it; that at the rate of
P10.00 per post, petitioners should pay private respondent for the use thereof the total
amount of P267,960.00 from 1981 up to the filing of its complaint; and that petitioners
had refused to pay private respondent said amount despite demands.

And as third cause of action, private respondent complained about the poor servicing by
petitioners of the ten (10) telephone units which had caused it great inconvenience and
damages to the tune of not less than P100,000.00

In petitioners' answer to the first cause of action, they averred that it should be dismissed
because (1) it does not sufficiently state a cause of action for reformation of contract; (2)
it is barred by prescription, the same having been filed more than ten (10) years after the
execution of the contract; and (3) it is barred by estoppel, since private respondent
seeks to enforce the contract in the same action. Petitioners further alleged that their
utilization of private respondent's posts could not have caused their deterioration
because they have already been in use for eleven (11) years; and that the value of their
expenses for the ten (10) telephone lines long enjoyed by private respondent free of
charge are far in excess of the amounts claimed by the latter for the use of the posts, so
that if there was any inequity, it was suffered by them.

Regarding the second cause of action, petitioners claimed that private respondent had
asked for telephone lines in areas outside Naga City for which its posts were used by
them; and that if petitioners had refused to comply with private respondent's demands
for payment for the use of the posts outside Naga City, it was probably because what is
due to them from private respondent is more than its claim against them.

And with respect to the third cause of action, petitioners claimed, inter alia, that their
telephone service had been categorized by the National Telecommunication Corporation
(NTC) as "very high" and of "superior quality."

During the trial, private respondent presented the following witnesses:

(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf,
declared that it was petitioner Maggay who prepared the contract; that the understanding
between private respondent and petitioners was that the latter would only use the posts
in Naga City because at that time, petitioners' capability was very limited and they had
no expectation of expansion because of legal squabbles within the company; that private
respondent agreed to allow petitioners to use its posts in Naga City because there were
many subscribers therein who could not be served by them because of lack of facilities;
and that while the telephone lines strung to the posts were very light in 1977, said posts
have become heavily loaded in 1989.

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance
Department, declared that the posts being used by petitioners totalled 1,403 as of April
17, 1989, 192 of which were in the towns of Pili, Canaman, and Magarao, all outside
Naga City (Exhs. "B" and "B-1"); that petitioners' cables strung to the posts in 1989 are
much bigger than those in November, 1977; that in 1987, almost 100 posts were
destroyed by typhoon Sisang: around 20 posts were located between Naga City and the

67
town of Pili while the posts in barangay Concepcion, Naga City were broken at the
middle which had been bored by petitioner's linemen to enable them to string bigger
telephone lines; that while the cost per post in 1977 was only from P700.00 to
P1,000.00, their costs in 1989 went up from P1,500.00 to P2,000.00, depending on the
size; that some lines that were strung to the posts did not follow the minimum vertical
clearance required by the National Building Code, so that there were cases in 1988
where, because of the low clearance of the cables, passing trucks would accidentally
touch said cables causing the posts to fall and resulting in brown-outs until the electric
lines were repaired.

(3) Dario Bernardez, Project Supervisor and Acting General Manager of private
respondent and Manager of Region V of NEA, declared that according to NEA
guidelines in 1985 (Exh. "C"), for the use by private telephone systems of electric
cooperatives' posts, they should pay a minimum monthly rental of P4.00 per post, and
considering the escalation of prices since 1985, electric cooperatives have been
charging from P10.00 to P15.00 per post, which is what petitioners should pay for the
use of the posts.

(4) Engineer Antonio Macandog, Department Head of the Office of Services of private
respondent, testified on the poor service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out of order such that they
could not respond to the calls of their customers. In case of disruption of their telephone
lines, it would take two to three hours for petitioners to reactivate them notwithstanding
their calls on the emergency line.

(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board
of Directors asked him to study the contract sometime during the latter part of 1982 or in
1983, as it had appeared very disadvantageous to private respondent. Notwithstanding
his recommendation for the filing of a court action to reform the contract, the former
general managers of private respondent wanted to adopt a soft approach with petitioners
about the matter until the term of General Manager Henry Pascual who, after failing to
settle the matter amicably with petitioners, finally agreed for him to file the present action
for reformation of contract.

On the other hand, petitioner Maggay testified to the following effect:

(1) It is true that he was a member of the Board of Directors of private respondent and at
the same time the lawyer of petitioner when the contract was executed, but Atty.
Gaudioso Tena, who was also a member of the Board of Directors of private respondent,
was the one who saw to it that the contract was fair to both parties.

(2) With regard to the first cause of action:

(a) Private respondent has the right under the contract to use ten (10) telephone units of
petitioners for as long as it wishes without paying anything therefor except for long
distance calls through PLDT out of which the latter get only 10% of the charges.

(b) In most cases, only drop wires and not telephone cables have been strung to the
posts, which posts have remained erect up to the present;

68
(c) Petitioner's linemen have strung only small messenger wires to many of the posts
and they need only small holes to pass through; and

(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga
City are according to standard and comparable to those of PLDT. The accidents
mentioned by private respondent involved trucks that were either overloaded or had
loads that protruded upwards, causing them to hit the cables.

(3) Concerning the second cause of action, the intention of the parties when they
entered into the contract was that the coverage thereof would include the whole area
serviced by petitioners because at that time, they already had subscribers outside Naga
City. Private respondent, in fact, had asked for telephone connections outside Naga City
for its officers and employees residing there in addition to the ten (10) telephone units
mentioned in the contract. Petitioners have not been charging private respondent for the
installation, transfers and re-connections of said telephones so that naturally, they use
the posts for those telephone lines.

(4) With respect to the third cause of action, the NTC has found petitioners' cable
installations to be in accordance with engineering standards and practice and
comparable to the best in the country.

On the basis of the foregoing countervailing evidence of the parties, the trial court found,
as regards private respondent's first cause of action, that while the contract appeared to
be fair to both parties when it was entered into by them during the first year of private
respondent's operation and when its Board of Directors did not yet have any experience
in that business, it had become disadvantageous and unfair to private respondent
because of subsequent events and conditions, particularly the increase in the volume of
the subscribers of petitioners for more than ten (10) years without the corresponding
increase in the number of telephone connections to private respondent free of charge.
The trial court concluded that while in an action for reformation of contract, it cannot
make another contract for the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities therein. Thus, said court
ruled that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the telephones
also in Naga City. And taking into consideration the guidelines of the NEA on the rental
of posts by telephone companies and the increase in the costs of such posts, the trial
court opined that a monthly rental of P10.00 for each post of private respondent used by
petitioners is reasonable, which rental it should pay from the filing of the complaint in this
case on January 2, 1989. And in like manner, private respondent should pay petitioners
from the same date its monthly bills for the use and transfers of its telephones in Naga
City at the same rate that the public are paying.

On private respondent's second cause of action, the trial court found that the contract
does not mention anything about the use by petitioners of private respondent's posts
outside Naga City. Therefore, the trial court held that for reason of equity, the contract
should be reformed by including therein the provision that for the use of private
respondent's posts outside Naga City, petitioners should pay a monthly rental of P10.00
per post, the payment to start on the date this case was filed, or on January 2, 1989, and

69
private respondent should also pay petitioners the monthly dues on its telephone
connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the
claim not sufficiently proved.

Thus, the following decretal portion of the trial court's decision dated July 20, 1990:

WHEREFORE, in view of all the foregoing, decision is hereby rendered

ordering the reformation of the agreement (Exh. A); ordering the
defendants to pay plaintiff's electric poles in Naga City and in the towns of
Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places
where defendant NATELCO uses plaintiff's electric poles, the sum of TEN
(P10.00) PESOS per plaintiff's pole, per month beginning January, 1989
and ordering also the plaintiff to pay defendant NATELCO the monthly
dues of all its telephones including those installed at the residence of its
officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr.
Antonio Macandog, Mr. Jesus Opiana and Atty. Luis General, Jr.
beginning January, 1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants' counterclaim are both hereby
ordered dismissed. Without pronouncement as to costs.

Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of

Appeals. In the decision dated May 28, 1992, respondent court affirmed the decision of
the trial court, 5 but based on different grounds to wit: (1) that Article 1267 of the New
Civil Code is applicable and (2) that the contract was subject to a potestative condition
which rendered said condition void. The motion for reconsideration was denied in the
resolution dated September 10, 1992. 6Hence, the present petition.

Petitioners assign the following pertinent errors committed by respondent court:

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

2) in ruling that prescription of the action for reformation of the contract in

this case commenced from the time it became disadvantageous to private
respondent; and

3) in ruling that the contract was subject to a potestative condition in favor

of petitioners.

Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable
primarily because the contract does not involve the rendition of service or a personal
prestation and it is not for future service with future unusual change. Instead, the ruling
in the case of Occeña, et al. v. Jabson, etc., et al., 7 which interpreted the article, should
be followed in resolving this case. Besides, said article was never raised by the parties in
their pleadings and was never the subject of trial and evidence.

In applying Article 1267, respondent court rationalized:

70
We agree with appellant that in order that an action for reformation of
contract would lie and may prosper, there must be sufficient allegations
as well as proof that the contract in question failed to express the true
intention of the parties due to error or mistake, accident, or fraud. Indeed,
in embodying the equitable remedy of reformation of instruments in the
New Civil Code, the Code Commission gave its reasons as follows:

Equity dictates the reformation of an instrument in order

that the true intention of the contracting parties may be
expressed. The courts by the reformation do not attempt to
make a new contract for the parties, but to make the
instrument express their real agreement. The rationale of
the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does
not reflect or disclose the real meeting of the minds of the
parties. The rigor of the legalistic rule that a written
instrument should be the final and inflexible criterion and
measure of the rights and obligations of the contracting
parties is thus tempered to forestall the effects of mistake,
fraud, inequitable conduct, or accident. (pp. 55-56, Report
of Code Commission)

Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code
provide in essence that where through mistake or accident on the part of
either or both of the parties or mistake or fraud on the part of the clerk or
typist who prepared the instrument, the true intention of the parties is not
expressed therein, then the instrument may be reformed at the instance
of either party if there was mutual mistake on their part, or by the injured
party if only he was mistaken.

Here, plaintiff-appellee did not allege in its complaint, nor does its
evidence prove, that there was a mistake on its part or mutual mistake on
the part of both parties when they entered into the agreement Exh. "A",
and that because of this mistake, said agreement failed to express their
true intention. Rather, plaintiff's evidence shows that said agreement was
prepared by Atty. Luciano Maggay, then a member of plaintiff's Board of
Directors and its legal counsel at that time, who was also the legal
counsel for defendant-appellant, so that as legal counsel for both
companies and presumably with the interests of both companies in mind
when he prepared the aforesaid agreement, Atty. Maggay must have
considered the same fair and equitable to both sides, and this was
affirmed by the lower court when it found said contract to have been fair
to both parties at the time of its execution. In fact, there were no
complaints on the part of both sides at the time of and after the execution
of said contract, and according to 73-year old Justino de Jesus, Vice
President and General manager of appellant at the time who signed the
agreement Exh. "A" in its behalf and who was one of the witnesses for the
plaintiff (sic), both parties complied with said contract "from the very
beginning" (p. 5, tsn, April 17, 1989).

71
That the aforesaid contract has become inequitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of
appellant and the increase in the volume of its subscribers in Naga City
and environs through the years, necessitating the stringing of more and
bigger telephone cable wires by appellant to plaintiff's electric posts
without a corresponding increase in the ten (10) telephone connections
given by appellant to plaintiff free of charge in the agreement Exh. "A" as
consideration for its use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the
lower court so found. And it was for this reason that in the later (sic) part
of 1982 or 1983 (or five or six years after the subject agreement was
entered into by the parties), plaintiff's Board of Directors already asked
Atty. Luis General who had become their legal counsel in 1982, to study
said agreement which they believed had become disadvantageous to
their company and to make the proper recommendation, which study Atty.
General did, and thereafter, he already recommended to the Board the
filing of a court action to reform said contract, but no action was taken on
Atty. General's recommendation because the former general managers of
plaintiff wanted to adopt a soft approach in discussing the matter with
appellant, until, during the term of General Manager Henry Pascual, the
latter, after failing to settle the problem with Atty. Luciano Maggay who
had become the president and general manager of appellant, already
agreed for Atty. General's filing of the present action. The fact that said
contract has become inequitous or disadvantageous to plaintiff as the
years went by did not, however, give plaintiff a cause of action for
reformation of said contract, for the reasons already pointed out earlier.
But this does not mean that plaintiff is completely without a remedy, for
we believe that the allegations of its complaint herein and the evidence it
has presented sufficiently make out a cause of action under Art. 1267 of
the New Civil Code for its release from the agreement in question.

xxx xxx xxx

The understanding of the parties when they entered into the Agreement
Exh. "A" on November 1, 1977 and the prevailing circumstances and
conditions at the time, were described by Dioscoro Ragragio, the
President of plaintiff in 1977 and one of its two officials who signed said
agreement in its behalf, as follows:

Our understanding at that time is that we will allow

NATELCO to utilize the posts of CASURECO II only in the
City of Naga because at that time the capability of
NATELCO was very limited, as a matter of fact we do [sic]
not expect to be able to expand because of the legal
squabbles going on in the NATELCO. So, even at that time
there were so many subscribers in Naga City that cannot
be served by the NATELCO, so as a mater of public
service we allowed them to sue (sic) our posts within the
Naga City. (p. 8, tsn April 3, 1989)

72
Ragragio also declared that while the telephone wires strung to the
electric posts of plaintiff were very light and that very few telephone lines
were attached to the posts of CASURECO II in 1977, said posts have
become "heavily loaded" in 1989 (tsn, id.).

In truth, as also correctly found by the lower court, despite the increase in
the volume of appellant's subscribers and the corresponding increase in
the telephone cables and wires strung by it to plaintiff's electric posts in
Naga City for the more 10 years that the agreement Exh. "A" of the
parties has been in effect, there has been no corresponding increase in
the ten (10) telephone units connected by appellant free of charge to
plaintiff's offices and other places chosen by plaintiff's general manager
which was the only consideration provided for in said agreement for
appellant's use of plaintiffs electric posts. Not only that, appellant even
started using plaintiff's electric posts outside Naga City although this was
not provided for in the agreement Exh. "A" as it extended and expanded
its telephone services to towns outside said city. Hence, while very few of
plaintiff's electric posts were being used by appellant in 1977 and they
were all in the City of Naga, the number of plaintiff's electric posts that
appellant was using in 1989 had jumped to 1,403,192 of which are
outside Naga City (Exh. "B"). Add to this the destruction of some of
plaintiff's poles during typhoons like the strong typhoon Sisang in 1987
because of the heavy telephone cables attached thereto, and the
escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already
become too one-sided in favor of appellant to the great disadvantage of
plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so that
it should now be released therefrom under Art. 1267 of the New Civil
Code to avoid appellant's unjust enrichment at its (plaintiff's) expense. As
stated by Tolentino in his commentaries on the Civil Code citing foreign
civilist Ruggiero, "equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit
the unlimited impoverishment of one party for the benefit of the other by
the excessive rigidity of the principle of the obligatory force of
contracts (IV Tolentino, Civil Code of the Philippines, 1986 ed.,
pp. 247-248).

We therefore, find nothing wrong with the ruling of the trial court, although
based on a different and wrong premise (i.e., reformation of contract), that
from the date of the filing of this case, appellant must pay for the use of
plaintiff's electric posts in Naga City at the reasonable monthly rental of
P10.00 per post, while plaintiff should pay appellant for the telephones in
the same City that it was formerly using free of charge under the terms of
the agreement Exh. "A" at the same rate being paid by the general public.
In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic
and essential services being rendered by both parties herein to the public
and to avoid unjust enrichment by appellant at the expense of plaintiff,
said arrangement to continue only until such time as said parties can re-
negotiate another agreement over the same
73
 subject-matter covered by the agreement Exh. "A". Once said agreement
is reached and executed by the parties, the aforesaid ruling of the lower
court and affirmed by us shall cease to exist and shall be substituted and
superseded by their new agreement. . . .. 8

Article 1267 speaks of "service" which has become so difficult. Taking into consideration
the rationale behind this provision, 9 the term "service" should be understood as referring
to the "performance" of the obligation. In the present case, the obligation of private
respondent consists in allowing petitioners to use its posts in Naga City, which is the
service contemplated in said article. Furthermore, a bare reading of this article reveals
that it is not a requirement thereunder that the contract be for future service with future
unusual change. According to Senator Arturo M. Tolentino, 10 Article 1267 states in our
law the doctrine of unforseen events. This is said to be based on the discredited theory
of rebus sic stantibus in public international law; under this theory, the parties stipulate in
the light of certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the demands of equity
and good faith, the disappearance of the basis of a contract gives rise to a right to relief
in favor of the party prejudiced.

In a nutshell, private respondent in the Occeña case filed a complaint against petitioner
before the trial court praying for modification of the terms and conditions of the contract
that they entered into by fixing the proper shares that should pertain to them out of the
gross proceeds from the sales of subdivided lots. We ordered the dismissal of the
complaint therein for failure to state a sufficient cause of action. We rationalized that the
Court of Appeals misapplied Article 1267 because:

. . . respondent's complaint seeks not release from the subdivision

contract but that the court "render judgment modifying the terms and
conditions of the contract . . . by fixing the proper shares that
should pertain to the herein parties out of the gross proceeds from the
sales of subdivided lots of subject subdivision". The cited article (Article
1267) does not grant the courts (the) authority to remake, modify or revise
the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves.
Respondent's complaint for modification of contract manifestly has no
basis in law and therefore states no cause of action. Under the particular
allegations of respondent's complaint and the circumstances therein
averred, the courts cannot even in equity grant the relief sought. 11

The ruling in the Occeña case is not applicable because we agree with respondent court
that the allegations in private respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We, therefore, release the
parties from their correlative obligations under the contract. However, our disposition of
the present controversy does not end here. We have to take into account the possible
consequences of merely releasing the parties therefrom: petitioners will remove the
telephone wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the contract 12 will
return all the telephone units to petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners

74
to pay private respondent for the use of its posts in Naga City and in the towns of Milaor,
Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners use
private respondent's posts, the sum of ten (P10.00) pesos per post, per month,
beginning January, 1989; and 2) private respondent to pay petitioner the monthly dues
of all its telephones at the same rate being paid by the public beginning January, 1989.
The peculiar circumstances of the present case, as distinguished further from the
Occeña case, necessitates exercise of our equity jurisdiction. 13 By way of emphasis, we
reiterate the rationalization of respondent court that:

. . . In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt the
basic and essential services being rendered by both parties herein to the
public and to avoid unjust enrichment by appellant at the expense of
plaintiff . . . . 14

Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings
and was never the subject of trial and evidence has been passed upon by respondent
court in its well reasoned resolution, which we hereunder quote as our own:

First, we do not agree with defendant-appellant that in applying Art. 1267

of the New Civil Code to this case, we have changed its theory and
decided the same on an issue not invoked by plaintiff in the lower court.
For basically, the main and pivotal issue in this case is whether the
continued enforcement of the contract Exh. "A" between the parties has,
through the years (since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-sided in favor of defendant-
appellant, so that a solution must be found to relieve plaintiff from the
continued operation of said agreement and to prevent defendant-
appellant from further unjustly enriching itself at plaintiff's expense. It is
indeed unfortunate that defendant had turned deaf ears to plaintiffs
requests for renegotiation, constraining the latter to go to court. But
although plaintiff cannot, as we have held, correctly invoke reformation of
contract as a proper remedy (there having been no showing of a mistake
or error in said contract on the part of any of the parties so as to result in
its failure to express their true intent), this does not mean that plaintiff is
absolutely without a remedy in order to relieve itself from a contract that
has gone far beyond its contemplation and has become so highly
inequitous and disadvantageous to it through the years because of the
expansion of defendant-appellant's business and the increase in the
volume of its subscribers. And as it is the duty of the Court to administer
justice, it must do so in this case in the best way and manner it can in the
light of the proven facts and the law or laws applicable thereto.

It is settled that when the trial court decides a case in favor of a party on a
certain ground, the appellant court may uphold the decision below upon
some other point which was ignored or erroneously decided by the trial
court (Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil.
563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate
court has the discretion to consider an unassigned error that is closely
related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631;

75
Hernandez v. Andal, 78 Phil. 196). It has also been held that the Supreme
Court (and this Court as well) has the authority to review matters, even if
they are not assigned as errors in the appeal, if it is found that their
consideration is necessary in arriving at a just decision of the case (Saura
Import & Export Co., Inc. v. Phil. International Surety Co. and PNB, 8
SCRA 143). For it is the material allegations of fact in the complaint, not
the legal conclusion made therein or the prayer, that determines the relief
to which the plaintiff is entitled, and the plaintiff is entitled to as much
relief as the facts warrant although that relief is not specifically prayed for
in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao
v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old
but very illuminating decision of our Supreme Court through the pen of
American jurist Adam C. Carson:

"Under our system of pleading it is the duty of the courts to

grant the relief to which the parties are shown to be
entitled by the allegations in their pleadings and the facts
proven at the trial, and the mere fact that they themselves
misconstrue the legal effect of the facts thus alleged and
proven will not prevent the court from placing the just
construction thereon and adjudicating the issues
accordingly." (Alzua v. Johnson, 21 Phil. 308)

And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741,
the Honorable Supreme Court also held:

We rule that the respondent court did not commit any error
in taking cognizance of the aforesaid issues, although not
raised before the trial court. The presence of strong
consideration of substantial justice has led this Court to
relax the well-entrenched rule that, except questions on
jurisdiction, no question will be entertained on appeal
unless it has been raised in the court below and it is within
the issues made by the parties in their pleadings (Cordero
v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .

We believe that the above authorities suffice to show that this Court did
not err in applying Art. 1267 of the New Civil Code to this case.
Defendant-appellant stresses that the applicability of said provision is
a question of fact, and that it should have been given the opportunity to
present evidence on said question. But defendant-appellant cannot
honestly and truthfully claim that it (did) not (have) the opportunity to
present evidence on the issue of whether the continued operation of the
contract Exh. "A" has now become too one-sided in its favor and too
inequitous, unfair, and disadvantageous to plaintiff. As held in our
decision, the abundant and copious evidence presented by both parties in
this case and summarized in said decision established the following
essential and vital facts which led us to apply Art. 1267 of the New Civil
Code to this case:

76
 xxx xxx xxx 15

On the issue of prescription of private respondent's action for reformation of contract,

petitioners allege that respondent court's ruling that the right of action "arose only after
said contract had already become disadvantageous and unfair to it due to subsequent
events and conditions, which must be sometime during the latter part of 1982 or in
1983 . . ." 16 is erroneous. In reformation of contracts, what is reformed is not the contract
itself, but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element
in the determination of the period for prescription of the action to reform.

Article 1144 of the New Civil Code provides, inter alia, that an action upon a written
contract must be brought within ten (10) years from the time the right of action accrues.
Clearly, the ten (10) year period is to be reckonedfrom the time the right of action
accrues which is not necessarily the date of execution of the contract. As correctly ruled
by respondent court, private respondent's right of action arose "sometime during the
latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked
by (private respondent's) Board of Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private
respondent's) cause of action to ask for reformation of said contract should thus be
considered to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when
the complaint in this case was filed, ten (10) years had not yet elapsed." 17

Regarding the last issue, petitioners allege that there is nothing purely potestative about
the prestations of either party because petitioner's permission for free use of telephones
is not made to depend purely on their will, neither is private respondent's permission for
free use of its posts dependent purely on its will.

Apart from applying Article 1267, respondent court cited another legal remedy available
to private respondent under the allegations of its complaint and the preponderant
evidence presented by it:

. . . we believe that the provision in said agreement —

(a) That the term or period of this contract shall be as long

as the party of the first part[herein appellant] has need for
the electric light posts of the party of the second part
[herein plaintiff] it being understood that this contract shall
terminate when for any reason whatsoever, the party of the
second part is forced to stop, abandoned [sic] its operation
as a public service and it becomes necessary to remove
the electric light post [sic]"; (Emphasis supplied)

is invalid for being purely potestative on the part of appellant as it leaves

the continued effectivity of the aforesaid agreement to the latter's sole and
exclusive will as long as plaintiff is in operation. A similar provision in a
contract of lease wherein the parties agreed that the lessee could stay on
the leased premises "for as long as the defendant needed the premises
and can meet and pay said increases" was recently held by the Supreme
Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of

77
 Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely
potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee." Further held
the High Court in the Lim case:

The continuance, effectivity and fulfillment of a contract of

lease cannot be made to depend exclusively upon the free
and uncontrolled choice of the lessee between continuing
the payment of the rentals or not, completely depriving the
owner of any say in the matter. Mutuality does not obtain in
such a contract of lease of no equality exists between the
lessor and the lessee since the life of the contract is
dictated solely by the lessee.

The above can also be said of the agreement Exh. "A" between the
parties in this case. There is no mutuality and equality between them
under the afore-quoted provision thereof since the life and continuity of
said agreement is made to depend as long as appellant needs plaintiff's
electric posts. And this is precisely why, since 1977 when said agreement
was executed and up to 1989 when this case was finally filed by plaintiff,
it could do nothing to be released from or terminate said agreement
notwithstanding that its continued effectivity has become very
disadvantageous and inequitous to it due to the expansion and increase
of appellant's telephone services within Naga City and even outside the
same, without a corresponding increase in the ten (10) telephone units
being used by plaintiff free of charge, as well as the bad and inefficient
service of said telephones to the prejudice and inconvenience of plaintiff
and its customers. . . . 18

Petitioners' allegations must be upheld in this regard. A potestative condition is a

condition, the fulfillment of which depends upon the sole will of the debtor, in which case,
the conditional obligation is void. 19 Based on this definition, respondent court's finding
that the provision in the contract, to wit:

(a) That the term or period of this contract shall be as long as the party of
the first part (petitioner) has need for the electric light posts of the party of
the second part (private respondent) . . ..

is a potestative condition, is correct. However, it must have overlooked the other

conditions in the same provision, to wit:

. . . it being understood that this contract shall terminate when for any
reason whatsoever, the party of the second part (private respondent) is
forced to stop, abandoned (sic) its operation as a public service and it
becomes necessary to remove the electric light post (sic);

which are casual conditions since they depend on chance, hazard, or the will of a third
person. 20 In sum, the contract is subject to mixed conditions, that is, they depend partly
on the will of the debtor and partly on chance, hazard or the will of a third person, which
do not invalidate the aforementioned provision. 21 Nevertheless, in view of our

78
discussions under the first and second issues raised by petitioners, there is no reason to
set aside the questioned decision and resolution of respondent court.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals
dated May 28, 1992 and its resolution dated September 10, 1992 are AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 4437 September 9, 1909

TOMAS OSMEÑA, plaintiff-appellee,

vs.
CENONA RAMA, defendant-appellant.

Filemon Sotto for appellant.

J. H. Junquera for appellee.

JOHNSON, J.:

It appears from the record that upon the 15th day of November, 1890, the defendant
herein executed and delivered to Victoriano Osmeña the following contract:
79
 EXHIBIT A.

P200.00.

CEBU, November 15, 1890.

I, Doña Cenona Rama, a resident of this city, and of legal age, have received
from Don Victoriano Osmeña the sum of two hundred pesos in cash which I will
pay in sugar in the month of January or February of the coming year, at the price
ruling on the day of delivering the sugar into his warehouse, and I will pay him
interest at the rate of half a cuartillo per month on each peso, beginning on this
date until the day of the settlement; and if I can not pay in full, a balance shall be
struck, showing the amount outstanding at the end of each June, including
interest, and such as may be outstanding against me shall be considered as
capital which I will always pay in sugar, together with the interest mentioned
above. I further promise that I will sell to the said Señor Osmeña all the sugar
that I may harvest, and as a guarantee, pledge as security all of my present and
future property, and as special security the house with tile roof and ground floor
of stone in which I live in Pagina; in proof whereof, I sign this document, and he
shall be entitled to make claim against me at the expiration of the term stated in
this document.

(Signed) CENON RAMA.

Witnesses:

FAUSTO PEÑALOSA.
FRANCISCO MEDALLE.

On the 27th day of October, 1891, the defendant executed and delivered to the said
Victoriano Osmeña the following contract:

EXHIBIT B.

CEBU, October 27, 1891.

On this date I have asked for further loan and have received from Don Victoriano
Osmeña the sum of seventy pesos in cash, fifty pesos of which I have loaned to
Don Evaristo Peñares, which we will pay in sugar in the month of January of the
coming year according to the former conditions.

(Signed) CENONA RAMA.

From Don Evaristo Peñares P50

Doña Cenona Rama 20

P70

80
 Received — Evaristo Peñares.

Some time after the execution and delivery of the above contracts, the said Victoriano
Osmeña died. In the settlement and division of the property of his estate the above
contracts became the property of one of his estate the above contracts became the
property of one of his heirs, Agustina Rafols. Later, the date does not appear, the said
Agustina Rafols ceded to the present plaintiff all of her right and interest in said
contracts.

On the 15th day of March, 1902 the plaintiff presented the contracts to the defendant for
payment and she acknowledged her responsibility upon said contracts by an
indorsement upon them in the following language:

EXHIBIT C.

CEBU, March 15, 1902.

On this date I hereby promise, in the presence of two witness, that if the house of
strong materials in which I live in Pagina is sold, I will pay my indebtedness to
Don Tomas Osmeña as set forth in this document.

(Signed) CENONA RAMA.

The defendant not having paid the amount due on said contracts; the plaintiff, upon the
26th day of June, 1906, commenced the present action in the Court of First Instance of
the Province of Cebu. The complaint filed in said cause alleged the execution and
delivery of the above contracts, the demand for payment, and the failure to pay on the
part of the defendant, and the prayer for a judgment for the amount due on the said
contracts. The defendant answered by filing a general denial and setting up the special
defense of prescription.

The case was finally brought on to trial in the Court of First Instance, and the only
witness produced during the trial was the plaintiff himself. The defendant did not offer
any proof whatever in the lower court.

After hearing the evidence adduced during the trial, the lower court rendered a judgment
in favor of the plaintiff and against the defendant for the sum of P200 with interest at the
rate of 18 3/4 per cent per annum, from the 15th day of November, 1890, and for the
sum of P20 with interest at the rate of 18 3/4 per cent per annum, from the 27th day of
October, 1891, until the said sums were paid. From this judgment the defendant
appealed.

The lower court found that P50 of the P70 mentioned in Exhibit B had been borrowed by
the defendant, but by one Evaristo Peñares; therefore the defendant had no
responsibility for the payment of the said P50.

The only questions raised by the appellant were questions of fact. The appellant alleges
that the proof adduced during the trial of the cause was not sufficient to support the
findings of the lower court. It was suggested during the discussion of the case in this
court that, in the acknowledgment above quoted of the indebtedness made by the
81
defendant, she imposed the condition that she would pay the obligation if she sold her
house. If that statement found in her acknowledgment of the indebtedness should be
regarded as a condition, it was a condition which depended upon her exclusive will, and
is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an
absolute acknowledgment of the obligation and was sufficient to prevent the statute of
limitation from barring the action upon the original contract.

We are satisfied, from all of the evidence adduced during the trial, that the judgment of
the lower court should be affirmed. So ordered.

Arellano, C. J., Torres, Carson, and Moreland, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5267 October 27, 1953

LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa, Sr., and
FERNANDO HERMOSA, JR., petitioners,
vs.
EPIFANIO M. LONGARA, respondent.

82
Manuel O. Chan for petitioners.
Jacinto R. Bohol for respondent.

LABRADOR, J.:

This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth
division, approving certain claims presented by Epifanio M. Longara against the testate
estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41
representing credit advances made to the intestate from 1932 to 1944, P12,924.12
made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando
Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in
December, 1944. The claimant presented evidence and the Court of Appeals found, in
accordance therewith, that the intestate had asked for the said credit advances for
himself and for the members of his family "on condition that their payment should be
made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of
his property in Spain." Claimant had testified without opposition that the credit advances
were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold
and he receive money derived from the sale." The Court of Appeals held that payment of
the advances did not become due until the administratrix received the sum of P20,000
from the buyer of the property. Upon authorization of the probate court in October, 1947,
and the same was paid for subsequently. The Claim was filed on October 2, 1948.

It is contended on this appeal that the obligation contracted by the intestate was subject
to a condition exclusively dependent upon the will of the debtor (a condicion potestativa)
and therefore null and void, in accordance with article 1115 of the old Civil Code. The
case of Osmeña vs. Rama, (14 Phil. 99) is cited to support appellants contention. In this
case, this court seems to have filed that a promise to pay an indebtedness "if a house of
strong materials is sold" is an obligation the performance of which depended on the will
of the debtor. We have examined this case and we find that the supposed ruling was
merely an assumption and the same was not the actual ruling of the case.

A careful consideration of the condition upon which payment of the sums advanced was
made to depend, "as soon as he (intestate) receive funds derived from the sale of his
property in Spain," discloses the fact that the condition in question does not depend
exclusively upon the will of the debtor, but also upon other circumstances beyond his
power or control. If the condition were "if he decides to sell his house." or "if he likes to
pay the sums advanced," or any other condition of similar import implying that upon him
(the debtor) alone payment would depend, the condition would be protestativa,
dependent exclusively upon his will or discretion. In the form that the condition was
found by the Court of Appeals however the condition implies that the intestate had
already decided to sell his house, or at least that he had made his creditors believe that
he had done so, and that all that we needed to make his obligation (to pay his
indebtedness) demandable is that the sale be consummated and the price thereof
remitted to the islands. Note that if the intestate would prevent or would have prevented
the consummation of the sale voluntarily, the condition would be or would have been
deemed or considered complied with (article 1119, old Civil Code).The will to sell on the
part of the intestate was, therefore, present in fact, or presumed legally to exist, although
the price and other conditions thereof were still within his discretion and final approval.
But in addition of the sale to him (the intestate-vendor), there were still other conditions
that had no concur to effect the sale, mainly that of the presence of a buyer, ready, able

83
and willing to purchase the property under the conditions demanded by the intestate.
Without such a buyer the sale could not be carried out or the proceeds thereof sent to
the islands. It is evident, therefore sent to the islands. It is evident, therefore, that the
condition of the obligation was not a purely protestative one, depending exclusively upon
the will of the intestate, but a mixed one, depending partly upon the will of intestate and
partly upon chance, i.e., the presence of a buyer of the property for the price and under
the conditions desired by the intestate. The obligation is clearly governed by the second
sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is,
besides, a suspensive condition, upon the happening of which the obligation to pay is
made dependent. And upon the happening of the condition, the debt became
immediately due and demandable. (Article 1114, old Civil Code; 8 Manresa, 119).

One other point needs to be considered, and this is the fact that the sale was not
effected in the lifetime of the debtor (the intestate), but after his death and by his
administrator, the very wife of the claimant. On this last circumstance we must bear in
mind that the Court of Appeals found no evidence to show that the claim was the product
of a collusion or connivance between the administratrix and the claimant. That there was
really a promise made by the intestate to pay for the credit advances maybe implied
from the fact that the receipts thereof had been preserved. Had the advances been
made without intention of demanding their payment later, said receipts would not have
been preserved. Regularity of the advances and the close relationship between the
intestate and the claimant also support this conclusion.

As to the fact that the suspensive condition took place after the death of the debtor, and
that advances were made more than ten years before the sale, we supported in our
conclusion that the same is immaterial by Sanchez Roman, who says, among other
things, as to conditional obligations:

1a La obligacion contractual afectada por condicion suspensiva. no es exigible

hasta que se cumpla la condicion, . . .

2 a El cumplimiento de la condicion suspensiva retrotae los efectos del acto

juridico originario de la obligacion a que aquella afecta, al tiempo de
lacelebracion de este;

3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la

condicion se verifica en vida de los contrayentes, que tambien se produce
cuando aquel se realiza despues de la muerte de estos. (4 Sanchez Roman, p.
122) (Emphasis supplied.)

As the obligation retroacts to the date when the contract was entered into, all amounts
advanced from the time of the agreement became due, upon the happening of the
suspensive condition. As the obligation to pay became due and demandable only when
the house was sold and the proceeds received in the islands, the action to recover the
same only accrued, within the meaning of the statute of limitations, on date the money
became available here hence the action to recover the advances has not yet prescribed.

The above considerations dispose of the most important questions raised on this appeal.
It is also contended that the third group of claims, i.e., credits furnished the intestate's
grandson after his (intestate's) death in 1944, should have been allowed. We find merit

84
in this contention. Even if authorization to furnish necessaries to his grandson may have
been given, this authorization could not be made to extend after his death, for two
obvious reasons. First because the obligation to furnish support is personal and is
extinguished upon the death of the person obliged to give support(article 150, old Civil
Code), and second because upon the death of a principal (the intestate in this case), his
agent's authority or authorization is deemed terminated (article 1732, old Civil Code).
That part of the decision allowing this group of claims, amounting to P3,772 should be
reversed.

One last contention of the appellant is that the claims are barred by the statute of non-
claims. It does not appear from the record that this question was ever raised in any of
the courts below. We are, therefore, without authority under our rules to consider this
issue at this stage of the proceedings.

The judgment appealed from is hereby affirmed in so far as it approves the claims of
appellee in the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772.
Without costs.

Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and Bautista Angelo, JJ., concur.

Separate Opinions

PARAS, C. J., concurring and dissenting:

I concur in the majority decision insofar as it reverses the appealed judgment allowing
the claim for P3,772, but dissent therefrom insofar as it affirms the appealed judgment
approving appellee's other claims.

The principal question is whether the stipulation to pay the advances "on condition that
their payment should be made by Fernando Hermosa, Sr. as soon as he receives funds
derived from the sale of his property in Spain, and making said advances "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold and he received money
derived from the sale," condicion potestativa and therefore null and void in accordance
with article 1115 of the old Civil Code. My answer is in the affirmative, because it is very
obvious that the matter of the sale of the house rested on the sole will of the debtor,
unaffected by any outside consideration or influence. The majority admit that if the
condition were "if he decides to sell his house" or "if he likes to pay the sums advanced,
the same would be potestative. I think a mere play or words is invoked, as I cannot see
any substantial difference. Under the condition imposed by Fernando Hermosa, Sr., it is
immaterial whether or not he had already decided to sell his house, since there is no
pretence that acceptable conditions of the sale had been made the subject of an
agreement, such that if such conditions presented themselves the debtor would be
bound to proceed with the sale. In the case at bar, the terms are still subject to the sale
judgment — if not whims and caprice — of Fernando Hermosa, Sr. In fact no sale was
effected during his lifetime.

85
As the condition above referred to is null and void, the debt resulting from the advances
made to Fernando Hermosa, Sr. became either immediately demandable or payable
within a term to be fixed by the court. In both cases the action has prescribed after the
lapse of ten years. In the case of Gonzales vs. De Jose (66 Phil., 369, 371), this court
already held as follows:

We hold that the two promissory notes are governed by article 1128 because
under the terms thereof the plaintiff intended to grant the defendant a period
within which to pay his debts. As the promissory notes do not affix this period, it
is for the court to fix the same. (Citing cases.) The action to ask the court to fix
the period has already prescribed in accordance with section 43 (1) of the Code
of Civil Procedure. This period of prescription is ten years, which has already
elapsed from the execution of the promissory notes until the filing of the action on
June 1, 1934. The action which should be brought in accordance with articles
1128 is different from the action for the recovery of the amount of the notes,
although the effects of both are the same, being, like other civil actions, subject
to the rules of prescription.

The majority also contend that the condition in question depended on other factors than
the sole will of the debtor, and cite the presence of a buyer, ready, able and willing to
purchase the property. This is of no moment, because, as already stated, in the absence
of any contract setting forth the minimum or maximum terms which would be acceptable
to the debtor, nobody could legally compel Fernando Hermosa, Sr. to make any sale.

86
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16109 October 2, 1922

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of
Tan Liuan & Company,defendants.
Uy TIENG PIAO, defendant-appellant.

Cohn, Fisher and DeWitt and William C. Brady for plaintiff-appellant.

Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:

This case comes by appeal from the Court of First Instance of the city of Manila, in a
case where the court awarded to the plaintiff the sum of P300, as damages for breach of
contract. The plaintiff appeals on the ground that the amount of damages awarded is
inadequate; while the defendant Uy Tieng Piao appeals on the ground that he is not
liable at all. The judgment having been heretofore affirmed by us in a brief opinion, we
now avail ourselves of the occasion of the filing of a motion to rehear by the attorneys for
the plaintiff to modify the judgment in a slight measure and to state more fully the
reasons underlying our decision.

It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan
and Co., as superintendent of an oil factory which the latter contemplated establishing in
this city. The period of the contract extended over two years from the date mentioned;
and the salary was to be at the rate of P600 per month during the first year and P700 per
month during the second, with electric light and water for domestic consumption, and a
residence to live in, or in lieu thereof P60 per month.

At the time this agreement was made the machinery for the contemplated factory had
not been acquired, though ten expellers had been ordered from the United States; and
among the stipulations inserted in the contract with the plaintiff was a provision to the
following effect:

It is understood and agreed that should the machinery to be installed in the said
factory fail, for any reason, to arrive in the city of Manila within a period of six
months from date hereof, this contract may be cancelled by the party of the
second part at its option, such cancellation, however, not to occur before the
expiration of such six months.

87
The machinery above referred to did not arrive in the city of Manila within the six months
succeeding the making of the contract; nor was other equipment necessary for the
establishment of the factory at any time provided by the defendants. The reason for this
does not appear with certainty, but a preponderance of the evidence is to the effect that
the defendants, in the first months of 1919, seeing that the oil business no longer
promised large returns, either cancelled the order for the machinery from choice or were
unable to supply the capital necessary to finance the project. At any rate on June 28,
1919, availing themselves in part of the option given in the clause above quoted, the
defendants communicated in writing to the plaintiff the fact that they had decided to
rescind the contract, effective June 30th then current, upon which date he was
discharged. The plaintiff thereupon instituted this action to recover damages in the
amount of P13,000, covering salary and perquisites due and to become due under the
contract.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving
to the defendants the right to cancel the contract upon the contingency of the nonarrival
of the machinery in Manila within six months, must be understood as applicable only in
those cases where such nonarrival is due to causes not having their origin in the will or
act of the defendants, as delays caused by strikes or unfavorable conditions of
transporting by land or sea; and it is urged that the right to cancel cannot be admitted
unless the defendants affirmatively show that the failure of the machinery to arrive was
due to causes of that character, and that it did not have its origin in their own act or
volition. In this connection the plaintiff relies on article 1256 of the Civil Code, which is to
the effect that the validity and fulfillment of contracts cannot be left to the will of one of
the contracting parties, and to article 1119, which says that a condition shall be deemed
fulfilled if the obligor intentially impedes its fulfillment.

It will be noted that the language conferring the right of cancellation upon the defendants
is broad enough to cover any case of the nonarrival of the machinery, due to whatever
cause; and the stress in the expression "for any reason" should evidently fall upon the
word "any." It must follow of necessity that the defendants had the right to cancel the
contract in the contingency that occurred, unless some clear and sufficient reason can
be adduced for limiting the operation of the words conferring the right of cancellation.
Upon this point it is our opinion that the language used in the stipulation should be given
effect in its ordinary sense, without technicality or circumvention; and in this sense it is
believed that the parties to the contract must have understood it.

Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a
contract for personal service of a resolutory condition permitting the cancellation of the
contract by one of the parties. Such a stipulation, as can be readily seen, does not make
either the validity or the fulfillment of the contract dependent upon the will of the party to
whom is conceded the privilege of cancellation; for where the contracting parties have
agreed that such option shall exist, the exercise of the option is as much in the fulfillment
of the contract as any other act which may have been the subject of agreement. Indeed,
the cancellation of a contract in accordance with conditions agreed upon beforehands is
fulfillment.

In this connection, we note that the commentator Manresa has the following observation
with respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave
fulfillment to the will of either of the parties in the negative form of rescission, a case

88
frequent in certain contracts (the letting of service for hire, the supplying of electrical
energy, etc.), for in such supposed case neither is the article infringed, nor is there any
lack of equality between the persons contracting, since they remain with the same
faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net

Undoubtedly one of the consequences of this stipulation was that the employers were
left in a position where they could dominate the contingency, and the result was about
the same as if they had been given an unqualified option to dispense with the services of
the plaintiff at the end of six months. But this circumstance does not make the stipulation
illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though
superficially somewhat analogous, is not precisely in point. In that case one Hardaker
had contracted to render competent and efficient service as manager of a corporation, to
which position it was understood he was to be appointed. In the same contract it was
stipulated that if "for any reason" Hardaker should not be given that position, or if he
should not be permitted to act in that capacity for a stated period, certain things would be
done by Hall. Upon being installed in the position aforesaid, Hardaker failed to render
efficient service and was discharged. It was held that Hall was released from the
obligation to do the things that he had agreed to perform. Some of the judges appear to
have thought that the case turned on the meaning of the phrase "for any reason," and
the familiar maxim was cited that no man shall take advantage of his own wrong. The
result of the case must have been the same from whatever point of view, as there was
an admitted failure on the part of Hardaker to render competent service. In the present
case there was no breach of contract by the defendants; and the argument to the
contrary apparently suffers from the logical defect of assuming the very point at issue.

But it will be said that the question is not so much one concerning the legality of the
clause referred to as one concerning the interpretation of the resolutory clause as
written, the idea being that the court should adjust its interpretation of said clause to the
supposed precepts of article 1256, by restricting its operation exclusively to cases where
the nonarrival of the machinery may be due to extraneous causes not referable to the
will or act of the defendants. But even when the question is viewed in this aspect their
result is the same, because the argument for the restrictive interpretation evidently
proceeds on the assumption that the clause in question is illegal in so far as it purports
to concede to the defendants the broad right to cancel the contract upon nonarrival of
the machinery due to any cause; and the debate returns again to the point whether in a
contract for the prestation of service it is lawful for the parties to insert a provision giving
to the employer the power to cancel the contract in a contingency which may be
dominated by himself. Upon this point what has already been said must suffice.

As we view the case, there is nothing in article 1256 which makes it necessary for us to
warp the language used by the parties from its natural meaning and thereby in legal
effect to restrict the words "for any reason," as used in the contract, to mean "for any
reason not having its origin in the will or acts of the defendants." To impose this
interpretation upon those words would in our opinion constitute an unjustifiable invasion
of the power of the parties to establish the terms which they deem advisable, a right
which is expressed in article 1255 of the Civil Code and constitutes one of the most
fundamental conceptions of contract right enshrined in the Code.

89
The view already expressed with regard to the legality and interpretation of the clause
under consideration disposes in a great measure of the argument of the appellant in so
far as the same is based on article 1119 of the Civil Code. This provision supposes a
case where the obligor intentionally impedes the fulfillment of a condition which would
entitle the obligee to exact performance from the obligor; and an assumption underlying
the provision is that the obligor prevents the obligee from performing some act which the
obligee is entitled to perform as a condition precedent to the exaction of what is due to
him. Such an act must be considered unwarranted and unlawful, involving per se a
breach of the implied terms of the contract. The article can have no application to an
external contingency which, like that involved in this case, is lawfully within the control of
the obligor.

In Spanish jurisprudence a condition like that here under discussion is designated by

Manresa a facultative condition (vol. 8, p. 611), and we gather from his comment on
articles 1115 and 1119 of the Civil Code that a condition, facultative as to the debtor, is
obnoxious to the first sentence contained in article 1115 and renders the whole
obligation void (vol. 8, p. 131). That statement is no doubt correct in the sense intended
by the learned author, but it must be remembered that he evidently has in mind the
suspensive condition, such as is contemplated in article 1115. Said article can have no
application to the resolutory condition, the validity of which is recognized in article 1113
of the Civil Code. In other words, a condition at once facultative and resolutory may be
valid even though the condition is made to depend upon the will of the obligor.

If it were apparent, or could be demonstrated, that the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in
the absence of affirmative proof showing that the nonarrival of the machinery was due to
some cause not having its origin in their own act or will. The contract, however,
expresses no such positive obligation, and its existence cannot be implied in the fact of
stipulation, defining the conditions under which the defendants can cancel the contract.

Our conclusion is that the Court of First Instance committed no error in rejecting the
plaintiff's claim in so far as damages are sought for the period subsequent to the
expiration of the first six months, but in assessing the damages due for the six-month
period, the trial judge evidently overlooked the item of P60, specified in the plaintiff's
fourth assignment of error, which represents commutation of house rent for the month of
June, 1919. This amount the plaintiff is clearly entitled to recover, in addition to the P300
awarded in the court below.

We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the
judgment holding him liable as a member of the firm of Tan Liuan and Co.; and it is
insisted in his behalf that he was not bound by the act of Tan Liuan as manager of Tan
Liuan and Co. in employing the plaintiff. Upon this we will merely say that the conclusion
stated by the trial court in the next to the last paragraph of the decision with respect to
the liability of this appellant in our opinion in conformity with the law and facts.

The judgment appealed from will be modified by declaring that the defendants shall pay
to the plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as
thus modified the judgment will be affirmed with interest from November 4, 1919, as
provided in section 510 of the Code of Civil Procedure, and with costs. So ordered.

90
Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand, Johns and Romualdez,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-16570 March 9, 1922

SMITH, BELL & CO., LTD., plaintiff-appellant,

vs.
VICENTE SOTELO MATTI, defendant-appellant.

Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.

Ramon Sotelo for defendant-appellant.

ROMUALDEZ, J.:

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered
into contracts whereby the former obligated itself to sell, and the latter to purchase from
it, two steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same
to be shipped from New York and delivered at Manila "within three or four months;" two
expellers at the price of twenty five thousand pesos (P25,000) each, which were to be
shipped from San Francisco in the month of September, 1918, or as soon as possible;
and two electric motors at the price of two thousand pesos (P2,000) each, as to the
delivery of which stipulation was made, couched in these words: "Approximate delivery
within ninety days. — This is not guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of
October, 1918; and the motors on the 27th of February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods,
but Mr. Sotelo refused to receive them and to pay the prices stipulated.

The plaintiff brought suit against the defendant, based on four separate causes of action,
alleging, among other facts, that it immediately notified the defendant of the arrival of the
goods, and asked instructions from him as to the delivery thereof, and that the defendant
refused to receive any of them and to pay their price. The plaintiff, further, alleged that

91
the expellers and the motors were in good condition. (Amended complaint, pages 16-30,
Bill of Exceptions.)

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining
and By-Products Co., Inc., denied the plaintiff's allegations as to the shipment of these
goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's
refusal to receive them and pay their price, and the good condition of the expellers and
the motors, alleging as special defense that Mr. Sotelo had made the contracts in
question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc
which fact was known to the plaintiff, and that "it was only in May, 1919, that it notified
the intervenor that said tanks had arrived, the motors and the expellers having arrived
incomplete and long after the date stipulated." As a counterclaim or set-off, they also
allege that, as a consequence of the plaintiff's delay in making delivery of the goods,
which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor
suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-
three pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and
twenty-one thousand two hundred and fifty pesos (P21,250) on account of the expellers
and the motors not having arrived in due time.

The case having been tried, the court below absolved the defendants from the complaint
insofar as the tanks and the electric motors were concerned, but rendered judgment
against them, ordering them to "receive the aforesaid expellers and pay the plaintiff the
sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest
thereon from July 26, 1919, and costs."

Both parties appeal from this judgment, each assigning several errors in the findings of
the lower court.

The principal point at issue in this case is whether or not, under the contracts entered
into and the circumstances established in the record, the plaintiff has fulfilled, in due
time, its obligation to bring the goods in question to Manila. If it has, then it is entitled to
the relief prayed for; otherwise, it must be held guilty of delay and liable for the
consequences thereof.

To solve this question, it is necessary to determine what period was fixed for the delivery
of the goods.

As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar,
and in both of them we find this clause:

To be delivered within 3 or 4 months — The promise or indication of shipment

carries with it absolutely no obligation on our part — Government regulations,
railroad embargoes, lack of vessel space, the exigencies of the requirement of
the United States Government, or a number of causes may act to entirely vitiate
the indication of shipment as stated. In other words, the order is accepted on the
basis of shipment at Mill's convenience, time of shipment being merely an
indication of what we hope to accomplish.

In the contract Exhibit C (page 63 of the record), with reference to the expellers, the
following stipulation appears:

92
 The following articles, hereinbelow more particularly described, to be shipped at
San Francisco within the month of September /18, or as soon as possible. —
Two Anderson oil expellers . . . .

And in the contract relative to the motors (Exhibit D, page 64, rec.) the following
appears:

Approximate delivery within ninety days. — This is not guaranteed. — This sale
is subject to our being able to obtain Priority Certificate, subject to the United
States Government requirements and also subject to confirmation of
manufactures.

In all these contracts, there is a final clause as follows:

The sellers are not responsible for delays caused by fires, riots on land or on the
sea, strikes or other causes known as "Force Majeure" entirely beyond the
control of the sellers or their representatives.

Under these stipulations, it cannot be said that any definite date was fixed for the
delivery of the goods. As to the tanks, the agreement was that the delivery was to be
made "within 3 or 4 months," but that period was subject to the contingencies referred to
in a subsequent clause. With regard to the expellers, the contract says "within the month
of September, 1918," but to this is added "or as soon as possible." And with reference to
the motors, the contract contains this expression, "Approximate delivery within ninety
days," but right after this, it is noted that "this is not guaranteed."

The oral evidence falls short of fixing such period.

From the record it appears that these contracts were executed at the time of the world
war when there existed rigid restrictions on the export from the United States of articles
like the machinery in question, and maritime, as well as railroad, transportation was
difficult, which fact was known to the parties; hence clauses were inserted in the
contracts, regarding "Government regulations, railroad embargoes, lack of vessel space,
the exigencies of the requirements of the United States Government," in connection with
the tanks and "Priority Certificate, subject to the United State Government
requirements," with respect to the motors. At the time of the execution of the contracts,
the parties were not unmindful of the contingency of the United States Government not
allowing the export of the goods, nor of the fact that the other foreseen circumstances
therein stated might prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that the
term which the parties attempted to fix is so uncertain that one cannot tell just whether,
as a matter of fact, those articles could be brought to Manila or not. If that is the case, as
we think it is, the obligations must be regarded as conditional.

Obligations for the performance of which a day certain has been fixed shall be
demandable only when the day arrives.

A day certain is understood to be one which must necessarily arrive, even though
its date be unknown.
93
 If the uncertainty should consist in the arrival or non-arrival of the day, the
obligation is conditional and shall be governed by the rules of the next preceding
section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.)

And as the export of the machinery in question was, as stated in the contract, contingent
upon the sellers obtaining certificate of priority and permission of the United States
Government, subject to the rules and regulations, as well as to railroad embargoes, then
the delivery was subject to a condition the fulfillment of which depended not only upon
the effort of the herein plaintiff, but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly provided for,
but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.

In such cases, the decisions prior to the Civil Code have held that the obligee
having done all that was in his power, was entitled to enforce performance of the
obligation. This performance, which is fictitious — not real — is not expressly
authorized by the Code, which limits itself only to declare valid those conditions
and the obligation thereby affected; but it is neither disallowed, and the Code
being thus silent, the old view can be maintained as a doctrine. (Manresa's
commentaries on the Civil Code [1907], vol. 8, page 132.)

The decisions referred to by Mr. Manresa are those rendered by the supreme court of
Spain on November 19, 1896, and February 23, 1871.

In the former it is held:

First. That when the fulfillment of the conditions does not depend on the will of
the obligor, but on that of a third person who can in no way be compelled to carry
it out, and it is found by the lower court that the obligor has done all in his power
to comply with the obligation, the judgment of the said court, ordering the other
party to comply with his part of the contract, is not contrary to the law of
contracts, or to Law 1, Tit. I, Book 10, of the "Novísima Recopilación," or Law 12,
Tit. 11, of Partida 5, when in the said finding of the lower court, no law or
precedent is alleged to have been violated. (Jurisprudencia Civil published by the
directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14,
page 656.)

In the second decision, the following doctrine is laid down:

Second. That when the fulfillment of the condition does not depend on the will of
the obligor, but on that of a third person, who can in no way be compelled to
carry it out, the obligor's part of the contract is complied withalf Belisario not
having exercised his right of repurchase reserved in the sale of Basilio Borja
mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for
the consolidacion de dominio was presented for record in the registry of deeds
and recorded in the registry on the same date.

(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three
minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs.

94
 (33) That in the execution and sales thereunder, in which C. H. McClure appears
as the judgment creditor, he was represented by the opponent Peter W. Addison,
who prepared and had charge of publication of the notices of the various sales
and that in none of the sales was the notice published more than twice in a
newspaper.

The claims of the opponent-appellant Addison have been very fully and ably
argued by his counsel but may, we think, be disposed of in comparatively few
words. As will be seen from the foregoing statement of facts, he rest his title (1)
on the sales under the executions issued in cases Nos. 435, 450, 454, and 499
of the court of the justice of the peace of Dagupan with the priority of inscription
of the last two sales in the registry of deeds, and (2) on a purchase from the
Director of Lands after the land in question had been forfeited to the Government
for non-payment of taxes under Act No. 1791.

The sheriff's sales under the execution mentioned are fatally defective for what of
sufficient publication of the notice of sale. Section 454 of the Code of civil
Procedure reads in part as follows:

SEC. 454. Before the sale of property on execution, notice thereof must be given,
as follows:

1. In case of perishable property, by posing written notice of the time and place of
the sale in three public places of the municipality or city where the sale is to take
place, for such time as may be reasonable, considering the character and
condition of the property;

2. * * * * * * *

3. In cases of real property, by posting a similar notice particularly describing the

property, for twenty days in three public places of the municipality or city where
the property is situated, and also where the property is to be sold, and publishing
a copy thereof once a week, for the same period, in some newspaper published
or having general circulation in the province, if there be one. If there are
newspaper published in the province in both the Spanish and English languages,
then a like publication for a like period shall be made in one newspaper published
in the Spanish language, and in one published in the English language:Provided,
however, That such publication in a newspaper will not be required when the
assessed valuation of the property does not exceed four hundred pesos;

4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on
October 14, 1916; the notice first published gave the date of the sale as October 15th,
but upon discovering that October 15th was a Sunday, the date was changed to October
14th. The correct notice was published twice in a local newspaper, the first publication
was made on October 7th and the second and last on October 14th, the date of the sale
itself. The newspaper is a weekly periodical published every Saturday afternoon.

95
In case No. 454 there were only two publications of the notice in a newspaper, the first
publication being made only fourteen days before the date of the sale. In case No. 499,
there were also only two publications, the first of which was made thirteen days before
the sale. In the last case the sale was advertised for the hours of from 8:30 in the
morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil
Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the
morning until 4.30 in the afternoon. In all of the cases the notices of the sale were
prepared by the judgment creditor or his agent, who also took charged of the publication
of such notices.

In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court
held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure
induced thereto by the judgment creditor and the purchaser at the sale is the judgment
creditor, the sale is absolutely void and not title passes. This must now be regarded as
the settled doctrine in this jurisdiction whatever the rule may be elsewhere.

It appears affirmatively from the evidence in the present case that there is a newspaper
published in the province where the sale in question took place and that the assessed
valuation of the property disposed of at each sale exceeded P400. Comparing the
requirements of section 454, supra, with what was actually done, it is self-evident that
notices of the sales mentioned were not given as prescribed by the statute and taking
into consideration that in connection with these sales the appellant Addison was either
the judgment creditor or else occupied a position analogous to that of a judgment
creditor, the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is equally
invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land
confiscated for non-payment of taxes are found in section 19 of the Act and read:

. . . In case such redemption be not made within the time above specified the
Government of the Philippine Islands shall have an absolute, indefeasible title to
said real property. Upon the expiration of the said ninety days, if redemption be
not made, the provincial treasurer shall immediately notify the Director of Lands
of the forfeiture and furnish him with a description of the property, and said
Director of Lands shall have full control and custody thereof to lease or sell the
same or any portion thereof in the same manner as other public lands are leased
or sold: Provided, That the original owner, or his legal representative, shall have
the right to repurchase the entire amount of his said real property, at any time
before a sale or contract of sale has been made by the director of Lands to a
third party, by paying therefore the whole sum due thereon at the time of
ejectment together with a penalty of ten per centum . . . .

The appellant Addison repurchased under the final proviso of the section quoted and
was allowed to do so as the successor in interest of the original owner under the
execution sale above discussed. As we have seen, he acquired no rights under these
sales, was therefore not the successor of the original owner and could only have
obtained a valid conveyance of such titles as the Government might have by following
the procedure prescribed by the Public Land Act for the sale of public lands. he is
entitled to reimbursement for the money paid for the redemption of the land, with
interest, but has acquired no title through the redemption.

96
The question of the priority of the record of the sheriff's sales over that of the sale from
Belisario to Borja is extensively argued in the briefs, but from our point of view is of no
importance; void sheriff's or execution sales cannot be validated through inscription in
the Mortgage Law registry.

The opposition of Adelina Ferrer must also be overruled. She maintained that the land in
question was community property of the marriage of Eulalio Belisario and Paula Ira: that
upon the death of Paula Ira inealed from is modified, and the defendant Mr. Vicente
Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers
and the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos
(P96,000), with legal interest thereon from July 17, 1919, the date of the filing of the
complaint, until fully paid, and the costs of both instances. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand, and Johns, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 70789 October 19, 1992

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and
ROMEO S. VERGARA, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS,
INC., ROMEO A. LLUCH and ROBERTO G. BORROMEO, respondents.

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood
supplied by the latter pursuant to a contract of sale between them, private respondents
sued for breach of their covenant. The court of origin dismissed the complaint but at the
same time enjoined petitioners to respect the contract of sale if circumstances warrant
the full operation in a commercial scale of petitioners' Baloi plant and to continue
97
accepting and paying for deliveries of pulp wood products from Romeo Lluch (page 14,
Petition; page 20, Rollo). On appeal to the then Intermediate Appellate Court, Presiding
Justice Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices
Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing
herein petitioners to pay private respondents, jointly and severally, the sum of
P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).

In the petition at bar, it is argued that the Appellate Court erred;

A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT

OF SALE PETITIONER TANTOCO WHO SIGNED MERELY AS
REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER
VERGARA WHO DID NOT SIGN AT ALL;

B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO

SUSPEND TAKING DELIVERY OF PULP WOOD FROM RESPONDENT
LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN
DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS
RIGHTS UNDER THE CONTRACT OF SALE; and

C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN

THE ABSENCE OF FRAUD OR BAD FAITH.

(page 18, Petition; page 24, Rollo)

The generative facts of the controversy, as gathered from the pleadings, are fairly
simple.

Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del
Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products
license, transmitted a letter to petitioner Rustan for the supply of raw materials by the
former to the latter. In response thereto, petitioner Rustan proposed, among other
things, in the letter-reply:

2. That the contract to supply is not exclusive because Rustan shall have
the option to buy from other suppliers who are qualified and holder of
appropriate government authority or license to sell and dispose pulp
wood.

These prefatory business proposals culminated in the execution, during the month of
April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan
Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic meter of pulp
wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. Of
pertinent significance to the issue at hand are the following stipulations in the bilateral
undertaking:

3. That BUYER shall have the option to buy from other SELLERS who
are equally qualified and holders of appropriate government authority or
license to sell or dispose, that BUYER shall not buy from any other seller

98
 whose pulp woods being sold shall have been established to have
emanated from the SELLER'S lumber and/or firewood concession. . . .

And that SELLER has the priority to supply the pulp wood materials
requirement of the BUYER;

xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of the said raw
materials by the seller covered by this contract when supply of the same
shall become sufficient until such time when need for said raw materials
shall have become necessarily provided, however, that the SELLER is
given sufficient notice.

(pages 8-9, Petition; pages 14-15, Rollo)

In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills,
Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood
materials for which the corresponding deliveries were made. But during the test run of
the pulp mill, the machinery line thereat had major defects while deliveries of the raw
materials piled up, which prompted the Japanese supplier of the machinery to
recommend the stoppage of the deliveries. The suppliers were informed to stop
deliveries and the letter of similar advice sent by petitioners to private respondents
reads:

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether
stoppage of delivery or termination of the contract of sale was intended, but the query
was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the
other suppliers resumed deliveries after the series of talks between Romeo S. Vergara
and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as earlier
noted, was dismissed. In the process of discussing the merits of the appeal interposed
therefrom, respondent Court clarified the eleven errors assigned below by herein
petitioners and it seems that petitioners were quite satisfied with the Appellate Court's in
seriatim response since petitioners trimmed down their discourse before this Court to
three basic matters, relative to the nature of liability, the propriety of the stoppage, and
the feasibility of awarding moral damages including attorney's fees.

Respondent Court found it ironic that petitioners had to exercise the prerogative
regarding the stoppage of deliveries via the letter addressed to Iligan Diversified Project,
Inc. on September 30, 1968 because petitioners never really stopped accepting
deliveries from private respondents until December 23, 1968. Petitioner's paradoxial
stance portrayed in this manner:

. . . We cannot accept the reasons given by appellees as to why they

were stopping deliveries of pulp wood materials. First, We find it
preposterous for a business company like the appellee to accumulate
stockpiles of cut wood even after its letter to appellants dated September
30, 1968 stopping the deliveries because the supply of raw materials has

99
become sufficient. The fact that appellees were buying and accepting
pulp wood materials from other sources other than the appellants even
after September 30, 1968 belies that they have more than sufficient
supply of pulp wood materials, or that they are unable to go into full
commercial operation or that their machineries are defective or even that
the pulp wood materials coming from appellants are sub-
standard. Second, We likewise find the court a quo's finding that "even
with one predicament in which defendant Rustan found itself wherein
commercial operation was delayed, it accommodated all its suppliers of
raw materials, including plaintiff, Romeo Lluch, by allowing them to deliver
all its stockpiles of cut wood" (Decision, page 202, Record on Appeal) to
be both illogical and inconsistent. Illogical, because as appellee Rustan
itself claimed "if the plant could not be operated on a commercial scale, it
would then be illogical for defendant Rustan to continue accepting
deliveries of raw materials." Inconsistent because this kind of "concern" or
"accommodation" is not usual or consistent with ordinary business
practice considering that this would mean adequate losses to the
company. More so, if We consider that appellee is a new company and
could not therefore afford to absorb more losses than it already allegedly
incurred by the consequent defects in the machineries.

Clearly therefore, this is a breach of the contract entered into by and

between appellees and appellants which warrants the intervention of this
Court.

xxx xxx xxx

. . . The letter of September 30, 1968, Exh. "D" shows that defendants
were terminating the contract of sale (Exh. "A"), and refusing any future or
further delivery — whether on the ground that they had sufficient supply
of pulp wood materials or that appellants cannot meet the standard of
quality of pulp wood materials that Rustan needs or that there were
defects in appellees' machineries resulting in an inability to continue full
commercial operations.

Furthermore, there is evidence on record that appellees have been

accepting deliveries of pulp wood materials from other sources, i.e. Salem
Usman, Fermin Villanueva and Pacasum even after September 30, 1968.

Lastly, it would be unjust for the court a quo to rule that the contract of
sale be temporarily suspended until Rustan, et al., are ready to accept
deliveries from appellants. This would make the resumption of the
contract purely dependent on the will of one party — the appellees, and
they could always claim, as they did in the instant case, that they have
more than sufficient supply of pulp wood when in fact they have been
accepting the same from other sources. Added to this, the court a
quo was imposing a new condition in the contract, one that was not
agreed upon by the parties.

(Pages B-10, Decision; Pages 55-57, Rollo)

100
The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged
breach of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills
may legally exercise the right of stoppage should there be a glut of raw materials at its
plant.

And insofar as the express discretion on the part of petitioners is concerned regarding
the right of stoppage, We feel that there is cogent basis for private respondent's
apprehension on the illusory resumption of deliveries inasmuch as the prerogative
suggests a condition solely dependent upon the will of petitioners. Petitioners can stop
delivery of pulp wood from private respondents if the supply at the plant is sufficient as
ascertained by petitioners, subject to re-delivery when the need arises as determined
likewise by petitioners. This is Our simple understanding of the literal import of
paragraph 7 of the obligation in question. A purely potestative imposition of this
character must be obliterated from the face of the contract without affecting the rest of
the stipulations considering that the condition relates to the fulfillment of an already
existing obligation and not to its inception (Civil Code Annotated, by Padilla, 1987
Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a
condition which is both potestative (or facultative) and resolutory may be valid, even
though the saving clause is left to the will of the obligor like what this Court, through
Justice Street, said in Taylor vs. Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in
Commentaries and Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991
edition, page 152). But the conclusion drawn from the Taylor case, which allowed a
condition for unilateral cancellation of the contract when the machinery to be installed on
the factory did not arrive in Manila, is certainly inappropriate for application to the case at
hand because the factual milieu in the legal tussle dissected by Justice Street conveys
that the proviso relates to the birth of the undertaking and not to the fulfillment of an
existing obligation.

In support of the second ground for allowance of the petition, petitioners are of the
impression that the letter dated September 30, 1968 sent to private respondents is well
within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale
which was construed by petitioners to be a temporary suspension of deliveries. There is
no doubt that the contract speaks loudly about petitioners' prerogative but what
diminishes the legal efficacy of such right is the condition attached to it which, as
aforesaid, is dependent exclusively on their will for which reason, We have no alternative
but to treat the controversial stipulation as inoperative (Article 1306, New Civil Code). It
is for this same reason that We are not inclined to follow the interpretation of petitioners
that the suspension of delivery was merely temporary since the nature of the suspension
itself is again conditioned upon petitioner's determination of the sufficiency of supplies at
the plant.

Neither are We prepared to accept petitioners' exculpation grounded on frustration of the

commercial object under Article 1267 of the New Civil Code, because petitioners
continued accepting deliveries from the suppliers. This conduct will estop petitioners
from claiming that the breakdown of the machinery line was an extraordinary obstacle to
their compliance to the prestation. It was indeed incongruous for petitioners to have sent
the letters calling for suspension and yet, they in effect disregarded their own advice by
accepting the deliveries from the suppliers. The demeanor of petitioners along this line
was sought to be justified as an act of generous accommodation, which entailed greater
loss to them and "was not motivated by the usual businessman's obsession with profit"

101
(Page 34, Petition; Page 40, Rollo). Altruism may be a noble gesture but petitioners'
stance in this respect hardly inspires belief for such an excuse is inconsistent with a
normal business enterprise which takes ordinary care of its concern in cutting down on
expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that they
will encounter difficulty in producing output because of the defective machinery line,
petitioners opted to open the plant to greater loss, thus compounding the costs by
accepting additional supply to the stockpile. Verily, the petitioner's action when they
acknowledged that "if the plant could not be operated on a commercial scale, it would
then be illogical for defendant Rustan to continue accepting deliveries of raw materials."
(Page 202, Record on Appeal; Page 8, Decision; Page 55, Rollo).

Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay
moral damages and attorney's fees because Tantoco merely represented the interest of
Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract
of sale. On this score, We have to agree with petitioners' citation of authority to the effect
that the President and Manager of a corporation who entered into and signed a contract
in his official capacity, cannot be made liable thereunder in his individual capacity in the
absence of stipulation to that effect due to the personality of the corporation being
separate and distinct from the person composing it (Bangued Generale Belge vs. Walter
Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara's supposed non-
participation in the contract of sale although he signed the letter dated September 30,
1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the
New Civil Code where agents are directly responsible are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only
petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's
fees as awarded by respondent Court.

ROMERO vs. COURT OF APPEALS

G.R. No. 107207 November 23, 1995

Facts:

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,
he decided to put up a central warehouse in Metro Manila.

Flores and his wife offered a parcel of land measuring 1,952 square meters. The lot was
covered in a TCT 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. Flores 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

102
sell the property for only P800/square meter. Romero agreed. Later, a “Deed of
Conditional Sale” was executed between Flores and Ongsiong.

Purchase price = P1,561,600.00; Downpayment = P50K; Balance = to be paid 45 days

after the removal of all the squatters; upon full payment, Ongsiong shall execute deed of
absolute sale in favour of Romero.

Ongsiong 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. She opted to rescind the sale in view of
her failure to get rid of the squatters. 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.

Issue: WON there was a perfected contract of sale? YES

Held:

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. (BILATERAL and RECIPROCAL
CHARACTERISTIC OF SALE)

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 non-fulfillment, as the
case may be, of the prescribed condition.

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
103
period of compliance by petitioner of his own obligation, i.e., to pay the balance of the
purchase price. Private respondent’s failure “to remove the squatters from the property”
within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil Code.
This option clearly belongs to petitioner and not to private respondent.

There was no potestative condition on the part of Ongsiong 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.

SECOND DIVISION

[G.R. No. 156273. October 15, 2003]

HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely: ESPERANZA R.

EDJEC, BERNARDA R. SUELA, RUBY C. ROTEA, BERNARDA R. ROTEA,
ELIA R. VDA. DE LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R.
ARQUISOLA, CORAZON ROTEA, FE R. EBORA, CARIDAD ROTEA,
ANGELES VDA. DE RENACIA, JORGE ROTEA, MARIA LUISA ROTEA-
VILLEGAS, ALFREDO R. ROTEA, represented by his heirs LIZBETH ROTEA
and ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFER
ROTEA; and ROLANDO R. ROTEA, represented by his heir ROLANDO R.
ROTEA JR., petitioners, vs. MACTAN - CEBU INTERNATIONAL AIRPORT
AUTHORITY,respondent.

DECISION
BELLOSILLO, J.:

THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are
the successors-in-interest of the former registered owners of two (2) parcels of land

104
situated inLahug, Cebu City, designated as Lot No. 916 with an area of 2,355 square
meters under TCT No. RT-7543 (106) T-13694, and Lot No. 920 consisting of 3,097
square meters under TCT No. RT-7544 (107) T-13695.[1]
In 1949 the National Airport Corporation as the predecessor agency of
respondent Mactan-Cebu International Airport Authority (MCIAA) wanted to acquire Lots
Nos. 916 and 920 above described among other parcels of land for the proposed
expansion of Lahug Airport.[2] To entice the landowners to cede their properties, the
government assured them that they could repurchase their lands
once Lahug Airport was closed or its operations transferred to Mactan Airport.[3] Some of
the landowners executed deeds of sale with right of repurchase in favor of the
government but many others, including the owners of Lots Nos. 916 and 920 herein
mentioned, refused the offer because the payment was perceived to be way below the
market price.[4]
On 16 April 1952, as the negotiations for the purchase of the lots necessary for the
expansion and improvement of Lahug Airport irredeemably broke down, the Civil
Aeronautics Administration as the successor agency of the National Airport Corporation
filed a complaint with the Court of First Instance of Cebu, for the expropriation of Lots
Nos. 916 and 920 and other subject realties, docketed as Civil Case No. R-1881.
On 29 December 1961 the trial court promulgated its Decision in Civil Case No. R-
1881 condemning Lots Nos. 916 and 920 and other lots for public use upon payment of
just compensation.[5] Petitioners’ predecessors were paid P7,065.00 for Lot No. 916
and P9,291.00 for Lot No. 920 with consequential damages by way of legal interest
from 16 November 1947. No appeal was taken from the Decision on Lots Nos. 916 and
920, and the judgment of condemnation became final and executory.[6] Thereafter, the
certificates of title for these parcels of land were issued in the name of the Republic of
the Philippines under TCT No. 58691 for Lot No. 916 and TCT No. 58692 for Lot No.
920, which under RA 6958 (1990) were subsequently transferred in favor of respondent
MCIAA.[7]
At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to
MCIAA, Lahug Airport ceased operations as the Mactan Airport was opened for
incoming and outgoing flights.[8] Lots Nos. 916 and 920 which had been expropriated for
the extension of Lahug Airport were not utilized.[9] In fact, no expansion
of Lahug Airport was undertaken by MCIAA and its predecessors-in-interest.[10] Hence,
petitioners wrote then President Fidel V. Ramos and the airport manager begging them
for the exercise of their alleged right to repurchase Lots Nos. 916 and 920. [11] Their pleas
were not heeded.[12]
On 11 March 1997 petitioners filed a complaint for reconveyance and damages with
RTC of Cebu City against respondent MCIAA to compel the repurchase of Lots Nos. 916
and 920, docketed as Civil Case No. CEB-20015. In the main, petitioners averred that
they had been convinced by the officers of the predecessor agency of respondent
MCIAA not to oppose the expropriation proceedings since in the future they could
repurchase the properties if the airport expansion would not push through. MCIAA did
not object to petitioners’ evidence establishing these allegations.
When the civil case was pending, one Richard E. Enchuan filed a Motion for
Transfer of Interest alleging that he acquired through deeds of assignment the rights of
some of herein petitioners over Lots Nos. 916 and 920.[13] The Department of Public
Works and Highways (DPWH) also sought to intervene in the civil case claiming that it

105
leased in good faith Lot No. 920 from the predecessor agencies of respondent MCIAA
and that it built thereon its Regional Equipment Services and its Region 7 Office.[14]
On 12 April 1999 the trial court found merit in the claims of petitioners and granted
them the right to repurchase the properties at the amount pegged as just compensation
in Civil Case No. R-1881 but subject to the alleged property rights of Richard
E. Enchuan and the leasehold of DPWH.[15] The trial court opined that the expropriation
became illegal orfunctus officio when the purpose for which it was intended was no
longer there.[16]
Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals,
docketed as CA-G.R. CV No. 64456.
On 20 December 2001 the Court of Appeals reversed the assailed Decision on the
ground that the judgment of condemnation in Civil Case No. R-1881 was unconditional
so that the rights gained therefrom by respondent MCIAA were indicative of ownership in
fee simple.[17] The appellate court cited Fery v. Municpality of Cabanatuan[18] which held
that mere deviation from the public purpose for which the power of eminent domain was
exercised does not justify the reversion of the property to its former owners,
and Mactan-CebuInternational Airport Authority v. Court of Appeals [19] which is
allegedly stare decisis to the instant case to prevent the exercise of the right of
repurchase as the former dealt with a parcel of land similarly expropriated under Civil
Case No. R-1881.[20]
On 28 November 2002 reconsideration of the Decision was denied. [21] Hence, this
petition for review.
Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to the case
at bar since what was involved therein was the “right of reversion” and not the “right of
repurchase” which they are invoking. They also differentiate Mactan-Cebu International
Airport Authority v. Court of Appeals[22] from the instant case in that the landowners in the
MCIAA case offered inadmissible evidence to show their entitlement to a right of
repurchase, while petitioners herein offered evidence based on personal knowledge for
which reason MCIAA did not object and thus waived whatever objection it might have
had to the admissibility thereof. Finally, petitioners allege that their right to equal
protection of the laws would be infringed if some landowners are given the right to
repurchase their former properties even as they are denied the exercise of such
prerogative.
On the other hand, respondent MCIAA clings to our decisions
in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport Authority v.
Court of Appeals. According to respondent MCIAA “there is only one instance when
expropriated land may be repurchased by its previous owners, and that is, if the decision
of expropriation itself provides [the] condition for such repurchase.” Respondent asserts
that the Decision in Civil Case No. R-1881 is absolute and without conditions, thus, no
repurchase could be validly exercised.
This is a difficult case calling for a difficult but just solution. To begin with, there
exists an undeniable historical narrative that the predecessors of respondent MCIAA had
suggested to the landowners of the properties covered by the Lahug Airport expansion
scheme that they could repurchase their properties at the termination of the airport’s
venture.[23] Some acted on this assurance and sold their properties;[24] other landowners
held out and waited for the exercise of eminent domain to take its course until finally
coming to terms with respondent’s predecessors that they would not appeal nor block

106
further the judgment of condemnation if the same right of repurchase was extended to
them.[25] A handful failed to prove that they acted on such assurance when they parted
with the ownership of their lands.[26]
In resolving this dispute, we must reckon with the rulings of this Court
in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport Authority v.
Court of Appeals, which define the rights and obligations of landowners whose
properties were expropriated when the public purpose for which eminent domain was
exercised no longer subsists. InFery, which was cited in the recent case of Reyes v.
Court of Appeals,[27] we declared that the government acquires only such rights in
expropriated parcels of land as may be allowed by the character of its title over the
properties -

If x x x land is expropriated for a particular purpose, with the condition that when that
purpose is ended or abandoned the property shall return to its former owner, then, of
course, when the purpose is terminated or abandoned the former owner reacquires the
property so expropriated. If x x x land is expropriated for a public street and the
expropriation is granted upon condition that the city can only use it for a public street,
then, of course, when the city abandons its use as a public street, it returns to the former
owner, unless there is some statutory provision to the contrary x x x x If, upon the
contrary, however, the decree of expropriation gives to the entity a fee simple title, then,
of course, the land becomes the absolute property of the expropriator, whether it be the
State, a province, or municipality, and in that case the non-user does not have the effect
of defeating the title acquired by the expropriation proceedings x x x x When land has
been acquired for public use in fee simple, unconditionally, either by the exercise of
eminent domain or by purchase, the former owner retains no rights in the land, and the
public use may be abandoned, or the land may be devoted to a different use, without
any impairment of the estate or title acquired, or any reversion to the former owner
x x x x[28]

In Mactan-Cebu International Airport Authority, respondent Chiongbian sought to

enforce an alleged right of repurchase over her properties that had been expropriated in
Civil Case No. R-1881. This Court did not allow her to adduce evidence of her claim, for
to do so would unsettle as to her properties the judgment of condemnation in the
eminent domain proceedings. We also held therein that Chiongbian’s evidence was
both inadmissible and lacking in probative value -

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee
simple to the Republic of the Philippines. There was no condition imposed to the effect
that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to
repurchase the same if the purpose for which it was expropriated is ended or abandoned
or if the property was to be used other than as the LahugAirport. CHIONGBIAN cannot
rely on the ruling in Mactan-Cebu International Airport vs. Court of Appeals wherein the
presentation of parol evidence was allowed to prove the existence of a written
agreement containing the right to repurchase. Said case did not involve expropriation
proceedings but a contract of sale x x x x To permit CHIONGBIAN to prove the
existence of a compromise settlement which she claims to have entered into with the
Republic of the Philippines prior to the rendition of judgment in the expropriation case
would result in a modification of the judgment of a court which has long become final
and executory x x x x And even assuming for the sake of argument that CHIONGBIAN
could prove the existence of the alleged written agreement acknowledging her right to

107
repurchase Lot No. 941 through parol evidence, the Court of Appeals erred in holding
that the evidence presented by CHIONGBIAN was admissible x x x x Aside from being
inadmissible under the provisions of the Statute of Frauds, [the] testimonies are also
inadmissible for being hearsay in nature x x x x[29]

We adhere to the principles enunciated in Fery and in Mactan-Cebu International

Airport Authority, and do not overrule them. Nonetheless the weight of their import,
particularly our ruling as regards the properties of respondent Chiongbian in Mactan-
Cebu International Airport Authority, must be commensurate to the facts that were
established therein as distinguished from those extant in the case at
bar. Chiongbian put forth inadmissible and inconclusive evidence, while in the instant
case we have preponderant proof as found by the trial court of the existence of the right
of repurchase in favor of petitioners.
Moreover, respondent MCIAA has brought to our attention a significant and telling
portion in the Decision in Civil Case No. R-1881 validating our discernment that the
expropriation by the predecessors of respondent was ordered under the running
impression that Lahug Airport would continue in operation -

As for the public purpose of the expropriation proceeding, it cannot now be

doubted. Although Mactan Airport is being constructed, it does not take away the actual
usefulness and importance of the LahugAirport: it is handling the air traffic both civilian
and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their
flights to the North and Manila. Then, no evidence was adduced to show how soon
is the Mactan Airport to be placed in operation and whether the Lahug Airport will
be closed immediately thereafter. It is up to the other departments of the Government
to determine said matters. The Court cannot substitute its judgment for those of the said
departments or agencies. In the absence of such showing, the Court will presume
that the Lahug Airport will continue to be in operation (emphasis supplied).[30]

While the trial court in Civil Case No. R-1881 could have simply acknowledged the
presence of public purpose for the exercise of eminent domain regardless of the survival
ofLahug Airport, the trial court in its Decision chose not to do so but instead prefixed its
finding of public purpose upon its understanding that “Lahug Airport will continue to be in
operation.” Verily, these meaningful statements in the body of the Decision warrant the
conclusion that the expropriated properties would remain to be so until it was confirmed
thatLahug Airport was no longer “in operation.” This inference further implies two (2)
things: (a) after the Lahug Airport ceased its undertaking as such and the expropriated
lots were not being used for any airport expansion project, the rights vis-à-vis the
expropriated Lots Nos. 916 and 920 as between the State and their former owners,
petitioners herein, must be equitably adjusted; and, (b) the foregoing unmistakable
declarations in the body of the Decision should merge with and become an intrinsic part
of the fallo thereof which under the premises is clearly inadequate since
the dispositive portion is not in accord with the findings as contained in the body thereof.
[31]

Significantly, in light of the discussion above, the admission of petitioners during the
pre-trial of Civil Case No. CEB-20015 for reconveyance and damages that respondent
MCIAA was the absolute owner of Lots Nos. 916 and 920 does not prejudice petitioners’
interests. This is as it should be not only because the admission concerns a legal
conclusion fiercely debated by the parties[32] but more so since respondent was truly the

108
absolute owner of the realties until it was apparent that Lahug Airport had stopped doing
business.
To sum up what we have said so far, the attendance in the case at bar of standing
admissible evidence validating the claim of petitioners as well as the portions above-
quoted of the Decision in the expropriation case volunteered no less than by respondent
itself, takes this case away from the ambit of Mactan-Cebu International Airport Authority
v. Court of Appeals[33] but within the principles enunciated in Fery as mentioned
earlier. In addition, there should be no doubt that our present reading of the fallo of
the Decision in Civil Case No. R-1881 so as to include the statements in the body
thereof afore-quoted is sanctioned by the rule that a final and executory judgment may
nonetheless be “clarified” by reference to other portions of the decision of which it forms
a part. In Republic v. De Los Angeles[34] we ruled -

This Court has promulgated many cases x x x wherein it was held that a judgment must
not be read separately but in connection with the other portions of the decision of which
it forms a part. Hence x x x the decision of the court below should be taken as a whole
and considered in its entirety to get the true meaning and intent of any particular portion
thereof x x x x Neither is this Court inclined to confine itself to a reading of the
said fallo literally. On the contrary, the judgment portion of a decision should be
interpreted and construed in harmony with the ratio decidendi thereof x x x x As stated in
the case ofPolicarpio vs. Philippine Veterans Board, et al., supra, to get the true intent
and meaning of a decision, no specific portion thereof should be resorted to but the
same must be considered in its entirety. Hence, a resolution or ruling may and does
appear in other parts of the decision and not merely in the fallo thereof x x x x The
foregoing pronouncements find support in the case of Locsin, et al. vs. Paredes, et al.,
63 Phil., 87, 91-92, wherein this Court allowed a judgment that had become final
and executory to be “clarified” by supplying a word which had been inadvertently omitted
and which, when supplied, in effect changed the literal import of the original phraseology
x x x x This is so because, in the first place, if an already final judgment can still be
amended to supply an omission committed through oversight, this simply means that in
the construction or interpretation of an already final decision,
the fallo or dispositive portion thereof must be correlated with the body of such final
decision x x x x [I]f an amendment may be allowed after a decision has already become
final x x x such amendment may consist x x x either in the x x x interpretation of an
ambiguous phrase therein in relation to the body of the decision which gives it life.[35]

We now resolve to harmonize the respective rights of the State and petitioners to
the expropriated Lots Nos. 916 and 920.
Mactan-Cebu International Airport Authority[36] is correct in stating that one would not
find an express statement in the Decision in Civil Case No. R-1881 to the effect that “the
[condemned] lot would return to [the landowner] or that [the landowner] had a right to
repurchase the same if the purpose for which it was expropriated is ended or
abandoned or if the property was to be used other than as the Lahug Airport.” This
omission notwithstanding, and while the inclusion of this pronouncement in the judgment
of condemnation would have been ideal, such precision is not absolutely necessary nor
is it fatal to the cause of petitioners herein. No doubt, the return or repurchase of the
condemned properties of petitioners could be readily justified as the manifest legal effect
or consequence of the trial court’s underlying presumption that “Lahug Airport will

109
continue to be in operation” when it granted the complaint for eminent domain and the
airport discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is akin[37] to the
implied trust referred to in Art. 1454 of the Civil Code, “If an absolute conveyance of
property is made in order to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may demand
the reconveyance of the property to him.” In the case at bar, petitioners conveyed Lots
Nos. 916 and 920 to the government with the latter obliging itself to use the realties for
the expansion of Lahug Airport; failing to keep its bargain, the government can be
compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners
would be denied the use of their properties upon a state of affairs that was not conceived
nor contemplated when the expropriation was authorized.
Although the symmetry between the instant case and the situation contemplated by
Art. 1454 is not perfect, the provision is undoubtedly applicable. For, as explained by an
expert on the law of trusts: “The only problem of great importance in the field of
constructive trusts is to decide whether in the numerous and varying fact situations
presented to the courts there is a wrongful holding of property and hence a threatened
unjust enrichment of the defendant.”[38] Constructive trusts are fictions of equity which are
bound by no unyielding formula when they are used by courts as devices to remedy any
situation in which the holder of the legal title may not in good conscience retain the
beneficial interest.[39]
In constructive trusts, the arrangement is temporary and passive in which the
trustee’s sole duty is to transfer the title and possession over the property to the plaintiff-
beneficiary.[40] Of course, the “wronged party seeking the aid of a court of equity in
establishing a constructive trust must himself do equity.”[41] Accordingly, the court will
exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as
conditions precedent to obtaining such decree and has the obligation to reimburse the
trustee the consideration received from the latter just as the plaintiff-beneficiary would if
he proceeded on the theory of rescission. [42] In the good judgment of the court, the
trustee may also be paid the necessary expenses he may have incurred in sustaining
the property, his fixed costs for improvements thereon, and the monetary value of his
services in managing the property to the extent that plaintiff-beneficiary will secure a
benefit from his acts.[43]
The rights and obligations between the constructive trustee and the beneficiary, in
this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in
Art. 1190 of the Civil Code, “When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the fulfillment of said
conditions, shall return to each other what they have received x x x x In case of the loss,
deterioration or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be applied to the party who is bound
to return x x x x”
Hence, respondent MCIAA as representative of the State is obliged
to reconvey Lots Nos. 916 and 920 to petitioners who shall hold the same subject to
existing liens thereon, i.e., leasehold right of DPWH. In return, petitioners as if they were
plaintiff-beneficiaries of a constructive trust must restore to respondent MCIAA what they
received as just compensation for the expropriation of Lots Nos. 916 and 920 in Civil
Case No. R-1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with

110
consequential damages by way of legal interest from 16 November 1947. Petitioners
must likewise pay respondent MCIAA the necessary expenses it may have incurred in
sustaining the properties and the monetary value of its services in managing them to the
extent that petitioners will be benefited thereby. The government however may keep
whatever income or fruits it may have obtained from the parcels of land, in the same way
that petitioners need not account for the interests that the amounts they received as just
compensation may have earned in the meantime. As a matter of justice and
convenience, the law considers the fruits and interests as the equivalent of each other.[44]
Under Art. 1189 of the Civil Code, “If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the creditor x x x,” the creditor being the
person who stands to receive something as a result of the process of
restitution. Consequently, petitioners as creditors do not have to settle as part of the
process of restitution the appreciation in value of Lots Nos. 916 and 920 which is the
natural consequence of nature and time.
Petitioners need not also pay for improvements introduced by third parties, i.e.,
DPWH, as the disposition of these properties is governed by existing contracts and
relevant provisions of law. As for the improvements that respondent MCIAA may have
made on Lots Nos. 916 and 920, if any, petitioners must pay respondent their prevailing
free market price in case petitioners opt to buy them and respondent decides to sell. In
other words, if petitioners do not want to appropriate such improvements or respondent
does not choose to sell them, the improvements would have to be removed without any
obligation on the part of petitioners to pay any compensation to respondent MCIAA for
whatever it may have tangibly introduced therein.[45]
The medium of compensation for the restitution shall be ready money or cash
payable within a period of three hundred sixty five (365) days from the date that the
amount to be returned by petitioners is determined with finality, unless the parties herein
stipulate and agree upon a different scheme, medium or schedule of payment. If after
the period of three hundred sixty five (365) days or the lapse of the compromise scheme
or schedule of payment such amount owed is not settled, the right of repurchase of
petitioners and the obligation of respondent MCIAA to reconvey Lots Nos. 916 and 920
and/or the latter’s improvements as set forth herein shall be deemed forfeited and the
ownership of those parcels of land shall vest absolutely upon respondent MCIAA.
Finally, we delete the award of P60,000.00 for attorney’s fees and P15,000.00 for
litigation expenses in favor of petitioners as decreed in the assailed Decision of 12 April
1999of the trial court. It is not sound public policy to set a premium upon the right to
litigate where such right is exercised in good faith, as in the present case, albeit the
decision to resist the claim is erroneous.[46]
The rule on awards of attorney’s fees and litigation expenses is found in Art. 2208 of
the Civil Code -

In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interests;

111
(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's valid and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;

(8) In actions for indemnity under workmen's compensation and employer's liability
laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

As noted in Mirasol v. De la Cruz,[47] Art. 2208 intends to retain the award of attorney’s
fees as the exception in our law and the general rule remains that attorney’s fees are not
recoverable in the absence of a stipulation thereto.
In the case at bar, considering the established absence of any stipulation regarding
attorney’s fees, the trial court cannot base its award on any of the exceptions
enumerated in Art. 2208. The records of the instant case do not disclose any proof
presented by petitioners to substantiate that the actuations of respondent MCIAA were
clearly unfounded or purely for the purpose of harassment; neither does the trial court
make any finding to that effect in its appealed Decision.
While Art. 2208, par. (4), allows attorney’s fees in cases of clearly unfounded civil
actions, this exception must be understood to mean those where the defenses are so
untenable as to amount to gross and evident bad faith. Evidence must be presented to
the court as to the facts and circumstances constituting the alleged bad faith, otherwise,
the award of attorney’s fees is not justified where there is no proof other than the bare
statement of harassment that a party to be so adjudged had acted in bad faith. The
exercise of judicial discretion in the award of attorney’s fees under Art. 2208, par. (11),
demands a factual, legal or equitable justification that would bring the case within the
exception and justify the grant of such award.
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 64456 dated 20 December 2001 and
its Resolution of 28 November 2002 denying reconsideration of
the Decision are REVERSED and SET ASIDE.

112
 The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case No.
CEB-20015 is MODIFIED IN PART by -
(a) ORDERING respondent Mactan-Cebu International Airport Authority
(MCIAA) TO RECONVEY to petitioner Heirs of Timoteo Moreno and Maria Rotea,
namely: Esperanza R.Edjec, Bernarda R. Suela, Ruby
C. Rotea, Bernarda R. Rotea, Elia R. Vda De Limbaga, Virginia R. Arbon, Rosalinda
R. Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea, Angeles Vda. De Renacia,
Jorge Rotea, Maria Luisa Rotea-Villegas, Alfredo R. Rotea, represented by his heirs,
namely: Lizbeth Rotea and Elepeth Rotea; Luis Rotea, represented by his heir
Jennifer Rotea; and Rolando R. Rotea, represented by his heir Rolando R. Rotea Jr., Lot
No. 916 with an area of 2,355 square meters and Lot No. 920 consisting of 3,097 square
meters in Lahug, Cebu City, with all the improvements thereon evolving through nature
or time, but excluding those that were introduced by third parties, i.e., DPWH, which
shall be governed by existing contracts and relevant provisions of law;
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO
PAY respondent MCIAA what the former received as just compensation for the
expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot
No. 916 and P9,291.00 for Lot No. 920 with consequential damages by way of legal
interest from 16 November 1947. Petitioners must likewise PAY respondent MCIAA the
necessary expenses that the latter may have incurred in sustaining the properties and
the monetary value of its services in managing the properties to the extent that
petitioners will secure a benefit from such acts. Respondent MCIAA however may keep
whatever income or fruits it may have obtained from the parcels of land, in the same way
that petitioners need not account for the interests that the amounts they received as just
compensation may have earned in the meantime;
(c) ORDERING respondent MCIAA TO CONVEY to petitioners the
improvements it may have built on Lots Nos. 916 and 920, if any, in which case
petitioners SHALL PAYfor these improvements at the prevailing free market price,
otherwise, if petitioners do not want to appropriate such improvements, or if respondent
does not choose to sell them, respondent MCIAA SHALL REMOVE these
improvements WITHOUT ANY OBLIGATION on the part of petitioners to pay any
compensation to respondent MCIAA for them;
(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of
this dispositive portion as consideration for the reconveyance of Lots Nos. 916 and 920,
as well as the prevailing free market price of the improvements built thereon by
respondent MCIAA, if any and desired to be bought and sold by the parties, in ready
money or cash PAYABLEwithin a period of three hundred sixty five (365) days from the
date that the amount under letter (b) above is determined with finality, unless the parties
herein stipulate a different scheme or schedule of payment, otherwise, after the period of
three hundred sixty five (365) days or the lapse of the compromise scheme or schedule
of payment and the amount so payable is not settled, the right of repurchase of
petitioners and the obligation of respondent MCIAA to so reconvey Lots Nos. 916 and
920 and/or the improvements shall beDEEMED FORFEITED and the ownership of those
parcels of land shall VEST ABSOLUTELY upon respondent MCIAA;
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes of
determining the amount of compensation for Lots Nos. 916 and 920 to be paid by
petitioners as mandated in letter (b) hereof, and the value of the prevailing free market
price of the improvements built thereon by respondent MCIAA, if any and desired to be

113
bought and sold by the parties, and in general, securing the immediate execution of
this Decision under the premises;
(f) ORDERING petitioners to respect the right of the Department of Public Works
and Highways to its lease contract until the expiration of the lease period; and
(g) DELETING the award of P60,000.00 for attorney’s fees and P15,000.00 for
litigation expenses against respondent MCIAA and in favor of petitioners.
This Decision is without prejudice to the claim of intervenor one Richard
E. Enchuan on his allegation that he acquired through deeds of assignment the rights of
some of herein petitioners over Lots Nos. 916 and 920.
No costs.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, and Tinga, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-55744 February 28, 1985

JOSE V. HERRERA, petitioner

vs.
L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN-
INSURANCE SYSTEM, PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS OF
RIZAL and THE HON. COURT OF APPEALS,respondents.

Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.

Benjamin Aquino for respondent J.T. Marcelo, Jr.

RESOLUTION

114
MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the
Resolution of this Court, dated April 1, 1981, denying due course to this Petition for
Review on certiorari for lack of merit.

The Motion for Reconsideration was set for oral argument on June 13, 1984, after which,
the Court required the parties to submit simultaneously concise memoranda in
amplification of their oral arguments. All parties have complied with the Court's directive.

Briefly, the antecedent facts may be summarized as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the
Government Service Insurance System (GSIS) in the amount of P1,854,311.50. As
security therefore, Leviste mortgaged two (2) lots, one located at Parañaque (the
Parañaque Property), and the other located at Buendia Avenue, Makati, with an area of
approximately 2,775 square meters, together with the 3-story building thereon (the
Buendia Property).

On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property
for the amount of P3,750,000.00. The conditions were that petitioner would: (1) pay
Leviste P11,895,688.50; (2) assume Leviste's indebtedness of P1854,311.50 to the
GSIS; and (3) substitute the Paranaque property with his own within a period of six (6)
months.

For his part, Leviste undertook to arrange for the conformity of the GSIS to petitioner's
assumption of the obligation.

It was further stipulated in the Contract to Sell that "failure to comply with any of the
conditions contained therein, particularly the payment of the scheduled amortizations on
the dates herein specified shall render this contract automatically cancelled and any and
all payments made shall be forfeited in favor of the vendor and deemed as rental and/or
liquidated damages."

Petitioner took possession of the Buendia property, received rentals of P21,000.00

monthly, and collected approximately P800,000.00 from December, 1971, up to March,
1975.

However, petitioner remitted a total of only P300,000.00 to the GSIS.

On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage
obligation because of his own arrearages in the payment of the amortizations. GSIS
replied that as a matter of policy, it could not act on his request unless he first made
proper substitution of property, updated the account, and paid 20% thereof to the GSIS.
There was no requirement by the GSIS for the execution of a final deed of sale by
Leviste in favor of petitioner.

115
On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged
properties by reason of default in the payment of amortizations. An application for
foreclosure was thereafter filed by the GSIS with the Provincial Sheriff of Rizal, and on
February 15, 1975, the foreclosed properties were sold at public auction and a
Certificate of Sale in favor of the GSIS, as the highest bidder, was issued.

On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to
respondent Jose Marcelo, Jr. (Marcelo for brevity). Later, on November 20, 1975,
Marcelo redeemed the properties from the GSIS by paying it the sum of P3,232,766.94
for which he was issued a certificate of redemption. The Paranaque property was turned
over by Marcelo to Leviste upon payment by the latter of approximately P250,000.00 as
disclosed at the hearing. Leviste needed the Parañque Property as it had sold the same
and suit had been filed against it for its recovery.

On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to
redeem the foreclosed properties and asking that he be allowed to do so in installments.
Apparently, the GSIS had not favorably acted thereon.

On May 13, 1975, petitioner instituted suit against Leviste before the Court of First
Instance of Rizal for "Injunction, Damages, and Cancellation of Annotation."

On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's
Complaint for lack of basis in fact and in law, and ordering an payments made by
petitioner to Leviste forfeited in favor of the latter pursuant to their contract providing for
automatic forfeiture "in the event of failure to comply with any of the conditions contained
therein, particularly the payment of the scheduled amortizations."

On appeal, the Appellate Court affirmed the judgment in toto, stating in part:

It is to be noted that appellee L. P. Leviste and Co., Inc. was not in a

financial position to redeem the foreclosed property and there was no
assurance that appellant would redeem the property within the period. In
this situation, appellee has no other alternative, but to assign the right of
redemption to a person willing and capable to assume the same, if only to
protect his interest in the said property. Likewise, when the equity to
redeem was assigned, appellant could have preserved and protected
whatever right he may have to the property by tendering the redemption
price to Marcelo. He had up to February 24, 1976, to do so, but he did
not. The record established further that appellant did not redeem the
property. ... 1

Reconsideration sought by petitioner was met with denial by respondent Appellate

Court. Hence, the instant Petition seeking review by certiorari before this instance.

As hereinbefore stated, we denied the Petition for lack of merit.

Petitioner seeks reconsideration essentially on the contention that affirmance of the

Appellate Court's Decision would result in patent injustice as he would not only forfeit the
Buendia Property to Marcelo, but would also lose the amount of P1,895,688.50 and
P300,000.00, which he paid to Leviste and the GSIS, respectively; that it would result in

116
the unjust enrichment of Leviste; and that Leviste as well the GSIS and Marcelo would
be benefiting at petitioner's expense.

Considering the grounds of petitioner's Motion for Reconsideration, the arguments

adduced during the oral argument and in the parties' respective Memoranda, we resolve
to deny reconsideration upon the following considerations:

1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it
received, by way of redemption from respondent Marcelo, was the mortgage loan it had
extended plus interest and sundry charges.

(b) Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid
to GSIS the amount P 3,232,766.94, which is not far below the sum of P 3,750,000.00,
which was the consideration petitioner would have paid to Leviste had his contract been
consummated.

(c) Leviste had neither profited at the expense of petitioner, For Losing his Buendia
Property, all he had received was P 1,854,311.50 from GSIS less amounts he had paid,
plus P 1,895,688.00 paid to him by petitioner, the total of which is substantially a
reasonable value of the Buendia Property.

2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus
P 300,000.00 he had paid to GSIS, less the rentals he had received when in possession
of the Buendia Property. That loss is attributable to his fault in:

(a) Not having been able to submit collateral to GSIS in substitution of the Paranaque
Property;

(b) Not paying off the mortgage debt when GSIS decided to foreclose; and

(c) Not making an earnest effort to redeem the property as a possible redemptioner.

3. It cannot be validly said that petitioner had fully complied with all the conditions of his
contract with Leviste. For one thing, he was not able to substitute the Parañaque
Property with another collateral for the GSIS loan. Moreover, as stated by the Court of
Appeals, "nowhere in the letter (of the GSIS) was mentioned that a final deed of sale
must first be executed and presented before the assumption may be considered. For if it
was really the intention of GSIS, the requirement of Deed of Sale should have been
stated in its letter."

ACCORDINGLY, petitioner's Motion for Reconsideration is hereby denied.

SO ORDERED.

Plana, Relova, De la Fuente and Cuevas, JJ., concur.

Gutierrez, Jr.* and Alampay, JJ.,took no part.

117
Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution
denying the petition and instead to grant the relief sought therein by petitioner, for the
grounds and considerations hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste)
was guilty of bad faith and of violating the terms and conditions of its Contract to Sell
with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance
System in the amount of P1,854,311.50, mortgaging two parcels of land, one located at
Paranaque and the other located at Buendia Avenue, Makati, with an area of 2,775
square meters and the building and other improvements thereon (covered by TCT No.
9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum
of P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of
P1,854,311.50 to the GSIS; (2) that he would pay Leviste the balance of P1,895,688.50
within two (2) years from the date of the contract, with interest thereon at 12% per
annum; and (3) that he would substitute the Parañaque property with his own within a
period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the
GSIS to Herrera's assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained
therein, particularly the payment of the scheduled amortization on the dates herein
specified shall render this contract automatically cancelled and any and all payments
made shall be forfeited in favor of the vendor and deemed as rental and/or unliquidated
damages.

About the first week of December, 1971, Herrera took possession of the Buendia
property and received the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by
Leviste providing for his assumption of Leviste's mortgage obligation. When no action
was taken thereon by the GSIS and Leviste failed to take any action to facilitate the
assumption of the mortgage by Herrera, the latter sent his administrator, Mr. Isidro
Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany found that
Leviste was in arrears in its amortization payments for 14 months, which Herrera did not
know at the time of the sale.

118
The GSIS required Herrera to submit papers to support his assumption of the mortgage
until finally he was informed that the assumption could not be approved until Herrera
could submit a final deed of sale (the original contract being merely a contract to sell or a
conditional sale) and that he has no personality to represent Leviste in connection with
the restructuring of the mortgage. But nevertheless, the GSIS received payments from
Herrera for the account of Leviste, suggesting that this was necessary for "further
actions" to be taken on the assumption of mortgage. The Manager of the Collection
Department even suggested to Cavestany to continue the payments as a gesture of
good faith. Herrera remitted a total of P300,000.00 to the GSIS, credited against
Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to
Sell. Upon full payment, Cavestany then requested Leviste to execute the final deed of
sale for submission to the GSIS but Leviste refused, alleging as an excuse Herrera's
failure to assume the mortgage (which Leviste itself had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its
intention to foreclose the mortgage. Herrera came to know about it only on January 17,
1975. He immediately wrote an urgent appeal to the GSIS reminding the GSIS that he
had already paid in full the principal of P1,895,688.50 to Leviste and P300.000.00 to the
GSIS and asked that the foreclosure be held in abeyance pending efforts to settle
Leviste's account which Leviste had undertaken to have Herrera assume. Nonetheless,
the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of

P1,895,688.50 from Herrera) yet sold for undisclosed amount and considerations the
equity of redemption (which in justice and equity pertained to Herrera) to its co-
respondent Jose T. Marcelo and eventually, Herrera was ousted from the property in
dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First
Instance of Rizal for injunction, damages and cancellation of annotation. The trial court
dismissed the complaint for alleged lack of basis in fact and in law, and ordered all
payments made by Herrera forfeited in favor of Leviste. Herrera appealed to the Court of
Appeals which affirmed the lower court's decision and denied reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied
by this Court in a minute resolution dated April 1, 1981. Hence, Herrera's motion for
reconsideration, which was heard and argued before the Court on June 13, 1984.
Herrera reiterated the main issues, thus:

— Can respondent Leviste lawfully refuse to issue a final deed of sale to

the petitioner even after it had already received full payment of what was
due it under the Contract to Sell?

— Can respondent Leviste lawfully refuse to comply with its obligation

under the Contract to Sell to secure the conformity of respondent GSIS to
the assumption of the mortgage obligation by petitioner?

119
 — Can respondent Leviste automatically cancel the Contract to Sell and
forfeit all the sums paid by petitioner thereunder when respondent Leviste
was the one that voluntarily prevented the petitioner from fulfilling his
obligations under the Contract to Sell and by otherwise making it legally
or physically impossible for the petitioner to fulfill such obligations?

— Can respondent Leviste lawfully assign its equity of redemption over

the Buendia property to respondent Marcelo, and can the latter's
redemption of said property from respondent GSIS be considered lawful?

— Can respondent Leviste be lawfully awarded damages and attorney's

fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera,
after receiving full payment of the stipulated amount, and thereby prevent fulfillment of
the remaining condition for Herrera's assumption of its mortgage obligation with GSIS,
which it had expressly undertaken to secure from GSIS. There was constructive
fulfillment on Herrera's part of his obligations under the Contract and under Article 1186
of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a
carriage of justice. While it is true that under paragraph No. 11 of the Contract to Sell,
failure to comply with any of the conditions therein enumerated would render the
contract automatically cancelled and all the sums paid by petitioner forfeited, Herrera
was prevented from fulfilling the condition of assuming the GSIS mortgage because of
Leviste's own non-compliance with its obligation of securing the consent of GSIS thereto.
The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption
of the mortgage. But obviously because of selfish and self-serving motives and designs,
as borne out by the events, Leviste made no effort to assist and arrange for Herrera's
assumption of its mortgage obligation. In spite of the fact that Herrera had already paid
Leviste the full amount of P1,895.688.50, Leviste refused to execute the final deed of
sale in favor of Herrera as required by GSIS.

The substitution of Leviste's Paranaque property with Herrera's own property as

additional security for Leviste's indebtedness could not be worked out and agreed upon
by Herrera with GSIS, which refused to deal with him without such final deed of sale
from Leviste. Indeed, Herrera was verily squeezed in this pincer movement Herrera
could not assume Leviste's mortgage obligation and restructure the same with GSIS
which refused to recognize and deal with him without a final deed of sale from Leviste.
But Leviste refused to execute such final deed of sale notwithstanding that he had been
paid by Herrera the full amount of P1,895,688.50 due to him and what was left was
Leviste's outstanding mortgage indebtedness to GSIS. The GSIS, in turn,
notwithstanding Herrera's payment on account thereof directly to it of some P300,000.00
and the more than sufficient security in its favor of the Buendia property alone, refused
(abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to
have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera
foreclose the mortgage and completely shut off Herrera-even from his right of
redemption as Leviste's vendee.

120
If a party charges himself with an obligation possible to be performed, he must abide by
it unless performance is rendered impossible by the act of God, the law, or the other
party. (Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act,
it virtually prevented Herrera from complying with his obligation to assume the GSIS
mortgage and Leviste cannot now in equity and justice insist on rescission of the
contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which
provides that "(T)he debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the obligor ."
Leviste's non-compliance with its own undertaking which prevented Herrera from
assuming the GSIS mortgage bars it from invoking the rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the
assumption of mortgage shall be arranged and conformity thereto by GSIS obtained by
the Vendor with the full cooperation of the Vendee." But notwithstanding its having
received the full amount due it, Leviste did not fulfill the essential condition required by
GSIS for Herrera's assumption of the mortgage the execution by Leviste of the final deed
of sale. Article 1169 of the Civil Code expressly provides, in this regard, that "(I)n
reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument

(Record, pp. 314-315), "Leviste has clearly not complied with (its) obligation. Thus, when
asked repeatedly by this Honorable Court what definitive steps it took to arrange and
secure such conformity of respondent GSIS, respondent Leviste could not readily
answer, as it could not point to any definitive step that it had actually undertaken.
Indeed, if respondent Leviste was acting in good faith and was sincere in complying with
its obligation, it could have at least done the following:

1. Officially inform respondent GSIS about its execution of the Contract to

Sell and officially request GSIS to approve petitioner's assumption of its
mortgage obligation, subject to the condition stated in the contract.

2. Officially inform respondent GSIS that petitioner had already paid to it

the full amount due under the Contract to Sell, and for this reason, it was
willing to transfer the title of the Buendia property to the petitioner, and for
this purpose, issue a final Deed of Sale, even if subject to certain
conditions.

3. If petitioner had indeed failed to comply with his obligations under the
Contract to Sell, during the period covering the years 1972 and 1973,
then why did respondent Leviste continue receiving payments from
petitioner? It must be noted that respondent Leviste was paid the full
amount of the consideration (P1,895,688.50) due to it on installment
basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G", "H", "I",
"J", "K", and "L").

121
 4. Respondent Leviste could also have formally complained to petitioner
or even respondent GSIS about petitioner's alleged nonfulfillment of his
obligations under the Contract to Sell, or advise respondent GSIS not to
receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to
continue receiving said payments? It must be noted that Petitioner made
the following payments to respondent GSIS, for the account of
respondent Leviste:

100,000.00 — 1973
50,000.00 — May 10, 1974
50,000.00 — May 24, 1974
50, 000.00 — Nov. 5, 1974
50,000.00 — Jan. 22, 1975
[Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the
one that clearly failed to comply with its obligations under the Contract to
Sell, but also it was the one that prevented the petitioner from fulfilling his
obligation under said contract.

Even as to the restructuring of Leviste's mortgage obligation which Herrera had

requested (since Leviste's documented arrearages before the execution of the contract
amounted to around P800,000.00), GSIS had declined to entertain the same for lack of
the final deed of sale, stating in a letter to Herrera that

We wish to inform you that we cannot go on processing your papers in

view of the fact that as of this date L. P. Leviste and Co. is still the
registered owner of the mortgaged property, hence, we cannot entertain
your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of
Herrera (brought about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to

believe that the assumption of the mortgage would be properly acted
upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property
knowing that Herrera had purchased the same and hence had the right to
redeem the property as Leviste's vendee, notwithstanding its knowledge
and that Herrera was directly making payments to it on account of
Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of

Herrera, that he had already paid in full the principal amount to Leviste

122
 and P300,000.00 to the GSIS and asking that he be given a chance to
settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total

stranger, Marcelo, notwithstanding the offer of Herrera as Leviste's
vendee and successor to redeem the property within the period of
redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and
returned the Paranaque property to Leviste; and

(7) It departed from the established policy of government financial

institutions of allowing the restructuring of debtor's mortgage accounts,
unless they were in extremis and violated its own settled policy of giving
due preference to the owner and vendee Herrera of redeeming and/or
reacquiring the foreclosed property. As the late Chief Justice Castro
stated in his separate opinion in DBP vs. Mirang,66 SCRA 141, in taking
notice of such policy and urging the DBP to extend such assistance to the
hapless respondent debtor therein. "(I)t is well remember that
uncompromising or mechanical application of the letter of the law has
resulted not infrequently, in the denial of moral justice, " after laying the
premise that

Justice Makasiar makes the pertinent suggestion that the DBP restructure
the account of Mirang. Like Justice Makasiar, I personally know that the
DBP and similar Government financial institutions (the Philippine National
Bank, the Government Service Insurance System, and the Social Security
System) have restructured accounts of debtor Considering the inordinate
appreciation of land values everywhere, there appears to be no
insuperable obstacle to the DBP restructuring the account of Mirang, not
only to enable him to pay his indebtedness in easy terms over a period of
years but as well to make available additional funds to be utilized by him
in the development of his 18-½-hectare land. It is not too late in the day
— in this, our compassionate society — for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of
redemption. Marcelo knew of the Contract to Sell with Herrera at the time the equity was
assigned to him by Leviste. Moreover, Herrera was still in material possession of the
property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly

enriched by (1) P1,895,688.50, the principal amount directly paid to it by Herrera; (2)
P300,000.00, the amount paid by Herrera to GSIS for Leviste's arrearages the
Parañaque property, which was returned to him by Marcelo; (4) the undisclosed
proceeds of the sale of equity of redemption to Marcelo (in effect a double payment to
Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for
Leviste's total outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4,
main Resolution); this was a total gain to Leviste, for it was thereby discharged and
relieved entirely of its said mortgage debt of P3,232,766.94 at the loss of only the
Buendia property, which it had already sold to and had been fully paid by, Herrera in the

123
agreed amount of P1,895,688.50. This constitutes unjust enrichment at the expense of
Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were
declared forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and
inequity. As we held in Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the
complement of legal jurisdiction seeks to reach and do complete justice where courts of
law, through the inflexibility of their rules and want of power to adapt their judgments to
the special circumstances of cases, are incompetent to do so. 'Equity regards the spirit
and not the letter, the intent and not the form, the substance rather than the
circumstance, as it is variously expressed by different courts.' " Herrera is entitled to the
relief sought by him under these basic principles of law, justice and equity, as was
extended by this Court under analogous circumstances to the debtor in its recent
decision in Republic of the Phil.(NEDA) vs. Court of Appeals (G.R. No. 52774, Nov.
29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in
discharging its obligations to another government agency, the NEDA, which had shown
"clear procrastination and indecision" in seeking afterwards to reject the payments made
and cancel the previous authorization it had given for the sale of the debtor's attached
real property.

The unkindest blow is that the Court has upheld even the award of P5,000. — nominal
damages and P75,000. — attorney's fees against Herrera for seeking the just vindication
in court of his rights.

Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution
denying the petition and instead to grant the relief sought therein by petitioner, for the
grounds and considerations hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste)
was guilty of bad faith and of violating the terms and conditions of its Contract to Sell
with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance
System in the amount of P1,854,311.50, mortgaging two parcels of land, one located at
Paranaque and the other located at Buendia Avenue, Makati, with an area of 2,775
square meters and the building and other improvements thereon (covered by TCT No.
9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum
of P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of
P1,854,311.50 to the GSIS; (2) that he would pay Leviste the balance of P1,895,688.50
within two (2) years from the date of the contract, with interest thereon at 12% per
124
annum; and (3) that he would substitute the Parañaque property with his own within a
period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the
GSIS to Herrera's assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained
therein, particularly the payment of the scheduled amortization on the dates herein
specified shall render this contract automatically cancelled and any and all payments
made shall be forfeited in favor of the vendor and deemed as rental and/or unliquidated
damages.

About the first week of December, 1971, Herrera took possession of the Buendia
property and received the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by
Leviste providing for his assumption of Leviste's mortgage obligation. When no action
was taken thereon by the GSIS and Leviste failed to take any action to facilitate the
assumption of the mortgage by Herrera, the latter sent his administrator, Mr. Isidro
Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany found that
Leviste was in arrears in its amortization payments for 14 months, which Herrera did not
know at the time of the sale.

The GSIS required Herrera to submit papers to support his assumption of the mortgage
until finally he was informed that the assumption could not be approved until Herrera
could submit a final deed of sale (the original contract being merely a contract to sell or a
conditional sale) and that he has no personality to represent Leviste in connection with
the restructuring of the mortgage. But nevertheless, the GSIS received payments from
Herrera for the account of Leviste, suggesting that this was necessary for "further
actions" to be taken on the assumption of mortgage. The Manager of the Collection
Department even suggested to Cavestany to continue the payments as a gesture of
good faith. Herrera remitted a total of P300,000.00 to the GSIS, credited against
Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to
Sell. Upon full payment, Cavestany then requested Leviste to execute the final deed of
sale for submission to the GSIS but Leviste refused, alleging as an excuse Herrera's
failure to assume the mortgage (which Leviste itself had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its
intention to foreclose the mortgage. Herrera came to know about it only on January 17,
1975. He immediately wrote an urgent appeal to the GSIS reminding the GSIS that he
had already paid in full the principal of P1,895,688.50 to Leviste and P300.000.00 to the
GSIS and asked that the foreclosure be held in abeyance pending efforts to settle
Leviste's account which Leviste had undertaken to have Herrera assume. Nonetheless,
the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of

P1,895,688.50 from Herrera) yet sold for undisclosed amount and considerations the
equity of redemption (which in justice and equity pertained to Herrera) to its co-

125
respondent Jose T. Marcelo and eventually, Herrera was ousted from the property in
dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First
Instance of Rizal for injunction, damages and cancellation of annotation. The trial court
dismissed the complaint for alleged lack of basis in fact and in law, and ordered all
payments made by Herrera forfeited in favor of Leviste. Herrera appealed to the Court of
Appeals which affirmed the lower court's decision and denied reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied
by this Court in a minute resolution dated April 1, 1981. Hence, Herrera's motion for
reconsideration, which was heard and argued before the Court on June 13, 1984.
Herrera reiterated the main issues, thus:

— Can respondent Leviste lawfully refuse to issue a final deed of sale to

the petitioner even after it had already received full payment of what was
due it under the Contract to Sell?

— Can respondent Leviste lawfully refuse to comply with its obligation

under the Contract to Sell to secure the conformity of respondent GSIS to
the assumption of the mortgage obligation by petitioner?

— Can respondent Leviste automatically cancel the Contract to Sell and

forfeit all the sums paid by petitioner thereunder when respondent Leviste
was the one that voluntarily prevented the petitioner from fulfilling his
obligations under the Contract to Sell and by otherwise making it legally
or physically impossible for the petitioner to fulfill such obligations?

— Can respondent Leviste lawfully assign its equity of redemption over

the Buendia property to respondent Marcelo, and can the latter's
redemption of said property from respondent GSIS be considered lawful?

— Can respondent Leviste be lawfully awarded damages and attorney's

fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera,
after receiving full payment of the stipulated amount, and thereby prevent fulfillment of
the remaining condition for Herrera's assumption of its mortgage obligation with GSIS,
which it had expressly undertaken to secure from GSIS. There was constructive
fulfillment on Herrera's part of his obligations under the Contract and under Article 1186
of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a
carriage of justice. While it is true that under paragraph No. 11 of the Contract to Sell,
failure to comply with any of the conditions therein enumerated would render the
contract automatically cancelled and all the sums paid by petitioner forfeited, Herrera
was prevented from fulfilling the condition of assuming the GSIS mortgage because of
Leviste's own non-compliance with its obligation of securing the consent of GSIS thereto.
The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption

126
of the mortgage. But obviously because of selfish and self-serving motives and designs,
as borne out by the events, Leviste made no effort to assist and arrange for Herrera's
assumption of its mortgage obligation. In spite of the fact that Herrera had already paid
Leviste the full amount of P1,895.688.50, Leviste refused to execute the final deed of
sale in favor of Herrera as required by GSIS.

The substitution of Leviste's Paranaque property with Herrera's own property as

additional security for Leviste's indebtedness could not be worked out and agreed upon
by Herrera with GSIS, which refused to deal with him without such final deed of sale
from Leviste. Indeed, Herrera was verily squeezed in this pincer movement Herrera
could not assume Leviste's mortgage obligation and restructure the same with GSIS
which refused to recognize and deal with him without a final deed of sale from Leviste.
But Leviste refused to execute such final deed of sale notwithstanding that he had been
paid by Herrera the full amount of P1,895,688.50 due to him and what was left was
Leviste's outstanding mortgage indebtedness to GSIS. The GSIS, in turn,
notwithstanding Herrera's payment on account thereof directly to it of some P300,000.00
and the more than sufficient security in its favor of the Buendia property alone, refused
(abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to
have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera
foreclose the mortgage and completely shut off Herrera-even from his right of
redemption as Leviste's vendee.

If a party charges himself with an obligation possible to be performed, he must abide by

it unless performance is rendered impossible by the act of God, the law, or the other
party. (Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act,
it virtually prevented Herrera from complying with his obligation to assume the GSIS
mortgage and Leviste cannot now in equity and justice insist on rescission of the
contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which
provides that "(T)he debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the obligor ."
Leviste's non-compliance with its own undertaking which prevented Herrera from
assuming the GSIS mortgage bars it from invoking the rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the
assumption of mortgage shall be arranged and conformity thereto by GSIS obtained by
the Vendor with the full cooperation of the Vendee." But notwithstanding its having
received the full amount due it, Leviste did not fulfill the essential condition required by
GSIS for Herrera's assumption of the mortgage the execution by Leviste of the final deed
of sale. Article 1169 of the Civil Code expressly provides, in this regard, that "(I)n
reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument

(Record, pp. 314-315), "Leviste has clearly not complied with (its) obligation. Thus, when
asked repeatedly by this Honorable Court what definitive steps it took to arrange and
secure such conformity of respondent GSIS, respondent Leviste could not readily
answer, as it could not point to any definitive step that it had actually undertaken.

127
Indeed, if respondent Leviste was acting in good faith and was sincere in complying with
its obligation, it could have at least done the following:

1. Officially inform respondent GSIS about its execution of the Contract to

Sell and officially request GSIS to approve petitioner's assumption of its
mortgage obligation, subject to the condition stated in the contract.

2. Officially inform respondent GSIS that petitioner had already paid to it

the full amount due under the Contract to Sell, and for this reason, it was
willing to transfer the title of the Buendia property to the petitioner, and for
this purpose, issue a final Deed of Sale, even if subject to certain
conditions.

3. If petitioner had indeed failed to comply with his obligations under the
Contract to Sell, during the period covering the years 1972 and 1973,
then why did respondent Leviste continue receiving payments from
petitioner? It must be noted that respondent Leviste was paid the full
amount of the consideration (P1,895,688.50) due to it on installment
basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G", "H", "I",
"J", "K", and "L").

4. Respondent Leviste could also have formally complained to petitioner

or even respondent GSIS about petitioner's alleged nonfulfillment of his
obligations under the Contract to Sell, or advise respondent GSIS not to
receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to
continue receiving said payments? It must be noted that Petitioner made
the following payments to respondent GSIS, for the account of
respondent Leviste:

100,000.00 — 1973
50,000.00 — May 10, 1974
50,000.00 — May 24, 1974
50, 000.00 — Nov. 5, 1974
50,000.00 — Jan. 22, 1975
[Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the
one that clearly failed to comply with its obligations under the Contract to
Sell, but also it was the one that prevented the petitioner from fulfilling his
obligation under said contract.

Even as to the restructuring of Leviste's mortgage obligation which Herrera had

requested (since Leviste's documented arrearages before the execution of the contract
amounted to around P800,000.00), GSIS had declined to entertain the same for lack of
the final deed of sale, stating in a letter to Herrera that

We wish to inform you that we cannot go on processing your papers in

view of the fact that as of this date L. P. Leviste and Co. is still the

128
 registered owner of the mortgaged property, hence, we cannot entertain
your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of
Herrera (brought about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to

believe that the assumption of the mortgage would be properly acted
upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property
knowing that Herrera had purchased the same and hence had the right to
redeem the property as Leviste's vendee, notwithstanding its knowledge
and that Herrera was directly making payments to it on account of
Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of

Herrera, that he had already paid in full the principal amount to Leviste
and P300,000.00 to the GSIS and asking that he be given a chance to
settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total

stranger, Marcelo, notwithstanding the offer of Herrera as Leviste's
vendee and successor to redeem the property within the period of
redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and
returned the Paranaque property to Leviste; and

(7) It departed from the established policy of government financial

institutions of allowing the restructuring of debtor's mortgage accounts,
unless they were in extremis and violated its own settled policy of giving
due preference to the owner and vendee Herrera of redeeming and/or
reacquiring the foreclosed property. As the late Chief Justice Castro
stated in his separate opinion in DBP vs. Mirang,66 SCRA 141, in taking
notice of such policy and urging the DBP to extend such assistance to the
hapless respondent debtor therein. "(I)t is well remember that
uncompromising or mechanical application of the letter of the law has
resulted not infrequently, in the denial of moral justice, " after laying the
premise that

Justice Makasiar makes the pertinent suggestion that the DBP restructure
the account of Mirang. Like Justice Makasiar, I personally know that the
DBP and similar Government financial institutions (the Philippine National
Bank, the Government Service Insurance System, and the Social Security
System) have restructured accounts of debtor Considering the inordinate
appreciation of land values everywhere, there appears to be no
insuperable obstacle to the DBP restructuring the account of Mirang, not

129
 only to enable him to pay his indebtedness in easy terms over a period of
years but as well to make available additional funds to be utilized by him
in the development of his 18-½-hectare land. It is not too late in the day
— in this, our compassionate society — for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of
redemption. Marcelo knew of the Contract to Sell with Herrera at the time the equity was
assigned to him by Leviste. Moreover, Herrera was still in material possession of the
property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly

enriched by (1) P1,895,688.50, the principal amount directly paid to it by Herrera; (2)
P300,000.00, the amount paid by Herrera to GSIS for Leviste's arrearages the
Parañaque property, which was returned to him by Marcelo; (4) the undisclosed
proceeds of the sale of equity of redemption to Marcelo (in effect a double payment to
Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for
Leviste's total outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4,
main Resolution); this was a total gain to Leviste, for it was thereby discharged and
relieved entirely of its said mortgage debt of P3,232,766.94 at the loss of only the
Buendia property, which it had already sold to and had been fully paid by, Herrera in the
agreed amount of P1,895,688.50. This constitutes unjust enrichment at the expense of
Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were
declared forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and
inequity. As we held in Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the
complement of legal jurisdiction seeks to reach and do complete justice where courts of
law, through the inflexibility of their rules and want of power to adapt their judgments to
the special circumstances of cases, are incompetent to do so. 'Equity regards the spirit
and not the letter, the intent and not the form, the substance rather than the
circumstance, as it is variously expressed by different courts.' " Herrera is entitled to the
relief sought by him under these basic principles of law, justice and equity, as was
extended by this Court under analogous circumstances to the debtor in its recent
decision in Republic of the Phil.(NEDA) vs. Court of Appeals (G.R. No. 52774, Nov.
29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in
discharging its obligations to another government agency, the NEDA, which had shown
"clear procrastination and indecision" in seeking afterwards to reject the payments made
and cancel the previous authorization it had given for the sale of the debtor's attached
real property.

The unkindest blow is that the Court has upheld even the award of P5,000. — nominal
damages and P75,000. — attorney's fees against Herrera for seeking the just vindication
in court of his rights.

130
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-10691 January 31, 1958

ERLINDA STERNBERG and LUIZ STERNBERG, the latter represented by her

Guardian Ad-Litem ANTONIO STERNBERG, plaintiffs-appellees,
vs.
GONZALO SOLOMON, defendant-appellant.

Gonzalo Solomon in his own behalf.

Arturo L. Rodriguez for appellees.

CONCEPCION, J.:

This is an action for the foreclosure of a real estate mortgage constitutedon August 7,
1944, by defendant Gonzalo Solomon, in favor of plaintiffs Erlinda Sternberg and Luz
Sternberg, to guarrantee the payment to each of them of P3,000, Philippine currency, or
the total sum of P6,000, Philippinecurrency, one (1) year from said date, extendible for
another year, with interest thereon at the rate of 6 per cent per annum. Plaintiffs alleged
intheir complaint—filed with the Court of First Instance of Manila, in which the mortgage

131
property is situated—that defendant has failed to pay said debt, despite to repeated
demands by the former and repeated promises of thelatter, for which reason it is prayed
that judgment be rendered against saiddefendant for the principal of said obligation and
the interest thereon, and, in the event of failure to pay the same, that the mortgage be
foreclosed.

In his answer, defendant admitted the indebtedness above referred to, as wellas the real
estate mortgage constituted to secure its satisfaction, and alleged that non-payment
thereof is due to plaintiff's demand that settlementbe made in Philippine currency on a
peso-to-peso basis, notwithstanding thefact that the principal of the indebtedness was
received by him in Japanesemilitary notes and that he is bound to pay only its equivalent
in Philippinecurrency pursuant to the Ballantyne Schedule of Values. Defendant prayed,
therefore, that judgment be rendered only for the equivalent, in Philippinecurrency of
said sum of P6,000, in Japanese military notes, as may be determined by the court.

Maintaining that this answer raises merely a question of law, plaintiffs, thereupon, moved
for a judgment on the pleadings, which was not objected toby the defendant. Later on,
both parties filed their respective memoranda,after which the Court of First Instance of
Manila rendered a decision sentencing the defendant to pay to the plaintiffs the sum of
P6,000, Philippine currency, without interest, and without any pronouncement as
tocosts. Defendant has appealed from this decision and he nows maintains that:

1. The court erred in refusing to apply the Ballantyne Scale of Values to

defendant-appellant's wartime obligation.

2. The lower court erred in finding judgment for the plaintif-appellants and against
the defendant-appellant for the sum of P6,000, Philippine currency, considering
that the obligation was P6,000 in Japanese war notes.

Appellant's pretense is untenable. We have repeatedly held that obligations contracted

during the Japanese occupation and payable only after liberationbecome due and
payable in Philippine currency on the peso-to-peso basis(Wilson vs. Berkenkotter,1 49
Off. Gaz. 1401). In the case at bar, the deedof mortgage in question dated August 7,
1944, provides, not only that theobligation guarranteed thereby shall be paid "one year
from the date thereof", or on August 7, 1945, and, hence, after the liberation of
Manila,which took place in February of that year, but, also:

That strict compliance is the essesnce and nature of this agreement and as such
this mortgage shall be paid one year from date hereof as provided above and
expressly agreed not sooner; or upon the expiration of the time extensionif so
extended. (Emphasis ours.).

In other words, it was expressly agreed upon that plaintiff's debt could not be paid before
August 7, 1945. Since Manila was liberated several months before that date, it follows
that, in line with the view consistently adhered to by this Court (Rono vs. Gomez2 46 Off.
Gaz., Suppl. No. 11, 339; Gomez vs. Tabia,3 47 Off. Gaz., Suppl. No. 2, 641; Arevalo vs.
Barretto, 89 Phil., 633; Garcia vs. De los Santos,4 49 Off. Gaz., 4830; Berg vs. Teus, 96
Phil., 102; Kare vs. Imperial,5 54 Off. Gaz., 2165; plaintiffs were, and are, entitled to
demand payment of their credit on a peso-to-peso basis.

132
Wherefore, the decision appealed from is hereby affirmed, with costs against the
defendant-appellant. It is so ordered.

Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia,
and Felix, JJ., concur.

PADILLA, J., dissenting:

I dissent for the same reasons stated in my opinion in the case of Del Rosario vs.
Sandico,6 47 Off. Gaz. 2886; La Orden de PP. Benedictinos vs. Philippine Trust Co.7 47
Off. Gaz. 2894; Salvante vs. Cruz, 88 Phil., 236; Henson vs. J.K. Pickering & Co., Ltd.,
88 Phil., 312; Philippine Refining Company, Inc. vs. Ledesma, 88 Phil., 569; Araneta vs.
Hongkong & Shanghai Banking Corporation, 88 Phil., 576; Peoples Bank & Trust Co. vs.
Philippine National Bank, 88 Phil., 625; Hongkong & Shanghai Banking Corporation vs.
Araneta, G.R. No. L-3613, 20 June 1951; Ponce de Leon vs. Syjuco, 90 Phil., 311;
Pacific Commercial Co. vs. Go Tian Gee & Co., 90 Phil., 439; Dungao vs. Roque, 90
Phil., 657; Winship vs. Philippine Trust Co., 90 Phil., 744; Wilson vs. Berkenkotter,8 49
Off. Gaz., 1401; Valenzuela vs. Bakani,9 49 Off. Gaz. 4836; Shotwell vs. Lazatin,10 52
Off. Gaz. 2003; Nicolas vs. Matias, 97 Phil., 795; Zaragoza vs. Alagar,11 51 Off. Gaz.
2907; and Kare vs. Imperial, supra, p. 173.

Paras, C. J., concurs.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.

Araneta and Araneta for petitioner.

Rosauro Alvarez and Ernani Cruz Paño for respondent.

REYES, J.B.L., J.:

133
Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No.
28249-R, affirming with modification, an amendatory decision of the Court of First
Instance of Manila, in its Civil Case No. 36303, entitled "Philippine Sugar Estates
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and Gregorio Araneta,
Inc., defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City,
otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens title in
its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a
portion thereof with an area of 43,034.4 square meters, more or less, for the sum of
P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties stipulated,
among in the contract of purchase and sale with mortgage, that the buyer will —

Build on the said parcel land the Sto. Domingo Church and Convent

while the seller for its part will —

Construct streets on the NE and NW and SW sides of the land herein sold so
that the latter will be a block surrounded by streets on all four sides; and the
street on the NE side shall be named "Sto. Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of
Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began
constructing the streets, is unable to finish the construction of the street in the Northeast
side named (Sto. Domingo Avenue) because a certain third-party, by the name of
Manuel Abundo, who has been physically occupying a middle part thereof, refused to
vacate the same; hence, on May 7, 1958, Philippine Sugar Estates Development Co., Lt.
filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel the
latter to comply with their obligation, as stipulated in the above-mentioned deed of sale,
and/or to pay damages in the event they failed or refused to perform said obligation.

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the
complaint, the latter particularly setting up the principal defense that the action was
premature since its obligation to construct the streets in question was without a definite
period which needs to he fixed first by the court in a proper suit for that purpose before a
complaint for specific performance will prosper.

The issues having been joined, the lower court proceeded with the trial, and upon its
termination, it dismissed plaintiff's complaint (in a decision dated May 31, 1960),
upholding the defenses interposed by defendant Gregorio Araneta, Inc.1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a
period within which defendants will comply with their obligation to construct the streets in
question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's
complaint did not expressly or impliedly allege and pray for the fixing of a period to

134
comply with its obligation and that the evidence presented at the trial was insufficient to
warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants
the fixing of such a period," issued an order granting plaintiff's motion for reconsideration
and amending the dispositive portion of the decision of May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta,

Inc., a period of two (2) years from notice hereof, within which to comply with its
obligation under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted
order, which motion, plaintiff opposed.

On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion;
and the latter perfected its appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly

that the relief granted, i.e., fixing of a period, under the amendatory decision of July 16,
1960, was not justified by the pleadings and not supported by the facts submitted at the
trial of the case in the court below and that the relief granted in effect allowed a change
of theory after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that the fixing of a period
was within the pleadings and that there was no true change of theory after the
submission of the case for decision since defendant-appellant Gregorio Araneta, Inc.
itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses
contained in its answer which reads —

7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has
a reasonable time within which to comply with its obligations to construct and
complete the streets on the NE, NW and SW sides of the lot in question; that
under the circumstances, said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were ruled as not meritorious
and which are not decisive in the resolution of the legal issues posed in the instant
appeal before us, said appellate court rendered its decision dated December 27, 1963,
the dispositive part of which reads —

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence,

defendant is given two (2) years from the date of finality of this decision to
comply with the obligation to construct streets on the NE, NW and SW sides of
the land sold to plaintiff so that the same would be a block surrounded by streets
on all four sides.

Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio

Araneta, Inc. resorted to a petition for review by certiorari to this Court. We gave it due
course.

135
We agree with the petitioner that the decision of the Court of Appeals, affirming that of
the Court of First Instance is legally untenable. The fixing of a period by the courts under
Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that
petitioner (defendant below) placed the absence of a period in issue by pleading in its
answer that the contract with respondent Philippine Sugar Estates Development Co.,
Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within which to comply with
its obligation to construct and complete the streets." Neither of the courts below seems
to have noticed that, on the hypothesis stated, what the answer put in issue was not
whether the court should fix the time of performance, but whether or not the parties
agreed that the petitioner should have reasonable time to perform its part of the bargain.
If the contract so provided, then there was a period fixed, a "reasonable time;" and all
that the court should have done was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court should declare that petitioner
had breached the contract, as averred in the complaint, and fix the resulting damages.
On the other hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature. But in no case can it be logically held
that under the plea above quoted, the intervention of the court to fix the period for
performance was warranted, for Article 1197 is precisely predicated on the absence of
any period fixed by the parties.

Even on the assumption that the court should have found that no reasonable time or no
period at all had been fixed (and the trial court's amended decision nowhere declared
any such fact) still, the complaint not having sought that the Court should set a period,
the court could not proceed to do so unless the complaint in as first amended; for the
original decision is clear that the complaint proceeded on the theory that the period for
performance had already elapsed, that the contract had been breached and defendant
was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance,
still the amended decision is defective in that no basis is stated to support the conclusion
that the period should be set at two years after finality of the judgment. The list
paragraph of Article 1197 is clear that the period can not be set arbitrarily. The law
expressly prescribes that —

the Court shall determine such period as may under the circumstances been
probably contemplated by the parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is
that "the proven facts precisely warrant the fixing of such a period," a statement
manifestly insufficient to explain how the two period given to petitioner herein was
arrived at.

It must be recalled that Article 1197 of the Civil Code involves a two-step process. The
Court must first determine that "the obligation does not fix a period" (or that the period is
made to depend upon the will of the debtor)," but from the nature and the circumstances
it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary
point settled, the Court must then proceed to the second step, and decide what period
was "probably contemplated by the parties" (Do., par. 3). So that, ultimately, the Court
can not fix a period merely because in its opinion it is or should be reasonable, but must
set the time that the parties are shown to have intended. As the record stands, the trial

136
Court appears to have pulled the two-year period set in its decision out of thin air, since
no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil
Code.

In this connection, it is to be borne in mind that the contract shows that the parties were
fully aware that the land described therein was occupied by squatters, because the fact
is expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As
the parties must have known that they could not take the law into their own hands, but
must resort to legal processes in evicting the squatters, they must have realized that the
duration of the suits to be brought would not be under their control nor could the same
be determined in advance. The conclusion is thus forced that the parties must have
intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of
performance indefinite. Yet, the circumstances admit no other reasonable view; and this
very indefiniteness is what explains why the agreement did not specify any exact periods
or dates of performance.

It follows that there is no justification in law for the setting the date of performance at any
other time than that of the eviction of the squatters occupying the land in question; and in
not so holding, both the trial Court and the Court of Appeals committed reversible error.
It is not denied that the case against one of the squatters, Abundo, was still pending in
the Court of Appeals when its decision in this case was rendered.

In view of the foregoing, the decision appealed from is reversed, and the time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the
date that all the squatters on affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and Castro, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-7721 March 25, 1914

137
INCHAUSTI & CO., plaintiff-appellant,
vs.
GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.

Rohde and Wright for appellee.
Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen
Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money, the balance of a current
account opened by the firm of Inchausti & Company with Teodoro Yulo and after his
death continued with his widow and children, whose principal representative is Gregorio
Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his
numerous haciendas in the province of Occidental Negros, had been borrowing money
from the firm of Inchausti & Company under specific conditions. On April 9, 1903;
Teodoro Yulo died testate and for the execution of the provisions of his will he had
appointed as administrators his widow and five of his sons, Gregorio Yulo being one of
the latter. He thus left a widow, Gregoria Regalado, who died on October 22d of the
following year, 1904, there remaining of the marriage the following legitimate children:
Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose
Yulo y Regalado. Of these children Concepcion and Jose were minors, while Teodoro
was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo,
his widow and children held the conjugal property in common and at the death of this
said widow, Gregoria Regalado, these children preserved the same relations under the
name of Hijos de T. Yulo continuing their current account with Inchausti & Company in
the best and most harmonious reciprocity until said balance amounted to two hundred
thousand pesos. In for the payment of the disbursements of money which until that time
it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco,
Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document (Exhibit
S) whereby all admitted their indebtedness to Inchausti & Company in the sum of
P203,221.27 and, in order to secure the same with interest thereon at 10 per cent per
annum, they especially mortgaged an undivided six-ninth of their thirty-eight rural
properties, their remaining urban properties, lorchas, and family credits which were
listed, obligating themselves to make a forma inventory and to describe in due form all
the said properties, as well as to cure all the defects which might prevent the inscription
of the said instrument in the registry of property and finally to extend by the necessary
formalities the aforesaid mortgage over the remaining three-ninths part of all the property
and rights belonging to their other brothers, the incompetent Teodoro, and the minors
Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo

answered a letter of the firm of Inchausti & Company in these terms: "With your favor of
the 2d inst. we have received an abstract of our current account with your important firm,
closed on the 31st of last December, with which we desire to express our entire
conformity as also with the balance in your favor of P271,863.12." On July 17, 1909,
Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to

138
P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of
a letter of the 19th of the same month and year. Regarding this conformity a new
document evidencing the mortgage credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his
brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo,
and Concepcion Yulo, the latter being of age at the time, executed the notarial
instrument (Exhibit X). Through this, the said persons, including Concepcion Yulo ratified
all the contents of the prior document of June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness to Inchausti & Company for the net
amount of two hundred fifty-three thousand four hundred forty-five pesos and forty-two
centavos (P253,445.42) which they obligated themselves to pay, with interest at ten per
cent per annum, in five installments at the rate of fifty thousand pesos (P50,000), except
the last, this being fifty-three thousand four hundred forty-five pesos and forty-two
centavos (P53,445.42), beginning June 30, 1910, continuing successively on the 30th of
each June until the last payment on June 30, 1914. Among other clauses, they expressly
stipulated the following:

Fifth. The default in payment of any of the installments established in clause 3, or

the noncompliance of any of the other obligations which by the present document
and that of June 26, 1908, we, the Yulos, brothers and sisters, have assumed,
will result in the maturity of all the said installments, and as a consequence
thereof, if they so deem expedient Messrs. Inchausti & Company may exercise at
once all the rights and actions which to them appertain in order to obtain the
immediate and total payment of our debt, in the same manner that they would
have so done at the maturity of the said installments.

Fifteenth. All the obligations which by this, as well as by the document of June
26, 1908, concern us, will be understood as having been contradicted in
solidum by all of us, the Yulos, brothers and sisters.

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in
all its parts, within the present week, by our brother Don Mariano Yulo y
Regalado who resides in Bacolod, otherwise it will not be binding on Messrs.
Inchausti & Company who can make use of their rights to demand and obtain
immediate payment of their credit without any further extension or delay, in
accordance with what we have agreed.

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not
pay the first installment of the obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in
the Court of First Instance of Iloilo, against Gregorio Yulo for the payment of the said
balance due of two hundred fifty-three thousand, four hundred forty-five pesos and forty-
two centavos P253,445.42) with interest at ten per cent per annum, on that date
aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos
(P42,944.76)

139
Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado
executed in favor Inchausti & Company another notarial instrument in recognition of the
debt and obligation of payment in the following terms: "First, the debt is reduce for them
to two hundred twenty-five thousand pesos (P225,000); second, the interest is likewise
reduced for them to 6 percent per annum, from March 15, 1911; third, the installments
are increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest of
P30,000 each on the same date of each successive year until the total obligation shall
be finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any
of the partial payments specified in the foregoing clause be not paid at its maturity, the
amount of the said partial payment together with its interest shall bear interest at the rate
of 15 per cent per annum from the date of said maturity, without the necessity of demand
until its complete payment;" that "if during two consecutive years the partial payments
agreed upon be not made, they shall lose the right to make use of the period granted to
them for the payment of the debt or the part thereof which remains unpaid, and that
Messrs. Inchausti & Company may consider the total obligation due and demandable,
and proceed to collect the same together with the interest for the delay above stipulated
through all legal means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers
and sisters — by way of compromise so that Inchausti & Company might, as it did,
withdraw the claims pending in the special proceedings for the probate of the will of Don
Teodoro Yulo and of the intestacy of Doña Gregoria Regalado — stipulating expressly
however in the sixth clause that "Inchausti & Company should include in their suit
brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and
joint co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the
least time possible a judgment in their favor against the said Don Gregorio and Don
Pedro, sentencing the later to pay the total amount of the obligation acknowledged by
them in the aforementioned instrument of August 12, 1909; with the understanding that if
they should deem it convenient for their interests, Don Francisco, Don Manuel, and
Doña Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti &
Company in the proceedings of the said case."

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and
alleged as defenses; first, that an accumulation of interest had taken place and that
compound interest was asked for the Philippine currency at par with Mexican; second,
that in the instrument of August 21, 1909, two conditions were agreed one of which
ought to be approved by the Court of First Instance, and the other ratified and confirmed
by the other brother Mariano Yulo, neither of which was complied with; third , that with
regard to the same debt claims were presented before the commissioners in the special
proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later
they were dismissed, pending the present suit; fourth and finally, that the instrument of
August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco
and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant
without prejudice to the plaintiff's bringing within the proper time another suit for his
proportional part of the joint debt, and that the plaintiff pay the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions and before this court made
the following assignment of errors:

140
I. That the court erred in considering the contract of May 12, 1911, as constituting a
novation of that of August 12, 1909.

II. That the court erred in rendering judgment in favor of the defendant.

III. And that the court erred n denying the motion for a new trial.

"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his
heirs owe Inchausti & Company an amount of money, the object of this action, namely,
P253,445.42" (B. of E. 18). "The fact is admitted," says the defendant, "that the plaintiff
has not collected the debt, and that the same is owing" (Brief, 33). "In the arguments of
the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right to
bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the
contract of August 12, 1909; but the defendant says that the plaintiff has no right to sue
him alone, since after the present suit was brought, the plaintiff entered into a
compromise with the other conjoint and solidary debtors, the result being the new
contract of May 12, 1911, by virtue of which the payments were extended, the same
constituting a novation of the contract which gave him the same privileges that were
given his conjoint and solidary codebtors. This (the judge concludes) is the only question
brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve by virtue of the
assignments of errors alleged. Consequently, there is no need of saying anything
regarding the first three defenses of the answer, nor regarding the lack of the signature
of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which
the appellee still insists in his brief for this appeal; although it will not be superfluous to
state the doctrine that a condition, such as is contained in the sixteenth clause of the
said contract (third point in the statement of facts), is by no means of suspensive but a
resolutory condition; the effect of the failure of compliance with the said clause, that is to
say, the lack of the ratification and confirmance by Mariano Yulo being not to suspend
but to resolve the contract, leaving Inchausti & Company at liberty, as stipulated, "to
make use of its rights to demand and obtain the immediate payment of its credit."

The only question indicated in the decision of the inferior court involves, however, these
others: First, whether the plaintiff can sue Gregorio Yulo alone, there being other
obligors; second, if so, whether it lost this right by the fact of its having agreed with the
other obligors in the reduction of the debt, the proroguing of the obligation and the
extension of the time for payment, in accordance with the instrument of May 12, 1911;
third, whether this contract with the said three obligors constitutes a novation of that of
August 12, 1909, entered into with the six debtors who assumed the payment of two
hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and
fourth, if not so, whether it does have any effect at all in the action brought, and in this
present suit.

With respect to the first it cannot be doubted that, the debtors having obligated
themselves in solidum, the creditor can bring its action in toto against any one of them,
inasmuch as this was surely its purpose in demanding that the obligation contracted in
its favor should be solidary having in mind the principle of law that, "when the obligation
is constituted as a conjoint and solidary obligation each one of the debtors is bound to

141
perform in full the undertaking which is the subject matter of such obligation." (Civil
Code, articles 1137 and 1144.)

And even though the creditor may have stipulated with some of the solidary debtors
diverse installments and conditions, as in this case, Inchausti & Company did with its
debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, 1911,
this does not lead to the conclusion that the solidarity stipulated in the instrument of
August 12, 1909 is broken, as we already know the law provides that "solidarity may
exist even though the debtors are not bound in the same manner and for the same
periods and under the same conditions." (Ibid, article 1140.) Whereby the second point
is resolved.

With respect to the third, there can also be no doubt that the contract of May 12, 1911,
does not constitute a novation of the former one of August 12, 1909, with respect to the
other debtors who executed this contract, or more concretely, with respect to the
defendant Gregorio Yulo: First, because "in order that an obligation may be extinguished
by another which substitutes it, it is necessary that it should be so expressly declared or
that the old and the new be incompatible in all points" (Civil Code, article 1204); and the
instrument of May 12, 1911, far from expressly declaring that the obligation of the three
who executed it substitutes the former signed by Gregorio Yulo and the other debtors,
expressly and clearly stated that the said obligation of Gregorio Yulo to pay the two
hundred and fifty-three thousand and odd pesos sued for exists, stipulating that the suit
must continue its course and, if necessary, these three parties who executed the
contract of May 12, 1911, would cooperate in order that the action against Gregorio Yulo
might prosper (7th point in the statement of facts), with other undertakings concerning
the execution of the judgment which might be rendered against Gregorio Yulo in this
same suit. "It is always necessary to state that it is the intention of the contracting parties
to extinguish the former obligation by the new one" (Judgment in cassation, July 8,
1909). There exist no incompatibility between the old and the new obligation as will be
demonstrated in the resolution of the last point, and for the present we will merely
reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a
new instrument wherein the old is ratified, by changing only the term of payment and
adding other obligations not incompatible with the old one. (Judgments in cassation of
June 28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in mind:

Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12,
1909, namely, Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting
a debt of P253,445.42 at 10 per cent per annum and mortgaging six-ninths of their
hereditary properties. Second. Of those six children, Francisco, Manuel and Carmen
executed the instrument of May 12, 1911, wherein was obtained a reduction of the
capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the
same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and
Jose have not taken part in these instruments and have not mortgaged their hereditary
portions. Fourth. By the first instrument the maturity of the first installment was June 30,
1910, whereas by the second instrument, Francisco, Manuel, and Carmen had in their
favor as the maturity of the first installment of their debt, June 30, 1912, and Fifth, on
March 27, 1911, the action against Gregorio Yulo was already filed and judgment was
pronounced on December 22, 1911, when the whole debt was not yet due nor even the

142
first installment of the same respective the three aforesaid debtors, Francisco, Manuel,
and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42
centavos of August 12, 1909, this debtor, if he should pay all this sum, could not recover
from his joint debtors Francisco, Manuel, and Carmen their proportional parts of the
P253,445.42 which he had paid, inasmuch as the three were not obligated by virtue of
the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation
of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by
him, with the interest of the amounts advanced at the rate of one-sixth part from each of
his five codebtors. (Civ. Code, article 1145, par. 2). This result would have been a
ponderous obstacle against the prospering of the suit as it had been brought. It would
have been very just then to have absolved the solidary debtor who having to pay the
debt in its entirety would not be able to demand contribution from his codebtors in order
that they might reimburse him pro rata for the amount advanced for them by him. But
such hypothesis must be put out of consideration by reason of the fact that occurred
during the pendency of the action, which fact the judge states in his decision. "In this
contract of May last," he says, "the amount of the debt was reduced to P225,000 and the
attorney of the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of
this reduction." (B. of E., 19.) This is a fact which this Supreme Court must hold as firmly
established, considering that the plaintiff in its brief, on page 27, corroborates the same
in these words: "What effect," it says, "could this contract have over the rights and
obligations of the defendant Gregorio Yulo with respect to the plaintiff company? In the
first place, we are the first to realize that it benefits him with respect to the reduction of
the amount of the debt. The obligation being solidary, the remission of any part of the
debt made by a creditor in favor of one or more of the solidary debtors necessarily
benefits the others, and therefore there can be no doubt that, in accordance with the
provision of article 1143 of the Civil Code, the defendant has the right to enjoy the
benefits of the partial remission of the debt granted by the creditor."

Wherefore we hold that although the contract of May 12, 1911, has not novated that of
August 12, 1909, it has affected that contract and the outcome of the suit brought
against Gregorio Yulo alone for the sum of P253,445.42; and in consequence thereof,
the amount stated in the contract of August 12, 1909, cannot be recovered but only that
stated in the contract of May 12, 1911, by virtue of the remission granted to the three of
the solidary debtors in this instrument, in conformity with what is provided in article 1143
of the Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the former touching the amount of the debt had
been recognized, should such efficacy not likewise be recognized concerning the
maturity of the same? If Francisco, Manuel, and Carmen had been included in the suit,
they could have alleged the defense of the nonmaturity of the installments since the first
installment did not mature until June 30, 1912, and without the least doubt the defense
would have prospered, and the three would have been absolved from the suit. Cannot
this defense of the prematurity of the action, which is implied in the last special defense
set up in the answer of the defendant Gregorio Yulo be made available to him in this
proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this
question: ". . . . Before the performance of the condition, or before the execution of

143
a term which affects one debtor alone proceedings may be had against him or against
any of the others for the remainder which may be already demandable but the
conditional obligation or that which has not yet matured cannot be demanded from any
one of them. Article 1148 confirms the rule which we now enunciate inasmuch as in case
the total claim is made by one creditor, which we believe improper if directed against the
debtor affected by the condition or the term, the latter can make use of such exceptions
as are peculiarly personal to his own obligation; and if against the other debtors,
they might make use of those exceptions, even though they are personal to the other,
inasmuch as they alleged they are personal to the other, inasmuch as they alleged them
in connection with that part of the responsibility attaching in a special manner to the
other." (8 Manresa, Sp. Civil Code, 196.)

Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of
the creditor of the defenses arising from the nature of the obligation and those which are
personal to him. Those personally pertaining to the others may be employed by him only
with regard to the share of the debt for which the latter may be liable."

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the
suit was brought on March 27, 1911, the first installment of the obligation had already
matured of June 30, 1910, and with the maturity of this installment, the first not having
been paid, the whole debt had become mature, according to the express agreement of
the parties, independently of the resolutory condition which gave the creditor the right to
demand the immediate payment of the whole debt upon the expiration of the stipulated
term of one week allowed to secure from Mariano Yulo the ratification and confirmation
of the contract of August 12, 1909.

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro
and Concepcion Yulo, they being in identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable
under their obligation, contracted later, had as yet matured. The first payment, as
already stated, was to mature on June 30, 1912. This exception or personal defense of
Francisco, Manuel, and Carmen Yulo "as to the part of the debt for which they were
responsible" can be sent up by Gregorio Yulo as a partial defense to the action. The part
of the debt for which these three are responsible is three-sixths of P225,000 or
P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for
which he is liable is P225,000, nevertheless not all of it can now be demanded of him,
for that part of it which pertained to his codebtors is not yet due, a state of affairs which
not only prevents any action against the persons who were granted the term which has
not yet matured, but also against the other solidary debtors who being ordered to pay
could not now sue for a contribution, and for this reason the action will be only as to the
P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to
wit, the three-sixths part of the debt which forms the subject matter of the suit, we do not
think that there was any reason or argument offered which sustains an opinion that for
the present it is not proper to order him to pay all or part of the debt, the object of the
action.

144
It has been said in the brief of the appellee that the prematurity of the action is one of the
defenses derived from the nature of the obligation, according to the opinion of the
commentator of the Civil Code, Mucius Scaevola, and consequently the defendant
Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It
may be so and yet, taken in that light, the effect would not be different from that already
stated in this decision; Gregorio Yulo could not be freed from making any payment
whatever but only from the payment of that part of the debt which corresponds to his
codebtors Francisco, Manuel, and Carmen. The same author, considering the case of
the opposing contention of two solidary debtors as to one of whom the obligation is pure
and unconditional and as to the other it is conditional and is not yet demandable, and
comparing the disadvantages which must flow from holding that the obligation is
demandable with these which must follow if the contrary view is adopted, favors this
solution of the problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that
the creditor may ofcourse, demand the payment of his credit against the debtor
not favored by any condition or extension of time." And further on, he decides the
question as to whether the whole debt may be recovered or only that part
unconditionally owing or which has already matured, saying, "Without failing to
proceed with juridical rigor, but without falling into extravagances or
monstrosities, we believe that the solution of the difficulty is perfectly possible.
How? By limiting the right of the creditor to the recovery of the amount owed by
the debtors bound unconditionally or as to whom the obligation has matured, and
leaving in suspense the right to demand the payment of the remainder until the
expiration of the term of the fulfillment of the condition. But what then is the effect
of solidarity? How can this restriction of right be reconciled with the duty imposed
upon each one of the debtors to answer for the whole obligation? Simply this, by
recognizing in the creditor the power, upon the performance of the condition or
the expiration of the term of claiming from any one or all of the debtors that part
of the obligation affected by those conditions. (Scaevola, Civil Code, 19, 800 and
801.)

It has been said also by the trial judge in his decision that if a judgment be entered
against Gregorio Yulo for the whole debt of P253,445.42, he cannot recover from
Francisco, Manuel, and Carmen Yulo that part of the amount which is owed by them
because they are obliged to pay only 225,000 pesos and this is eight installments none
of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot
be obliged to pay his part of the debt before the contract of May 12, 1911, may be
enforced, and "consequently he decided the case in favor of the defendant, without
prejudice to the plaintiff proceeding in due time against him for his proportional part of
the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity of the plaintiff and the
provision of article 1143 of the Civil Code, it is no longer possible to sentence the
defendant to pay the P253,445.42 of the instrument of August 12, 1909, but, if anything,
the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the defendant's right of recovery from
the signers of the instrument of May 12, 1911, for he was justly exonerated from the

145
payment of that part of the debt corresponding to them by reason of there having been
upheld in his favor the exception of an unmatured installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that,
there being a debtor who is unconditionally obligated as to when the debt has matured,
the creditor should be forced to await the realization of the condition (or the expiration of
the term.) Not only is there no reason for this, as stated by the author, but the court
would even fail to consider the special law of the contract, neither repealed nor novated,
which cannot be omitted without violating article 1091 of the Civil Code according to
which "the obligations arising from contracts have the force of law between the
contracting parties and must be complied with in accordance with the tenor of the same."
Certain it is that the trial court, in holding that this action was premature but might be
brought in the time, regarded the contract of August 12, 1909, as having been expressly
novated; but it is absolutely impossible in law to sustain such supposed novation, in
accordance with the legal principles already stated, and nevertheless the obligation of
the contract of May 12, 1911, must likewise be complied with in accordance with its
tenor, which is contrary in all respects to the supposed novation, by obliging the parties
who signed the contract to carry on the suit brought against Gregorio Yulo. The contract
of May 12, 1911, has affected the action and the suit, to the extent that Gregorio Yulo
has been able to make in his favor the defense of remission of part of the debt, thanks to
the provision of article 1148, because it is a defense derived from the nature of the
obligation, so that although the said defendant was not party to the contract in question,
yet because of the principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from
him in the suit here, because he has been benefited by the remission made by the
plaintiff to three of his codebtors, many times named above.

Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part
which is what he can recover from his joint codebtors Francisco, Manuel, and Carmen,
at present, judgment can be rendered only as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti &
Company P112,500, with the interest stipulated in the instrument of May 12, 1911, from
March 15, 1911, and the legal interest on this interest due, from the time that it was
claimed judicially in accordance with article 1109 of the Civil Code, without any special
finding as to costs. The judgment appealed from is reversed. So ordered.

Carson, Trent, and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:

146
In my judgment the action must be dismissed, as it was brought prematurely. The
defendant was entitled to all of the benefits of the contract of May 12, 1911, between the
plaintiff and Francisco, Manuel, and Carmen. One of these provisions was that the first
payment need not be made until June 30, 1912. The action was commenced on the 27t
of March, 1911, and although this date was prior to the date of the second contract, that
is, the contract with Francisco, Manuel, and Carmen, said contract was executed before
the trial of the action, and some of the beneficial provisions therein contained were to
produce their effects from March 15, 1911, a date prior to the commencement of the
action. At the time of the trial the defendant could, in my judgment, have interposed,
under the allegations of the amended answer, any of the defenses which could have
been made use of by Francisco, Manuel, or Carmen if they had been the defendant.
That being the case, nothing was due the plaintiff at the time it sued and accordingly its
action must be dismissed with costs.

For these reasons I vote to affirm.

HIRD DIVISION

[G.R. No. 155173. November 23, 2004]

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.),

LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING
CORPORATION and PHILIP ROSEBERG, petitioners, vs. CONTINENTAL
CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A.
MARIANO, respondents.

DECISION
PANGANIBAN, J.:

147
 May defendants in civil cases implead in their counterclaims persons who were not
parties to the original complaints? This is the main question to be answered in this
controversy.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to
nullify the May 22, 2002[2] and the September 3, 2002 Orders[3] of the Regional Trial
Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal
portion of the first assailed Order reads:

“WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff’s motion to
dismiss claims is granted. Accordingly, the defendants’ claims against Mr. Lim and Mr.
Mariano captioned as their counterclaims are dismissed.”[4]

The second challenged Order denied petitioners’ Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent
(LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement
Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities,
including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase
the cement business of Respondent Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At
the time of the foregoing transactions, petitioners were well aware that CCC had a case
pending with the Supreme Court. The case was docketed as GR No. 119712,
entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement
Corporation.
In anticipation of the liability that the High Tribunal might adjudge against CCC, the
parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase
price a portion of the contract price in the amount of P117,020,846.84 -- the equivalent
of US$2,799,140. This amount was to be deposited in an interest-bearing account in the
First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR
No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to APT,
despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter
and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT
would result in the foreclosure, not just of its properties covered by the SPA with Lafarge
but of several other properties as well, CCC filed before the Regional Trial Court of
Quezon City on June 20, 2000, a “Complaint with Application for Preliminary
Attachment” against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint
prayed, among others, that petitioners be directed to pay the “APT Retained Amount”
referred to in Clause 2 (c) of the SPA.

148
 Petitioners moved to dismiss the Complaint on the ground that it violated the
prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it
was raising in Civil Case No. Q-00-41103 in another action, which involved the same
parties and which was filed earlier before the International Chamber of Commerce. After
the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners
elevated the matter before the Court of Appeals in CA-GR SP No. 68688.
In the meantime, to avoid being in default and without prejudice to the outcome of
their appeal, petitioners filed their Answer and Compulsory Counterclaims ad
Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer, they
denied the allegations in the Complaint. They prayed -- by way of compulsory
counterclaims against Respondent CCC, its majority stockholder and president Gregory
T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000
each as actual damages, (b)P100,000,000 each as exemplary damages,
(c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney’s fees
plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the “baseless”
Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad
faith. Relying on this Court’s pronouncement in Sapugay v. CA,[5] petitioners prayed that
both Lim and Mariano be held “jointly and solidarily” liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC
moved to dismiss petitioners’ compulsory counterclaims on grounds that essentially
constituted the very issues for resolution in the instant Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed
petitioners’ counterclaims for several reasons, among which were the following: a) the
counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling
in Sapugay was not applicable; and c) petitioners’ Answer with Counterclaims violated
procedural rules on the proper joinder of causes of action.[6]
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an
Amended Order dated September 3, 2002[7] -- admitted some errors in its May 22, 2002
Order, particularly in its pronouncement that their counterclaim had been pleaded
against Lim and Mariano only. However, the RTC clarified that it was dismissing the
counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included
CCC.
Hence this Petition.[8]

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

149
 “[a] Whether or not the RTC gravely erred in refusing to rule that
Respondent CCC has no personality to move to dismiss petitioners’
compulsory counterclaims on Respondents Lim and Mariano’s behalf.
“[b] Whether or not the RTC gravely erred in ruling that (i) petitioners’
counterclaims against Respondents Lim and Mariano are not
compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and
(iii) petitioners violated the rule on joinder of causes of action.”[9]
For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court’s Ruling

The Petition is meritorious.

First Issue:
Counterclaims and
Joinder of Causes of Action.

Petitioners’ Counterclaims
Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as

“any claim which a defending party may have against an opposing party.” They are
generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of
the whole controversy in a single action, such that the defendant’s demand may be
adjudged by a counterclaim rather than by an independent suit. The only limitations to
this principle are (1) that the court should have jurisdiction over the subject matter of the
counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence
is essential for its adjudication.[10]
A counterclaim may either be permissive or compulsory. It is permissive “if it does
not arise out of or is not necessarily connected with the subject matter of the opposing
party’s claim.”[11] A permissive counterclaim is essentially an independent claim that may
be filed separately in another case.
A counterclaim is compulsory when its object “arises out of or is necessarily
connected with the transaction or occurrence constituting the subject matter of the
opposing party’s claim and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction.”[12]
Unlike permissive counterclaims, compulsory counterclaims should be set up in the
same action; otherwise, they would be barred forever. NAMARCO v. Federation of
United Namarco Distributors[13] laid down the following criteria to determine whether a
counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the
claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent
suit on defendant’s claim, absent the compulsory counterclaim rule? 3) Will substantially
the same evidence support or refute plaintiff’s claim as well as defendant’s
150
counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A
positive answer to all four questions would indicate that the counterclaim is compulsory.
Adopted in Quintanilla v. CA[14] and reiterated in Alday v. FGU Insurance
Corporation,[15] the “compelling test of compulsoriness” characterizes a counterclaim as
compulsory if there should exist a “logical relationship” between the main claim and the
counterclaim. There exists such a relationship when conducting separate trials of the
respective claims of the parties would entail substantial duplication of time and effort by
the parties and the court; when the multiple claims involve the same factual and legal
issues; or when the claims are offshoots of the same basic controversy between the
parties.
We shall now examine the nature of petitioners’ counterclaims against respondents
with the use of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:

“Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the
bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no
right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was
motivated by his personal interests as one of the owners of plaintiff while Anthony A.
Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which
reason he disregarded the fact that plaintiff is without any valid cause.

“Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff’s co-joint
tortfeasors in the commission of the acts complained of in this answer and in the
compulsory counterclaims pleaded below. As such they should be held jointly and
solidarily liable as plaintiff’s co-defendants to those compulsory counterclaims pursuant
to the Supreme Court’s decision in Sapugay v. Mobil.

xxx xxx xxx

“The plaintiff’s, Gregory T. Lim and Anthony A. Mariano’s bad faith filing of this baseless
case has compelled the defendants to engage the services of counsel for a fee and to
incur costs of litigation, in amounts to be proved at trial, but in no case less than P5
million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano
should be held jointly and solidarily liable.

“The plaintiff’s, Gregory T. Lim’s and Anthony A. Mariano’s actions have damaged the
reputations of the defendants and they should be held jointly and solidarily liable to them
for moral damages of P100 million each.

“In order to serve as an example for the public good and to deter similar baseless, bad
faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly
and solidarily liable to the defendants for exemplary damages of P100 million each.” [16]

The above allegations show that petitioners’ counterclaims for damages were the
result of respondents’ (Lim and Mariano) act of filing the Complaint and securing the Writ
of Attachment in bad faith. Tiu Po v. Bautista[17] involved the issue of whether the
counterclaim that sought moral, actual and exemplary damages and attorney’s fees

151
against respondents on account of their “malicious and unfounded” complaint was
compulsory. In that case, we held as follows:

“Petitioners’ counterclaim for damages fulfills the necessary requisites of a compulsory

counterclaim. They are damages claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be pleaded in the same
action; otherwise, petitioners would be precluded by the judgment from invoking the
same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA
1081) (1966) is in point:

“Compensatory, moral and exemplary damages, allegedly suffered by the creditor in

consequence of the debtor’s action, are also compulsory counterclaim barred by the
dismissal of the debtor’s action. They cannot be claimed in a subsequent action by the
creditor against the debtor.”

“Aside from the fact that petitioners’ counterclaim for damages cannot be the subject of
an independent action, it is the same evidence that sustains petitioners’ counterclaim
that will refute private respondent’s own claim for damages. This is an additional factor
that characterizes petitioners’ counterclaim as compulsory.”[18]

Moreover, using the “compelling test of compulsoriness,” we find that, clearly, the
recovery of petitioners’ counterclaims is contingent upon the case filed by respondents;
thus, conducting separate trials thereon will result in a substantial duplication of the time
and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same
action; otherwise, it would be barred forever. If it is filed concurrently with the main
action but in a different proceeding, it would be abated on the ground of litis pendentia; if
filed subsequently, it would meet the same fate on the ground of res judicata.[19]

Sapugay v. Court of Appeals

Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case.

In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an action
for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from
the supposed failure of the couple to keep their end of their Dealership Agreement. In
their Answer with Counterclaim, petitioners alleged that after incurring expenses in
anticipation of the Dealership Agreement, they requested the plaintiff to allow them to
get gas, but that it had refused. It claimed that they still had to post a surety bond which,
initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies
required a copy of the Dealership Agreement, which respondent continued to withhold
from them. Later, petitioners discovered that respondent and its manager, Ricardo P.
Cardenas, had intended all along to award the dealership to Island Air Product
Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its
manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment be
152
rendered, holding both jointly and severally liable for pre-operation expenses, rental,
storage, guarding fees, and unrealized profit including damages. After both Mobil and
Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a
“Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendant’s Counterclaim.”
Among the issues raised in Sapugay was whether Cardenas, who was not a party to
the original action, might nevertheless be impleaded in the counterclaim. We disposed
of this issue as follows:

“A counterclaim is defined as any claim for money or other relief which a defending party
may have against an opposing party. However, the general rule that a defendant cannot
by a counterclaim bring into the action any claim against persons other than the plaintiff
admits of an exception under Section 14, Rule 6 which provides that ‘when the presence
of parties other than those to the original action is required for the granting of complete
relief in the determination of a counterclaim or cross-claim, the court shall order them to
be brought in as defendants, if jurisdiction over them can be obtained.’ The inclusion,
therefore, of Cardenas in petitioners’ counterclaim is sanctioned by the rules.”[20]

The prerogative of bringing in new parties to the action at any stage before
judgment is intended to accord complete relief to all of them in a single action and to
avert a duplicity and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new parties
cannot be included in a counterclaim, except when no complete relief can be had. They
add that “[i]n the present case, Messrs. Lim and Mariano are not necessary for
petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court.
This is because Respondent CCC as a corporation with a separate [legal personality]
has the juridical capacity to indemnify petitioners even without Messrs. Lim and
Mariano.”[21]
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas
in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption
that the plaintiff corporation does not have the financial ability to answer for damages,
such that it has to share its liability with individual defendants. Rather, such inclusion is
based on the allegations of fraud and bad faith on the part of the corporate officer or
stockholder. These allegations may warrant the piercing of the veil of corporate fiction,
so that the said individual may not seek refuge therein, but may be held individually and
personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals, [22] the Court held that generally, it should
only be the corporation that could properly be held liable. However, circumstances may
warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if
the said individual is found guilty of bad faith or gross negligence in directing corporate
affairs.
Remo Jr. v. IAC[23] has stressed that while a corporation is an entity separate and
distinct from its stockholders, the corporate fiction may be disregarded if “used to defeat
public convenience, justify a wrong, protect fraud, or defend crime.” In these instances,
“the law will regard the corporation as an association of persons, or in case of two
corporations, will merge them into one.” Thus, there is no debate on whether, in alleging
bad faith on the part of Lim and Mariano the counterclaims had in effect made them

153
“indispensable parties” thereto; based on the alleged facts, both are clearly parties in
interest to the counterclaim.[24]
Respondents further assert that “Messrs. Lim and Mariano cannot be held
personally liable [because their assailed acts] are within the powers granted to them by
the proper board resolutions; therefore, it is not a personal decision but rather that of the
corporation as represented by its board of directors.”[25] The foregoing assertion,
however, is a matter of defense that should be threshed out during the trial; whether or
not “fraud” is extant under the circumstances is an issue that must be established by
convincing evidence.[26]
Suability and liability are two distinct matters. While the Court does rule that the
counterclaims against Respondent CCC’s president and manager may be properly filed,
the determination of whether both can in fact be held jointly and severally liable with
respondent corporation is entirely another issue that should be ruled upon by the trial
court.
However, while a compulsory counterclaim may implead persons not parties to the
original complaint, the general rule -- a defendant in a compulsory counterclaim need not
file any responsive pleading, as it is deemed to have adopted the allegations in the
complaint as its answer -- does not apply. The filing of a responsive pleading is deemed
a voluntary submission to the jurisdiction of the court; a new party impleaded by the
plaintiff in a compulsory counterclaim cannot be considered to have automatically and
unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in
mischievous consequences whereby a party may be indiscriminately impleaded as a
defendant in a compulsory counterclaim; and judgment rendered against it without its
knowledge, much less participation in the proceedings, in blatant disregard of
rudimentary due process requirements.
The correct procedure in instances such as this is for the trial court, per Section 12
of Rule 6 of the Rules of Court, to “order [such impleaded parties] to be brought in as
defendants, if jurisdiction over them can be obtained,” by directing that summons be
served on them. In this manner, they can be properly appraised of and answer the
charges against them. Only upon service of summons can the trial court obtain
jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but
he did not file any responsive pleading to the counterclaim leveled against him.
Nevertheless, the Court gave due consideration to certain factual circumstances,
particularly the trial court’s treatment of the Complaint as the Answer of Cardenas to the
compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his
failure to make any objection despite his active participation in the proceedings. It was
held thus:

“It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against
him on the ground of lack of jurisdiction. While it is a settled rule that the issue of
jurisdiction may be raised even for the first time on appeal, this does not obtain in the
instant case. Although it was only Mobil which filed an opposition to the motion to
declare in default, the fact that the trial court denied said motion, both as to Mobil and
Cardenas on the ground that Mobil’s complaint should be considered as the answer to
petitioners’ compulsory counterclaim, leads us to the inescapable conclusion that the
trial court treated the opposition as having been filed in behalf of both Mobil and
Cardenas and that the latter had adopted as his answer the allegations raised in the

154
complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny
the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not
unaware of said incidents and the proceedings therein as he testified and was present
during trial, not to speak of the fact that as manager of Mobil he would necessarily be
interested in the case and could readily have access to the records and the pleadings
filed therein.

“By adopting as his answer the allegations in the complaint which seeks affirmative
relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his
person and submitted thereto. He may not now be heard to repudiate or question that
jurisdiction.”[27]

Such factual circumstances are unavailing in the instant case. The records do not
show that Respondents Lim and Mariano are either aware of the counterclaims filed
against them, or that they have actively participated in the proceedings involving them.
Further, in dismissing the counterclaims against the individual respondents, the court a
quo -- unlike inSapugay -- cannot be said to have treated Respondent CCC’s Motion to
Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable

Respondent CCC contends that petitioners’ counterclaims violated the rule on

joinder of causes of action. It argues that while the original Complaint was a suit for
specific performance based on a contract, the counterclaim for damages was based on
the tortuous acts of respondents.[28] In its Motion to Dismiss, CCC cites Section 5 of Rule
2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:

“Section 5. Joinder of causes of action. – A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an opposing
party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of
parties; x x x”

Section 6. Permissive joinder of parties. – All persons in whom or against whom any
right to relief in respect to or arising out of the same transaction or
series of transactions is alleged to exist whether jointly, severally, or in the alternative,
may, except as otherwise provided in these Rules, join as plaintiffs or be joined as
defendants in one complaint, where any question of law or fact common to all such
plaintiffs or to all such defendants may arise in the action; but the court may make such
orders as may be just to prevent any plaintiff or defendant from being embarrassed or
put to expense in connection with any proceedings in which he may have no interest.”

The foregoing procedural rules are founded on practicality and convenience. They
are meant to discourage duplicity and multiplicity of suits. This objective is negated by
insisting -- as the court a quo has done -- that the compulsory counterclaim for damages
be dismissed, only to have it possibly re-filed in a separate proceeding. More important,

155
as we have stated earlier, Respondents Lim and Mariano are real parties in interest to
the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of
Rule 3 provides:

“Compulsory joinder of indispensable parties. – Parties in interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants.”

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners

are being consistent with the solidary nature of the liability alleged therein.

Second Issue:
CCC’s Personality to Move to Dismiss
the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and
Mariano as “joint and solidary,” petitioners prayed:

“WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

“1. Dismissing the complaint in its entirety;

“2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and
solidarily to pay defendant actual damages in the sum of at
least P2,700,000.00;

“3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano

jointly and solidarily to pay the defendants LPI, LCLC, COC and
Roseberg:
“a. Exemplary damages of P100 million each;
“b. Moral damages of P100 million each; and
“c. Attorney’s fees and costs of suit of at least P5 million
each.

Other reliefs just and equitable are likewise prayed for.”[29]

Obligations may be classified as either joint or solidary. “Joint” or “jointly” or

“conjoint” means mancum or mancomunada or pro rata obligation; on the other hand,
“solidary obligations” may be used interchangeably with “joint and several” or “several.”
Thus, petitioners’ usage of the term “joint and solidary” is confusing and ambiguous.
The ambiguity in petitioners’ counterclaims notwithstanding, respondents’ liability, if
proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint, except when otherwise
expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have
assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,[30] in
which we held:

156
“x x x The difficulty in the contention of the appellants is that they fail to recognize that
the basis of the present action is tort. They fail to recognize the universal doctrine that
each joint tort feasor is not only individually liable for the tort in which he participates, but
is also jointly liable with his tort feasors. x x x

“It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet
the commission of a tort, or who approve of it after it is done, if done for their benefit.
They are each liable as principals, to the same extent and in the same manner as if they
had performed the wrongful act themselves. x x x

“Joint tort feasors are jointly and severally liable for the tort which they commit. The
persons injured may sue all of them or any number less than all. Each is liable for the
whole damages caused by all, and all together are jointly liable for the whole damage. It
is no defense for one sued alone, that the others who participated in the wrongful act are
not joined with him as defendants; nor is it any excuse for him that his participation in the
tort was insignificant as compared to that of the others. x x x

“Joint tort feasors are not liable pro rata. The damages can not be apportioned among
them, except among themselves. They cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They are jointly and severally liable for the
whole amount. x x x

“A payment in full for the damage done, by one of the joint tort feasors, of course
satisfies any claim which might exist against the others. There can be but satisfaction.
The release of one of the joint tort feasors by agreement generally operates to discharge
all. x x x

“Of course the court during trial may find that some of the alleged tort feasors are liable
and that others are not liable. The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is true even though they are
charged jointly and severally.”

In a “joint” obligation, each obligor answers only for a part of the whole liability; in a
“solidary” or “joint and several” obligation, the relationship between the active and the
passive subjects is so close that each of them must comply with or demand the
fulfillment of the whole obligation. [31] The fact that the liability sought against the CCC is
for specific performance and tort, while that sought against the individual respondents is
based solely on tort does not negate the solidary nature of their liability for tortuous acts
alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

“Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions.”

The solidary character of respondents’ alleged liability is precisely why credence

cannot be given to petitioners’ assertion. According to such assertion, Respondent CCC
cannot move to dismiss the counterclaims on grounds that pertain solely to its individual
co-debtors.[32] In cases filed by the creditor, a solidary debtor may invoke defenses
arising from the nature of the obligation, from circumstances personal to it, or even from
those personal to its co-debtors. Article 1222 of the Civil Code provides:

157
“A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which
are derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally belong to the
others, he may avail himself thereof only as regards that part of the debt for which
the latter are responsible.” (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss
the counterclaim on grounds that pertain only to its individual co-debtors -- is therefore
allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that
Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray
that the counterclaim against it be dismissed. Be that as it may, Respondent CCC
cannot be declared in default. Jurisprudence teaches that if the issues raised in the
compulsory counterclaim are so intertwined with the allegations in the complaint, such
issues are deemed automatically joined.[33] Counterclaims that are only for damages and
attorney’s fees and that arise from the filing of the complaint shall be considered as
special defenses and need not be answered.[34]

CCC’s Motion to Dismiss the

Counterclaim on Behalf of
Respondents Lim and
Mariano Not Allowed

While Respondent CCC can move to dismiss the counterclaims against it by raising
grounds that pertain to individual defendants Lim and Mariano, it cannot file the same
Motion on their behalf for the simple reason that it lacks the requisite authority to do so.
A corporation has a legal personality entirely separate and distinct from that of its
officers and cannot act for and on their behalf, without being so authorized. Thus,
unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory
counterclaim filed by Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A.

Mariano are compulsory.

2. The counterclaims may properly implead Respondents Gregory T. Lim and

Anthony A. Mariano, even if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano)
may include, in a Motion to Dismiss, defenses available to their co-defendants;
nevertheless, the same Motion cannot be deemed to have been filed on behalf
of the said co-defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial
court can obtain jurisdiction over them.

158
 WHEREFORE, the Petition is GRANTED and the assailed Orders
REVERSED. The court of origin is hereby ORDERED to take cognizance of the
counterclaims pleaded in petitioners’ Answer with Compulsory Counterclaims and to
cause the service of summons on Respondents Gregory T. Lim and Anthony A.
Mariano. No costs.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.

159