THIRD DIVISION

REPUBLIC
OF
THEPHILIPPINES,
REPRESENTED
BY
THE
TOLL
REGULATORY BOARD (TRB),
Petitioner,

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
REYES, and
DE CASTRO,* JJ.

- versus -

HOLY
TRINITY
DEVELOPMENT CORP.,
Respondent.

G.R. No. 172410

REALTY
Promulgated:

April 14, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

properties would be affected by the construction, rehabilitation and

expansion of the North Luzon Expressway. The suit was docketed as Civil
Case No. 869-M-2000 and raffled to Branch 85, Malolos,
Bulacan. Respondent Holy Trinity Realty and Development Corporation
(HTRDC) was one of the affected landowners.
On 18 March 2002, TRB filed an Urgent Ex-Parte Motion for the
issuance of a Writ of Possession, manifesting that itdeposited a sufficient
amount to cover the payment of 100% of the zonal value of the affected
properties, in the total amount ofP28,406,700.00, with the Land Bank of
the Philippines, South Harbor Branch (LBP-South Harbor), an authorized
government depository. TRB maintained that since it had already
complied with the provisions of Section 4 of Republic Act No. 8974 [5] in
relation to Section 2 of Rule 67 of the Rules of Court, the issuance of the
writ of possession becomes ministerial on the part of the RTC.

DECISION
CHICO-NAZARIO, J.:

The RTC issued, on 19 March 2002, an Order for the Issuance of a

Writ of Possession, as well as the Writ of Possession itself. HTRDC
thereafter moved for the reconsideration of the 19 March 2002 Order of

This is a Petition for Review on Certiorari under Rule 45 of the

Rules of Court, seeking to set aside the Decision [1] dated 21 April 2006 of
the Court of Appeals in CA-G.R. SP No. 90981 which, in turn, set aside
two Orders[2] dated 7 February 2005[3] and 16 May 2005[4] of the Regional
Trial Court (RTC) of Malolos, Bulacan, in Civil Case No. 869-M-2000.

the RTC.

The undisputed factual and procedural antecedents of this case

are as follows:

landowners

On 29 December 2000, petitioner Republic of the Philippines,

represented by the Toll Regulatory Board (TRB), filed with the RTC a
Consolidated Complaint for Expropriation against landowners whose

On 7 October 2002, the Sheriff filed with the RTC a Report on Writ
of Possession stating, among other things, that since none of the
voluntarily

vacated

the

properties

subject

of

the

expropriation proceedings, the assistance of the Philippine National

Police

(PNP)

would

be

necessary

in

implementing

the

Writ

of

Possession. Accordingly, TRB, through the Office of the Solicitor General

(OSG), filed with the RTC an Omnibus Motion praying for an Order

directing the PNP to assist the Sheriff in the implementation of the Writ

19 August 2003 by Atty. Osoteo stating that the DPWH Expropriation

Account was an interest bearing current account.

of Possession. On 15 November 2002, the RTC issued an Order directing

the landowners to file their comment on TRBs Omnibus Motion.
On 3 March 2003, HTRDC filed with the RTC a Motion to Withdraw
Deposit, praying that the respondent or its duly authorized
representative be allowed to withdraw the amount of P22,968,000.00,
out of TRBs advance deposit of P28,406,700.00 with LBP-South Harbor,
including the interest which accrued thereon. Acting on said motion, the
RTC issued an Order dated 21 April 2003, directing the manager of LBPSouth Harbor to
release
in
favor
of
HTRDC
the
amount
of P22,968,000.00 since the latter already proved its absolute ownership
over the subject properties and paid the taxes due thereon to the
government. According to the RTC, (t)he issue however on the interest
earned by the amount deposited in the bank, if there is any, should still
be threshed out.[6]
On 7 May 2003, the RTC conducted a hearing on the accrued
interest,

after

which,

it

directed

the

issuance

of

an

order

On 11 March 2004, the RTC issued an Order resolving as follows

the issue of ownership of the interest that had accrued on the amount
deposited by DPWH in its expropriation current account with LBPSouth Harbor:
WHEREFORE, the interest earnings from the
deposit of P22,968,000.00 respecting one hundred (100%)
percent of the zonal value of the affected properties in
this expropriation proceedings under the principle of
accession are considered as fruits and should properly
pertain to the herein defendant/property owner
[HTRDC]. Accordingly, the Land Bank as the depositary
bank in this expropriation proceedings is (1) directed to
make the necessary computation of the accrued interest
of the amount of P22,968,000.00 from the time it was
deposited up to the time it was released to Holy Trinity
Realty and Development Corp. and thereafter (2) to
release the same to the defendant Holy Trinity
Development
Corporation
through
its
authorized
representative.[8]

of

expropriation, and granted TRB a period of 30 days to inquire from LBPSouth Harbor whether the deposit made by DPWH with said bank
relative to these expropriation proceedings is earning interest or not. [7]
The RTC issued an Order, on 6 August 2003, directing the
appearance of LBP Assistant Vice-President Atty. Rosemarie M. Osoteo
and Department Manager Elizabeth Cruz to testify on whether the
Department of Public Works and Highways (DPWHs) expropriation
account with the bank was earning interest. On 9 October 2003, TRB
instead submitted a Manifestation to which was attached a letter dated

TRB filed a Motion for Reconsideration of the afore-quoted RTC

Order, contending that the payment of interest on money deposited
and/or consigned for the purpose of securing a writ of possession was
sanctioned neither by law nor by jurisprudence.
TRB filed a Motion to Implement Order dated 7 May 2003, which
directed the issuance of an order of expropriation. On 5 November 2004,
the RTC issued an Order of Expropriation.
On 7 February 2005, the RTC likewise granted TRBs Motion for
Reconsideration. The RTC ruled that the issue as to whether or not
HTRDC is entitled to payment of interest should be ventilated before the

Board of Commissioners which will

determination of just compensation.

be

created

later

for

the

Now it was HTRDCs turn to file a Motion for Reconsideration of

the latest Order of the RTC. The RTC, however, denied HTRDCs Motion
for Reconsideration in an Order dated 16 May 2005.
HTRDC sought recourse with the Court of Appeals by filing a
Petition for Certiorari, docketed as CA-G.R. SP No. 90981. In its Decision,
promulgated on 21 April 2006, the Court of Appeals vacated the
Orders dated 7 February 2005 and 16 May 2005 of the RTC, and
reinstated the Order dated 11 March 2004 of the said trial court wherein
it ruled that the interest which accrued on the amount deposited in the
expropriation account belongs to HTRDC by virtue of accession. The
Court of Appeals thus declared:
WHEREFORE, the foregoing premises considered,
the assailed Orders dated 07 February and 16 May 2005
respectively of the Regional Trial Court of Malolos, Bulacan
(Branch
85)
are
hereby
VACATED
and
SET
ASIDE. Accordingly, the Order dated 11 March 2004 is
hereby reinstated.[9]

From the foregoing, the Republic, represented by the TRB, filed

the present Petition for Review on Certiorari, steadfast in its stance that
HTRDC is entitled only to an amount equivalent to the zonal value of the
expropriated property, nothing more and nothing less.[10] According to
the TRB, the owner of the subject properties is entitled to an exact
amount as clearly defined in both Section 4 of Republic Act No. 8974,
which reads:
Section
4. Guidelines
for
Expropriation
Proceedings. Whenever it is necessary to acquire real
property for the right-of-way, site or location for any

national government infrastructure project through

expropriation, the appropriate implementing agency shall
initiate the expropriation proceedings before the proper
court under the following guidelines:
(a) Upon the filing of the complaint, and after due
notice to the defendant, the implementing agency shall
immediately pay the owner of the property the amount
equivalent to the sum of (1) one hundred (100%)
percent of the value of the property based on the
current relevant zonal valuation of the Bureau of
Internal Revenue (BIR); and (2) the value of the
improvements and/or structures as determined under
Section 7 hereof.

and Section 2, Rule 67 of the Rules of Court, which provides:

Sec. 2. Entry of plaintiff upon depositing value
with authorized government depositary. Upon the filing of
the complaint or at anytime thereafter and after due
notice to the defendant, the plaintiff shall have the right
to take or enter upon the possession of the real property
involved if he deposits with the authorized government
depositary an amount equivalent to the assessed
value of the property for purposes of taxation to be
held by such bank subject to the orders of the court. Such
deposit shall be in money, unless in lieu thereof the court
authorizes the deposit of a certificate of deposit of a
government
bank
of
the
Republic
of
the Philippines payable on demand to the authorized
government depositary.

The TRB reminds us that there are two stages [11] in expropriation
proceedings, the determination of the authority to exercise eminent
domain and the determination of just compensation. The TRB argues
that it is only during the second stage when the court will appoint
commissioners and determine claims for entitlement to interest,

citing Land Bank of the Philippines v. Wycoco [12] andNational Power

Corporation v. Angas.[13]
The TRB further points out that the expropriation account
with LBP-South Harbor is not in the name of HTRDC, but of DPWH. Thus,
the said expropriation account includes the compensation for the other
landowners named defendants in Civil Case No. 869-M-2000, and does
not exclusively belong to respondent.
At the outset, we call attention to a significant oversight in the
TRBs line of reasoning. It failed to distinguish between the expropriation
procedures under Republic Act No. 8974 and Rule 67 of the Rules of
Court. Republic Act No. 8974 and Rule 67 of the Rules of Court speak of
different procedures, with the former specifically governing
expropriation proceedings for national government infrastructure
projects. Thus, in Republic v. Gingoyon,[14] we held:
There are at least two crucial differences between
the respective procedures under Rep. Act No. 8974 and
Rule 67. Under the statute, the Government is
required to make immediate payment to the
property owner upon the filing of the complaint to
be entitled to a writ of possession, whereas in Rule
67, the Government is required only to make an
initial deposit with an authorized government
depositary. Moreover, Rule 67 prescribes that the initial
deposit be equivalent to the assessed value of the
property for purposes of taxation, unlike Rep. Act No. 8974
which provides, as the relevant standard for initial
compensation, the market value of the property as stated
in the tax declaration or the current relevant zonal
valuation of the Bureau of Internal Revenue (BIR),
whichever is higher, and the value of the improvements
and/or structures using the replacement cost method.
xxxx

Rule 67 outlines the procedure under which

eminent domain may be exercised by the Government. Yet
by no means does it serve at present as the solitary
guideline through which the State may expropriate private
property. For example, Section 19 of the Local
Government Code governs as to the exercise by local
government units of the power of eminent domain
through an enabling ordinance. And then there is Rep. Act
No. 8974, which covers expropriation proceedings
intended for national government infrastructure projects.
Rep. Act No. 8974, which provides for a procedure
eminently more favorable to the property owner than Rule
67, inescapably applies in instances when the national
government
expropriates
property
for
national
government infrastructure projects. Thus, if expropriation
is engaged in by the national government for purposes
other than national infrastructure projects, the assessed
value standard and the deposit mode prescribed in Rule
67 continues to apply.

There is no question that the proceedings in this case deal with

the expropriation of properties intended for a national government
infrastructure project. Therefore, the RTC correctly applied the procedure
laid out in Republic Act No. 8974, by requiring the deposit of the amount
equivalent to 100% of the zonal value of the properties sought to be
expropriated before the issuance of a writ of possession in favor of the
Republic.
The controversy, though, arises not from the amount of the
deposit, but as to the ownership of the interest that had since accrued
on the deposited amount.
Whether the Court of Appeals was correct in holding that the
interest earned by the deposited amount in the expropriation account
would accrue to HRTDC by virtue of accession, hinges on the
determination of who actually owns the deposited amount, since, under

Article 440 of the Civil Code, the right of accession is conferred by

ownership of the principal property:
Art. 440. The ownership of property gives the right
by accession to everything which is produced thereby, or
which is incorporated or attached thereto, either naturally
or artificially.

The principal property in the case at bar is part of the deposited

amount in the expropriation account of DPWH which pertains particularly
to HTRDC. Such amount, determined to be P22,968,000.00 of
the P28,406,700.00 total deposit, was already ordered by the RTC to be
released to HTRDC or its authorized representative. The Court of Appeals
further recognized that the deposit of the amount was already deemed a
constructive delivery thereof to HTRDC:
When the [herein petitioner] TRB deposited the
money as advance payment for the expropriated property
with an authorized government depositary bank for
purposes of obtaining a writ of possession, it is deemed to
be a constructive delivery of the amount corresponding to
the 100% zonal valuation of the expropriated
property. Since
[HTRDC]
is
entitled
thereto
and
undisputably the owner of the principal amount deposited
by [herein petitioner] TRB, conversely, the interest yield,
as accession, in a bank deposit should likewise pertain to
the owner of the money deposited.[15]

The deposit was made in order to comply with Section 4 of

Republic Act No. 8974, which requires nothing less than
theimmediate payment of 100% of the value of the property, based on
the current zonal valuation of the BIR, to the property owner.Thus, going
back to our ruling in Republic v. Gingoyon[16]:
It is the plain intent of Rep. Act No. 8974 to
supersede the system of deposit under Rule 67 with the
scheme of immediate payment in cases involving national
government infrastructure projects. The following portion
of the Senate deliberations, cited by PIATCO in its
Memorandum, is worth quoting to cogitate on the purpose
behind the plain meaning of the law:
THE CHAIRMAN (SEN. CAYETANO). x
x x Because the Senate believes that, you
know, we have to pay the landowners
immediately not by treasury bills but by
cash.
Since we are depriving them, you
know, upon payment, no, of possession, we
might as well pay them as much, no, hindi
lang 50 percent.
xxxx
THE
Accepted.

CHAIRMAN

(REP.

VERGARA).

xxxx
Since the Court of Appeals found that the HTRDC is the owner of
the deposited amount, then the latter should also be entitled to the
interest which accrued thereon.

THE CHAIRMAN (SEN. CAYETANO).

Oo. Because this is really in favor of the
landowners, e.

We agree with the Court of Appeals, and find no merit in the

instant Petition.

THE CHAIRMAN (REP. VERGARA).

Thats why we need to really secure the
availability of funds.
xxxx

THE CHAIRMAN (SEN. CAYETANO).

No, no. Its the same. It says here: iyong
first paragraph, diba? Iyong zonal talagang
magbabayad muna. In other words, you
know, there must be a payment kaagad.
(TSN,
Bicameral
Conference
on
the
Disagreeing Provisions of House Bill 1422
and Senate Bill 2117, August 29, 2000, pp.
14-20)
xxxx
THE CHAIRMAN (SEN. CAYETANO).
Okay, okay, no. Unang-una, it is not
deposit, no. Its payment.
REP. BATERINA.
payment.

Its payment, ho,

The critical factor in the different modes of effecting delivery

which gives legal effect to the act is the actual intention to deliver on
the part of the party making such delivery. [17] The intention of the TRB in
depositing such amount through DPWH was clearly to comply with the
requirement of immediate payment in Republic Act No. 8974, so that it
could already secure a writ of possession over the properties subject of
the expropriation and commence implementation of the project. In fact,
TRB did not object to HTRDCs Motion to Withdraw Deposit with the RTC,
for as long as HTRDC shows (1) that the property is free from any lien or
encumbrance and (2) that respondent is the absolute owner thereof. [18]
A close scrutiny of TRBs arguments would further reveal that it
does not directly challenge the Court of Appeals determinative
pronouncement that the interest earned by the amount deposited in the
expropriation account accrues to HTRDC by virtue of accession. TRB only

asserts that HTRDC is entitled only to an amount equivalent to the zonal

value of the expropriated property, nothing more and nothing less.
We agree in TRBs statement since it is exactly how the amount of
the immediate payment shall be determined in accordance with Section
4 of Republic Act No. 8974, i.e., an amount equivalent to 100% of the
zonal value of the expropriated properties.However, TRB already
complied therewith by depositing the required amount in the
expropriation account of DPWH with LBP-South Harbor. By depositing the
said amount, TRB is already considered to have paid the same to
HTRDC, and HTRDC became the owner thereof. The amount earned
interest after the deposit; hence, the interest should pertain to the
owner of the principal who is already determined as HTRDC. The interest
is paid by LBP-South Harbor on the deposit, and the TRB cannot claim
that it paid an amount more than what it is required to do so by law.
Nonetheless, we find it necessary to emphasize that HTRDC is
determined to be the owner of only a part of the amount deposited in
the expropriation account, in the sum of P22,968,000.00. Hence, it is
entitled by right of accession to the interest that had accrued to the said
amount only.
We are not persuaded by TRBs citation of National Power
Corporation v. Angas and Land Bank of the Philippines v. Wycoco, in
support of its argument that the issue on interest is merely part and
parcel of the determination of just compensation which should be
determined in the second stage of the proceedings only. We find that
neither case is applicable herein.
The issue in Angas is whether or not, in the computation of the
legal rate of interest on just compensation for expropriated lands, the
applicable law is Article 2209 of the Civil Code which prescribes a 6%
legal interest rate, or Central Bank Circular No. 416 which fixed the legal

rate at 12% per annum. We ruled in Angas that since the kind of interest
involved therein is interest by way of damages for delay in the payment
thereof, and not as earnings from loans or forbearances of money,
Article 2209 of the Civil Code prescribing the 6% interest shall
apply. In Wycoco, on the other hand, we clarified that interests in the
form of damages cannot be applied where there is prompt and valid
payment of just compensation.
The case at bar, however, does not involve interest as damages
for delay in payment of just compensation. It concerns interest earned
by the amount deposited in the expropriation account.
Under Section 4 of Republic Act No. 8974, the implementing
agency of the government pays just compensation twice: (1)
immediately upon the filing of the complaint, where the amount to be
paid is 100% of the value of the property based on the current relevant
zonal valuation of the BIR (initial payment); and (2) when the decision of
the court in the determination of just compensation becomes final and
executory, where the implementing agency shall pay the owner the
difference between the amount already paid and the just compensation
as determined by the court (final payment).[19]
HTRDC never alleged that it was seeking interest because of
delay in either of the two payments enumerated above. In fact, HTRDCs
cause of action is based on the prompt initial payment of just
compensation, which effectively transferred the ownership of the
amount paid to HTRDC. Being the owner of the amount paid, HTRDC is
claiming, by the right of accession, the interestearned by the same while
on deposit with the bank.
That the expropriation account was in the name of DPWH, and
not of HTRDC, is of no moment. We quote with approval the following
reasoning of the Court of Appeals:

Notwithstanding that the amount was deposited

under the DPWH account, ownership over the deposit
transferred by operation of law to the [HTRDC] and
whatever interest, considered as civil fruits, accruing to
the amount of Php22,968,000.00 should properly pertain
to [HTRDC] as the lawful owner of the principal amount
deposited following the principle of accession. Bank
interest partake the nature of civil fruits under Art. 442 of
the New Civil Code. And since these are considered fruits,
ownership thereof should be due to the owner of the
principal. Undoubtedly, being an attribute of ownership,
the [HTRDCs] right over the fruits (jus fruendi), that is the
bank interests, must be respected.[20]

Considering that the expropriation account is in the name of

DPWH, then, DPWH should at most be deemed as the trustee of the
amounts deposited in the said accounts irrefragably intended as initial
payment for the landowners of the properties subject of the
expropriation, until said landowners are allowed by the RTC to withdraw
the same.
As a final note, TRB does not object to HTRDCs withdrawal of the
amount of P22,968,000.00 from the expropriation account, provided that
it is able to show (1) that the property is free from any lien or
encumbrance and (2) that it is the absolute owner thereof. [21] The said
conditions do not put in abeyance the constructive delivery of the said
amount to HTRDC pending the latters compliance therewith. Article
1187[22] of the Civil Code provides that the effects of a conditional
obligation to give, once the condition has been fulfilled, shall retroact to
the day of the constitution of the obligation. Hence, when HTRDC
complied with the given conditions, as determined by the RTC in its
Order[23] dated 21 April 2003, the effects of the constructive delivery
retroacted to the actual date of the deposit of the amount in the
expropriation account of DPWH.

WHEREFORE, the Petition is DENIED. The Court of Appeals

Decision dated 21 April 2006 in CA-G.R. SP No. 90981, which set aside
the 7 February 2005 and 16 May 2005 Orders of the Regional Trial Court
of Malolos, Bulacan, is AFFIRMED. No costs.

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of
the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

PUNO

REYNATO S.

Chief Justice
Republic of the Philippines
SUPREME COURT
Manila

MA. ALICIA AUSTRIA-MARTINEZ RUBEN T. REYES

Associate Justice Associate Justice

THIRD DIVISION
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

ATTESTATION

G.R. No. 167213

October 31, 2006

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA,

MARION BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO
and BELEN CORDERO, petitioners,
vs.
F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

pesos in 6 equal quarterly payments or P1,411,000.00 every

quarter;
DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in
CA-G.R. CV No. 66198, Decision1 dated April 29, 2004 which set aside
the decision of Branch 260 of the Regional Trial Court (RTC) of Paraaque
in Civil Case No. 97-067, and Resolution dated February 21, 2005
denying petitioners motion for reconsideration.
On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her
own behalf and as attorney-in-fact of her co-petitioners Darrel Cordero,
Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy
Cordero and Ladylyn Cordero, entered into a contract to sell 3 with
respondent, F.S. Management and Development Corporation, through its
chairman Roberto P. Tolentino over five (5) parcels of land located in
Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693,
62694, 62695 and 20987. The contract to sell contained the following
terms and conditions:
1. That the BUYER will buy the whole lots above described from
the OWNER consisting of 50 hectares more or less at P25/sq.m.
or with a total price of P12,500,000.00;
2. That the BUYER will pay the OWNER the sum of P500,000.00
as earnest money which will entitle the latter to enter the
property and relocate the same, construct the necessary paths
and roads with the help of the necessary parties in the area;
3. The BUYER will pay the OWNER the sum of THREE MILLION
FIVE HUNDRED THOUSAND PESOS ONLY (P3,500,000.00) on or
before April 30, 1995 and the remaining balance will be paid
within 18 mons. (sic) from the date of payment of P3.5 Million

4. The title will be transferred by the OWNER to the BUYER upon

complete payment of the agreed purchase price. Provided that
any obligation by the OWNER brought about by encumbrance or
mortgage with any bank shall be settled by the OWNER or by the
BUYER which shall be deducted the total purchase price;
5. Provided, the OWNER shall transfer the titles to the BUYER
even before the complete payment if the BUYER can provide post
dated checks which shall be in accordance with the time frame of
payments as above stated and which shall be guaranteed by a
reputable bank;
6. Upon the payment of the earnest money and the down
payment of 3.5 Million pesos the BUYER can occupy and
introduce improvements in the properties as owner while owner
is guaranteeing that the properties will have no tenants or
squatters in the properties and cooperate in the development of
any project or exercise of ownerships by the BUYER;
7. Delay in the payment by the BUYER in the agreed due date will
entitle the SELLER for the legal interest.4
Pursuant to the terms and conditions of the contract to sell, respondent
paid earnest money in the amount ofP500,000 on October 27,
1994.5 She likewise paid P1,000,000 on June 30, 1995 and
another P1,000,000 on July 6, 1995. No further payments were made
thereafter.6
Petitioners thus sent respondent a demand letter dated November 28,
19967 informing her that they were revoking/canceling the contract to
sell and were treating the payments already made as payment for
damages suffered as a result of the breach of contract, and demanding
the payment of the amount of P10 Million Pesos for actual damages
suffered due to loss of income by reason thereof. Respondent ignored
the demand, however.
Hence, on February 21, 1997, petitioner Belen, in her own behalf and as
attorney-in-fact of her co-petitioners, filed before the RTC of Paraaque a

complaint for rescission of contract with damages8 alleging that

respondent failed to comply with its obligations under the contract to
sell, specifically its obligation to pay the downpayment ofP3.5 Million by
April 30, 1995, and the balance within 18 months thereafter; and that
consequently petitioners are entitled to rescind the contract to sell as
well as demand the payment of damages.
In its Answer,9 respondent alleged that petitioners have no cause of
action considering that they were the first to violate the contract to sell
by preventing access to the properties despite payment of P2.5 Million
Pesos; petitioners prevented it from complying with its obligation to pay
in full by refusing to execute the final contract of sale unless additional
payment of legal interest is made; and petitioners refusal to execute
the final contract of sale was due to the willingness of another buyer to
pay a higher price.
In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial
conference on July 8, 1997 during which neither respondents
representative nor its counsel failed to appear. And respondent did not
submit a pre-trial brief, hence, it was declared as in default by the trial
court which allowed the presentation of evidence ex parte by
petitioners.11
Petitioners presented as witnesses petitioner Belen and one Ma. Cristina
Cleofe. Belen testified on the execution of the contract to sell; the failure
of respondent to make the necessary payments in compliance with the
contract; the actual and moral damages sustained by petitioners as a
result of the breach, including the lost opportunity to sell the properties
for a higher price to another buyer, Ma. Cristina Cleofe; and the
attorneys fees incurred by petitioners as a result of the suit.12 Ma.
Cristina Cleofe, on the other hand, testified on the offer she made to
petitioners to buy the properties at P35.00/sq.m.13 which was, however,
turned down in light of the contract to sell executed by petitioners in
favor of the respondent.14
Respondent filed a motion to set aside the order of default15 which was
denied by the trial court by Order dated September 12, 1997. 16 Via
petition for certiorari, respondent challenged the said order, but it was
denied by the Court of Appeals.17

Meanwhile, the trial court issued its decision18 on November 18, 1997,
finding for petitioners and ordering respondent to pay damages and
attorneys fees. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the contract to sell between
the Plaintiffs and the Defendant is herebydeclared as rescinded
and the defendant is likewise ordered to pay the plaintiff:
(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual
damages and P2,000,000.00 in moral and exemplary damages,
less defendants previous payment of P2,500,000.00 under the
contract to sell; and
(2) P800,000.00 by way of attorneys fees as well as the costs of
suit.
SO ORDERED. (Underscoring supplied)
Before the Court of Appeals to which respondent appealed the trial
courts decision, it raised the following errors:
3.01. The Regional Trial Court erred when it awarded plaintiffsappellees Five Million Pesos (P5,000,000.00) as actual damages.
Corollary thereto, the Regional Trial Court erred in declaring
defendant-appellant to have acted in wanton disregard of its
obligations under the Contract to Sell.
3.02. The Regional Trial Court erred when it awarded plaintiffsappellees Two Million Pesos (P2,000,000.00) as moral and
exemplary damages.
3.03. The Regional Trial Court erred when it awarded plaintiffsappellees Eight Hundred Thousand Pesos (P800,000.00) as
attorneys fees.19
In the assailed decision,20 the Court of Appeals set aside the contract to
sell, it finding that petitioners obligation thereunder did not arise for
failure of respondent to pay the full purchase price. It also set aside the
award to petitioners of damages for not being duly proven. And it

10

ordered petitioners to return "the amount received from [respondent]."

Thus the dispositive portion of the appellate courts decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the
Regional Trial Court, Branch 260 of Paraaque City in Civil Case
No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED
ordering the SETTING-ASIDE of the Contract to Sell WITHOUT
payment of damages. Plaintiffs-appellees are further ORDERED
TO RETURN THE AMOUNTS RECEIVED from defendant-appellant.
(Underscoring supplied)
SO ORDERED.
Their motion for reconsideration having been denied, petitioners filed
the present petition for review which raises the following issues:
1. Whether the Court of Appeals erred in ruling on the nature of
the contract despite the fact that it was not raised on appeal.
2. Whether or not a contract to sell may be subject to rescission
under Article 1191 of the Civil Code.
3. Whether or not the Court of Appeals erred in setting aside the
award of damages.
Petitioners contend that the Court of Appeals erred in ruling on the
nature of the contract to sell and the propriety of the remedy of
rescission under Article 1191 of the Civil Code, these matters not having
been raised by respondents in the assigned errors. In any event,
petitioners claim that the contract to sell involves reciprocal obligations,
hence, it falls within the ambit of Article 1191.21
While a party is required to indicate in his brief an assignment of errors
and only those assigned shall be considered by the appellate court in
deciding the case, appellate courts have ample authority to rule on
matters not assigned as errors in an appeal if these are indispensable or
necessary to the just resolution of the pleaded issues.22 Thus this Court
has allowed the consideration of other grounds or matters not raised or
assigned as errors, to wit: 1) grounds affecting jurisdiction over the
subject matter; 2) matters which are evidently plain or clerical errors
within the contemplation of the law; 3) matters the consideration of

which is necessary in arriving at a just decision and complete resolution

of the case or to serve the interest of justice or to avoid dispensing
piecemeal justice; 4) matters of record which were raised in the trial
court and which have some bearing on the issue submitted which the
parties failed to raise or which the lower court ignored; 5) matters
closely related to an error assigned; and 6) matters upon which the
determination of a question properly assigned is dependent.23
In the present case, the nature as well as the characteristics of a
contract to sell is determinative of the propriety of the remedy of
rescission and the award of damages. As will be discussed shortly, the
trial court committed manifest error in applying Article 1191 of the Civil
Code to the present case, a fundamental error which "lies at the base
and foundation of the proceeding, affecting the judgment necessarily,"
or, as otherwise expressed, "such manifest error as when removed
destroys the foundation of the judgment."24 Hence, the Court of Appeals
correctly ruled on these matters even if they were not raised in the
appeal briefs.
Under a contract to sell, the seller retains title to the thing to be sold
until the purchaser fully pays the agreed purchase price. The full
payment is a positive suspensive condition, the non-fulfillment of which
is not a breach of contract but merely an event that prevents the seller
from conveying title to the purchaser. The non-payment of the purchase
price renders the contract to sell ineffective and without force and
effect.25
Since the obligation of petitioners did not arise because of the failure of
respondent to fully pay the purchase price, Article 1191 of the Civil Code
would have no application.
Rayos v. Court of Appeals26 explained:
Construing the contracts together, it is evident that the parties
executed a contract to sell and not a contract of sale. The
petitioners retained ownership without further remedies by the
respondents until the payment of the purchase price of the
property in full. Such payment is a positive suspensive
condition, failure of which is not really a breach, serious
or otherwise, but an event that prevents the obligations

11

of the petitioners to convey title from arising, in

accordance with Article 1184 of the Civil Code. x x x
The non-fulfillment by the respondent of his obligation to
pay, which is a suspensive condition to the obligation of
the petitioners to sell and deliver the title to the property,
rendered the contract to sell ineffective and without force
and effect. The parties stand as if the conditional obligation had
never existed. Article 1191 of the New Civil Code will not
apply because it presupposes an obligation already
extant. There can be no rescission of an obligation that is
still non-existing, the suspensive condition not having
happened. [Emphasis and underscoring supplied; citations
omitted]
The subject contract to sell clearly states that "title will be transferred by
the owner (petitioners) to the buyer (respondent) upon complete
payment of the agreed purchase price."27 Since respondent failed to fully
pay the purchase price, petitioners obligation to convey title to the
properties did not arise. While rescission does not apply in this case,
petitioners may nevertheless cancel the contract to sell, their obligation
not having arisen.28This brings this Court to Republic Act No. 6552 (THE
REALTY INSTALLMENT BUYER PROTECTION ACT). InRamos v.
Heruela29 this Court held:
Articles 1191 and 1592 of the Civil Code are applicable to
contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v.
Court of Appeals,30 the Court declared:

retain the payments already made by respondent. RA 6552 expressly

recognizes the vendors right to cancel contracts to sell on installment
basis industrial and commercial properties with full retention of previous
payments.32 But even assuming that the properties were not intended
for commercial or industrial purpose, since respondent paid less than
two years of installments, it is not entitled to any refund. 33 It is on this
score that a modification of the challenged issuances of the appellate
court is in order.
Respecting petitioners claim for damages, failure to make full payment
of the purchase price in a contract to sell is not really a breach, serious
or otherwise, but, as priorly stated, an event that prevents the obligation
of the vendor to convey title to the property from
arising.34 Consequently, the award of damages is not warranted in this
case.
With regard to attorneys fees, Article 220835 of the Civil Code provides
that subject to certain exceptions, attorneys fees and expenses of
litigation, other than judicial costs, cannot be recovered in the absence
of stipulation. None of the enumerated exceptions in Article 2208 is
present in this case. It bears stressing that the policy of the law is to put
no premium on the right to litigate.36
WHEREFORE, the assailed Court of Appeals Decision dated April 29,
2004 and the Resolution dated February 21, 2005 in CA-G.R. CV No.
66198 are AFFIRMED with the MODIFICATION that petitioners are
entitled to retain the payments already received from respondent.
SO ORDERED.

x x x Known as the Maceda Law, R.A. No. 6552 recognizes in

conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel
the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring
binding force. It also provides the right of the buyer on
installments in case he defaults in the payment of succeeding
installments x x x. [Emphasis supplied]

Quisumbing, J., Chairperson, Carpio, and Velasco, Jr., JJ., concur.

Tinga, J., on leave.

The properties subject of the contract having been intended for

commercial, and not for residential, purposes,31petitioners are entitled to

12

This is an appeal from the decision of the Court of First Instance of Rizal,
Seventh Judicial District, Branch X, declaring the contract to sell as not
having been validly cancelled and ordering the defendants-appellants to
execute a final deed of sale in favor of the plaintiffs-appellees, to pay
P500.00 attorney's fees and costs.
The facts being undisputed, the Court of Appeals certified the case to us
since only pure questions of law have been raised for appellate review.
On December 19, 1957, defendants-appellants Ursula Torres Calasanz
and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and
Teofila Juani entered into a contract to sell a piece of land located in
Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

Republic of the Philippines

SUPREME COURT
Manila

The plaintiffs-appellees made a downpayment of P392.00 upon the

execution of the contract. They promised to pay the balance in monthly
installments of P 41.20 until fully paid, the installments being due and
payable on the 19th day of each month. The plaintiffs-appellees paid the
monthly installments until July 1966, when their aggregate payment
already amounted to P4,533.38. On numerous occasions, the
defendants-appellants accepted and received delayed installment
payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffsappellees a letter requesting the remittance of past due accounts.

FIRST DIVISION
G.R. No. L-42283 March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.:

On January 28, 1967, the defendants-appellants cancelled the said

contract because the plaintiffs-appellees failed to meet subsequent
payments. The plaintiffs' letter with their plea for reconsideration of the
said cancellation was denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First
Instance of Rizal, Seventh Judicial District, Branch X to compel the
defendants-appellants to execute in their favor the final deed of sale
alleging inter alia that after computing all subsequent payments for the
land in question, they found out that they have already paid the total
amount of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.

13

The defendants-appellants alleged in their answer that the complaint

states no cause of action and that the plaintiffs-appellees violated
paragraph six (6) of the contract to sell when they failed and refused to
pay and/or offer to pay the monthly installments corresponding to the
month of August, 1966 for more than five (5) months, thereby
constraining the defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees.
The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the
Court hereby renders judgment in favor of the plaintiffs
and against the defendants declaring that the contract
subject matter of the instant case was NOT VALIDLY
cancelled by the defendants. Consequently, the
defendants are ordered to execute a final Deed of Sale in
favor of the plaintiffs and to pay the sum of P500.00 by
way of attorney's fees. Costs against the defendants.
A motion for reconsideration filed by the defendants-appellants was
denied.
As earlier stated, the then Court of Appeals certified the case to us
considering that the appeal involves pure questions of law.
The defendants-appellants assigned the following alleged errors of the
lower court:

First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE
CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS
HAVING BEEN LEGALLY AND VALIDLY CANCELLED.

Second Assignment of Error

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT
TO SELL HAS NOT BEEN LEGALLY AND VALIDLY
CANCELLED, THE LOWER COURT ERRED IN ORDERING
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN
FAVOR OF THE PLAINTIFF.
Third Assignment of Error
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO
PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S
FEES.
The main issue to be resolved is whether or not the contract to sell has
been automatically and validly cancelled by the defendants-appellants.
The defendants-appellants submit that the contract was validly
cancelled pursuant to paragraph six of the contract which provides:
xxx xxx xxx
SIXTH.In case the party of the SECOND PART fails to
satisfy any monthly installments, or any other payments
herein agreed upon, he is granted a month of grace within
which to make the retarded payment, together with the
one corresponding to the said month of grace; it is
understood, however, that should the month of grace
herein granted to the party of the SECOND PART expired;
without the payments corresponding to both months
having been satisfied, an interest of 10% per annum will
be charged on the amounts he should have paid; it is
understood further, that should a period of 90 days
elapse, to begin from the expiration of the month of grace
herein mentioned, and the party of SECOND PART has not
paid all the amounts he should have paid with the
corresponding interest up to that date, the party of the
FIRST PART has the right to declare this contract

14

cancelled and of no effect, and as consequence thereof,

the party of the FIRST PART may dispose of the parcel of
land covered by this contract in favor of other persons, as
if this contract had never been entered into. In case of
such cancellation of the contract, all the amounts paid in
accordance with this agreement together with all the
improvements made on the premises, shall be considered
as rents paid for the use and occupation of the above
mentioned premises, and as payment for the damages
suffered by failure of the party of the SECOND PART to
fulfill his part of the agreement; and the party of the
SECOND PART hereby renounces all his right to demand or
reclaim the return of the same and obliges himself to
peacefully vacate the premises and deliver the same to
the party of the FIRST PART. (Emphasis supplied by
appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to
pay the August, 1966 installment despite demands for more than four
(4) months. The defendants-appellants point to Jocson v. Capitol
Subdivision (G.R. No. L-6573, February 28, 1955) where this Court
upheld the right of the subdivision owner to automatically cancel a
contract to sell on the strength of a provision or stipulation similar to
paragraph 6 of the contract in this case. The defendants-appellants also
argue that even in the absence of the aforequoted provision, they had
the right to cancel the contract to sell under Article 1191 of the Civil
Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling
does not apply. They state that paragraph 6 of the contract to sell is
contrary to law insofar as it provides that in case of specified breaches
of its terms, the sellers have the right to declare the contract cancelled
and of no effect, because it granted the sellers an absolute and
automatic right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations
provides:

The power to rescind obligations is implied in reciprocal

ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party the right to
rescind the contract upon the failure of the other to perform the
obligation assumed thereunder. Moreover, there is nothing in the law
that prohibits the parties from entering into an agreement that violation
of the terms of the contract would cause its cancellation even without
court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA
276)
Well settled is, however, the rule that a judicial action for
the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions' (Lopez v.
Commissioner of Customs, 37 SCRA 327, and cases cited
therein)
Resort to judicial action for rescission is obviously not
contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld
by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA
504).
The rule that it is not always necessary for the injured party to resort to
court for rescission of the contract when the contract itself provides that
it may be rescinded for violation of its terms and conditions, was
qualified by this Court in University of the Philippines v. De los Angeles,
(35 SCRA 102) where we explained that:

15

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.

The right to rescind the contract for non-performance of one of its

stipulations, therefore, is not absolute. InUniversal Food Corp. v. Court of
Appeals (33 SCRA 1) the Court stated that

In other words, the party who deems the contract violated

many 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. ... .

The defendants-appellants state that the plaintiffs-appellees violated

Section two of the contract to sell which provides:

We see no conflict between this ruling and the previous

jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the
resolution of a reciprocal obligation; (Ocejo, Perez & Co. v.
International Banking Corp., 37 Phil. 631; Republic v.
Hospital de San Juan de Dios, et al., 84 Phil. 820) since in
every case where the extrajudicial resolution is contested
only the final award of the court of competent jurisdiction
can conclusively settle whether the resolution was proper
or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation,
unless attack thereon should become barred by
acquiescence, estoppel or prescription.

The general rule is that rescission of a contract will not be

permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. (Song
Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The
question of whether a breach of a contract is substantial
depends upon the attendant circumstances. (Corpus v.
Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17,
1968). ... .

SECOND.That in consideration of the agreement of sale

of the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST
PART the Sum of THREE THOUSAND NINE HUNDRED
TWENTY ONLY (P3,920.00), Philippine Currency, plus
interest at the rate of 7% per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only
(P392.00) when this contract is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on
or before the 19th day of each month, from this date until
the total payment of the price above stipulated, including
interest.
because they failed to pay the August installment, despite demand, for
more than four (4) months.
The breach of the contract adverted to by the defendants-appellants is
so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the

16

monthly installments for a period of almost nine (9) years. In other

words, in only a short time, the entire obligation would have been paid.
Furthermore, although the principal obligation was only P 3,920.00
excluding the 7 percent interests, the plaintiffs- appellees had already
paid an aggregate amount of P 4,533.38. To sanction the rescission
made by the defendants-appellants will work injustice to the plaintiffsappellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would
unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by
the obligee.
also militates against the unilateral act of the defendants-appellants in
cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is
business, yet, it cannot be denied that this subdivision is
likewise purposely done to afford those landless, low
income group people of realizing their dream of a little
parcel of land which they can really call their own.
The defendants-appellants cannot rely on paragraph 9 of the contract
which provides:
NINTH.-That whatever consideration of the party of the
FIRST PART may concede to the party of the SECOND
PART, as not exacting a strict compliance with the
conditions of paragraph 6 of this contract, as well as any
other condonation that the party of the FIRST PART may
give to the party of the SECOND PART with regards to the
obligations of the latter, should not be interpreted as a
renunciation on the part of the party of the FIRST PART of

any right granted it by this contract, in case of default or

non-compliance by the party of the SECOND PART.
The defendants-appellants argue that paragraph nine clearly allows the
seller to waive the observance of paragraph 6 not merely once, but for
as many times as he wishes.
The defendants-appellants' contention is without merit. We agree with
the plaintiffs-appellees that when the defendants-appellants, instead of
availing of their alleged right to rescind, have accepted and received
delayed payments of installments, though the plaintiffs-appellees have
been in arrears beyond the grace period mentioned in paragraph 6 of
the contract, the defendants-appellants have waived and are now
estopped from exercising their alleged right of rescission. In De Guzman
v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long
arrearages, neither they nor their predecessor, Teodoro de
Guzman, even took steps to cancel the option or to eject
the appellees from the home-lot in question. On the
contrary, it is admitted that the delayed payments were
received without protest or qualification. ... Under these
circumstances, We cannot but agree with the lower court
that at the time appellees exercised their option,
appellants had already forfeited their right to invoke the
above-quoted provision regarding the nullifying effect of
the non-payment of six months rentals by appellees by
their having accepted without qualification on July 21,
1964 the full payment by appellees of all their arrearages.
The defendants-appellants contend in the second assignment of error
that the ledger of payments show a balance of P671,67 due from the
plaintiffs-appellees. They submit that while it is true that the total
monthly installments paid by the plaintiffs-appellees may have
exceeded P3,920.00, a substantial portion of the said payments were
applied to the interests since the contract specifically provides for a 7%

17

interest per annum on the remaining balance. The defendantsappellants rely on paragraph 2 of the contract which provides:
SECOND.That in consideration of the agreement of sale
of the above described property, the party of the SECOND
PART obligates himself to pay to the party of the FIRST
PART the Sum of THREE THOUSAND NINE HUNDRED
TWENTY ONLY (P 3,920.00), Philippine Currency, plus
interest at the rate of 7% per annum ... . (Emphasis
supplied)
The plaintiffs-appellees on the other hand are firm in their submission
that since they have already paid the defendants-appellants a total sum
of P4,533.38, the defendants-appellants must now be compelled to
execute the final deed of sale pursuant to paragraph 12 of the contract
which provides:
TWELFTH.That once the payment of the sum of
P3,920.00, the total price of the sale is completed, the
party to the FIRST PART will execute in favor of the party
of the SECOND PART, the necessary deed or deeds to
transfer to the latter the title of the parcel of land sold,
free from all hens and encumbrances other than those
expressly provided in this contract; it is understood,
however, that au the expenses which may be incurred in
the said transfer of title shall be paid by the party of the
SECOND PART, as above stated.
Closely related to the second assignment of error is the submission of
the plaintiffs-appellees that the contract herein is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into
by the parties has some characteristics of a contract of adhesion. The
defendants-appellants drafted and prepared the contract. The plaintiffsappellees, eager to acquire a lot upon which they could build a home,
affixed their signatures and assented to the terms and conditions of the
contract. They had no opportunity to question nor change any of the
terms of the agreement. It was offered to them on a "take it or leave it"
basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:

xxx xxx xxx

... (W)hile generally, stipulations in a contract come about
after deliberate drafting by the parties thereto. . . . there
are certain contracts almost all the provisions of which
have been drafted only by one party, usually a
corporation. Such contracts are called contracts of
adhesion, because the only participation of the party is
the signing of his signature or his "adhesion" thereto.
Insurance contracts, bills of lading, contracts of sale of
lots on the installment plan fall into this category. (Paras,
Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.)
(Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffsappellees to pay the defendants-appellants the sum of P3,920.00 plus
7% interest per annum, it is likewise true that under paragraph 12 the
seller is obligated to transfer the title to the buyer upon payment of the
P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed
against the party causing it. We agree with the observation of the
plaintiffs-appellees to the effect that "the terms of a contract must be
interpreted against the party who drafted the same, especially where
such interpretation will help effect justice to buyers who, after having
invested a big amount of money, are now sought to be deprived of the
same thru the prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which, in
essence, and in its entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00
and the plaintiffs-appellees have already paid an aggregate amount of
P4,533.38, the courts should only order the payment of the few
remaining installments but not uphold the cancellation of the contract.
Upon payment of the balance of P671.67 without any interest
thereon, the defendants-appellants must immediately execute the final
deed of sale in favor of the plaintiffs-appellees and execute the
necessary transfer documents as provided in paragraph 12 of the
contract. The attorney's fees are justified.

18

WHEREFORE, the instant petition is DENIED for lack of merit. The

decision appealed from is AFFIRMED with the modification that the
plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY
ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any
interests. Costs against the defendants-appellants.

its original decision of April 23, 1970 which affirmed the decision of the
Court of First Instance of Rizal (Quezon City Branch) in Civil Case No. Q4922 in favor of petitioner, and the Resolution of the respondent court
denying petitioner's motion for reconsideration.
The facts of this case are as recited in the decision of the Trial Court
which was adopted and affirmed by the Court of Appeals:

SO ORDERED.
Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.
Teehankee (Chairman), J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32811 March 31, 1980
FELIPE C. ROQUE, petitioner,
vs.
NICANOR LAPUZ and THE COURT OF APPEALS, respondents.
Taada, Sanchez, Taada, Taada for petitioner.
N.M. Lapuz for respondent.

GUERRERO, J.:
1

Appeal by certiorari from the Resolution of the respondent court dated

October 12, 1970 in CA-G.R. No. L-33998-R entitled "Felipe C. Roque,
plaintiff-appellee, versus Nicanor Lapuz, defendant-appellant" amending

Sometime in 1964, prior to the approval by the National

Planning Commission of the consolidation and subdivision
plan of plaintiff's property known as the Rockville
Subdivision, situated in Balintawak, Quezon City, plaintiff
and defendant entered into an agreement of sale covering
Lots 1, 2 and 9, Block 1, of said property, with an
aggregate area of 1,200 square meters, payable in 120
equal monthly installments at the rate of P16.00, P15.00
per square meter, respectively. In accordance with said
agreement, defendant paid to plaintiff the sum of P150.00
as deposit and the further sum of P740.56 to complete the
payment of four monthly installments covering the
months of July, August, September, and October, 1954.
(Exhs. A and B). When the document Exhibit "A" was
executed on June 25, 1954, the plan covering plaintiff's
property was merely tentative, and the plaintiff referred to
the proposed lots appearing in the tentative plan.
After the approval of the subdivision plan by the Bureau of
Lands on January 24, 1955, defendant requested plaintiff
that he be allowed to abandon and substitute Lots 1, 2
and 9, the subject matter of their previous agreement,
with Lots 4 and 12, Block 2 of the approved subdivision
plan, of the Rockville Subdivision, with a total area of 725
square meters, which are corner lots, to which request
plaintiff graciously acceded.
The evidence discloses that defendant proposed to
plaintiff modification of their previous contract to sell
because he found it quite difficult to pay the monthly
installments on the three lots, and besides the two lots he

19

had chosen were better lots, being corner lots. In addition,

it was agreed that the purchase price of these two lots
would be at the uniform rate of P17.00 per square (meter)
payable in 120 equal monthly installments, with interest
at 8% annually on the balance unpaid. Pursuant to this
new agreement, defendant occupied and possessed Lots 4
and 12, Block 2 of the approved subdivision plan, and
enclosed them, including the portion where his house now
stands, with barbed wires and adobe walls.
However, aside from the deposit of P150.00 and the
amount of P740.56 which were paid under their previous
agreement, defendant failed to make any further payment
on account of the agreed monthly installments for the two
lots in dispute, under the new contract to sell. Plaintiff
demanded upon defendant not only to pay the stipulated
monthly installments in arrears, but also to make up-todate his payments, but defendant, instead of complying
with the demands, kept on asking for extensions,
promising at first that he would pay not only the
installments in arrears but also make up-to-date his
payment, but later on refused altogether to comply with
plaintiff's demands.
Defendant was likewise requested by the plaintiff to sign
the corresponding contract to sell in accordance with his
previous commitment. Again, defendant promised that he
would sign the required contract to sell when he shall
have made up-to-date the stipulated monthly installments
on the lots in question, but subsequently backed out of his
promise and refused to sign any contract in
noncompliance with what he had represented on several
occasions. And plaintiff relied on the good faith of
defendant to make good his promise because defendant is
a professional and had been rather good to him (plaintiff).
On or about November 3, 1957, in a formal letter, plaintiff
demanded upon defendant to vacate the lots in question
and to pay the reasonable rentals thereon at the rate of

P60.00 per month from August, 1955. (Exh. "B").

Notwithstanding the receipt of said letter, defendant did
not deem it wise nor proper to answer the same.
In reference to the mode of payment, the Honorable Court of Appeals
found
Both parties are agreed that the period within which to
pay the lots in question is ten years. They however,
disagree on the mode of payment. While the appellant
claims that he could pay the purchase price at any time
within a period of ten years with a gradual proportionate
discount on the price, the appellee maintains that the
appellant was bound to pay monthly installments.
On this point, the trial court correctly held that
It is further argued by defendant that under the
agreement to sell in question, he has the right or option to
pay the purchase price at anytime within a period of ten
years from 1954, he being entitled, at the same time, to a
graduated reduction of the price. The Court is constrained
to reject this version not only because it is contradicted by
the weight of evidence but also because it is not
consistent with what is reasonable, plausible and credible.
It is highly improbable to expect plaintiff, or any real
estate subdivision owner for that matter, to agree to a
sale of his land which would be payable anytime in ten
years at the exclusive option of the purchaser. There is no
showing that defendant is a friend, a relative, or someone
to whom plaintiff had to be grateful, as would justify an
assumption that he would have agreed to extend to
defendant such an extra- ordinary concession.
Furthermore, the context of the document, Exhibit "B", not
to mention the other evidences on records is indicative
that the real intention of the parties is for the payment of
the purchase price of the lot in question on an equal
monthly installment basis for a period of ten years
(Exhibits "A", "II", "J" and "K").

20

On January 22, 1960, petitioner Felipe C, Roque (plaintiff below) filed the
complaint against defendant Nicanor Lapuz (private respondent herein)
with the Court of First Instance of Rizal, Quezon City Branch, for
rescission and cancellation of the agreement of sale between them
involving the two lots in question and prayed that judgment be rendered
ordering the rescission and cancellation of the agreement of sale, the
defendant to vacate the two parcels of land and remove his house
therefrom and to pay to the plaintiff the reasonable rental thereof at the
rate of P60.00 a month from August 1955 until such time as he shall
have vacated the premises, and to pay the sum of P2,000.00 as
attorney's fees, costs of the suit and award such other relief or remedy
as may be deemed just and equitable in the premises.
Defendant filed a Motion to Dismiss on the ground that the complaint
states no cause of action, which motion was denied by the court.
Thereafter, defendant filed his Answer alleging that he bought three lots
from the plaintiff containing an aggregate area of 1,200 sq. meters and
previously known as Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at
P16.00, P15.00 and P15.00, respectively, payable at any time within ten
years. Defendant admits having occupied the lots in question.
As affirmative and special defenses, defendant alleges that the
complaint states no cause of action; that the present action for
rescission has prescribed; that no demand for payment of the balance
was ever made; and that the action being based on reciprocal
obligations, before one party may compel performance, he must first
comply what is incumbent upon him.
As counterclaim, defendant alleges that because of the acts of the
plaintiff, he lost two lots containing an area of 800 sq. meters and as a
consequence, he suffered moral damages in the amount of P200.000.00;
that due to the filing of the present action, he suffered moral damages
amounting to P100,000.00 and incurred expenses for attorney's fees in
the sum of P5,000.00.
Plaintiff filed his Answer to the Counterclaim and denied the material
averments thereof.

After due hearing, the trial court rendered judgment, the dispositive
portion of which reads:
WHEREFORE, the Court renders judgment in favor of plain.
plaintiff and against the defendant, as follows:
(a) Declaring the agreement of sale between plaintiff and
defendant involving the lots in question (Lots 4 and 12,
Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to
remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month
from August, 1955 until he shall have actually vacated the
premises; and
(c) Condemning defendant to pay plaintiff the sum of
P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal, p. 118)
(a) Declaring the agreement of sale between plaintiff and
defendant involving the lots in question (Lots 4 and 12,
Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
(b) Ordering defendant to vacate the said lots and to
remove his house therefrom and also to pay plaintiff the
reasonable rental thereof at the rate of P60.00 per month
from August, 1955 until he shall have actually vacated
premises; and
(c) Condemning defendant to pay plaintiff the sum of
P2,000.00 as attorney's fees, as well as the costs of the
suit. (Record on Appeal. p. 118)

21

Not satisfied with the decision of the trial court, defendant appealed to
the Court of Appeals. The latter court, finding the judgment appealed
from being in accordance with law and evidence, affirmed the same.

Third Appellee has no right, under the circumstances on

the case at bar, to demand and be entitled to the
rescission of the contract had with appellant;

In its decision, the appellate court, after holding that the findings of fact
of the trial court are fully supported by the evidence, found and held
that the real intention of the parties is for the payment of the purchase
price of the lots in question on an equal monthly installment basis for
the period of ten years; that there was modification of the original
agreement when defendant actually occupied Lots Nos. 4 and 12 of
Block 2 which were corner lots that commanded a better price instead of
the original Lots Nos. 1, 2 and 9, Block I of the Rockville Subdivision; that
appellant's bare assertion that the agreement is not rescindable
because the appellee did not comply with his obligation to put up the
requisite facilities in the subdivision was insufficient to overcome the
presumption that the law has been obeyed by the appellee; that the
present action has not prescribed since Article 1191 of the New Civil
Code authorizing rescission in reciprocal obligations upon
noncompliance by one of the obligors is the applicable provision in
relation to Article 1149 of the New Civil Code; and that the present
action was filed within five years from the time the right of action
accrued.

Fourth Assuming that any action for rescission is

availability to appellee, the same, contrary to the findings
of the decision herein, has prescribed;

Defendant filed a Motion for Reconsideration of the appellate court's

decision on the following grounds:
First Neither the pleadings nor the evidence,
testimonial, documentary or circumstantial, justify the
conclusion as to the existence of an alleged subsequent
agreement novatory of the original contract admittedly
entered into between the parties:
Second There is nothing so unusual or extraordinary, as
would render improbable the fixing of ten ears as the
period within which payment of the stipulated price was to
be payable by appellant;

Fifth Assumming further that appellee's action for

rescission, if any, has not yet prescribed, the same is at
least barred by laches;
Sixth Assuming furthermore that a cause of action for
rescission exists, appellant should nevertheless be
entitled to tile fixing of a period within which to comply
with his obligation; and
Seventh At all events, the affirmance of the judgment
for the payment of rentals on the premises from August,
1955 and he taxing of attorney's fees against appellant
are not warranted b the circumstances at bar. (Rollo, pp.
87-88)
Acting on the Motion for Reconsideration, the Court of Appeals sustained
the sixth ground raised by the appellant, that assuming that a cause of
action for rescission exists, he should nevertheless be entitled to the
fixing of a period within which to comply with his obligation. The Court of
Appeals, therefore, amended its original decision in the following wise
and manner:
WHEREFORE, our decision dated April 23, 1970 is hereby
amended in the sense that the defendant Nicanor Lapuz is
hereby granted a period of ninety (90) days from entry
hereof within which to pay the balance of the purchase
price in the amount of P11,434,44 with interest thereon at
the rate of 8% per annum from August 17, 1955 until fully
paid. In the event that the defendant fails to comply with
his obligation as above stated within the period fixed
herein, our original judgment stands.

22

Petitioner Roque, as plaintiff-appellee below, filed a Motion for

Reconsideration; the Court of Appeals denied it. He now comes and
appeals to this Court on a writ of certiorari.
The respondent Court of Appeals rationalizes its amending decision by
considering that the house presently erected on the land subject of the
contract is worth P45,000.00, which improvements introduced by
defendant on the lots subject of the contract are very substantial, and
thus being the case, "as a matter of justice and equity, considering that
the removal of defendant's house would amount to a virtual forfeiture of
the value of the house, the defendant should be granted a period within
which to fulfill his obligations under the agreement." Cited as authorities
are the cases of Kapisanan Banahaw vs. Dejarme and Alvero, 55 Phil.
338, 344, where it is held that the discretionary power of the court to
allow a period within which a person in default may be permitted to
perform the stipulation upon which the claim for resolution of the
contract is based should be exercised without hesitation in a case where
a virtual forfeiture of valuable rights is sought to be enforced as an act
of mere reprisal for a refusal of the debtor to submit to a usurious
charge, and the case of Puerto vs. Go Ye Pin, 47 O.G. 264, holding that
to oust the defendant from the lots without giving him a chance to
recover what his father and he himself had spent may amount to a
virtual forfeiture of valuable rights.
As further reasons for allowing a period within which defendant could
fulfill his obligation, the respondent court held that there exists good
reasons therefor, having in mind that which affords greater reciprocity of
rights (Ramos vs. Blas, 51 O.G. 1920); that after appellant had testified
that plaintiff failed to comply with his part of the contract to put up the
requisite facilities in the subdivision, plaintiff did not introduce any
evidence to rebut defendant's testimony but simply relied. upon the
presumption that the law has been obeyed, thus said presumption had
been successfully rebutted as Exhibit "5-D" shows that the road therein
shown is not paved The Court, however, concedes that plaintiff's failure
to comply with his obligation to put up the necessary facilities in the
subdivision will not deter him from asking fr the rescission of the
agreement since this obligation is not correlative with defendant's
obligation to buy the property.

Petitioner assails the decision of the Court of Appeals for the following
alleged errors:
I. The Honorable Court of Appeals erred in applying
paragraph 3, Article 1191 of the Civil Code which refers to
reciprocal obligations in general and, pursuant thereto, in
granting respondent Lapuz a period of ninety (90) days
from entry of judgment within which to pay the balance of
the purchase price.
II. The Honorable Court of Appeals erred in not holding
that Article 1592 of the same Code, which specifically
covers sales of immovable property and which constitutes
an exception to the third paragraph of Article 1191 of said
Code, is applicable to the present case.
III. The Honorable Court of Appeals erred in not holding
that respondent Lapuz cannot avail of the provisions of
Article 1191, paragraph 3 of the Civil Code aforesaid
because he did not raise in his answer or in any of the
pleadings he filed in the trial court the question of
whether or not he is entitled, by reason of a just cause, to
a fixing of a new period.
IV. Assuming arguendo that the agreement entered into
by and between petitioner and respondent Lapuz was a
mere promise to sell or contract to sell, under which title
to the lots in question did not pass from petitioner to
respondent, still the Honorable Court of Appeals erred in
not holding that aforesaid respondent is not entitled to a
new period within which to pay petitioner the balance of
P11,434.44 interest due on the purchase price of
P12.325.00 of the lots.
V. Assuming arguendo that paragraph 3, Article 1191 of
the Civil Code is applicable and may be availed of by
respondent, the Honorable Court of Appeals nonetheless
erred in not declaring that aid respondent has not shown
the existence of a just cause which would authorize said

23

Court to fix a new period within which to pay the balance

aforesaid.

after he has chosen fulfillment, if the latter should become

impossible.

VI. The Honorable Court of Appeals erred in reconsidering

its original decision promulgated on April 23, 1970 which
affirmed the decision of the trial court.

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

The above errors may, however, be synthesized into one issue and that
is, whether private respondent is entitled to the Benefits of the third
paragraph of Article 1191, New Civil Code, for the fixing of period within
which he should comply with what is incumbent upon him, and that is to
pay the balance of P11,434,44 with interest thereon at the rate of 8%
1et annum from August 17, 1955 until fully paid since private
respondent had paid only P150.00 as deposit and 4 months intallments
amounting to P740.46, or a total of P890.46, the total price of the two
lots agreed upon being P12,325.00.
For his part, petitioner maintains that respondent is not entitled to the
Benefits of paragraph 3, Article 1191, NCC and that instead, Article 1592
of the New Civil Code which specifically covers sales of immovable
property and which constitute an exception to the third paragraph of Art.
1191 of aid Code, is the applicable law to the case at bar.
In resolving petitioner's assignment of errors, it is well that We lay clown
the oda provisions and pertinent rulings of the Supreme Court bearing
on the crucial issue of whether Art. 1191, paragraph 3 of the New Civil
Code applies to the case at Bar as held by the appellate court and
supported by the private respondent, or Art. 1592 of the same Code
which petitioner strongly argues in view of the peculiar facts and
circumstances attending this case. Article 1191, New Civil Code,
provides:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one at the obligors should not
comply with hat is incumbent upon him
The injured partner may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
Article 1592 also provides:
Art. 1592. In the sale of immovable property, even though
it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no
demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
The controlling and latest jurisprudence is established and settled in the
celebrated case of Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc. and Myers Building Co., G.R. No. L-25885, January 31, 1972, 43
SCRA 93, originally decided in 1972, reiterated in the Resolution on
Motion to Reconsider dated August 18, 1972, 46 SCRA 381 and
emphatically repeated in the Resolution on Second Motion for
Reconsideration promulgated November 16, 1978, 86 SCRA 309, which
once more denied Maritimes Second Motion for Reconsideration of
October 7, 1972. In the original decision, the Supreme Court speaking
thru Justice J.B.L. Reyes said:
Under the circumstances, the action of Maritime in
suspending payments to Myers Corporation was a breach
of contract tainted with fraud or malice (dolo), as
distinguished from mere negligence (culpa), "dolo" being
succinctly defined as a "conscious and intention design to
evade the normal fulfillment of existing obligations"
(Capistrano, Civil Code of the Philippines, Vol. 3, page 38),

24

and therefore incompatible with good faith (Castan,

Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria
de Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to
ask the court to give it further time to make payment and
thereby erase the default or breach that it had
deliberately incurred. Thus the lower court committed no
error in refusing to extend the periods for payment. To do
otherwise would be to sanction a deliberate and reiterated
infringement of the contractual obligations incurred by
Maritime, an attitude repugnant to the stability and
obligatory force of contracts.
The decision reiterated the rule pointed out by the Supreme Court
in Manuel vs. Rodriguez, 109 Phil. 1, p. 10, that:
In contracts to sell, where ownership is retained by the
seller and is not to pass until the fun payment of the price,
such payment, as we said is a positive suspensive
condition, the 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 i force
in accordance with Article 1117 of the Old Civil Code. To
argue that there was only a casual breach is to proceed
from the assumption that the contract is one of absolute
sale, where non-payment is a resolutory condition, which
is not the case." Continuing, the Supreme Court declared:
... appellant overlooks that its contract with appellee
Myers s not the ordinary sale envisaged by Article 1592,
transferring ownership simultaneously with the delivery of
the real property sold, but one in which the vendor
retained ownership of the immovable object of the sale,
merely undertaking to convey it provided the buyer
strictly complied with the terms of the contract (see
paragraph [d], ante page 5). In suing to recover
possession of the building from Maritime appellee Myers is
not after the resolution or setting aside of the contract

and the restoration of the parties to the status quo ante

as contemplated by Article 1592, but precisely enforcing
the Provisions of the agreement that it is no longer
obligated to part with the ownership or possession of the
property because Maritime failed to comply with the
specific condition precedent, which is to pay the
installments as they fell due.
The distinction between contracts of sale and contracts to
sell with reserved title has been recognized by this Court
in repeated decisions upholding the power of promisors
under contracts to sell in case of failure of the other party
to complete payment, to extrajudicially terminate the
operation of the contract, refuse conveyance and retain
the sums or installments already received, where such
rights are expressly provided for, as in the case at bar.
In the Resolution denying the first Motion for Reconsideration, 46 SCRA
381, the Court again speaking thru Justice J.B.L. Reyes, reiterated the
rule that in a contract to sell, the full payment of the price through the
punctual performance of the monthly payments is a condition precedent
to the execution of the final sale 4nd to the transfer of the property from
the owner to the proposed buyer; so that there will be no actual sale
until and unless full payment is made.
The Court further ruled that in seeking to oust Maritime for failure to pay
the price as agreed upon, Myers was not rescinding (or more properly,
resolving) the contract but precisely enforcing it according to its
expressed terms. In its suit, Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such
restoration being the logical consequence of the fulfillment of a
resolutory condition, expressed or implied (Art. 1190); neither was it
seeking a declaration that its obligation to sell was extinguished. What is
sought was a judicial declaration that because the suspensive condition
(full and punctual payment) had not been fulfilled, its obligation to sell
to Maritime never arose or never became effective and, therefore, it
(Myers) was entitled to repossess the property object of the contract,
possession being a mere incident to its right of ownership.

25

The decision also stressed that "there can be no rescission or resolution

of an obligation as yet non-existent, because the suspensive condition
did not happen. Article 1592 of the New Civil Code (Art. 1504 of Old Civil
Code) requiring demand by suit or notarial act in case the vendor of
realty wants to rescind does not apply to a contract to sell or promise to
sell, where title remains with the vendor until fulfillment to a positive
condition, such as full payment of the price." (Manuel vs, Rodriguez, 109
Phil. 9)
Maritime's Second Motion for Reconsideration was denied in the
Resolution of the Court dated November 16, 1978, 86 SCRA 305, where
the governing law and precedents were briefly summarized in the strong
and emphatic language of Justice Teehankee, thus:
(a) The contract between the parties was a contract to sell
or conditional sale with title expressly reserved in the
vendor Myers Building Co., Inc. Myers until the suspensive
condition of full and punctual payment of the full price
shall have been met on pain of automatic cancellation of
the contract upon failure to pay any of the monthly
installments when due and retention of the sums
theretofore paid as rentals. When the vendee, appellant
Maritime, willfully and in bad faith failed since March,
1961 to pay the P5,000. monthly installments
notwithstanding that it was punctually collecting P10,000.
monthly rentals from the lessee Luzon Brokerage Co.,
Myers was entitled, as it did in law and fact, to enforce the
terms of the contract to sell and to declare the same
terminated and cancelled.
(b) Article 1592 (formerly Article 1504) of the new Civil
Code is not applicable to such contracts to self or
conditional sales and no error was committed by the trial
court in refusing to extend the periods for payment.
(c) As stressed in the Court's decision, "it is irrelevant
whether appellant Maritime's infringement of its contract
was casual or serious" for as pointed out in Manuel vs.
Rodriguez, '(I)n contracts to self. whether ownership is

retained by the seller and is not to pass until the full

payment of the price, such payment, as we said, is a
positive suspensive condition, the 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 ...
(d) It should be noted, however, that Maritimes breach
was far from casual but a most serious breach of
contract ...
(e) Even if the contract were considered an unconditional
sale so that Article 1592 of the Civil Code could be
deemed applicable, Myers' answer to the complaint for
interpleaded in the court below constituted a judicial
demand for rescission of the contract and by the very
provision of the cited codal article, 'after the demand, the
court may not grant him a new term for payment; and
(f) Assumming further that Article 1191 of the new Civil
Code governing rescission of reciprocal obligations could
be applied (although Article 1592 of the same Code is
controlling since it deals specifically with sales of real
property), said article provides that '(T)he court shall
decree the rescission claimed, unless there be just cause
authorizing the fixing of a period' and there exists to "just
cause" as shown above for the fixing of a further
period. ...
Under the first and second assignments of error which petitioner jointly
discusses, he argues that the agreement entered into between him and
the respondent is a perfected contract of purchase and sale within the
meaning of Article 1475 of the New Civil Code which provides that "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 contract."

26

Petitioner contends that "(n)othing in the decision of the courts below

would show that ownership of the property remained with plaintiff for so
long as the installments have not been fully paid. Which yields the
conclusion that, by the delivery of the lots to defendant, ownership
likewise was transferred to the latter." (Brief for the Petitioner, p. 15)
And he concludes that the sale was consummated by the delivery of the
two lots, the subject thereof, by him to the respondent.
Under the findings of facts by the appellate court, it appears that the
two lots subject of the agreement between the parties herein were
delivered by the petitioner to the private respondent who took
possession thereof and occupied the same and thereafter built his house
thereon, enclosing the lots with adobe stone walls and barbed wires. But
the property being registered under the Land Registration Act, it is the
act of registration of the Deed of Sale which could legally effect the
transfer of title of ownership to the transferee, pursuant to Section 50 of
Act 496. (Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco,
13 Phil. 354; Tuazon vs. Raymundo, 28 Phil. 635: Worcestor vs. Ocampo,
34 Phil. 646). 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.
In the case at bar, there is no writing or document evidencing the
agreement originally entered into between petitioner and private
respondent except the receipt showing the initial deposit of P150.00 as
shown in Exh. "A" and the payment of the 4- months installment made
by respondent corresponding to July, 1954 to October, 1954 in the sum
of P740.56 as shown in Exh. "B". Neither is there any writing or
document evidencing the modified agreement when the 3 lots were
changed to Lots 4 and 12 with a reduced area of 725 sq. meters, which
are corner lots. This absence of a formal deed of conveyance is a very
strong indication that the parties did not intend immediate transfer of
ownership and title, but only a transfer after full payment of the price.
Parenthetically, We must say that the standard printed contracts for the
sale of the lots in the Rockville Subdivision on a monthly installment

basis showing the terms and conditions thereof are immaterial to the
case at bar since they have not been signed by either of the parties to
this case.
Upon the law and jurisprudence hereinabove cited and considering the
nature of the transaction or agreement between petitioner and
respondent which We affirm and sustain to be a contract to sell, the
following resolutions of petitioner's assignment of errors necessarily
arise, and so We hold that:
1. The first and second assignments of
errors are without merit.
The overwhelming weight of authority culminating in the Luzon
Brokerage vs. Maritime cases has laid down the rule that Article 1592 of
the New Civil Code does not apply to a contract to sell where title
remains with the vendor until full payment of the price as in the case at
bar. This is the ruling in Caridad Estates vs. Santero, 71 Phil. 120; Aldea
vs. Inquimboy 86 Phil. 1601; Jocon vs. Capitol Subdivision, Inc., L-6573,
Feb. 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs.
Caridad Estates, L-2121 Oct. 3, 1950, all reiterated in Manuel vs.
Rodriguez, et al. 109 Phil. 1, L-13435, July 27, 1960. We agree with the
respondent Court of Appeals that Art, 1191 of the New Civil Code is the
applicable provision where the obligee, like petitioner herein, elects to
rescind or cancel his obligation to deliver the ownership of the two lots
in question for failure of the respondent to pay in fun the purchase price
on the basis of 120 monthly equal installments, promptly and punctually
for a period of 10 years.
2. We hold that respondent as obligor is not entitled to the benefits of
paragraph 3 of Art. 1191, NCC Having been in default, he is not entitled
to the new period of 90 days from entry of judgment within which to pay
petitioner the balance of P11,434.44 with interest due on the purchase
price of P12,325.00 for the two lots.
Respondent a paid P150.00 as deposit under Exh. "A" and P740.56 for
the 4-months installments corresponding to the months of July to
October, 1954. The judgment of the lower court and the Court of
Appeals held that respondent was under the obligation to pay the

27

purchase price of the lots m question on an equal monthly installment

basis for a period of ten years, or 120 equal monthly installments.
Beginning November, 1954, respondent began to default in complying
with his obligation and continued to do so for the remaining 116 monthly
interest. His refusal to pay further installments on the purchase price,
his insistence that he had the option to pay the purchase price any time
in ten years inspire of the clearness and certainty of his agreement with
the petitioner as evidenced further by the receipt, Exh. "B", his dilatory
tactic of refusing to sign the necessary contract of sale on the pretext
that he will sign later when he shall have updated his monthly payments
in arrears but which he never attempted to update, and his failure to
deposit or make available any amount since the execution of Exh "B" on
June 28, 1954 up to the present or a period of 26 years, are all
unreasonable and unjustified which altogether manifest clear bad faith
and malice on the part of respondent puzzle making inapplicable and
unwarranted the benefits of paragraph 3, Art. 1191, N.C.C. To allow and
grant respondent an additional period for him to pay the balance of the
purchase price, which balance is about 92% of the agreed price, would
be tantamount to excusing his bad faith and sanctioning the deliberate
infringement of a contractual obligation that is repugnant and contrary
to the stability, security and obligatory force of contracts. Moreover,
respondent's failure to pay the succeeding 116 monthly installments
after paying only 4 monthly installments is a substantial and material
breach on his part, not merely casual, which takes the case out of the
application of the benefits of pa paragraph 3, Art. 1191, N.C.C.
At any rate, the fact that respondent failed to comply with the
suspensive condition which is the full payment of the price through the
punctual performance of the monthly payments rendered petitioner's
obligation to sell ineffective and, therefore, petitioner was entitled to
repossess the property object of the contract, possession being a mere
incident to his right of ownership (Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc., et al. 46 SCRA 381).
3. We further rule that there exists no just cause authorizing the fixing of
a new period within which private respondent may pay the balance of
the purchase price. The equitable grounds or considerations which are
the basis of the respondent court in the fixing of an additional period
because respondent had constructed valuable improvements on the

land, that he has built his house on the property worth P45,000.00 and
placed adobe stone walls with barbed wires around, do not warrant the
fixing of an additional period. We cannot sanction this claim for equity of
the respondent for to grant the same would place the vendor at the
mercy of the vendee who can easily construct substantial improvements
on the land but beyond the capacity of the vendor to reimburse in case
he elects to rescind the contract by reason of the vendee's default or
deliberate refusal to pay or continue paying the purchase price of the
land. Under this design, strategem or scheme, the vendee can cleverly
and easily "improve out" the vendor of his land.
More than that, respondent has not been honest, fair and reciprocal with
the petitioner, hence it would not be fair and reasonable to the
petitioner to apply a solution that affords greater reciprocity of rights
which the appealed decision tried to effect between the parties. As
matters stand, respondent has been enjoying the possession and
occupancy of the land without paying the other 116 monthly
installments as they fall due. The scales of justice are already tipped in
respondent,s favor under the amended decision of the respondent court.
It is only right that We strive and search for the application of the law
whereby every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith (Art. 19, New Civil Code)
In the case at bar, respondent has not acted in good faith. With malice
and deliberate intent, he has twisted the clear import of his agreement
with the petitioner in order to suit his ends and delay the fulfillment of
his obligation to pay the land he had enjoyed for the last 26 years, more
than twice the period of ten years that he obliged himself to complete
payment of the price.
4. Respondent's contention that petitioner has not complied with his
obligation to put up the necessary facilities in the Rockville Subdivision
is not sufficient nor does it constitute good reason to justify the grant of
an additional period of 90 days from entry of judgment within which
respondent may pay the balance of the purchase price agreed upon. The
Judgment of the appellate court concedes that petitioner's failure to
comply with his obligation to put up the necessary facilities in the
subdivision will not deter him from asking for the rescission of the

28

agreement since his obligation is not correlative with respondent's

obligation to buy the property. Since this is so conceded, then the right
of the petitioner to rescind the agreement upon the happening or in the
event that respondent fails or defaults in any of the monthly
installments would be rendered nugatory and ineffective. The right of
rescission would then depend upon an extraneous consideration which
the law does not contemplate.
Besides, at the rate the two lots were sold to respondent with a
combined area of 725 sq. meters at the uniform price of P17.00 per sq.
meter making a total price of P12,325.00, it is highly doubtful if not
improbable that aside from his obligation to deliver title and transfer
ownership to the respondent as a reciprocal obligation to that of the
respondent in paying the price in full and promptly as the installments
fall due, petitioner would have assumed the additional obligation "to
provide the subdivision with streets ... provide said streets with street
pavements concrete curbs and gutters, fillings as required by
regulations, adequate drainage facilities, tree plantings, adequate water
facilities" as required under Ordinance No. 2969 of Quezon City
approved on May 11, 1956 (Answer of Defendant, Record on Appeal, pp.
35-36) which was two years after the agreement in question was
entered intoJune, 1y54.
The fact remains, however, that respondent has not protested to the
petitioner nor to the authorities concerned the alleged failure of
petitioner to put up and provide such facilities in the subdivision
because he knew too well that he has paid only the aggregate sum of
P890.56 which represents more or less 7% of the agreed price of
P12,325.00 and that he has not paid the real estate taxes assessed by
the government on his house erected on the property under litigation.
Neither has respondent made any allegation in his Answer and in all his
pleadings before the court up to the promulgation of the Resolution
dated October 12, 1970 by the Court of Appeals, to the effect that he
was entitled to a new period within which to comply with his obligation,
hence the Court could not proceed to do so unless the Answer is first
amended. (Gregorio Araneta, Inc. vs. Philippine Sugar Estates
Development Co., Ltd., G.R. No. L-22558, May 31, 1967, 20 SCRA 330,
335). It is quite clear that it is already too late in the day for respondent
to claim an additional period within which to comply with his obligation.

Precedents there are in Philippine jurisprudence where the Supreme

Court granted the buyer of real property additional period within which
to complete payment of the purchase price on grounds of equity and
justice as in (1) J.M. Tuazon Co., Inc. vs. Javier, 31 SCRA 829 where the
vendee religiously satisfied the monthly installments for eight years and
paid a total of P4,134.08 including interests on the principal obligation of
only P3,691.20, the price of the land; after default, the vendee was
willing to pay all arrears, in fact offered the same to the vendor; the
court granted an additional period of 60 days -from receipt of judgment
for the vendee to make all installment in arrears plus interest; (2)
in Legarda Hermanos vs. Saldaa, 55 SCRA 324, the Court ruled that
where one purchase, from a subdivision owner two lots and has paid
more than the value of one lot, the former is entitled to a certificate of
title to one lot in case of default.
On the other hand there are also cases where rescission was not granted
and no new or additional period was authorized. Thus, in Caridad
Estates vs. Santero, 71 Phil. 114, the vendee paid, totalling P7,590.00 or
about 25% of the purchase price of P30,000.00 for the three lots
involved and when the vendor demanded revocation upon the vendee's
default two years after, the vendee offered to pay the arears in check
which the vendor refused; and the Court sustained the revocation and
ordered the vendee ousted from the possession of the land. In Ayala y
Cia vs. Arcache, 98 Phil. 273, the total price of the land was P457,404.00
payable in installments; the buyer initially paid P100,000.00 or about
25% of the agreed price; the Court ordered rescission in view of the
substantial breach and granted no extension to the vendee to comply
with his obligation.
The doctrinal rulings that "a slight or casual breach of contract is not a
ground for rescission. It must be so substantial and fundamental to
defeat the object of the parties" (Gregorio Araneta Inc. vs. Tuazon de
Paterno, L-2886, August 22, 1962; Villanueva vs. Yulo, L-12985, Dec.
29,1959); that "where time is not of the essence of t agreement, a slight
delay on the part of one party in the performance of his obligation is not
a sufficient ground for the rescission of the agreement"( Biando vs.
Embestro L-11919, July 27, 1959; cases cited in Notes appended to
Universal Foods Corporation vs. Court of Appeals, 33 SCRA 1), convince
and persuade Us that in the case at bar where the breach, delay or

29

default was committed as early as in the payment of the fifth monthly

installment for November, 1954, that such failure continued and
persisted the next month and every month thereafter in 1955, 1956,
1957 and year after year to the end of the ten-year period in 1964 (10
years is respondent's contention) and even to this time, now more than
twice as long a time as the original period without respondent adding, or
even offering to add a single centavo to the sum he had originally paid
in 1954 which represents a mere 7% of the total price agreed upon,
equity and justice may not be invoked and applied. One who seeks
equity and justice must come to court with clean hands, which can
hardly be said of the private respondent.

Footnotes
1 Special Eight Division, Alvendia, J., ponente, Palma and
A. Reyes, JJ., concurring.

One final point, on the supposed substantial improvements erected on

the land, respondent's house. To grant the period to the respondent
because of the substantial value of his house is to make the land an
accessory to the house. This is unjust and unconscionable since it is a
rule in Our Law that buildings and constructions are regarded as mere
accessories to the land which is the principal, following the Roman
maxim "omne quod solo inadeficatur solo cedit" (Everything that is built
on the soil yields to the soil).
Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission
with payment of damages which the trial court and the appellate court,
in the latter's original decision, granted in the form of rental at the rate
of P60.00 per month from August, 1955 until respondent shall have
actually vacated the premises, plus P2,000.00 as attorney's fees. We
affirm the same to be fair and reasonable. We also sustain the right of
the petitioner to the possession of the land, ordering thereby respondent
to vacate the same and remove his house therefrom.
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed
from dated October 12, 1970 is hereby REVERSED. The decision of the
respondent court dated April 23, 1970 is hereby REINSTATED and
AFFIRMED, with costs against private respondent.
SO ORDERED.
Teehankee, Makasiar, Fernandez, De Castro and Melencio-Herrera, JJ.,
concur.

30

Apex Mortgage and Loans Corporation (Apex) which was payable in 20

years. To secure the twin loans, they executed a first mortgage over the
house and lot in favor of SSS and a second one in favor of Apex.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 156627

June 4, 2004

SPOUSES MANUEL and JOCELYN BARREDO, petitioners,

vs.
SPOUSES EUSTAQUIO and EMILDA LEAO, respondents.
DECISION
PUNO, J.:
In resolving the case at bar, we hearken back to the time-honored
principle in obligations and contracts enunciated by this Court some 80
years ago in Song Fo & Co. v. Hawaiian Philippine Co.1 that the
rescission of contracts will not be permitted for a slight or casual breach
thereof.
The factual antecedents are undisputed. Sometime in 1979, petitioners
spouses Manuel and Jocelyn Barredo (Barredo Spouses) bought a house
and lot located along Lilac Road, Pilar Village, Las Pias, Metro Manila,
with the proceeds of a P50,000.00 loan from the Social Security System
(SSS) which was payable in 25 years and anP88,400.00 loan from the

On July 10, 1987, the Barredo Spouses sold their house and lot to
respondents Eustaquio and Emilda Leao (Leao Spouses) by way of a
Conditional Deed of Sale with Assumption of Mortgage. The Leao
Spouses would pay the Barredo Spouses P200,000.00, P100,000.00 of
which would be payable on July 15, 1987, while the balance
of P100,000.00 would be paid in ten (10) equal monthly installments
after the signing of the contract. The Leao Spouses would also assume
the first and second mortgages and pay the monthly amortizations to
SSS and Apex beginning July 1987 until both obligations are fully paid.
In accordance with the agreement, the purchase price of P200,000.00
was paid to the Barredo Spouses who turned over the possession of the
house and lot in favor of the Leao Spouses. Two (2) years later, on
September 4, 1989, the Barredo Spouses initiated a complaint before
the Regional Trial Court of Las Pias seeking the rescission of the
contract on the ground that the Leao Spouses despite repeated
demands failed to pay the mortgage amortizations to the SSS and Apex
causing the Barredo Spouses great and irreparable damage. The Leao
Spouses, however, answered that they were up-to-date with their
amortization payments to Apex but were not able to pay the SSS
amortizations because their payments were refused upon the
instructions of the Barredo Spouses.
Meanwhile, allegedly in order to save their good name, credit standing
and reputation, the Barredo Spouses took it upon themselves to settle
the mortgage loans and paid the SSS the sum of P27,494.00 on
September 11, 1989, and P41,401.91 on January 9, 1990. The SSS
issued a Release of Real Estate Mortgage Loan on January 9, 1990. They
also settled the mortgage loan with Apex and paid the sum of P5,379.23
on October 3, 1989, andP64,000.00 on January 9, 1990. Likewise, Apex
issued a Certification of Full Payment of Loan on January 12, 1990. They
also paid the real estate property taxes for the years 1987 up to 1990.
On October 5, 1993, the Regional Trial Court of Las Pias, Br. 275, 2 ruled
that the assumption of mortgage debts of the Barredo Spouses by the

31

Leao Spouses "is a very substantial condition x x x x The credit

standing of the (Barredo Spouses) will be greatly prejudiced should they
appear delinquent or not paying at all. This is what the (Barredo
Spouses) feared so much, if foreclosure proceedings are resorted to
because of their failure to pay their obligations."3 The trial court thus
rendered judgment in favor of the plaintiff, the Barredo Spouses
WHEREFORE, and in consideration of the foregoing, by preponderance
of evidence, judgment is hereby rendered in favor of the plaintiffs and
against the defendants by: (1) declaring the Conditional Deed of Sale
with Assumption of Mortgage entered into by the plaintiffs and the
defendants on July 10, 1987, as rescinded and therefore null and void as
of this date; (2) ordering the defendants jointly and severally to pay the
sum of P15,000.00 as actual and litigation expenses, and the sum
of P25,000.00 as and by way of attorneys fees; and (3) to pay the costs.
SO ORDERED.4
Aggrieved, the Leao Spouses who have turned over the possession of
the subject house and lot to the Barredo Spouses appealed to the Court
of Appeals. On May 21, 2002, the appellate court reversed and set aside
the decision of the trial court on the ground that the payments of
amortization to Apex and SSS were mere collateral matters which do not
detract from the condition of paying the principal consideration.5 The
dispositive portion of the decision reads
WHEREFORE, the questioned decision of the Regional Trial Court of Las
Pias, Branch 275, is herebyREVERSED and SET ASIDE, and another
one is entered DISMISSING the complaint for lack of cause of action,
and ordering plaintiff-appellees to:
a) execute the Deed of Absolute Sale and to deliver TCT No. S-104634 in
favor of defendants-appellants upon full payment of the amounts
of P68,895.91, P69,379.23 and P2,217.60, or a total ofP140,492.74,
subject to the legal rate of interest per annum from the time said
payments were made by plaintiffs-appellees until the same are fully
paid;
b) to vacate and/or turn over the said property to defendants-appellants;

c) to pay attorneys fees in the sum of P20,000.00 and

d) to pay the costs of litigation.
SO ORDERED.6
On December 10, 2002, the appellate court denied the motion for
reconsideration for lack of merit. Hence, this petition for review on
certiorari on a sole assignment of error
CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT
THERE WAS SUBSTANTIAL AND FUNDAMENTAL BREACH BY THE
RESPONDENTS OF THEIR RECIPROCAL OBLIGATIONS TO ASSUME AND
PAY THE MORTGAGE OBLIGATION OF PETITIONERS WITH THE SSS AND
APEX, THE COURT OF APPEALS ERRED IN HOLDING THAT THE PAYMENTS
OF AMORTIZATION TO APEX AND SSS ARE MERE COLLATERAL MATTERS
AND DISMISSING PETITIONERS COMPLAINT FOR LACK OF CAUSE OF
ACTION.7
Petitioners argue that the terms of the agreement called for the strict
compliance of two (2) equally essential and material obligations on the
part of the Leao Spouses, namely, the payment of the P200,000.00 to
them and the payment of the mortgage amortizations to the SSS and
Apex. And, the Barredo Spouses undertook to execute the corresponding
Deed of Absolute Sale only upon the faithful compliance by the Leao
Spouses of the conditions set forth in their agreement. Thus, the failure
of the Leao Spouses to pay the mortgage amortizations to the SSS and
Apex gave rise to the right of the Barredo Spouses to refrain from
executing the deed of sale and in fact ask for rescission, a right
accorded to an injured party.
Respondents Leao Spouses, however, contend that they were only
obliged to assume the amortization payments of the Barredo Spouses
with the SSS and Apex, which they did upon signing the agreement. The
contract does not stipulate as a condition the full payment of the SSS
and Apex mortgages. Granting for arguments sake that their failure to
pay in full the mortgage was not a full compliance of their obligation,
they could not be faulted because their payments were not accepted by
the SSS since the Barredo Spouses failed to notify the SSS of the

32

assignment of their debt. In fine, the alleged breach, if any, was only
casual or slight and does not defeat the very object of the parties in
entering into the agreement. Moreover, the Barredo Spouses were not
and will never be injured parties since if the amortizations were not paid,
it would be the Leao Spouses who would eventually lose the house and
lot. As such, rescission does not obtain.
We quote the pertinent provisions of the Conditional Deed of Sale with
Assumption of Mortgage
1. ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency,
shall be paid by the VENDEES to the VENDORS on July 15, 1987.
2. The balance of ONE HUNDRED THOUSAND PESOS (P100,000.00)
Philippine Currency, shall be paid by the VENDEES to the VENDORS in
ten (10) equal monthly installments at the VENDORS residence, after
the signing of this Contract, consisting of ten (10) post-dated checks
drawn against the checking account of the VENDEES beginning August
1, 1987, and the succeeding months x x x x until the amount is fully paid
and the checks properly encashed x x x x
3. The VENDEES do hereby accept this Sale and bind themselves to
assume as they hereby assume beginning on July 1, 1987, the payment
of the unpaid balance of the First Mortgage indebtedness of the
VENDORS with the Social Security System as of June 1, 1987 x x x x and
another indebtedness of the VENDORS in a 2nd Mortgage with the Apex
Mortgage and Loans Corporation, as of June 1, 1987, x x x x and that the
herein VENDEES do hereby further agree to be bound by the precise
terms and conditions therein contained.
4. That should the VENDEES well and faithfully comply with the
conditions set forth in this Contract, then the VENDORS shall execute the
corresponding Absolute Deed of Sale over the property herein conveyed
with assumption of the mortgages aforecited, in favor of the VENDEES
herein.
A careful reading of the pertinent provisions of the agreement readily
shows that the principal object of the contract was the sale of the
Barredo house and lot, for which the Leao Spouses gave a down

payment ofP100,000.00 as provided for in par. 1 of the contract, and

thereafter ten (10) equal monthly installments amounting to
another P100,000.00, as stipulated in par. 2 of the same agreement. The
assumption of the mortgages by the Leao Spouses over the mortgaged
property and their payment of amortizations are just collateral matters
which are natural consequences of the sale of the said mortgaged
property.
Thus, par. 3 of the agreement provides that the Leao Spouses "bind
themselves to assume as they hereby assume beginning on July 1, 1987,
the payment of the unpaid balance x x x x" Hence, the Leao Spouses
merely bound themselves to assume, which they actually did upon the
signing of the agreement, the obligations of the Barredo Spouses with
the SSS and Apex. Nowhere in the agreement was it stipulated that the
sale was conditioned upon their full payment of the loans with SSS and
Apex. When the language of the contract is clear, it requires no
interpretation,8 and its terms should not be disturbed.9 The primary and
elementary rule of construction of documents is that when the words or
language thereof is clear and plain or readily understandable by any
ordinary reader thereof, there is absolutely no room for interpretation or
construction anymore10 and the literal meaning of its stipulations shall
control.11
To include the full payment of the obligations with the SSS and Apex as a
condition would be to unnecessarily stretch and put a new meaning to
the provisions of the agreement. For, as a general rule, when the terms
of an agreement have been reduced to writing, such written agreement
is deemed to contain all the terms agreed upon and there can be,
between the parties and their successors-in-interest, no evidence of
such terms other than the contents of the written agreement.12 And, it is
a familiar doctrine in obligations and contracts that the parties are
bound by the stipulations, clauses, terms and conditions they have
agreed to, which is the law between them, the only limitation being that
these stipulations, clauses, terms and conditions are not contrary to law,
morals, public order or public policy.13 Not being repugnant to any legal
proscription, the agreement entered into by the parties must be
respected and each is bound to fulfill what has been expressly stipulated
therein.14

33

But even if we consider the payment of the mortgage amortizations to

the SSS and Apex as a condition on which the sale is based on, still
rescission would not be available since non-compliance with such
condition would just be a minor or casual breach thereof as it does not
defeat the very object of the parties in entering into the contract. A
cursory reading of the agreement easily reveals that the main
consideration of the sale is the payment ofP200,000.00 to the vendors
within the period agreed upon. The assumption of mortgage by the
Leao Spouses is a natural consequence of their buying a mortgaged
property. In fact, the Barredo Spouses do not stand to benefit from the
payment of the amortizations by the Leao Spouses directly to the SSS
and Apex simply because the Barredo Spouses have already parted with
their property, for which they were already fully compensated in the
amount of P200,000.00.
Thus, as adverted to in Song Fo & Co. v. Hawaiian Philippine
Co.,15 we ruled that a delay in the payment for a small quantity of
molasses for some twenty (20) days is not such a violation of an
essential condition of the contract that warrants rescission due to nonperformance. In Philippine Amusement Enterprise, Inc. v.
Natividad,16 we declined rescission for "the occasional failure of the
phonograph to operate, not frequent enough to render it unsuitable and
unserviceable." In Laforteza v. Machuca,17 we said that the delay of
one month in payment was a mere casual breach that would not entitle
the respondents to rescind the contract. In Ang v. Court of
Appeals,18 we held that the failure to remove and clear the subject
property of all occupants and obstructions and deliver all the pertinent
papers to the vendees for the registration and issuance of a certificate
of title in their name were not essential conditions but merely incidental
undertakings which will not permit rescission. In Power Commercial
and Industrial Corp. v. Court of Appeals,19 we went a step further
and considered the failure of the vendor to eject the occupants of a lot
sold as a "usual warranty against eviction," and not a condition that was
not met, and thus, rescission was not allowed. And, in Del Castillo v.
Nanguiat,20 we ruled that the failure to pay in full the purchase price
stipulated in a deed of sale does not ipso facto grant the seller the right
to rescind the agreement. In all these cases, we were consistent in
holding that rescission of a contract will not be permitted for a slight or

casual breach, but only such substantial and fundamental breach as

would defeat the very object of the parties in making the agreement.
If the Barredo Spouses were really protective of their reputation and
credit standing, they should have sought the consent, or at least notified
the SSS and Apex of the assumption by the Leao Spouses of their
indebtedness. Besides, in ordering rescission, the trial court should have
likewise ordered the Barredo Spouses to return theP200,000.00 they
received as purchase price plus interests. Art. 1385 of the Civil Code
provides that "[r]escission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest."21 The vendor is therefore obliged to return the
purchase price paid to him by the buyer if the latter rescinds the
sale.22 Thus, where a contract is rescinded, it is the duty of the court to
require both parties to surrender that which they have respectively
received and place each other as far as practicable in his original
situation.23
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 44009 promulgated May 21, 2002, and its
Resolution therein dated December 10, 2002, are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Footnotes
1

47 Phil. 821, 827 (1925).

Judge Florentino M. Alumbres, presiding.

Decision of the trial court, p. 8; Rollo, p. 39.

34

18

G.R. No. 80058, 13 February 1989, 170 SCRA 286.

Special Twelfth Division; Decision penned by Associate Justice Elvi John

S. Asuncion and concurred in by Associate Justices Mariano C. Del
Castillo and Edgardo F. Sundiam.

19

G.R. No. 119745, 20 June 1997, 274 SCRA 597.

20

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

Decision of the Court of Appeals, p. 9; Rollo, p. 29.

21

Petition, p. 6; Id., p. 13.

Ibid.

Velarde v. Court of Appeals, G.R. No. 108346, 11 July 2001, 361 SCRA
56, citing Co v. Court of Appeals, G.R. No. 112330, 17 August 1999, 312
SCRA 528.

Petrophil Corp. v. Court of Appeals, G.R. No. 122796, 10 December

2001, 371 SCRA 702.

22

23

Tanguilig v. Court of Appeals, G.R. No. 117190, 2 January 1997, 266

SCRA 78.

Goldenrod, Inc. v. Court of Appeals, G.R. No. 126812, 24 November

1998, 299 SCRA 141.
Tolentino, A., Civil Code of the Philippines, Vol. IV (1991), pp. 180-181,
citing De Erquiaga, G.R. No. 47206, 27 September 1989, 178 SCRA 1.

10

Republic of the Philippines

SUPREME COURT
Manila

11

THIRD DIVISION

Leveriza v. Intermediate Appellate Court, G.R. No. 66614, 25 January

1988, 157 SCRA 282, citing San Mauricio Mining Co. v. Ancheta, No. L47859 & G.R. No. 57132, 10 July 1981, 105 SCRA 371, 418.
Article 1370, Civil Code; R & M General Merchandise, Inc. v. Court of
Appeals, G.R. No. 144189, 5 October 2001, 366 SCRA 679.

G.R. No. 80479 July 28, 1989

12

Llana v. Court of Appeals, G.R. No. 104802, 11 July 2001, 361 SCRA 27.

13

Odyssey Park, Inc. v. Court of Appeals, G.R. No. 107992, 8 October

1997, 280 SCRA 253; Asset Privatization Trust v. Sandiganbayan, G.R.
No. 138598, 29 June 2001, 360 SCRA 437.
14

Barons Marketing Corp v. Court of Appeals, G.R. No. 126486, 9

February 1998, 286 SCRA 96.

AGUSTINA LIQUETTE TAN, petitioner,

vs.
COURT OF APPEALS AND SPS. MARIANO SINGSON and
VISITACION SINGSON, respondents.
Noe Villanueva for petitioner.
Jose Beltran for private respondents.

15

47 Phil. 821, 827 (1925).

16

No. L-21876, 29 September 1967, 21 SCRA 284.

CORTES, J.:

17

G.R. No. 137552, 16 June 2000, 333 SCRA 643.

35

The instant petition for review raises the main issue of whether the
private respondents committed a substantial breach of their obligation
so as to warrant petitioner's exercise of her right to rescind the contract
of sale under Article 1191 of the Civil Code.

entitled "Agreement" (Exh. B) was signed by the parties

as follows:

The antecedents of the instant controversy had been summarized in the

respondent court's decision ** as follows:

The very same day that appellants received the earnest

money of P 200,000.00, they started paying their
mortgage loan with the Development Bank of the
Philippines (DBP) to clear up the title of the subject
property. On June 14, 1984, appellants paid the bank
P30,000.00 per receipt, Exhibit B; on June 18, 1984
another P50,000.00 (Exh. 4-c); on June 29, 1984,
P20,000.00 (Exh. 4-D); and on July 5, 1984, P70,909.59
and another P19,886.60 (Exhs. 4-F and 4-G) in full
payment of the mortgage loan. On July 9, 1984, the DBP
executed a cancellation of mortgage, which was
registered with the Registry of Property of Baguio City in
July 12, 1984. Appellants also paid all the taxes due and in
appears on the property. It likewise appears that
appellants paid in full on July 17, 1984 the cost price of
the 338 square meter lot which was awarded to appellant
Visitacion Singson per her townsite sale application for
said property. And the request of the City Sheriff of Baguio
City to lift the notice of levy in execution dated February
2, 1978 in Civil Case No. Q-10202, Pio S. Acampado, et al.
v. Mariano D. Singson, et al., was duly annotated on the
back of TCT No. T-1 3826 on August 2, 1979.

xxx
The evidence shows that defendants-appellants spouses
(private respondents herein) are the owners of a house
and lot located at No. 34 Easter Road, Baguio City, and
covered by T.C.T. No. T-13826, which were then for sale.
On June 14, 1984, plaintiff-appellee together with her
agent went to see said spouses at their residence
regarding the property. After appellants had shown
appellee around the house and had conversation about
the encumbrances and/or liens on the property, the
parties finally agreed on the price of Pl,800,000.00, with
appellee to advance earnest money of P200,000.00 to
enable appellants to secure the cancellation of the
mortgage and lien annotated on the title of the property
and the balance of the price to be paid by appellee on
June 21, 1984. Forthwith, appellee handed to appellants a
check for P200,000.00 and thereupon the parties signed a
receipt (Exh. A) in the following tenor:
xxx
In turn, appellants handed to appellee a xerox copy of the
title and other papers pertaining to the property as well as
an inventory of the furnishings of the house that are
included in the sale. There (3) days thereafter, i.e., on
June 17, 1984, appellee returned to appellants' house
together with her daughter Corazon and one Ines, to ask
for a reduction of the price to Pl,750,000.00 and
appellants spouses agreed, and so another receipt

xxx

On June 25, 1984, appellee accompanied by her daughter

Corazon and her lawyer, Atty. Vicente Quitoriano, went to
Baguio City to inquire about the status of the property and
appellants told her that the Development Bank of the
Philippines was taking some time processing their
payments and preparing the deed of cancellation of the
mortgage. On that occasion, the parties agreed on an
extension of two (2) weeks for the execution of the deed
of sale. Here, the parties' respective versions on the
matter parted ways. According to appellants, it was
appellee who asked for the extension because she was

36

not yet ready to pay the balance of P l,550,000.00. On the

other hand, appellee said that it was appellants who
asked for it because the title of the property was not yet
cleared. The court below believed appellee because on
said date the Development Bank had not yet executed the
deed of cancellation of mortgage, and no title has yet
been issued for the driveway although already fully paid
for.
Immediately, upon execution by the DBP of the deed of
cancellation of mortgage of July 9, 1984, appellants tried
to contact appellee and/or her daughter Corazon to come
to Baguio City for the formal execution of the deed of sale,
but to no avail. Instead, appellants received a telegram
from Atty. Quitoriano cancelling the sale and demanding
the return of the P200,000.00 earnest money. Appellants
countered with a letter of their lawyer, Atty. Tiofisto Rodes,
calling on appellee to perform her part of the contract
because "the title to the house and lot right now suffers
no imperfection or doubt. The levy on execution has long
been lifted, the mortgage indebtedness released, the
portion of the public land used as driveway has long been
awarded and fully paid for the City of Baguio. In short, the
title can now be transferred in your name upon execution
of the contract of sale ... Your refusal will compel us to sue
for specific performance. . .
Before appellants could make good their threat, appellee
"jumped the gun", so to speak, upon them by filing in
court on August 27, 1984 the case for recovery of sum of
money with damages which is now this case on appeal
before us.
In her complaint, appellee alleged that she gave
appellants spouses P200,000.00 upon their assurances
that they could transfer to her the house and lot she was
buying from them free from any liens and encumbrances,
including the furnishings thereof and the adjacent lot
being used as driveway, on June 25, 1984, but that day

had come and passed without appellants being able to

make good their promise, because she "discovered to her
shock and dismay that she had been dealt with in bad
faith by defendants" as the mortgage on the property was
not released or cancelled and the driveway was still public
land and could not be validly transferred to her as any
disposition thereof would yet require approval by the
Secretary of Agriculture and Natural Resources. Hence,
the suit against appellants spouses for recovery of the
P200,000.00 earnest money which is, in essence and
concept, one for rescission with damages.
xxx
[CA Decision, pp. 1-6; Rollo, pp. 53-57.]
The Regional Trial Court which took cognizance of Civil Case No. 3709-V
filed by petitioner Agustina Liquette Tan rendered a decision disposing of
the case as follows:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendants:
(1) Ordering the rescission of the contracts entered into
by and between plaintiff and the defendants, which are
embodied in Exhs. "A" or "l and "B" or "2";
(2) Ordering the defendants, spouses Mariano Singson
and Visitacion Singson to return to plaintiff the
P200,000.00 earnest money given by her to defendants;
(3) Ordering the defendants to pay plaintiff interest at the
rate of 12% per annum on the P200,000.00 from the filing
of the complaint until fully paid;
(4) Ordering the defendant (sic) to pay plaintiff moral
damages in the sum of P50,000.00;

37

(5) Ordering the defendants to pay plaintiff the amount of

P20,000.00 as attorney's fees; and
(6) Ordering the defendants to pay the costs of this suit.
SO ORDERED. [Rollo. pp. 49-50.]
Private respondents interposed an appeal from said decision alleging
that the trial court erred
I. . . . in considering the consent of appellee to the
agreement was vitiated by fraud.
II. . . . in resolving in favor of the appellee the sole right of
rescission.
III. .. . in considering the adjacent lot as part of the sale
agreed upon by the parties.
IV. . . . in deciding the case in favor of the appellee and
awarding damages.
On August 24, 1987, the respondent Court of Appeals promulgated a
decision reversing that of the trial court, the decretal portion of which
reads as follows:
WHEREFORE, the appealed decision is REVERSED and SET
ASIDE and a new one is hereby entered ordering
immediately upon the finality of this judgment appellants
spouses to execute and sign an absolute deed of sale
conveying to appellee free from any lien or encumbrance
the house and lot covered by T.C.T. No. 13826 of the
Registry of Deeds of Baguio City together with the
furnishings and appliances listed in Exhibit C and the
adjacent lot used as driveway covered by the Order of
Award, Exhibit E-3 and appellee to pay appellants spouses
the sum of Pl,550,000.00 plus interest at the legal rate
from the finality of this judgment until fully paid.

SO ORDERED. [Rollo, p. 61.]

Petitioners filed the instant petition for review on certiorari assailing the
conclusion of the respondent Court of Appeals that the private
respondents had not committed a substantial breach of their obligation
and therefore, there was no legal basis for the judgment ordering
rescission of the contract. Petitioners maintain that since private
respondents were not prepared to convey the title to the subject
property on the date agreed upon in view of the various liens and
encumbrances thereon, the former are entitled to rescind the contract
pursuant to Article 1191 of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
After a thorough examination of the allegations contained in the parties'
pleadings, the Court finds the instant petition to be devoid of any merit.
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 is clear from a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to the contrary, this
power must be invoked judicially; it cannot be exercised solely on a
party's own judgment that the other has committed a breach of the

38

obligation. Where there is nothing in the contract empowering the

petitioner to rescind it without resort to the courts, the petitioner's
action in unilaterally terminating the contract in this case is unjustified
[Philippine Amusement Enterprises, Inc. v. Natividad, G.R. No. L-12876.
September 29, 1967, 21 SCRA 284].

4. That the restrictions indicated in the AWARD makes

whatever conveyance to be made by the awardee of the
lot within the prohibited period as null and void and could
cause the forfeiture of all the payments already made as
well as the improvements introduced therein;

In this case, petitioner received on July 17, 1984 through her daughter
Cora Tan Singson, a telegram from private respondent Visitacion Singson
advising the former that the papers for the sale of the property are
ready for final execution. The parties likewise met on June 25, 1984, the
day agreed upon for the full payment of the purchase price, and they
agreed on a further extension of two weeks for the execution of the
deed of sale. Despite this agreement, 'private respondents suddenly
received a telegram from Atty. Quitoriano, counsel for the petitioner,
unilaterally stopping the sale and demanding the return of the earnest
money paid by petitioner [Exhibit "9", Original Records, p. 99].

5. That there are still liens and encumbrances insofar as

TCT No. T-13826 consisting of a mortgage with the DBP
and a notice of Levy and Writ of Execution. [Rollo, pp. 1415.]

Petitioner, in rescinding the sale, claims that a substantial breach of the

obligation has been committed by the private respondents as indicated
by the following facts proved to be existing as of the date agreed upon
for the consummation of the sale:
1. That no title has yet been issued by the Registry of
Deeds of the City of Baguio in the name of either of the
respondents in connection with the 338-square meter lot
where the driveway is located;
2. That the private respondents have not paid in full the
total consideration for the said lot to the City of Baguio
because they were able to complete the payment of the
purchase price only on July 17, 1984 as found out by the
respondent court in its decision (Please see page 8 of the
Court of Appeals' decision, Annex "B');
3. That private respondents have not acquired the
"previous consent of the Secretary of Natural Resources'
for the said transfer to the petitioner as required by the
award;

Alternatively, petitioner seeks annulment of the contract on the ground

of fraud since private respondents had misrepresented to her that they
could validly convey title to the property subject of the contract which
however is encumbered with various existing liens.
1. The alleged breach of the obligation by the private respondents,
which consists in a mere delay for a few days in clearing the title to the
property, cannot be considered substantial enough to warrant rescission
of the contract.
A thorough review of the records clearly indicates that private
respondents had substantially complied with their undertaking of
clearing the title to the property which has a total land area of 886
square meters. It must be pointed out that the subject lot consists of
private land, with an area of 548 square meters, covered by TCT No. T13826 and of a portion of the public land which has been awarded to the
private respondents under Townsite Sales Application No. 7-676-A. While
TCT No. T-13826 was subject to a mortgage in favor of DBP, private
respondents, upon receipt of the earnest money paid by petitioner,
utilized the same to settle its obligations with DBP thus enabling them to
secure a cancellation of the existing mortgage, which was duly noted in
the title to the property [See Original Records, p. 94].
It is a settled principle of law that rescission will not be permitted for a
slight or casual breach of the contract but only for such breaches as are
so substantial and fundamental as to defeat the object of the parties in
making the agreement [Universal Food Corporation v. Court of Appeals,
G.R. No. L-29155, May 13, 1970,33 SCRA 1; Philippine Amusement

39

Enterprises, Inc. v. Natividad, supra; Roque v. Lapuz, G.R. No. L-32811,

March 31, 1980,96 SCRA 741]. A court, in determining whether
rescission is warranted, must exercise its discretion judiciously
considering that the question of whether a breach of a contract is
substantial depends upon the attendant circumstances [Corpus v.
Alikpala, et al., G.R. Nos. L-23720 and L-23707, January 17, 1968, 22
SCRA 104].
In this case, as to the lot covered by TCT No. T-13826, it is true that as of
June 25, 1984, the date set for the execution of the final deed of sale,
the mortgage lien in favor of DBP annotated in the title has not yet been
cancelled as it took DBP some time in processing the papers relative
thereto. However, just a few days after, or on July 12, 1984, the
cancellation of the DBP mortgage was entered by the Register of Deeds
and duly noted on the title. Time not being of the essence in the
agreement, a slight delay on the part of the private respondents in the
performance of their obligation, is not sufficient ground for the resolution
of the agreement [Biando and Espanto v. Embestro and Bardaje, 105
Phil. 1164 (1959)], more so when the delay was not totally attributable
to them.
As to the notice of levy and execution annotated on TCT No. T-13826, a
request to lift the same had already been filed with the Register of
Deeds and duly noted on the title (Original Records, p. 95]. The fact that
said notice had not yet been cancelled by the Register of Deeds as of
June 25, 1984 cannot prejudice the sellers who must be deemed to have
substantially complied with their obligation. The rule in this jurisdiction is
that where the fulfillment of the condition (in a conditional obligation)
does not depend on the will of the obligor, but on that of a third person,
the obligor's part of the contract is complied with, if he does an that is in
his power and it then becomes incumbent upon the other contracting
party to comply with the terms of the contract [Article 1182, Civil Code;
Smith Bell and Co. v. Sotelo Matti, 44 Phil. 874 (1922)].
On the other hand, private respondents' interest in the public land used
as a driveway can likewise be conveyed to petitioner although no title
has yet been issued in the name of Visitacion Singson. Such portion of
the public land has long been awarded to Singson in 1972 and payment
of the purchase price thereof has already been completed as of July 17,

1984. The fact that the consent of the Secretary of Agriculture and
Natural Resources to the sale of the property to petitioner has not yet
been secured cannot be considered a substantial breach of private
respondents' obligation under the contract of sale.
In Juanico and Barredo v. American Land Commercial Co., Inc., et al. (97
Phil. 221 1955)], this Court had ruled that the prior approval of the
Secretary of Agriculture and Natural Resources is required only in cases
of sale and encumbrance of the public land during the pendency of the
application by the purchaser and before his compliance with the
requirements of the law. Thus:
... But such approval becomes unnecessary after the
purchaser had complied with all the requirements of the
law, even if the patent has not been actually issued, for in
that case the rights of the purchaser are already deemed
vested, the issuance of the patent being a mere
ceremony. Thus, "the execution and delivery of the patent
after the right to it has become complete, are the mere
ministerial acts of the officers charged with that duty" . . .
And, as it has been held, One who has done everything
which is necessary in order to entitle him to receive a
patent for public land has, even before the patent is
actually issued by the land department, a complete
acquirable estate in the land which he can sell and
convey, mortgage or lease. A fortiori a contract to convey
land made before the issuance of a patent but after final
proof has been made and the land paid for is not illegal...
[At 227: Italics supplied.]
Here, since the land in question had already been awarded to private
respondents since 1972 and all the requirements of the law for the
purchase of public land were subsequently complied with, private
respondents, as owners of said property, can properly convey title
thereto to petitioner.
Inasmuch as the private respondents are ready, willing and able to
comply with their obligation to deliver title to the property subject of the
sale and had already demanded that petitioner pay the full amount of

40

the purchase price, the petitioner must be considered as having incurred

in delay. This conclusion is warranted by the clear provision of Article
1169 of the Civil Code which states:
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 fulfills his obligation, delay
by the other begins.
It is basic that the breach of a contract gives the aggrieved party under
the law and even under general principles of fairness, the right to
rescind the contract or to ask for specific performance [Nagarmull v.
Binalbagan-Isabela Sugar Co., Inc., G.R. No. L-22470, May 28, 1970, 33
SCRA 46.] Petitioner having failed to comply with her obligation of
paying the balance of the purchase price despite demands by private
respondents, private respondents were clearly entitled to their
counterclaim for specific performance, as correctly adjudged by the
respondent court.
2. The claim that petitioner's consent to the contract was vitiated by
fraud and, therefore, the contract in question is voidable is patently
unmeritorious. The contract of sale is not voidable where no evidence
was shown that through insidious words or machinations under Article
1338 of the Civil Code, the seller had induced the buyer to enter into the
contract (Caram v. Laureta, Jr., G.R. No. L-28740, February 24, 1981,103
SCRA 7].
In this case, the evidence on record fully supports the finding of the
appellate court that private respondents did not represent to petitioner
that the house and lot they were selling were free from liens and
encumbrances. Rather, they told her that the property was mortgaged

to the DBP which was why they asked her to advance P200,000.00 as
earnest money so that they could settle the mortgage indebtedness and
clear up the title [Rollo, p. 60]. The testimony of petitioner herself shows
that she was furnished with xerox copies of the title, at the back of
which was a memorandum of the encumbrances of the property [TSN,
September 30, 1985, p. 4]. Further, it is undisputed that at the time
petitioner entered into the agreement in question, she was accompanied
by her daughter Corazon and one Maria Lorenzo whom she could have
asked to explain the particulars of the transaction that she could not
understand [Rollo, p. 61].
One final point, the decision of the respondent Court of Appeals ordered
execution by private respondents of the absolute deed of sale conveying
the subject property to petitioner and payment by petitioner of the
balance of the purchase price immediately upon finality of such
judgment. However, under the third paragraph of Article 1191 of the
Civil Code, the Court is given a discretionary power to allow a period
within which a person in default may be permitted to perform his
obligation [Kapisanan Banahaw v. Dejarme and Alvero, 55 Phil. 339
(1930)]. Considering the huge amount of money involved in this sale,
the Court, in the exercise of its sound discretion, hereby fixes a period of
ninety (90) days within which petitioner shall pay the balance of the
purchase price amounting to one million and five hundred fifty thousand
pesos (Pl,550,000.00) plus interest thereon at the legal rate from finality
of this judgment until fully paid. After such payment has been made, the
private respondents are ordered to sign and execute the necessary
absolute deed of sale in favor of petitioner.
WHEREFORE, the assailed decision of the respondent Court of Appeals
granting the counterclaim for specific performance of herein private
respondents is hereby AFFIRMED with the MODIFICATION that the
petitioner is given a period of ninety (90) days within which to pay the
sum of one million and five hundred fifty thousand pesos (Pl,550,000.00)
representing the balance of the purchase price, with interest thereon at
the legal rate from the finality of this judgment until fully paid. The
private respondents are ordered to sign and execute the absolute deed
of sale after the petitioner has completed payment of the purchase price
and the interest thereon.

41

SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 83588 September 29, 1997

Spouses ADORACION C. PANGILINAN and GEORGE B. PANGILINAN
represented in this suit by their Attorney-in-fact. ARCADIO S.
MALLARI, petitioners,
vs.
COURT OF APPEALS, JOSE R. CANLAS and LUIS R. CANLAS and
RURAL BANK OF STA. RITA, INC.,respondents.

42

TORRES, JR., J.:

This petition for review seeks to set aside the January 14, 1988
decision 1 and May 31, 1988 resolution of the Court of Appeals in CA-GR
CV No. 09175 which reversed the December 12, 1985 decision of the
Regional Trial Court, Third Judicial Region, Branch XLVIII, San Fernando,
Pampanga.
On May 18, 1968, petitioners Pangilinan (husband and wife), and the
private respondents Jose R. Canlas and Luis R. Canlas entered into a
Contract to Buy and To Sell a subdivision lot at Sto. Nio Village, San
Fernando, Pampanga, particularly Lot No. 1, Block 3; with an area of 577
square meters at P30.00 per square meter, for a total contract price of
P17,310.00, payable on installment basis at P189.02 a month for 120
months. 2 The sum of P1,731 representing 10% of the total price of the
lot was paid by the petitioners to the private respondents and thereafter
monthly installments which amounted to about 85% of the total price
were effected as of January, 1974; the last payment thereof was made
on May 14, 1975 (Exh. C-54). 3 Paragraph 5 of the contract provided for
automatic extrajudicial rescission upon default in payment of three (3)
consecutive monthly installments or to comply with any of the terms
and conditions, with forfeitures of installments as rents and as payment
for damages. The said contract to buy and to sell as well as the receipts
of various payments made by petitioners in favor of private respondents
were given by the former to Mr. Arcadio S. Mallari. Mr. Mallari equipped
with a Special Power of Attorney dated May 15, 1983 from the spouses
Adoracion C. Pangilinan and George Pangilinan went personally to the
private respondents and requested them to release the title of the lot as
he would pay in full the alleged remaining balance of P1,875.00. The
private respondents told him to return after two weeks as they would
confer with each other. When he returned, the private respondent Jose R.
Canlas told him that they were not in a position to release the title to
said lot because the same had already been disposed of Mr. Mallari
discovered that the lot was mortgaged to the Rural Bank of Sta. Rita. On
July 25, 1983, after the lapse of eight years from the last date of
payment, he instituted a complaint for Specific Performance and
Damages docketed as Civil Case No. 6843 entitled "Spouses Adoracion
G. Pangilinan, et. al. vs. Jose R. Canlas, et. al." before the Regional Trial

Court, Branch XLVIII, San Fernando, Pampanga. On December 12, 1985,

the trial court rendered its decision, the decretal part of which provides:
In view of all the foregoing, judgment is hereby rendered
against the defendants Jose R. Canlas and Luis R. Canlas
ordering them the following:
1) to accept the final payment or balance of
the consideration of the lot in the amount of
P2,277.82;
2) to execute the final deed of sale of the
lot in question in favor of herein plaintiffs;
3) to pay the mortgage loan to the
defendant Rural bank for the purpose of
releasing the said lot embraced in Transfer
Certificate of Title No. 89745-R, Registry of
Deeds for the Province of Pampanga in
order to free the said lot from
encumbrances;
4) to pay plaintiff the amount of P5,000.00
for attorney's fees; P2,000.00 for litigation
expenses;
5) to pay plaintiff the amount of P10,000.00
for exemplary damages as a corrective
measure due to malevolent act of
defendants Canlases;
6) to pay the costs of the suit.
The counterclaim interposed by the defendant Jose R.
Canlas and Luis R. Canlas are hereby dismissed for lack of
evidence.

43

The defendant Rural Bank of Sta. Rita Incorporated is

hereby absolved of any liability but its counterclaim is
hereby dismissed for lack of evidence.
SO ORDERED. 4
Private respondents appealed the abovementioned decision to the Court
of Appeals which on January 14, 1988, promulgated its judgment which
reversed and set aside the decision of the trial court, to wit:

there is a waiver stipulated in the contract of adhesion, regarding

rescission, such waiver will not apply because the waiver must be
unequivocal and intelligently made. Moreover, granting that petitioners
have committed a breach of contract for their failure to pay the balance
of the consideration, yet this breach is slight, considering that 85% of
the total consideration for the lot has been paid.
The Court is not persuaded.
The fifth paragraph of the Contract to Buy and to Sell pertinently reads:

WHEREFORE, the decision appealed from is hereby SET

ASIDE. Another judgment is hereby entered DISMISSING
Civil Case No. 6843 before the court below. The counterclaim of defendants-appellants is hereby DISMISSED.
SO ORDERED. 5
Petitioners filed a motion for reconsideration but it was denied for lack of
merit by the Court of Appeals in its resolution of May 31, 1988. Hence,
petitioner instituted the instant petition for review raising two (2)
assignment of errors, viz.:
1) THE COURT OF APPEALS ERRED THAT A
CREDITOR CAN UNILATERALLY AND
SUMMARILY RESCIND A CONTRACT TO SELL
A SUBDIVISION LOT;
2) THE COURT OF APPEALS ERRED IN
RULING THAT HEREIN PETITIONERS ARE
GUILTY OF LACHES.
Petitioners vigorously argue that automatic rescission of a contract
extrajudicially undertaken by a creditor maybe effected only if the
defaulter was duly informed of the intention of the creditor to rescind
the contract. If the defaulter will not object, then the creditor may
proceed to extrajudicially rescind or cancel the contract, however, if the
defaulter will manifest his objection, then the matter of rescission will be
subjected to judicial determination. They further alleged that even if

This contract shall be considered automatically rescinded

and canceled and of no further force or effect, upon failure
of the VENDEE to pay when due, three (3) consecutive
monthly installments or to comply with any of the terms
and conditions hereof, in which case the VENDORS shall
have the right to resell said parcel of land to any person or
purchaser, as if this contract has never been entered into.
In such case of cancellation of this contract, all amounts
paid in accordance with the agreement together with all
the improvements made on the premises shall be
considered as rents paid for the use and occupation of the
above-mentioned premises and as payment for the
damages suffered for the failure of the VENDEE to fulfill
his part of this agreement; and for the VENDEE hereby
renounces his right to demand or reclaim the return of the
same obliges himself to peacefully vacate the premises
and deliver the same to the VENDORS. 6
Article 1592 7 of the New Civil Code, requiring demand by suit or by
notarial act in case the vendor of realty wants to rescind does not apply
to a contract to sell but only to contract of sale. In contracts to sell,
where ownership is retained by the seller and is not to pass until the full
payment, such payment, as we said, is a positive suspensive condition,
the 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. To argue that there was only a casual breach is
to proceed from the assumption that the contract is one of absolute

44

sale, where non-payment is a resolutory condition, which is not the

case. 8
The applicable provision of law in instant case is Article 1191 of the New
Civil Code which provides as follows:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The Court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law. (1124)
Pursuant to the above, the law makes it available to the injured party
alternative remedies such as the power to rescind or enforce fulfillment
of the contract, with damages in either case if the obligor does not
comply with what is incumbent upon him. There is nothing in this law
which prohibits the parties from entering into an agreement that a
violation of the terms of the contract would cause its cancellation even
without court intervention. The rationale for the foregoing is that in
contracts providing for automatic revocation, judicial intervention is
necessary not for purposes of obtaining a judicial declaration rescinding
a contract already deemed rescinded by virtue of an agreement
providing for rescission even without judicial intervention, but in order to
determine whether or not the rescission was proper. Where such
propriety is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not in itself the revocatory
act. 9 Moreover, the vendor's right in contracts to sell with reserved title
to extrajudicially cancel the sale upon failure of the vendee to pay the

stipulated installments and retain the sums and installments already

received has long been recognized by the well-established doctrine of 39
years standing. 10 The validity of the stipulation in the contract providing
for automatic rescission upon non-payment cannot be doubted. It is in
the nature of an agreement granting a party the right to rescind a
contract unilaterally in case of breach without need of going to court.
Thus, rescission under Article 1191 was inevitable due to petitioners'
failure to pay the stipulated price within the original period fixed in the
agreement.
On the second assigned error, petitioners aver that the doctrine of
laches is not applicable in this particular case because (1) petitioner's
failure to pay in full the balance of 15% of the total price of the lot was
due to the reneged obligation of the private respondent to improve the
subdivision and install facilities; and, (2) the mortgage of the lot to the
Rural Bank of Sta. Rita was done without their consent and knowledge.
The same has no merit. It must be noted that upon a careful
examination of the records of this case, it appears that the contention of
the petitioners that their failure to pay the balance of 15% of the total
contract price of the lot was due to the inability of the private
respondent to improve the subdivision and install facilities which was
raised only for the first time on appeal. They did not raise this issue
before the lower courts. It is settled that an issue which was neither
averred in the complaint nor raised during the trial in the court below
cannot be raised for the first time on appeal. 11 Issues of fact and
arguments not adequately brought to the attention of the trial court
need not be and ordinarily will not be considered by a reviewing court as
they cannot be raised for the first time on
appeal. 12 Assumingarguendo that it was raised before the trial court,
the same would be without merit because the failure of the private
respondents to install facilities would not deter them from asking for the
rescission of the agreement if petitioners failed to comply with their
obligation to pay the monthly installments when they become due,
otherwise, the right of rescission would be rendered inutile. In the same
vein, petitioners by virtue of their contract with private respondents
should have complied in good faith with its terms and conditions being
the law between them. From the moment the contract is perfected, the
parties are bound not only to the fulfillment of what has been expressly

45

stipulated but also to all consequences which, according to their nature,

may be in keeping with good faith, usage and law. 13 The Contract to Buy
and to Sell, specifically paragraph 5 thereof, not being contrary to law,
morals, good customs, public order or public policy, is valid and binding
between the parties thereto.
As stated by the appellate court, thus:
The peculiar fact that militates against the cause of the
appellees is that the appellees spouses Pangilinan did not
directly and personally prosecute the present
proceedings. As shown from the records, Mr. Mallari had
equipped himself with the special power of attorney in his
favor by the appellees executed only on May 15, 1983 or
about six (should be eight) years from the date of last
payment, made on May 14, 1975 for the January, 1974
installment, during which time, the actual buyers, the
Pangilinans had not by themselves personally shown
interest in compelling the appellants to accept the
remaining balance of the purchase price of the said
subdivision lot, to execute in their favor the Deed of
Absolute Sale and deliver to them the Transfer Certificate
of Title over the said property. The aforesaid
circumstances constitute laches. There was failure or
neglect on the part of the Pangilinan spouses for an
unreasonable and unexplained length of time to do that
which by exercising due diligence or could have been
done earlier, such failure or negligence warrants a
presumption that they had abandoned or declined to
assert such right (Tejado vs. Zamacoma, 138 SCRA 78).
Further, the Court of Appeals, stated:
The disturbing fact in the case at bar is that the spouses
Pangilinan who bought the subject lot from the appellant
seller did not directly and personally prosecute the
present case from May, 1975 (date of last payment for
January, 1974 installment). Mr. Arcadio S. Mallari, the
alleged attorney-in-fact of the said spouses, represented

them in the instant case which was filed only on July 25,
1983. He has an alleged special power of attorney in his
favor by the appellees which appears to have been
executed on May 15, 1983 or about eight (8) years from
the date of last payment on May 14, 1975 by the buyer
spouses for the January, 1974 installment. Mr. Mallari was
the only witness for the prosecution. He alone identified
the said power of attorney executed in his favor and
testified on its due execution. The notary public who
appears to have notarized the said document was not
presented neither did the Pangilinan spouses appear in
the lower court. There was no mention in his (Mallari)
testimony of the whereabouts of the said Pangilinan
spouses nor why the instant case had to be filed by him
for them. The Court has doubts whether or not the said
Pangilinan spouses are really interested in the prosecution
of this case. And more than this, in the mind of the Court,
the genuineness of the said special power of attorney has
not been satisfactorily proved.
It also bears emphasis that from the said last payment on
May 14, 1975, for the January, 1974 installment up to the
execution of the alleged special power of attorney
(assuming the same to be true) in favor of Mr. Mallari, on
May 15, 1983, and the filing of Mallari of the instant case
(which covers a period of eight (8) years)* the actual
buyers, the Pangilinan spouses had not by themselves
personally shown interest in compelling the appellants to
accept the remaining balance of the purchase price of the
subdivision lot, to execute in their favor the Deed of
Absolute Sale and deliver to them the Transfer Certificate
of Title over the said lot. Such failure/neglect on their part
constitutes laches because for an unreasonable and
unexplained length of time [eight (8) years], they
failed/neglected to do that which by exercising due
diligence could or should have been done earlier, and as
stated in the decision rendered in the present appeal,
such failure or negligence warrants a presumption that
they had abandoned or declined to assert such right.

46

Explicitly, spouses Pangilinan instead of being vigilant and diligent in

asserting their rights over the subject property had failed to assert their
rights when the law requires them to act. Laches or "stale demands" is
based upon grounds of public policy which requires, for the peace of
society, the discouragement of stale claims and unlike the statute of
limitations, is not a mere question of time but is principally a question of
the inequity or unfairness of permitting a right or claim to be enforced or
asserted. 14
The legal adage finds application in the case at bar. Tempus enim modus
tollendi obligationes et actiones, quia tempus currit contra desides et sui
juris contemptores For time is a means of dissipating obligations and
actions, because time runs against the slothful and careless of their own
rights.
IN VIEW WHEREOF, the petition is hereby DENIED and the decision of
respondent court AFFIRMED in toto.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL
HOUSING AUTHORITY and NAZARIO DUMPIT respondents.
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.
Wilfredo E. Dizon for private respondent.

Regalado and Puno, JJ., concur.

Mendoza, J., is on leave.
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive
Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay,
Inc. and Alberto Onstott jointly and severally, to refund to private
respondent, Nazario Dumpit, the amount of P13,722.50 with 12%
interest per annum, as resolved by the National Housing Authority in its
Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution of
October 28, 1980 denying petitioners' Motion for Reconsideration of said
Resolution of May 2, 1980, are being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview
Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, - covered by TCT No. 90454, and owned by said corporation. The
sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until

47

fully paid. Paragraph 6 of the contract provided for automatic

extrajudicial rescission upon default in payment of any monthly
installment after the lapse of 90 days from the expiration of the grace
period of one month, without need of notice and with forfeiture of all
installments paid.

Whether notice or demand is not mandatory under the

circumstances and, therefore, may be dispensed with by
stipulation in a contract to sell.
II

Respondent Dumpit paid the downpayment and several installments

amounting to P13,722.50. The last payment was made on December 5,
1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote
petitioner offering to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20,
1973 reiterating the same request. Replying petitioners informed
respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent
filed a letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund (Case No. 2167). In a
Resolution, dated July 10, 1979, the NHA, finding the rescission void in
the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly
and severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the filing of the complaint on
November 8, 1974. Petitioners' Motion for Reconsideration of said
Resolution was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the
NHA Resolution was contrary to law (O.P. Case No. 1459), respondent
Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution
of the NHA. Reconsideration sought by petitioners was denied for lack of
merit. Thus, the present petition wherein the following issues are raised:
I

Whether petitioners may be held liable for the refund of

the installment payments made by respondent Nazario M.
Dumpit.
III
Whether the doctrine of piercing the veil of corporate
fiction has application to the case at bar.
IV
Whether respondent Presidential Executive Assistant
committed grave abuse of discretion in upholding the
decision of respondent NHA holding petitioners solidarily
liable for the refund of the installment payments made by
respondent Nazario M. Dumpit thereby denying
substantial justice to the petitioners, particularly
petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the
enforcement of the questioned Resolutions and of the Writ of Execution
that had been issued on December 2, 1980. On October 28, 1981, we
dismissed the petition but upon petitioners' motion, reconsidered the
dismissal and gave due course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling
the contract to sell without prior notice or demand upon respondent in
view of paragraph 6 thereof which provides6. That in case the BUYER falls to satisfy any monthly
installment or any other payments herein agreed upon,
the BUYER shall be granted a month of grace within which

48

to make the payment of the t in arrears together with the

one corresponding to the said month of grace. -It shall be
understood, however, that should the month of grace
herein granted to the BUYER expire, without the payment
& corresponding to both months having been satisfied, an
interest of ten (10%) per cent per annum shall be charged
on the amounts the BUYER should have paid; it is
understood further, that should a period of NINETY (90)
DAYS elapse to begin from the expiration of the month of
grace hereinbefore mentioned, and the BUYER shall not
have paid all the amounts that the BUYER should have
paid with the corresponding interest up to the date, the
SELLER shall have the right to declare this contract
cancelled and of no effect without notice, and as a
consequence thereof, the SELLER may dispose of the
lot/lots covered by this Contract in favor of other persons,
as if this contract had never been entered into. In case of
such cancellation of this Contract, all the amounts which
may have been paid by the BUYER in accordance with the
agreement, together with all the improvements made on
the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises and for
liquidated damages suffered by virtue of the failure of the
BUYER to fulfill his part of this agreement : and the BUYER
hereby renounces his right to demand or reclaim the
return of the same and further obligates peacefully to
vacate the premises and deliver the same to the SELLER.

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.

Well settled is the rule, as held in previous jurisprudence, 2 that judicial

action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions. However, even in the cited cases, there
was at least a written notice sent to the defaulter informing him of the
rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled should be
made known to the other. We quote the pertinent excerpt:

We see no conflict between this ruling and the previous

jurisprudence of this Court invoked by respondent
declaring that judicial action is necessary for the
resolution of a reciprocal obligation (Ocejo Perez & Co., vs.
International Banking Corp., 37 Phil. 631; Republic vs.
Hospital de San Juan De Dios, et al., 84 Phil 820) since in
every case where the extrajudicial resolution is contested
only the final award of the court of competent jurisdiction
can conclusively settle whether the resolution was proper
or not. It is in this sense that judicial action win be
necessary, as without it, the extrajudicial resolution will

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

treating a contract as cancelled or resolved in account of

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 the final judgment of rescission is rendered when the
law itself requires that he should exercise due diligence to
minimize its own damages (Civil Code, Article 2203).

49

remain contestable and subject to judicial invalidation

unless attack thereon should become barred by
acquiescense, estoppel or prescription.

We hold that resolution by petitioners of the contract was ineffective and

inoperative against private respondent for lack of notice of resolution, as
held in the U.P. vs. Angeles case, supra

Fears have been expressed that a stipulation providing for

a unilateral rescission in case of breach of contract may
render nugatory the general rule requiring judicial action
(v. Footnote, Padilla Civil Law, Civil Code Anno., 1967 ed.
Vol. IV, page 140) but, as already observed, in case of
abuse or error by the rescinder the other party is not
barred from questioning in court such abuse or error, the
practical effect of the stipulation being merely to transfer
to the defaulter the initiative of instituting suit, instead of
the rescinder (Emphasis supplied).

Petitioner relies on Torralba vs. De los Angeles 8 where it was held that
"there was no contract to rescind in court because from the moment the
petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto rescinded."
However, it should be noted that even in that case notice in writing was
made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of
the land upon default by the buyer.

Of similar import is the ruling in Nera vs. Vacante 4, reading:

A stipulation entitling one party to take possession of the
land and building if the other party violates the contract
does not ex propio vigore confer upon the former the right
to take possession thereof if objected to without judicial
intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that
extrajudicial rescission has legal effect where the other party does not
oppose it. 6 Where it is objected to, a judicial determination of the issue
is still necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination.

In this case, private respondent has denied that rescission is justified

and has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.

The indispensability of notice of cancellation to the buyer was to be later

underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of
the contract by a notarial act and upon full payment of the
cash surrender value to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to be
notified under paragraph 6 of the contract is neither meritorious
because it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. A
waiver must be certain and unequivocal, and intelligently made; such
waiver follows only where liberty of choice has been fully
accorded. 9 Moreover, it is a matter of public policy to protect buyers of
real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments.
Regarding the second issue on refund of the installment
payments made by private respondent. Article 1385 of the
Civil Code provides:

50

ART. 1385. Rescission creates the obligation to return the

things which were the object of the contract, together
with their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Neither sham rescission take place when the things which
are the object of the contract are legally in the possession
of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded
from the person causing the loss.
As a consequence of the resolution by petitioners, rights to the lot
should be restored to private respondent or the same should be replaced
by another acceptable lot. However, considering that the property had
already been sold to a third person and there is no evidence on record
that other lots are still available, private respondent is entitled to the
refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It would be
most inequitable if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate the proceeds
of the second sale to another.
We come now to the third and fourth issues regarding the personal
liability of petitioner Onstott who was made jointly and severally liable
with petitioner corporation for refund to private respondent of the total
amount the latter had paid to petitioner company. It is basic that a
corporation is invested by law with a personality separate and distinct
from those of the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule, a corporation
may not be made to answer for acts or liabilities of its stockholders or
those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when it is used as
a shield to further an end subversive of justice 12 ; or for purposes that
could not have been intended by the law that created it 13 ; or to defeat
public convenience, justify wrong, protect fraud, or defend crime. 14 ; or
to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the

law or perpetuate deception 16 ; or as an alter ego, adjunct or business

conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied,
albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he a to be the controlling stockholder.
No sufficient proof exists on record that said petitioner used the
corporation to defraud private respondent. He cannot, therefore, be
made personally liable just because he "appears to be the controlling
stockholder". Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the separate
corporate personality. 18 In this respect then, a modification of the
Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public official,
dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed
to refund to respondent Nazario M. Dumpit the amount of P13,722.50,
with interest at twelve (12%) percent per annum from November 8,
1974, the date of the filing of the Complaint. The temporary Restraining
Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.

Plana, Relova and Gutierrez, Jr., JJ., concur.

Teehankee, J., concurs in the result.

51

This is a petition for review on certiorari to set aside as null and void the
decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated
February 11, 1977, modifying the decision dated February 15, 1972 of
the Court of First Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL
AND SAVINGS BANK, in his capacity as statutory receiver of
Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:

On April 28, 1965, Island Savings Bank, upon favorable recommendation

of its legal department, approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the
same day a real estate mortgage over his 100-hectare land located in
Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The approved
loan application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property
into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00
loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita
Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00 (p. 64, rec.). An
advance interest for the P80,000.00 loan covering a 6-month period
amounting to P4,800.00 was deducted from the partial release of
P17,000.00. But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank that there
was no fund yet available for the release of the P63,000.00 balance (p.
47, rec.). The Bank, thru its vice-president and treasurer, promised
repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island
Savings Bank against its deposit liabilities, the Board, by
unanimous vote, decided as follows:

52

1) To prohibit the bank from making new loans and

investments [except investments in government
securities] excluding extensions or renewals of already
approved loans, provided that such extensions or
renewals shall be subject to review by the Superintendent
of Banks, who may impose such limitations as may be
necessary to insure correction of the bank's deficiency as
soon as possible;
xxx xxx xxx

On January 29, 1969, the trial court admitted the answer in intervention
praying for the dismissal of the petition of Sulpicio M. Tolentino and the
setting aside of the restraining order, filed by the Central Bank and by
the Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered
its decision, finding unmeritorious the petition of Sulpicio M. Tolentino,
ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus
legal interest and legal charges due thereon, and lifting the restraining
order so that the sheriff may proceed with the foreclosure (pp. 135-136.
rec.

(p. 46, rec.).

On June 14, 1968, the Monetary Board, after finding thatIsland Savings
Bank failed to put up the required capital to restore its solvency, issued
Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank (pp. 48-49,
rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an application for the
extra-judicial foreclosure of the real estate mortgage covering the 100hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the
auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court
of First Instance of Agusan for injunction, specific performance or
rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the
P80,000.00 loan, he is entitled to specific performance by ordering
Island Savings Bank to deliver the P63,000.00 with interest of 12% per
annum from April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety
bond, issued a temporary restraining order enjoining the Island Savings
Bank from continuing with the foreclosure of the mortgage (pp. 86-87,
rec.).

On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M.

Tolentino, modified the Court of First Instance decision by affirming the
dismissal of Sulpicio M. Tolentino's petition for specific performance, but
it ruled that Island Savings Bank can neither foreclose the real estate
mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific
performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00
debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00
subsists, can his real estate mortgage be foreclosed to
satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal
obligations. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and
when one party has performed or is ready and willing to perform his part

53

of the contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00 loan. When
Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965,
he signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started on
April 28, 1965, and lasted for a period of 3 years or when the Monetary
Board of the Central Bank issued Resolution No. 967 on June 14, 1968,
which prohibited Island Savings Bank from doing further business. Such
prohibition made it legally impossible for Island Savings Bank to furnish
the P63,000.00 balance of the P80,000.00 loan. The power of the
Monetary Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took effect on
June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said resolution
merely prohibited the Bank from making new loans and investments,
and nowhere did it prohibit island Savings Bank from releasing the
balance of loan agreements previously contracted. Besides, the mere
pecuniary inability to fulfill an engagement does not discharge the
obligation of the contract, nor does it constitute any defense to a decree
of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never
an excuse for the non-fulfillment of an obligation but 'instead it is taken
as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of
the pre-deducted interest amounting to P4,800.00 for the supposed
P80,000.00 loan covering a 6-month period cannot be taken as a waiver
of his right to collect the P63,000.00 balance. The act of Island Savings
Bank, in asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P17,000.00 out of
the P80,000.00 loan was released. A person cannot be legally charged
interest for a non-existing debt. Thus, the receipt by Sulpicio M.
'Tolentino of the pre-deducted interest was an exercise of his right to it,

which right exist independently of his right to demand the completion of

the P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of
the loan collateral cannot exempt it from complying with its reciprocal
obligation to furnish the entire P80,000.00 loan. 'This Court previously
ruled that bank officials and employees are expected to exercise caution
and prudence in the discharge of their functions (Rural Bank of
Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the
bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and
evaluation of the properties being offered as a loan security. The recent
rush of events where collaterals for bank loans turn out to be nonexistent or grossly over-valued underscore the importance of this
responsibility. The mere reliance by bank officials and employees on
their customer's representation regarding the loan collateral being
offered as loan security is a patent non-performance of this
responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to
be over-valued. The representation made by the customer is immaterial
to the bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had
enjoined petitioners from presenting proof on the alleged over-valuation
because of their failure to raise the same in their pleadings (pp. 198199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the
Rules of Court, Section 2, Rule 9, which states that "defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue before
the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since Island
Savings Bank is now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific performance in favor
of Sulpicio M, Tolentino.

54

Rescission is the only alternative remedy left. WE rule, however, that

rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is concerned,
as there is no doubt that the bank failed to give the P63,000.00. As far
as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was
deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's
reciprocal obligation to pay the P17,000.00 loan when it falls due. His
failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Article
1191 of the Civil Code). If there is a right to rescind the promissory note,
it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment
of P17,000.00 within 3 years, he would be entitled to ask for rescission
of the entire loan because he cannot possibly be in default as there was
no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for damages, in the
form of penalties and surcharges, for not paying his overdue P17,000.00
debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both parties.
Since Sulpicio M. Tolentino derived some benefit for his use of the
P17,000.00, it is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt.

The consideration of the accessory contract of real estate mortgage is

the same as that of the principal contract (Banco de Oro vs. Bayuga, 93
SCRA 443 [1979]). For the debtor, the consideration of his obligation to
pay is the existence of a debt. Thus, in the accessory contract of real
estate mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable debt
(Art. 2086, in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no debt
yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It
is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA
122 [1983]). lt may either be a prior or subsequent matter. But when the
consideration is subsequent to the mortgage, the mortgage can take
effect only when the debt secured by it is created as a binding contract
to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed.,
Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59,
1974 ed. CJS, p. 138). Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due
(Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th
ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the
P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is
unenforceable to the extent of 78.75 hectares. The mortgage covering
the remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to secure a
P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article
2089 of the Civil Code is inapplicable to the facts of this case.

55

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt
may be divided among the successors in interest of the
debtor or creditor.

NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.
Aquino (Chairman) and Abad Santos, JJ., took no part.

Therefore, the debtor's heirs who has paid a part of the

debt can not ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who have received his
share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not
been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089
above-quoted presupposes several heirs of the debtor or creditor which
does not obtain in this case. Hence, the rule of indivisibility of a
mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF
HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00
REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD
FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE
TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE
MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO
SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY
DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN
FAVOR OF SULPICIO M. TOLENTINO.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 75096 October 23, 1990
SATURNINO SONGCUAN, petitioner,
vs.
Hon. INTERMEDIATE APPELLATE COURT, MARIANO ALVIAR BELEN
ALVIAR and LUZ ALVIAR PINLACrespondents.

56

G.R. No. 80851 October 23, 1990

SATURNINO SONGCUAN, petitioner,
vs.
HON. GENARO C. GINES, in his capacity as Judge of the Regional
Trial Court, Branch 26, San Fernando, La Union, ATTY. ALFREDO
A. TALAVERA, in his capacity as Clerk of Court, Regional Trial
Court of San Fernando, La Union, MARIANO ALVIAR, BELEN
ALVIAR and LUZ ALVIAR PINLAC respondents.
Arcadio G. De la Cruz for petitioner.
Alfredo F. Tadiar for private respondents.

MEDIALDEA, J.:
Victoriano Alviar was the owner of two parcels of land located at San
Fernando, La Union. On the land stands a building owned by his son,
Mariano, and his wife, Belen. On September 29, 1966, the Alviars sold
these realties to Saturnino Songcuan for P34,026.09. On October 10,
1966 Songcuan executed an instrument entitled "Deed of Repurchase of
Two Parcels of Land and a Residential-Commercial Building" (pp. 5-6,
Records [Exhibit]) wherein he gave the Alviars, or any one of them or
"their respective heirs and assigns, the right and privilege to repurchase
[the realties they had previously sold to him] ... at the price of
P34,026.09 ... for, during and within the period of 10 years counted from
the date of execution of [the] instrument" provided that the
redemptioner also pays the cost of improvements.
Appearing at the dorsal portion of the instrument below the notarial
subscription is an undated additional condition which reads, to wit:
P.S. (Additional condition)
In the event the said Victoriano Alviar, Mariano S. Alviar
and Belen F. Alviar or either of them, exercise or exercises

the right to repurchase the above described properties

and they or either of them become the owner and
possessor of the premises, they shall or either of them be
obliged to give me (Saturnino A. Songcuan) the right of
lease and are or is obliged to execute a lease contract
with me for a period of twenty five (25) years from the
time of exercising the right to repurchase the premises, at
a monthly rental of three hundred ninety pesos (P390.00),
for the premises actually occupied by me (Saturnino
Songcuan) at the time of the execution of this instrument.
(p. 6, Records [Exhibit])
The signatures of the Alviars appear at the bottom of the paragraph. At
the time of the execution of the instrument, Songcuan, though then
already the owner of the realties, was admittedly actually occupying
only one-third portion of the ground floor of the 3 storey building,
apparently having leased the remaining portion to third persons.
Sometime in March, 1969 the mentioned building was razed by fire and
Songcuan erected another at his own expense. Subsequently, Songcuan
had the realties registered in his name and was issued OCT No. 0-1029
sometime in 1969.
In 1974, the Alviars filed a complaint against Songcuan, docketed as
Civil Case No. 2621, for "Redemption with Consignation" to compel the
defendant to effect the redemption to them of the subject realties.
Victoriano Alviar having died at this time, he was represented by his
heirs. Songcuan refused to sell back to the Alviars the properties
because the latter was tendering only the price of P34,026.00 whereas
Songcuan wanted reimbursement for the cost of the building he erected
and also for the cost of the registration of the realties. The Alviars, on
the other hand, claimed that the transactions between them and
Songcuan were one of equitable mortgage and, therefore, Songcuan
cannot compel them to pay for the cost of the building he had erected
without their permission.
In his Answer, Songcuan prays, in the alternative, that in the event the
Alviars be allowed to repurchase the realties the latter be also compelled
to lease the properties to him pursuant to the "P.S. (Additional

57

Condition)" embodied in the instrument dated October 10, 1966 as

above quoted.

(d) No damages, including attorney's fees and litigation

expenses is awarded to both parties.

On July 29, 1977, the then Court of First Instance of La Union rendered
its decision decreeing the following:

Without pronouncement as to costs. (P. 57, Record

[Exhibits]

IN VIEW OF THE FOREGOING, judgment is hereby

rendered
(a) Declaring that the true and real agreement or contract
of the parties Exhs. C, D, E & F for plaintiffs; (Exhs. 1, 2, 3
and 4 for the defendant) on the two parcels of land with
the commercial building is that of a deed of sale with right
to repurchase and hereby enjoins the parties to comply
and abide by the terms of their contract;
(b) Declaring that plaintiffs' right to repurchase the
property as admitted by the defendant for a period of 10
years from October 10, 1966 to October 10, 1976, as
stipulated in their contracts, have been suspended by the
filing of the complaint on November 22, 1974. Said
redemption period is suspended during the pendency of
this case. Plaintiffs-vendor-a-retro may exercise their right
to repurchase the properties within the remaining period
of one (1) year, 10 months and 18 days from the finality of
this decision (Ong Chua v. CARR, 53 Phil. 975) or within
the period of 30 days from finality of this decision as
provided for under Art. 1606 of the New Civil Code;
(c) The plaintiffs in exercising their right to repurchase the
properties should pay the defendant the necessary and
useful improvement in putting up the building in the
amount of P30,000.00, in addition to the repurchase price
of P34,026.09, and the additional expenses of P1,000.00
for the registration of the land under Act 496; otherwise,
the defendant may retain possession of the parcels of land
and building until reimbursement is fully made;

From this decision Songcuan appealed alleging among others that "[the
[lower court] erred in refusing to make a finding as to the appellants'
right to lease the property for 25 years ... "
On July 15, 1980 the Court of Appeals, in CA-G.R. No. 62934, affirmed in
toto the appealed decision. With respect to Songcuan's alleged right to
lease, the appellate court stated that the lower court had already upheld
the validity of the deeds executed by the parties and, therefore, "such
pronouncement regarding appellant's right to lease the premises for 25
years is unnecessary. The condition is already there in the contract itself
which is the law between the parties."
This decision became final and executory on March 9, 1981, the petition
for its review having been denied in our resolution, in G.R. No. 55196
dated January 26, 1981.
The writ of execution was issued on April 1, 1981 but was returned
unsatisfied because Songcuan refused to accept the manager's check
tendered to him claiming that it was not legal tender and for the further
reason that the Alviars refused to execute a lease contract in his favor
as embodied in their October 10, 1966 contract. Analias writ of
execution was issued on June 1, 1981 but also was not satisfied.
On July 7, 1981, Songcuan filed a complaint with the same Court of First
Instance of La Union for Rescission of Right to Repurchase which was
docketed as Civil Case No. 3213 and which gave rise to this petition.
Songcuan was of the opinion that the Alviars' forfeited their right to
repurchase the realties for having failed to redeem them within 30 days
from the finality of the decision in Civil Case No. 2621 contrary to the
mandate of Article 1606 of the Civil Code.

58

On July 9, 1981, the trial court in Civil Case No. 2621 issued an order for
its Clerk of Court to issue a Deed of Reconveyance in behalf of Songcuan
and in favor of the Alviars.

2. That the Deed of Reconveyance executed by the Clerk

of Court and Ex-Officio Provincial Sheriff dated July 17,
1981 is valid and cannot be rescinded;

On July 11, 1981, Songcuan amended his complaint alleging that

rescission lies for the further reason that the Alviars failed to execute in
his favor a lease contract citing Article 1191 of the Civil Code, and that if
the Deed of Reconveyance had already been executed by the Clerk of
Court it be declared null since the Alviars had already forfeited their
right to redeem the realties. Songcuan's amended complaint further
added an alternative prayer that in the event the court decides to
compel him to reconvey the properties, the Alviars be also compelled to
lease the realties to him for 25 years according to the terms of their
contract.

3. That plaintiff is the lessee of the defendant on the

entire properties mentioned in the Deed of Reconveyance
for a period of twenty-five (25) years to be counted from
July 17, 1981 at the monthly rental of THREE HUNDRED
NINETY (P390.00) PESOS;

On July 17, 1981, the Clerk of Court of the Court of First Instance of La
Union issued a Deed of Reconveyance transferring ownership of the
properties to the Alviars. Possession of the properties, however, was
retained by Songcuan as the trial court granted his prayer for a writ of
preliminary injunction in Civil Case No. 3213 to enjoin the Alviars from
taking possession of the realties.
In their Answer, the Alviars alleged that their tender to Songcuan of a
manager's check was a valid tender of payment and that Songcuan is no
longer entitled to lease the premises because the subject matter of the
contract was burned in 1969 citing Article 1655 of the Civil Code.
On March 19, 1984, the trial court rendered its decision, the dispositive
portion of which reads, to wit:
WHEREFORE judgment is hereby rendered as follows:
1. That defendants exercised (sic) their right of
redemption within the specific period of one (1) year, ten
(10) months and eighteen (18) days from March 9, 1981
as provided for in the decision of Civil Case No. 2621;

4. That the preliminary injunction restraining defendants

or any of their representatives or agents or persons acting
on their behalf from committing acts of dispossession
against plaintiff on the premises of this complaint is now
made PERMANENT during the existence of the lease
contract, ...;
5. That defendants shall maintain the plaintiff in the
peaceful and adequate enjoyment of the lease for the
entire duration of the lease;
6. That defendants shall pay plaintiff the amount of
P50,000.00 by way of attorney's fees as damages with
interest at the legal rate of 12% per year until fully paid;
and
7. That defendants pay costs of this suit.
SO ORDERED. (pp. 363-386, Records)
Both parties appealed, Songcuan pressing for rescission while the Alviars
disclaiming any obligation to lease the premises to Songcuan. The
Alviars, in the alternative countered, that if Songcuan was entitled to
lease the premises, the lease should cover only 1/3 of the building.
On June 27, 1986 the Court of Appeals in AC G.R. CV No. 04325 rendered
its decision (pp. 58-69, Rollo) modifying that of the trial court's by
limiting the area Songcuan is entitled to lease to only 1/3 of the building;

59

declaring the Alviars entitled to a writ of possession with regard the rest
of the premises; deleting the award of attorney's fees and ordering the
parties to each bear the cost of litigation.
From this decision Songcuan appealed by certiorari to this Court (G.R.
No. 75096). The principal issue here is the same as that presented in the
lower court and the Court of Appeals, which is, whether or not the
Alviars had forfeited their right to repurchase, or whether the right may
be rescinded under the grounds advanced by Songcuan. After
deliberating on the arguments raised, this Court rules in the negative.
We do not find merit in Songcuan's argument that the Alviars had
forfeited their right to repurchase the subject premises for having failed
to exercise it within thirty days from the finality of the decision in Civil
Case No. 2621 citing the third paragraph of Article 1606 of the Civil Code
which provides that a vendor-a-retro may still exercise his right to
repurchase "within thirty days from the time the final judgment was
rendered in a civil action on the basis that the contract was a true sale
with right to repurchase." The judgment in Civil Case No. 2621 which
had become final on March 9, 1981, had ordained that the running of the
period within which the Alviars could repurchase the premises had been
suspended during the pendency of the case and they were given the
option either to repurchase the premises within 30-days from the finality
of the judgment, as provided by the law, or within the remaining period
of one year, ten months and 18 days therefrom. It is axiomatic that a
final judgment may no longer be amended and to limit now to 30 days
the period within which the Alviars may repurchase the premises would
be an open violation of the rule. A final judgment is the law between the
parties to a case and controls their relation with respect to the
controversy there presented. We thus fully agree with the
pronouncement of the appellate court on this matter that:
There is no merit in Songcuan's claim that the Alviars'
failure to abide by Article 1606 of the New Civil Code
foreclosed their right to repurchase. Indeed, Art. 1606
provides that the vendors-a-retro may repurchase within
30 days from the finality of the judgment ... However, it is
noted that the final decision in Case 2621, which became
final on March 9, 1981, gave the Alviars two alternative

periods within which to exercise the right to repurchase

either within 30 days as prescribed in Article 1606, or
within 1 year, 10 months and 18 days from March 9, 1981,
... Accordingly, whichever of the alternative periods the
Alviars may avail of, would still constitute a valid exercise
of their right. (pp. 64-65, Rollo)
Neither do We agree that the right of the Alviars to repurchase may be
rescinded under Article 1191 of the Civil Code. Songcuan asserts that
the October 10, 1966 contract he entered into with the Alviars created a
reciprocal obligation between them for him to reconvey the subject
premises and for the Alviars to lease the realties to him and the refusal
of the latter to fulfill their obligation giving him the right, under Article
1191, to rescind "the right of [the Alviars] to repurchase" the realties.
The law provides in part:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
xxx xxx xxx
The cited law is not applicable in this case. Although the parties are each
obligor and obligee of the other, their corresponding obligation can
hardly be called reciprocal. In reciprocal obligations the obligation of one
is a resolutory condition of the obligation of the other, the non-fulfillment
of which entitles the other party to rescind the contract. In the case at
bar, there are two separate and distinct obligations, each independent of
the other. The obligation of Songcuan to reconvey the property is not
dependent on the obligation of the Alviars to lease the premises to the
former. The obligation of the Alviars is not an essential part of the
contract. This is evident in the wordings of the "P.S. (Additional
Condition)" itself which states that "in the event [the Alviars] exercised
the right to repurchase ... and becomes the owner and possessor of the
premises, they shall ... be obliged to give [Songcuan] the right of lease
and are ... obliged to execute a lease contract .... " In other words, the
obligation of the Alviars to lease to Songcuan the subject premises
arises only after the latter had reconveyed the realties to them. We

60

quote with approval the following statements of the respondent

appellate court:
For the stipulation imposes on them the obligation to
execute the lease only at such time when the Alviars or
any one among them exercises the right and becomes the
possessor of the properties in question ... Otherwise
stated, the obligation to execute the lease emerges only if
the Alviars had already repurchased and obtained
possession of the repurchased properties. (p. 66, Rollo)

Under the parties' agreement, Songcuan's lease was to start from the
time the Alviars exercised their right to repurchase. Songcuan should
therefore be deemed to have become the Alviar's lessee on July 17,
1981 and should pay rent in the amount agreed upon from said date.
As regards the deletion by the respondent court of the award to
Songcuan of attorney's fees, We fully agree and quote its
pronouncement that:
We find no justification for the exorbitant award in
Songcuan's favor of attorney's fees of P50,000.00
considered as damages. Attorney's fees in concept of
damages may be awarded only if the defendant acted in
gross and evident bad faith in refusing plaintiffs just and
demandable claim. (Art. 2208, New Civil Code). In the
case at bar, there is no showing that the Alviars acted in
bad faith in refusing Songcuan's claim to a 25-year lease
of the entire premises. The stipulation to that effect
merely refers to the premises Songcuan was occupying at
the execution of the deed on October 10, 1966, which
admittedly, was only 1/3 of the ground floor of the Alviar
building, not the entire building. .... " (p. 68, Rollo)

Should the Alviars fail to lease the subject premises to Songcuan after
reconveyance, then the latter's remedy is not for rescission but for
specific performance, which in fact he asked for in the alternative and
was granted by the trial court and the Court of Appeals.
Thus, the right of the Alviars to repurchase must be upheld
notwithstanding the fact that such right had not been annotated at the
back of Songcuan's certificate of title. The purpose of annotation is only
to serve notice to third persons and not to lend validity or nullity to an
instrument.
The next question to be resolved is how much area Songcuan is entitled
to lease. The trial court, awarded Songcuan the whole premises, based
on the "P.S. (Additional Condition)" which speaks of "the premises
actually occupied by [Songcuan]" and there was no evidence presented
by the Alviars on the area Songcuan was actually occupying. Further, the
trial court said that the right of Songcuan to lease the whole premises is
strengthened by the fact that he became the registered owner of the
realties and hence, has complete dominion over the properties.
We rule, however, that the P.S. clause refers to the area Songcuan was
actually occupying and not to what he constructively may possess as
the owner of the premises at the time of the execution of the October
10, 1966 contract. Further, as pointed out by private respondents, there
was no need to present any evidence as to the area Songcuan was
actually occupying since at the pre-trial conference in the trial court,
Songcuan had admitted that he was occupying only one-third of the
single story Alviar building.

With respect to G.R. No. 80851, which is a petition to enjoin the

implementation of the writ of possession in favor of the Alviars, there is
no need to discuss the issues therein, as the same has become moot
and academic, this Court having pronounced that Songcuan is entitled
to lease only one-third of the ground floor of the subject building, with
the Alviars being entitled to a writ of possession as to the rest.
ACCORDINGLY, the decision under review in G.R. No. 75096 is hereby
AFFIRMED, and the petition in G.R. No. 80851 is DISMISSED for having
become moot and academic.
SO ORDERED.
Narvasa (Chairman,), Cruz, Gancayco and Grio-Aquino, JJ., concur.

61

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-39378 August 28, 1984
GENEROSA AYSON-SIMON, plaintiff-appellee,
vs.
NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.
Wenceslao V. Jarin for plaintiff-appellee.
Arnovit, Lacre & Adamos for defendants-appellants.

MELENCIO-HERRERA, J.:

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Originally, this was an appeal by defendants from the Decision of the

then Court of First Instance of Manila, Branch XX, in Civil Case No.
73942, to the Court of Appeals (now Intermediate Appellate Court),
which Tribunal, certified the case to us because the issue is a pure
question of law.
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendantsappellants herein, purchased two lots forming part of the Piedad Estate
in Quezon City, with an area of approximately 56,395 square meters,
from Juan Porciuncula. Sometime thereafter, the successors-in-interest
of the latter filed Civil Case No. 174 in the then Court of First Instance of
Quezon City for annulment of the sale and the cancellation of Transfer
Certificate of Title No. 69475, which had been issued to defendantsappellants by virtue of the disputed sale. On December 18, 1963, the
Court rendered a Decision annulling the sale, cancelling TCT 69475, and
authorizing the issuance of a new title in favor of Porciuncula's
successors-in-interest. The said judgment was affirmed by the Appellate
Court and had attained finality.
In the meantime, on May 29, 1946, during the pendency of the abovementioned case, defendants-appellants sold to GENEROSA Ayson Simon,
plaintiff-appellee herein, the two lots in question for P3,800.00 each,
plus an additional P800.00 paid subsequently for the purpose of
facilitating the issuance of new titles in GENEROSA's name. Due to the
failure of defendants-appellants to comply with their commitment to
have the subdivision plan of the lots approved and to deliver the titles
and possession to GENEROSA, the latter filed suit for specific
performance before the Court of First Instance of Quezon City on
September 4, 1963 (Civil Case No. Q-7275). On January 20, 1964, said
Court ordered:
WHEREFORE, the plaintiff is declared entitled to a
summary judgment and the defendants are hereby
ordered to have the subdivision of Lot No. 6, Block No. 2,
and Lot No. 11, Block No. 3, relocated and resurveyed and
the subdivision plan approved and, if not possible for one
reason or another, and in case of the absence or loss of
said subdivision, to cause and effect the subdivision of the
said lots and deliver the titles and possession thereof to

the plaintiff. As to the claim and counterclaim for

damages, let the hearing thereon be deferred until further
move by the parties. 1
However, since execution of the foregoing Order was rendered
impossible because of the judgment in Civil Case No. 174, which earlier
declared the sale of the lots in question by Juan Porciuncula to
defendants-appellants to be null and void, GENEROSA filed, on August
16, 1968, another suit in the Court of First Instance of Manila (Civil Case
No. 73942) for rescission of the sale with damages. On June 7, 1969, the
Court rendered judgment, the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiff
and against defendants, ordering the latter jointly and
severally, to pay the former the sum of P7,600.00, the
total amount received by them from her as purchase price
of the two lots, with legal rate of interest from May 29,
1946 until fully paid; another sum of P800.00, with legal
rate 6f interest from August 1, 1966 until fully paid; the
sum of P1,000 for attorney's fees; and the costs of this
suit. 2
Hence, the appeal before the Appellate Court on the ground that
GENEROSA's action had prescribed, considering that she had only four
years from May 29, 1946, the date of sale, within which to rescind said
transaction, and that her complaint for specific performance may be
deemed as a waiver of her right to rescission since the fulfillment and
rescission of an obligation are alternative and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge, later
Court of Appeals Associate Justice Luis B. Reyes, correctly resolved the
issues, reiterated in the assignments of error on appeal, as follows:
Defendants contend (1) that the fulfillment and the
rescission of the obligation in reciprocal ones are
alternative remedies, and plaintiff having chosen
fulfillment in Civil Case No. Q- 7525, she cannot now seek
rescission; and (2) that even if plaintiff could seek

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rescission the action to rescind the obligation has

prescribed.

Quezon City (Exhibit "E-2"), the decision in Civil Case No.

174 became final and executory "as per entry of Judgment
dated May 3, 1967 of the Court of Appeals." The action for
rescission must be commenced within four years from
that date, May 3, 1967. Since the complaint for rescission
was filed on August 16, 1968, the four year period within
which the action must be commenced had not expired.

The first contention is without merit. The rule that the

injured party can only choose between fulfillment and
rescission of the obligation, and cannot have both, applies
when the obligation is possible of fulfillment. If, as in this
case, the fulfillment has become impossible, Article
1191 3 allows the injured party to seek rescission even
after he has chosen fulfillment.

Defendants have the obligation to return to plaintiff the

amount of P7,600.00 representing the purchase price of
the two lots, and the amount of P800.00 which they
received from plaintiff to expedite the issuance of titles
but which they could not secure by reason of the decision
in Civil Case No. 174. Defendant has to pay interest at the
legal rate on the amount of P7,600.00 from May 29, 1946,
when they received the amount upon the execution of the
deeds of sale, and legal interest on the P800.00 from
August 1, 1966, when they received the same from
plaintiff. 4

True it is that in Civil Case No. 7275 the Court already

rendered a Decision in favor of plaintiff, but since
defendants cannot fulfill their obligation to deliver the
titles to and possession of the lots to plaintiff, the portion
of the decision requiring them to fulfill their obligations is
without force and effect. Only that portion relative to the
payment of damages remains in the dispositive part of the
decision, since in either case (fulfillment or rescission)
defendants may be required to pay damages.
The next question to determine is whether the action to
rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the injured
party may also seek rescission, if the fulfillment should
become impossible. The cause of action to claim
rescission arises when the fulfillment of the obligation
became impossible when the Court of First Instance of
Quezon City in Civil Case No. 174 declared the sale of the
land to defendants by Juan Porciuncula a complete nullity
and ordered the cancellation of Transfer Certificate of Title
No. 69475 issued to them. Since the two lots sold to
plaintiff by defendants form part of the land involved in
Civil Case No. 174, it became impossible for defendants to
secure and deliver the titles to and the possession of the
lots to plaintiff. But plaintiff had to wait for the finality of
the decision in Civil Case No. 174, According to the
certification of the clerk of the Court of First Instance of

WHEREFORE, the appealed judgment of the former Court of First

Instance of Manila, Branch XX, in Civil Case No. 73942, dated June 7,
1969, is hereby affirmed in toto. Costs against defendants-appellants.
SO ORDERED.
Teehankee, Actg. C.J., Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ.,
concur.

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Petitioners Ernesto Ang and Rosalinda Ang, brother and sister, are the
owners of three (3) parcels of land located at A. Bonifacio St.,
Balintawak, Quezon City with an aggregate area of 2,096 square meters
covered by Transfer Certificates of Title Nos. 258870, 258871 and
258872 which they acquired by purchase from the Cruz family on July 3,
1979 at a price of P680,000.00. 3

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 80058 February 13, 1989
ERNESTO R. ANG and ROSALINDA ANG, petitioners,
vs.
THE COURT OF APPEALS and LEE CHUY REALTY
CORP., respondents.
Quisumbing, Torres & Evangelista for petitioners.
Victor J. Lee for respondents.

GANCAYCO, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals dated June 22, 1987 1 reversing the decision of the Regional
Trial Court dated June 23, 1983 which dismissed the complaint of private
respondent and awarded damages to petitioner. 2 The focus is on the
issue of when a breach of contract may warrant its resolution.
The antecedents of this case are as follows:

Sometime in November 1979, negotiations were undertaken for the sale

of the aforementioned properties between the petitioners as sellers and
private respondent Lee Chuy Realty Corporation, through its president
Henry Lee Chuy as buyer.
On December 4, 1979, private respondent issued in favor of petitioners
Manila Banking Corporation Check No. 30022695 in the amount of
P50,000.00 4 which it transmitted to petitioners together with a receipt
supposedly embodying the terms and conditions of their agreement as
follows:
RECEIVED from LEE CHUY REALTY CORPORATION the sum
of FIFTY THOUSAND PESOS (P50,000.00) ONLY, Philippine
Currency, per MBTC (sic) Check No. 30022695, as down
payment for the sale to it of three (3) parcels of land
located at A. Bonifacio, Balintawak, Quezon City, covered
by TCT Nos. 258870, 258871, and 258872 of the Registry
of Deeds for Metro Manila District II, at the agreed total
price of One Million Six Hundred Thousand Pesos
(P1,600,000.00), under the following agreement:
1. The sellers hereby undertake to remove and clear the
subject property of all occupants and obstruction within
this month of December 1979 at their own expenses (sic);
2. Upon the subject property being cleared of occupants
and obstruction and ready for turn over to the buyer, the
sellers shall forthwith execute and deliver a deed of
absolute sale in favor of the buyer together with a tax
clearance as to payment of capital gain (sic) tax and such
other papers as are necessary for the buyer to register the
sale and (the) issuance of the corresponding transfer

65

certificate of title in its name, free from any lien and

encumbrance; and simultaneously therewith, the buyer
shall pay the sellers the additional sum of Seven Hundred
Fifty Thousand Pesos (P750,000.00) to complete payment
of fifty per centum (50%) of the price in the amount of
Eight hundred Thousand Pesos (P800,000.00) shall be
payable by the buyer to the sellers within a period of
forty-five (45) days thereafter;

pertinent papers necessary for the transfer of the

certificate of title in its name, free from any lien and
encumbrance and simultaneously therewith, the buyer
shall pay the seller 50% of the agreed price minus the
deposit of FIFTY THOUSAND PESOS (P 50,000.00) in
Philippine Currency and the balance of 50% of the agreed
price shall be paid within a period of forty five (45) days
with a post dated check;

3. The sale carries the usual seller's warranty of peaceful

possession and valid title by the buyer.

3. The sale carries the usual seller's warranty of peaceful

possession and valid title by the buyer;

4. All expenses for the execution and registration of the

sale, including lawyer's fees, notarial fees, documentary
stamp tax, transfer tax, registration fees, and agent's
commission are for the accounts (sic) of the sellers. 5

4. The agent's commission will be for the account of the

sellers;

The check for P50,000.00 was received and thereafter encashed by

petitioners. However, the accompanying receipt was not returned by
petitioners and instead another receipt prepared and signed by
petitioners was forwarded to private respondent. This receipt thus reads:
RECEIVED from LEE CHUY REALTY CORPORATION the sum
of FIFTY THOUSAND PESOS (P50,000.00), Philippine
Currency, per MBTC (Sic) Check No. 30022695 as deposit
to sale of three (3) parcels of land located at A. Bonifacio,
Balintawak, Quezon City, covered by TCT Nos. 258870,
258871, and 258872 of the Registry of Deeds for Metro
Manila District II, in lieu of the agreed price, under the
following agreement:
1. The sellers hereby undertake to remove and clear the
subject property of all occupants and obstruction within
this month of December 1979 at their own expenses (sic);
2. Upon the subject property being cleared of occupants
and obstruction and ready for turn over to the buver, the
sellers shall forthwith execute and deliver a deed of
absolute sale in favor of the buyer together with all

5. All expenses for the execution and registration of the

sale, including lawyer's fees, notarial fees, documentary
stamp tax, transfer tax and registration fees will be
deducted from the agent's commission. 6
On January 12, 1980, petitioner Rosalinda R. Ang sent private
respondent a letter giving the latter up to January 24, 1980 to pay the
balance of the purchase price, and informing it that failure to do so will
result in the cancellation of their agreement. 7
In reply thereto, private respondent wrote petitioners on January 25,
1980 expressing surprise over the demand for payment made by
petitioners since private respondent had been ready since December
1979 to perform its part of the agreement while petitioners had not yet
complied with their undertaking to clear the subject properties of the
obstructions thereon. 8
On March 3, 1980, private respondent, through its counsel, wrote
petitioners demanding the refund of the P 50,000.00 down payment
made by private respondent on account of the failure of the petitioners
to comply with their undertaking and their subsequent withdrawal from
the sale. 9

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Upon the failure of the petitioners to return the P50,000.00 down

payment, private respondent filed a complaint for the collection of a
sum of money with damages before the Court of First Instance (now
Regional Trial Court) of Rizal on May 9, 1980.
The petitioners sought the dismissal of the complaint. They also filed a
counterclaim, praying for actual damages of P20,000.00 a month
counted from November 1979 to continue while their deprivation of
rental income persists, as well as moral and exemplary damages, plus
attorney's fees.
After trial where the parties presented only one (1) witness each, the
trial court rendered its decision dated June 23, 1983 10 in favor of
petitioners and ordered private respondent to pay to petitioners the
amounts of P170,000.00 with interest of 12% per annum to commence
from the date of the filing of the complaint, P 25,000.00 as exemplary
damages and P 20,000.00 as attorney's fees.
Both petitioners and private respondent appealed the decision of the
trial court.
The Court of Appeals held that petitioners were the ones who breached
the agreement. In a decision dated June 22, 1987, 11 the appellate court
reversed the decision of the trial court and ordered petitioners to pay
private respondent the amount of P50,000.00 with legal interest
computed from March 3, 1980 plus P 10,000.00 attorney's fees.
The motion for reconsideration filed by petitioners was denied by the
Court of Appeals in its resolution dated September 18,1987. 12
Hence, this petition for review on certiorari wherein petitioners raise
several errors which all boil down to the issue of which party, the
petitioners or the private respondent, breached the agreement.

Outside of the documentary evidence submitted by the parties, the only

evidence available are the testimonies of the two witnesses presented
during the trial Henry Lee Chuy, president of respondent corporation,
for the plaintiff (herein private respondent) and Ang Kilin alias Tan Tian,
father of the petitioner, for the defense which testimonies are
diametrically opposed to one another.
After a careful examination of the records of the case, this Court rules in
favor of the private respondent.
There is no doubt that there was a perfected contract for the sale of
subject properties between petitioners and private respondent as
evidenced by the down payment of P50,000.00. 13 What needs to be
resolved is the agreed price for the sale of subject properties. In the
receipt prepared by private respondent which was not signed by
petitioners, the stated purchase price is P1,600,000.00. However, the
receipt signed by petitioners, which substantially reproduced the terms
and conditions embodied in the original receipt, did not state the agreed
price.
Henry Lee Chuy testified that the second receipt did not indicate the
agreed price because petitioners wanted to undervalue the price of
P1,600,000.00 so that they will not pay a large amount of capital gains
tax considering that the prior acquisition price for the property was only
P680,000.00. 14 Initially, he refused to agree but upon the assurance of
petitioners' father Ang Kilin that the clearing work in the property will be
completed in a week or two, he agreed to keep the receipt.
On the other hand, Ang Kilin testified that the real price for the sale is
P2,340,000.00 and not P1,600,000.00 as claimed by private respondent
so that they (the petitioners) did not sign the receipt prepared by the
latter. He claimed that it was Mrs. Lee, the mother of Henry Lee Chuy,
who did not want to state the correct price since she wanted to
undervalue the property. He adds that they have received offers for the
properties in the amount of P2,160,000.00 from Dolora Chua, 15 and
Pl,300.00 per square meter from Eusebio Chang of the Ching Chua
Printing Press. 16 He also testified that inasmuch as the offer of private
respondent was made earlier, petitioners were not in a position to
negotiate with the other buyers.

67

The respondent Court of Appeals arrived at the conclusion that the

petitioner committed a breach of their contract and acted in bad faith in
dealing with private respondent.
We agree.
Petitioners did not offer any plausible explanation as to why Mrs. Lee did
not want to state the correct price except that the latter wanted to
undervalue the property. The reason why Mrs. Lee wanted to undervalue
the property was not clear. On the other hand, Henry Lee Chuy
categorically stated that petitioners did not want to state the correct
price for purposes of reducing their capital gains tax liability.
The Court finds that the latter explanation appears to be the more
logical reason why petitioners did not state any specified amount for the
agreed price in the receipt they signed. Since petitioners acquired the
property for only P680,000.00 and the purchase price of the same was
set at P1,600,000.00, they would have been liable to pay quite a large
amount of capital gains tax for the profits to be realized from the sale,
and even more had the price been set at P2,340,000.00.
Moreover, the original receipt prepared by private respondent recites in
detail the manner of payment of the balance of the purchase price, to
wit: P750,000.00 to be paid after the property is cleared of occupants
and obstructions and upon delivery of the deed of absolute sale; and the
balance of P800,000.00 to be paid within 45 days thereafter. On the
other hand, the receipt prepared and signed by petitioners merely
indicates that 50% of the price minus the deposit shall be paid upon
delivery of the deed of absolute sale and the other 50% would be paid
within 45 days thereafter without stating the price. If the price was really
P2,340,000.00 as claimed by petitioners, they could have easily written
the amount in the receipt. With or without a lawyer to assist them,
petitioners must have been aware of the importance of indicating the
correct amount in the receipt since they claim that they did not sign the
receipt prepared by private respondent because the price indicated
thereon was wrong. Petitioners were the ones who clearly caused the
obscurity when they omitted the purchase price in the receipt they
prepared and signed. Hence, such obscurity must be construed against
them. 17

The claim of the petitioners, which the trial court believed, is that they
could no longer accept the offers they have received from Dolora Chua
and the Ching Hua Printing Press because of their previous commitment
with private respondent. This pretension is not supported by the
evidence. The records show that petitioners had entered into an
"Agreement of Purchase or Sale" with Dolora Chua on December 3,
1979, 18 or one day before the date of the receipt they signed for the
P50,000.00 down payment made by private respondent.
Petitioners also argue that the appellate court e"ed when it considered
the said document as an agreement and not a mere offer. We have
carefully examined the said document and We find no cogent basis to
view the same as a mere offer. It is clearly stated in the agreement that
petitioners received P20,000.00 from Dolora Chua as down payment for
the subject properties with the balance of the purchase price of
P2,160,000.00 to be paid in full at the time the land shall have been
cleared and that petitioners bind themselves to deliver to the buyer a
deed of sale and conveyance upon full payment. The terms of the
agreement are so. clear as not to leave room for any other
interpretation. 19
The aforementioned agreement further bolsters the conclusion that the
price agreed upon by petitioners and private respondent was
P1,600,000.00. If the true price was P2,340,000.00, it would be unusual
for petitioners to enter into such an agreement with Chua at a lesser
purchase price. The only logical conclusion is that petitioners had
intentionally omitted the price of P1,600,000.00 in the receipt they
signed either to compel private respondent to agree to a price increase
or to enable them to back out of their agreement notwithstanding their
plan to reduce their capital gains tax liability.
Having settled the issue as to the agreed purchase price, We are now
faced with the question of who breached the agreement and, as a
corollary to this, who has the right to withdraw from the sale.
The Court of Appeals found that the petitioners breached the agreement
when they failed to undertake fulfillment of the two conditions embodied
in the same; (1) that petitioners will undertake to remove and clear the
subject property of all occupants and obstructions within the month of

68

December 1979 and (2) that when the subject property is cleared of all
occupants and obstructions, the petitioners shall deliver a deed of
absolute sale in favor of private respondent with all pertinent papers
necessary for the registration and issuance of a certificate of title in the
name of private respondent.
Said conclusion of the Court of Appeals that petitioners failed to comply
with their part of the agreement is conclusive upon this Court. 20 The
appellate court discussed in detail its findings on the matter. We have
gone through the records of this case and find no cogent reason to
disturb such findings.
However, such breach of the agreement by petitioner does not warrant a
resolution of the contract. 21 While it is true that in reciprocal obligations,
such as the contract of purchase and sale in this case, the power to
rescind is implied and any of the contracting parties may, upon nonfulfillment by the other party of his part of the obligation, resolve the
contract,22 rescission wig not be permitted for a slight or casual breach
of the contract. Rescission may be had only for such breaches that are
so substantial and fundamental as to defeat the object of the parties in
making the agreement. 23 The two aforementioned conditions that were
breached by petitioners are not essential for the fulfillment of the
obligations to sen on their part but merely an incidental undertaking.
The rescission of the contract may not be allowed on this ground alone.
At any rate, private respondent at first did not seek to rescind the
contract on the basis of the non-fulfillment of these conditions. Private
respondent in fact sought definite advice from petitioners as to when
they can comply with the conditions since it was ready to perform its
part of the agreement since December 1979. This was after it received
the letter of petitioners demanding payment of the balance of the
purchase price on or before January 24, 1980 with the threat that failure
to do so will lead to the repudiation of the agreement. Of course,
petitioners cannot unilaterally repudiate the contract for the slight delay
in payment incurred by private respondent which, even if true, cannot
also be a ground for rescission since the same amounts to a slight
breach. 24 Indeed, it was the failure of the petitioners to comply with the
aforementioned conditions of the agreement that caused the delay in
the payment by private respondent. However, when petitioners still

failed to comply with their obligation and refused to proceed with the
sale unless the purchase price is increased, that was the time private
respondent demanded the resolution of the sale by asking for the refund
of the downpayment.
The Court holds that when petitioners refused to proceed with the sale
unless private respondent agreed to pay the higher price of
P2,340,000.00, the petitioners thereby committed a serious breach of
the agreement. There was a perfected contract of sale between the
parties and the purchase price was set at P1,600,000.00. Petitioners
cannot increase the purchase price agreed upon without the consent of
private respondent. As private respondent was willing to buy the subject
property at the price of P1,600,000.00 as agreed upon and petitioners
were not willing to sell unless the price is increased to
P2,340,000.00, 25 private respondent had the right to rescind the
agreement as petitioners committed a serious breach of the terms of the
same.
Moreover, as the Court of Appeals correctly observed, since petitioners
had already sold the subject properties to Dolora Chua, they can no
longer perform what was incumbent upon them under the terms of the
agreement, that is, to deliver the subject property to private respondent.
This is another breach of their agreement. The appellate court aptly
characterized the actuations of petitioners to be "double-dealing."
As a consequence of the resolution of the contract of sale, the parties
should be restored to their original situation. 26 Petitioners should,
therefore, be liable to refund the P50,000.00 down payment they have
received from private respondent with legal interest computed from the
date of the extrajudicial demand made on March 3, 1980. 27
WHEREFORE, the decision of the Court of Appeals dated June 22, 1987 in
Case No. CA-GR CV No. 07139 is hereby AFFIRMED. No pronouncement
as to costs.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

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